CFR 2023 Title13 Vol1

Title 13
Business Credit and Assistance
Revised as of January 1, 2023
Containing a codification of documents

of general applicability and future effect
As of January 1, 2023
Published by the Office of the Federal Register

National Archives and Records Administration
as a Special Edition of the Federal Register
skersey on DSK4WB1RN3PROD with CFR
VerDate Sep<11>2014 11:48 Jul 12, 2023 Jkt 259045 PO 00000 Frm 00001 Fmt 8091 Sfmt 8091 Y:\SGML\259045.XXX 259045
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Table of Contents
Page
Explanation ................................................................................................ v
Title 13:
Chapter I—Small Business Administration ..................................... 3
Chapter III—Economic Development Administration, Department

of Commerce ................................................................................ 775
Chapter IV—Emergency Steel Guarantee Loan Board .................... 841
Chapter V—Emergency Oil and Gas Guaranteed Loan Board ......... 865
Finding Aids:
Table of CFR Titles and Chapters ....................................................... 891
Alphabetical List of Agencies Appearing in the CFR ......................... 911
List of CFR Sections Affected ............................................................. 921

iii
Cite this Code: CFR
To cite the regulations in

this volume use title,
part and section num-
ber. Thus, 13 CFR
101.100 refers to title 13,
part 101, section 100.
iv
Explanation
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divided into parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year and issued
on a quarterly basis approximately as follows:
Title 1 through Title 16..............................................................as of January 1
Title 17 through Title 27 .................................................................as of April 1
Title 28 through Title 41 ..................................................................as of July 1
Title 42 through Title 50 .............................................................as of October 1
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vi
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Director,
Office of the Federal Register
January 1, 2023.
vii
THIS TITLE
Title 13—BUSINESS CREDIT AND ASSISTANCE is composed of one volume. This

volume contains chapter I—Small Business Administration, chapter III—Eco-
nomic Development Administration, Department of Commerce, chapter IV—
Emergency Steel Guarantee Loan Board, and chapter V—Emergency Oil and Gas
Guaranteed Loan Board. The contents of this volume represent all current regu-
lations codified under this title of the CFR as of January 1, 2023.
For this volume, Susannah C. Hurley was Chief Editor. The Code of Federal
Regulations publication program is under the direction of John Hyrum Martinez,
assisted by Stephen J. Frattini.
ix
Title 13—Business Credit
and Assistance
Part
CHAPTER I—Small Business Administration .......................... 101

CHAPTER III—Economic Development Administration, De-
partment of Commerce ...................................................... 300
CHAPTER IV—Emergency Steel Guarantee Loan Board ......... 400
CHAPTER V—Emergency Oil and Gas Guaranteed Loan Board 500
ABBREVIATIONS USED IN THIS CHAPTER:

SBA = Small Business Administration. SBID = The Small Business Investment Di-
vision of SBA. RFC = Reconstruction Finance Corporation.
CHAPTER I—SMALL BUSINESS ADMINISTRATION
EDITORIAL NOTE: The Small Business Administration has asked the Director of the Federal
Register to inform users of this chapter that parts 143, 145, and 146 are common rule regula-
tions that cannot be amended by the Small Business Administration unilaterally.
Part Page
1–100 [Reserved]
101 Administration ........................................................ 5
102 Record disclosure and privacy ................................. 11
103 Standards for conducting business with SBA .......... 39
105 Standards of conduct and employee restrictions
and responsibilities .............................................. 41
106 Cosponsorships, fee and non-fee based SBA-spon-
sored activities and gifts ...................................... 44
107 Small business investment companies .................... 49
108 New Markets Venture Capital (‘‘NMVC’’) Program 127
109 Intermediary Lending Pilot Program ..................... 170
112 Nondiscrimination in federally assisted programs
of SBA—effectuation of Title VI of the Civil
Rights Act of 1964 ................................................. 178
113 Nondiscrimination in financial assistance pro-
grams of SBA—effectuation of policies of Federal
Government and SBA Administrator ................... 184
114 Administrative claims under the Federal Tort
Claims Act and representation and indemnifica-
tion of SBA employees ......................................... 209
115 Surety bond guarantee ............................................ 213
117 Nondiscrimination in federally assisted programs
or activities of SBA—effectuation of the Age Dis-
crimination Act of 1975, as amended .................... 233
119 Program for Investment in Microentrepreneurs
(‘‘PRIME’’ or ‘‘The Act’’) ..................................... 244
120 Business loans ......................................................... 245
121 Small business size regulations ............................... 369
123 Disaster loan program ............................................. 442
124 8(a) Business Development/Small Disadvantaged
Business status determinations ........................... 467
125 Government contracting programs ......................... 534
126 HUBZone program ................................................... 578
127 Women-owned small business Federal contract

program ................................................................ 613
13 CFR Ch. I (1–1–23 Edition)
Part Page
128 Veteran small business certification program ........ 637
129 Contracts for small businesses located in disaster
areas, and surplus personal property for small
businesses located in disaster areas, Puerto Rico,
and covered territory businesses .......................... 660
130 Small Business Development Centers ..................... 664
131 Women’s business center program .......................... 676
134 Rules of procedure governing cases before the Of-
fice of Hearings and Appeals ................................ 692
136 Enforcement of nondiscrimination on the basis of
handicap in programs or activities conducted by
the Small Business Administration ..................... 733
140 Debt collection ........................................................ 741
142 Program Fraud Civil Remedies Act regulations ..... 748
143 [Reserved]
146 New restrictions on lobbying .................................. 757
147 Governmentwide requirements for drug-free work-
place (nonprocurement) ....................................... 769
148–199 [Reserved]
PARTS 1–100 [RESERVED] Subpart E—Small Business Energy
Efficiency
PART 101—ADMINISTRATION 101.500 Small Business Energy Efficiency
Program.
Subpart A—Overview AUTHORITY: 5 U.S.C. 552 and App. 3, secs. 2,
Sec. 4(a), 6(a), and 9(a)(1)(T); 15 U.S.C. 633, 634, 687;
31 U.S.C. 6506; 44 U.S.C. 3512; 42 U.S.C. 6307(d);
101.100 What is the purpose of SBA?
15 U.S.C. 657h; E.O. 12372 (July 14, 1982), 47 FR
101.101 Who manages SBA?
30959, 3 CFR, 1982 Comp., p. 197, as amended
101.102 Where is SBA’s Headquarters lo-
by E.O. 12416 (April 8, 1983), 48 FR 15887, 3
cated?
CFR, 1983 Comp., p. 186.
101.103 Where are SBA’s field offices lo-
cated? SOURCE: 61 FR 2394, Jan. 26, 1996, unless
101.104 What are the functions of SBA’s otherwise noted.
field offices?
101.105 Who may use SBA’s official seal and Subpart A—Overview
for what purpose?
101.106 Does Federal law apply to SBA pro- § 101.100 What is the purpose of SBA?
grams and activities?
101.107 What SBA forms are approved for The U.S. Small Business Administra-
public use? tion (SBA) aids, counsels, assists, and
101.108 Has SBA waived any of the public protects the interests of small business
participation exemptions of the Adminis- concerns, and advocates on their behalf
trative Procedure Act? within the Government. It also helps
101.109 Do SBA regulations include the sec- victims of disasters. It provides finan-
tion headings? cial assistance, contractual assistance,
and business development assistance.
Subpart B—Employment of Private Counsel For a more detailed description of the
101.200 When does SBA hire private counsel? functions of SBA see The United States
101.201 What are the minimum terms of pri- Government Manual, a special publica-
vate counsel’s employment? tion of the FEDERAL REGISTER, which is
available from Superintendent of Docu-
Subpart C—Inspector General ments, P.O. Box 371954, Pittsburgh, PA
15250–7954.
101.300 What is the Inspector General’s au-
thority to conduct audits, investigations,
§ 101.101 Who manages SBA?
and inspections?
101.301 Who should receive information or (a) An Administrator, appointed by
allegations of waste, fraud, and abuse? the President with the advice and con-
101.302 What is the scope of the Inspector sent of the Senate, manages SBA. The
General’s authority? Administrator—
101.303 How are Inspector General sub- (1) Is responsible to the President and
poenas served?
Congress for exercising direction, au-
thority, and control over SBA.
Subpart D—Intergovernmental Partnership
(2) Determines and approves all poli-
101.400 What is the purpose of this subpart? cies covering SBA’s programs to aid,
101.401 What programs and activities of counsel, assist, and protect the inter-
SBA are subject to this subpart? ests of the nation’s small businesses.
101.402 What procedures apply to the selec- (3) Employs or appoints employees
tion of SBA programs and activities? necessary to implement the Small
101.403 What are the notice and comment
Business Act, as amended, the Small
procedures?
Business Investment Act, as amended,
101.404 How does the Administrator receive
comments?
and other laws and directives.
101.405 How does the Administrator respond (4) Delegates certain activities, by
to comments? issuing regulations or otherwise, to
101.406 What are the Administrator’s re- Headquarters and field positions.
sponsibilities in interstate situations? (b) A Deputy Administrator, ap-

101.407 May the Administrator waive these pointed by the President with the ad-
regulations? vice and consent of the Senate, serves
§ 101.102 13 CFR Ch. I (1–1–23 Edition)
as Acting Administrator during the ab- (d) Disaster assistance offices. The Of-
sence or disability of the Adminis- fice of Disaster Assistance maintains
trator or in the event of a vacancy in five permanent field offices which are
the Office of the Administrator. named according to the particular
functions they perform in the disaster
§ 101.102 Where is SBA’s Headquarters loan making process. The office names
located?
are: Disaster Assistance Customer
The Headquarters of SBA is at 409 3rd Service Center, Disaster Assistance
Street, SW., Washington, DC 20416. Processing and Disbursement Center,
Disaster Assistance Field Operations
§ 101.103 Where are SBA’s field offices
located? Center East, Disaster Assistance Field
Operations Center West, and the Dis-
A list of SBA’s field offices with ad- aster Assistance Personnel and Admin-
dresses, phone numbers and jurisdic- istrative Services Center. Each office is
tions served is periodically published
managed by a Center Director who re-
in the FEDERAL REGISTER. You can also
ports to the Deputy Associate Adminis-
obtain the address and phone number
trator for Disaster Assistance. The of-
of an SBA office to serve you by calling
1–800-8-ASK-SBA or 1-800-827-5722. fices provide loan services to victims of
declared disasters, or support the ef-
§ 101.104 What are the functions of forts of the other offices to do so. Tem-
SBA’s field offices? porary disaster offices may be estab-
(a) Regional offices. Regional offices lished in areas where disasters have oc-
are managed by a Regional Adminis- curred.
trator who is responsible to the Admin- (e) Responsibilities. Each field office
istrator and to the Associate Adminis- has responsibilities within a defined
trator for Field Operations. They are geographical area as periodically set
located in major cities and have geo- forth in the FEDERAL REGISTER.
graphical boundaries which cover [61 FR 2394, Jan. 26, 1996, as amended at 71
multi-state areas. Regional offices ex- FR 63676, Oct. 31, 2006]
ercise limited authority over field ac-
tivities within their region. § 101.105 Who may use SBA’s official
(b) District offices. District offices are seal and for what purpose?
managed by a District Director and are
(a) General. This section describes the
located in cities within a region. Dis-
official seal of the SBA and prescribes
trict offices are responsible to Head-
rules for its use.
quarters, the Associate Administrator
for Field Operations, and to a regional (b) Official Seal. The official seal of
office. Within their delegated author- the SBA is illustrated below.
ity, district offices have authority
for—
(1) Conducting all program delivery
activities within the district bound-
aries;
(2) Supervising all branch offices lo-
cated within the district boundaries;
and
(3) Providing subordinate branch of-
fices with the technical capability nec-
essary to execute assigned programs.
(c) Branch offices. Branch offices are
managed by a Branch Manager and are
located in cities within a district.
Branch offices are responsible to the
district office within whose boundaries
it is located. Branch offices execute
one or more elements of the business or (c) Authorized Use. The official seal
disaster loan programs and have lim- and reproductions of the seal may only
ited authority for program execution. be used as follows:
6
ER11JA08.000</GPH>
Small Business Administration § 101.107
(1) Certify and authenticate originals tent of control by SBA over distribu-
and copies of any books, records, pation of any products or publications
pers or other documents on file within bearing the SBA seal.
SBA or extracts taken from them or to (g) Penalties for Unauthorized Use.
provide certification for the purposes Fraudulent or wrongful use of SBA’s
authorized in 28 U.S.C. 1733; seal can lead to criminal penalties
(2) SBA award certificates and med- under 18 U.S.C. 506 or 18 U.S.C. 1017.
als; [72 FR 1963, Jan. 11, 2008]
(3) SBA awards for career service;
(4) Security credentials and employee § 101.106 Does Federal law apply to
identification cards; SBA programs and activities?
(5) Business cards for SBA employees; (a) SBA makes loans and provides
(6) Official SBA signs; other services that are authorized and
(7) Plaques; the design of the SBA executed under Federal programs to
seal may be incorporated in plaques for achieve national purposes.
display in Agency auditoriums, presen- (b) The following are construed and
tation rooms, lobbies, offices and on enforced in accordance with Federal
buildings occupied by SBA; law—
(8) The SBA flag; (1) Instruments evidencing loans;
(9) Officially authorized reports or (2) Security interests in real or per-
publications of the SBA; or sonal property payable to or held by
(10) For such other purposes as deter- SBA or the Administrator such as
mined necessary by the Administrator. promissory notes, bonds, guarantee
(d) Unauthorized use. The official seal agreements, mortgages, and deeds of
shall not be used, except as authorized trust;
by the Administrator, in connection (3) Other evidences of debt or secu-
with: rity;
(1) Contractor operated facilities; (4) Contracts or agreements to which
(2) Souvenir or novelty items; SBA is a party, unless expressly pro-
(3) Toys or commercial gifts or pre- vided otherwise.
miums; (c) To the extent feasible, SBA uses
(4) Letterhead design, except on offi- local or state procedures, especially for
cial SBA stationery; recordation and notification purposes,
(5) Clothing or equipment; or in implementing and facilitating SBA’s
(6) Any article which may disparage loan programs. This use of local or
the seal or reflect unfavorably upon state procedures is not a waiver by
SBA. SBA of any Federal immunity from
(e) SBA’s seal will not be used in any any local or state control, penalty, tax,
manner which implies SBA endorse- or liability.
ment of commercial products or serv- (d) No person, corporation, or organi-
ices or of the user’s policies or activi- zation that applies for and receives any
ties. benefit or assistance from SBA, or that
(f) Reproduction of Official Seal. Re- offers any assurance or security upon
quests for permission to reproduce the which SBA relies for the granting of
SBA seal in circumstances other than such benefit or assistance, is entitled
those listed in paragraph (c) of this sec- to claim or assert any local or state
tion must be made in writing to the law to defeat the obligation incurred in
Administrator. The decision whether obtaining or assuring such Federal ben-
to grant permission will be made in efit or assistance.
writing on a case-by-case basis, in con-
sultation with the General Counsel, § 101.107 What SBA forms are ap-
with consideration of any relevant fac- proved for public use?
tors which may include the benefit or (a) SBA uses forms approved by the
cost to the Agency of granting the re- Office of Management and Budget
quest; the unintended appearance of (OMB) under the Paperwork Reduction
endorsement or authentication by Act of 1995 (44 U.S.C. 3501 et seq.), as
SBA; the potential for misuse; the rep- amended. You may obtain approved
utability of the use; the extent of con- forms for use by the public when apply-
trol by SBA over the use; and the ex- ing for or obtaining SBA assistance, or
§ 101.108 13 CFR Ch. I (1–1–23 Edition)
when providing services for SBA, from SBA’s regulations, policies, and in-
any field office (see § 101.103). You may structions, and take such action as is
also use forms which you have prepared legally required under the Small Busi-
yourself, or have obtained from an- ness Act, the Small Business Invest-
other source, if those forms are iden- ment Act, and other laws applicable to
tical in every respect to the forms ap- SBA.
proved by OMB for the same purpose. (b) Private counsel must adhere to
(b) Any member of the public who the highest standards of professional
has reason to believe any SBA office or conduct and maintain confidentiality
agent is in violation of the Public Pro- appropriate to the attorney-client rela-
tection Clause of the Paperwork Re- tionship.
duction Act (44 U.S.C. 3512 and see 5 (c) Private counsel acts under the su-
CFR 1320.6) should notify SBA. Direct pervision of the SBA General Counsel
such comments to the Director, Office (and designees).
of Business Operations at 409 3rd (d) Private counsel usually is com-
Street, SW., Washington, DC 20416. pensated at an hourly rate as approved
[61 FR 2394, Jan. 26, 1996, as amended at 72 by SBA. Contingency fee agreements
FR 50038, Aug. 30, 2007] may be used if approved by the General
Counsel.
§ 101.108 Has SBA waived any of the (e) Either party may terminate the
public participation exemptions of employment upon written notice.
the Administrative Procedure Act?
Yes. Despite these exemptions, SBA Subpart C—Inspector General
will follow the public participation re-
quirements of the Administrative Pro- § 101.300 What is the Inspector Gen-
cedure Act, 5 U.S.C. 553, in eral’s authority to conduct audits,
rulemakings relating to public prop- investigations, and inspections?
erty, loans, grants, benefits, or con- The Inspector General Act of 1978, as
tracts. amended (5 U.S.C. App. 3) authorizes
SBA’s Inspector General to provide pol-
§ 101.109 Do SBA regulations include
the section headings? icy direction for, and to conduct, su-
pervise, and coordinate such audits, in-
Yes. All SBA regulations must be investigations, and inspections relating
terpreted as including the section to the programs and operations of SBA
headings. as appears necessary or desirable.
Subpart B—Employment of Private § 101.301 Who should receive informa-

Counsel tion or allegations of waste, fraud,
and abuse?
§ 101.200 When does SBA hire private The Office of Inspector General
counsel? should receive all information or alle-
(a) Business loans. SBA may hire pri- gations of waste, fraud, or abuse re-
vate counsel to represent it in regard garding SBA programs and operations.
to business loans when the volume of
activity in an area is not sufficient to § 101.302 What is the scope of the In-
require a full-time SBA employee, or spector General’s authority?
the area is too remote for economical To obtain the necessary information
use of a full-time SBA employee. and evidence, the Inspector General
(b) Disaster loans. SBA may hire pri- (and designees) have the right to:
vate counsel in regard to disaster loans (a) Have access to all records, re-
when the disaster presents an emer- ports, audits, reviews, documents, pa-
gency and a volume of activity that pers, recommendations, and other ma-
cannot be promptly and economically terials available to SBA and relating to
serviced by available SBA employees. SBA’s programs and operations;
(b) Require by subpoena the produc-
§ 101.201 What are the minimum terms tion of all information, documents, re-
of private counsel’s employment? ports, answers, records, accounts, pa-

(a) Private counsel must perform all pers, and other data and documentary
requested work in compliance with evidence;
(c) Administer oaths and affirma- Subpart D—Intergovernmental

tions or take affidavits; and Partnership
(d) Request information or assistance
from any Federal, state, or local gov- § 101.400 What is the purpose of this
ernment agency or unit. subpart?
(a) This subpart implements section
§ 101.303 How are Inspector General 401 of the Intergovernmental Coopera-
subpoenas served? tion Act (31 U.S.C. 6506 et seq.) which
(a) Service of subpoenas may be ef- promotes intergovernmental partner-
fected by any of the following means— ship and strengthens Federalism by re-
(1) If by mail, a copy of the subpoena lying on state processes and state,
must be addressed to the person, part- area-wide, regional, and local coordina-
nership, corporation, or unincorporated tion for the review of proposed Federal
association to be served at a residence financial assistance and direct Federal
or usual dwelling place, or a principal development.
office or place of business, and mailed (b) While guiding SBA’s manage-
first class by registered or certified ment, this subpart does not create any
mail (postage prepaid, return receipt right or benefit enforceable at law.
requested), or by a commercial or U.S. § 101.401 What programs and activities
Postal Service overnight or express de- of SBA are subject to this subpart?
livery service.
SBA publishes in the FEDERAL REG-
(2) If by personal delivery, a copy of
ISTER a list of programs and activities
the subpoena must be delivered to the
subject to this subpart.
person to be served, or to a member of
the partnership to be served, or to an § 101.402 What procedures apply to the
executive officer or a director of the selection of SBA programs and ac-
corporation or unincorporated associa- tivities?
tion to be served, or to a person au- (a) A state may—
thorized by appointment or by law to (1) Select any program or activity
receive process for the person or entity published in the FEDERAL REGISTER
named in the subpoena. under § 101.401 for intergovernmental
(3) If by delivery to an address, a review (providing it consults with local
copy of the subpoena must be left at elected officials before doing so) and
the principal office or place of business then notify the Administrator of the
of the person, partnership, corporation, programs and activities selected; and
or unincorporated association to be (2) Notify the Administrator of
served, or at the residence or usual changes in its selections at any time.
dwelling place of the person, member For each change, the state submits to
of the partnership, or officer or direc- the Administrator an assurance that it
tor of the corporation or unincor- consulted with local elected officials
porated association to be served, with regarding the change.
someone of suitable age and discretion. (b) SBA may establish deadlines by
(b) Proof of service— which states must inform the Adminis-
(1) When service is by registered, cer- trator of changes in their program se-
tified, overnight, or express mail, it is lections.
complete upon delivery of the docu- (c) After receiving notice of a state’s
ment by the Postal Service or commer- selections, the Administrator uses a
state’s process as soon as feasible de-
cial service.
pending on individual programs and ac-
(2) The return Postal Service receipt
tivities.
for a document that was registered or
(d) ‘‘State’’ means any of the 50
certified and mailed, the signed receipt States, the District of Columbia, the
for a document delivered by an over- Commonwealth of Puerto Rico, the
night or express delivery service, or the Commonwealth of the Northern Mar-
Return of Service completed by the in- iana Islands, Guam, American Samoa,
dividual serving the subpoena by per- the U.S. Virgin Islands, or the Trust
sonal delivery shall be proof of service. Territory of the Pacific Islands.
§ 101.403 13 CFR Ch. I (1–1–23 Edition)
§ 101.403 What are the notice and com- wide, regional, and local officials and
ment procedures? entities may submit comments to SBA.
(a) The Administrator provides no- In addition, if a state process rec-
tice to directly affected state, area- ommendation for a non-selected pro-
wide, regional, and local entities in a gram or activity is transmitted to SBA
state of proposed SBA financial assist- by the single point of contact, the Ad-
ance or direct SBA development if— ministrator follows the procedures of
(1) The state has not adopted a proc- § 101.405.
ess under Executive Order 12372 (3 CFR, (e) The Administrator considers com-
1982 Comp., p. 197), as amended by Ex- ments which do not constitute a state
ecutive Order 12416 (3 CFR, 1983 Comp., process recommendation submitted
p. 186); or under this subpart and for which the
(2) The assistance or development in- Administrator is not required to apply
volves a program or activity not se- the procedures of § 101.405 when such
lected for the state process. comments are provided by a single
(b) Notice may be made by publica-
point of contact directly to SBA by a
tion in the FEDERAL REGISTER or other
commenting party.
means as SBA deems appropriate.
(c) Except in unusual circumstances § 101.405 How does the Administrator
the Administrator gives state processes respond to comments?
or directly affected state, area-wide,
regional, and local officials and enti- (a) If a state process provides a rec-
ties at least 60 days to comment on ommendation to SBA through its sin-
proposed SBA financial assistance or gle point of contact, the Adminis-
direct SBA development. trator:
(d) In cases where SBA delegates the (1) Accepts the recommendation; or
review, coordination, and communica- (2) Reaches a mutually agreeable so-
tion authority under this subpart, this lution with the state process; or
section also applies. (3) Provides the single point of con-
tact with a written explanation of the
§ 101.404 How does the Administrator
receive comments? decision in a form the Administrator
deems appropriate. The Administrator
(a) The Administrator follows the
may also supplement the written ex-
procedures of § 101.405 if—
planation by telephone or other means.
(1) A state office or official is des-
ignated to act as a single point of con- (b) In any explanation under para-
tact between a state process and all graph (a)(3) of this section, the Admin-
Federal agencies; and istrator informs the single point of
(2) That office or official transmits a contact that—
state process recommendation for a (1) SBA will not implement its deci-
program selected under § 101.402(a). sion for at least 10 days after the single
(b)(1) The single point of contact is point of contact receives the expla-
not obligated to transmit comments nation; or
from state, area-wide, regional, or (2) Because of unusual circumstances
local officials and entities where there the waiting period of at least 10 days is
is no state process recommendation. not feasible.
(2) If a state process recommendation (c) For purposes of computing the
is transmitted by a single point of con- waiting period under paragraph (b)(1)
tact, all comments from state, area- of this section, a single point of con-
wide, regional, and local officials and tact is presumed to have received writ-
entities that differ from it must also be
ten notification 5 days after the date of
transmitted.
mailing.
(c) If a state has not established a
process, or is unable to submit a state § 101.406 What are the Administrator’s
process recommendation, state, area- responsibilities in interstate situa-
wide, regional, and local officials and tions?
entities may submit comments to SBA.

(d) If a program or activity is not se- The Administrator is responsible
lected for a state process, state, area- for—
10
Small Business Administration Pt. 102
(a) Identifying proposed SBA finan- be responsible for overseeing the pro-
cial assistance and direct SBA develop- gram but will coordinate with the De-
ment that have an impact on inter- partment of Energy and EPA.
state areas; (c) The Administration is distrib-
(b) Notifying appropriate officials uting and making available online, the
and entities in states which have information and materials developed
adopted a process and selected an SBA under the program to small business
program or activity; concerns, including smaller design, en-
(c) Making efforts to identify and no- gineering, and construction firms, and
tify the affected state, area-wide, re- other Federal programs for energy effi-
gional, and local officials and entities ciency, such as the Energy Star for
in states that have not adopted a proc- Small Business Program.
ess or selected an SBA program or ac- (d) The Administration will develop a
tivity; strategy to educate, encourage, and as-
(d) Using the procedures of § 101.405 if sist small business concerns in adopt-
a recommendation of a designated ing energy efficient building fixtures
area-wide agency is transmitted by a and equipment.
single point of contact in cases in
[73 FR 61666, Oct. 17, 2008]
which the review, coordination, and
communication with SBA has been del-
egated; and PART 102—RECORD DISCLOSURE
(e) Using the procedures of § 101.405 if AND PRIVACY
a state process provides a state rec-
ommendation to SBA through a single Subpart A—Disclosure of Information
point of contact.
Sec.
102.1 General provisions.
§ 101.407 May the Administrator waive
102.2 Proactive disclosure of records.
these regulations?
102.3 Requirements pertaining to the sub-
The Administrator may waive any mission of requests.
provision of §§ 101.400 through and in- 102.4 Responsibility for responding to re-
cluding 101.406 in an emergency. quests.
102.5 Timing of responses to requests.
102.6 Responses to requests.
Subpart E—Small Business Energy 102.7 Confidential commercial information.
Efficiency 102.8 Fees.
102.9 Administrative appeals.
§ 101.500 Small Business Energy Effi- 102.10 Preservation of records.
ciency Program. 102.11 Subpoenas.
(a) The Administration has developed APPENDIX A TO SUBPART A OF PART 102—
and coordinated a Government-wide RECORDS MAINTAINED BY SBA
program, which is located at http:// Subpart B—Protection of Privacy and Ac-
www.sba.gov/energy, building on the En- cess to Individual Records Under the
ergy Star for Small Business Program, Privacy Act of 1974
to assist small business concerns in be-
coming more energy efficient, under- 102.20 General provisions.
standing the cost savings from im- 102.21 Agency employees responsible for the
proved energy efficiency, and identi- Privacy Act of 1974.
fying financing options for energy effi- 102.22 Requirements relating to systems of
records.
ciency upgrades. 102.23 Publication in the Federal Register—
(b) The Program has been developed Notices of systems of records.
and coordinated in consultation with 102.24 Requests for access to records.
the Secretary of the Department of En- 102.25 Responsibility for responding to re-
ergy and the Administrator of the En- quests for access to records.
vironmental Protection Agency, and in 102.26 Responses to requests for access to
cooperation with entities the Adminis- records.
102.27 Appeals from denials of requests for
trator has considered appropriate, for
access to records.
example, such as industry trade asso- 102.28 Requests for amendment or correc-
ciations, industry members, and energy tion of records.

efficiency organizations. SBA’s Office 102.29 Requests for an accounting of record
of Policy and Strategic Planning will disclosures.
11
§ 102.1 13 CFR Ch. I (1–1–23 Edition)
102.30 Preservation of records. apply to SBA also apply to its compo-
102.31 Fees. nents.
102.32 Notice of court-ordered and emer-
gency disclosures.
(c) The SBA has a decentralized sys-
102.33 Security of systems of records. tem for processing requests, with each
102.34 Contracts for the operation of record component handling requests for its
systems. records.
102.35 Use and collection of Social Security (d) The term record means:
Numbers. (1) Any information that would be an
102.36 Privacy Act standards of conduct.
102.37 Training requirements. agency record subject to the require-
102.38 Other rights and services. ments of this section when maintained
102.39 SBA’s exempt Privacy Act systems of by SBA in any format, including writ-
records. ten or electronic format; and
102.40 Computer matching. (2) Any information described under
102.41 Other provisions. paragraph (d)(1) of this section that is
AUTHORITY: 5 U.S.C. 301, 552, 552a; 31 U.S.C. maintained for SBA by an entity under
3717, 9701; 44 U.S.C. 3501. Government contract, for purposes of
SOURCE: 61 FR 2673, Jan. 29, 1996, unless records management.
otherwise noted.
§ 102.2 Proactive disclosure of records.
Subpart A—Disclosure of Records that are required by the
Information FOIA to be made available for public
inspection in an electronic format may
SOURCE: 82 FR 46371, Oct. 5, 2017, unless be accessed through the SBA’s Web site
otherwise noted. at https://www.sba.gov/foia. Each compo-
nent of SBA is responsible for deter-
§ 102.1 General provisions. mining which of its records are re-
(a) This subpart contains the rules quired to be made publicly available,
that SBA follows in processing re- as well as for identifying additional
quests for records under the Freedom records of interest to the public that
of Information Act (‘‘FOIA’’), 5 U.S.C. are appropriate for public disclosure,
552. The rules in this subpart should be and for posting and indexing such
read in conjunction with the text of records. Each component shall ensure
the FOIA and the Uniform Freedom of that its Web site of posted records and
Information Fee Schedule and Guide- indices is reviewed and updated on an
lines published by the Office of Man- ongoing basis. Each component has a
agement and Budget (‘‘OMB Guide- FOIA Public Liaison who can assist in-
lines’’). Requests made by individuals dividuals in locating records particular
for records about themselves under the to a component. A list of the SBA’s
Privacy Act of 1974, 5 U.S.C. 552a, are FOIA Public Liaisons is available at
processed under subpart B of this part https://www.sba.gov/foia.
as well as under this subpart.
(b) As referenced in this subpart, § 102.3 Requirements pertaining to the
‘‘component’’ means each separate bu- submission of requests.
reau, office, division, district office, re- (a) General information. (1) The SBA
gional office, area office, service cen- has a decentralized system for respond-
ter, loan processing center or central ing to FOIA requests, with each compo-
office duty location within the SBA nent handling requests for its records.
that is responsible for processing FOIA All components have the capability to
requests. See appendix A to this sub- receive requests electronically either
part for a list of information generally through email or a web portal. To
exempt from disclosure. For contact make a request for records, a requester
information for each office visit https:// should write directly to the Freedom of
www.sba.gov/foia and for a detailed de- Information/Privacy Acts (FOI/PA) Of-
scription of the function of each office fice by mail to 409 3rd St SW., Wash-
to help ascertain the types of records ington, DC 20416 or submit a fax to 202–
maintained by each component, please 205–7059 or email to foia@sba.gov. Re-

visit https://www.sba.gov/about-sba. The questers may also submit their request
rules described in this regulation that through the FOIA online portal at
12
https://foiaonline.regulations.gov/foia/ac- adequately describe the records sought,

tion/public/home. Additional informa- the component will inform the re-
tion for submitting a request to SBA is quester what additional information is
listed at https://www.sba.gov/foia. How- needed or why the request is otherwise
ever, a request will receive the insufficient. The component will also
quickest possible response if it is ad- notify the requester that it will not be
dressed to the component that main- able to comply with their request un-
tains the records sought. less the additional information it has
(2) A requester who is making a re- requested is received from them in
quest for records about himself or her- writing within 20 working days after
self must comply with the verification the component has requested it. If this
of identity provision set forth in sub- type of notification is received, a re-
part B of this part. The Certification of quester may wish to discuss it with the
Identity form, available at http:// FOIA Public Liaison. If the component
www.justice.gov/oip/forms/cert_ind.pdf, does not receive a written response
may be used by individuals who are containing the additional information
making requests for records pertaining within 20 working days after it has
to themselves. been requested, the SBA will presume
(3) Where a request for records per- that the requester is no longer inter-
tains to another individual, a requester ested in the records and will close the
may receive greater access by submit- file on the request. Requesters who are
ting either a notarized authorization attempting to reformulate or modify
signed by that individual or a declara- such a request may discuss their re-
tion made in compliance with the request with the component’s designated
quirements set forth in 28 U.S.C. 1746 FOIA Contact or its FOIA Public Liai-
by that individual authorizing disclo- son, or a representative of the FOI/PA
sure of the records to the requester, or Office, each of whom is available to as-
by submitting proof that the individual sist the requester in reasonably de-
is deceased (e.g., a copy of a death cer- scribing the records sought. If a re-
tificate or an obituary). As an exercise quest does not reasonably describe the
of administrative discretion, each com- records sought, the SBA’s response to
ponent can require a requester to sup- the request may be delayed.
ply additional information if necessary (c) Form or format. Requests may
in order to verify that a particular in- specify the preferred form or format
dividual has consented to disclosure. (including electronic formats) for the
(b) Description of records sought. Re- records sought. The SBA will accom-
questers must describe the records modate the request if the record is
sought in sufficient detail to enable readily reproducible in that form or
agency personnel to locate them with a format.
reasonable amount of effort. To the ex- (d) Contact information. Requesters
tent possible, requesters should include must provide contact information,
specific information that may help the such as their phone number, email ad-
component in identifying the requested dress, and mailing address, to assist
records, such as the date, title or the SBA in communicating with the re-
name, author, recipient, subject matter quester and providing the released
of the record, case number, file des- records.
ignation, reference number, the time-
frame for which the records are sought, § 102.4 Responsibility for responding
the office that created the records, or to requests.
any other information that will assist (a) In general. Except in the instances
the component in locating documents described in paragraphs (c) and (d) of
responsive to the request. Before sub- this section, the component that first
mitting their requests, requesters may receives a request for a record and
contact the component’s FOIA Contact maintains that record is the compo-
or FOIA Public Liaison to discuss the nent responsible for responding to the
records they are seeking and to receive request. In determining which records
assistance in describing the records. If, are responsive to a request, a compo-

after receiving a request, a component nent ordinarily will include only
determines that the request does not records in its possession as of the date
13
§ 102.4 13 CFR Ch. I (1–1–23 Edition)
that it begins its search. If any other (ii) Whenever a component refers any
date is used, the component shall in- part of the responsibility for respond-
form the requester of that date. A ing to a request to another component
record that is excluded from the re- or agency, it shall document the refer-
quirements of the FOIA pursuant to 5 ral, maintain a copy of the record that
U.S.C. 552(c) is not considered respon- it refers, and notify the requester of
sive to a request. the referral and inform the requester of
(b) Authority to grant or deny requests. the name(s) of the component or agen-
The head of a component, or designee, cy to which the record was referred, in-
is authorized to grant or to deny any cluding that component’s or agency’s
requests for records that are main- FOIA Contact information.
tained by that component. (3) Coordination. The standard refer-
(c) Re-routing of misdirected requests. ral procedure is not appropriate where
Where a component determines that a disclosure of the identity of the compo-
request was misdirected within the nent or agency to which the referral
SBA, the receiving component shall would be made could harm an interest
route the request to the proper compo- protected by an applicable exemption,
nent(s). such as the exemptions that protect
(d) Consultation, referral, and coordi- personal privacy or national security
nation. When reviewing records located interests. For example, if a non-law en-
by a component in response to a re- forcement component responding to a
quest, the component shall determine request for records on a living third
whether another component of SBA or party locates within its files records
another agency of the Federal Govern- originating with a law enforcement
ment is better able to determine agency, and if the existence of that law
whether the record is exempt from dis- enforcement interest in the third party
closure under the FOIA. As to any such was not publicly known, then to dis-
record, the component shall proceed in close that law enforcement interest
one of the following ways: could cause an unwarranted invasion of
(1) Consultation. When records origi- the personal privacy of the third party.
nated with the component processing Similarly, if a component locates with-
the request, but contain within them in its files material originating with an
information of interest to another Intelligence Community agency and
component, agency, or other Federal the involvement of that agency in the
Government office, the component matter is classified and not publicly
processing the request should typically acknowledged, then to disclose or give
consult with that other component or attribution to the involvement of that
agency prior to making a release deter- Intelligence Community agency could
mination. cause national security harms. In such
(2) Referral. (i) When the component instances, in order to avoid harm to an
processing the request believes that a interest protected by an applicable ex-
different component, agency, or other emption, the component that received
Federal Government office is best able the request should coordinate with the
to determine whether to disclose the originating component or agency to
record, the component typically should seek its views on the disclosure of the
refer the responsibility for responding record. The release determination for
to the request regarding that record, as the record that is the subject of the co-
long as the referral is to a component ordination should then be conveyed to
or agency that is subject to the FOIA. the requester by the component that
Ordinarily, the component or agency originally received the request.
that originated the record will be pre- (e) Classified information. On receipt
sumed to be best able to make the dis- of any request involving classified in-
closure determination. However, if the formation, the component shall deter-
component processing the request and mine whether the information is cur-
the originating component or agency rently and properly classified and take
jointly agrees that the former is in the appropriate action to ensure compli-
best position to respond regarding the ance. Whenever a request involves a

record, then the record may be handled record containing information that has
as a consultation. been classified or may be appropriate
14
for classification by another compo- ed to process the request. Among the

nent or agency under any applicable factors that may be considered are the
executive order concerning the classi- number of records requested, the num-
fication of records, the receiving com- ber of pages involved in processing the
ponent shall refer the responsibility for request and the need for consultations
responding to the request regarding or referrals. Components shall advise
that information to the component or requesters of the track into which
agency that classified the information, their request falls and, when appro-
or that should consider the informa- priate, should offer the requester an
tion for classification. Whenever a opportunity to narrow or modify the
component’s record contains informa- request so that it can be placed in a
tion that has been derivatively classi- different processing track.
fied (for example, when it contains in- (c) Unusual circumstances. Whenever
formation classified by another compo- the statutory time limit for processing
nent or agency), the component shall a request cannot be met because of
refer the responsibility for responding ‘‘unusual circumstances,’’ as defined in
to that portion of the request to the the FOIA, and the component extends
component or agency that classified the time limit on that basis, the com-
the underlying information. ponent shall, before expiration of the
(f) Agreements regarding consultations 20-working day period to respond, no-
and referrals. Components of SBA may tify the requester in writing of the un-
establish agreements with other com- usual circumstances involved and of
ponents of SBA or other Federal agen- the date by which the component esti-
cies to eliminate the need for consulta- mates processing of the request will be
tions or referrals with respect to par- completed. Where the extension ex-
ticular types of records. ceeds 10 working days, the component
(g) Timing of responses to consultations shall, as prescribed by the FOIA, pro-
and referrals. All consultations and re- vide the requester with an opportunity
ferrals received by the SBA will be to modify the request or to arrange an
handled according to the date that the alternative time period for processing
FOIA request initially was received by the original or modified request. The
the first component or agency. component shall make available its
designated FOIA Contact or its FOIA
§ 102.5 Timing of responses to re- Public Liaison for this purpose. The
quests. component must also alert requesters
(a) In general. Components ordinarily to the availability of the Office of Gov-
will respond to requests according to ernment Information Services (OGIS)
their order of receipt. In instances in- to provide dispute resolution services.
volving misdirected requests that are (d) Aggregating requests. For the pur-
re-routed pursuant to § 102.4(c), the re- poses of determining unusual cir-
sponse time will commence on the date cumstances under the FOIA, compo-
that the request is received by the nents may aggregate requests in cases
proper component’s office that is des- where it reasonably appears that mul-
ignated to receive requests, but in any tiple requests, submitted either by a
event not later than 10 working days requester or by a group of requesters
after the request is first received by acting in concert, constitute a single
any component’s office that is des- request that would otherwise involve
ignated by these regulations to receive unusual circumstances. Components
requests. shall not aggregate multiple requests
(b) Multitrack processing. All compo- that involve unrelated matters.
nents will designate a specific track for (e) Expedited processing. (1) Requests
requests that are granted expedited and appeals shall be processed on an
processing, in accordance with the expedited basis whenever it is deter-
standards set forth in paragraph (e) of mined that they involve:
this section. A component may also (i) Circumstances in which the lack
designate additional processing tracks of expedited processing could reason-
that distinguish between simple and ably be expected to pose an imminent

more complex requests based on the es- threat to the life or physical safety of
timated amount of work or time need- an individual;
15
§ 102.6 13 CFR Ch. I (1–1–23 Edition)
(ii) An urgency to inform the public cles published on a given subject can be
about an actual or alleged Federal Gov- helpful in establishing the requirement
ernment activity, if made by a person that there be an ‘‘urgency to inform’’
who is primarily engaged in dissemi- the public on the topic. As a matter of
nating information. administrative discretion, the SBA
(iii) The loss of substantial due proc- may waive the formal certification re-
ess rights; or quirement.
(iv) A matter of widespread and ex- (4) A component shall notify the re-
ceptional media interest in which there quester within 10 working days of the
exist possible questions about the gov- receipt of a request for expedited proc-
ernment’s integrity that affect public essing of its decision whether to grant
confidence. or deny expedited processing. If expe-
(2) A request for expedited processing
dited processing is granted, the request
may be made at any time. Requests
must be given priority, placed in the
based on paragraphs (e)(1)(i) through
processing track for expedited re-
(iii) of this section must be submitted
quests, and must be processed as soon
to the component that maintains the
records requested. When making a re- as practicable. If a request for expe-
quest for expedited processing of an ad- dited processing is denied, any appeal
ministrative appeal, the request should of that decision shall be acted on expe-
be submitted to the FOI/PA Office. Re- ditiously.
quests for expedited processing that
are based on paragraph (e)(1)(iv) of this § 102.6 Responses to requests.
section must be submitted to the com- (a) In general. Components should, to
ponent processing the request. A com- the extent practicable, communicate
ponent that receives a misdirected re- with requesters having access to the
quest for expedited processing under Internet using electronic means, such
the standard set forth in paragraph as email or web portal.
(e)(1)(iv) of this section shall forward it (b) Acknowledgments of requests. A
immediately to the FOI/PA Office for component shall acknowledge the re-
its determination. The time period for quest in writing and assign it an indi-
making the determination on the re- vidualized tracking number. Compo-
quest for expedited processing under nents shall include in the acknowledg-
paragraph (e)(1)(iv) of this section shall ment a brief description of the records
commence on the date that the FOI/PA sought to allow requesters to more eas-
Office receives the request, provided ily keep track of their requests.
that it is routed within 10 working
(c) Estimated dates of completion and
days.
interim responses. Upon request, compo-
(3) A requester who seeks expedited
nents shall provide an estimated date
processing must submit a notarized
by which they expect to provide a re-
statement, such as an affidavit or dec-
sponse to the requester. If a request in-
laration, certified to be true and cor-
rect, explaining in detail the basis for volves a voluminous amount of mate-
making the request for expedited proc- rial, or searches in multiple locations,
essing. For example, under paragraph the SBA or component may provide in-
(e)(1)(ii) of this section, a requester terim responses, releasing the records
who is not a full-time member of the on a rolling basis.
news media must establish that the re- (d) Grants of requests. Once a compo-
quester is a person whose primary pro- nent determines it will grant a request
fessional activity or occupation is in- in full or in part, it will notify the re-
formation dissemination, though it quester in writing. The component
need not be the requester’s sole occupa- shall inform the requester of any fees
tion. Such a requester also must estab- charged under § 102.8 and shall disclose
lish a particular urgency to inform the the requested records to the requester
public about the government activity promptly upon payment of any applica-
involved in the request—one that ex- ble fees. The component must inform
tends beyond the public’s right to the requester of the availability of its
know about government activity gen- FOIA Public Liaison to offer assist-
erally. The existence of numerous arti- ance.
16
(e) Adverse determinations of requests. § 102.7 Confidential commercial infor-

A component making an adverse deter- mation.
mination denying a request in any re- (a) Definitions. For purposes of this
spect shall notify the requester of that section:
determination in writing. Adverse de-
Confidential commercial information
terminations, or denials of requests, in-
means commercial or financial infor-
clude denials involving fees or fee
mation obtained by the SBA from a
waiver matters, denials of requests for
submitter that may be protected from
expedited processing, and decisions
disclosure under Exemption 4 of the
where:
FOIA, 5 U.S.C. 552(b)(4).
(1) The requested record is exempt, in
Submitter means any person or entity,
whole or in part;
including a corporation, State, or for-
(2) The request does not reasonably eign government, but not including an-
describe the records sought; other Federal Government entity, that
(3) The information requested is not provides information, either directly or
a record subject to the FOIA; indirectly to the Federal Government.
(4) The requested record does not (b) Designation of confidential commer-
exist, cannot be located, or has been cial information. A submitter of con-
destroyed; or fidential commercial information must
(5) The requested record is not read- use good faith efforts to designate by
ily reproducible in the form or format appropriate markings, either at the
sought by the requester. time of submission or within a reason-
(f) Content of denial. The denial must able time thereafter, any portion of its
be signed by the head of the component submission that it considers to be pro-
or designee and must include: tected from disclosure under Exemp-
(1) The name and title or position of tion 4. These designations shall expire
the person responsible for the denial; 10 years after the date of the submis-
(2) A brief statement of the reasons sion unless the submitter requests and
for the denial, including any FOIA ex- provides justification for a longer des-
emption applied by the component in ignation period.
denying the request; (c) When notice to submitters is re-
(3) An estimate of the volume of any quired. (1) A component shall promptly
records or information withheld, such provide written notice to a submitter
as the number of pages or some other of confidential commercial information
reasonable form of estimation, al- whenever records containing such in-
though such an estimate is not re- formation are requested under the
quired if the volume is otherwise indi- FOIA if, after reviewing the request,
cated by deletions marked on records the responsive records, and any appeal
that are disclosed in part or if pro- by the requester, the component deter-
viding an estimate would harm an in- mines that it may be required to dis-
terest protected by an applicable ex- close the records, provided:
emption; (i) The requested information has
(4) A statement that the denial may been designated in good faith by the
be appealed under § 102.9, and a descrip- submitter as information considered
tion of the appeal requirements; and protected from disclosure under Ex-
(5) A statement notifying the re- emption 4; or
quester of the assistance available (ii) The component has a reason to
from the component’s FOIA Public Li- believe that the requested information
aison or designee, and the dispute reso- may be protected from disclosure under
lution services offered by OGIS. Exemption 4, but has not yet deter-
(g) Markings on released documents. mined whether the information is pro-
Records disclosed in part must be tected from disclosure under that ex-
marked clearly to show the amount of emption or any other applicable ex-
information deleted and the exemption emption.
under which the deletion was made un- (2) The notice shall either describe
less doing so would harm an interest the commercial information requested
protected by an applicable exemption. or include a copy of the requested
17
§ 102.8 13 CFR Ch. I (1–1–23 Edition)
records or portions of records con- (f) Analysis of objections. A component

taining the information. In cases in- shall consider a submitter’s objections
volving a voluminous number of sub- and specific grounds for nondisclosure
mitters, notice may be made by post- in deciding whether to disclose the re-
ing or publishing the notice in a place quested information.
or manner reasonably likely to accom- (g) Notice of intent to disclose. When-
plish it. ever a component decides to disclose
(d) Exceptions to submitter notice re- information over the objection of a
quirements. The notice requirements of submitter, the component shall provide
this section shall not apply if: the submitter written notice, which
(1) The component determines that shall include:
the information is exempt under the (1) A statement of the reasons why
FOIA; each of the submitter’s disclosure ob-
(2) The information has been lawfully jections was not sustained;
published or has been officially made (2) A description of the information
available to the public; to be disclosed; and
(3) A specified disclosure date, which
(3) Disclosure of the information is
shall be a reasonable time subsequent
required by a statute other than the
to the notice.
FOIA or by a regulation issued in ac-
cordance with the requirements of Ex- § 102.8 Fees.
ecutive Order 12600 of June 23, 1987; or
(a) In general. Components shall
(4) The designation made by the sub- charge for processing requests under
mitter under paragraph (b) of this sec- the FOIA in accordance with the provi-
tion appears obviously frivolous, ex- sions of this section and with the OMB
cept that, in such a case, the compo- Guidelines. In order to resolve any fee
nent shall give the submitter written issues that arise under this section, a
notice of any final decision to disclose component may contact a requester for
the information and must provide that additional information. Components
notice within a reasonable number of shall ensure that searches, review, and
days prior to a specified disclosure duplication are conducted in the most
date. efficient and the least expensive man-
(e) Opportunity to object to disclosure. ner. A component ordinarily will col-
(1) A component shall specify a reason- lect all applicable fees before sending
able time period within which the sub- copies of records to a requester. Re-
mitter must respond to the notice ref- questers must pay fees by check or
erenced above. If the submitter has any money order made payable to the
objections to disclosure, it should pro- Small Business Administration, ad-
vide the component a detailed written dressed to the component assessing the
statement that specifies all grounds for fee.
withholding the particular information (b) Categories of requesters. Different
under any exemption of the FOIA. In fees are assessed depending on the re-
order to rely on Exemption 4 as the quester category. Requesters may seek
basis for nondisclosure, the submitter a fee waiver. Requests for fee waivers
must explain why the information con- will be considered in accordance with
stitutes a trade secret or commercial the requirements in paragraph (l) of
or financial information that is privi- this section. For purposes of assessing
leged or confidential. fees, the FOIA establishes four cat-
(2) A submitter who fails to respond egories of requesters:
within the time period specified in the (1) Commercial use requesters;
notice shall be considered to have no (2) Non-commercial scientific/edu-
objection to disclosure of the informa- cational institutions requesters;
tion. Information received by the com- (3) News media requesters, and;
ponent after the date of any disclosure (4) All other requesters.
decision shall not be considered by the (c) Definitions. For purposes of this
component. Any information provided section:
by a submitter under this subpart may (1) Commercial use request is a request
itself be subject to disclosure under the that asks for information for a use or a
FOIA. purpose that furthers a commercial,
18
trade, or profit interest, which can in- ties and provides a copy of a course syllabus
clude furthering those interests or other reasonable documentation to indi-
through litigation. A component’s deci- cate the research purpose for the request,
would qualify as part of this fee category.
sion to place a requester in the com-
mercial use category will be made on a (5) Noncommercial scientific institution
case-by-case basis based on the re- is an institution that is not operated
quester’s intended use of the informa- on a ‘‘commercial’’ basis, as defined in
tion. paragraph (c)(1) of this section and
(2) Direct costs are those expenses that is operated solely for the purpose
that the SBA incurs in searching for of conducting scientific research, the
and duplicating (and, in the case of results of which are not intended to
commercial use requests, reviewing) promote any particular product or in-
records in order to respond to a FOIA dustry. A requester in this category
request. For example, direct costs in- must show that the request is author-
clude the salary of the employee per- ized by and is made under the auspices
forming the work (i.e., the basic rate of of a qualifying institution and that the
pay for the employee, plus 16 percent of records are sought to further scientific
that rate to cover benefits) and the research and are not for a commercial
cost of operating computers and other use.
electronic equipment, such as photo- (6) Representative of the news media is
copiers and scanners. Direct costs do any person or entity that gathers in-
not include overhead expenses such as formation of potential interest to a
the costs of space, and of heating or segment of the public, uses its editorial
lighting a facility. This will be in addi- skills to turn the raw materials into a
tion to search, review, and duplication distinct work, and distributes that
fees, and shall be paid by requesters work to an audience. The term ‘‘news’’
categorized as commercial and other. means information that is about cur-
(3) Duplication is reproducing a copy rent events or that would be of current
of a record, or of the information con- interest to the public. Examples of
tained in it, necessary to respond to a news media entities include television
FOIA request. Copies can take the form or radio stations that broadcast
of paper, audiovisual materials, or ‘‘news’’ to the public at large and pub-
electronic records, among others. lishers of periodicals that disseminate
(4) Educational institution is any ‘‘news’’ and make their products avail-
school that operates a program of able through a variety of means to the
scholarly research. A requester in this general public, including news organi-
fee category must show that the re- zations that disseminate solely on the
quest is made in connection with his or Internet. A request for records sup-
her role at the educational institution.
porting the news-dissemination func-
Components may seek verification
tion of the requester will not be consid-
from the requester that the request is
ered to be for a commercial use.
in furtherance of scholarly research
‘‘Freelance’’ journalists who dem-
and will advise requesters of their
onstrate a solid basis for expecting
placement in this category.
publication through a news media enti-
Example 1 to paragraph (c)(4). A request ty will be considered as a representa-
from a professor of geology at a university tive of the news media. A publishing
for records relating to soil erosion, written contract would provide the clearest
on letterhead of the Department of Geology,
would be presumed to be from an educational
evidence that publication is expected;
institution. however, a requester’s past publication
Example 2 to paragraph (c)(4). A request record will be considered in making a
from the same professor of geology seeking determination.
drug information from the Food and Drug (7) Review is the examination of a
Administration in furtherance of a murder record located in response to a request
mystery he is writing would not be presumed in order to determine whether any por-
to be an institutional request, regardless of
tion of it is exempt from disclosure.
whether it was written on institutional sta-
tionery. Review time includes processing any
Example 3 to paragraph (c)(4). A student, record for disclosure, such as doing all
who makes a request in furtherance of their that is necessary to prepare the record
coursework or other school-sponsored activi- for disclosure, including the process of
19
§ 102.8 13 CFR Ch. I (1–1–23 Edition)
redacting the record and marking the (iv) For requests that require the re-
appropriate exemptions. Review costs trieval of records stored by SBA at a
are properly charged even if a record Federal Records Center operated by the
ultimately is not disclosed. Review National Archives and Records Admin-
time also includes time spent both ob- istration (NARA), additional costs
taining and considering any formal ob- shall be charged in accordance with the
jection to disclosure made by a con- Transactional Billing Rate Schedule
fidential commercial information sub- established by NARA.
mitter under § 102.7, but it does not in-
(2) Duplication. Duplication fees will
clude time spent resolving general
be assessed to all requesters, subject to
legal or policy issues regarding the ap-
plication of exemptions. the restrictions of paragraph (e) of this
(8) Search is the process of looking for section. A component shall honor a re-
and retrieving records or information quester’s preference for receiving a
responsive to a request. Search time record in a particular form or format
includes page-by-page or line-by-line where it can be readily reproduced in
identification of information within the form or format requested. Where
records and the reasonable efforts ex- photocopies are supplied, SBA will pro-
pended to locate and retrieve informa- vide one copy per request at the cost of
tion from electronic records. $.10 per page. For copies of records pro-
(d) Charging fees. In responding to duced on tapes, disks, or other media,
FOIA requests, components will charge SBA will charge the direct costs of pro-
the following fees unless a waiver or reducing the copy, including operator
duction of fees has been granted under time. Where paper documents must be
paragraph (l) of this section. Because scanned in order to comply with a re-
the fee amounts provided below already quester’s preference to receive the
account for the direct costs associated records in an electronic format, the re-
with a given fee type, components will
quester must also pay the direct costs
not add any additional costs to charges
associated with scanning those mate-
calculated under this section.
(1) Search. (i) Requests made by edu- rials. For other forms of duplication,
cational institutions, noncommercial components shall charge the direct
scientific institutions, or representa- costs.
tives of the news media are not subject (3) Review. (i) Review fees will be as-
to search fees. Search fees shall be sessed to requesters who make com-
charged for all other requesters, sub- mercial use requests. Review fees will
ject to the restrictions of paragraph (e) be assessed in connection with the ini-
of this section. Components may prop- tial review of the record, i.e., the re-
erly charge for time spent searching view conducted by a component to de-
even if they do not locate any respon- termine whether an exemption applies
sive records or if they determine that to a particular record or portion of a
the records are entirely exempt from record. No charge will be made for re-
disclosure. view at the administrative appeal stage
(ii) For each hour spent by personnel of exemptions applied at the initial re-
searching for requested records, includ- view stage. However, if a particular ex-
ing electronic searches that do not re-
emption is deemed to no longer apply,
quire new programming, the fees will
any costs associated with SBA’s re-re-
be charged as follows: Professional (GS
9–14)—$46; and managerial (GS 15 and view of the records in order to consider
above)—$83. the use of other exemptions may be as-
(iii) Requesters shall be charged the sessed as review fees. Review fees will
direct costs associated with conducting be charged at the same rates as those
any search that requires the creation charged for a search under paragraph
of a new computer program to locate (d)(1)(ii) of this section.
the requested records. Requesters shall (ii) The following table summarizes
be notified of the costs associated with the fees for each type of requester.
creating such a program and must

agree to pay the associated costs before
the costs may be incurred.
20
TABLE 1 TO § 102.8—SUMMARY OF FEES

Requester category Search Review Duplication fees Direct costs
Commercial Use ............................. Yes ............................... Yes ............ Yes .................................................. Yes.
Educational/Noncommercial Sci- No ................................ No ............. Yes (first 100 pages, or equivalent No.
entific Institutions. volume free).
News Media .................................... No ................................ No ............. Yes (first 100 pages, or equivalent No.
volume free).
All Others ........................................ Yes (first 2 hours free) No ............. Yes (first 100 pages, or equivalent Yes.
volume free).
(e) Restrictions on charging fees. (1) (iv) If a court has determined that
When a component determines that a exceptional circumstances exist, as de-
requester is an educational institution, fined by the FOIA, a failure to comply
non-commercial scientific institution, with the time limits shall be excused
or representative of the news media, for the length of time provided by the
and the records are not sought for com- court order.
mercial use, it will not charge search (2) No search or review fees will be
fees. charged for a quarter-hour period un-
(i) If a component fails to comply less more than half of that period is re-
with the time limits in which to required for search or review.
spond to a request, it may not charge (3) Except for requesters seeking
search fees, or, in the instances of re- records for a commercial use, compo-
quests from requesters described in nents shall provide without charge:
paragraph (c)(1) of this section, may (i) The first 100 pages of duplication
not charge duplication fees, except as (or the cost equivalent for other
media); and
described in paragraphs (d)(1)(ii)
(ii) The first two hours of search.
through (iv) of this section.
(4) No fee will be charged when the
(ii) If a component has determined total fee, after deducting the 100 free
that unusual circumstances as defined pages (or its cost equivalent) and the
by the FOIA apply and SBA provided first two hours of search, is equal to or
timely written notice to the requester less than $46.00.
in accordance with the FOIA, a failure (f) Notice of anticipated fees in excess of
to comply with the time limit shall be $46.00. (1) When a component deter-
excused for an additional 10 working mines or estimates that the fees to be
days. assessed in accordance with this sec-
(iii) If a component has determined tion will exceed $46.00, the component
that unusual circumstances, as defined shall notify the requester of the actual
by the FOIA, apply and more than 5,000 or estimated amount of the fees, in-
pages are necessary to respond to the cluding a breakdown of the fees for
request, the component may charge search, review, or duplication, unless
search fees, or, in the case of request- the requester has indicated a willing-
ers described in paragraph (c)(1) of this ness to pay fees as high as those antici-
section, may charge duplication fees, if pated. If only a portion of the fee can
the following steps are taken. The com- be estimated readily, the component
ponent shall provide a timely written shall advise the requester accordingly.
notice of unusual circumstances to the If the request is not for noncommercial
requester in accordance with the FOIA use, the notice will specify that the re-
and SBA must have discussed with the quester is entitled to the statutory en-
requester via written mail, email, or titlements of 100 pages of duplication
telephone (or made not less than three at no charge and, if the requester is
good-faith attempts to do so) how the charged search fees, two hours of
requester could effectively limit the search time at no charge, and will ad-
scope of the request in accordance with vise the requester whether those enti-
5 U.S.C. 552(a)(6)(B)(ii). If this excep- tlements have been provided.
tion is satisfied, the component may (2) In cases in which a requester has
charge all applicable fees incurred in been notified that the actual or esti-
the processing of the request. mated fees are in excess of $46.00, the
21
§ 102.8 13 CFR Ch. I (1–1–23 Edition)
request shall not be considered re- Components shall follow the provisions
ceived and further work will not be of the Debt Collection Act of 1982 (Pub.
completed until the requester commits L. 97–365, 96 Stat. 1749), as amended,
in writing to pay the actual or esti- and its administrative procedures, in-
mated total fee, or designates some cluding the use of consumer reporting
amount of fees the requester is willing agencies, collection agencies, and off-
to pay, or in the case of a noncommer- set.
cial use requester who has not yet been (i) Aggregating requests. When a com-
provided with the requester’s statutory ponent reasonably believes that a re-
entitlements, designates that the requester or a group of requesters acting
quester seeks only that which can be in concert is attempting to divide a
provided by the statutory entitle- single request into a series of requests
ments. The requester must provide the for the purpose of avoiding fees, the
commitment or designation in writing, component may aggregate those re-
and must, when applicable, designate quests and charge accordingly. Compo-
an exact dollar amount the requester is nents may presume that multiple re-
willing to pay. Components are not requests of this type made within a 30-
quired to accept payments in install- day period have been made in order to
ments. avoid fees. For requests separated by a
(3) If the requester has indicated a longer period, components shall aggre-
willingness to pay some designated gate them only where there is a reason-
amount of fees, but the component es- able basis for determining that aggre-
timates that the total fee will exceed gation is warranted in view of all the
that amount, the component will toll circumstances involved. Multiple re-
the processing of the request when it quests involving unrelated matters
notifies the requester of the estimated cannot be aggregated.
fees in excess of the amount the re- (j) Advance payments. (1) For requests
quester has indicated a willingness to other than those described in para-
pay. The component shall inquire graphs (j)(2) or (j)(3) of this section,
whether the requester wishes to revise components cannot require the re-
the amount of fees the requester is quester to make an advance payment
willing to pay or modify the request. before work is commenced or contin-
Once the requester responds, the time ued on a request. Payment owed for
to respond will resume from where it work already completed (i.e., payment
was at the date of the notification. before copies are sent to a requester) is
(4) Components shall make available not an advance payment.
their FOIA Public Liaison or other des- (2) When a component determines or
ignee to assist any requester in refor- estimates that a total fee to be charged
mulating a request to meet the re- under this section will exceed $250.00, it
quester’s needs at a lower cost. may require that the requester make
(g) Charges for other services. Al- an advance payment up to the amount
though not required to provide special of the entire anticipated fee before be-
services, if a component chooses to do ginning to process the request. Compo-
so as a matter of administrative discre- nents may elect to process the request
tion, the direct costs of providing the prior to collecting fees when it receives
service will be charged. Examples of a satisfactory assurance of full pay-
such services include certifying that ment from a requester with a history
records are true copies, providing mul- of prompt payment.
tiple copies of the same document, or (3) Where a requester has previously
sending records by means other than failed to pay a properly charged FOIA
first class mail. fee to any component or SBA within 30
(h) Charging interest. Components working days of the billing date, a
may charge interest on any unpaid bill component may require that the re-
starting on the 31st day following the quester pay the full amount due, plus
date of billing the requester. Interest any applicable interest on that prior
charges will be assessed at the rate request, and the component may re-
provided in 31 U.S.C. 3717 and will acquire that the requester make an ad-
crue from the billing date until pay- vance payment of the full amount of
ment is received by the component. any anticipated fee before SBA begins
22
to process a new request or continues mines, based on all available informa-

to process a pending request or any tion, that the factors described in para-
pending appeal. When a component has graphs (l)(2)(i) through (iii) of this sec-
a reasonable basis to believe that a re- tion are satisfied:
quester has misrepresented the re- (i) Disclosure of the requested infor-
quester’s identity in order to avoid mation would shed light on the oper-
paying outstanding fees, it may require ations or activities of the government.
that the requester provide proof of The subject of the request must con-
identity. cern identifiable operations or activi-
(4) In cases in which advanced pay- ties of the Federal Government with a
ment is required, the request will not connection that is direct and clear, not
be considered received and further remote or attenuated.
work will not be completed until the (ii) Disclosure of the requested infor-
required payment is received. If the re- mation is likely to contribute signifi-
quester does not pay the advance pay- cantly to public understanding of those
ment within 30 working days after the operations or activities. This factor is
date of the fee determination, the re- satisfied when the following criteria
quest will be closed. are met:
(k) Other statutes specifically providing (A) Disclosure of the requested
for fees. The fee schedule of this section records must be meaningfully inform-
does not apply to fees charged under ative about government operations or
any statute that specifically requires activities. The disclosure of informa-
SBA to set and collect fees for par- tion that already is in the public do-
ticular types of records. In instances main, in either the same or a substan-
where records responsive to a request tially identical form, would not be
are subject to a statutorily-based fee meaningfully informative if nothing
schedule program, the requester will be new would be added to the public’s un-
informed of the contact information derstanding.
for that program. (B) The disclosure must contribute to
(l) Requirements for waiver or reduction the understanding of a reasonably
of fees. (1) Requesters may seek a waiv- broad audience of persons interested in
er of fees by submitting written cor- the subject, as opposed to the indi-
respondence demonstrating how disclo- vidual understanding of the requester.
sure of the requested information is in A requester’s expertise in the subject
the public interest because it is likely area as well as the requester’s ability
to contribute significantly to public and intention to effectively convey in-
understanding of the operations or ac- formation to the public must be consid-
tivities of the government and is not ered. Components shall presume that a
primarily in the commercial interest of representative of the news media will
the requester. Records responsive to a satisfy this consideration.
request shall be furnished without (iii) The disclosure must not be pri-
charge or at a reduced rate below the marily in the commercial interest of
rate established under paragraph (d) of the requester. To determine whether
this section, where a component deter- disclosure of the requested information
mines, based on all available informa- is primarily in the commercial interest
tion, that the requester has dem- of the requester, the following criteria
onstrated that: will be considered:
(i) Disclosure of the requested infor- (A) Identify whether the requester
mation is in the public interest because has any commercial interest that
it is likely to contribute significantly would be furthered by the requested
to public understanding of the oper- disclosure. A commercial interest in-
ations or activities of the government, cludes any commercial, trade, or profit
and interest. Requesters must be given an
(ii) Disclosure of the information is opportunity to provide explanatory in-
not primarily in the commercial inter- formation regarding this consideration.
est of the requester. (B) If there is an identified commer-
(2) Components shall furnish records cial interest, a determination will be

responsive to a request without charge made whether the primary interest is
or at a reduced rate when it deter- furthered by the request. A waiver or
23
§ 102.9 13 CFR Ch. I (1–1–23 Edition)
reduction of fees is justified when the (2) An appeal ordinarily will not be
requirements of paragraphs (l)(2)(i) and adjudicated if the request becomes a
(ii) of this section are satisfied and any matter of FOIA litigation.
commercial interest is not the primary (3) On receipt of any appeal involving
interest furthered by the request. Ordi- classified information, the FOI/PA Of-
narily there will be a presumption, fice shall take appropriate action to
that when a news media requester has ensure compliance with Executive Or-
satisfied factors (l)(2)(i) and (ii) of this ders 13467 and 13526.
section, the request is not primarily in (c) Decisions on appeals. A decision on
the commercial interest of the re- an appeal will be made in writing. A
quester. Disclosure to data brokers or decision that upholds a component’s
others who merely compile and market
determination will contain a statement
government information for direct eco-
that identifies the reasons for the af-
nomic return will not be presumed to
firmance, including any FOIA exemp-
primarily serve the public interest.
(3) Where only some of the records to tions applied. The decision will provide
be released satisfy the requirements for the requester with notification of the
a waiver of fees, a waiver must be statutory right to file a lawsuit and
granted for those records. will inform the requester of the medi-
(4) Requests for a waiver or reduction ation services offered by OGIS as a
of fees should be made when the re- non-exclusive alternative to litigation.
quest is first submitted and should ad- If a component’s decision is remanded
dress the criteria referenced above. A or modified on appeal, the requester
requester may submit a fee waiver re- will be notified of that determination
quest at a later time so long as the unin writing. The component will there-
derlying record request is pending or after, further process the request in ac-
on administrative appeal. When a re- cordance with that appeal determina-
quester who has committed to pay fees tion and respond directly to the re-
subsequently asks for a waiver of those quester.
fees and that waiver is denied, the re- (d) Time limit for issuing appeal de-
quester must pay any costs incurred up cision. The statutory time limit for re-
to the date the fee waiver request was sponding to appeals is generally 20
received. working days after receipt. However,
the Appeals Officer may extend the
§ 102.9 Administrative appeals. time limit for responding to an appeal
(a) Requirements for making an appeal. provided the circumstances set forth in
A requester may appeal any adverse de- 5 U.S.C. 552(a)(6)(B)(i) are met.
terminations to the FOI/PA Office. The (e) Engaging in dispute resolution serv-
contact information is contained in ices provided by OGIS. Mediation is a
§ 102.3(a)(1). Examples of adverse deter- voluntary process. If a component
minations are provided in § 102.6(e). The agrees to participate in the mediation
requester must make the appeal in services provided by OGIS, it will ac-
writing and to be considered timely it tively engage as a partner to the proc-
must be postmarked, or in the case of ess in an attempt to resolve the dis-
electronic submissions, transmitted, pute.
within 90 working days after the date
(f) When an appeal is required. Before
of the response. The appeal should
seeking review by a court of a compo-
clearly identify the component’s deter-
nent’s adverse determination, a re-
mination that is being appealed and
quester generally must first submit a
the assigned request number. To facili-
tate handling, the requester should timely administrative appeal.
mark both the appeal letter and enve- § 102.10 Preservation of records.
lope, or subject line of the electronic
transmission, ‘‘Freedom of Information Each component shall preserve all
Act Appeal.’’ correspondence pertaining to the re-
(b) Adjudication of appeals. (1) The quests that it receives under this sub-
Chief, FOI/PA or designee will act on part, as well as copies of all requested
behalf of the SBA on all appeals under records, until disposition or destruc-
this section. tion is authorized pursuant to title 44
24
Small Business Administration Pt. 102, Subpt. A, App. A
of the United States Code or the Gen- cations, SBIC applications, loan officer’s re-
eral Records Schedule 14 of the Na- ports.
tional Archives and Records Adminis- g. Internal documents not incorporated
tration. Records shall not be disposed into final Agency action, pending internal
recommendations on applications for assist-
of or destroyed while they are the sub- ance, SBA/attorney-client communications,
ject of a pending request, appeal, or pending litigation documents and investiga-
lawsuit under the FOIA. tory documents. Discretionary disclosure
policy must be utilized.
§ 102.11 Subpoenas. h. Personal history and financial state-
(a) The person to whom the subpoena ments, tax forms, resumes, all non-govern-
is directed must consult with SBA ment career experience, communications re-
counsel in the relevant SBA office, who garding applicant’s character, home address-
es and telephone numbers, social security
will seek approval for compliance from numbers, birth dates and medical records.
the Associate General Counsel for Liti- Portions of Inspector General (IG) reports,
gation. Except where the subpoena re- audit reports, program investigation records
quires the testimony of an employee of and any other records which, if released,
the Inspector General’s office, or would interfere with the Government’s law
records within the possession of the In- enforcement proceedings and/or would reveal
spector General, the Associate General the identity of a confidential source and doc-
Counsel may delegate the authoriza- uments relating to pending litigation and in-
vestigations. Requests for IG documents
tion for appropriate production of doc-
must be referred to the Office of the Inspec-
uments or testimony to local SBA tor General, Counsel Division.
counsel. i. Financial information on portfolio com-
(b) If SBA counsel approves compli- panies.
ance with the subpoena, SBA will com- j. Information originating from other agen-
ply. cies should be referred to those agencies for
(c) If SBA counsel disapproves com- disclosure determinations.
pliance with the subpoena, SBA will
II. INFORMATION GENERALLY DISCLOSED
not comply, and will base such non-
compliance on an appropriate legal a. Names and business addresses of recipi-
basis such as privilege or a statute. ents of approved loans, SBIC licenses, Cer-
(d) SBA counsel must provide a copy tificates of Competency, lease guarantees,
surety bond guarantees and requests for
of any subpoena relating to a criminal counseling.
matter to SBA’s Inspector General b. Names of officers, directors, stock-
prior to its return date. holders or partners of recipient firms.
c. Kinds and amounts of loans, loan terms,
APPENDIX A TO SUBPART A OF PART interest rates (except on home disaster
102—RECORDS MAINTAINED BY SBA loans), maturity dates, general purpose, etc.
d. Statistical data on assistance, loans, de-
I. INFORMATION GENERALLY EXEMPT FROM
faults, contracts, counseling, etc.
DISCLOSURE
e. Decisions, rulings and records showing
a. Non-statistical information on pending, final Agency actions in specific factual situ-
declined, withdrawn, or canceled applica- ations if identifying details exempt from dis-
tions. closure are first deleted.
b. Non-statistical information on defaults, f. Awarded contracts: names, amounts,
delinquencies, losses etc. dates, contracting agencies.
c. Loan status, other than charged-off or g. Identity of participating banks.
paid-in-full. h. List of 8(a) participants, date of entry,
d. Home disaster loan status and interest FPPT dates and NAICS codes.
rate. i. OHA opinions and decisions.
e. Financial statements, credit reports, j. Names of SBA employees, grades, titles,
business plans, plant lay-outs, marketing and duty stations.
strategy, advertising plans, fiscal projec-
tions, pricing information, payroll informa-
tion, private sector experience and con- Subpart B—Protection of Privacy
tracts, IRS forms, purchase information, and Access to Individual
banking information, corporate structure, Records Under the Privacy
research plans and client list of applicant/re-
cipient.
Act of 1974
f. Portions of: Certificate of Competency

records, Requests for Size Determinations, SOURCE: 72 FR 17369, Apr. 9, 2007, unless
8(a) Business Development Plans, loan appli- otherwise noted.
25
§ 102.20 13 CFR Ch. I (1–1–23 Edition)
§ 102.20 General provisions. (7) Statistical record means a record in

(a) Purpose and scope. This subpart a system of records maintained for sta-
implements the provisions of the Pri- tistical research or reporting purposes
vacy Act of 1974, 5 U.S.C. 552a. These only and not used in whole or in part in
regulations apply to all records which making any determination about an
are contained in systems of records identifiable individual;
maintained by the U.S. Small Business (8) Routine use means, with respect to
Administration (SBA) and that are re- the disclosure of a record, the use of
trieved by an individual’s name or per- such record for a purpose which is com-
sonal identifier. These regulations set patible with the purpose for which it
forth the procedures by which individ- was collected;
uals may request access to records (9) Request for access to a record
about themselves, request amendment means a request made under Privacy
or correction of those records, and re- Act subsection (d)(1) allowing an indi-
quest an accounting of disclosures of vidual to gain access to his or her
those records by the SBA. These regu- record or to any information per-
lations also set forth the requirements taining to him or her which is con-
applicable to SBA employees maintain- tained in a system of records;
ing, collecting, using or disseminating (10) Request for amendment or correc-
records pertaining to individuals. This tion of a record means a request made
subpart applies to SBA and all of its of- under Privacy Act subsection (d)(2),
fices and is mandatory for use by all permitting an individual to request
SBA employees. amendment or correction of a record
(b) Definitions. As used in this sub- that he or she believes is not accurate,
part: relevant, timely, or complete;
(1) Agency means the U.S. Small (11) Request for an accounting means a
Business Administration (SBA) and in- request made under Privacy Act sub-
cludes all of its offices wherever lo- section (c)(3) allowing an individual to
cated; request an accounting of any disclosure
(2) Employee means any employee of to any SBA officers and employees who
the SBA, regardless of grade, status, have a need for the record in the per-
category or place of employment; formance of their duties;
(3) Individual means a citizen of the (12) Requester is an individual who
United States or an alien lawfully ad- makes a request for access, a request
mitted for permanent residence. This for amendment or correction, or a re-
term shall not encompass entrepre- quest for an accounting under the Pri-
neurial enterprises (e.g. sole propri- vacy Act; and
etors, partnerships, corporations, or (13) Authority to request records for a
other forms of business entities); law enforcement purpose means that the
(4) Maintain includes maintain, col- head of an Agency or a United States
lect, use, or disseminate; Attorney, or either’s designee, is au-
(5) Record means any item, collec- thorized to make written requests
tion, or grouping of information about under subsection (b)(7) of the Privacy
an individual that is maintained by the Act for records maintained by other
SBA, including, but not limited to edu- agencies that are necessary to carry
cation, financial transactions, medical out an authorized law enforcement ac-
history, and criminal or employment tivity.
history and that contains the individ-
ual’s name, or an identifying number, § 102.21 Agency employees responsible
symbol, or other identifying particular for the Privacy Act of 1974.
assigned to the individual such as a fin- (a) Program/Support Office Head is the
ger or voice print or photograph; SBA employee in each field office and
(6) System of records means a group of major program and support area re-
any records under the control of SBA sponsible for implementing and over-
from which information is retrieved by seeing this regulation in that office.
the name of the individual or by an (b) Privacy Act Systems Manager
identifying number, symbol, or other (PASM) is the designated SBA em-

identifying particular assigned to the ployee in each office responsible for the
individual; development and management of any
26
Privacy Act systems of records in that establish or alter any system of records
office. in order to permit an evaluation of the
(c) Senior Agency Official for Privacy is probable or potential effect of such
SBA’s Chief Information Officer (CIO) proposal on the privacy and other per-
who has overall responsibility and ac- sonal or property rights of individuals
countability for ensuring the SBA’s or the disclosure of information relat-
implementation of information privacy ing to such individuals.
protections, including the SBA’s full (d) Accurate and secure maintenance of
compliance with Federal laws, regula- records. Each SBA office shall:
tions, and policies relating to informa- (1) Maintain all records which are
tion privacy such as the Privacy Act used in making any determination
and the E-Government Act of 2002. about any individual with such accu-
(d) Chief, Freedom of Information/Pri- racy, relevance, timeliness, and com-
vacy Acts (FOI/PA) Office oversees and pleteness as is reasonably necessary to
implements the record access, amend- assure fairness to the individual in the
ment, and correction provisions of the determination;
Privacy Act. (2) Prior to disseminating any record
from a system of records about an indi-
§ 102.22 Requirements relating to sys- vidual to any requestor, including an
tems of records. agency, make reasonable efforts to as-
(a) In general. Each SBA office shall, sure that such records are accurate,
in accordance with the Privacy Act: complete, timely, and relevant for SBA
(1) Maintain in its records only such purposes; and
information about an individual as is (3) Establish appropriate administra-
relevant and necessary to accomplish a tive, technical, and physical safeguards
purpose of the Agency required to be to insure the security and confiden-
accomplished by a statute or by Execu- tiality of records and to protect
tive Order of the President; against any anticipated threats or haz-
(2) Collect information to the great- ards to their security or integrity
est extent practicable directly from which could result in substantial harm,
the subject individual when the infor- embarrassment, inconvenience, or un-
mation may affect an individual’s fairness to any individual on whom in-
rights, benefits, and privileges under formation is maintained.
Federal programs; (i) PASMs, with the approval of the
(b) Requests for information from indi- head of their offices, shall establish ad-
viduals. If a form is being used to col- ministrative and physical controls,
lect information from individuals, ei- consistent with SBA regulations, to in-
ther the form used to collect the infor- sure the protection of records systems
mation, or a separate form that can be from unauthorized access or disclosure
retained by the individual, must state and from physical damage or destruc-
the following: tion. The controls instituted shall be
(1) The authority (whether granted proportional to the degree of sensi-
by statute, or by Executive Order of tivity of the records but at a minimum
the President) which authorizes the so- must ensure that records other than
licitation of the information and those available to the general public
whether disclosure of such information under the FOIA, are protected from
is mandatory or voluntary; public view, that the area in which the
(2) The principal purpose or purposes records are stored is supervised during
for which the information is intended all business hours and physically se-
to be used; cured during non-business hours to pre-
(3) The routine uses which may be vent unauthorized personnel from ob-
made of the information; and taining access to the records.
(4) The effects on such individual, if (ii) PASMs, with the approval of the
any, of not providing all or any part of head of their offices, shall adopt access
the requested information. restrictions to insure that only those
(c) Report on new systems. Each SBA individuals within the agency who have
office shall provide adequate advance a need to have access to the records for
notice to Congress and OMB through the performance of their duties have
the FOI/PA Office of any proposal to access to them. Procedures shall also
27
§ 102.23 13 CFR Ch. I (1–1–23 Edition)
be adopted to prevent accidental access (ix) The categories of sources of

to, or dissemination of, records. records in the system.
(e) Prohibition against maintenance of (2) Minor changes to systems of
records concerning First Amendment records shall be published annually.
rights. No SBA office shall maintain a (b) Notice of new or modified routine
record describing how any individual uses to be published in the FEDERAL REG-
exercises rights guaranteed by the ISTER. At least 30 days prior to dis-
First Amendment (e.g. speech), unless closing records pursuant to a new use
the maintenance of such record is: or modification of a routine use, as
(1) Expressly authorized by statute, published under paragraph (a)(1)(iv) of
or this section, each SBA office shall pub-
(2) Expressly authorized by the indi- lish in the FEDERAL REGISTER notice of
vidual about whom the record is main- such new or modified use of the infor-
tained, or mation in the system and provide an
(3) Pertinent to and within the scope opportunity for any individual or per-
of an authorized law enforcement ac- sons to submit written comments.
tivity.
§ 102.24 Requests for access to records.
§ 102.23 Publication in the Federal (a) How made and addressed. An indi-
Register—Notices of systems of vidual, or his or her legal guardian,
records. may make a request for access to an
(a) Notices of systems of records to be SBA record about himself or herself by
published in the FEDERAL REGISTER. (1) appearing in person or by writing di-
The SBA shall publish in the FEDERAL rectly to the SBA office that maintains
REGISTER upon establishment or revi- the record or to the FOI/PA Office by
sion a notice of the existence and char- mail to 409 3rd St., SW., Washington,
acter of any new or revised systems of DC 20416 or fax to 202–205–7059. A re-
records. Unless otherwise instructed, quest received by the FOI/PA Office
each notice shall include: will be forwarded to the appropriate
(i) The name and location of the sys- SBA Office where the records are lo-
tem; cated.
(ii) The categories of individuals on (b) Description of records sought. A re-
who records are maintained in the sys- quest for access to records must de-
tem; scribe the records sought in sufficient
(iii) The categories of records main- detail to enable SBA personnel to lo-
tained in the system; cate the system of records containing
(iv) Each routine use of the records them with a reasonable amount of ef-
contained in the system, including the fort. A request should also state the
categories of users and the purpose of date of the record or time period in
such use; which the record was compiled, and the
(v) The policies and practices of the name or identifying number of each
office regarding storage, retrievability, system of records in which the re-
access controls, retention, and disposal quester believes the record is kept. The
of the records; SBA publishes notices in the FEDERAL
(vi) The title and business address of REGISTER that describe its systems of
the SBA official who is responsible for records. A description of the SBA’s sys-
the system of records; tems of records also may be found at
(vii) A statement that SBA proce- http://www.sba.gov/foia/
dures allow an individual, at his or her systemrecords.doc.
request, to determine whether a sys- (c) Verification of identity. Any indi-
tem of records contains a record per- vidual who submits a request for access
taining to him or her, to review such to records must verify his or her iden-
records and to contest or amend such tity. No specific form is required; how-
records, located in sections 102.25 ever, the requester must state his or
through 102.29 of these regulations. her full name, current address, and
(viii) A statement that such requests date and place of birth. The request
may be directed to the SBA’s FOI/PA must be signed and the requester’s sig-
Office, 409 3rd St., SW., Washington, DC nature must either be notarized or sub-
20416 or faxed to 202–205–7059; and mitted under 28 U.S.C. 1746. This law
28
permits statements to be made under only those records in its possession as

penalty of perjury as a substitute for of the date the office begins its search
notarization, the language states: for them. If any other date is used, the
(1) If executed outside the United office shall inform the requester of
States: ‘‘I declare (or certify, verify, or that date.
state) under penalty of perjury under (b) Authority to grant or deny requests.
the laws of the United States of Amer- The Program/Support Office Head, or
ica that the foregoing is true and cor- designee, is authorized to grant or deny
rect. Executed on (date). Signature’’; any request for access to a record of
or that office.
(2) If executed within the Untied (c) Consultations and referrals. When
States, its territories, possessions or an office receives a request for access
commonwealths: ‘‘I declare (or certify, to a record in its possession, it shall
verify, or state) under penalty of per- determine whether another office, or
jury that the foregoing is true and cor- another agency of the Federal Govern-
rect. Executed on (date). Signature’’. ment, is better able to determine
(d) Verification of guardianship. When whether the record is exempt from ac-
making a request as a legal agent or cess under the Privacy Act. If the re-
the parent or guardian of a minor or as ceiving office determines that it is best
the guardian of someone determined by able to process the record in response
a court to be incompetent, for access to to the request, then it shall do so. If
records about that individual, the re- the receiving office determines that it
quester must establish: is not best able to process the record,
(1) The identity of the individual who then it shall either:
is the subject of the record, by stating (1) Respond to the request regarding
the name, current address, date and that record, after consulting with the
place of birth, and, at the requester’s office or agency best able to determine
option, the social security number of whether the record is exempt from ac-
the individual; cess and with any other office or agen-
(2) The requester’s own identity, as cy that has a substantial interest in it;
required in paragraph (c) of this sec- or
tion; (2) Refer the responsibility for re-
(3) That the requester is the legal sponding to the request to the office
agent or parent or guardian of that in- best able to determine whether the
dividual, which may be proven by pro- record is exempt from access or to an-
viding a copy of the individual’s birth other agency that originated the
certificate showing his parentage or by record (but only if that agency is sub-
providing a court order establishing ject to the Privacy Act). Ordinarily the
guardianship; and office or agency that originated a
(4) That the requester is acting on be- record will be presumed to be best able
half of that individual in making the to determine whether it is exempt from
request. access.
(d) Law enforcement information.
§ 102.25 Responsibility for responding Whenever a request is made for access
to requests for access to records. to a record containing information
(a) In general. Except as stated in that relates to an investigation of a
paragraphs (c), (d), and (e) of this sec- possible violation of law and that was
tion and in § 102.24(a), the office that originated by SBA’s Office of the In-
first receives a request for access to a spector General (OIG) or another agen-
record, and has possession of that cy, the receiving office shall refer the
record, is the office responsible for re- responsibility for responding to the re-
sponding to the request. That office quest regarding that information to ei-
shall acknowledge receipt of the re- ther SBA’s OIG or the other agency
quest not later than 10 days (excluding ‘‘depending on where the investigation
Saturdays, Sundays, and legal public originated.’’
holidays) after the date of receipt of (e) Classified information. Whenever a
the request in writing. In determining request is made for access to a record

which records are responsive to a re- containing information that has been
quest, an office ordinarily shall include classified by or may be appropriate for
29
§ 102.26 13 CFR Ch. I (1–1–23 Edition)
classification by another office or under § 102.31 and shall disclose records

agency under Executive Order 12958 or to the requester promptly on payment
any other executive order concerning of any applicable fee. If a request is
the classification of records, the re- made in person, the office may disclose
ceiving office shall refer the responsi- records to the requester directly, in a
bility for responding to the request re- manner not unreasonably disruptive of
garding that information to the office its operations, on payment of any ap-
or agency that classified the informa- plicable fee and with a written record
tion, should consider the information made of the grant of the request. If a
for classification, or has the primary requester is accompanied by another
interest in it, as appropriate. Whenever person, he or she shall be required to
a record contains information that has authorize in writing any discussion of
been derivatively classified by an office the records in the presence of the other
because it contains information classi- person.
fied by another office or agency, the of- (c) Adverse determinations of requests
fice shall refer the responsibility for for access. A Program/Support Office
responding to the request regarding Head or designee making an adverse
that information to the office or agen- determination denying a request for
cy that classified the underlying infor- access in any respect shall notify the
mation. Information determined to no requester of that determination in
longer require classification shall not writing. Adverse determinations, or de-
be withheld from a requester on the nials of requests, consist of: a deter-
basis of Exemption (k)(1) of the Pri- mination to withhold any requested
vacy Act. record in whole or in part; a determina-
(f) Notice of referral. Whenever an of- tion that a requested record does not
fice refers all or any part of the respon- exist or cannot be located; a deter-
sibility for responding to a request to mination that the requested informa-
another office or agency, it shall notify tion is not a record subject to the Pri-
the requester of the referral and inform vacy Act; a determination on any dis-
the requester of the name of each office puted fee matter; and a denial of a re-
or agency to which the request has quest for expedited treatment. The no-
been referred and of the part of the re- tification letter shall be signed by the
quest that has been referred. Program/Support Office Head or des-
(g) Responses to consultations and re- ignee, and shall include:
ferrals. All consultations and referrals (1) The name and title or position of
shall be processed according to the the person responsible for the denial;
date the access request was initially (2) A brief statement of the reason(s)
received by the first office or agency, for the denial, including any FOIA or
not any later date. Privacy Act exemption(s) applied in de-
(h) Agreements regarding consultations nying the request; and
and referrals. Offices may make agree- (3) A statement that the denial may
ments with other offices or agencies to be appealed under § 102.27(a) and a de-
eliminate the need for consultations or scription of the requirements of
referrals for particular types of § 102.27(a).
records.
§ 102.27 Appeals from denials of re-
§ 102.26 Responses to requests for ac- quests for access to records.
cess to records. (a) Appeals. If the requester is dissat-
(a) Acknowledgements of requests. On isfied with an office’s response to his or
receipt of a request, an office shall send her request for access to records, the
an acknowledgement letter to the re- requester may make a written appeal
quester. of the adverse determination denying
(b) Grants of requests for access. Once the request in any respect to the SBA’s
an office makes a determination to FOI/PA Office, 409 3rd St., SW., Wash-
grant a request for access in whole or ington, DC 20416. The appeal must be
in part, it shall notify the requester in received by the FOI/PA Office within 60
writing. The Program/Support Office days of the date of the letter denying
Head or designee shall inform the re- the request. The requester’s appeal let-
quester in the notice of any fee charged ter should include as much information
30
as possible, including the identity of quester a written acknowledgment of

the office whose adverse determination receipt, and the office shall notify the
is being appealed. Unless otherwise di- requester within 30 days (excluding
rected, the Chief, FOI/PA will decide Saturdays, Sundays, and legal public
all appeals under this subpart. holidays) of receipt of the request
(b) Responses to appeals. The decision whether it is granted or denied. If the
on a requester’s appeal will be made in Program/Support Office Head or des-
writing not later than 30 days (exclud- ignee grants the request in whole or in
ing Saturdays, Sundays, and legal pub- part, the amendment or correction
lic holidays) after the date of receipt of must be made, and the requester ad-
such appeal. A decision affirming an vised of his or her right to obtain a
adverse determination in whole or in copy of the corrected or amended
part will include a brief statement of record. If the office denies a request in
the reason(s) for the affirmation, in- whole or in part, it shall send the re-
cluding any Privacy Act exemption ap- quester a letter signed by the Program/
plied, and will inform the requester of Support Office Head or designee that
the Privacy Act provisions for court re- shall state:
view of the decision. If the adverse de- (1) The reason(s) for the denial; and
termination is reversed or modified on (2) The procedure for appeal of the
appeal in whole or in part, the re- denial under paragraph (c) of this sec-
quester will be notified in a written de- tion, including the name and business
cision and his request will be reproc- address of the official who will act on
essed in accordance with that appeal
your appeal.
decision.
(c) Appeals. An individual may appeal
(c) Judicial review. In order to seek ju-
a denial of a request for amendment or
dicial review by a court of any adverse
determination or denial of a request, a correction to the FOI/PA Office in the
requester must first appeal it to the same manner as a denial of a request
FOI/PA Office under this section. for access to records (see § 102.27), and
the same procedures shall be followed.
§ 102.28 Requests for amendment or If the appeal is denied, the requester
correction of records. shall be advised of his or her right to
(a) How made and addressed. Unless file a Statement of Disagreement as
the record is not subject to amendment described in paragraph (d) of this sec-
or correction as stated in paragraph (f) tion and of his or her right under the
of this section, an individual may Privacy Act for court review of the de-
make a request for amendment or cor- cision.
rection of an SBA record about himself (d) Statement of Disagreement. If an ap-
or herself by writing directly to the of- peal under this section is denied in
fice that maintains the record, fol- whole or in part, the requester has the
lowing the procedures in § 102.24. The right to file a Statement of Disagree-
request should identify each particular ment that states the reason(s) for dis-
record in question, state the amend- agreeing with the SBA’s denial of his
ment or correction sought, and state or her request for amendment or cor-
why the record is not accurate, rel- rection. A Statement of Disagreement
evant, timely, or complete. The re- must be concise, must clearly identify
quester may submit any documenta- each part of any record that is dis-
tion that he or she thinks would be puted, and should be no longer than
helpful. If the requester believes that one typed page for each fact disputed.
the same record is in more than one An individual’s Statement of Disagree-
system of records, that should be stat- ment must be sent to the office that
ed and the request should be sent to maintains the record involved, which
each office that maintains a system of shall place it in the system of records
records containing the record. in which the disputed record is main-
(b) Office responses. Within ten (10) tained and shall mark the disputed
days (excluding Saturdays, Sundays, record to indicate that a Statement of
and legal public holidays) of receiving Disagreement has been filed and where
a request for amendment or correction in the system of records it may be
of records, an office shall send the re- found.
31
§ 102.29 13 CFR Ch. I (1–1–23 Edition)
(e) Notification of amendment/correction (b) Where accountings are not required.

or disagreement. Within 30 days (exclud- Offices are not required to provide ac-
ing Saturdays, Sundays, and legal pub- countings where they relate to:
lic holidays) of the amendment or cor- (1) Disclosures for which accountings
rection of a record, the office that are not required to be kept; disclosures
maintains the record shall notify all that are made to employees within the
persons, organizations, or agencies to SBA and disclosures that are made
which it previously disclosed the under the FOIA;
record, if an accounting of that disclo- (2) Disclosures made to law enforce-
sure was made, that the record has ment agencies for authorized law en-
been amended or corrected. If an indi- forcement activities in response to
vidual has filed a Statement of Dis- written requests from those law en-
agreement, the office shall append a forcement agencies specifying the civil
copy of it to the disputed record when- or criminal law enforcement activities
ever the record is disclosed and may for which the disclosures are sought; or
also append a concise statement of its (3) Disclosures made from law en-
reason(s) for denying the request to forcement systems of records that have
amend or correct the record. been exempted from accounting re-
(f) Records not subject to amendment or quirements under Privacy Act, 5 U.S.C.
correction. The following records are 552a(j) or (k) by notice published in the
not subject to amendment or correc- FEDERAL REGISTER.
tion: (c) Appeals. An individual may appeal
(1) Transcripts of testimony given a denial of a request for an accounting
under oath or written statements made to the FOI/PA Office in the same man-
under oath; ner as a denial of a request for access
(2) Transcripts of grand jury pro- to records (see § 102.27), and the same
ceedings, judicial proceedings, or procedures will be followed.
quasi-judicial proceedings, which are
the official record of those proceedings; § 102.30 Preservation of records.
(3) Pre-sentence records that origi- Each office will preserve all cor-
nated with the courts; and respondence pertaining to the requests
(4) Records in systems of records that that it receives under this subpart, as
have been exempted from amendment well as copies of all requested records,
and correction under Privacy Act, 5 until disposition or destruction is au-
U.S.C. 552a (j) or (k) by notice pub- thorized by title 44 of the United
lished in the FEDERAL REGISTER. States Code or the National Archives
and Records Administration’s General
§ 102.29 Requests for an accounting of Records Schedule 14. Records will not
record disclosures. be disposed of while they are the sub-
(a) How made and addressed. Except ject of a pending request, appeal, or
where accountings of disclosures are lawsuit under the Privacy Act.
not required to be kept (as stated in
paragraph (b) of this section), an indi- § 102.31 Fees.
vidual may make a request for an ac- SBA offices shall charge fees for du-
counting of any disclosure that has plication of records under the Privacy
been made by the SBA to another per- Act in the same way in which they
son, organization, or agency of any charge duplication fees under
record in a system of records about § 102.6(b)(3). No search or review fee
him or her. This accounting contains may be charged for any record unless
the date, nature, and purpose of each the record has been exempted from ac-
disclosure, as well as the name and ad- cess under Exemptions (j)(2) or (k)(2) of
dress of the person, organization, or the Privacy Act. SBA will waive fees
agency to which the disclosure was under $25.00.
made. The request for an accounting
should identify each particular record § 102.32 Notice of court-ordered and
in question and should be made by emergency disclosures.
writing directly to the SBA office that (a) Court-ordered disclosures. When a
maintains the record, following the record pertaining to an individual is re-
procedures in § 102.24. quired to be disclosed by order of a
32
court of competent jurisdiction, the of- (b) Each Program/Support Office

fice that maintains the record shall Head or designee shall establish proce-
make reasonable efforts to provide no- dures that restrict access to records to
tice of this to the individual. Notice only those individuals within the SBA
shall be given within a reasonable time who must have access to those records
after the office’s receipt of the order, in order to perform their duties and
except that in a case in which the order that prevent inadvertent disclosure of
is not a matter of public record, the no- records.
tice shall be given only after the order (c) The OCIO shall provide SBA of-
becomes public. This notice shall be fices with guidance and assistance for
mailed to the individual’s last known privacy and security of electronic sys-
address and shall contain a copy of the tems and compliance with pertinent
order and a description of the informa- laws and requirements.
tion disclosed. Notice shall not be
given if disclosure is made from a § 102.34 Contracts for the operation of
criminal law enforcement system of record systems.
records that has been exempted from When SBA contracts for the oper-
the notice requirement. ation or maintenance of a system of
(b) Emergency disclosures. Upon dis- records or a portion of a system of
closing a record pertaining to an indi- records by a contractor, the record sys-
vidual made under compelling cir- tem or the portion of the record af-
cumstances affecting health or safety, fected, are considered to be maintained
the office shall notify that individual by the SBA, and subject to this sub-
of the disclosure. This notice shall be part. The SBA is responsible for apply-
mailed to the individual’s last known ing the requirements of this subpart to
address and shall state the nature of the contractor. The contractor and its
the information disclosed; the person, employees are to be considered employ-
organization, or agency to which it was ees of the SBA for purposes of the sanc-
disclosed; the date of disclosure; and tion provisions of the Privacy Act dur-
the compelling circumstances justi- ing performance of the contract.
fying the disclosure.
§ 102.35 Use and collection of Social
§ 102.33 Security of systems of records. Security Numbers.
(a) Each Program/Support Office Each Program/Support Office Head or
Head or designee shall establish admin- designee shall ensure that collection
istrative and physical controls to pre- and use of SSN is performed only when
vent unauthorized access to its sys- the functionality of the system is de-
tems of records, to prevent unauthor- pendant on use of the SSN as an identi-
ized disclosure of records, and to pre- fier. Employees authorized to collect
vent physical damage to or destruction information must be aware:
of records. The stringency of these con-
(a) That individuals may not be de-
trols shall correspond to the sensi-
nied any right, benefit, or privilege as
tivity of the records that the controls
a result of refusing to provide their so-
protect. At a minimum, each office’s
cial security numbers, unless:
administrative and physical controls
shall ensure that: (1) The collection is authorized either
(1) Records are protected from public by a statute; or
view; (2) The social security numbers are
(2) The area in which records are required under statute or regulation
kept is supervised during business adopted prior to 1975 to verify the iden-
hours to prevent unauthorized persons tity of an individual; and
from having access to them; (b) That individuals requested to pro-
(3) Records are inaccessible to unau- vide their social security numbers
thorized persons outside of business must be informed of:
hours; and (1) Whether providing social security
(4) Records are not disclosed to unau- numbers is mandatory or voluntary;
thorized persons or under unauthorized (2) Any statutory or regulatory au-

circumstances in either oral or written thority that authorizes the collection
form. of social security numbers; and
33
§ 102.36 13 CFR Ch. I (1–1–23 Edition)
(3) The uses that will be made of the (h) When required by the Privacy
numbers. Act, maintain an accounting in the
specified form of all disclosures of
§ 102.36 Privacy Act standards of con- records by the SBA to persons, organi-
duct. zations, or agencies;
Each Program/Support Office Head or (i) Maintain and use records with
designee shall inform its employees of care to prevent the unauthorized or in-
the provisions of the Privacy Act, inadvertent disclosure of a record to any-
cluding its civil liability and criminal one; and
penalty provisions. Unless otherwise (j) Notify the appropriate SBA offi-
permitted by law, an employee of the cial of any record that contains infor-
SBA shall: mation that the Privacy Act does not
(a) Collect from individuals only the permit the SBA to maintain.
information that is relevant and nec-
essary to discharge the responsibilities § 102.37 Training requirements.
of the SBA; All employees should attend privacy
(b) Collect information about an indi- training within one year of employ-
vidual directly from that individual ment with SBA. All employees with
whenever practicable; Privacy Act responsibilities must at-
(c) Inform each individual from tend Privacy Act training, whenever
whom information is collected of: needed, that is offered by the SBA.
(1) The legal authority to collect the
information and whether providing it § 102.38 Other rights and services.
is mandatory or voluntary;
(2) The principal purpose for which Nothing in this subpart shall be con-
the SBA intends to use the informa- strued to entitle any person, as a right,
tion; to any service or to the disclosure of
(3) The routine uses the SBA may any record to which such person is not
make of the information; and entitled under the Privacy Act.
(4) The effects on the individual, if
§ 102.39 SBA’s exempt Privacy Act sys-
any, of not providing the information; tems of records.
(d) Ensure that the office maintains
no system of records without public no- (a) Systems of records subject to in-
tice and that it notifies appropriate vestigatory material exemption under
SBA officials of the existence or devel- 5 U.S.C. 552a(k)(2), or 5 U.S.C. 552a(k)(5)
opment of any system of records that or both:
is not the subject of a current or (1) Office of Inspector General
planned public notice; Records Other Than Investigation
(e) Maintain all records that are used Records—SBA 4, contains records per-
by the SBA in making any determina- taining to audits, evaluations, and
tion about an individual with such ac- other non-audit services performed by
curacy, relevance, timeliness, and com- the OIG;
pleteness as is reasonably necessary to (2) Equal Employment Opportunity
ensure fairness to the individual in the Complaint Cases—SBA 13, contains
determination; complaint files, Equal Employment Op-
(f) Except as to disclosures made to portunity counselor’s reports, inves-
an agency or made under the FOIA, tigation materials, notes, reports, and
make reasonable efforts, prior to dis- recommendations;
seminating any record about an indi- (3) Investigative Files—SBA 16, con-
vidual, to ensure that the record is ac- tains records gathered by the OIG in
curate, relevant, timely, and complete; the investigation of allegations that
(g) Maintain no record describing are within the jurisdiction of the OIG;
how an individual exercises his or her (4) Investigations Division Manage-
First Amendment rights, unless it is ment Information System—SBA 17,
expressly authorized by statute or by contains records gathered or created
the individual about whom the record during preparation for, conduct of, and
is maintained, or is pertinent to and follow-up on investigations conducted

within the scope of an authorized law by the OIG, the Federal Bureau of In-
enforcement activity; vestigation (FBI), and other Federal,
34
State, local, or foreign regulatory or tion numbered SBA 4, 16, 17, 24, and 27
law enforcement agency; are exempt from the Privacy Act ex-
(5) Litigation and Claims Files—SBA cept for subsections (b), (c)(1) and (2),
19, contains records relating to recipi- (e)(4)(A) through F, (e)(6), (7), (9), (10)
ents classified as ‘‘in litigation’’ and and (11) and (i) to the extent that they
all individuals involved in claims by or contain:
against the Agency; (1) Information compiled to identify
(6) Personnel Security Files—SBA 24, individual criminal offenders and al-
contains records on active and inactive leged offenders and consisting only of
personnel security files, employee or identifying data and notations of ar-
former employee’s name, background rests, confinement, release, and parole
information, personnel actions, OPM, and probation status;
and/or authorized contracting firm (2) Information, including reports of
background investigations; informants and investigators, associ-
(7) Security and Investigations ated with an identifiable individual
Files—SBA 27, contains records gath- compiled to investigate criminal activ-
ered or created during preparation for, ity; or
conduct of, and follow-up on investiga- (3) Reports compiled at any stage of
tions conducted by OIG, the FBI, and the process of enforcement of the
other Federal, State, local, or foreign criminal laws from arrest or indict-
regulatory or law enforcement agencies ment through release from supervision
as well as other material submitted to associated with an identifiable indi-
or gathered by OIG in furtherance of vidual.
its investigative function; and (e) The systems of records described
(8) Standards of Conduct Files—SBA in paragraph (d) of this section are ex-
29, contains records on confidential em- empt from the Privacy Act to the ex-
ployment and financial statements of tent described in that paragraph be-
employees Grade 13 and above. cause they are records maintained by
(b) These systems of records are ex- the Investigations Division of the OIG,
empt from the following provisions of which is a component of SBA which
the Privacy Act and all regulations in performs as its principal function ac-
this part promulgated under these pro- tivities pertaining to the enforcement
visions: of criminal laws within the meaning of
(1) 552a(c)(3) (Accounting of Certain 5 U.S.C. 552a(j)(2). They are exempt in
Disclosures); order to:
(2) 552a(d) (Access to Records);
(1) Prevent the subjects of OIG inves-
(3) 552a(e)(1), 4G, H, and I (Agency Re- tigations from using the Privacy Act
quirements); and to frustrate the investigative process;
(4) 552a(f) (Agency Rules).
(2) Protect the identity of Federal
(c) The systems of records described
employees who furnish a complaint or
in paragraph (a) of this section are ex-
information to the OIG, consistent
empt from the provisions of the Pri-
with section 7(b) of the Inspector Gen-
vacy Act described in paragraph (b) of
eral Act of 1978, 5 U.S.C. app. 3;
this section in order to:
(1) Prevent the subject of investiga- (3) Protect the confidentiality of
tions from frustrating the investiga- other sources of information;
tory process; (4) Avoid endangering confidential
(2) Protect investigatory material sources and law enforcement personnel;
compiled for law enforcement purposes; (5) Prevent interference with law en-
(3) Fulfill commitments made to pro- forcement proceedings;
tect the confidentiality of sources and (6) Assure access to sources of con-
to maintain access to necessary fidential information, including that
sources of information; or contained in Federal, State, and local
(4) Prevent interference with law en- criminal law enforcement information
forcement proceedings. systems;
(d) In addition to the foregoing ex- (7) Prevent the disclosure of inves-
emptions in paragraphs (a) through (c) tigative techniques; or

of this section, the systems of records (8) Prevent the disclosure of classi-
described in paragraph (a) of this sec- fied information.
35
§ 102.40 13 CFR Ch. I (1–1–23 Edition)
§ 102.40 Computer matching. security of the records matched and

the results of such programs;
The OCIO will enforce the computer
(8) Prohibitions on duplication and
matching provisions of the Privacy
redisclosure of records provided by
Act. The FOI/PA Office will review and
SBA within or outside the recipient
concur on all computer matching
agency or non-Federal agency, except
agreements prior to their activation
where required by law or essential to
and/or renewal.
the conduct of the matching program;
(a) Matching agreements. SBA will (9) Procedures governing the use by a
comply with the Computer Matching recipient agency or non-Federal agency
and Privacy Protection Act of 1988 (5 of records provided in a matching pro-
U.S.C. 552a(o), 552a notes) . The Privacy gram by SBA, including procedures
Protection Act establishes procedures governing return of the records to SBA
Federal agencies must use if they want or destruction of records used in such
to match their computer lists. SBA programs;
shall not disclose any record which is (10) Information on assessments that
contained in a system of records to a have been made on the accuracy of the
recipient agency or non-Federal agency records that will be used in such
for use in a computer matching pro- matching programs; and
gram except pursuant to a written (11) That the Comptroller General
agreement between SBA and the recipi- may have access to all records of a re-
ent agency or non-Federal agency cipient agency or non-Federal agency
specifying: that the Comptroller General deems
(1) The purpose and legal authority necessary in order to monitor or verify
for conducting the program; compliance with the agreement.
(2) The justification for the purpose (b) Agreement specifications. A copy of
and the anticipated results, including a each agreement entered into pursuant
specific estimate of any savings; to paragraph (a) of this section shall be
(3) A description of the records that transmitted to OMB, the Committee on
will be matched, including each data Governmental Affairs of the Senate
element that will be used, the approxi- and the Committee on Governmental
mate number of records that will be Operations of the House of Representa-
matched, and the projected starting tives and be available upon request to
and completion dates of the matching the public.
program; (1) No such agreement shall be effec-
(4) Procedures for providing individ- tive until 30 days after the date on
ualized notice at the time of applica- which a copy is transmitted.
tion, and periodically thereafter as di- (2) Such an agreement shall remain
rected by the Data Integrity Board, in effect only for such period, not to
that any information provided by any exceed 18 months, as the Data Integ-
of the above may be subject to rity Board determines is appropriate in
verification through matching pro- light of the purposes, and length of
grams to: time necessary for the conduct, of the
(i) Applicants for and recipients of fi- matching program.
nancial assistance or payments under (3) Within three (3) months prior to
Federal benefit programs, and the expiration of such an agreement,
(ii) Applicants for and holders of po- the Data Integrity Board may without
sitions as Federal personnel. additional review, renew the matching
(5) Procedures for verifying informa- agreement for a current, ongoing
tion produced in such matching pro- matching program for not more than
gram as required by paragraph (c) of one additional year if:
this section. (i) Such program will be conducted
(6) Procedures for the retention and without any change; and
timely destruction of identifiable (ii) Each party to the agreement cer-
records created by a recipient agency tifies to the Board in writing that the
or non-Federal agency in such match- program has been conducted in compli-
ing program; ance with the agreement.

(7) Procedures for ensuring the ad- (c) Verification. In order to protect
ministrative, technical, and physical any individual whose records are used
36
in matching programs, SBA and any matching program if SBA has reason to
recipient agency or non-Federal agency believe that the requirements of para-
may not suspend, terminate, reduce, or graph (c) of this section, or any match-
make a final denial of any financial as- ing agreement entered into pursuant to
sistance or payment under the Federal paragraph (b) of this section or both,
benefit program to such individual, or are not being met by such recipient
take other adverse action against such agency.
individual as a result of information (1) SBA shall not renew a matching
produced by such matching programs agreement unless,
until such information has been inde- (i) The recipient agency or non-Fed-
pendently verified. eral agency has certified that it has
(1) Independent verification requires complied with the provisions of that
independent investigation and con- agreement; and
firmation of any information used as a (ii) SBA has no reason to believe that
basis for an adverse action against an the certification is inaccurate.
individual including, where applicable:
(e) Review annually each ongoing
(i) The amount of the asset or income
matching program in which the Agency
involved,
has participated during the year, either
(ii) Whether such individual actually
as a source or as a matching agency in
has or had access to such asset or in-
order to assure that the requirements
come or such individual’s own use, and
of the Privacy Act, OMB guidance, and
(iii) The period or periods when the
any Agency regulations and standard
individual actually had such asset or
operating procedures, operating in-
income.
structions, or guidelines have been
(2) SBA and any recipient agency or
met.
non-Federal agency may not suspend,
terminate, reduce, or make a final de- (f) Data Integrity Board. SBA shall es-
nial of any financial assistance or pay- tablish a Data Integrity Board (Board)
ment under a Federal benefit program, to oversee and coordinate the imple-
or take other adverse action as a result mentation of the matching program.
of information produced by a matching The Board shall consist of the senior
program, officials designated by the Adminis-
(i) Unless such individual has re- trator, to include the Inspector Gen-
ceived notice from such agency con- eral (who shall not serve as chairman),
taining a statement of its findings and and the Senior Agency Official for Pri-
information of the opportunity to con- vacy. The Board shall:
test such findings, and (1) Review, approve and maintain all
(ii) Until the subsequent expiration written agreements for receipt or dis-
of any notice period provided by the closure of Agency records for matching
program’s governing statute or regula- programs to ensure compliance with
tions, or 30 days. Such opportunity to paragraph (a) of this section and with
contest may be satisfied by notice, all relevant statutes, regulations, and
hearing, and appeal rights governing guidance;
such Federal benefit program. The ex- (2) Review all matching programs in
ercise of any such rights shall not af- which SBA has participated during the
fect rights available under the Privacy year, determine compliance with appli-
Act. cable laws, regulations, guidelines, and
(3) SBA may take any appropriate ac- Agency agreements, and assess the
tion otherwise prohibited by the above costs and benefits of such programs;
if SBA determines that the public (3) Review all recurring matching
health or safety may be adversely af- programs in which SBA has partici-
fected or significantly threatened dur- pated during the year, for continued
ing the notice period required by para- justification for such disclosures;
graph (c)(2)(ii) of this section. (4) At the instruction of OMB, com-
(d) Sanctions. Notwithstanding any pile a report to be submitted to the Ad-
other provision of law, SBA may not ministrator and OMB, and made avail-
disclose any record which is contained able to the public on request, describ-
in a system of records to a recipient ing the matching activities of SBA, in-
agency or non-Federal agency for a cluding,
37
§ 102.41 13 CFR Ch. I (1–1–23 Edition)
(i) Matching programs in which SBA Committee on Government Operations

has participated; of the House of Representatives.
(ii) Matching agreements proposed (1) OMB may approve a matching
that were disapproved by the Board; agreement despite the disapproval of
(iii) Any changes in membership or the Data Integrity Board if OMB deter-
structure of the Board in the preceding mines that:
year; (i) The matching program will be
(iv) The reasons for any waiver of the consistent with all applicable legal,
requirement described below for com- regulatory, and policy requirements;
pletion and submission of a cost-ben- (ii) There is adequate evidence that
efit analysis prior to the approval of a the matching agreement will be cost-
matching program; effective; and
(v) Any violations of matching agree- (iii) The matching program is in the
ments that have been alleged or identi- public interest.
fied and any corrective action taken; (2) The decision of OMB to approve a
and matching agreement shall not take ef-
(vi) Any other information required fect until 30 days after it is reported to
by OMB to be included in such report; the committees described in paragraph
(5) Serve as clearinghouse for receiv- (h) of this section.
ing and providing information on the (3) If the Data Integrity Board and
accuracy, completeness, and reliability the OMB disapprove a matching pro-
of records used in matching programs; gram proposed by the Inspector Gen-
(6) Provide interpretation and guid- eral, the Inspector General may report
ance to SBA offices and personnel on the disapproval to the Administrator
the requirements for matching pro- and to the Congress.
grams;
(7) Review Agency recordkeeping and § 102.41 Other provisions.
disposal policies and practices for (a) Personnel records. All SBA per-
matching programs to assure compli- sonnel records and files, as prescribed
ance with the Privacy Act; and by OPM, shall be maintained in such a
(8) May review and report on any way that the privacy of all individuals
SBA matching activities that are not concerned is protected in accordance
matching programs. with regulations of OPM (5 CFR parts
(g) Cost-benefit analysis. Except as 293 and 297).
provided in paragraphs (e)(2) and (3) of (b) Mailing lists. The SBA will not sell
this section, the Data Integrity Board or rent an individual’s name or ad-
shall not approve any written agree- dress. This provision shall not be con-
ment for a matching program unless strued to require the withholding of
SBA has completed and submitted to names or addresses otherwise per-
such Board a cost-benefit analysis of mitted to be made public.
the proposed program and such anal- (c) Changes in systems. The SBA shall
ysis demonstrates that the program is provide adequate advance notice to
likely to be cost effective. The Board Congress and OMB of any proposal to
may waive these requirements if it de- establish or alter any system of records
termines, in writing, and in accordance in order to permit an evaluation of the
with OMB guidelines, that a cost-ben- probable or potential effect of such
efit analysis is not required. Such an proposal on the privacy and other per-
analysis also shall not be required sonal or property rights of individuals
prior to the initial approval of a writ- or the disclosure of information relat-
ten agreement for a matching program ing to such individuals, and its effect
that is specifically required by statute. on the preservation of the constitu-
(h) Disapproval of matching agree- tional principles of federalism and sep-
ments. If a matching agreement is dis- aration of powers.
approved by the Data Integrity Board, (d) Medical records. Medical records
any party to such agreement may ap- shall be disclosed to the individual to
peal to OMB. Timely notice of the fil- whom they pertain. SBA may, how-
ing of such an appeal shall be provided ever, transmit such information to a

by OMB to the Committee on Govern- medical doctor named by the request-
mental Affairs of the Senate and the ing individual. In regard to medical
38
records in personnel files, see also 5 (e) Packager means an Agent who is
CFR 297.205. employed and compensated by an Ap-
plicant or lender to prepare the Appli-
PART 103—STANDARDS FOR cant’s application for financial assist-
CONDUCTING BUSINESS WITH SBA ance from SBA. SBA determines
whether or not one is a ‘‘Packager’’ on
Sec. a loan-by-loan basis.
103.1 Key definitions. (f) Referral Agent means a person or
103.2 Who may conduct business with SBA? entity who identifies and refers an Ap-
103.3 May SBA suspend or revoke an plicant to a lender or a lender to an
Agent’s privilege? Applicant. The Referral Agent may be
103.4 What is ‘‘good cause’’ for suspension or employed and compensated by either
revocation? an Applicant or a lender.
103.5 How does SBA regulate an Agent’s fees
(g) Participant means a person or en-
and provision of service?
tity that is participating in any of the
AUTHORITY: 15 U.S.C. 634, 642. financial, investment, or business de-
SOURCE: 61 FR 2681, Jan. 29, 1996, unless velopment programs authorized by the
otherwise noted. Small Business Act or Small Business
Investment Act of 1958.
§ 103.1 Key definitions.
[61 FR 2681, Jan. 29, 1996, as amended at 85
(a) Agent means an authorized rep- FR 7647, Feb. 10, 2020; 85 FR 80587, Dec. 14,
resentative, including an attorney, ac- 2020]
countant, consultant, packager, lender
service provider, or any other person § 103.2 Who may conduct business
representing an Applicant or Partici- with SBA?
pant by conducting business with SBA. (a) If you are an Applicant, a Partici-
(b) The term conduct business with pant, a partner of an Applicant or Par-
SBA means: ticipant partnership, or serve as an of-
(1) Preparing or submitting on behalf ficer of an Applicant, Participant cor-
of an applicant an application for fi- poration, or limited liability company,
nancial assistance of any kind, assist- you may conduct business with SBA
ance from the Investment Division of without a representative.
SBA, or assistance in procurement and (b) If you are an Agent, you may con-
technical matters; duct business with SBA on behalf of an
(2) Preparing or processing on behalf Applicant, Participant or lender, un-
of a lender or a participant in any of less representation is otherwise prohib-
SBA’s programs an application for fed- ited by law or the regulations in this
eral financial assistance; part or any other part in this chapter.
(3) Participating with or commu- For example, persons debarred under
nicating in any way with officers or the SBA or Government-wide debar-
employees of SBA on an applicant’s, ment regulations may not conduct
participant’s, or lender’s behalf; business with SBA. SBA may request
(4) Acting as a lender service pro- that any Agent supply written evi-
vider; and dence of his or her authority to act on
(5) Such other activity as SBA rea- behalf of an Applicant, Participant, or
sonably shall determine. lender as a condition of revealing any
(c) Applicant means any person, firm, information about the Applicant’s,
concern, corporation, partnership, co- Participant’s, or lender’s current or
operative or other business enterprise prior dealings with SBA.
applying for any type of assistance
from SBA. § 103.3 May SBA suspend or revoke an
(d) Lender Service Provider means an Agent’s privilege?
Agent who carries out lender functions The Administrator of SBA or des-
in originating, disbursing, servicing, or ignee may, for good cause, suspend or
liquidating a specific SBA business revoke the privilege of any Agent to
loan or loan portfolio for compensation conduct business with SBA. Part 134 of
from the lender. SBA determines this chapter states the procedures for
whether or not one is a ‘‘Lender Serv- appealing the decision to suspend or re-
ice Provider’’ on a loan-by-loan basis. voke the privilege. The suspension or
39
§ 103.4 13 CFR Ch. I (1–1–23 Edition)
revocation remains in effect during the stolen property, false claims, or ob-
pendency of any administrative pro- struction of justice.
ceedings under part 134 of this chapter. (g) Acting as both a Lender Service
Provider or Referral Agent and a Pack-
§ 103.4 What is ‘‘good cause’’ for sus- ager for an Applicant on the same SBA
pension or revocation? business loan and receiving compensa-
Any unlawful or unethical activity is tion for such activity from both the
good cause for suspension or revocation Applicant and lender. A limited excep-
of the privilege to conduct business. tion to the ‘‘two master’’ prohibition
This includes: in this paragraph (g) exists when an
(a) Attempting to influence any em- Agent acts as a Packager and is com-
ployee of SBA or a lender, by gifts, pensated by the Applicant for pack-
bribes or other unlawful or unethical aging services; also acts as a Referral
activity, with respect to any matter in- Agent and is compensated by the lend-
volving SBA assistance. er for those activities; discloses the re-
(b) Soliciting for the provision of ferral activities to the Applicant; and
services to an Applicant by another en- discloses the packaging activities to
tity when there is an undisclosed busi- the lender.
ness relationship between the two par- (h) Violating materially the terms of
ties. any compensation agreement or Lender
(c) Violating ethical guidelines which Service Provider agreement provided
govern the profession or business of the for in § 103.5.
Agent or which are published at any (i) Violating or assisting in the viola-
time by SBA. tion of any SBA regulations, policies,
(d) Implying or stating that the work or procedures of which the Applicant
to be performed for an Applicant will has been made aware.
include use of political or other special [61 FR 2681, Jan. 29, 1996, as amended at 85
influence with SBA. Examples include FR 7647, Feb. 10, 2020; 85 FR 80587, Dec. 14,
indicating that the entity is affiliated 2020]
with or paid, endorsed or employed by
SBA, advertising using the words Small § 103.5 How does SBA regulate an
Business Administration or SBA in a Agent’s fees and provision of serv-
manner that implies SBA’s endorse- ice?
ment or sponsorship, use of SBA’s seal (a) Any Applicant, Agent, or Pack-
or symbol, and giving a ‘‘guaranty’’ to ager must execute and provide to SBA
an Applicant that the application will a compensation agreement, and any
be approved. Lender Service Provider must execute
(e) Charging or proposing to charge and provide to SBA a Lender Service
any fee that does not bear a necessary Provider agreement. Each agreement
and reasonable relationship to the governs the compensation charged for
services actually rendered or expenses services rendered or to be rendered to
actually incurred in connection with a the Applicant or lender in any matter
matter before SBA or which is materi- involving SBA assistance. SBA pro-
ally inconsistent with the provisions of vides the form of compensation agree-
an applicable compensation agreement ment and a suggested form of Lender
or Lender Service Provider agreement. Service Provider agreement to be used
A fee based solely on a percentage of a by Agents.
loan or guarantee amount can be rea- (b) Compensation agreements must
sonable, depending on the cir- provide that in cases where SBA deems
cumstances of a case and the services the compensation unreasonable, the
actually rendered. Agent or Packager must: Reduce the
(f) Engaging in any conduct indi- charge to an amount SBA deems rea-
cating a lack of business integrity or sonable, refund any sum in excess of
business honesty, including debarment, the amount SBA deems reasonable to
criminal conviction, or civil judgment the Applicant, and refrain from charg-
within the last seven years for fraud, ing or collecting, directly or indirectly,
embezzlement, theft, forgery, bribery, from the Applicant an amount in ex-

falsification or destruction of records, cess of the amount SBA deems reason-
false statements, conspiracy, receiving able.
40
(c) Each Lender Service Provider 105.403 Designated Agency Ethics Officials.
must enter into a written agreement AUTHORITY: 5 U.S.C. 7301; 15 U.S.C. 634,
with each lender for whom it acts in 637(a)(18) and (a)(19), 642, and 645(a).
that capacity. SBA will review all such SOURCE: 61 FR 2399, Jan. 26, 1996, unless
agreements. Such agreements need not otherwise noted.
contain each and every provision found
in the SBA’s suggested form of agree- STANDARDS OF CONDUCT
ment. However, each agreement must
indicate that both parties agree not to § 105.101 Cross-reference to employee
engage in any sharing of secondary ethical conduct standards and fi-
nancial disclosure regulations.
market premiums, that the services to
be provided are accurately described, In addition to this part, Small Busi-
and that the agreement is otherwise ness Administration (SBA) employees
consistent with SBA requirements. should refer to the Standards of Eth-
Subject to the prohibition on splitting ical Conduct for Employees of the Ex-
premiums, lenders have reasonable dis- ecutive Branch at 5 CFR part 2635 and
cretion in setting compensation for the regulations at 5 CFR part 2634 enti-
Lender Service Providers. However, tled, Executive Branch Financial Dis-
such compensation may not be directly closure, Qualified Trusts and Certifi-
charged to an Applicant or Borrower. cates of Divestiture.
[61 FR 2681, Jan. 29, 1996, as amended at 85 [69 FR 63922, Nov. 3, 2004]
FR 7647, Feb. 10, 2020; 85 FR 80587, Dec. 14,
2020] RESTRICTIONS AND RESPONSIBILITIES
RELATED TO SBA EMPLOYEES AND
PART 105—STANDARDS OF CON- FORMER EMPLOYEES
DUCT AND EMPLOYEE RESTRIC- § 105.201 Definitions.
TIONS AND RESPONSIBILITIES (a) Employee means an officer or em-
ployee of the SBA regardless of grade,
STANDARDS OF CONDUCT
status or place of employment, includ-
Sec. ing employees on leave with pay or on
105.101 Cross-reference to employee ethical leave without pay other than those on
conduct standards and financial disclo- extended military leave. Unless stated
sure regulations.
otherwise. Employee shall include
RESTRICTIONS AND RESPONSIBILITIES RELATED those within the category of Special
TO SBA EMPLOYEES AND FORMER EMPLOYEES Government Employee.
105.201 Definitions. (b) Special Government Employee
105.202 Employment of former employee by means an officer or employee of SBA,
person previously the recipient of SBA who is retained, appointed or employed
Assistance. to perform temporary duties on a full-
105.203 SBA Assistance to person employing time or intermittent basis, with or
former SBA employee. without compensation, for not to ex-
105.204 Assistance to SBA employees or
ceed 130 days during any period of 365
members of their household.
105.205 Duty to report irregularities. consecutive days.
105.206 Applicable rules and directions. (c) Person means an individual, a cor-
105.207 Politically motivated activities with poration, a company, an association, a
respect to the Minority Small Business firm, a partnership, a society, a joint
Program. stock company, or any other organiza-
105.208 Penalties. tion or institution.
RESTRICTIONS ON SBA ASSISTANCE TO OTHER (d) Household member means spouse
INDIVIDUALS and minor children of an employee, all
blood relations of the employee and
105.301 Assistance to officers or employees
any spouse who resides in the same
of other Government organizations.
105.302 Assistance to employees or members place of abode with the employee.
of quasi-Government organizations. (e) SBA Assistance means financial,
contractual, grant, managerial or
ADMINISTRATIVE PROVISIONS other aid, including size determina-

105.401 Standards of Conduct Committee. tions, section 8(a) participation, licens-
105.402 Standards of Conduct Counselors. ing, certification, and other eligibility
41
§ 105.202 13 CFR Ch. I (1–1–23 Edition)
determinations made by SBA. The (3) The position held by the former
term also includes an express decision employee with SBA and its relation-
to compromise or defer possible litiga- ship to the SBA Assistance requested;
tion or other adverse action. and
(4) Whether an apparent conflict of
§ 105.202 Employment of former em- interest might exist if the SBA Assist-
ployee by person previously the re- ance were granted.
cipient of SBA Assistance.
(a) No former employee, who occu- § 105.204 Assistance to SBA employees
pied a position involving discretion or members of their household.
over, or who exercised discretion with Without the prior written approval of
respect to, the granting or administra- the Standards of Conduct Committee,
tion of SBA Assistance may occupy a no SBA Assistance, other than Disaster
position as employee, partner, agent, loans under subparagraphs (1) and (2) of
attorney or other representative of a section 7(b) of the Small Business Act,
concern which has received this SBA shall be furnished to a person when the
Assistance for a period of two years fol- sole proprietor, partner, officer, direc-
lowing the date of granting or admin- tor or significant stockholder of the
istering such SBA Assistance if— person is an SBA employee or a house-
(1) The date of granting or admin- hold member.
istering such SBA Assistance was with-
in the period of the employee’s term of § 105.205 Duty to report irregularities.
employment; or Every employee shall immediately
(2) The date of granting or admin- report to the SBA Inspector General
istering such SBA Assistance was with- any acts of malfeasance or misfeasance
in one year following the termination or other irregularities, either actual or
of such employment. suspected, arising in connection with
(b) Failure of a recipient of SBA As- the performance by SBA of any of its
sistance to comply with these provi- official functions.
sions may result, in the discretion of
SBA, in the requirement for immediate § 105.206 Applicable rules and direc-
repayment of SBA financial Assist- tions.
ance, the immediate termination of Every employee shall follow all agen-
other SBA Assistance involved or other cy rules, regulations, operating proce-
appropriate action. dures, instructions and other proper di-
rections in the performance of his offi-
§ 105.203 SBA Assistance to person em- cial functions.
ploying former SBA employee.
(a) SBA will not provide SBA Assist- § 105.207 Politically motivated activi-
ance to any person who has, as an em- ties with respect to the Minority
ployee, owner, partner, attorney, Small Business Program.
agent, owner of stock, officer, director, (a) Any employee who has authority
creditor or debtor, any individual who, to take, direct others to take, rec-
within one year prior to the request for ommend, or approve any action with
such SBA Assistance was an SBA em- respect to any program or activity con-
ployee, without the prior approval of ducted pursuant to section 8(a) or sec-
the SBA Standards of Conduct Coun- tion 7(j) of the Small Business Act,
selor. The Standards of Conduct Coun- shall not, with respect to any such ac-
selor will refer matters of a controver- tion, exercise or threaten to exercise
sial nature to the Standards of Conduct such authority on the basis of the po-
Committee for final decision; other- litical activity or affiliation of any
wise, his or her decision is final. party. Employees shall expeditiously
(b) In reviewing requests for ap- report to the SBA Inspector General
proval, the Standards of Conduct Coun- any such action for which such employ-
selor will consider: ee’s participation has been solicited or
(1) The relationship of the former em- directed.
ployee with the applicant concern; (b) Any employee who willfully and
(2) The nature of the SBA Assistance knowingly violates this section shall
requested; be subject to disciplinary action, which
42
may consist of separation from service, hold member of such individual) is a

reduction in grade, suspension, or rep- member of Congress or an appointed of-
rimand. ficial or employee of the legislative or
(c) This section shall not apply to judicial branch of the Government.
any action taken as a penalty or other
enforcement of a violation of any law, § 105.302 Assistance to employees or
rule, or regulation prohibiting or re- members of quasi-Government or-
stricting political activity. ganizations.
(d) The prohibitions in and remedial (a) The Standards of Conduct Com-
measures provided for under this sec- mittee must approve SBA Assistance,
tion with regard to such prohibitions, other than Disaster loans under sub-
shall be in addition to, and not in lieu paragraphs (1) and (2) of section 7(b) of
of, any other prohibitions, measures or the Small Business Act, to a person if
liabilities that may arise under any its sole proprietor, general partner, of-
other provision of law. ficer, director or stockholder with a 10
§ 105.208 Penalties. percent or more interest (or a house-
hold member) is a member or employee
Any employee guilty of violating any of a Small Business Advisory Council
of the provisions in this part may be or is a SCORE volunteer.
disciplined, including removal or sus- (b) In reviewing requests for ap-
pension from SBA employment.
proval, factors the Standards of Con-
RESTRICTIONS ON SBA ASSISTANCE TO duct Committee may consider include
OTHER INDIVIDUALS whether the granting of the SBA As-
sistance might result in or create the
§ 105.301 Assistance to officers or em- appearance of giving preferential treat-
ployees of other Government orga- ment, the loss of complete independ-
nizations. ence or impartiality, or adversely af-
(a) SBA must receive a written state- fect the confidence of the public in the
ment of no objection by the pertinent integrity of the Government.
Department or military service before
it gives any SBA Assistance, other ADMINISTRATIVE PROVISIONS
than Disaster loans under subpara-
graphs (1) and (2) of section 7(b) of the § 105.401 Standards of Conduct Com-
Small Business Act, to a person when mittee.
its sole proprietor, partner, officer, di- (a) The Standards of Conduct Com-
rector or stockholder with a 10 percent mittee will:
or more interest, or a household mem- (1) Advise and give direction to SBA
ber, is an employee of another Govern- management officials concerning the
ment Department or Agency having a administration of this part and any
grade of at least GS–13 or its equiva- other rules, regulations or directives
lent. dealing with conflicts of interest and
(b) The Standards of Conduct Com- ethical standards of SBA employees;
mittee must approve an SBA contract and
with an entity if a sole proprietor, gen-
(2) Make decisions on specific re-
eral partner, officer, director, or stock-
quests when its approval is required.
holder with a 10 or more percent inter-
est (or a household member of such in- (b) The Standards of Conduct Com-
dividuals) is an employee of a Govern- mittee will consist of:
ment Department or Agency. See also (1) The General Counsel or, in his or
48 CFR part 35, subpart 3.6. her absence, the Deputy General Coun-
(c) The Standards of Conduct Com- sel or, in his or her absence, the Acting
mittee must approve SBA Assistance, General Counsel who shall act as
other than disaster loans under sub- Chairman of the Committee;
paragraphs (1) and (2) of section 7(b) of (2) The Associate Administrator, Of-
the Small Business Act, to a person if fice of Management and Administra-
its sole proprietor, general partner, of- tion, or in his or her absence, the Di-
ficer, director or stockholder with a 10 rector, Office of Business Operations;
percent or more interest (or a house- and
43
§ 105.402 13 CFR Ch. I (1–1–23 Edition)
(3) The Chief Human Capital Officer, promulgated and amended by the Of-
or in his or her absence, the Deputy fice of Government Ethics.
Chief Human Capital Officer. [62 FR 2399, Jan. 26, 1996, as amended at 62
[61 FR 2399, Jan. 26, 1996, as amended at 72 FR 48477, Sept. 16, 1997]
FR 50038, Aug. 30, 2007]
PART 106—COSPONSORSHIPS, FEE
§ 105.402 Standards of Conduct Coun- AND NON-FEE BASED SBA-
selors.
SPONSORED ACTIVITIES AND
(a) The SBA Standards of Conduct GIFTS
Counselor is the Designated Agency
Ethics Official, as appointed by the Ad- Subpart A—Scope and Definitions
ministrator. Assistant Standards of
Conduct Counselors may be designated Sec.
by the Standards of Conduct Counselor. 106.100 Scope.
106.101 Definitions.
(b) The Standards of Conduct Coun-
selors and Assistants: Subpart B—Cosponsored Activities
(1) Provide general advice, assistance
and guidance to employees concerning 106.200 Cosponsored Activity.
this part and the regulations referred 106.201 Who may be a Cosponsor?
106.202 What are the minimum require-
to in § 105.101;
ments applicable to Cosponsored Activi-
(2) Monitor the Standards of Conduct ties?
Program within their assigned areas 106.203 What provisions must be set forth in
and provide required reports thereon; a Cosponsorship Agreement?
and 106.204 Who has the authority to approve
(3) Review Confidential Financial and sign a Cosponsorship Agreement?
Disclosure reports as required under 5
Subpart C—Fee Based SBA-Sponsored
CFR part 2634, subpart I, and provide
Activities
an annual report on compliance with
filing requirements to the SBA Stand- 106.300 Fee Based SBA-Sponsored Activity.
ards of Conduct Counselor as of Feb- 106.301 What are the minimum require-
ruary 1 of each year. ments applicable to Fee Based SBA-
(c) Each employee will be periodi- Sponsored Activities?
106.302 What provisions must be set forth in
cally informed of the name, address
a Fee Based Record?
and telephone number of the Assistant 106.303 Who has the authority to approve
Standards of Conduct Counselor to con- and sign a Fee Based Record?
tact for advice and assistance.
(d) Employee requests for advice or Subpart D—Non-Fee Based SBA-Sponsored
rulings should be directed to the appro- Activities
priate Standards of Conduct Counselor
106.400 Non-Fee Based SBA-Sponsored Ac-
for appropriate action. tivity.
[61 FR 2399, Jan. 26, 1996, as amended at 62 106.401 What are the minimum require-
FR 48477, Sept. 16, 1997; 69 FR 63922, Nov. 3, ments applicable to a Non-Fee Based
2004] SBA-Sponsored Activity?
106.402 What provisions must be set forth in
§ 105.403 Designated Agency Ethics Of- a Non-Fee Based Record?
ficials. 106.403 Who has the authority to approve
and sign a Non-Fee Based Record?
The Designated Agency Ethics Offi-
cial and Alternates administer the pro- Subpart E—Gifts
gram for Financial Disclosure State-
106.500 What is SBA’s Gift authority?
ments under 5 CFR 2634.201, receive and
106.501 What minimum requirements are ap-
evaluate these statements, and provide plicable to SBA’s solicitation and/or ac-
advice and counsel regarding matters ceptance of Gifts?
relating to the Ethics in Government 106.502 Who has authority to perform a Gift
Act of 1978 and its implementing regu- conflict of interest determination?
lations. The duties and responsibilities 106.503 Are there types of Gifts which SBA
of the Designated Agency Ethics Offi- may not solicit and/or accept?
cial and Alternates are set forth in AUTHORITY: 15 U.S.C. 633 (g) and (h); 15
more detail in 5 CFR 2638.203, which is U.S.C. 637(b)(1)(A); 15 U.S.C. 637(b)(G).
44
SOURCE: 70 FR 70704, Nov. 23, 2005, unless lined in §§ 106.203 and 106.204 which has
otherwise noted. been duly executed by SBA and one or
more Cosponsors. The Cosponsorship
Subpart A—Scope and Definitions Agreement shall contain the parties’
respective rights, duties and respon-
§ 106.100 Scope. sibilities regarding implementation of
The regulations in this part apply to the Cosponsored Activity.
SBA-provided assistance for the benefit (d) Donor means an individual or en-
of small business through Fee Based tity that provides a Gift, bequest or de-
SBA-Sponsored Activities or through vise (in cash or in-kind) to SBA.
Cosponsored Activities with Eligible (e) An Eligible Entity is a potential
Entities authorized under section 4(h) Cosponsor. An Eligible Entity must be
of the Small Business Act, and to SBA a for-profit or not-for-profit entity, or
assistance provided directly to small a Federal, State or local government
business concerns through Non-Fee official or entity.
Based SBA-Sponsored Activities au- (f) Fee Based SBA-Sponsored Activity
thorized under section 8(b)(1)(A) of the Record (Fee Based Record) means a
Small Business Act. The regulations in written document, as outlined in
this part also apply to SBA’s solicita- § 106.302, describing a Fee Based SBA-
tion and acceptance of Gifts under cer- Sponsored Activity and approved in
tain sections (sections 4(g), 8(b)(1)(G),
writing pursuant to § 106.303.
5(b)(9) and 7(k)(2)) of the Small Busi-
(g) Fee Based SBA-Sponsored Activity
ness Act (15 U.S.C. 631 et seq.), includ-
means an activity, event, project or
ing Gifts of cash, property, services and
subsistence. Under section 4(g) of the initiative designed to provide assist-
Small Business Act, Gifts may be solic- ance for the benefit of small business,
ited and accepted for marketing and as authorized by section 4(h) of the
outreach purposes including the cost of Small Business Act, at which SBA may
promotional items and wearing ap- charge a Participant Fee. Assistance
parel. for purposes of Fee Based SBA-Spon-
sored Activity does not include grant
§ 106.101 Definitions. or any other form of financial assist-
The following definitions apply to ance. A Fee Based SBA-Sponsored Ac-
this part. Defined terms are capitalized tivity must be planned, conducted, con-
wherever they appear. trolled and sponsored solely by SBA.
(a) Cosponsor means an entity or indi- (h) Gift (including a bequest or a de-
vidual designated in § 106.201 that has vice) is the voluntary transfer to SBA
signed a written Cosponsorship Agree- of something of value without the
ment with SBA and who actively and Donor receiving legal consideration.
substantially participates in planning (i) Non-Fee Based SBA-Sponsored Ac-
and conducting an agreed upon Cospon- tivity Record (Non-Fee Based Record)
sored Activity. means a written document describing a
(b) Cosponsored Activity means an ac- Non-Fee Based SBA-Sponsored Activ-
tivity, event, project or initiative, de- ity which has been approved pursuant
signed to provide assistance for the to § 106.403.
benefit of small business as authorized (j) Non-Fee Based SBA-Sponsored Ac-
by section 4(h) of the Small Business tivity means an activity, event, project
Act, which has been set forth in an ap- or initiative designed to provide assist-
proved written Cosponsorship Agree- ance directly to small business con-
ment. The Cosponsored Activity must cerns as authorized by section
be planned and conducted by SBA and 8(b)(1)(A) of the Small Business Act.
one or more Cosponsors. Assistance for Assistance for purposes of a Non-Fee
purposes of Cosponsored Activity does Based SBA-Sponsored Activity does
not include grant or any other form of not include grant or any other form of
financial assistance. A Participant Fee financial assistance. A Non-Fee Based
may be charged by SBA or another Co- SBA-Sponsored Activity must be
sponsor at any Cosponsored Activity. planned, conducted, controlled and

(c) Cosponsorship Agreement means an sponsored solely by SBA. No fees in-
approved written document (as out- cluding Participant Fees may be
45
§ 106.200 13 CFR Ch. I (1–1–23 Edition)
charged for a Non-Fee Based SBA- Agreement signed by the Adminis-

Sponsored Activity. trator (or designee) and each Cospon-
(k) Participant Fee means a minimal sor;
fee assessed against a person or entity (b) Appropriate recognition must be
that participates in a Cosponsored Ac- given to SBA and each Cosponsor but
tivity or Fee Based SBA-Sponsored Ac- shall not constitute or imply an en-
tivity and is used to cover the direct dorsement by SBA of any Cosponsor or
costs of such activity. any Cosponsor’s products or services;
(l) Responsible Program Official is an (c) Any printed or electronically gen-
SBA senior management official from erated material used to publicize or
the originating office who is account- conduct the Cosponsored Activity, in-
able for the solicitation and/or accept- cluding any material which has been
ance of a Gift to the SBA; a Cospon- developed, prepared or acquired by a
sored Activity; a Fee Based SBA-Spon- Cosponsor, must be approved in ad-
sored Activity; or a Non-Fee Based vance by the Responsible Program Offi-
SBA-Sponsored Activity. If the origi- cial and must include a prominent dis-
nating office is a district or branch of- claimer stating that the Cosponsored
fice, the Responsible Program Official Activity does not constitute or imply
is the district director or their deputy. an endorsement by SBA of any Cospon-
In headquarters, the Responsible Pro- sor or the Cosponsor’s products or serv-
gram Official is the management board ices;
member or their deputy with responsi- (d) No Cosponsor shall make a profit
bility for the relevant program area. on any Cosponsored Activity. SBA
grantees who earn program income on
Subpart B—Cosponsored Activities Cosponsored Activities must use that
program income for the Cosponsored
§ 106.200 Cosponsored Activity. Activity;
The Administrator (or designee), (e) Participant Fee(s) charged for a
after consultation with the General Cosponsored Activity may not exceed
Counsel (or designee), may provide as- the minimal amount needed to cover
sistance for the benefit of small busi- the anticipated direct costs of the Co-
ness through Cosponsored Activities sponsored Activity and must be liq-
pursuant to section 4(h) of the Small uidated prior to other sources of fund-
Business Act. ing for the Cosponsored Activity. If
SBA charges a Participant Fee, the
§ 106.201 Who may be a Cosponsor? collection of the Participant Fees is
(a) Except as specified in paragraph subject to internal SBA policies and
(b) of this section, SBA may enter into procedures as well as applicable U.S.
a Cosponsorship Agreement with an El- Treasury rules and guidelines;
igible Entity as defined in § 106.101(e). (f) SBA may not provide a Cosponsor
(b) SBA may not enter into a Cospon- with lists of names and addresses of
sorship Agreement with an Eligible En- small business concerns compiled by
tity if the Administrator (or designee), SBA which are otherwise protected by
after consultation with the General law or policy from disclosure; and
Counsel (or designee), determines that (g) Written approval must be ob-
such agreement would create a conflict tained as outlined in § 106.204.
of interest.
§ 106.203 What provisions must be set
§ 106.202 What are the minimum re- forth in a Cosponsorship Agree-
quirements applicable to Cospon- ment?
sored Activities? While SBA may require additional
While SBA may subject a Cospon- provisions in the Cosponsorship Agree-
sored Activity to additional requirement through internal policy and pro-
ments through internal policy, proce- cedure, the following provisions must
dure and the Cosponsorship Agreement, be in all Cosponsorship Agreements:
the following requirements apply to all (a) A written statement agreed to by
Cosponsored Activities: each Cosponsor that they will abide by

(a) Cosponsored Activities must be all of the provisions of the Cosponsor-
set forth in a written Cosponsorship ship Agreement, the requirements of
46
this subpart as well the applicable defi- § 106.301 What are the minimum re-
nitions in § 106.100; quirements applicable to Fee Based
(b) A narrative description of the Co- SBA-Sponsored Activities?
sponsored Activity; While SBA may subject a Fee Based
(c) A listing of SBA’s and each Co- SBA-Sponsored Activity to additional
sponsor’s rights, duties and responsibil- requirements through internal policy
ities with regard to the Cosponsored and procedure, the following require-
Activity; ments apply to all Fee Based SBA-
(d) A proposed budget demonstrating: Sponsored Activities:
(1) The type and source of financial (a) A Fee Based Record must be pre-
contribution(s) (including but not lim- pared by the Responsible Program Offi-
cial in advance of the activity;
ited to cash, in-kind, Gifts, and Partic-
(b) Any Participant Fees charged will
ipant Fees) that the SBA and each Co-
not exceed the minimal amount needed
sponsor will make to the Cosponsored to cover the anticipated direct costs of
Activity; and the activity;
(2) A reasonable estimation of all an- (c) Gifts of cash accepted and the col-
ticipated expenses; lection of Participant Fees for Fee
(e) A written statement that each Co- Based SBA-Sponsored Activities are
sponsor agrees that they will not make subject to the applicable requirements
a profit on the Cosponsored Activity; in this part, internal SBA policies and
and procedures as well as applicable U.S.
(f) A written statement that Partici- Treasury rules and guidelines; and
pant Fees, if charged, will not exceed (d) Written approval must be ob-
the minimal amount needed to cover tained as outlined in § 106.303.
the anticipated direct costs of the Co-
§ 106.302 What provisions must be set
sponsored Activity as outlined in the forth in a Fee Based Record?
budget and will be liquidated prior to
other sources of funding for the Co- A Fee Based Record must contain the
following:
sponsored Activity.
(a) A narrative description of the Fee
§ 106.204 Who has the authority to ap- Based SBA-Sponsored Activity;
prove and sign a Cosponsorship (b) A certification by the Responsible
Agreement? Program Official that he or she will
abide by the requirements contained in
The Administrator, or upon his/her this part, as well as all other applicable
written delegation, the Deputy Admin- statutes, regulations, policies and pro-
istrator, an associate or assistant ad- cedures for Fee Based SBA-Sponsored
ministrator, after consultation with Activities;
the General Counsel (or designee), has (c) A proposed budget demonstrating:
the authority to approve each Cospon- (1) All sources of funding, including
sored Activity and sign each Cospon- annual appropriations, Participant
sorship Agreement. This authority can- Fees and Gifts, to be used in support of
not be re-delegated. the Fee Based SBA-Sponsored Activity;
(2) A reasonable estimation of all an-
Subpart C—Fee Based SBA- ticipated expenses, which indicates
that no profit is anticipated from the
Sponsored Activities Fee Based SBA-Sponsored Activity;
§ 106.300 Fee Based SBA-Sponsored and
Activity. (3) A provision stating that Partici-
pant Fees, if charged, will not exceed
The Administrator (or designee), the minimal amount needed to cover
after consultation with the General the anticipated direct costs of the Fee
Counsel (or designee), may provide as- Based SBA-Sponsored Activity as out-
sistance for the benefit of small busi- lined in the budget;
ness through Fee-Based SBA-Sponsored (d) With regard to any donations
Activities pursuant to section 4(h) of made in support of the Fee Based SBA-
the Small Business Act. Sponsored Activity, the Fee Based
Record will reflect the following:
47
§ 106.303 13 CFR Ch. I (1–1–23 Edition)
(1) Each Donor may receive appro- (a) A narrative description of the
priate recognition for its Gift; and Non-Fee Based SBA-Sponsored Activ-
(2) Any printed or electronically gen- ity;
erated material recognizing a Donor (b) A certification by the Responsible
will include a prominent disclaimer Program Official that he or she will
stating that the acceptance of the Gift abide by the requirements contained in
does not constitute or imply an en- this part, as well as all other applicable
dorsement by SBA of the Donor or the statutes, regulations, policies and pro-
Donor’s products or services. cedures for Non-Fee Based SBA-Spon-
sored Activities;
§ 106.303 Who has authority to ap- (c) If applicable, a list of Donors sup-
prove and sign a Fee Based Record?
porting the activity; and
The Administrator, or upon his/her (d) With regard to any donations
written delegation, the Deputy Admin- made in support of a Non-Fee Based
istrator, an associate or assistant ad- SBA-Sponsored Activity, the Non-Fee
ministrator, after consultation with Based Record will reflect the following:
the General Counsel (or designee), has (1) Each Donor may receive appro-
the authority to approve and sign each priate recognition for its Gift; and
Fee Based Record. This authority may (2) Any printed or electronically gen-
not be re-delegated. erated material recognizing a Donor
will include a prominent disclaimer
Subpart D—Non-Fee Based SBA- stating that the acceptance of the Gift
Sponsored Activities does not constitute or imply an en-
dorsement by SBA of the Donor, or the
§ 106.400 Non-Fee Based SBA-Spon- Donor’s products or services.
sored Activity.
The Administrator (or designee) may § 106.403 Who has authority to ap-
provide assistance directly to small prove and sign a Non-Fee Based
business concerns through Non-Fee Record?
Based SBA-Sponsored Activities under The appropriate Responsible Pro-
section 8(b)(1)(A) of the Small Business gram Official, after consultation with
Act. the designated legal counsel, has au-
thority to approve and sign each Non-
§ 106.401 What are the minimum re- Fee Based Record.
quirements applicable to a Non-Fee
Based SBA-Sponsored Activities?
While SBA may subject Non-Fee Subpart E—Gifts
Based SBA-Sponsored Activities to ad-
§ 106.500 What is SBA’s Gift authority?
ditional requirements through internal
policy and procedure, the following re- This section covers SBA’s Gift ac-
quirements apply to all Non-Fee Based ceptance authority under sections 4(g),
SBA-Sponsored Activity: 8(b)(1)(G), 5(b)(9) and 7(k)(2) of the
(a) A Non-Fee Based Record must be Small Business Act.
prepared and approved by the Respon-
sible Program Official in advance of § 106.501 What minimum requirements
the activity; are applicable to SBA’s solicitation
and/or acceptance of Gifts?
(b) Gifts of cash accepted for Non-Fee
Based SBA-Sponsored Activities are While SBA may subject the solicita-
subject to § 106.500, internal SBA poli- tion and/or acceptance of Gifts to addi-
cies and procedures as well as applica- tional requirements through internal
ble U.S. Treasury rules and guidelines; policy and procedure, the following re-
and quirements must apply to all Gift so-
(c) Written approval must be ob- licitations and/or acceptances under
tained as outlined in § 106.403. the authority of the Small Business
Act sections cited in § 106.500:
§ 106.402 What provisions must be set (a) SBA is required to use the Gift
forth in a Non-Fee Based Record? (whether cash or in-kind) in a manner

A Non-Fee Based Record must con- consistent with the original purpose of
tain the following: the Gift;
48
(b) There must be written docu- PART 107—SMALL BUSINESS

mentation of each Gift solicitation INVESTMENT COMPANIES
and/or acceptance signed by an author-
ized SBA official; Subpart A—Introduction to Part 107
(c) Any Gift solicited and/or accepted
Sec.
must undergo a determination, prior to
107.20 Legal basis and applicability of this
solicitation of the Gift or prior to ac- part 107.
ceptance of the Gift if unsolicited, of 107.30 Amendments to Act and regulations.
whether a conflict of interest exists be- 107.40 How to read this part 107.
tween the Donor and SBA; and
(d) All cash Gifts donated to SBA Subpart B—Definition of Terms Used in Part
under the authority cited in § 106.500 107
must be deposited in an SBA trust ac- 107.50 Definition of terms.
count at the U.S. Department of the
Treasury. Subpart C—Qualifying for an SBIC License
ORGANIZING AN SBIC
§ 106.502 Who has authority to perform
a Gift conflict of interest deter- 107.100 Organizing a Section 301(c) Licensee.
mination? 107.115 1940 Act and 1980 Act Companies.
107.120 Special rules for a Section 301(d) Li-
(a) For Gifts solicited and/or accept- censee owned by another Licensee.
ed under sections 4(g), 8(b)(1)(G), and 107.130 Requirement for qualified manage-
7(k)(2) of the Small Business Act, the ment.
General Counsel, or designee, must 107.140 SBA approval of initial Management
Expenses.
make the final conflict of interest de- 107.150 Management-ownership diversity re-
termination. No Gift shall be solicited quirement.
and/or accepted under these sections of 107.160 Special rules for Licensees formed as
the Small Business Act if such solicita- limited partnerships.
tion and/or acceptance would, in the CAPITALIZING AN SBIC
determination of the General Counsel
107.200 Adequate capital for Licensees.
(or designee), create a conflict of inter-
107.210 Minimum capital requirements for
est. Licensees.
(b) For Gifts of services and facilities 107.230 Permitted sources of Private Capital
solicited and/or accepted under section for Licensees.
5(b)(9), the conflict of interest deter- 107.240 Limitations on including non-cash
mination may be made by designated capital contributions in Private Capital.
107.250 Exclusion of stock options issued by
disaster legal counsel. Licensee from Management Expenses.
§ 106.503 Are there types of Gifts APPLYING FOR AN SBIC LICENSE
which SBA may not solicit and/or 107.300 License application form and fee.
accept? 107.305 Evaluation of license applicants.
Yes. SBA shall not solicit and/or ac- 107.310 When and how to apply for licensing
cept Gifts of or for (or use cash Gifts to as an Early Stage SBIC.
107.320 Evaluation of Early Stage SBICs.
purchase or engage in) the following:
(a) Alcohol products; Subpart D—Changes in Ownership, Con-
(b) Tobacco products; trol, or Structure of Licensee; Transfer
(c) Pornographic or sexually explicit of License
objects or services;
CHANGES IN CONTROL OR OWNERSHIP OF
(d) Gambling (including raffles and LICENSEE
lotteries);
107.400 Changes in ownership of 10 percent
(e) Parties primarily for the benefit or more of Licensee but no change of
of Government employees; and Control.
(f) Any other product or service pro- 107.410 Changes in Control of Licensee
hibited by law or policy. (through change in ownership or other-
wise).
107.420 Prohibition on exercise of ownership

or Control rights in Licensee before SBA
approval.
49
Pt. 107 13 CFR Ch. I (1–1–23 Edition)
107.430 Notification to SBA of transactions Subpart F—Recordkeeping, Reporting, and
that may change ownership or Control. Examination Requirements for Licensees
107.440 Standards governing prior SBA ap-
proval for a proposed transfer of Control. RECORDKEEPING REQUIREMENTS FOR
107.450 Notification to SBA of pledge of Li- LICENSEES
censee’s shares.
107.600 General requirement for Licensee to
RESTRICTIONS ON COMMON CONTROL OR maintain and preserve records.
OWNERSHIP OF TWO OR MORE LICENSEES 107.610 Required certifications for Loans
and Investments.
107.460 Restrictions on Common Control or
107.620 Requirements to obtain information
ownership of two (or more) Licensees.
from Portfolio Concerns.
CHANGE IN STRUCTURE OF LICENSEE
REPORTING REQUIREMENTS FOR LICENSEES
107.470 SBA approval of merger, consolida-
tion, or reorganization of Licensee. 107.630 Requirement for Licensees to file fi-
nancial statements with SBA (Form 468).
TRANSFER OF LICENSE 107.640 Requirement to file Portfolio Fi-
nancing Reports (SBA Form 1031).
107.475 Transfer of license.
107.650 Requirement to report portfolio
valuations to SBA.
Subpart E—Managing the Operations of a
107.660 Other items required to be filed by
Licensee Licensee with SBA.
GENERAL REQUIREMENTS 107.665 Civil penalties.
107.670 Application for exemption from civil
107.500 Lawful operations under the Act. penalty for late filing of reports.
107.501 Identification as a Licensee. 107.680 Reporting changes in Licensee not
107.502 Representations to the public. subject to prior SBA approval.
107.503 Licensee’s adoption of an approved
Valuation Policy. EXAMINATIONS OF LICENSEES BY SBA FOR
107.504 Equipment and office requirements. REGULATORY COMPLIANCE
107.506 Safeguarding Licensee’s assets/Inter-
nal controls. 107.690 Examinations.
107.507 Violations based on false filings and 107.691 Responsibilities of Licensee during
nonperformance of agreements with examination.
SBA. 107.692 Examination fees.
107.509 Employment of SBA officials.
Subpart G—Financing of Small Businesses
MANAGEMENT AND COMPENSATION by Licensees
107.510 SBA approval of Licensee’s Invest-
ment Adviser/Manager. DETERMINING THE ELIGIBILITY OF A SMALL
107.520 Management Expenses of a Licensee. BUSINESS FOR SBIC FINANCING
107.700 Compliance with size standards in
CASH MANAGEMENT BY A LICENSEE
part 121 of this chapter as a condition of
107.530 Restrictions on investments of idle Assistance.
funds by leveraged Licensees. 107.710 Requirement to finance smaller en-
terprises.
BORROWING BY LICENSEES FROM NON-SBA 107.720 Small Businesses that may be ineli-
SOURCES gible for financing.
107.550 Prior approval of secured third-party 107.730 Financings which constitute con-
debt of leveraged Licensees. flicts of interest.
107.560 Subordination of SBA’s creditor po- 107.740 Portfolio diversification (‘‘overline’’
sition. limitation).
107.565 Restrictions on third-party debt of 107.750 Conditions for financing a change of
Early Stage SBICs. ownership of a Small Business.
107.570 Restrictions on third-party debt of 107.760 How a change in size or activity of a
issuers of Participating Securities. Portfolio Concern affects the Licensee
and the Portfolio Concern.
VOLUNTARY DECREASE IN LICENSEE’S
REGULATORY CAPITAL STRUCTURING LICENSEE’S FINANCING OF ELIGI-
BLE SMALL BUSINESSES: TYPES OF FINANC-
107.585 Voluntary decrease in Licensee’s
ING
Regulatory Capital.
107.800 Financings in the form of Equity Se-
REQUIREMENT TO CONDUCT ACTIVE curities.
INVESTMENT OPERATIONS
107.810 Financings in the form of Loans.
107.590 Licensee’s requirement to maintain 107.815 Financings in the form of Debt Secu-
active operations. rities.
50
107.820 Financings in the form of guaran- SPECIAL RULES FOR LEVERAGE ISSUED BY AN
tees. EARLY STAGE SBIC
107.825 Purchasing securities from an under-
107.1180 Required distributions to SBA by
writer or other third party.
Early Stage SBICs.
STRUCTURING LICENSEE’S FINANCING OF AN 107.1181 Interest reserve requirements for
ELIGIBLE SMALL BUSINESS: TERMS AND CON- Early Stage SBICs.
DITIONS OF FINANCING 107.1182 Valuation requirements for Early
Stage SBICs based on Capital Impair-
107.830 Minimum duration/term of financ- ment Percentage.
ing.
107.835 Exceptions to minimum duration/ CONDITIONAL COMMITMENTS BY SBA TO
term of Financing. RESERVE LEVERAGE FOR A LICENSEE
107.840 Maximum term of financing.
107.1200 SBA’s Leverage commitment to a
107.845 Maximum rate of amortization on
Licensee—application procedure,
Loans and Debt Securities.
amount, and term.
107.850 Restrictions on redemption of Eq-
107.1210 Payment of leverage fee upon re-
uity Securities.
ceipt of commitment.
107.855 Interest rate ceiling and limitations
107.1220 Requirement for Licensee to file
on fees charged to small businesses
quarterly financial statements.
(‘‘Cost of Money’’).
107.1230 Draw-downs by Licensee under
107.860 Financing fees and expense reim-
SBA’s Leverage commitment.
bursements a Licensee may receive from
107.1240 Funding of Licensee’s draw request
a small business.
through sale to short-term investor.
107.865 Control of a small business by a Li-
censee. PREFERRED SECURITIES LEVERAGE—SECTION
107.880 Assets acquired in liquidation of 301(d) LICENSEES
Portfolio securities.
107.1400 Dividends or partnership distribu-
LIMITATIONS ON DISPOSITION OF ASSETS tions on 4 percent Preferred Securities.
107.1410 Requirement to redeem 4 percent
107.885 Disposition of assets to Licensee’s
Preferred Securities.
Associates or to competitors of Portfolio
107.1420 Articles requirements for 4 percent
Concern.
Preferred Securities.
MANAGEMENT SERVICES AND FEES 107.1430 Redeeming 4 percent Preferred Se-
curities with proceeds of non-subsidized
107.900 Management fees for services pro- Debentures.
vided to a Small Business by Licensee or 107.1440 Three percent preferred stock
its Associate. issued before November 21, 1989.
107.1450 Optional redemption of Preferred
Subpart H—Non-leveraged Licensees- Securities.
Exceptions to Regulations
PARTICIPATING SECURITIES LEVERAGE
107.1000 Licensees without leverage—excep-
tions to the regulations. 107.1500 General description of Partici-
pating Securities.
Subpart I—SBA Financial Assistance for 107.1505 Liquidity requirements for Licens-
ees issuing Participating Securities.
Licensees (Leverage) 107.1510 How a Licensee computes Ear-
GENERAL INFORMATION ABOUT OBTAINING marked Profit (Loss).
LEVERAGE 107.1520 How a Licensee computes and allo-
cates Prioritized Payments to SBA.
107.1100 Types of Leverage and application 107.1530 How a Licensee computes SBA’s
procedures. Profit Participation.
107.1120 General eligibility requirements for 107.1540 Distributions by Licensee—
Leverage. Prioritized Payments and Adjustments.
107.1130 Leverage fees and additional 107.1550 Distributions by Licensee—per-
charges payable by Licensee. mitted ‘‘tax Distributions’’ to private in-
107.1140 Licensee’s acceptance of SBA rem- vestors and SBA.
edies under §§ 107.1800 through 107.1820. 107.1560 Distributions by Licensee—required
Distributions to private investors and
MAXIMUM AMOUNT OF LEVERAGE FOR WHICH A
SBA.
LICENSEE IS ELIGIBLE
107.1570 Distributions by Licensee—optional
107.1150 Maximum amount of Leverage for a Distribution to private investors and
Section 301(c) Licensee. SBA.
107.1160 Maximum amount of Leverage for a 107.1575 Distributions on other than Pay-
Section 301(d) Licensee. ment Dates.

107.1170 Maximum amount of Participating 107.1580 Special rules for In-Kind Distribu-
Securities for any Licensee. tions by Licensees.
51
§ 107.20 13 CFR Ch. I (1–1–23 Edition)
107.1585 Exchange of Debentures for Partici- AUTHORITY: 15 U.S.C. 681, 683, 687(c), 687b,
pating Securities. 687d, 687g, 687m.
107.1590 Special rules for companies licensed
SOURCE: 61 FR 3189, Jan. 31, 1996, unless
on or before March 31, 1993.
otherwise noted.
FUNDING LEVERAGE BY USE OF SBA-
GUARANTEED TRUST CERTIFICATES (‘‘TCS’’) Subpart A—Introduction to Part
107.1600 SBA authority to issue and guar- 107
antee Trust Certificates.
107.1610 Effect of prepayment or early re- § 107.20 Legal basis and applicability
demption of Leverage on a Trust Certifi- of this part 107.
cate.
(a) The regulations in this part im-
107.1620 Functions of agents, including Cen-
tral Registration Agent, Selling Agent plement Title III of the Small Business
and Fiscal Agent. Investment Act of 1958, as amended. All
107.1630 SBA regulation of Brokers and Licensees must comply with all appli-
Dealers and disclosure to purchasers of cable regulations, accounting guide-
Leverage or Trust Certificates. lines and valuation guidelines for Li-
107.1640 SBA access to records of the CRA, censees.
Brokers, Dealers and Pool or Trust as- (b) Provisions of this part which are
semblers.
not mandated by the Act shall not su-
MISCELLANEOUS persede existing State law. A party
claiming that a conflict exists shall
107.1700 Transfer by SBA of its interest in
Licensee’s Leverage security. submit an opinion of independent coun-
107.1710 SBA authority to collect or com- sel, citing authorities, for SBA’s reso-
promise its claims. lution of the issues involved.
107.1720 Characteristics of SBA’s guarantee.
§ 107.30 Amendments to Act and regu-
Subpart J—Licensee’s Noncompliance lations.
With Terms of Leverage A Licensee shall be subject to all ex-
107.1800 Licensee’s agreement to terms and isting and future provisions of the Act
conditions in §§ 107.1810 and 107.1820. and parts 107 and 112 of title 13 of the
107.1810 Events of default and SBA’s rem- Code of Federal Regulations.
edies for Licensee’s noncompliance with
terms of Debentures. § 107.40 How to read this part 107.
107.1820 Conditions affecting issuers of Pre- (a) Center Headings. All references in
ferred Securities and/or Participating Se-
this part to SBA forms, and instruc-
curities.
tions for their preparation, are to the
COMPUTATION OF LICENSEE’S CAPITAL current issue of such forms. Center
IMPAIRMENT headings are descriptive and are used
107.1830 Licensee’s Capital Impairment— for convenience only. They have no
definition and general requirements. regulatory effect.
107.1840 Computation of Licensee’s Capital (b) Capitalizing defined terms. Terms
Impairment Percentage. defined in § 107.50 are capitalized in this
107.1845 Determination of Capital Impair- part 107.
ment Percentage for Early Stage SBICs. (c) The pronoun ‘‘you’’ as used in this
107.1850 Exceptions to Capital Impairment
part 107 means a Licensee or license ap-
provisions for Licensees with out-
standing Participating Securities. plicant, as appropriate, unless other-
wise noted.
Subpart K—Ending Operations as a
Licensee Subpart B—Definition of Terms
107.1900 Surrender of license. Used in Part 107
Subpart L—Miscellaneous § 107.50 Definition of terms.
Accumulated Prioritized Payments has
107.1910 Non-waiver of SBA’s rights or
the meaning set forth in § 107.1520.
terms of Leverage security.
107.1920 Licensee’s application for exemp- Act means the Small Business Invest-
tion from a regulation in this part 107. ment Act of 1958, as amended.
107.1930 Effect of changes in this part 107 on Adjustments has the meaning set
transactions previously consummated. forth in § 107.1520.
52
Affiliate or Affiliates has the meaning (6) Any Close Relative of any Person
set forth in § 121.103 of this chapter. described in paragraphs (1),(2), (4), and
Articles mean articles of incorpora- (5) of this definition.
tion or charter for a Corporate Li- (7) Any Secondary Relative of any
censee and the partnership agreement Person described in paragraphs (1), (2),
or certificate for a Partnership Li- (4), and (5) of this definition.
censee. (8) Any concern in which—
Assistance or Assisted means Financ- (i) Any person described in para-
ing of or management services ren- graphs (1) through (6) of this definition
dered to a Small Business by a Li- is an officer; general partner, or man-
censee pursuant to the Act and these aging member; or
regulations. (ii) Any such Person(s) singly or col-
Associate of a Licensee means any of lectively Control or own, directly or in-
the following: directly, an equity interest of at least
(1)(i) An officer, director, employee 10 percent (excluding interests that
or agent of a Corporate Licensee; such Person(s) own indirectly through
(ii) A Control Person, employee or ownership interests in the Licensee).
agent of a Partnership Licensee; (9) Any concern in which any Per-
(iii) An Investment Adviser/Manager son(s) described in paragraph (7) of this
of any Licensee, including any Person definition singly or collectively own
who contracts with a Control Person of (including beneficial ownership) a ma-
a Partnership Licensee to be the In- jority equity interest, or otherwise
vestment Adviser/Manager of such Li- have Control. As used in this paragraph
censee; or (9), ‘‘collectively’’ means together with
(iv) Any Person regularly serving a any Person(s) described in paragraphs
Licensee on retainer in the capacity of (1) though (7) of this definition.
attorney at law. (10) For the purposes of this defini-
(2) Any Person who owns or controls, tion, if any Associate relationship de-
or who has entered into an agreement scribed in paragraphs (1) through (7) of
to own or control, directly or indi- this definition exists at any time with-
rectly, at least 10 percent of any class in six months before or after the date
of stock of a Corporate Licensee or a that a Licensee provides Financing,
limited partner’s interest of at least 10 then that Associate relationship is con-
percent of the partnership capital of a sidered to exist on the date of the Fi-
Partnership Licensee. However, a lim- nancing.
ited partner in a Partnership Licensee (11) If any Licensee has any owner-
is not considered an Associate if such ship interest in another Licensee, the
Person is an entity Institutional Inves- two Licensees are Associates of each
tor whose investment in the Partner- other.
ship, including commitments, rep- Capital Impairment has the meaning
resents no more than 33 percent of the set forth in § 107.1830(c).
partnership capital of the Licensee and Central Registration Agent or CRA
no more than five percent of such Per- means one or more agents appointed by
son’s net worth. SBA for the purpose of issuing TCs and
(3) Any officer, director, partner performing the functions enumerated
(other than a limited partner), man- in § 107.1620 and performing similar
ager, agent, or employee of any Asso- functions for Debentures and Partici-
ciate described in paragraph (1) or (2) of pating Securities funded outside the
this definition. pooling process.
(4) Any Person that directly or indi- Charge means an annual fee on Lever-
rectly Controls, or is Controlled by, or age issued on or after October 1, 1996
is under Common Control with, a Li- (except for Leverage issued pursuant to
censee. a commitment made by SBA before Oc-
(5) Any Person that directly or indi- tober 1, 1996), which is payable to SBA
rectly Controls, or is Controlled by, or by Licensees, subject to the terms and
is under Common Control with, any conditions set forth in § 107.1130(d).

Person described in paragraphs (1) and Close Relative of an individual means:
(2) of this definition. (1) A current or former spouse;
53
§ 107.50 13 CFR Ch. I (1–1–23 Edition)
(2) A father, mother, guardian, broth- censee, either directly or through an

er, sister, son, daughter; or intervening entity;
(3) A father-in-law, mother-in-law, (3) Any Person that—
brother-in-law, sister-in-law, son-in- (i) Controls or owns, directly or
law, or daughter-in-law. through an intervening entity, at least
Combined Capital means the sum of 10 percent of a Partnership Licensee or
Regulatory Capital and outstanding any entity described in paragraphs (1)
Leverage. or (2) of this definition; and
Commitment means a written agree- (ii) Participates in the investment
ment between a Licensee and an eligi- decisions of the general partner of such
ble Small Business that obligates the Partnership Licensee;
Licensee to provide Financing (except (4) Any Person that controls or owns,
a guarantee) to that Small Business in directly or through an intervening en-
a fixed or determinable sum, by a fixed tity, at least 50 percent of a Partner-
or determinable future date. In this ship Licensee or any entity described
context the term ‘‘agreement’’ means in paragraphs (1) or (2) of this defini-
that there has been agreement on the tion.
principal economic terms of the Fi- Corporate Licensee. See definition of
nancing. The agreement may include Licensee in this section.
reasonable conditions precedent to the Cost of Money has the meaning set
forth in § 107.855.
Licensee’s obligation to fund the com-
Debenture Rate means the interest
mitment, but these conditions must be
rate, as published from time to time in
outside the Licensee’s control.
the FEDERAL REGISTER by SBA, for ten
Common Control means a condition year debentures issued by Licensees
where two or more Persons, either and funded through public sales of cer-
through ownership, management, con- tificates bearing SBA’s guarantee. User
tract, or otherwise, are under the Con- or guarantee fees, if any, paid by a Li-
trol of one group or Person. Two or censee are not considered in deter-
more Licensees are presumed to be mining the Debenture Rate.
under Common Control if they are Af- Debentures means debt obligations
filiates of each other by reason of com- issued by Licensees pursuant to section
mon ownership or common officers, di- 303(a) of the Act and held or guaran-
rectors, or general partners; or if they teed by SBA.
are managed or their investments are Debt Securities has the meaning set
significantly directed either by a com- forth in § 107.815.
mon independent investment advisor or Disadvantaged Business means a
managerial contractor, or by two or Small Business that is at least 50 per-
more such advisors or contractors that cent owned, and controlled and man-
are Affiliates of each other. This pre- aged, on a day to day basis, by a person
sumption may be rebutted by evidence or persons whose participation in the
satisfactory to SBA. free enterprise system is hampered be-
Control means the possession, direct cause of social or economic disadvan-
or indirect, of the power to direct or tages.
cause the direction of the management Distributable Securities means equity
and policies of a Licensee or other con- securities that are determined by SBA
cern, whether through the ownership of (with the advice of a third party expert
voting securities, by contract, or oth- in the marketing of securities) to meet
erwise. each of the following requirements:
Control Person means any Person that (1) The securities (which may include
controls a Licensee, either directly or securities that are salable pursuant to
through an intervening entity. A Con- the provisions of Rule 144 (17 CFR
trol Person includes: 230.144) under the Securities Act of
(1) A general partner of a Partnership 1933, as amended) are salable imme-
Licensee; diately without restriction under Fed-
(2) Any Person serving as the general eral and state securities laws;
partner, officer, director, or manager (2) The securities are of a class:

(in the case of a limited liability com- (i) Which is listed and registered on a
pany) of any entity that controls a Li- national securities exchange, or
54
(ii) For which quotation information ment of Energy’s Federal Energy Man-
is disseminated in the National Asso- agement Program;
ciation of Securities Dealers Auto- (iii) Improves automobile efficiency
mated Quotation System and as to or reduces consumption of non-renew-
which transaction reports and last sale able fuels through the use of advanced
data are disseminated pursuant to Rule batteries, power electronics, or electric
11Aa3–1 (17 CFR 240.11Aa3–1) under the motors; advanced combustion engine
Securities Exchange Act of 1934, as technology; alternative fuels; or ad-
amended; and vanced materials technologies, such as
(3) The quantity of such securities to lightweighting;
be distributed to SBA can be sold over (iv) Improves industrial energy effi-
a reasonable period of time without ciency through combined heat and
having an adverse impact upon the power (CHP) prime mover or power
price of the security. generation technologies, heat recovery
Distribution means any transfer of units, absorption chillers, desiccant de-
cash or non-cash assets to SBA, its humidifiers, packaged CHP systems,
agent or Trustee, or to partners in a more efficient process heating equip-
Partnership Licensee, or to share- ment, more efficient steam generation
holders in a Corporate Licensee. Cap- equipment, heat recovery steam gen-
italization of Retained Earnings Avail- erators, or more efficient use of water
able for Distribution constitutes a Dis- recapture, purification and reuse for
tribution to the Licensee’s non-SBA industrial application;
partners or shareholders. (v) Advances commercialization of
Early Stage SBIC means a Section technologies developed by recipients of
301(c) Partnership Licensee, licensed awards from the Department of Energy
pursuant to § 107.310 of this part, in under the Advanced Research Projects
which at least 50 percent of all Loans Agency—Energy, Small Business Inno-
and Investments (in dollars) must be vation Research, or Small Business
made to Small Businesses that are Technology Transfer programs;
‘‘early stage’’ companies at the time of (vi) Reduces the consumption of non-
the Licensee’s initial Financing (see renewable energy by providing renew-
also § 107.1810(f)(11)). For the purposes able energy sources, as demonstrated
of this definition, an ‘‘early stage’’ by meeting the standards, applicable to
company is one that has never the year in which the investment is
achieved positive cash flow from oper- made, for receiving a Renewable Elec-
ations in any fiscal year. tricity Production Tax Credit as de-
Earmarked Assets has the meaning set fined in Internal Revenue Code Section
forth in § 107.1510(b). (See also 45 or an Energy Credit as defined in In-
§ 107.1590.) ternal Revenue Code Section 48;
Earmarked Profit (Loss) has the mean- (vii) Reduces the consumption of
ing set forth in § 107.1510. non-renewable energy for electric
Earned Prioritized Payments has the power generation as described in Inter-
meaning set forth in § 107.1520. nal Revenue Code Section 48(c)(1)(A) by
Energy Saving Activities means any of providing highly efficient energy con-
the following: version systems that can use renewable
(1) Manufacturing or research and de- or non-renewable fuel through fuel
velopment of products, integral prod- cells; or
uct components, integral material, or (viii) Improves electricity delivery
related software that meet one or more efficiency by supporting one or more of
of the following: the smart grid functions as identified
(i) Improves residential energy effi- in 42 U.S.C. 17386(d), by means of a
ciency as demonstrated by meeting De- product, service, or functionality that
partment of Energy or Environmental serves one or more of the following
Protection Agency criteria for use of smart grid operational domains: Equip-
the Energy Star trademark label; ment manufacturing, customer sys-
(ii) Improves commercial energy effi- tems, advanced metering infrastruc-
ciency as demonstrated by being in the ture, electric distribution systems,

upper 25% of efficiency for all similar electric transmission systems, storage
products as designated by the Depart- systems, and cyber security.
55
§ 107.50 13 CFR Ch. I (1–1–23 Edition)
(2) Installation and/or inspection fessional, such as a certified energy as-

services associated with the deploy- sessor, energy auditor, or energy engi-
ment of energy saving products as neer;
identified by meeting one or more of (ii) Patents or grants awarded to or
the following standards: licenses held by the Small Business re-
(i) Deploys products that qualify, in lated to Energy Saving Activities list-
the year in which the investment is ed in subsection (1) or (2) above;
made, for installation-related Federal (iii) For research and development of
Tax Credits for Residential Consumer products or services that are antici-
Energy Efficiency; pated to reduce the consumption of
(ii) Deploys products related to com- non-renewable energy, written evi-
mercial energy efficiency as dem- dence from an independent, certified
onstrated by deploying commercial third-party professional of the feasi-
equipment that is in the upper 25% of bility, commercial potential, and pro-
efficiency for all similar products as jected energy savings of such products
designated by the Department of Ener- or services; and
gy’s Federal Energy Management Pro- (iv) Eligibility of the product or serv-
gram; ice for a Federal tax credit cited in this
(iii) Deploys combined heat and definition that is not available in the
power products, goods, or services; year in which the investment is made,
(iv) Deploys products that qualify, in but was available in a previous year.
the year in which the investment is
Energy Saving Qualified Investment
made, for receiving a Renewable Elec-
means a Financing which:
tricity Production Tax Credit as de-
(1) Is made by a Licensee licensed
fined in Internal Revenue Code Section
after September 30, 2008;
45 or an Energy Credit as defined in In-
ternal Revenue Code Section 48; or (2) Is in the form of a Loan, Debt Se-
(v) Deploys a product, service, or curity, or Equity Security, each as de-
functionality that improves electricity fined in this section;
delivery efficiency by supporting one (3) Is made to a Small Business that
or more of the smart grid functions as is primarily engaged in Energy Saving
identified in 42 U.S.C. 17386(d), and that Activities. A Licensee must obtain a
serves one or more of the following determination from SBA prior to the
smart grid operational domains: Equip- provision of Financing as to whether a
ment manufacturing, customer sys- Small Business is primarily engaged in
tems, advanced metering infrastruc- Energy Saving Activities. SBA will
ture, electric distribution systems, consider the distribution of revenues,
electric transmission systems, or grid employees and expenditures, intellec-
cyber security. tual property rights held, and Energy
(3) Auditing or consulting services Saving Activities described in a busi-
performed with the objective of identi- ness plan presented to investors as part
fying potential improvements of the of a formal solicitation in making its
type described in paragraph (1) or (2) of determination. However, a Small Busi-
this definition. ness is presumed to be primarily en-
(4) Other manufacturing, service, or gaged in Energy Saving Activities, and
research and development activities no pre-Financing determination by
that use less energy to provide the SBA is required, if:
same level of energy service or reduce (i) The Small Business derived at
the consumption of non-renewable en- least 50% of its revenues during its
ergy by providing renewable energy most recently completed fiscal year
sources, as determined by SBA. A Li- from Energy Saving Activities; or
censee must obtain such determination (ii) The Small Business will utilize
in writing prior to providing Financing 100% of the Financing proceeds re-
to a Small Business. SBA will consider ceived from a Licensee to engage in
factors including but not limited to: Energy Saving Activities.
(i) Results of energy efficiency test- Equity Capital Investments means in-
ing performed in accordance with rec- vestments in a Small Business in the

ognized professional standards, pref- form of common or preferred stock,
erably by a qualified third-party pro- limited partnership interests, options,
56
warrants, or similar equity instru- Index for Urban Consumers (CPI–U),

ments, including subordinated debt calculated by the U.S. Bureau of Labor
with equity features if such debt pro- and Statistics (BLS), using the U.S.
vides only for interest payments con- city average for all items, not season-
tingent upon and limited to the extent ally adjusted, with the base period of
of earnings. Equity Capital Invest- 1982 ¥ 84 = 100. To calculate the Infla-
ments must not require amortization. tion Adjustment, each year, SBA will
Equity Capital Investments may be divide the CPI–U from the most recent
guaranteed; however, neither Equity June by the CPI–U from June of the
Capital Investments nor such guar- preceding year. If the result is greater
antee may be collateralized or other- than 1, SBA will increase the relevant
wise secured. Investments classified as
fees as follows:
Debt Securities (see §§ 107.800 and
107.815) are not precluded from quali- (1) Multiply the result by the current
fying as Equity Capital Investments. fee; and
Equity Securities has the meaning set (2) Round to the nearest $100.
forth in § 107.800. Institutional Investor means:
Financing or Financed means out- (1) Entities. Any of the following enti-
standing financial assistance provided ties if the entity has a net worth (ex-
to a Small Business by a Licensee, clusive of unfunded commitments from
whether through: investors) of at least $1 million, or such
(1) Loans; higher amount as is specified in para-
(2) Debt Securities; graph (1) of this definition. (See also
(3) Equity Securities; § 107.230(b)(4) for limitations on the
(4) Guarantees; or amount of an Institutional Investor’s
(5) Purchases of securities of a Small commitment that may be included in
Business through or from an under- Private Capital.)
writer (see § 107.825). (i) A State or National bank, trust
Guaranty Agreement means the con- company, savings bank, or savings and
tract entered into by SBA which is a
loan association.
guarantee backed by the full faith and
credit of the United States Govern- (ii) An insurance company.
ment as to timely payment of principal (iii) A 1940 Act Investment Company
and interest on Debentures or the Re- or Business Development Company
demption Price of and Prioritized Pay- (each as defined in the Investment
ments on Participating Securities and Company Act of 1940, as amended (15
SBA’s rights in connection with such U.S.C. 8a–1 et seq.).
guarantee. (iv) A holding company of any entity
Includible Non-Cash Gains means described in paragraph (1)(i), (ii) or (iii)
those non-cash gains (as reported on of this definition.
SBA Form 468) that are realized in the (v) An employee benefit or pension
form of Publicly Traded and Market- plan established for the benefit of em-
able securities or investment grade ployees of the Federal government, any
debt instruments. For purposes of this State or political subdivision of a
definition, investment grade debt in- State, or any agency or instrumen-
struments means those instruments tality of such government unit.
that are rated ‘‘BBB’’ or ‘‘Baa’’, or bet- (vi) An employee benefit or pension
ter, by Standard & Poor’s Corporation plan (as defined in the Employee Re-
or Moody’s Investors Service, respec-
tirement Income Security Act of 1974,
tively. Non-rated debt may be consid-
as amended (Pub. L. 93–406, 88 Stat.
ered to be investment grade if Licensee
obtains a written opinion from an in- 829), excluding plans established under
vestment banking firm acceptable to section 401(k) of the Internal Revenue
SBA stating that the non-rated debt Code of 1986 (26 U.S.C. 401(k)), as
instrument is equivalent in risk to the amended).
issuer’s investment grade debt. (vii) A trust, foundation or endow-
Inflation Adjustment is the method- ment exempt from Federal income tax-
ology used to increase SBIC adminis- ation under the Internal Revenue Code
trative fees using the Consumer Price of 1986, as amended.
57
§ 107.50 13 CFR Ch. I (1–1–23 Edition)
(viii) A corporation, partnership or which has assets in excess of $500 mil-

other entity with a net worth (exclu- lion; and which, in either case, holds
sive of unfunded commitments from in- itself out to the public as engaged in
vestors) of more than $10 million. the making of commercial and indus-
(ix) A State, a political subdivision of trial loans and whose lending oper-
a State, or an agency or instrumen- ations are not for the purpose of fi-
tality of a State or its political sub- nancing its own or an Associate’s sales
division. or business operations.
(x) An entity whose primary purpose Leverage means financial assistance
is to manage and invest non-Federal provided to a Licensee by SBA, either
funds on behalf of at least three Insti- through the purchase or guaranty of a
tutional Investors described in para- Licensee’s Debentures or Participating
graphs (1)(i) through (1)(ix) of this defi- Securities, or the purchase of a Licens-
nition, each of whom must have at ee’s Preferred Securities, and any other
least a 10 percent ownership interest in SBA financial assistance evidenced by
the entity. a security of the Licensee.
(xi) Any other entity that SBA deter- Leverageable Capital means Regu-
mines to be an Institutional Investor. latory Capital, excluding unfunded
(2) Individuals. (i) Any of the fol- commitments.
lowing individuals if he/she is also a Licensee means either a corporation
permanent resident of the United (Corporate Licensee), or a limited part-
States: nership organized pursuant to § 107.160
(A) An individual who is an Accred- (Partnership Licensee), to which a li-
ited Investor (as defined in the Securi- cense has been granted pursuant to the
ties Act of 1933, as amended (15 U.S.C. Act. For certain purposes, the Entity
77a–77aa)) and whose commitment to General Partner of a Partnership Li-
the Licensee is backed by a letter of censee is treated as if it were a Li-
credit from a State or National bank censee (see § 107.160(b)(2)).
acceptable to SBA. LMI Enterprise means:
(B) An individual whose personal net (1) A Small Business that has at least
worth is at least $2 million and at least 50% of its employees or tangible assets
ten times the amount of his or her located in LMI Zone(s) or in which at
commitment to the Licensee. The indi- least 35% of the full-time employees
vidual’s personal net worth must not have primary residences in LMI
include the value of any equity in his Zone(s), in either case determined as of
or her most valuable residence. the time of application for SBIC fi-
(C) An individual whose personal net nancing; or
worth (determined in accordance with (2) A Small Business that does not
paragraph (2)(i)(B) of this definition) is meet the requirements of paragraph (1)
at least $10 million. of this definition as of the time of ap-
(ii) Any individual who is not a per- plication for SBIC financing but that
manent resident of the United States certifies at such time that it intends to
but who otherwise satisfies paragraph meet the requirements within 180 days
(2)(i) of this definition provided such in- after the closing of the SBIC financing.
dividual has irrevocably appointed an A Small Business qualifying under this
agent within the United States for the paragraph (2) will no longer be an LMI
service of process. Enterprise as of the 180th day after the
Investment Adviser/Manager means closing of the SBIC financing unless,
any Person who furnishes advice or as- on or before such date, at least 50% of
sistance with respect to operations of a its employees or tangible assets are lo-
Licensee under a written contract exe- cated in LMI Zones or at least 35% of
cuted in accordance with the provi- its full-time employees have primary
sions of § 107.510. residences in LMI Zones.
Lending Institution means a concern LMI Investment means a financing of
that is operating under regulations of a an LMI Enterprise, made after Sep-
state or Federal licensing, supervising, tember 30, 1999, in the form of equity
or examining body, or whose shares are securities or debt securities that are
publicly traded and listed on a recog- junior to all existing or future secured
nized stock exchange or NASDAQ and borrowings of the business. The debt
58
securities may be guaranteed and may (2) For an Early Stage SBIC, each
be secured by the assets of the LMI En- March 1, June 1, September 1, and De-
terprise, but the guarantee may not be cember 1 during the term of a Deben-
collateralized or otherwise secured. ture.
LMI Zone means any area located Person means a natural person or
within a HUBZone (as defined in 13 legal entity.
CFR 126.103), an Urban Empowerment Pool means an aggregation of SBA
Zone or Urban Enterprise Community guaranteed Debentures or SBA guaran-
(as designated by the Secretary of the teed Participating Securities approved
Department of Housing and Urban De- by SBA.
velopment), a Rural Empowerment Portfolio means the securities rep-
Zone or Rural Enterprise Community resenting a Licensee’s total out-
(as designated by the Secretary of the standing Financing of Small Busi-
Department of Agriculture), an area of nesses. It does not include idle funds or
Low Income or Moderate Income (as assets acquired in liquidation of Port-
recognized by the Federal Financial In- folio securities.
stitutions Examination Council), or a Portfolio Concern means a Small Busi-
county with Persistent Poverty (as ness Assisted by a Licensee.
classified by the Economic Research Preferred Securities means nonvoting
Service of the Department of Agri- preferred stock or nonvoting limited
culture). partnership interests issued to SBA
Loan has the meaning set forth in prior to October 1, 1996, by a Section
§ 107.810. 301(d) Licensee. Such securities were
Loans and Investments means Port- issued at par value in the case of pre-
folio Securities, Assets Acquired in ferred stock, or at face value in the
Liquidation of Portfolio Securities, Op- case of preferred limited partnership
erating Concerns Acquired, and Notes interests.
and Other Securities Received, as set Prioritized Payments has the meaning
forth in the Statement of Financial Po- set forth in § 107.1520.
sition of SBA Form 468. Private Capital has the meaning set
Management Expenses has the mean- forth in § 107.230.
ing set forth in § 107.520. Profit Participation has the meaning
set forth in § 107.1500(c)(3).
1940 Act Company means a Licensee
Publicly Traded and Marketable means
which is registered under the Invest-
securities that are salable without re-
ment Company Act of 1940.
striction or that are salable within 12
1980 Act Company means a Licensee
months pursuant to Rule 144 (17 CFR
which is registered under the Small
230.144) of the Securities Act of 1933, as
Business Investment Incentive Act of
amended, by the holder thereof (or in
1980.
the case of an In-kind Distribution by
Original Issue Price means the price the distributee thereof), and are of a
paid by the purchaser for securities at class which is traded on a regulated
the time of issuance. stock exchange, or is listed in the
Participating Securities means pre- Automated Quotation System of the
ferred stock, preferred limited partner- National Association of Securities
ship interests, or similar instruments Dealers (NASDAQ), or has, at a min-
issued by Licensees, including deben- imum, at least two market makers as
tures having interest payable only to defined in the relevant sections of the
the extent of earnings, all of which are Securities Exchange Act of 1934, as
subject to the terms set forth in amended (15 U.S.C. 77b et seq.), and in
§§ 107.1500 through 107.1590 and section all cases the quantity of which can be
303(g) of the Act. sold over a reasonable period of time
Partnership Licensee. See definition of without having an adverse impact upon
Licensee in this section. the price of the stock.
Payment Date means: Qualified Non-private Funds has the
(1) For a Participating Securities meaning set forth in § 107.230.
issuer, each February 1, May 1, August Redemption Price means the amount
1, and November 1 during the term of a required to be paid by the issuer, or
Participating Security, or successor to the issuer, of Preferred or
59
§ 107.50 13 CFR Ch. I (1–1–23 Edition)
Participating Securities to repurchase Short-term Financing means Financ-

such securities from the holder. The ing with a term of less than one year in
Redemption Price shall be the Original accordance with the regulations.
Issue Price less any prepayments or Small Business means a small business
prior redemptions. concern as defined in section 103(5) of
Regulatory Capital means: the Act (including its Affiliates), which
(1) General. Regulatory Capital means for purposes of size eligibility, meets
Private Capital, excluding non-cash as- the applicable criteria set forth in part
sets contributed to a Licensee or a li- 121 of this chapter.
cense applicant, and non-cash assets Smaller Enterprise has the meaning
purchased by a license applicant, un- set forth in § 107.710.
less such assets have been converted to Start-up Financing means an Equity
cash or have been approved by SBA for Capital Investment in a Small Business
inclusion in Regulatory Capital. For that—
purposes of this definition, sales of con- (1) Has not had sales exceeding
tributed non-cash assets with recourse $3,000,000 or positive cash flow from op-
or borrowing against such assets shall erations in any of its last three full fis-
not constitute a conversion to cash. cal years; and
(2) Exclusion of questionable commit- (2) Was not formed to acquire any ex-
ments. An investor’s commitment to a isting business, unless the acquired
Licensee is excluded from Regulatory business satisfies paragraphs (1) and (2)
Capital if SBA determines that the col- of this definition.
lectibility of the commitment is ques- Temporary Debt has the meaning set
tionable. forth in § 107.570.
Retained Earnings Available for Dis- Trust means the legal entity created
tribution means Undistributed Net Re- for the purpose of holding guaranteed
alized Earnings less any Unrealized De- Debentures or Participating Securities
preciation on Loans and Investments and the guaranty agreement related
(as reported on SBA Form 468), and thereto, receiving, holding and making
represents the amount that a Licensee any related payments, and accounting
may distribute to investors (including for such payments.
SBA) as a profit Distribution, or trans- Trust Certificate Rate means a fixed
fer to Private Capital. rate determined by the Secretary of
SBA means the Small Business Ad- the Treasury at the time Participating
ministration, 409 Third Street, SW., Securities or Debentures are pooled,
taking into consideration the current
Washington, DC 20416.
average market yield on outstanding
Secondary Relative of an individual
marketable obligations of the United
means: States with maturities comparable to
(1) A grandparent, grandchild, or any the maturities of the Trust Certificates
other ancestor or lineal descendent being guaranteed by SBA, adjusted to
who is not a Close Relative; the nearest one-eighth of one percent.
(2) An uncle, aunt, nephew, niece, or Trust Certificates (TCs) means certifi-
first cousin; or cates issued by SBA, its agent or
(3) A spouse of any person described Trustee and representing ownership of
in paragraph (1) or (2) of this defini- all or a fractional part of a Trust or
tion. Pool of Debentures or Participating Se-
Section 301(c) Licensee has the mean- curities.
ing set forth in § 107.100. Trustee means the trustee or trustees
Section 301(d) Licensee means a com- of a Trust.
pany licensed prior to October 1, 1996 Undistributed Net Realized Earnings
under section 301(d) of the Act as in ef- means Undistributed Realized Earnings
fect on the date of licensing, that may less Non-cash Gains/Income, each as re-
provide Assistance only to Disadvan- ported on SBA Form 468.
taged Businesses. A Section 301(d) Li- Unrealized Appreciation means the
censee may be organized as a for-profit amount by which a Licensee’s valu-

corporation, as a non-profit corpora- ation of each of its Loans and Invest-
tion, or as a limited partnership. ments, as determined by its Board of
60
Directors or General Partner(s) in ac- the applicable sections of this part (see
cordance with Licensee’s valuation the definition of Retained Earnings
policies, exceeds the cost basis thereof. Available for Distribution, § 107.585, and
Unrealized Depreciation means the §§ 107.1540 through 107.1580).
amount by which a Licensee’s valu-
ation of each of its Loans and Invest- § 107.120 Special rules for a Section
ments, as determined by its Board of 301(d) Licensee owned by another
Licensee.
Directors or General Partner(s) in ac-
cordance with Licensee’s valuation With SBA’s prior written approval, a
policies, is below the cost basis thereof. Section 301(d) Licensee may operate as
Unrealized Gain (Loss) on Securities the subsidiary of one or more Licensees
Held means the sum of the Unrealized (participant Licensees), subject to the
Appreciation and Unrealized Deprecia- following:
tion on all of a Licensee’s Loans and (a) Each participant Licensee must
Investments, less estimated future in- own at least 20 percent of the voting
come tax expense or estimated realiz- securities of the Section 301(d) Li-
able future income tax benefit, as ap- censee.
propriate. (b) A participant Licensee must treat
Venture Capital Financing has the its entire capital contribution to the
meaning set forth in § 107.1160. subsidiary as a reduction of its
Leverageable Capital. The participant
Wind-up Plan has the meaning set
Licensee’s remaining Leverageable
forth in § 107.590.
Capital must be sufficient to support
[61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9, its outstanding Leverage.
1996, as amended at 62 FR 11759, Mar. 13, 1997; (c) A participant Licensee may not
63 FR 5865, Feb. 5, 1998; 64 FR 52645, Sept. 30, transfer its Leverage to a subsidiary
1999; 64 FR 70995, Dec. 20, 1999; 69 FR 8098, Section 301(d) Licensee.
Feb. 23, 2004; 77 FR 23378, Apr. 19, 2012; 77 FR
25051, Apr. 27, 2012; 79 FR 62823, Oct. 21, 2014; [63 FR 5865, Feb. 5, 1998]
82 FR 39340, Aug. 18, 2017; 82 FR 52184, Nov.
13, 2017] § 107.130 Requirement for qualified
management.
Subpart C—Qualifying for an SBIC When applying for a license, and
License while you have a license, you must
show, to the satisfaction of SBA, that
ORGANIZING AN SBIC your current or proposed management
team is qualified and has the knowl-
§ 107.100 Organizing a Section 301(c) edge, experience and capability nec-
Licensee. essary for investing in the types of
Section 301(c) Licensee means a com- businesses contemplated by the Act,
pany licensed under section 301(c) of the regulations in this part 107, and
the Act. It may be organized as a for- your business plan. You must designate
profit corporation or as a limited part- at least one individual as the official
nership created in accordance with the responsible for contact with SBA.
special rules of § 107.160. [61 FR 3189, Jan. 31, 1996, as amended at 77
FR 25051, Apr. 27, 2012]
§ 107.115 1940 Act and 1980 Act Com-
panies. § 107.140 SBA approval of initial Man-
A 1940 Act or 1980 Act Company is eli- agement Expenses.
gible to apply for an SBIC license, and If you plan to obtain Leverage, you
an existing Licensee is eligible to apply must have your Management Expenses
for SBA’s approval to convert to a 1940 approved by SBA at the time of licens-
Act or 1980 Act Company. In either ing. (See § 107.520 for the definition of
case, the 1940 Act or 1980 Act Company Management Expenses.)
may elect to be taxed as a regulated in-
vestment company under section 851 of § 107.150 Management-ownership di-
the Internal Revenue Code of 1986, as versity requirement.
amended (26 U.S.C. 851). However, a Li- (a) Diversity requirement. You must
censee making such election may make satisfy the requirements in paragraphs
Distributions only as permitted under (b), (c) and (d) of this section:
61
§ 107.150 13 CFR Ch. I (1–1–23 Edition)
(1) In order to obtain an SBIC license and must not Control, be Controlled
(unless you do not plan to obtain Le- by, or be under Common Control with
verage), any of your Associates. A single ‘‘ac-
(2) If at the time you were licensed ceptable’’ Institutional Investor may
you did not plan to obtain Leverage, be substituted for two or three of the
but you now wish to be eligible for Le- three Persons who are otherwise re-
verage, or quired under this paragraph. The fol-
(3) If SBA so requires as a condition lowing Institutional Investors are ‘‘ac-
of approval of your transfer of Control ceptable’’ for this purpose:
under § 107.440. (i) Entities whose overall activities
(b) Percentage ownership requirement. are regulated and periodically exam-
(1) Except as provided in paragraph ined by state, Federal or other govern-
(b)(2) of this section, no Person or
mental authorities satisfactory to
group of Persons who are Affiliates of
SBA;
one another may own or control, di-
rectly or indirectly, more than 70 per- (ii) Entities listed on the New York
cent of your Regulatory Capital or Stock Exchange;
your Leverageable Capital. (iii) Entities that are publicly-traded
(2) Exception. An investor that is a and that meet both the minimum nu-
traditional investment company, as de- merical listing standards and the cor-
termined by SBA, may own and control porate governance listing standards of
more than 70 percent of your Regu- the New York Stock Exchange;
latory Capital and your Leverageable (iv) Public or private employee pen-
Capital. For purposes of this section, a sion funds;
traditional investment company must (v) Trusts, foundations, or endow-
be a professionally managed firm orga- ments, but only if exempt from Federal
nized exclusively to pool capital from income taxation; and
more than one source for the purpose (vi) Other Institutional Investors sat-
of investing in businesses that are ex- isfactory to SBA.
pected to generate substantial returns (2) Look-through for traditional invest-
to the firm’s investors. In determining ment company investors. SBA, in its sole
whether a firm is a traditional invest- discretion, may consider the require-
ment company for purposes of this sec- ment in paragraph (c)(1) of this section
tion, SBA will also consider: to be satisfied if at least 30 percent of
(i) Whether the managers of the firm your Regulatory Capital and
are unrelated to and unaffiliated with Leverageable Capital is owned and con-
the investors in the firm; trolled indirectly, through a tradi-
(ii) Whether the managers of the firm tional investment company, by Persons
are authorized and motivated to make unaffiliated with your management.
investments that, in their independent
(d) Voting requirement. (1) Except as
judgment, are likely to produce signifi-
provided in paragraph (d)(2) of this sec-
cant returns to all investors in the
firm; tion, the investors required for you to
(iii) Whether the firm benefits from satisfy diversity may not delegate
the use of the SBIC only through the their voting rights to any Person who
financial performance of the SBIC; and is your Associate, or who Controls, is
(iv) Other related factors. Controlled by, or is under Common
(c) Non-affiliation requirement—(1) Control with any of your Associates,
General rule. At least 30 percent of your without prior SBA approval.
Regulatory Capital and Leverageable (2) Exception. Paragraph (d)(1) of this
Capital must be owned and controlled section does not apply to investors in
by three Persons unaffiliated with your publicly-traded Licensees, to proxies
management and unaffiliated with given to vote in accordance with spe-
each other, and whose investments are cific instructions for single specified
significant in dollar and percentage meetings, or to any delegation of vot-
terms as determined by SBA. Such Per- ing rights to a Person who is neither a
sons must not be your Associates (ex- diversity investor in the Licensee nor
cept for their status as your share- affiliated with management of the Li-
holders, limited partners, or members) censee.
62
(e) Requirement to maintain diversity. porting requirements as a Licensee

If you were required to have manage- under section 310(b) of the Act. The re-
ment-ownership diversity at any time, strictions and obligations imposed
you must maintain such diversity upon a Licensee by §§ 107.1800 through
while you have outstanding Leverage 107.1820, and 107.30, 107.410 through
or Earmarked Assets. To maintain 107.450, 107.470, 107.475, 107.500, 107.510,
management-ownership diversity, you 107.585, 107.600, 107.680, 107.690 through
may continue to satisfy the diversity 107.692, 107.865, and 107.1910 apply also
requirement as in effect at the time it to an Entity General Partner of a Li-
was first applicable to you or you may censee.
satisfy the management-ownership di- (3) The general partner(s) of your En-
versity requirement as currently in ef- tity General Partner(s) will be consid-
fect. If, at any time, you no longer ered your general partner.
have the required management-owner- (4) If your Entity General Partner is
ship diversity, you must: a limited partnership, its limited part-
(1) Notify SBA within 10 days; and ners may be considered your Control
(2) Re-establish diversity within six Person(s) if they meet the definition
months. For the consequences of fail- for Control Person in § 107.50.
ure to re-establish diversity, see (5) If your Entity General Partner is
§§ 107.1810(g) and 107.1820(f). a limited partnership, it is subject to
[65 FR 71055, Nov. 29, 2000] paragraph (a) of this section.
(c) Other requirements for Partnership
§ 107.160 Special rules for Licensees Licensees. If you are a Partnership Li-
formed as limited partnerships. censee:
A limited partnership organized (1) You must have a minimum dura-
under State law solely for the purpose tion of ten years or two years following
of performing the functions and con- the maturity of your last-maturing Le-
ducting the activities contemplated verage security, whichever is longer.
under the Act may apply for a license After 10 years, if all Leverage has been
under section 301(c) or section 301 (d) of repaid or redeemed and all amounts
the Act (‘‘Partnership Licensee’’). due SBA, its agent, or Trustee have
(a) Number of Licensee’s General Part- been paid, the Partnership Licensee
ners. If you are a Partnership Licensee, may be terminated by a vote of your
you must have as your general part- partners. (For purposes of this provi-
ner(s) at least two individuals, or at sion SBA is not considered a partner.);
least one corporation, partnership, or (2) None of your general partner(s)
limited liability company (LLC), or may be removed or replaced by your
any combination of individuals, cor- limited partners without prior written
porations, partnerships, or LLCs. approval of SBA;
(b) Entity General Partner of Licensee. (3) Any transferee of, or successor in
A general partner which is a corpora- interest to, your general partner shall
tion, limited liability company or part- have only the rights and liabilities of a
nership (an ‘‘Entity General Partner’’) limited partner pending SBA’s written
shall be organized under state law sole- approval of such transfer or succession;
ly for the purpose of serving as the gen- and
eral partner of one or more Licensees. (4) You must incorporate all the pro-
(1) SBA must approve any person who visions in this paragraph (c) in your
will serve as an officer, director, man- Limited Partnership Agreement.
ager, or general partner of the Entity (d) Obligations of a Control Person. All
General Partner. This provision must Control Persons are bound by the dis-
be stated in an Entity General Part- ciplinary provisions of sections 313 and
ner’s Certificate of Incorporation, 314 of the Act and by the conflict-of-in-
member agreement, Limited Partner- terest rules under section 312 of the
ship Agreement or other similar gov- Act. The term Licensee, as used in
erning instrument which must, in each §§ 107.30, 107.460, and 107.680 includes all
case, accompany the license applica- of the Licensee’s Control Persons. The
tion. term Licensee as used in § 107.670 in-

(2) An Entity General Partner is sub- cludes only the Licensee’s general part-
ject to the same examination and re- ner(s). The conditions specified in
63
§ 107.200 13 CFR Ch. I (1–1–23 Edition)
§§ 107.1800 through 107.1820 and § 107.1910 $2,500,000 and must meet the applicable
apply to all general partners. minimum Regulatory Capital require-
(e) Liability of general partner for partment in this paragraph (a), unless
nership debts to SBA. Subject to section lower Leverageable Capital and Regu-
314 of the Act, your general partner is latory Capital amounts are approved
not liable solely by reason of its status by SBA as part of a Wind-Up Plan in
as a general partner for repayment of accordance with § 107.590(c):
any Leverage or debts you owe to SBA (1) Licensees other than Participating
unless SBA, in the exercise of reason- Securities issuers and Early Stage SBICs.
able investment prudence, and with re-
Except for Participating Securities
gard to your financial soundness, de-
issuers and Early Stage SBICs, a Li-
termines otherwise prior to the pur-
censee must have Regulatory Capital
chase or guaranty of your Leverage.
(f) Reorganization of Licensee. A cor- of at least $5,000,000. As an exception to
porate Licensee wishing to reorganize this general rule, SBA in its sole dis-
as a Partnership Licensee, or a Part- cretion and based on a showing of spe-
nership Licensee wishing to reorganize cial circumstances and good cause may
as a Corporate Licensee, may apply to license an applicant with Regulatory
SBA for approval under § 107.470. Capital of at least $3,000,000, but only if
(g) Special Leverage requirement. Be- the applicant:
fore your first issuance of Leverage, (i) Has satisfied all licensing stand-
you must furnish SBA with evidence ards and requirements except the min-
that you qualify as a partnership for imum capital requirement, as deter-
tax purposes, either by a ruling from mined solely by SBA;
the Internal Revenue Service, or by an (ii) Has a viable business plan reason-
opinion of counsel. ably projecting profitable operations;
and
CAPITALIZING AN SBIC
(iii) Has a reasonable timetable for
§ 107.200 Adequate capital for Licens- achieving Regulatory Capital of at
ees. least $5,000,000.
You must meet the requirements of (2) Participating Securities issuers. A
this § 107.200 to qualify for a license, to Licensee that wishes to be eligible to
continue as a Licensee, and to receive apply for Participating Securities must
Leverage. have Regulatory Capital of at least
(a) You must have enough Regu- $10,000,000, unless it demonstrates to
latory Capital to provide reasonable as- SBA’s satisfaction that it can be finan-
surance that: cially viable over the long term with a
(1) You will operate soundly and prof- lower amount. Under no circumstances
itably over the long term; and can the Licensee have Regulatory Cap-
(2) You will be able to operate ac- ital of less than $5,000,000.
tively in accordance with your Articles (3) Early Stage SBICs. An Early Stage
and within the context of your business SBIC must have Regulatory Capital of
plan, as approved by SBA. at least $20 million.
(b) In SBA’s sole discretion, you
(b) Companies licensed before October 1,
must be economically viable, taking
into consideration actual and antici- 1996. A company licensed before Octo-
pated income and losses on your Loans ber 1, 1996 must meet the minimum
and Investments, and the experience capital requirements applicable to such
and qualifications of your owners and company, as required by the regula-
managers. tions in effect on September 30, 1996.
See § 107.1120(c)(2) for Leverage eligi-
§ 107.210 Minimum capital require- bility requirements.
ments for Licensees.
[63 FR 5866, Feb. 5, 1998, as amended at 77 FR
(a) Companies licensed on or after Octo- 25051, Apr. 27, 2012; 82 FR 39340, Aug. 18, 2017]
ber 1, 1996. A company licensed on or

after October 1, 1996, must have
Leverageable Capital of at least
64
§ 107.230 Permitted sources of Private (1) Funds directly or indirectly in-

Capital for Licensees. vested in any Licensee on or before Au-
Private Capital means the contrib- gust 16, 1982 by any Federal agency ex-
uted capital of a Licensee, plus un- cept SBA, under a statute explicitly
funded binding commitments by Insti- mandating the inclusion of such funds
tutional Investors (including commit- in ‘‘Private Capital’’;
ments evidenced by a promissory note) (2) Funds directly or indirectly in-
to contribute capital to a Licensee. vested in any Licensee by any Federal
(a) Contributed capital. For purposes agency under a statute that is enacted
of this section, contributed capital after September 4, 1992, explicitly man-
means the paid-in capital and paid-in dating the inclusion of such funds in
surplus of a Corporate Licensee, or the ‘‘Private Capital’’;
partners’ contributed capital of a Part- (3) Funds invested in any Licensee or
nership Licensee, in either case subject license applicant by one or more State
to the limitations in paragraph (b) of or local government entities (including
this section. any guarantee extended by such enti-
(b) Exclusions from Private Capital. ties) in an aggregate amount that does
Private Capital does not include: not exceed 33 percent of Regulatory
(1) Funds borrowed by a Licensee Capital; and
from any source. (4) Funds invested in or committed in
(2) Funds obtained through the writing to any Section 301(d) Licensee
issuance of Leverage. prior to October 1, 1996, from the fol-
(3) Funds obtained directly or indi- lowing sources:
rectly from any Federal, State, or local (i) A State financing agency, or simi-
government agency or instrumentality, lar agency or instrumentality, if the
except for: funds invested are derived from such
(i) Funds invested by a public pension agency’s net income and not from ap-
fund; propriated State or local funds; and
(ii) Funds obtained from the business (ii) Grants made by a state or local
revenues (excluding any governmental government agency or instrumentality
appropriation) of any federally char- into a nonprofit corporation or institu-
tered or government-sponsored cor- tion exercising discretionary authority
poration established before October 1, with respect to such funds, if SBA de-
1987, to the extent that such revenues termines that such funds have taken
are reflected in the retained earnings on a private character and the non-
of the corporation; and profit corporation or institution is not
(iii) ‘‘Qualified Non-private Funds’’ a mere conduit.
as defined in paragraph (d) of this sec- (e) You may not accept any capital
tion. contribution made with funds borrowed
(4) Any portion of a commitment
by a Person seeking to own an equity
from an Institutional Investor with a
interest (whether direct or indirect,
net worth of less than $10 million that
beneficial or of record) of at least 10
exceeds 10 percent of such Institutional
percent of your Private Capital. This
Investor’s net worth and is not backed
exclusion does not apply if:
by a letter of credit from a State or
(1) Such Person’s net worth is at
National bank acceptable to SBA.
least twice the amount borrowed; or
(c) Non-cash capital contributions. Cap-
ital contributions in a form other than (2) SBA gives its prior written ap-
cash are subject to the limitations in proval of the capital contribution.
§ 107.240. [61 FR 3189, Jan. 31, 1996, as amended at 63
(d) Qualified Non-private Funds. Pri- FR 5866, Feb. 5, 1998; 64 FR 70995, Dec. 20,
vate Capital includes ‘‘Qualified Non- 1999]
private Funds’’ as defined in this para-
graph (d); however, investors of Quali- § 107.240 Limitations on including
fied Non-private Funds must not con- non-cash capital contributions in
trol, directly or indirectly, a Licensee’s Private Capital.
management, or its board of directors Non-cash capital contributions to a

or general partner(s). Qualified Non- Licensee or license applicant are in-
private Funds are: cluded in Private Capital only if they
65
§ 107.250 13 CFR Ch. I (1–1–23 Edition)
fall into one of the following cat- application, in the form approved by
egories: SBA and available on SBA’s Web site
(a) Direct obligations of, or obliga- at www.sba.gov/sbic, within the time-
tions guaranteed as to principal and in- frame identified by SBA; and the Final
terest by, the United States. Licensing Fee. The Final Licensing Fee
(b) Services rendered or to be ren- means a non-refundable fee (deter-
dered to you, priced at no more than mined as of the date SBA accepts the
their fair market value. application) adjusted annually as fol-
(c) Tangible assets used in your oper- lows:
ations, priced at no more than their
fair market value. Final licensing
Time period fee
(d) Shares in a Disadvantaged Busi-
ness received by a subsidiary Section December 13, 2017 to September 30,
301(d) Licensee from its parent Li- 2018 ..................................................... $20,000
censee, valued at the lower of cost or October 1, 2018 to September 30, 2019 25,000
October 1, 2019 to September 30, 2020 30,000
fair value. October 1, 2020 to September 30, 2021 35,000
(e) Other non-cash assets approved by
SBA. (2) Beginning on October 1, 2021, SBA
§ 107.250 Exclusion of stock options will annually adjust both the Initial
issued by Licensee from Manage- Licensing Fee and Final Licensing Fee
ment Expenses. using the Inflation Adjustment and
Stock options issued by any Li- will publish a Notice prior to such ad-
censee, including a 1940 or 1980 Act justment in the FEDERAL REGISTER
Company, are not considered com- identifying the amount of the fee.
pensation and therefore do not count [82 FR 52184, Nov. 13, 2017]
as part of a Licensee’s Management Ex-
penses. § 107.305 Evaluation of license appli-
cants.
APPLYING FOR AN SBIC LICENSE
SBA will evaluate a license applicant
§ 107.300 License application form and based on the submitted application ma-
fee. terials, any interviews with the appli-
SBA evaluates license applicants in cant’s management team, and the re-
two review phases (initial review and sults of background investigations,
final licensing), as follows: public record searches, and other due
(a) Initial review. Except as provided diligence conducted by SBA and other
in this paragraph, SBIC applicants Federal agencies. SBA’s evaluation
must submit a MAQ and the Initial Li- will consider factors including the fol-
censing Fee. MAQ means the Manage- lowing:
ment Assessment Questionnaire in the (a) Management qualifications, in-
form approved by SBA and available on cluding demonstrated investment
SBA’s Web site at www.sba.gov/sbic. Ini- skills and experience as a principal in-
tial Licensing Fee means a non-refund- vestor; business reputation; adherence
able fee of $10,000. An applicant under to legal and ethical standards; record
Common Control with one or more Li- of active involvement in making and
censees must submit a written request monitoring investments and assisting
to SBA, and the Initial Licensing Fee, portfolio companies; successful history
to be considered for a license and is ex- of working as a team; and experience in
empt from the requirement in this developing appropriate processes for
paragraph to submit a MAQ unless oth- evaluating investments and imple-
erwise determined by SBA in SBA’s menting best practices for investment
discretion. firms.
(b) Final licensing. (1) An applicant (b) Performance of managers’ prior
may proceed to the final licensing investments, including investment re-
phase only if notified in writing by turns measured both in percentage
SBA that it may do so. Following re- terms and in comparison to appro-
ceipt of such notice, in order to proceed priate industry benchmarks; the extent
to the final licensing phase, the appli- to which investments have been real-
cant must submit a complete license ized as a result of sales, repayments, or
66
other exit mechanisms; and the con- evaluating and investing in early stage
tribution of prior investments to the companies. In addition, SBA reserves
growth of portfolio company revenues the right to maintain diversification
and number of employees. among Early Stage SBICs with respect
(c) Applicant’s proposed investment to:
strategy, including clarity of objec- (a) The year in which they commence
tives; strength of management’s ra- operations, and
tionale for pursuing the selected strat- (b) Their geographic location.
egy; compliance with this part 107 and
[77 FR 25052, Apr. 27, 2012]
applicable provisions of part 121 of this
chapter; fit with management’s skills
and experience; and the availability of Subpart D—Changes in Owner-
sufficient resources to carry out the ship, Control, or Structure of
proposed strategy. Licensee; Transfer of License
(d) Applicant’s proposed organiza-
tional structure and fund economics, CHANGES IN CONTROL OR OWNERSHIP OF
including compliance with this part LICENSEE
107; soundness of financial projections
§ 107.400 Changes in ownership of 10
and underlying assumptions; a com- percent or more of Licensee but no
pensation plan that provides managers change of Control.
with appropriate economic incentives;
a reasonable basis for allocations of (a) Prior approval requirements. You
profits and fees to Persons not involved must obtain SBA’s prior written ap-
in management; and governance proce- proval for any proposed transfer or
dures that provide appropriate checks issuance of ownership interests that re-
and balances. sults in the ownership (beneficial or of
record) by any Person, or group of Per-
[77 FR 25052, Apr. 27, 2012] sons acting in concert, of at least 10
percent of any class of your stock or
§ 107.310 When and how to apply for li- partnership capital.
censing as an Early Stage SBIC.
(b) Fee. A processing fee of $200 must
From time to time, SBA will publish accompany each such request for ap-
a Notice in the FEDERAL REGISTER, in- proval of a change of ownership.
viting the submission of applications
for licensing as an Early Stage SBIC. § 107.410 Changes in Control of Li-
SBA will not consider an application censee (through change in owner-
from an Early Stage SBIC applicant ship or otherwise).
that is under Common Control with an- (a) Prior approval requirements. You
other Early Stage SBIC applicant or an must obtain SBA’s prior written ap-
existing Early Stage SBIC (unless it proval for any proposed transaction or
has no outstanding Leverage or Lever- event that results in Control by any
age commitments and will not seek ad- Person(s) not previously approved by
ditional Leverage in the future). Appli- SBA.
cants must comply with both the regu- (b) Fee. A processing fee equal to the
lations in this part 107 and any require- combined Licensing Fee (Initial Li-
ments specified in the Notice, includ- censing Fee plus the Final Licensing
ing submission deadlines. The Notice Fee then in effect) defined in § 107.300
will specify procedures for a particular must accompany any application for
application period. approval of one or more transactions or
[77 FR 25052, Apr. 27, 2012] events that will result in a transfer of
Control.
§ 107.320 Evaluation of Early Stage [61 FR 3189, Jan. 31, 1996, as amended at 82
SBICs. FR 52185, Nov. 13, 2017]
SBA will evaluate an Early Stage
SBIC license applicant based on the § 107.420 Prohibition on exercise of
same factors applicable to other li- ownership or Control rights in Li-
cense applicants, as set forth in censee before SBA approval.

§ 107.305, with particular emphasis on Without prior written SBA approval,
managers’ skills and experience in no change of ownership or Control may
67
§ 107.430 13 CFR Ch. I (1–1–23 Edition)
take effect and no officer, director, em- ownership diversity as in effect at such
ployee or other Person acting on your time for new license applicants.
behalf shall: [61 FR 3189, Jan. 31, 1996]
(a) Register on your books any trans-
fer of ownership interest to the pro- § 107.450 Notification to SBA of pledge
posed new owner(s); of Licensee’s shares.
(b) Permit the proposed new owner(s) (a) You must notify SBA in writing,
to exercise voting rights with respect within 30 calendar days, of the terms of
to such ownership interest (including any transaction in which:
directly or indirectly procuring or vot- (1) Any Person, or group of Persons
ing any proxy, consent or authoriza- acting in concert, pledges shares of
tion as to such voting rights at any your stock (or equivalent ownership in-
shareholders’ or partnership meeting); terests) as collateral for indebtedness;
(c) Permit the proposed new owner(s) and
to participate in any manner in the (2) The shares pledged are at least 10
conduct of your affairs (including exer- percent of your Regulatory Capital.
cising control over your books, records, (b) If the transaction creates a
funds or other assets; participating di- change of ownership or Control, you
rectly or indirectly in any disposition must comply with § 107.400 or § 107.410,
thereof; or serving as an officer, direc- as appropriate.
tor, partner, employee or agent); or
(d) Allow ownership or Control to RESTRICTIONS ON COMMON CONTROL OR
pass to another Person. OWNERSHIP OF TWO OR MORE LICENSEES
§ 107.430 Notification to SBA of trans- § 107.460 Restrictions on Common

actions that may change ownership Control or ownership of two (or
or Control. more) Licensees.
You must promptly notify SBA as (a) General rule. Without SBA’s prior
soon as you have knowledge of trans- written approval, you must not have an
actions or events that may result in a officer, director, manager, Control Per-
transfer of Control or ownership of at son, or owner (with a direct or indirect
least 10 percent of your capital. If there ownership interest of at least 10 per-
is any doubt as to whether a particular cent) who is also:
transaction or event will result in such (1) An officer, director, manager,
a change, report the facts to SBA. Control Person, or owner (with a direct
or indirect ownership interest of at
§ 107.440 Standards governing prior least 10 percent) of another Licensee;
SBA approval for a proposed trans- or
fer of Control. (2) An officer or director of any Per-
SBA approval is contingent upon full son that directly or indirectly controls,
disclosure of the real parties in inter- or is controlled by, or is under Com-
est, the source of funds for the new mon Control with, another Licensee.
owners’ interest, and other data re- (b) Exceptions to general rule. This
quested by SBA. As a condition of ap- § 107.460 does not apply to:
(1) Common officers, directors, man-
proving a proposed transfer of control,
agers, or owners of a Section 301(c) Li-
SBA may:
censee and its Section 301(d) sub-
(a) Require an increase in your Regu-
sidiary; or
latory Capital;
(2) Common officers, directors, man-
(b) Require the new owners or the
agers, Control Persons, or owners of
transferee’s Control Person(s) to as- two (or more) Licensees which have no
sume, in writing, personal liability for Leverage.
your Leverage, effective only in the
event of their direct or indirect partici- CHANGE IN STRUCTURE OF LICENSEE
pation in any transfer of Control not
approved by SBA; or § 107.470 SBA approval of merger, con-
(c) Require compliance with any solidation, or reorganization of Li-
other conditions set by SBA, including censee.

compliance with the requirements for (a) Prior approval requirements. You
minimum capital and management- may not merge, consolidate, change
68
form of organization (corporation or § 107.503 Licensee’s adoption of an ap-

partnership) or reorganize without proved valuation policy.
SBA’s prior written approval. Any such (a) Valuation guidelines. You must
merger or consolidation will be subject prepare, document and report the valu-
to § 107.440. ations of your Loans and Investments
(b) Fee. A processing fee of $5,000 in accordance with the Valuation
must accompany any application for Guidelines for SBICs issued by SBA.
approval of a change in your form of These guidelines may be obtained from
organization (from corporation to part- SBA’s SBIC Web site at www.sba.gov/
nership or partnership to corporation). sbic.
(b) SBA approval of valuation policy.
TRANSFER OF LICENSE You must have a written valuation pol-
icy approved by SBA for use in deter-
§ 107.475 Transfer of license. mining the value of your Loans and In-
You may not transfer your license in vestments. You must either:
any manner without SBA’s prior writ- (1) Adopt without change the model
ten approval. valuation policy set forth in section III
of the Valuation Guidelines for SBICs;
or
Subpart E—Managing the (2) Obtain SBA’s prior written ap-
Operations of a Licensee proval of an alternative valuation pol-
icy.
GENERAL REQUIREMENTS (c) Responsibility for valuations. Your
board of directors or general partner(s)
§ 107.500 Lawful operations under the
will be solely responsible for adopting
Act.
your valuation policy and for using it
You must engage only in the activi- to prepare valuations of your Loans
ties contemplated by the Act and in no and Investments for submission to
other activities. SBA. If SBA reasonably believes that
your valuations, individually or in the
§ 107.501 Identification as a Licensee. aggregate, are materially misstated, it
You must display your SBIC license reserves the right to require you to en-
in a prominent location. You must also gage, at your expense, an independent
have a listed telephone number. Before third party, acceptable to SBA, to sub-
collecting an application fee or extend- stantiate the valuations.
ing Financing to a Small Business, you (d) Frequency of valuations. (1) If you
must obtain a written statement from have outstanding Leverage or Ear-
the concern acknowledging its aware- marked Assets, you must value your
ness that you are ‘‘a Federal licensee Loans and Investments at the end of
under the Small Business Investment the second quarter of your fiscal year,
Act of 1958, as amended.’’ and at the end of your fiscal year.
(2) Otherwise, you must value your
§ 107.502 Representations to the pub- Loans and Investments only at your
lic. fiscal year end.
(3) On a case-by-case basis, SBA may
You may not represent or imply to require you to perform valuations more
anyone that the SBA, the U.S. Govern- frequently.
ment or any of its agencies or officers (4) You must report material adverse
has approved any ownership interests changes in valuations at least quar-
you have issued or obligations you terly, within thirty days following the
have incurred. Be certain to include a close of the quarter.
statement to this effect in any solicita- (e) Review of valuations by independent
tion to investors. Example: You may public accountant. (1) For valuations
not represent or imply that ‘‘SBA performed as of the end of your fiscal
stands behind the Licensee’’ or that year, your independent public account-
‘‘Your capital is safe because SBA’s ex- ant must review your valuation proce-
perts review proposed investments to dures and the implementation of such

make sure they are safe for the Li- procedures, including adequacy of doc-
censee.’’ umentation.
69
§ 107.504 13 CFR Ch. I (1–1–23 Edition)
(2) The independent public account- (3) Any failure to state a material
ant’s report on your audited annual fi- fact. A material fact is any fact which
nancial statements (SBA Form 468) is necessary to make a statement not
must include a statement that your misleading in light of the cir-
valuations were prepared in accordance cumstances under which the statement
with your approved valuation policy was made.
established in accordance with section
310(d)(2) of the Act. § 107.509 Employment of SBA officials.
[61 FR 3189, Jan. 31, 1996, as amended at 63 Without SBA’s prior written ap-
FR 5866, Feb. 5, 1998; 82 FR 39340, Aug. 18, proval, for a period of two years after
2017] the date of your most recent issuance
of Leverage (or the receipt of any SBA
§ 107.504 Equipment and office re- Assistance as defined in part 105 of this
quirements. chapter), you are not permitted to em-
(a) Computer capability. You must ploy, offer employment to, or retain for
have a personal computer with a professional services, any person who:
modem, and be able to use this equip- (a) Served as an officer, attorney,
ment to prepare reports (using SBA- agent, or employee of SBA on or within
provided software) and transmit them one year before such date; and
to SBA. In addition, by March 31, 2000, (b) As such, occupied a position or
you must have access to the Internet engaged in activities which, in SBA’s
and the capability to send and receive determination, involved discretion
electronic mail via the Internet. with respect to the granting of Assist-
(b) Facsimile capability. You must be ance under the Act.
able to receive facsimile messages 24
hours per day at your primary office. MANAGEMENT AND COMPENSATION
(c) Accessible office. You must main-
tain an office that is convenient to the § 107.510 SBA approval of Licensee’s
public and is open for business during Investment Adviser/Manager.
normal working hours. You may employ an Investment Ad-
[64 FR 70995, Dec. 20, 1999] viser/Manager who will be subject to
the supervision of your board of direc-
§ 107.506 Safeguarding Licensee’s as- tors or general partner. If you have Le-
sets/Internal controls. verage or plan to seek Leverage, you
You must adopt a plan to safeguard must obtain SBA’s prior written ap-
your assets and monitor the reliability proval of the management contract.
of your financial data, personnel, Port- SBA’s approval of an Investment Ad-
folio, funds and equipment. You must viser/Manager for one Licensee does
provide your bank and custodian with not indicate approval of that manager
a certified copy of your resolution or for any other Licensee.
other formal document describing your (a) Management contract. The con-
control procedures. tract must:
(1) Specify the services the Invest-
§ 107.507 Violations based on false fil- ment Adviser/Manager will render to
ings and nonperformance of agree- you and to the Small Businesses in
ments with SBA. your Portfolio; and
The following shall constitute a vio- (2) Indicate the basis for computing
lation of this part: Management Expenses.
(a) Nonperformance. Nonperformance (b) Material change to approved man-
of any of the requirements of any De- agement contract. If there is a material
benture, Participating Security or Pre- change, both you and SBA must ap-
ferred Security, or of any written prove such change in advance. If you
agreement with SBA. are uncertain if the change is material,
(b) False statement. In any document submit the proposed revision to SBA.
submitted to SBA:
(1) Any false statement knowingly § 107.520 Management Expenses of a
made; or Licensee.
(2) Any misrepresentation of a mate- SBA must approve any increases in
rial fact; or your Management Expenses if you have
70
outstanding Leverage or Earmarked (4) Certificates of deposit with a ma-

Assets. turity of one year or less, issued by a
(a) Definition of Management Expenses. federally insured institution; or
Management Expenses include: (5) A deposit account in a federally
(1) Salaries; insured institution, subject to a with-
(2) Office expenses; drawal restriction of one year or less;
(3) Travel; or
(4) Business development; (6) A checking account in a federally
(5) Office and equipment rental; insured institution; or
(6) Bookkeeping; and (7) A reasonable petty cash fund.
(7) Expenses related to developing, (c) Deposit of funds in excess of the in-
investigating and monitoring invest- sured amount. (1) You are permitted to
ments. deposit funds in a federally insured in-
(b) Management Expenses do not institution in excess of the institution’s
clude services provided by specialized insured amount, but only if the institu-
outside consultants, outside lawyers tion is ‘‘well capitalized’’ in accordance
and independent public accountants, if with the definition set forth in regula-
they perform services not generally tions of the Federal Deposit Insurance
performed by a venture capital com- Corporation, as amended (12 CFR
pany. 325.103).
(c) If your Management Expenses (2) Exception: You may make a tem-
have not already been approved by porary deposit (not to exceed 30 days)
SBA, you must submit such expenses in excess of the insured amount, in a
for approval with your SBA Form 468 transfer account established to facili-
for your first fiscal year ending after tate the receipt and disbursement of
January 31, 1996. funds or to hold funds necessary to
honor Commitments issued.
CASH MANAGEMENT BY A LICENSEE (d) Deposit of funds in Associate insti-
tution. A deposit in, or a repurchase
§ 107.530 Restrictions on investments agreement with, a federally insured in-
of idle funds by leveraged Licens- stitution that is your Associate is not
ees. considered a Financing of such Asso-
(a) Applicability of this section. This ciate under § 107.730, provided the terms
§ 107.530 applies if you have outstanding of such deposit or repurchase agree-
Leverage or if you have applied for Le- ment are no less favorable than those
verage. available to the general public.
(b) Permitted investments of idle funds.
Funds not invested in Small Businesses FR 20294, Apr. 4, 2012]
must be maintained in:
(1) Direct obligations of, or obliga- BORROWING BY LICENSEES FROM NON-
tions guaranteed as to principal and in- SBA SOURCES
terest by, the United States, which ma-
ture within 15 months from the date of § 107.550 Prior approval of secured
the investment; or third-party debt of leveraged Li-
(2) Repurchase agreements with fed- censees.
erally insured institutions, with a ma- (a) Definition. In this § 107.550, ‘‘se-
turity of seven days or less. The securi- cured third-party debt’’ means any
ties underlying the repurchase agree- non-SBA debt secured by any of your
ments must be direct obligations of, or assets, including secured guarantees
obligations guaranteed as to principal and other contingent obligations that
and interest by, the United States. The you voluntarily assume, secured lines
securities must be maintained in a cus- of credit, and secured Temporary Debt
todial account at a federally insured of a Licensee with outstanding Partici-
institution; or pating Securities.
(3) Mutual funds, securities, or other (b) General rule. If you have out-
instruments that exclusively consist standing Leverage, you must get SBA’s
of, or represent pooled assets of, invest- written approval before you incur any
ments described in paragraphs (b)(1) or secured third-party debt or refinance
(b)(2) of this section; or any debt with secured third-party debt,
71
§ 107.560 13 CFR Ch. I (1–1–23 Edition)
including any renewal of a secured line § 107.560 Subordination of SBA’s cred-

of credit, increase in the maximum itor position.
amount available under a secured line (a) Debentures purchased or guaranteed
of credit, or expansion of the scope of a on or before July 1, 1991. Under the
security interest or lien. For purposes terms of any Debenture purchased or
of this paragraph (b), ‘‘expansion of the guaranteed by SBA on or before July 1,
scope of a security interest or lien’’ 1991, SBA’s unsecured claims against
does not include the substitution of you, as a Debenture-holder or as
one asset or group of assets for an- subrogee, are subordinated in favor of
other, provided the asset values (as re- all your other creditors, except to the
ported on your most recent annual extent that such claims may be subject
Form 468) are comparable. to equitable subordination in SBA’s
(c) Additional rule for secured lines of favor.
credit in existence on April 8, 1994. If you (b) Debentures purchased or guaranteed
have outstanding Leverage and you after July 1, 1991, including refinancings
have a secured line of credit that was of Debentures previously purchased or
created on or before April 8, 1994, you guaranteed. (1) Under the terms of any
must receive SBA’s written approval of Debenture purchased or guaranteed by
the line before you increase the SBA after July 1, 1991, SBA’s unsecured
amounts outstanding thereunder. claims against you, as a Debenture-
(d) Conditions for SBA approval. As a holder or as subrogee, are subordinated
condition of granting its approval only in favor of non-Associate lenders;
under this § 107.550, SBA may impose and, to the extent that your indebted-
such restrictions or limitations as it ness to such lenders exceeds the lesser
deems appropriate, taking into account of $10,000,000 or 200 percent of your Reg-
your historical performance, current ulatory Capital (determined as of the
financial position, proposed terms of date your Debentures were purchased
the secured debt and amount of aggre- or guaranteed), SBA’s unsecured
gate debt you will have outstanding claims enjoy parity with those of other
(including Leverage). SBA will not fa- unsecured creditors, except with re-
vorably consider any requests for ap- spect to indebtedness created on or be-
proval which include a blanket lien on fore July 1, 1991.
all your assets, or a security interest (2) In order to induce others to lend
in your investor commitments in ex- you money after your Debenture has
cess of 125 percent of the proposed bor- been purchased or guaranteed, SBA
rowing. may agree in writing on a case-by-case
(e) Thirty day approval. Unless SBA basis to subordinate its unsecured
notifies you otherwise within 30 days claims, on such terms as it may deter-
after it receives your request, you may mine, in favor of one or more of your
consider your request automatically Associates, or in favor of other lenders
in excess of the amounts mentioned in
approved if:
paragraph (b)(1) of this section.
(1) You are in regulatory compliance;
(3) SBA reserves the authority to
(2) The security interest in your as-
refuse to subordinate its claims if it de-
sets is limited to either those assets
termines, at the time you request your
being acquired with the borrowed funds
Debenture be purchased or guaranteed,
or an asset coverage ratio of no more that the exercise of reasonable invest-
than 2:1; ment prudence and your financial con-
(3) Your Leverage does not exceed 150 dition warrant such refusal.
percent of your Leverageable Capital;
and § 107.565 Restrictions on third-party
(4) Your request is for approval of a debt of Early Stage SBICs.
secured line of credit that would not If you are an Early Stage SBIC and
cause your total outstanding bor- you have outstanding Leverage or a
rowings (not including Leverage) to ex- Leverage commitment, you must get
ceed 50 percent of your Leverageable SBA’s prior written approval to have,
Capital. incur, or refinance any third-party
72
debt other than accounts payable from excess Leverage in violation of section
routine business operations. 303 of the Act and §§ 107.1150 through
[77 FR 25052, Apr. 27, 2012]
107.1170.
§ 107.570 Restrictions on third-party FR 25052, Apr. 27, 2012]
debt of issuers of Participating Se-
curities. REQUIREMENT TO CONDUCT ACTIVE
(a) General. Temporary Debt is the INVESTMENT OPERATIONS
only debt (other than Leverage) that
§ 107.590 Licensee’s requirement to
you are permitted to incur if you have maintain active operations.
applied to issue Participating Securi-
ties or if you have outstanding Partici- (a) Activity test. You must conduct ac-
pating Securities. For additional rules tive operations, as determined under
governing secured Temporary Debt, see this § 107.590, as a condition of your li-
§ 107.550. cense. You will be considered active if:
(b) Definition of Temporary Debt. Tem- (1) During the eighteen months pre-
porary Debt means your short-term ceding your most recent fiscal year
borrowings if: end, you made Financings totaling at
(1) Such borrowings are for the pur- least 20 percent of your Regulatory
pose of maintaining your operating li- Capital; or
quidity or providing funds for a par- (2) Your idle funds did not exceed 20
ticular Financing of a Small Business; percent of your total assets (at cost) at
(2) The funds are borrowed from a your most recent fiscal year end.
regulated financial institution or a reg- (b) Permitted exceptions to activity re-
ulated credit company (or, if approved quirements. You are considered active if
by SBA on a case-by-case basis, from your failure to meet the requirements
non-regulated lenders including share- in paragraph (a) of this section is the
holders or partners); result of one or more of the following
(3) Your total outstanding bor- factors:
rowings (not including Leverage) do (1) Your excess idle funds are the re-
not exceed 50 percent of your sult of the receipt, within the previous
Leverageable Capital; and nine months, of realized gains, repay-
(4) All such borrowings are fully paid ments, additional capital contribu-
off for at least 30 consecutive days dur- tions, or Leverage.
ing your fiscal year so that you have (2) It is necessary for you to main-
no outstanding third-party debt for 30 tain excess idle funds to conduct your
days. operations because:
(i) Your unfunded commitments from
VOLUNTARY DECREASE IN LICENSEE’S investors are no more than 20 percent
REGULATORY CAPITAL of your Regulatory Capital; and
(ii) You cannot receive additional Le-
§ 107.585 Voluntary decrease in Li- verage, solely because SBA has insuffi-
censee’s Regulatory Capital. cient funds available.
You must obtain SBA’s prior written (3) You have not made sufficient
approval to reduce your Regulatory Financings because of a lack of avail-
Capital by more than two percent in able funds, evidenced by Loans and In-
any fiscal year, unless otherwise per- vestments (at cost) equal to at least 90
mitted under §§ 107.1560 and 107.1570, percent of your Combined Capital as of
provided however, that if you are an your most recent fiscal year end.
Early Stage SBIC, you must obtain (4) You have not made sufficient
SBA’s prior written approval for any Financings solely because SBA has re-
reduction of your Regulatory Capital, stricted your ability to make invest-
including any reduction pursuant to a ments.
Distribution under § 107.1180 of this (c) Applicability of activity require-
part. At all times, you must retain suf- ments. The activity requirements in
ficient Regulatory Capital to meet the paragraph (a) of this section do not
minimum capital requirements in the apply if you have filed a ‘‘Wind-up

Act and § 107.210, and sufficient Plan’’ approved by SBA. ‘‘Wind-up
Leverageable Capital to avoid having Plan’’ means a plan that you prepare
73
§ 107.600 13 CFR Ch. I (1–1–23 Edition)
when you decide that you will no (1) All your accounting and other fi-
longer make any Financings other nancial records;
than follow-on investments, and that (2) All minutes of meetings of direc-
you update annually when you file tors, stockholders, executive commit-
your SBA Form 468. The plan must tees, partners, or other officials; and
contain your best estimates of the fol- (3) All documents and supporting ma-
lowing: terials related to your business trans-
(1) The remaining number of years actions, except for any items held by a
you expect to operate. custodian under a written agreement
(2) For each of your Loans and In- between you and a Portfolio Concern or
vestments, the expected liquidation non-SBA lender, or any securities held
date and anticipated proceeds. in a safe deposit box, or by a licensed
(3) The timing of your repayment of securities broker in an amount not ex-
obligations to SBA. ceeding the broker’s per-account insur-
(4) The timing and amount of any ance coverage.
planned reductions in your Manage- (c) Preservation of records. You must
ment Expenses. retain all the records that are the basis
(d) Phase-in of activity requirements— for your financial reports. Such records
(1) General rule. You must meet the ac- must be preserved for the periods speci-
tivity requirements in this § 107.590 as fied in this paragraph (c), and must re-
of the end of your first full fiscal year main accessible for the first two years
beginning after January 31, 1996. Until of the preservation period.
then, you will be considered active if (1) You must preserve for at least 15
you meet the activity requirements in years or, in the case of a Partnership
effect on January 30, 1996. Licensee, at least two years beyond the
(2) Rule for new Licensees. If you re- date of liquidation:
ceived your license after January 31, (i) All your accounting ledgers and
1996, or if you received your license less journals, and any other records of as-
than eighteen months before the fiscal sets, asset valuations, liabilities, eq-
year end determined under paragraph uity, income, and expenses.
(d)(1) of this section, you must meet (ii) Your Articles, bylaws, minute
the activity requirements in this books, and license application.
§ 107.590 as of the end of your second (iii) All documents evidencing owner-
full fiscal year beginning after the date ship of the Licensee including owner-
you received your license. ship ledgers, and ownership transfer
registers.
Subpart F—Recordkeeping, Re- (2) You must preserve for at least six
porting, and Examination Re- years all supporting documentation
quirements for Licensees (such as vouchers, bank statements, or
canceled checks) for the records listed
RECORDKEEPING REQUIREMENTS FOR in paragraph (b)(1) of this section.
LICENSEES (3) After final disposition of any item
in your Portfolio, you must preserve
§ 107.600 General requirement for Li- for at least six years:
censee to maintain and preserve (i) Financing applications and Fi-
records. nancing instruments.
(a) Maintaining your accounting (ii) All loan, participation, and es-
records. You must establish and main- crow agreements.
tain your accounting records using (iii) Size status declarations (SBA
SBA’s standard chart of accounts for Form 480) and Financing Eligibility
Licensees, unless SBA approves other- Statements (SBA Form 1941).
wise. (iv) Any capital stock certificates
(b) Location of records. You must keep and warrants of the Portfolio Concern
the following records at your principal that you did not surrender or exercise.
place of business or, in the case of (v) All other documents and sup-
paragraph (b)(3) of this section, at the porting material relating to the Port-
branch office that is primarily respon- folio Concern, including correspond-
sible for the transaction: ence.
74
(4) You may substitute a computer- (3) Certification(s) by the SBIC, made
scanned or generated copy for the contemporaneously with the certifi-
original of any record covered by this cation(s) of the concern, that the con-
paragraph (c). cern qualifies as an LMI Enterprise as
[61 FR 3189, Jan. 31, 1996, as amended at 79 of the date(s) of the concern’s certifi-
FR 62823, Oct. 21, 2014] cation(s) and the basis for such quali-
fication.
§ 107.610 Required certifications for (f) For each Energy Saving Qualified
Loans and Investments. Investment:
For each of your Loans and Invest- (1) If a pre-Financing determination
ments, you must have the documents of eligibility by SBA is not required
listed in this section. Except for infor- under the definition of Energy Saving
mation and documentation prepared Activities or Energy Saving Qualified
under paragraphs (f)(2) and (3) of this Investment:
section, you must keep these docu- (i) A certification by you, dated as of
ments in your files and make them the closing date of the Financing, as to
available to SBA upon request. the basis for the qualification of the
(a) SBA Form 480, the Size Status Financing as an Energy Saving Quali-
Declaration, executed both by you and fied Investment;
by the concern you are financing. By (ii) Supporting documentation of the
executing this document, both parties Energy Saving Activities engaged in by
certify that the concern is a Small the concern;
Business. For securities purchased (iii) Supporting documentation of ei-
from an underwriter in a public offer- ther the percentage of its revenues de-
ing, you may substitute a prospectus rived from Energy Saving Activities
showing that the concern is a Small during the concern’s most recently
Business. completed fiscal year, which must be
(b) SBA Form 652, a certification by at least 50 percent, or the concern’s in-
the concern you are financing that it tended use of the Financing proceeds,
will not illegally discriminate (see part all of which must be used for Energy
112 of this chapter). Saving Activities; and
(c) SBA Form 1941 (for Section 301(d) (iv) A certification by the concern,
Licensees only), executed both by you dated as of the closing date of the Fi-
and by the concern you are financing. nancing, that any information it pro-
By executing this document, both par- vided to you in connection with this
ties certify that the concern is a Dis- paragraph (f)(1) is true and correct to
advantaged Business. the best of its knowledge.
(d) A certification by the concern you (2) If, prior to providing Financing,
are financing of the intended use of the you must obtain a determination from
proceeds. For securities purchased SBA that the activities in which a con-
from an underwriter in a public offer- cern is engaged are Energy Saving Ac-
ing, you may substitute a prospectus tivities, submit to SBA in writing a de-
indicating the intended use of proceeds. scription of the product or service
(e) For each LMI Investment: being provided or developed, including
(1) A certification by the concern, all available documentation of the en-
dated as of the date of application for ergy savings produced or anticipated,
SBIC financing, as to the basis for its addressing the factors considered under
qualification as an LMI Enterprise, paragraph (4) of the definition of ‘‘En-
(2) If the concern qualifies as an LMI ergy Saving Activities’’ in § 107.50 and
Enterprise as defined in paragraph (2) certified by the concern to be true and
of the definition of LMI Enterprise in correct to the best of its knowledge.
§ 107.50, an additional certification (3) If, prior to providing Financing,
dated no later than the date 180 days you must obtain a determination from
after the closing of the LMI Invest- SBA that the concern is ‘‘primarily en-
ment, as to the location of the con- gaged’’ in Energy Saving Activities,
cern’s employees or tangible assets or submit to SBA in writing all available
the principal residences of its full-time information concerning the factors

employees as of the date of such cer- considered under paragraph (3) of the
tification, and definition of ‘‘Energy Saving Qualified
75
§ 107.620 13 CFR Ch. I (1–1–23 Edition)
Investment’’ in § 107.50, certified by the (a) Information for initial Financing de-
concern to be true and correct to the cision. Before extending any Financing,
best of its knowledge. you must require the applicant to sub-
(4) For each Financing closed after mit such financial statements, plans of
you obtain a determination from SBA operation (including intended use of fi-
under paragraph (f)(2) or (3) of this sec- nancing proceeds), cash flow analyses
tion, a certification by you, dated as of and projections as are necessary to
the closing date of the Financing, that support your investment decision. The
to the best of your knowledge, you information submitted must be con-
have no reason to believe that the ma- sistent with the size and type of the
terials submitted are incorrect. business and the amount of the pro-
(5) For each Financing closed based posed Financing.
on supporting documentation of the (b) Updated financial information. (1)
concern’s intended use of proceeds for The terms of each Financing must re-
Energy Saving Activities under para- quire the Portfolio Concern to provide,
graph (f)(1)(iii) of this section: at least annually, sufficient financial
(i) Documentation by the concern, information to enable you to perform
dated no later than six months after the following required procedures:
the closing of the Financing, of the (i) Evaluate the financial condition
proceeds used to date for Energy Sav-
of the Portfolio Concern for the pur-
ing Activities, with further updates
pose of valuing your investment;
provided at six month intervals until
100 percent of the Financing proceeds (ii) Determine the continued eligi-
have been accounted for; and bility of the Portfolio Concern; and
(ii) Documentation that you have re- (iii) Verify the use of Financing pro-
viewed the information submitted by ceeds.
the concern under paragraph (f)(5)(i) of (2) The information submitted to you
this section and have reasonably deter- must be certified by the president,
mined that 100 percent of the Financ- chief executive officer, treasurer, chief
ing proceeds were used for Energy Sav- financial officer, general partner, or
ing Activities. proprietor of the Portfolio Concern.
(g) For each passive business fi- (3) For financial and valuation pur-
nanced under § 107.720(b)(3), a certifi- poses, you may accept a complete copy
cation by you, dated as of the closing of the Federal income tax return filed
date of the Financing, as to the basis by the Portfolio Concern (or its propri-
for the qualification of the Financing etor) in lieu of financial statements,
under § 107.720(b)(3) and identifying one but only if appropriate for the size and
or more limited partners for which a type of the business involved.
direct Financing would cause those in- (4) The requirements in this para-
vestors: graph (b) do not apply when you ac-
(1) To incur ‘‘unrelated business tax- quire securities from an underwriter in
able income’’ under section 511 of the a public offering (see § 107.825). In that
Internal Revenue Code (26 U.S.C. 511); case, you must keep copies of all re-
or
ports furnished by the Portfolio Con-
(2) To incur ‘‘effectively connected cern to the holders of its securities.
income’’ to foreign investors under sec-
(c) Information required for examina-
tions 871 and 882 of the Internal Rev-
tion purposes. You must obtain any in-
enue Code (26 U.S.C. 871 and 882).
formation requested by SBA’s exam-
[61 FR 3189, Jan. 31, 1996, as amended at 64 iners for the purpose of verifying the
FR 52646, Sept. 30, 1999; 77 FR 23379, Apr. 19, certifications made by a Portfolio Con-
2012; 82 FR 39340, Aug. 18, 2017]
cern under § 107.610. In this regard, your
§ 107.620 Requirements to obtain in- Financing documents must contain
formation from Portfolio Concerns. provisions requiring the Portfolio Con-
cern to give you and/or SBA’s exam-
All the information required by this iners access to its books and records
section is subject to the requirements
for such purpose.
of § 107.600 and must be in English.
76
REPORTING REQUIREMENTS FOR § 107.640 Requirement to file Portfolio

LICENSEES Financing Reports (SBA Form
1031).
§ 107.630 Requirement for Licensees to
file financial statements with SBA For each Financing of a Small Busi-
(Form 468). ness (excluding guarantees), you must
submit a Portfolio Financing Report
(a) Annual filing of Form 468. For each on SBA Form 1031 within 30 days of the
fiscal year, you must submit to SBA fi- closing date.
nancial statements and supplementary
information prepared on SBA Form 468. § 107.650 Requirement to report port-
You must file Form 468 on or before the folio valuations to SBA.
last day of the third month following
You must determine the value of
the end of your fiscal year, except for
your Loans and Investments in accord-
the information required under para-
ance with § 107.503. You must report
graph (e) of this section, which must be
filed on or before the last day of the such valuations to SBA within 90 days
fifth month following the end of your of the end of the fiscal year in the case
fiscal year. of annual valuations, and within 30
days following the close of other re-
(1) Audit of Form 468. The annual
Form 468 must be audited by an inde- porting periods. You must report mate-
pendent public accountant acceptable rial adverse changes in valuations at
to SBA. least quarterly, within thirty days fol-
lowing the close of the quarter.
(2) Insurance requirement for public ac-
countant. Unless SBA approves other- § 107.660 Other items required to be
wise, your independent public account- filed by Licensee with SBA.
ant must carry at least $1,000,000 of Er-
rors and Omissions insurance, or be (a) Reports to owners. You must give
self-insured and have a net worth of at SBA a copy of any report you furnish
least $1,000,000. to your investors, including any pro-
(b) Interim filings of Form 468. When spectus, letter, or other publication
requested by SBA, you must file in- concerning your financial operations or
terim reports on Form 468. SBA may those of any Portfolio Concern.
require you to file the entire form or (b) Documents filed with SEC. You
only certain statements and schedules. must give SBA a copy of any report,
You must file such reports on or before application or document you file with
the last day of the month following the the Securities and Exchange Commis-
end of the reporting period. If you have sion.
an outstanding Leverage commitment (c) Litigation reports. When you be-
from SBA, see the filing requirements come a party to litigation or other pro-
in § 107.1220. ceedings, you must give SBA a report
(c) Standards for preparation of Form within 30 days that describes the pro-
468. You must prepare SBA Form 468 in ceedings and identifies the other par-
accordance with SBA’s Accounting ties involved and your relationship to
Standards and Financial Reporting Re- them.
quirements for Small Business Invest- (1) The proceedings covered by this
ment Companies. paragraph (c) include any action by
(d) Reporting of economic impact infor- you, or by your security holder(s) in a
mation on Form 468. Your annual filing personal or derivative capacity,
of SBA Form 468 must include an as- against an officer, director, Investment
sessment of the economic impact of Adviser or other Associate of yours for
each Financing, specifying the full- alleged breach of official duty.
time equivalent jobs created or re- (2) SBA may require you to submit
tained, and the impact of the Financ- copies of the pleadings and other docu-
ing on the revenues and profits of the ments SBA may specify.
business and on taxes paid by the busi- (3) Where proceedings have been ter-
ness and its employees. minated by settlement or final judg-

[61 FR 3189, Jan. 31, 1996, as amended at 82 ment, you must promptly advise SBA
FR 39340, Aug. 18, 2017] of the terms.
77
§ 107.665 13 CFR Ch. I (1–1–23 Edition)
(4) This paragraph (c) does not apply stated in § 107.665, in such manner and
to collection actions or proceedings to under such conditions as SBA deter-
enforce your ordinary creditors’ rights. mines.
(d) Notification of criminal charges. If
any officer, director, or general partner FR 31491, May 19, 2016]
of the Licensee, or any other person
who was required by SBA to complete § 107.680 Reporting changes in Li-
a personal history statement in con- censee not subject to prior SBA ap-
nection with your license, is charged proval.
with or convicted of any criminal of- (a) Changes to be reported for post ap-
fense other than a misdemeanor involv- proval. (1) This section applies to any
ing a minor motor vehicle violation, changes in your Articles, ownership,
you must report the incident to SBA capitalization, management, operating
within 5 calendar days. Such report area, or investment policies that do
must fully describe the facts which per- not require SBA’s prior approval. You
tain to the incident. must report such changes to SBA with-
(e) Other reports. You must file any in 30 days for post approval. A proc-
other reports that SBA may require by essing fee of $200 must accompany each
written directive. request for post approval of new offi-
[61 FR 3189, Jan. 31, 1996, as amended at 63 cers, directors, or Control Persons.
FR 5866, Feb. 5, 1998] (2) Exception for non-leveraged Licens-
ees. If you do not have outstanding Le-
§ 107.665 Civil penalties. verage or Earmarked Assets, you are
Except as provided in § 107.670, a Li- not required to obtain post approval of
censee that violates any regulation or new directors or new officers other
written directive issued by SBA, re- than your chief operating officer; how-
quiring the filing of any regular or spe- ever, you must notify SBA of the new
cial report pursuant to this part, shall directors or officers within 30 days.
be fined a civil penalty of not more (b) Approval by SBA. You may con-
than $291 for each day the Licensee sider any change submitted under this
fails to file such report. The civil pen- section § 107.680 to be approved unless
alties provided for in this section shall SBA notifies you to the contrary with-
accrue to the United States and may be in 90 days after receiving it. SBA’s ap-
recovered in a civil action brought by proval is contingent upon your full dis-
the SBA. closure of all relevant facts and is sub-
ject to any conditions SBA may pre-
[81 FR 31491, May 19, 2016, as amended at 82
FR 9969, Feb. 9, 2017; 83 FR 7363, Feb. 21, 2018;
scribe.
84 FR 12061, Apr. 1, 2019; 85 FR 13727, Mar. 10,
2020; 86 FR 52957, Sept. 24, 2021; 87 FR 28758,
EXAMINATIONS OF LICENSEES BY SBA
May 11, 2022] FOR REGULATORY COMPLIANCE
§ 107.670 Application for exemption § 107.690 Examinations.

from civil penalty for late filing of SBA will examine all Licensees for
reports. the purpose of evaluating regulatory
(a) If it is impracticable to submit compliance.
any required report within the time al-
lowed, you may apply for an extension. § 107.691 Responsibilities of Licensee
The request for an extension must: during examination.
(1) Be filed before the reporting dead- You must make all books, records
line; and other pertinent documents and ma-
(2) Certify to an extraordinary occur- terials available for the examination,
rence, not within your control, that including any information required by
makes timely filing of the report im- the examiner under § 107.620(c). In addi-
practicable; and tion, the agreement between you and
(3) Be accompanied by written evi- the independent public accountant per-
dence of such occurrence, where appro- forming your audit must provide that
priate. any information in the accountant’s

(b) Upon receipt of your request, SBA working papers be made available to
may exempt you from the civil penalty SBA upon request.
78
§ 107.692 Examination fees. tified financial statement, including if

(a) General. SBA will assess fees for requested by SBA in connection with
examinations in accordance with this the examination, a more recently sub-
§ 107.692. Unless SBA determines other- mitted interim statement. For pur-
wise on a case by case basis, SBA will poses of this section, Base Fee means
not assess fees for special examinations the Minimum Base Fee plus 0.024% of
to obtain specific information. assets at cost, rounded to the nearest
(b) Base Fee. (1) The Base Fee will be $100, not to exceed the Maximum Base
assessed based on your total assets (at Fee. The Minimum and Maximum Base
cost) as of the date of your latest cer- Fees are adjusted annually as follows:
Maximum Maximum
base fee for
Time period Minimum base fee for
non-lever-
(Based on the examination start date) base fee leveraged
aged SBICs
SBICs
December 13, 2017 to September 30, 2018 ................................................................ $6,000 $22,500 $26,000
October 1, 2018 to September 30, 2019 ...................................................................... 7,000 25,000 32,000
(2) In the table in paragraph (b)(1) of (3) For any regulatory violation that
this section, a Non-leveraged SBIC remains unresolved 90 days from the
means any SBIC that, as of the date of date SBA notified you that you must
the examination, has no outstanding take corrective action (as established
Leverage or Leverage commitment, by the date of the notification letter)
has no Earmarked Assets, and certifies or such later date as SBA sets forth in
to SBA that it will not seek Leverage the notice, you will pay an additional
in the future. Beginning on October 1, charge equal to 5% of the Base Fee for
2021, SBA will annually adjust the Min- every 30 days or portion thereof that
imum Base Fee and Maximum Base the violation remains unresolved after
Fees using the Inflation Adjustment the cure period, unless SBA resolves
and will publish a Notice prior to such
the finding in your favor.
adjustment in the FEDERAL REGISTER
identifying the amount of the fees. (d) Fee additions table. The following
(c) Adjustments to Base Fee. In order table summarizes the additions noted
to determine the amount of your exam- in paragraph (c) of this section:
ination fee, your Base Fee, as deter- Examination fee ad- Amount of addition ¥ % of base fee
mined in paragraph (b) of this section, ditions
will be increased based on the fol-
Non-responsive ...... 15%.
lowing criteria: Records/Files at 10%.
(1) If you were not fully responsive to multiple locations.
the letter of notification of examina- Unresolved Find- 5% of Base Fee for every 30 days or
tion (that is, you did not provide all re- ings. portion thereof beyond the 90 day
cure period or such later date as
quested documents and information SBA sets forth in the notice for each
within the time period stipulated in unresolved finding.
the notification letter in a complete
and accurate manner, or you did not (e) Delay fee. If, in the judgment of
prepare or did not have available all in- SBA, the time required to complete
formation requested by the examiner your examination is delayed due to
for on-site review) after a written your lack of cooperation or the condi-
warning by the SBA, you will pay an tion of your records, SBA may assess
additional charge equal to 15% of your an additional fee of $700 per day. Begin-
Base Fee; ning on October 1, 2021, SBA will annu-
(2) If you maintain your records/files ally adjust this fee using the Inflation
in multiple locations (as permitted Adjustment and will publish a Notice
under § 107.600(b)), you will pay an addi-

tional charge equal to 10% of your Base
Fee; and
79
§ 107.700 13 CFR Ch. I (1–1–23 Edition)
prior to such adjustment in the FED- multiply its net income by the mar-
ERAL REGISTER identifying the amount ginal State income tax rate (or by the
of the fee. combined State and local income tax
[62 FR 23338, Apr. 30, 1997, as amended at 77
rates, as applicable) that would have
FR 25052, Apr. 27, 2012; 82 FR 52185, Nov. 13, applied if it were a taxable corpora-
2017] tion.
(ii) Multiply the applicant’s net in-
Subpart G—Financing of Small come, less any deduction for State and
local income taxes calculated under
Businesses by Licensees paragraph (a)(2)(i) of this section, by
DETERMINING THE ELIGIBILITY OF A the marginal Federal income tax rate
SMALL BUSINESS FOR SBIC FINANCING that would have applied if the appli-
cant were a taxable corporation.
§ 107.700 Compliance with size stand- (iii) Add the results obtained in para-
ards in part 121 of this chapter as a graphs (a)(2)(i) and (a)(2)(ii) of this sec-
condition of Assistance. tion.
You are permitted to provide finan- (b) Smaller Enterprise Financings. At
cial assistance and management serv- the close or each of your fiscal years,
ices only to a Small Business. To deter- and at the time of any application to
mine whether an applicant is a Small draw Leverage, you must satisfy the
Business, you may use either the finan- Smaller Enterprise financing require-
cial size standards in § 121.301(c)(2) of ment in this paragraph (b) that applies
this chapter or the industry standard to you.
covering the industry in which the ap- (1) If you were licensed after Feb-
plicant is primarily engaged, as set ruary 17, 2009, at least 25 percent (in
forth in § 121.301(c)(1) of this chapter. dollars) of your Financings must have
[61 FR 3189, Jan. 31, 1996, as amended at 74 been invested in Smaller Enterprises.
FR 33915, July 14, 2009] (2) If you were licensed on or before
February 17, 2009, and you have re-
§ 107.710 Requirement to finance ceived no SBA Leverage commitment
smaller enterprises. issued after February 17, 2009, at least
Your Portfolio must include 20 percent (in dollars) of your
Financings to Smaller Enterprises. Financings, excluding Financings made
(a) Definition of Smaller Enterprise. A in whole or in part with Leverage in
Smaller Enterprise means any small excess of $90 million, must have been
business concern that: invested in Smaller Enterprises. In ad-
(1) Both together with its Affiliates, dition, 100 percent of all Financings
and by itself, meets the size standard made in whole or in part with Leverage
of § 121.201 of this chapter at the time in excess of $90 million (including ag-
of Financing for the industry in which gregate Leverage over $90 million
it is then primarily engaged; or issued by two or more Licensees under
(2) Together with its affiliates has a Common Control) must have been in-
net worth of not more than $6 million vested in Smaller Enterprises.
and average net income after Federal (3) If you were licensed on or before
income taxes (excluding any carry-over February 17, 2009, and you have re-
losses) for the preceding two years no ceived an SBA Leverage commitment
greater than $2 million. If the appli- after February 17, 2009:
cant is not required by law to pay Fed- (i) For all Financings made after the
eral income taxes at the enterprise date of the first Leverage commitment
level, but is required to pass income issued after February 17, 2009, at least
through to its shareholders, partners, 25 percent (in dollars) of your
beneficiaries, or other equitable own- Financings must have been invested in
ers, the applicant’s ‘‘net income after Smaller Enterprises, and
Federal income taxes’’ will be its net (ii) For all Financings made before
income reduced by an amount com- February 17, 2009, at least 20 percent (in
puted as follows: dollars) of your Financings, excluding
(i) If the applicant is not required by Financings made in whole or in part

law to pay State (and local, if any) in- with Leverage in excess of $90 million,
come taxes at the enterprise level, must have been invested in Smaller
80
Enterprises. In addition, 100 percent of (2) Exception. You may provide Ven-
all Financings made in whole or in part ture Capital Financing to Disadvan-
with Leverage in excess of $90 million taged Businesses that are relenders or
(including aggregate Leverage over $90 reinvestors (except banks or savings
million issued by two or more Licens- and loans not insured by agencies of
ees under Common Control) must have the federal government, and agricul-
been invested in Smaller Enterprises. tural credit companies). Without SBA’s
(c) Special requirement for certain lever- prior written approval, total
aged Licensees. (1) This paragraph (c) Financings under this paragraph (a)(2)
applies if you were licensed on or be- that are outstanding as of the close of
fore September 30, 1996, and you issued your fiscal year must not exceed your
Leverage after that date, and you have Regulatory Capital.
Regulatory Capital of: (b) Passive Businesses. You are not
(i) Less than $10,000,000 if such Lever- permitted to finance a passive busi-
age included Participating Securities; ness.
or (1) Definition. A business is passive if:
(ii) Less than $5,000,000 if such Lever- (i) It is not engaged in a regular and
age was Debentures only. continuous business operation (for pur-
(2) At the close of each of your fiscal poses of this paragraph (b), the mere
years, at least 50 percent of the total receipt of payments such as dividends,
dollar amount of the Financings you rents, lease payments, or royalties is
extended after September 30, 1996 must not considered a regular and contin-
have been invested in Smaller Enter- uous business operation); or
prises. (ii) Its employees are not carrying on
(d) Financing a change of ownership the majority of day to day operations,
which results in the creation of a and the company does not provide ef-
Smaller Enterprises. The Financing of fective control and supervision, on a
a change of ownership under § 107.750 day to day basis, over persons em-
which results in the creation of a ployed under contract; or
Smaller Enterprise qualifies as a (iii) It passes through substantially
Smaller Enterprise Financing. all of the proceeds of the Financing to
(e) Non-compliance with this section. If another entity.
you have not reached the required per- (2) Exception for pass-through of pro-
centage of Smaller Enterprise ceeds to subsidiary. You may provide Fi-
Financings at the end of any fiscal nancing directly to a passive business,
year, then you must be in compliance including a passive business that you
by the end of the following fiscal year. have formed, if it is a Small Business
However, you will not be eligible for and it passes substantially all the pro-
additional Leverage until you reach ceeds through to (or uses substantially
the required percentage (see § 107.1120(c) all the proceeds to acquire) one or
and (g)). more subsidiary companies, each of
[62 FR 11760, Mar. 13, 1997, as amended at 63 which is an eligible Small Business
FR 5866, Feb. 5, 1998; 64 FR 70995, Dec. 20, that is not passive. For the purpose of
1999; 66 FR 30647, June 7, 2001; 74 FR 33915, this paragraph (b)(2), ‘‘subsidiary com-
July 14, 2009] pany’’ means a company in which the
financed passive business either:
§ 107.720 Small Businesses that may be (i) Directly owns, or will own as a re-
ineligible for financing. sult of the Financing, at least 50 per-
(a) Relenders or reinvestors. You are cent of the outstanding voting securi-
not permitted to finance any business ties; or
that is a relender or reinvestor. (ii) Indirectly owns, or will own as a
(1) Definition. Relenders or reinves- result of the Financing, at least 50 per-
tors are businesses whose primary busi- cent of the outstanding voting securi-
ness activity involves, directly or indi- ties (by directly owning the out-
rectly, providing funds to others, pur- standing voting securities of another
chasing debt obligations, factoring, or passive Small Business that is the di-
long-term leasing of equipment with no rect owner of the outstanding voting
provision for maintenance or repair. securities of the subsidiary company).
81
§ 107.720 13 CFR Ch. I (1–1–23 Edition)
(3) Exception for certain Partnership Li- businesses that are part of the same Fi-
censees. If you are a Partnership Li- nancing may not exceed the fees that
censee, you may form one or more would have been permitted if the Fi-
blocker entities in accordance with nancing had been provided directly to a
this paragraph (b)(3). For the purposes non-passive Small Business. Any such
of this paragraph, a ‘‘blocker entity’’ fees received by your Associate must
means a corporation or a limited liabil- be paid to you in cash within 30 days of
ity company that elects to be taxed as the receipt of such fees.
a corporation for Federal income tax (iii) For the purposes of this part 107,
purposes. The sole purpose of a blocker each passive and non-passive business
entity must be to provide Financing to included in the Financing is a Portfolio
one or more eligible, unincorporated Concern. The terms of the financing
Small Businesses. You may form such must provide SBA with access to Port-
blocker entities only if a direct Fi- folio Concern information in compli-
nancing to such Small Businesses ance with this part 107, including with-
would cause any of your investors to out limitation §§ 107.600 and 107.620.
incur ‘‘unrelated business taxable in- (c) Real Estate Businesses. (1) You are
come’’ under section 511 of the Internal not permitted to finance any business
Revenue Code (26 U.S.C. 511) or to incur classified under North American Indus-
‘‘effectively connected income’’ to for- try Classification System (NAICS)
eign investors under sections 871 and codes 531110 (lessors of residential
882 of the Internal Revenue Code (26 buildings and dwellings), 531120 (lessors
U.S.C. 871 and 882). Your ownership and of nonresidential buildings except
investment of funds in such blocker en- miniwarehouses), 531190 (lessors of
tities will not constitute a violation of other real estate property), 237210 (land
§ 107.730(a). For each passive business subdivision), or 236117 (new housing for-
financed under this section sale builders). You are not permitted to
107.720(b)(3), you must provide a certifi- finance any business classified under
cation to SBA as required under NAICS codes 236118 (residential remod-
§ 107.610(g). A blocker entity formed elers), 236210 (industrial building con-
under this paragraph may provide Fi- struction), or 236220 (commercial and
nancing: institutional building construction), if
(i) Directly to one or more eligible such business is primarily engaged in
non-passive Small Businesses; or construction or renovation of prop-
(ii) Directly to a passive Small Busi- erties on its own account rather than
ness that passes substantially all the as a hired contractor. You are per-
proceeds directly to (or uses substan- mitted to finance a business classified
tially all the proceeds to acquire) one under NAICS codes 531210 (offices of
or more eligible non-passive Small real estate agents and brokers), 531311
Businesses in which the passive Small (residential property managers), 531312
Business directly owns, or will own as (nonresidential property managers),
a result of the Financing, at least 50% 531320 (offices of real estate appraisers),
of the outstanding voting securities. or 531390 (other activities related to
(4) Additional conditions for permitted real estate), only if such business de-
passive business financings. Financings rives at least 80 percent of its revenue
permitted under paragraphs (b)(2) or (3) from non-Affiliate sources.
of this section must meet all of the fol- (2) You are not permitted to finance
lowing conditions: a Small Business, regardless of NAICS
(i) For the purposes of this paragraph classification, if the Financing is to be
(b), ‘‘substantially all’’ means at least used to acquire or refinance real prop-
99 percent of the Financing proceeds erty, unless the Small Business:
after deduction of actual application (i) Is acquiring an existing property
fees, closing fees, and expense reim- and will use at least 51 percent of the
bursements, which may not exceed usable square footage for an eligible
those permitted by § 107.860. business purpose; or
(ii) If you and/or your Associate (ii) Is building or renovating a build-
charge fees permitted by § 107.860 and/or ing and will use at least 67 percent of
§ 107.900, the total amount of such fees the usable square footage for an eligi-
charged to all passive and non-passive ble business purpose; or
82
(iii) Occupies the subject property (h) Associated supplier. You are not
and uses at least 67 percent of the usa- permitted to finance a business that
ble square footage for an eligible busi- purchases, or will purchase, goods or
ness purpose. services from a supplier who is your
(d) Project Financing. You are not per- Associate, except under the following
mitted to finance a business if: conditions:
(1) The assets of the business are to (1) The amount of goods and services
be reduced or consumed, generally purchased (or to be purchased) from
without replacement, as the life of the your Associate with the proceeds of the
business progresses, and the nature of Financing, or with funds released as a
the business requires that a stream of result of the Financing, is less than 50
cash payments be made to the percent of the total amount of the Fi-
business’s financing sources, on a basis nancing (75 percent for a Section 301(d)
associated with the continuing sale of Licensee);
assets. Examples include real estate (2) The price of such goods and serv-
development projects and oil and gas ices is no higher than that charged
wells; or other customers of your Associate; and
(3) The Small Business purchases no
(2) The primary purpose of the Fi-
capital goods from your Associate.
nancing is to fund production of a sin-
(i) Financing Licensees. You are not
gle item or defined limited number of
permitted to provide funds, directly or
items, generally over a defined produc-
indirectly, that the Small Business will
tion period, and such production will
use:
constitute the majority of the activi-
(1) To purchase stock in or provide
ties of the Small Business. Examples
capital to a Licensee; or
include motion pictures and electric
(2) To repay an indebtedness incurred
generating plants.
for the purpose of investing in a Li-
(e) Farm land purchases. You are not censee.
permitted to finance the acquisition of
farm land. Farm land means land [61 FR 3189, Jan. 31, 1996, as amended at 63
which is or is intended to be used for FR 5867, Feb. 5, 1998; 64 FR 70995, Dec. 20,
1999; 79 FR 62823, Oct. 21, 2014; 82 FR 39340,
agricultural or forestry purposes, such
Aug. 18, 2017]
as the production of food, fiber, or
wood, or is so taxed or zoned. § 107.730 Financings which constitute
(f) Public interest. You are not per- conflicts of interest.
mitted to finance any business if the (a) General rule. You must not self-
proceeds are to be used for purposes deal to the prejudice of a Small Busi-
contrary to the public interest, includ- ness, the Licensee, its shareholders or
ing but not limited to activities which partners, or SBA. Unless you obtain a
are in violation of law, or inconsistent prior written exemption from SBA for
with free competitive enterprise. special instances in which a Financing
(g) Foreign investment—(1) General may further the purposes of the Act de-
rule. You are not permitted to finance spite presenting a conflict of interest,
a business if: you must not directly or indirectly:
(i) The funds will be used substan- (1) Provide Financing to any of your
tially for a foreign operation; or Associates, except for a Financing to
(ii) At the time of the Financing or an Associate that meets all of the fol-
within one year thereafter, more than lowing conditions:
49 percent of the employees or tangible (i) The Small Business that receives
assets of the Small Business are lo- the Financing is your Associate, pursu-
cated outside the United States (unless ant to paragraph (8)(ii) of the Associate
you can show, to SBA’s satisfaction, definition in § 107.50, only because an
that the Financing was used for a spe- investment fund that is your Associate
cific domestic purpose). holds a 10% or greater equity interest
(2) Exception. This paragraph (g) does in the Small Business.
not prohibit a Financing used to ac- (ii) You and the Associate invest-
quire foreign materials and equipment ment fund previously invested in the
or foreign property rights for use or Small Business at the same time and
sale in the United States. on the same terms and conditions.
83
§ 107.730 13 CFR Ch. I (1–1–23 Edition)
(iii) You and the Associate invest- eral or State laws governing conflicts
ment fund are providing follow-on fi- of interest and fiduciary obligations.
nancing to the Small Business at the (d) Financings with Associates—(1)
same time, on the same terms and con- Financings with Associates requiring
ditions, and in the same proportionate prior approval. Without SBA’s prior
dollar amounts as your respective in- written approval, you may not Finance
vestments in the previous round(s) of any business in which your Associate
financing (for example, if you invested has either a voting equity interest, or
$2 million and your Associate invested total equity interests (including poten-
$1 million in the previous round, your tial interests), of at least five percent.
respective follow-on investments would (2) Other Financings with Associates. If
be in the same 2:1 ratio). you and an Associate provide Financ-
(2) Provide Financing to an Associate ing to the same Small Business, either
of another Licensee if one of your Asso- at the same time or at different times,
ciates has received or will receive any you must be able to demonstrate to
direct or indirect Financing or a Com- SBA’s satisfaction that the terms and
mitment from that Licensee or a third conditions are (or were) fair and equi-
Licensee (including Financing or Com- table to you, taking into account any
mitments received under any under- differences in the timing of each par-
standing, agreement, or cross dealing, ty’s financing transactions.
reciprocal or circular arrangement).
(3) Exceptions to paragraphs (d)(1) and
(3) Borrow money from:
(d)(2) of this section. A Financing that
(i) A Small Business Financed by
falls into one of the following cat-
you;
egories is exempt from the prior ap-
(ii) An officer, director, or owner of
proval requirement in paragraph (d)(1)
at least a 10 percent equity interest in
of this section or is presumed to be fair
such business; or
and equitable to you for the purposes
(iii) A Close Relative of any such offi-
of paragraph (d)(2) of this section, as
cer, director, or equity owner.
appropriate:
(4) Provide Financing to a Small
Business to discharge an obligation to (i) Your Associate is a Lending Insti-
your Associate or free other funds to tution that is providing financing
pay such obligation. This paragraph under a credit facility in order to meet
(a)(4) does not apply if the obligation is the operational needs of the Small
to an Associate Lending Institution Business, and the terms of such financ-
and is a line of credit or other obliga- ing are usual and customary.
tion incurred in the normal course of (ii) Your Associate invests in the
business. Small Business on the same terms and
(5) Provide Financing to a Small conditions and at the same time as
Business for the purpose of purchasing you.
property from your Associate, except (iii) Both you and your Associate are
as permitted under § 107.720(h). leveraged Licensees, and both have
(b) Rules applicable to Associates. outstanding Participating Securities or
Without SBA’ s prior written approval, neither has outstanding Participating
your Associates must not, directly or Securities.
indirectly: (iv) You have no outstanding Lever-
(1) Borrow money from any Person age and do not intend to issue Leverage
described in paragraph (a)(3) of this in the future, and your Associate ei-
section. ther is not a Licensee or has no out-
(2) Receive from a Small Business standing Leverage and does not intend
any compensation in connection with to issue Leverage in the future.
Assistance you provide (except as per- (e) Use of Associates to manage Port-
mitted under §§ 107.825(c) and 107.900), folio Concerns. To protect your invest-
or anything of value for procuring, at- ment, you may designate an Associate
tempting to procure, or influencing to serve as an officer, director, or other
your action with respect to such As- participant in the management of a
sistance. Small Business. You must identify any

(c) Applicability of other laws. You are such Associate in your records avail-
also bound by any restrictions in Fed- able for SBA’s review under § 107.600.
84
Without SBA’s prior written approval, Commitment, which reduced your Reg-
the Associate must not: ulatory Capital; plus
(1) Have any other direct or indirect (3) Any Distribution(s) you made
financial interest in the Portfolio Con- under § 107.585, during the five years
cern that exceeds, or has the potential preceding the date of the Financing or
to exceed, 5 percent of the Portfolio Commitment, which reduced your Reg-
Concern’s equity. ulatory Capital by no more than two
(2) Have served for more than 30 days percent or which SBA approves for in-
as an officer, director or other partici- clusion in the sum determined in this
pant in the management of the Port- paragraph (a).
folio Concern before you provided Fi- (b) Lower overline limit. If SBA ap-
nancing. proved your license application based
(3) Receive any income or anything upon a plan to issue less than two tiers
of value from the Portfolio Concern un- of Leverage, the applicable percentage
less it is for your benefit, with the ex- of the amount computed in paragraphs
ception of director’s fees, expenses, and (a)(1) though (a)(3) of this section will
distributions based upon the Associ- be:
ate’s ownership interest in the Con- (1) 20 percent if the plan con-
cern. templates one tier of Leverage.
(f) 1940 and 1980 Act Companies: SEC (2) 25 percent if the plan con-
exemptions. If you are a 1940 or 1980 Act templates 1.5 tiers of Leverage.
Company and you receive an exemption (c) Outstanding Financings. For the
from the Securities and Exchange purposes of paragraphs (a) and (b) of
Commission for a transaction described this section, you must measure each
in this § 107.730, you need not obtain outstanding Financing at its original
SBA’s approval of the transaction. cost (including any amount of the Fi-
However, you must promptly notify nancing that was previously written
SBA of the transaction and satisfy the off).
public notice requirements in para- [74 FR 33915, July 14, 2009]
graph (g) of this section.
(g) Public notice. Before granting an § 107.750 Conditions for financing a
exemption under this § 107.730, SBA will change of ownership of a Small
Business.
publish notice of the transaction in the
FEDERAL REGISTER. You may finance a change of owner-
ship of a Small Business only under the
[61 FR 3189, Jan. 31, 1996, as amended at 63 conditions set forth in this section.
FR 5867, Feb. 5, 1998; 64 FR 70996, Dec. 20, (a) The Financing must:
1999; 77 FR 20294, Apr. 4, 2012]
(1) Promote the sound development
§ 107.740 Portfolio diversification or preserve the existence of the Small
(‘‘overline’’ limitation). Business;
(2) Help create a Small Business as a
(a) General rule. This § 107.740 applies result of a corporate divestiture; or
if you have outstanding Leverage or in- (3) Facilitate ownership in a Dis-
tend to issue Leverage in the future. advantaged Business.
Unless SBA approved your license ap- (b) The Resulting Concern (as defined
plication based upon a plan to issue in paragraph (c) of this section) must:
less than two tiers of Leverage, you (1) Be a Small Business under
may provide Financing or a Commit- § 107.700;
ment to a Small Business if the result- (2) Have 500 or fewer full-time equiva-
ing amount of your aggregate lent employees; or meet one of the ap-
Financings and Commitments to such propriate debt/equity ratio tests:
Small Business and its Affiliates does (i) If you have outstanding Leverage,
not exceed 30 percent of the sum of: the Resulting Concern’s ratio of debt
(1) Your Regulatory Capital as of the to equity must be no more than 5 to 1;
date of the Financing or Commitment; or
plus (ii) If you have no outstanding Lever-
(2) Any Distribution(s) you made age, the Resulting Concern’s ratio of
under § 107.1570(b), during the five years debt to equity must be no more than 8
preceding the date of the Financing or to 1.
85
§ 107.760 13 CFR Ch. I (1–1–23 Edition)
(c) Definitions. (1) The ‘‘Resulting change in business activity was caused
Concern’’ is determined by viewing the by an unforeseen change in cir-
business as though the change of own- cumstances and was not contemplated
ership had already occurred, giving ef- at the time the Financing was made.
fect to all contemplated financing, (3) Additional Financing. If SBA ap-
mergers, and acquisitions. proves your request to retain an in-
(2) For purposes of this section, vestment under paragraph (b)(2) of this
‘‘debt’’ means long-term debt, includ- section, you may provide additional Fi-
ing contingent liabilities, but exclud- nancing to the Portfolio Concern to the
ing accounts payable, operating leases, extent necessary to protect against the
letters of credit, subordinated notes loss of the amount of your original in-
payable to the seller, any other liabil- vestment, subject to the overline limi-
ities approved for exclusion by SBA tations of § 107.740.
and short-term working capital loans (c) Effect of a change in business activ-
(so long as the loans carry a zero bal- ity occurring more than one year after the
ance for 30 consecutive days during the initial Financing. If a Portfolio Concern
concern’s fiscal year).
becomes ineligible because of a change
(3) For purposes of this section, ‘‘eq- in business activity more than one
uity’’ means common and preferred
year after your initial Financing you
stock (corporation), contributed cap-
may:
ital (partnership), or membership in-
terests (limited liability company). (1) Retain your investment; and
(2) Provide additional Financing to
§ 107.760 How a change in size or ac- the Portfolio Concern to the extent
tivity of a Portfolio Concern affects necessary to protect against the loss of
the Licensee and the Portfolio Con- the amount of your original invest-
cern. ment, subject to the overline limita-
(a) Effect on Licensee of a change in tions of § 107.740.
size of a Portfolio Concern. If a Portfolio
Concern no longer qualifies as a Small STRUCTURING LICENSEE’S FINANCING OF
Business you may keep your invest- ELIGIBLE SMALL BUSINESSES: TYPES
ment in the concern and: OF FINANCING
(1) Subject to the overline limita-
tions of § 107.740, you may provide addi- § 107.800 Financings in the form of Eq-
tional Financing to the concern up to uity Securities.
the time it makes a public offering of (a) You may purchase the Equity Se-
its securities. curities of a Small Business. You may
(2) Even after the concern makes a not, inadvertently or otherwise:
public offering, you may exercise any (1) Become a general partner in any
stock options, warrants, or other rights unincorporated business; or
to purchase Equity Securities which (2) Become jointly or severally liable
you acquired before the public offering, for any obligations of an unincor-
or fund Commitments you made before porated business.
the public offering. (b) Definition. Equity Securities
(b) Effect of a change in business activ- means stock of any class in a corpora-
ity occurring within one year of Licens- tion, stock options, warrants, limited
ee’s initial Financing—(1) Retention of partnership interests in a limited part-
Investment. Unless you receive SBA’s nership, membership interests in a lim-
written approval, you may not keep
ited liability company, or joint venture
your investment in a Portfolio Con-
interests. If the Financing agreement
cern, small or otherwise, which be-
contains debt-type acceleration provi-
comes ineligible by reason of a change
sions or includes redemption provi-
in its business activity within one year
sions, other than those permitted
of your initial investment.
under § 107.850, the security will be con-
(2) Request for SBA’s approval to retain
sidered a Debt Security for purposes of
investment. If you request that SBA ap-
prove the retention of your invest- § 107.855 and § 107.1150(c)(1).

ment, your request must include suffi- [61 FR 3189, Jan. 31, 1996, as amended at 74
cient evidence to demonstrate that the FR 33915, July 14, 2009]
86
§ 107.810 Financings in the form of (1) You would become subject to

Loans. State regulation as an insurance, guar-
You may make Loans to Small Busi- anty or surety business;
nesses. A Loan means a transaction (2) The amount of the guaranty plus
any direct Financings to the Small
evidenced by a debt instrument with no
Business exceed the overline limita-
provision for you to acquire Equity Se-
tions of § 107.740, except that a pledge of
curities.
the Equity Securities of the issuer or a
§ 107.815 Financings in the form of subordination of your lien or creditor
Debt Securities. position does not count toward your
overline; or
You may purchase Debt Securities (3) The total financing cost to the
from Small Businesses. Small Business exceeds the cost of
(a) Definitions. Debt Securities are in- money limits of § 107.855.
struments evidencing a loan with an (b) Pledge of Licensee’s assets as guar-
option or any other right to acquire anty. For purposes of this section, a
Equity Securities in a Small Business guaranty with recourse only to specific
or its Affiliates, or a loan which by its asset(s) you have pledged is equal to
terms is convertible into an equity po- the fair market value of such asset(s)
sition, or a loan with a right to receive or the amount of the debt guaranteed,
royalties that are excluded from the whichever is less.
Cost of Money pursuant to
§ 107.855(g)(12). Consideration must be § 107.825 Purchasing securities from
paid for all options that you acquire. an underwriter or other third
(b) Restriction on options obtained by party.
Licensee’s management and employees. If (a) Securities purchased through or
you have outstanding Leverage or plan from an underwriter. You may purchase
to obtain Leverage, your employees, of- the securities of a Small Business
ficers, directors or general partners, or through or from an underwriter if:
the general partners of the manage- (1) You purchase such securities
ment company that is providing serv- within 90 days of the date the public of-
ices to you or to your general partner, fering is first made;
may obtain options in a Financed (2) Your purchase price is no more
Small Business only if: than the original public offering price;
(1) They participate in the Financing and
on a pari passu basis with you; or (3) The amount paid by you for the
(2) SBA gives its prior written ap- securities (less ordinary and reasonable
proval; or underwriting charges and commissions)
(3) The options received are com- has been, or will be, paid to the Small
pensation for service as a member of Business, and the underwriter certifies
the board of directors of the Small in writing that this requirement has
Business, and such compensation does been met.
not exceed that paid to other outside (b) Recordkeeping requirements. If you
directors. In the absence of such direc- have outstanding Leverage or plan to
tors, fees must be reasonable when obtain Leverage, you must keep
compared with amounts paid to outside records available for SBA’s inspection
directors of similar companies. which show the relevant details of the
transaction, including, but not limited
[61 FR 3189, Jan. 31, 1996, as amended at 65 to, date, price, commissions, and the
FR 69432, Nov. 17, 2000] underwriter’s certifications required
under paragraph (c) of this section.
§ 107.820 Financings in the form of (c) Underwriter’s requirements. If you
guarantees.
have outstanding Leverage or plan to
At the request of a Small Business or obtain Leverage, the underwriter must
where necessary to protect your exist- certify whether it is your Associate.
ing investment, you may guarantee the You may pay reasonable and cus-
monetary obligation of a Small Busi- tomary commissions and expenses to

ness to any non-Associate creditor. an Associate underwriter for the por-
(a) You may not issue a guaranty if: tion of an offering that you purchase,
87
§ 107.830 13 CFR Ch. I (1–1–23 Edition)
provided it is no more than 25 percent (2) Prepayment. You must permit vol-
of the total offering. If you buy more untary prepayment of Loans and Debt
than 25 percent of the offering, the Securities by the Small Business. You
amount you pay to the Associate un- must obtain SBA’s prior written ap-
derwriter must not exceed the total of proval of any restrictions on the abil-
the application and closing fees and re- ity of the Small Business to prepay
imbursable expenses permitted by other than the imposition of a reason-
§ 107.860. able prepayment penalty under para-
(d) Securities purchased from another graph (c)(3) of this section.
Licensee or from SBA. You may pur- (3) Prepayment penalties. You may
chase from, or exchange with, another charge a reasonable prepayment pen-
Licensee, Portfolio securities (or any alty which must be agreed upon at the
interest therein). Such purchase or ex- time of the Financing. If SBA deter-
change may only be made on a non-re- mines that a prepayment penalty is un-
course basis. You may not have more reasonable, you must refund the entire
than one-third of your total as- penalty to the Small Business. A pre-
sets(valued at cost) invested in such se- payment penalty equal to 5 percent of
curities. If you have previously sold the outstanding balance during the
Portfolio Securities (or any interest first year of any Financing, declining
therein) on a recourse basis, you shall by one percentage point per year
include the amount for which you may through the fifth year, is considered
be contingently liable in your overline reasonable.
computation. [61 FR 3189, Jan. 31, 1996, as amended at 69
(e) Purchases of securities from other FR 8098, Feb. 23, 2004]
non-issuers. You may purchase securi-
ties of a Small Business from a non- § 107.835 Exceptions to minimum dura-
issuer not previously described in this tion/term of Financing.
§ 107.825 if: You may make a Short-term Financ-
(1) Such acquisition is a reasonably ing for a term less than one year if the
necessary part of the overall sound Fi- Financing is:
nancing of the Small Business under (a) An interim Financing in con-
the Act; or templation of long-term Financing.
(2) The securities are acquired to fi- The contemplated long-term Financing
nance a change of ownership under must be in an amount at least equal to
§ 107.750. the short-term Financing, and must be
made by you alone or in participation
STRUCTURING LICENSEE’S FINANCING OF with other investors; or
AN ELIGIBLE SMALL BUSINESS: TERMS (b) For protection of your prior in-
AND CONDITIONS OF FINANCING vestment(s); or
(c) For the purpose of Financing a
§ 107.830 Minimum duration/term of fi- change of ownership under § 107.750.
nancing. The total amount of such Financings
(a) General rule. The duration/term of may not exceed 20 percent of your
all your Financings must be for a min- Loans and Investments (at cost) at the
imum period of one year. end of any fiscal year; or
(b) Restrictions on mandatory redemp- (d) For the purpose of aiding a Small
tion of Equity Securities. If you have ac- Business in performing a contract
quired Equity Securities, options or awarded under a Federal, State, or
warrants on terms that include re- local government set-aside program for
demption by the Small Business, you ‘‘minority’’ or ‘‘disadvantaged’’ con-
must not require redemption by the tractors.
Small Business within the first year of [61 FR 3189, Jan. 31, 1996, as amended at 64
your acquisition except as permitted in FR 52646, Sept. 30, 1999; 69 FR 8098, Feb. 23,
§ 107.850. 2004]
(c) Special rules for Loans and Debt Se-
curities—(1) Term. The minimum term § 107.840 Maximum term of Financing.
for Loans and Debt Securities starts The maximum term of any Loan or
with the first disbursement of the Fi- Debt Security Financing must be no
nancing. longer than 20 years.
88
§ 107.845 Maximum rate of amortiza- § 107.855 Interest rate ceiling and limi-
tion on Loans and Debt Securities. tations on fees charged to Small
Businesses (‘‘Cost of Money’’).
The principal of any Loan (or the
loan portion of any Debt Security) ‘‘Cost of Money’’ means the interest
with a term of one year or less cannot and other consideration that you re-
be amortized faster than straight line. ceive from a Small Business. Subject
to lower ceilings prescribed by local
If the term is greater than one year,
law, the Cost of Money to the Small
the principal cannot be amortized fast-
Business must not exceed the ceiling
er than straight line for the first year.
determined under this section.
[69 FR 8098, Feb. 23, 2004] (a) Financings to which the Cost of
Money rules apply. This section applies
§ 107.850 Restrictions on redemption to all Loans and Debt Securities. As re-
of Equity Securities. quired by § 107.800(b), you must include
(a) A Portfolio Concern cannot be re- as Debt Securities any equity interests
quired to redeem Equity Securities with redemption provisions that do not
earlier than one year from the date of meet the restrictions in § 107.850.
(b) When to determine the Cost of
the first closing unless:
Money ceiling for a Financing. You may
(1) The concern makes a public offer- determine your Cost of Money ceiling
ing, or has a change of management or for a particular Financing as of the
control, or files for protection under date you issue a Commitment or as of
the provisions of the Bankruptcy Code, the date of the first closing of the Fi-
or materially breaches your Financing nancing. Once determined, the Cost of
agreement; or Money ceiling remains fixed for the du-
(2) You make a follow-on investment, ration of the Financing.
in which case the new securities may (c) How to determine the Cost of Money
be redeemed in less than one year, but ceiling for a Financing. At a minimum,
no earlier than the redemption date as- you may use a Cost of Money ceiling of
sociated with your earliest Financing 19 percent for a Loan and 14 percent for
of the concern. a Debt Security. To determine whether
(b) The redemption price must be ei- you may charge more, do the following:
ther: (1) Choose a base rate for your Cost
(1) A fixed amount that is no higher of Money computation. The base rate
than the price you paid for the securi- may be either the Debenture Rate cur-
rently in effect plus the applicable
ties; or
Charge determined under
(2) An amount that cannot be fixed or
§ 107.1130(d)(1), or your own ‘‘Cost of
determined before the time of redemp- Capital’’ as determined under para-
tion. In this case, the redemption price graph (d) of this section.
must be based on: (2) For a Loan, add 11 percentage
(i) A reasonable formula that reflects points to the base rate; for a Debt Se-
the performance of the concern (such curity, add 6 percentage points. In ei-
as one based on earnings or book ther case, round the sum down to the
value); or nearest eighth of one percent.
(ii) The fair market value of the con- (3) If the result is more than 19 per-
cern at the time of redemption, as de- cent (for a Loan) or 14 percent (for a
termined by a professional appraisal Debt Security), you may use it as your
performed under an agreement accept- Cost of Money ceiling.
able to both parties. (4) If two or more Licensees partici-
(c) Any method for determining the pate in the same Financing of a Small
redemption price must be agreed upon Business, the base rate used in this
no later than the date of the first (or paragraph (c) is the highest of the fol-
only) closing of the Financing. lowing:
(i) The current Debenture Rate plus
[61 FR 3189, Jan. 31, 1996, as amended at 64 the applicable Charge determined
FR 52646, Sept. 30, 1999; 69 FR 8098, Feb. 23, under § 107.1130(d)(1);

2004] (ii) The Cost of Capital of the lead Li-
censee; or
89
§ 107.855 13 CFR Ch. I (1–1–23 Edition)
(iii) The weighted average of the Cost (e) SBA review of Cost of Capital com-
of Capital for all Licensees partici- putation. You must keep your Cost of
pating in the Financing. Capital computations in a separate file
(d) How to determine your Cost of Cap- available for SBA’s review.
ital. ‘‘Cost of Capital’’ is an optional (1) A computation that is kept in
computation of the weighted average such a file and is audited by your inde-
interest rate you pay on your ‘‘quali- pendent public accountant is consid-
fied borrowings’’. ‘‘Qualified bor- ered correct unless SBA demonstrates
rowings’’ means your Debentures to- otherwise.
gether with your borrowings at or (2) If a computation is not kept in
below the usual interest rate charged such a file or is unaudited, you must
by banks in your locality on the date prove its accuracy to SBA’s satisfac-
your loan was made. tion.
(1) For any fiscal year, you may com- (f) Charges included in the Cost of
pute your Cost of Capital: Money. The Cost of Money includes all
(i) As of the first day of your fiscal interest, points, discounts, fees, royal-
year, to remain in effect for the entire ties, profit participation, and any other
year; or consideration you receive from a Small
(ii) As of the first day of every fiscal Business, except for the specific exclu-
quarter during the fiscal year, to re- sions in paragraph (g) of this section.
main in effect for the duration of the For equity interests subject to the Cost
quarter. of Money rules (see paragraph (a) of
(2) For each qualified borrowing out- this section), you must include:
standing at your last fiscal year or fis- (1) The portion of the fixed redemp-
cal quarter end, multiply the ending tion price that exceeds your original
principal balance (net of related cost.
unamortized fees) by the number of (2) Any amount of a redemption that
days during the past four fiscal quar- is paid out of accounts other than the
ters that the borrowing was out- Small Business’s capital accounts (cap-
standing, and divide the result by 365. ital, paid-in surplus, or retained earn-
(3) Add together the amounts com- ings of a corporation; or partners’ cap-
puted for all borrowings under para- ital of a partnership).
graph (d)(2) of this section. The result (g) Charges excluded from the Cost of
is your weighted average borrowings. Money. You may exclude from the Cost
(4) For all qualified borrowings out- of Money:
standing at your last fiscal year or fis- (1) Discount on the loan portion of a
cal quarter end, determine the aggre- Debt Security, if such discount exists
gate interest expense for the past four solely as the result of the allocation of
fiscal quarters, excluding amortization value to detachable stock purchase
of loan fees. For the purposes of this warrants in accordance with generally
paragraph (d)(4): accepted accounting principles.
(i) Interest expense on Debentures in- (2) Closing fees, application fees, and
cludes the 1 percent Charge paid by a expense reimbursements, each as per-
Licensee under § 107.1130(d)(1); and mitted under § 107.860.
(ii) Section 301(d) Licensees with out- (3) Reasonable prepayment penalties
standing subsidized Debentures are pre- permitted under § 107.830(d)(3).
sumed to have paid interest at the rate (4) Out-of-pocket conveyance and/or
stated on the face of such Debentures, recordation fees and taxes.
without regard to any subsidy paid by (5) Reasonable closing costs.
SBA. (6) Fees for management services as
(5) Divide the interest expense from permitted under § 107.900.
paragraph (d)(4) of this section by the (7) Reasonable and necessary out-of-
weighted average borrowings from pocket expenses you incur to monitor
paragraph (d)(3) of this section, and the Financing.
multiply by 100. The result is your Cost (8) Board of director fees not in ex-
of Capital, which you may use to com- cess of those paid to other outside di-
pute a Cost of Money ceiling under rectors, if your board representation
paragraph (c) of this section. meets the requirements of § 107.730(e).
90
(9) A reasonable fee for arranging fi- Small Business only as permitted
nancing for a Small Business from a under this § 107.860.
source that is neither a Licensee nor (a) Application fee. You may collect a
an Associate of yours. The Small Busi- nonrefundable application fee from a
ness must agree in writing to pay such Small Business to review its Financing
a fee before you arrange the financing. application. The application fee may be
(10) The difference between the con- collected at the same time as the clos-
tractual interest rate of the Financing ing fee under paragraph (c) or (d) of
and a default rate of interest permitted this section, or earlier. The fee must
as follows: be:
(i) If a Small Business is in default, (1) No more than 1 percent of the
you may charge a default rate of inter- amount of Financing requested (or, if
est as much as 7 percentage points two or more Licensees participate in
higher than the contractual rate until the Financing, their combined applica-
the default is cured.
tion fees are no more than 1 percent of
(ii) For this purpose, ‘‘default’’
the total Financing requested); and
means either failure to pay an amount
when due or failure to provide informa- (2) Agreed to in writing by the Fi-
tion required under the Financing doc- nancing applicant.
uments. (b) SBA review of application fees. For
(11) Royalty payments based on im- any fiscal year, if the number of appli-
provement in the performance of the cation fees you collect is more than
Small Business after the date of the Fi- twice the number of Financings closed,
nancing. SBA in its sole discretion may deter-
(12) Gains realized on the disposition mine that you are engaged in activities
of Equity Securities issued by the not contemplated by the Act, in viola-
Small Business. tion of § 107.500.
(h) How to evaluate compliance with (c) Closing fee—Loans. You may
the Cost of Money ceiling. You must de- charge a closing fee on a Loan if:
termine whether a Financing is within (1) The fee is no more than 2 percent
the Cost of Money ceiling based on its of the Financing amount (or, if two or
discounted cash flows, as follows: more Licensees participate in the Fi-
(1) Beginning with the date of the nancing, their combined closing fees
first disbursement (‘‘period zero’’), are no more than 2 percent of the total
identify your cash inflows and cash Financing amount); and
outflows for each period of the Financ- (2) You charge the fee no earlier than
ing. The appropriate period to use the date of the first disbursement.
(such as years, quarters, or months) de- (d) Closing fee—Debt or Equity
pends on how you have structured the Financings. You may charge a Closing
disbursements and payments. Fee on a Debt Security or Equity Secu-
(2) Discount the cash flows back to rity Financing if:
the first disbursement date using the
(1) The fee is no more than 4 percent
Cost of Money ceiling from paragraph
of the Financing amount (or, if two or
(d) of this section as the discount rate.
more Licensees participate in the Fi-
(3) If the result is zero or less, the Fi-
nancing is within the Cost of Money nancing, their combined closing fees
ceiling; if it is greater than zero, the are no more than 4 percent of the total
Financing exceeds the Cost of Money Financing amount); and
ceiling. (2) You charge the fee no earlier than
the date of the first disbursement.
[61 FR 3189, Jan. 31, 1996, as amended at 63 (e) Limitation on dual fees. If another
FR 5867, Feb. 5, 1998; 64 FR 52646, Sept. 30,
1999; 65 FR 69432, Nov. 17, 2000; 77 FR 20294, Licensee or an Associate of yours col-
Apr. 4, 2012] lects a transaction fee under § 107.900(e)
in connection with your Financing of a
§ 107.860 Financing fees and expense Small Business, the sum of the trans-
reimbursements a Licensee may re- action fee and your application and
ceive from a Small Business. closing fees cannot exceed the max-
You may collect Financing fees and imum application and closing fees per-
receive expense reimbursements from a mitted under this § 107.860.
91
§ 107.865 13 CFR Ch. I (1–1–23 Edition)
(f) Expense reimbursements. You may (1) The management of the Small
charge a Small Business for the reason- Business owns at least a 25 percent in-
able out-of-pocket expenses, other than terest in the voting securities of the
Management Expenses, that you incur business; and
to process its Financing application. If (2) The management of the Small
SBA determines that any of your reim- Business can elect at least 40 percent of
bursed expenses are unreasonable or the board members of a corporation,
are Management Expenses, SBA will general partners of a limited partner-
require you to include such amounts in ship, or managers of a limited liability
the Cost of Money or refund them to company, as appropriate, and the In-
the Small Business. vestor Group can elect no more than 40
(g) Breakup fee. If a Small Business percent. The balance of such officials
accepts your Commitment and then may be elected through mutual agree-
fails to close the Financing because it ment by management and the Investor
has accepted funds from another Group.
source, you may charge a ‘‘breakup (d) Extension of Control. With SBA’s
fee’’ equal to the closing fee that you prior written approval you, or the In-
would have been permitted to charge vestor Group, may retain Control for
under paragraph (c) or (d) of this sec-
such additional period as may be rea-
tion.
sonably necessary to complete divesti-
[61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9, ture of Control or to ensure the finan-
1996] cial stability of the portfolio company.
(e) Additional Financing for businesses
§ 107.865 Control of a Small Business under Licensee’s Control. If you assume
by a Licensee.
Control of a Small Business, you may
(a) In general. You, or you and your later provide additional Financing,
Associates (in the latter case, the ‘‘In- without an exemption under
vestor Group’’), may exercise Control § 107.730(a)(1).
over a Small Business for purposes con-
nected to your investment, through [61 FR 3189, Jan. 31, 1996, as amended at 63
FR 5867, Feb. 5, 1998; 64 FR 52646, Sept. 30,
ownership of voting securities, man-
1999; 67 FR 64790, Oct. 22, 2002]
agement agreements, voting trusts,
majority representation on the board § 107.880 Assets acquired in liquida-
of directors, or otherwise. The period of tion of Portfolio securities.
such Control will be limited to the sev-
enth anniversary of the date on which You may acquire assets in full or par-
such Control was initially acquired, or tial liquidation of a Small Business’s
any earlier date specified by the terms obligation to you under the conditions
of any investment agreement. permitted by this § 107.880. The assets
(b) Presumption of control. Control may be acquired from the Small Busi-
over a Small Business based on owner- ness, a guarantor of its obligation, or
ship of voting securities will be pre- another party.
sumed to exist whenever you or the In- (a) Timely disposition of assets. You
vestor Group own or control, directly must dispose of assets acquired in liq-
or indirectly: uidation of a Portfolio security within
(1) At least 50 percent of the out- a reasonable period of time.
standing voting securities, if there are (b) Permitted expenditures to preserve
fewer than 50 shareholders; or assets. (1) You may incur reasonably
(2) More than 25 percent of the out- necessary expenditures to maintain
standing voting securities, if there are and preserve assets acquired.
50 or more shareholders; or (2) You may incur reasonably nec-
(3) At least 20 percent of the out- essary expenditures for improvements
standing voting securities, if there are to render such assets saleable.
50 or more shareholders and no other (3) You may make payments of mort-
party holds a larger block. gage principal and interest (including
(c) Rebuttals to presumption of Control. amounts in arrears when you acquired

A presumption of Control under para- the asset), pay taxes when due, and pay
graph (b) of this section is rebutted if: for necessary insurance coverage.
92
(c) SBA approval of expenditures. This (1) You or your Associate have en-
paragraph (c) applies if you have out- tered into a written contract with the
standing Leverage or are applying for Small Business;
Leverage. Any application for SBA ap- (2) The fees charged are for services
proval under this paragraph must actually performed;
specify all expenses estimated to be (3) Services are provided on an hourly
necessary pending disposal of the as- fee, project fee, or other reasonable
sets. Without SBA’s prior written ap- basis; and
proval: (4) You can demonstrate to SBA,
(1) Your total expenditures under upon request, that the rate does not ex-
paragraphs (b)(1) and (b)(2) of this sec- ceed the prevailing rate charged for
tion plus your total Financing(s) to the comparable services by other organiza-
Small Business must not exceed your tions in the geographic area of the
overline limit under § 107.740; and Small Business.
(b) Fees for service as a board member.
(2) Your total expenditures under
You or your Associate may receive fees
paragraph (b) of this section plus your
in the form of cash, warrants, or other
total Financing(s) to the Small Busi- payments, for services provided as
ness must not exceed 35 percent of your members of the board of directors of a
Regulatory Capital. Small Businesses Financed by you. The
fees must not exceed those paid to
LIMITATIONS ON DISPOSITION OF ASSETS
other outside board members. In the
§ 107.885 Disposition of assets to Li- absence of such board members, fees
censee’s Associates or to competi- must be reasonable when compared
tors of Portfolio Concern. with amounts paid to outside directors
of similar companies.
Sale of assets to Associate. Except with (c) SBA approval required. You must
SBA’s prior written approval, you are obtain SBA’s prior written approval of
not permitted to dispose of assets (in- any management contract that does
cluding assets acquired in liquidation) not satisfy paragraphs (a) or (b) of this
to any Associate if you have out- section.
standing Leverage or Earmarked As- (d) Recordkeeping requirements. You
sets. As a prerequisite to such ap- must keep a record of hours spent and
proval, you must demonstrate that the amounts charged to the Small Busi-
proposed terms of disposal are at least ness, including expenses charged.
as favorable to you as the terms ob- (e) Transaction fees. (1) You may
tainable elsewhere. charge reasonable transaction fees for
[61 FR 3189, Jan. 31, 1996, as amended at 67 work you or your Associate perform to
FR 64791, Oct. 22, 2002] prepare a client for a public offering,
private offering, or sale of all or part of
MANAGEMENT SERVICES AND FEES the business, and for assisting with the
transaction. Compensation may be in
§ 107.900 Management fees for services the form of cash, notes, stock, and/or
provided to a Small Business by Li- options.
censee or its Associate. (2) Your Associate may charge mar-
This § 107.900 applies to management ket rate investment banking fees to a
services that you or your Associate Small Business on that portion of a Fi-
provide to a Small Business during the nancing that you do not provide.
term of a Financing or prior to Financ-
ing. It does not apply to management Subpart H—Non-leveraged Li-
services that you or your Associate censees—Exceptions to Regu-
provide to a Small Business that you lations
do not finance. Fees permitted under
this section are not included in the § 107.1000 Licensees without Lever-
Cost of Money (see § 107.855). age—exceptions to the regulations.
(a) Permitted management fees. You or The regulatory exceptions in this
your Associate may provide manage- section apply to Licensees with no out-
ment services to a Small Business fi- standing Leverage or Earmarked As-
nanced by you if: sets.
93
§ 107.1100 13 CFR Ch. I (1–1–23 Edition)
(a) You are exempt from the fol- tors and officers approved by SBA in
lowing provisions (but you must come order to become eligible for Leverage.
into compliance with them to become
eligible for Leverage): Subpart I—SBA Financial Assist-
(1) The overline limitation in ance for Licensees (Lever-
§ 107.740. age)
(2) The restrictions in § 107.530 on in-
vestments of idle funds, provided you GENERAL INFORMATION ABOUT
do not engage in activities not con- OBTAINING LEVERAGE
templated by the Act.
(3) The restrictions in § 107.550 on § 107.1100 Types of Leverage and ap-
third-party debt. plication procedures.
(4) The restrictions in § 107.880 on ex- (a) Types of Leverageable available.
penses incurred to maintain or improve You may apply for Leverage from SBA
assets acquired in liquidation of Port- in one or both of the following forms:
folio securities. (1) The purchase or guarantee of your
(5) The recordkeeping requirements Debentures.
and fee limitations in § 107.825 (b) and (2) The purchase or guarantee of your
(c), respectively, for securities pur- Participating Securities.
chased through or from an underwriter. (b) Applying for Leverage. The Lever-
(b) You are exempt from the require- age application process has two parts.
ments to obtain SBA’s prior approval You must first apply for SBA’s condi-
for: tional commitment to reserve a spe-
(1) A decrease in your Regulatory cific amount of Leverage for your fu-
Capital of more than two percent under ture use. You may then apply to draw
§ 107.585 (but not below the minimum down Leverage against the commit-
required under the Act or these regula- ment. See §§ 107.1200 through 107.1240.
tions). You must report the reduction [63 FR 5868, Feb. 5, 1998, as amended at 64 FR
to SBA within 30 days. 70996, Dec. 20, 1999; 82 FR 39341, Aug. 18, 2017]
(2) Disposition of any asset to your
Associate under § 107.885. § 107.1120 General eligibility require-
(3) A contract to employ an Invest- ments for Leverage.
ment Adviser/Manager under § 107.510. To be eligible for Leverage, you
However, you must notify SBA of the must:
Management Expenses to be incurred (a) Demonstrate a need for Leverage,
under such contract, or of any subse- evidenced by your investment activity
quent material changes in such Man- and a lack of sufficient funds for in-
agement Expenses, within 30 days of vestment. For your first issuance of
execution. In order to become eligible Leverage, if you have invested at least
for Leverage, you must have the con- 50 percent of your Leverageable Cap-
tract approved by SBA. ital, you are presumed to lack suffi-
(4) Your initial Management Ex- cient funds for investment.
penses under § 107.140 and increases in (b) Have adequate Private Capital to
your Management Expenses under satisfy the requirements for financial
§ 107.520. However, you must have your viability under § 107.200.
Management Expenses approved by (c) Meet the minimum capital re-
SBA in order to become eligible for Le- quirements of § 107.210, subject to the
verage. following additional conditions:
(5) Options obtained from a Small (1) If you were licensed after Sep-
Business by your management or em- tember 30, 1996 under the exception in
ployees under § 107.815(b). § 107.210(a)(1), you will not be eligible
(c) You are exempt from the require- for Leverage until you have Regulatory
ment in § 107.680 to obtain SBA’s post Capital of at least $5,000,000.
approval of new directors and new offi- (2) If you were licensed on or before
cers, other than your chief operating September 30, 1996, and have Regu-
officer. However, you must notify SBA latory Capital of less than $5,000,000
of the new directors or officers within (less than $10,000,000 if you wish to
30 days, and you must have all direc- issue Participating Securities):
94
(i) You must certify in writing that of the aggregate dollar amount of your
at least 50 percent of the aggregate dol- Financings will be provided to ‘‘early
lar amount of your Financings ex- stage’’ companies as defined under the
tended after September 30, 1996 will be definition of Early Stage SBIC in
provided to Smaller Enterprises (as de- § 107.50 of this part.
fined in § 107.710(a)); and
(ii) You must demonstrate to SBA’s [61 FR 3189, Jan. 31, 1996, as amended at 63
satisfaction that the approval of Lever- FR 5868, Feb. 5, 1998; 64 FR 70996, Dec. 20,
1999; 74 FR 33916, July 14, 2009; 77 FR 25053,
age will not create or contribute to an
Apr. 27, 2012; 79 FR 62824, Oct. 21, 2014]
unreasonable risk of default or loss to
the United States government, based § 107.1130 Leverage fees and addi-
on such measurements of profitability tional charges payable by Licensee.
and financial viability as SBA deems
appropriate. (a) Leverage fee. You must pay a le-
(d) For any Leverage draw that verage fee to SBA for each issuance of
would cause you and any other Licens- a Debenture or Participating Security.
ees under Common Control to have ag- The fee is 3 percent of the face amount
gregate outstanding Leverage in excess of the Leverage issued.
of $150 million, certify that none of the (b) Payment of leverage fee. (1) If you
Licensees has a condition of Capital issue a Debenture or Participating Se-
Impairment. See also § 107.1150(b). curity to repay or redeem existing Le-
(e) For any Leverage request pursu- verage, you must pay the leverage fee
ant to § 107.1150(d)(2)(i), certify that at before SBA will guarantee or purchase
least 50 percent (in dollars) of your the new Leverage security.
Financings made on or after the date of (2) If you issue a Debenture or Par-
such request will be invested in Small ticipating Security that is not used to
Businesses located in low-income geo- repay or redeem existing Leverage,
graphic areas. SBA will deduct the leverage fee from
(f) For any Leverage request pursu-
the proceeds remitted to you, unless
ant to § 107.1150(d)(2)(ii), certify that at
you prepaid the fee under § 107.1210.
least 50 percent (in dollars) of the
Financings made by each Licensee (c) Refundability. The leverage fee is
under Common Control on or after the not refundable under any cir-
date of such request will be invested in cumstances.
Small Businesses located in low-in- (d) Additional charge for Leverage—(1)
come geographic areas. Debentures. You must pay to SBA a
(g) Certify in writing that you are in Charge, not to exceed 1.38 percent per
compliance with the requirement to fi- annum, on the outstanding amount of
nance Smaller Enterprises in your Debentures issued on or after Oc-
§ 107.710(b). tober 1, 1996, payable under the same
(h) Show, to the satisfaction of SBA, terms and conditions as the interest on
that your management is qualified and the Debentures. This Charge does not
has the knowledge, experience, and ca- apply to Debentures issued pursuant to
pability necessary for investing in the a Leverage commitment obtained from
types of businesses contemplated by SBA on or before September 30, 1996.
the Act, the regulations in this part (2) Participating Securities. You must
and your business plan. pay to SBA a Charge, not to exceed 1.46
(i) Be in compliance with the regula- percent per annum, on the outstanding
tions in this part.
amount of your Participating Securi-
(j) If required by SBA, have your
ties issued on or after October 1, 1996,
Control Person(s) assume, in writing,
payable under the same terms and con-
personal responsibility for your Lever-
age, effective only if such Control Per- ditions as the Prioritized Payments on
son(s) participate (directly or indi- the Participating Securities. This
rectly) in a transfer of Control not ap- Charge does not apply to Participating
proved by SBA. Securities issued pursuant to a Lever-
(k) If you are an Early Stage SBIC, age commitment obtained from SBA
certify in writing that in accordance on or before September 30, 1996.
with § 107.1810(f)(11), at least 50 percent
95
§ 107.1140 13 CFR Ch. I (1–1–23 Edition)
(e) Other Leverage fees. SBA may es- mon Control may have maximum ag-
tablish a fee structure for services per- gregate outstanding Leverage of $350
formed by the CRA. SBA will not col- million. However, for any Leverage
lect any fee for its guarantee of TCs. draw(s) by one or more such Licensees
that would cause the aggregate out-
FR 5868, Feb. 5, 1998; 77 FR 25053, Apr. 27, standing Leverage to exceed $150 mil-
2012] lion, each of the Licensees under Com-
mon Control must certify that it does
§ 107.1140 Licensee’s acceptance of not have a condition of Capital Impair-
SBA remedies under §§ 107.1800 ment. See also § 107.1120(d).
through 107.1820. (c) Early Stage SBICs. Subject to
If you issue Leverage after April 25, SBA’s credit policies, if you are an
1994, you automatically agree to the Early Stage SBIC:
terms and conditions in §§ 107.1800 (1) The total amount of any and all
through 107.1820 as they exist at the Leverage commitments you receive
time of issuance. The effect of these from SBA shall not exceed 100 percent
terms and conditions is the same as if of your highest Regulatory Capital or
they were fully incorporated in the $50 million, whichever is less;
terms of your Leverage. (2) On a cumulative basis, the total
amount of Leverage you have issued
MAXIMUM AMOUNT OF LEVERAGE FOR
shall not exceed the total amount of
WHICH A LICENSEE IS ELIGIBLE
capital paid in by your investors; and
§ 107.1150 Maximum amount of Lever- (3) The maximum amount of Lever-
age for a Section 301(c) Licensee. age you may have outstanding at any
A Section 301(c) Licensee, other than time is the lesser of:
an Early Stage SBIC, may have max- (i) 100 percent of your Leverageable
imum outstanding Leverage as set Capital, or
forth in paragraphs (a), (b), (d), and (e) (ii) $50 million.
of this section. An Early Stage SBIC (d) Additional Leverage based on invest-
may have maximum outstanding Le- ment in low-income geographic areas.
verage as set forth in paragraph (c) of Subject to SBA’s credit policies, you
this section. In general, SBA will ap- may have outstanding Leverage in ex-
prove Leverage commitment requests cess of the amounts permitted by para-
in excess of 200 percent of Regulatory graphs (a) and (b) of this section in ac-
Capital and draw requests in excess of cordance with this paragraph (d). If
200 percent of Leverageable Capital you were licensed before October 1,
only after a Licensee has demonstrated 2009, you may seek additional Leverage
consistent, sustainable profitability under paragraph (d)(1) only. If you were
based on a conservative investment licensed on or after October 1, 2009, you
strategy that limits downside risk. may seek additional Leverage under
Any such Leverage request must be paragraph (d)(1) or (2), but not both. In
supported by an up-to-date business this paragraph (d), ‘‘low income geo-
plan that reflects continuation of the graphic areas’’ are as defined in § 108.50
Licensee’s successful investment strat- of this chapter. Any investment that
egy and demonstrates the Licensee’s you use as a basis to seek additional le-
ability to pay all SBA obligations in verage under this paragraph (d) cannot
accordance with their terms. also be used to seek additional leverage
(a) Individual Licensee. Subject to under paragraph (e) of this section.
SBA’s credit policies, if you are a Sec- (1) Investment in Smaller Enterprises lo-
tion 301(c) Licensee, the maximum cated in low-income geographic areas. To
amount of Leverage you may have out- determine whether you may request a
standing at any time is the lesser of: draw that would cause you to have out-
(1) 300 percent of your Leverageable standing Leverage in excess of the
Capital, or amount determined under paragraph
(2) $150 million. (a) of this section:
(b) Multiple Licensees under Common (i) Determine the cost basis, as re-
Control. Subject to SBA’s credit poli- ported on your most recent filing of
cies, two or more Licenses under Com- SBA Form 468, of any investments in
96
the Equity Securities of a Smaller En- amounts permitted by paragraphs (a)

terprise located in a low-income geo- and (b) of this section in accordance
graphic area. with this paragraph (e). Any invest-
(ii) Calculate the amount that equals ment that you use as a basis to seek
50 percent of your Leverageable Cap- additional Leverage under this para-
ital. graph (e) cannot also be used to seek
(iii) Subtract from your outstanding additional Leverage under paragraph
Leverage the lesser of paragraph (d) of this section.
(d)(1)(i) or (ii). (2) To determine whether you may
(iv) If the amount calculated in para- request a draw that would cause you to
graph (d)(1)(iii) is less than the max- have outstanding Leverage in excess of
imum leverage determined under para- the amount determined under para-
graph (a) of this section, the difference graph (a) of this section:
between the two amounts equals your (i) Determine the cost basis, as re-
additional Leverage availability. ported on your most recent filing of
(2) Investment in Small Businesses lo-
SBA Form 468, of any Energy Saving
cated in low-income geographic areas.
Qualified Investments in a Smaller En-
This paragraph (d)(2) applies only to
terprise that individually do not exceed
Licensees licensed on or after October
20% of your Regulatory Capital.
1, 2009. You may substitute a maximum
Leverage amount of $175,000,000 for the (ii) Calculate the amount that equals
$150,000,000 set forth in paragraph (a)(2) 33% of your Leverageable Capital.
of this section, and a maximum Lever- (iii) Subtract from your outstanding
age amount of $250,000,000 for the Leverage the lesser of paragraph
$225,000,000 set forth in paragraph (b) of (e)(2)(i) or (ii).
this section, if you satisfy the fol- (iv) If the amount calculated in para-
lowing conditions: graph (e)(2)(iii) is less than the max-
(i) At least 50 percent (in dollars) of imum Leverage determined under para-
your Financings preceding the date of graph (a) of this section, the difference
such request must have been invested between the two amounts equals your
in Small Businesses located in low-in- additional Leverage availability.
come geographic areas. In addition,
[74 FR 33916, July 14, 2009, as amended at 77
you must certify that at least 50 per- FR 23380, Apr. 19, 2012; 77 FR 25053, Apr. 27,
cent (in dollars) of your Financings on 2012; 79 FR 62824, Oct. 21, 2014; 82 FR 39341,
or after the date of such request will be Aug. 18, 2017]
invested in Small Businesses located in
low-income geographic areas. § 107.1160 Maximum amount of Lever-
(ii) If you are requesting a draw that age for a Section 301(d) Licensee.
would cause you and any other Licens- This section applies to Leverage
ees under Common Control to have ag-
issued by a Section 301(d) Licensee on
gregate outstanding Leverage in excess
or before September 30, 1996. Effective
of $225,000,000, at least 50 percent (in
October 1, 1996, a Section 301(d) Li-
dollars) of the Financings made by
censee may apply to issue new Lever-
each Licensee under Common Control
age, or refinance existing Leverage,
preceding the date of such request
must have been invested in Small Busi- only on the same terms permitted
nesses located in low-income geo- under § 107.1150.
graphic areas. In addition, each such (a) Maximum amount of subsidized Le-
Licensee must certify that at least 50 verage. (1) ‘‘Subsidized Leverage’’
percent (in dollars) of its Financings on means Debentures with a reduced in-
or after the date of such request will be terest rate and Preferred Securities. If
invested in Small Businesses located in you are a Section 301(d) Licensee:
low-income geographic areas. (i) The maximum amount of sub-
(e) Additional Leverage based on En- sidized Leverage you may have out-
ergy Saving Qualified Investments in standing at any time is the lesser of 400
Smaller Enterprises. (1) Subject to SBA’s percent of your Leverageable Capital,
credit policies, if you were licensed on or $35,000,000. The same limit applies to
or after October 1, 2008, you may have a group of Section 301(d) Licensees
outstanding Leverage in excess of the under Common Control.
97
§ 107.1170 13 CFR Ch. I (1–1–23 Edition)
(ii) The maximum amount of Pre- able for Investment means the result
ferred Securities you may have out- obtained from the following formula:
standing at any time is 200 percent of T = .90 × (CA + LI)
your Leverageable Capital.
(2) Certain types and amounts of sub- Where:
sidized Leverage have special eligi- T = Total funds available for investment
bility requirements (see paragraphs (c) CA = Total current assets
and (d) of this section). LI = Total Loans and Investment at cost (as
reported on SBA Form 468), net of cur-
(b) Maximum amount of total Leverage. rent maturities
Use § 107.1150 to determine your max-
imum amount of Leverage as if you (f) Definition of ‘‘Venture Capital Fi-
were a Section 301(c) Licensee. If the nancing’’. Venture Capital Financing
result is more than your maximum means an investment represented by
subsidized Leverage, then this is your common or preferred stock, a limited
maximum total (subsidized plus non- partnership interest, or a similar own-
subsidized) Leverage. Otherwise, your ership interest; or by an unsecured
maximum total Leverage is the same debt instrument that is subordinated
as your maximum subsidized Leverage. by its terms to all other borrowings of
For Participating Securities, see the issuer.
§ 107.1170. (1) A debt secured by any agreement
(c) Special eligibility requirements for with a third party is not a Venture
fourth tier of Leverage. A ‘‘fourth tier of Capital Financing, whether or not you
Leverage’’ is any amount of out- have a security interest in any asset of
standing Leverage in excess of 300 per- the third party or have recourse
cent of your Leverageable Capital. against the third party.
(1) To qualify for a fourth tier of Le- (2) A Financing that originally quali-
verage, you must have invested (or fied as a Venture Capital Financing
have Commitments to invest) at least will continue to qualify (at its original
30 percent of your ‘‘Total Funds Avail- cost), even if you later must report it
able for Investment’’ in ‘‘Venture Cap- on SBA Form 468 under either Assets
ital Financings’’ (see the definitions in Acquired in Liquidation of Portfolio
paragraphs (e) and (f) of this section). Securities or Operating Concerns Ac-
(2) While you have a fourth tier of quired.
Leverage, you must maintain Venture [61 FR 3189, Jan. 31, 1996, as amended at 63
Capital Financings (at cost) that equal FR 5868, Feb. 5, 1998; 74 FR 33916, July 14,
at least 30 percent of your Total Funds 2009]
Available for Investment.
§ 107.1170 Maximum amount of Par-
(d) Special eligibility requirements for ticipating Securities for any Li-
second tier of Preferred Securities. A censee.
‘‘second tier of Preferred Securities’’ is
any amount of outstanding Preferred The maximum amount of Partici-
Securities in excess of 100 percent of pating Securities you may have out-
your Leverageable Capital. standing at any time is 200 percent of
(1) To qualify for a second tier of Pre- your Leverageable Capital. If you are a
ferred Securities: Section 301(d) Licensee, the maximum
combined amount of Participating Se-
(i) If your license was issued after Oc-
curities and Preferred Securities you
tober 13, 1971, you must have at least
may have outstanding at any time is
$500,000 of Leverageable Capital.
200 percent of your Leverageable Cap-
(ii) You must have invested (or have ital.
Commitments to invest) at least the
same dollar amount in Venture Capital SPECIAL RULES FOR LEVERAGE ISSUED
Financings. BY AN EARLY STAGE SBIC
(2) While you have a second tier of
Preferred Securities, you must main- § 107.1180 Required distributions to
tain at least the same dollar amount of SBA by Early Stage SBICs.
Venture Capital Financings (at cost). (a) Distribution requirement. If you are
(e) Definition of ‘‘Total Funds Avail- an Early Stage SBIC with outstanding
able for Investment’’. Total Funds Avail- Leverage, you may make Distributions
98
to your investors and to SBA only as For example, if your Highest Leverage
permitted under this section. See also Ratio equals 1, then SBA’s share of
§ 107.585. For the purposes of this sec- any distribution you make will be
tion, ‘‘Distributions’’ do not include re- 50 percent.
quired payments to SBA of interest (ii) If your Capital Impairment Per-
and Charges and payments of Leverage centage under § 107.1840 is 50 percent or
principal at maturity, all of which greater as of the Distribution date and
shall be paid in accordance with the your Highest Leverage Ratio is greater
terms of the Leverage. You may make than 0.5, SBA’s percentage share of cu-
a Distribution on any Payment Date. mulative Distributions equals 100 per-
Unless SBA permits otherwise, you cent.
must notify SBA in writing of any (iii) If you have a condition of Cap-
planned distribution under this sec- ital Impairment under § 107.1830 and
tion, including computations of the your Highest Leverage Ratio equals 0.5
amounts distributable to SBA and your or less as of the Distribution date,
investors, at least 10 business days be- SBA’s percentage share of cumulative
fore the distribution date. Distributions equals 100 percent.
(b) How SBA will apply Distributions. (3) Multiply the sum of all your prior
Any amounts you distribute to SBA, or Distributions and your current pro-
its designated agent or Trustee, under posed Distribution (including Distribu-
this section will be applied to repay- tions to SBA, your limited partners
ment of principal of outstanding De- and your General Partner) by SBA’s
bentures in order of issue. You may percentage share of cumulative Dis-
prepay any Debenture in whole, but not tributions as determined in paragraph
in part, on any Payment Date without (d)(2) of this section.
penalty. (4) From the result in paragraph
(c) Condition for making a Distribution. (d)(3) of this section, subtract the sum
You may make a Distribution under of all your prior Distributions to SBA
this section only if you have paid all under this § 107.1180.
interest and Charges on your out- (5) The amount of your Distribution
standing Debentures that are due and to SBA will be the least of:
payable, or will pay such interest and (i) The result in paragraph (d)(4) of
Charges simultaneously with your Dis- this section;
tribution. (ii) Your current proposed Distribu-
(d) SBA’s share of Distribution. For tion; or
each proposed Distribution, determine (iii) Your outstanding Leverage.
SBA’s share of the Distribution as fol- (e) Additional Leverage prepayment. On
lows: any Payment Date, subject to the
(1) Determine the highest ratio of terms of your Leverage, you may make
outstanding Leverage to Leverageable a payment to SBA to be applied to re-
Capital that you have ever attained payment of the principal of one or
(your ‘‘Highest Leverage Ratio’’). For more outstanding Debentures in order
the purpose of determining your High- of issue, without making any Distribu-
est Leverage Ratio, any deferred inter- tion to your investors.
est Debentures issued at a discount [77 FR 25053, Apr. 27, 2012]
must be included in the computation at
their face value. § 107.1181 Interest reserve require-
(2) Determine SBA’s percentage share ments for Early Stage SBICs.
of cumulative Distributions: (a) Reserve requirement. If you are an
(i) If your Capital Impairment Per- Early Stage SBIC with outstanding Le-
centage under § 107.1840 is less than 50 verage, for each Debenture which re-
percent as of the Distribution date or quires periodic interest payments to
your Highest Leverage Ratio equals 0.5 SBA during the first five years of its
or less, except as provided in paragraph term, you must maintain a reserve suf-
(d)(2)(iii) of this section, SBA’s per- ficient to pay the interest and Charges
centage share of cumulative Distribu- on such Debenture for the first 21 Pay-
tions equals: ment Dates following the date of

[Highest Leverage Ratio/(Highest Le- issuance. This reserve may consist of
verage Ratio + 1)] × 100 any combination of the following:
99
§ 107.1182 13 CFR Ch. I (1–1–23 Edition)
(1) Binding unfunded commitments CONDITIONAL COMMITMENTS BY SBA TO

from your Institutional Investors that RESERVE LEVERAGE FOR A LICENSEE
cannot be called for any purpose other
than the payment of interest and § 107.1200 SBA’s Leverage commitment
to a Licensee—application proce-
Charges to SBA, or the payment of any dure, amount, and term.
amounts due to SBA; and
(a) General. Under the provisions in
(2) Cash maintained in a separate
§§ 107.1200 through 107.1240, you may
bank account or separate investment
apply for SBA’s conditional commit-
account permitted under § 107.530 of
ment to reserve a specific amount and
this part and separately identified in type of Leverage for your future use.
your financial statements as ‘‘re- You may then apply to draw down Le-
stricted cash’’ available only for the verage against the commitment.
purpose of paying interest and Charges (b) Applying for a Leverage commit-
to SBA, or for the payment of any ment. SBA will notify you when it is
amounts due to SBA. accepting requests for Leverage com-
(b) The required reserve associated mitments. Upon receipt of your re-
with an individual Debenture shall be quest, SBA will send you a complete
reduced on each Payment Date upon application package.
payment of the required interest and (c) Limitations on the amount of a Le-
Charges. If you prepay a Debenture verage commitment. The amount of a Le-
prior to the 21st Payment Date fol- verage commitment must be a multiple
lowing its date of issuance, the reserve of $5,000.
requirement associated with that De- (d) Term of Leverage commitment.
benture shall be correspondingly elimi- SBA’s Leverage commitment will auto-
nated. matically lapse on the expiration date
stated in the commitment letter issued
(c) Your limited partnership agree-
to you by SBA.
ment must incorporate the reserve re-
quirement in paragraph (a) of this sec- [61 FR 3189, Jan. 31, 1996, as amended at 63
tion. FR 5868, Feb. 5, 1998]
[77 FR 25053, Apr. 27, 2012] § 107.1210 Payment of leverage fee

upon receipt of commitment.
§ 107.1182 Valuation requirements for (a) Partial prepayment of leverage fee.
Early Stage SBICs based on Capital As a condition of SBA’s Leverage com-
Impairment Percentage. mitment, and before you draw any Le-
(a) If you are an Early Stage SBIC, verage under such commitment, you
you must compute your Capital Im- must pay to SBA a non-refundable fee
pairment Percentage and determine equal to 1 percent of the face amount
whether you have a condition of Cap- of the Debentures or Participating Se-
ital Impairment in accordance with curities reserved under the commit-
§§ 107.1830 and 107.1840 of this part. ment. This amount represents a partial
(b) You must promptly notify SBA in prepayment of the 3 percent leverage
writing if your Capital Impairment fee established under § 107.1130(a).
Percentage is at least 50 percent, even (b) Automatic cancellation of commit-
ment. Unless you pay the fee required
if your maximum permitted Capital
under paragraph (a) of this section by
Impairment Percentage is higher.
5:00 P.M. Eastern Time on the 30th cal-
(c) Upon receipt of your notification endar day following the issuance of
under paragraph (b) of this section, or SBA’s Leverage commitment, the com-
upon making its own determination mitment will be automatically can-
that your Capital Impairment Percent- celed.
age is at least 50 percent, SBA has the
right to require you to engage, at your [63 FR 5868, Feb. 5, 1998]
expense, an independent third party, § 107.1220 Requirement for Licensee to
acceptable to SBA, to prepare valu- file quarterly financial statements.
ations of some or all of your Loans and
As long as any part of SBA’s Lever-

Investments, as designated by SBA.
age commitment is outstanding, you
[77 FR 25053, Apr. 27, 2012] must give SBA a Financial Statement
100
on SBA Form 468 (Short Form) as of § 107.1220 for SBA Form 468 filing re-
the close of each quarter of your fiscal quirements).
year (other than the fourth quarter, (2) If your request is submitted more
which is covered by your annual filing than 30 days following the end of your
of Form 468 under § 107.630(a)). You fiscal year, but before you have sub-
must file this form within 30 days after mitted your annual filing of SBA Form
the close of the quarter. You will not 468 (Long Form) in accordance with
be eligible for a draw if you are not in § 107.630(a), a preliminary unaudited an-
compliance with this § 107.1220. nual financial statement on SBA Form
[64 FR 70996, Dec. 20, 1999] 468 (Short Form).
(3) A statement certifying that to the
§ 107.1230 Draw-downs by Licensee best of your knowledge and belief, you
under SBA’s Leverage commitment. are in compliance with all provisions of
(a) Licensee’s authorization of SBA to the Act and SBA regulations (i.e., no
purchase or guarantee securities. By sub- unresolved regulatory or statutory vio-
mitting a request for a draw against lations), or a statement listing any
SBA’s Leverage commitment, you au- specific violations you are aware of. Ei-
thorize SBA, or any agent or trustee ther statement must be executed by
SBA designates, to guarantee your De- one of the following:
benture or Participating Security and (i) An officer of the Licensee;
to sell it with SBA’s guarantee. (ii) An officer of a corporate general
(b) Limitations on amount of draw. The partner of the Licensee; or
amount of a draw must be a multiple of (iii) An individual who is authorized
$5,000. SBA, in its discretion, may de- to act as or for a general partner of the
termine a minimum dollar amount for Licensee.
draws against SBA’s Leverage commit- (4) A statement that the proceeds are
ments. Any such minimum amounts needed to fund one or more particular
will be published in Notices in the FED- Small Businesses or to provide liquid-
ERAL REGISTER from time to time. ity for your operations. If required by
(c) Effect of regulatory violations on Li- SBA, the statement must include the
censee’s eligibility for draws—(1) General name and address of each Small Busi-
rule. You are eligible to make a draw ness, and the amount and anticipated
against SBA’s Leverage commitment closing date of each proposed Financ-
only if you are in compliance with all ing.
applicable provisions of the Act and (e) Reporting requirements after draw-
SBA regulations (i.e., no unresolved ing funds. (1) Within 30 calendar days
statutory or regulatory violations). after the actual closing date of each Fi-
(2) Exception to general rule. If you are
nancing funded with the proceeds of
not in compliance, you may still be eli-
your draw, you must file an SBA Form
gible for draws if:
1031 confirming the closing of the
(i) SBA determines that your out-
transaction.
standing violations are of non-sub-
(2) If SBA required you to provide in-
stantive provisions of the Act or regu-
formation concerning a specific
lations and that you have not repeat-
planned Financing under paragraph
edly violated any non-substantive pro-
(d)(3) of this section, and such Financ-
visions; or
(ii) You have agreed with SBA on a ing has not closed within 60 calendar
course of action to resolve your viola- days after the anticipated closing date,
tions and such agreement does not pre- you must give SBA a written expla-
vent you from issuing Leverage. nation of the failure to close.
(d) Procedures for funding draws. You (3) If you do not comply with this
may request a draw at any time during paragraph (e), you will not be eligible
the term of the commitment. With for additional draws. SBA may also de-
each request, submit the following doc- termine that you are not in compliance
umentation: with the terms of your Leverage under
(1) A statement certifying that there §§ 107.1810 or 107.1820.
has been no material adverse change in [61 FR 3189, Jan. 31, 1996, as amended at 63
your financial condition since your last FR 5868, Feb. 5, 1998; 64 FR 70996, Dec. 20,
filing of SBA Form 468 (see also 1999]
101
§ 107.1240 13 CFR Ch. I (1–1–23 Edition)
§ 107.1240 Funding of Licensee’s draw (2) Pay the face amount of the Deben-
request through sale to short-term ture, plus interest, to the short-term
investor. investor.
(a) Licensee’s authorization of SBA to [61 FR 3189, Jan. 31, 1996, as amended at 63
arrange sale of securities to short-term in- FR 5868, Feb. 5, 1998]
vestor. By submitting a request for a
draw of Debenture or Participating Se- PREFERRED SECURITIES LEVERAGE—
curity Leverage, you authorize SBA, or SECTION 301(d) LICENSEES
any agent or trustee SBA designates,
to enter into any agreements (and to § 107.1400 Dividends or partnership
bind you to such agreements) nec- distributions on 4 percent Pre-
essary to accomplish: ferred Securities.
(1) The sale of your Debenture or If you issued Preferred Securities to
Participating Security to a short-term SBA on or after November 21, 1989, you
investor at a rate that may be different must pay SBA a dividend or partner-
from the Trust Certificate Rate which ship distribution of 4 percent per year,
will be established at the time of the from the date you issued Preferred Se-
pooling of your security;
curities to the date you repay them,
(2) The purchase of your security both inclusive. The dividend or part-
from the short-term investor, either by
nership distribution is:
you or on your behalf; and
(a) Computed on the par value of the
(3) The pooling of your security with
outstanding stock or the face value of
other securities with the same matu-
rity date. the outstanding limited partnership in-
(b) Sale of Debentures to a short-term terest.
investor. If SBA sells your Debenture to (b) Cumulative. This means that if
a short-term investor: you do not pay the entire dividend or
(1) The sale price will be the face partnership distribution for a given fis-
amount. cal year, the unpaid balance accumu-
(2) At the next scheduled date for the lates as a distribution in arrears. You
sale of Debenture Trust Certificates, do not have to pay interest on distribu-
whether or not the sale actually oc- tions in arrears.
curs, you must pay interest to the (c) Preferred. This means that you
short-term investor for the short-term must pay SBA in full (including dis-
period. If the actual sale of Trust Cer- tributions in arrears) before setting
tificates takes place after the sched- aside or paying any amount to any
uled date, you must pay the short-term other equity holder.
investor interest from the scheduled (d) Payable at the discretion of your
sale date to the actual sale date. This Board of Directors or General Part-
additional interest is due on the actual ner(s), except that all distributions in
sale date. arrears must be paid in full when you
(3) Failure to pay the interest con- redeem the Preferred Securities.
stitutes noncompliance with the terms
of your Leverage (see § 107.1810). [61 FR 3189, Jan. 31, 1996, as amended at 63
FR 5869, Feb. 5, 1998]
(c) Sale of Participating Securities to a
short-term investor. If SBA sells your § 107.1410 Requirement to redeem 4
Participating Security to a short-term percent Preferred Securities.
investor, the sale price will be the face
amount. You must redeem 4 percent Preferred
(d) Licensee’s right to repurchase its Securities not later than 15 years from
Debentures before pooling. You may re- the date of issuance. At the redemption
purchase your Debentures from the date, you must pay to SBA:
short-term investor before they are (a) The par value (of preferred stock)
pooled. To do so, you must: or face value (of a preferred limited
(1) Give SBA written notice at least partnership interest); plus
10 days before the cut-off date for the (b) Any unpaid dividends or partner-
pool in which your Debenture is to be ship distributions accrued to the re-
included; and demption date.
102
§ 107.1420 Articles requirements for 4 (2) Any unpaid dividends or partner-

percent Preferred Securities. ship distributions accrued to the re-
If you have outstanding 4 percent demption date.
Preferred Securities, your Articles (b) Repurchase of 3 percent preferred
must contain all the provisions in stock for less than par value. If you
§§ 107.1400 and 107.1410. issued 3 percent preferred stock to
SBA, you may ask SBA to sell it back
[63 FR 5869, Feb. 5, 1998] to you at a price less than its par
value. The terms and conditions of any
§ 107.1430 Redeeming 4 percent Pre- such transaction will be as set forth in
ferred Securities with proceeds of
non-subsidized Debentures. the Notice published in the FEDERAL
REGISTER on April 1, 1994 (Copies of
If SBA approves, a Section 301(d) Li- this notice are available from SBA, 409
censee may use the proceeds of a De- 3rd Street, SW., Washington, DC,
benture to redeem Preferred Securities 20416). SBA has sole discretion to:
at their mandatory redemption date, (1) Approve or disapprove the sale.
including any accrued unpaid dividends (2) Determine the sale price after
or partnership distributions. considering any factors SBA considers
[61 FR 3189, Jan. 31, 1996, as amended at 63 appropriate.
FR 5869, Feb. 5, 1998] (3) Determine the form of payment
SBA will accept. SBA is not authorized
§ 107.1440 Three percent preferred to accept the proceeds of a subsidized
stock issued before November 21, Debenture as payment.
1989.
Before November 21, 1989, Preferred PARTICIPATING SECURITIES LEVERAGE
Securities were available only in the
form of preferred stock and had a pre- § 107.1500 General description of Par-
ferred and cumulative dividend of 3 ticipating Securities.
percent. If you have such preferred (a) Types of Participating Securities.
stock outstanding, you must follow Participating Securities are redeem-
§ 107.1400 (except for § 107.1400(d)), sub- able, preferred, equity-type securities.
stituting ‘‘3 percent’’ for ‘‘4 percent’’ SBA may purchase or guarantee Par-
throughout.) Dividends on 3 percent ticipating Securities issued by Licens-
preferred stock are payable at the dis- ees in the form of limited partnership
cretion of your Board of Directors or interests, preferred stock, or deben-
General Partner(s), except that all tures with interest payable only to the
dividends in arrears must be paid in extent of earnings. The structure,
full before any non-SBA investor re- terms and conditions of Participating
ceives any distribution. Upon your liq- Securities are set forth in detail in
uidation, SBA is entitled to payment of §§ 107.1500 through 107.1590.
all dividends in arrears even if you (b) Special eligibility requirements for
have no Retained Earnings Available Participating Securities. In addition to
for Distribution at such time. the general eligibility requirements for
Leverage under § 107.1120, Participating
§ 107.1450 Optional redemption of Pre- Securities issuers must also comply
ferred Securities. with special rules on:
(a) Redemption at par or face value. A (1) Minimum capital (see § 107.210).
Section 301(d) Licensee may redeem (2) Liquidity (see § 107.1505).
Preferred Securities at any time, pro- (3) Non-SBA borrowing (see § 107.570).
vided you give SBA at least 30 days (4) Equity investing, as set forth in
written notice. You may redeem all or this paragraph (b)(4). If you issue Par-
only part of your Preferred Securities, ticipating Securities, you must invest
but the par value or face value of the an amount equal to the Original Issue
securities being redeemed must be at Price of such securities solely in Eq-
least $50,000. At the redemption date, uity Capital Investments, as defined in
you must pay to SBA: § 107.50.
(1) The par value (of preferred stock) (c) Special features of Participating Se-
or face value (of a preferred limited curities—Prioritized Payments, Adjust-
partnership interest); plus ments, and Profit Participation. When
103
§ 107.1505 13 CFR Ch. I (1–1–23 Edition)
you issue Participating Securities, you (f) Priority of Participating Securities in

agree to make the following payments: liquidation of Licensee. In the event of
(1) Prioritized Payments. Depending your liquidation, the following are sen-
upon the type of Participating Secu- ior in priority, for all purposes, to all
rity you issue, Prioritized Payments other equity interests you have issued
may be preferred partnership distribu- at any time:
tions, preferred dividends, or interest. (1) The Redemption Price of Partici-
Your obligation to pay Prioritized Pay- pating Securities;
ments is contingent upon your profits (2) Any Earned Prioritized Payments
as determined under § 107.1520. and any earned Adjustments and
(2) Adjustments to Prioritized Payments. earned Charges (see § 107.1520); and
If you have unpaid Prioritized Pay- (3) Any Profit Participation allocated
ments, you must compute Adjust- to SBA under § 107.1530.
ments, which are additional contingent [61 FR 3189, Jan. 31, 1996, as amended at 63
obligations determined under § 107.1520. FR 5869, Feb. 5, 1998]
The conditions for paying Adjustments
are the same as for Prioritized Pay- § 107.1505 Liquidity requirements for
Licensees issuing Participating Se-
ments. curities.
(3) SBA Profit Participation. Profit
Participation is an amount payable to If you have outstanding Partici-
SBA under § 107.1530 in consideration pating Securities, you must maintain
sufficient liquidity to avoid a condition
for SBA’s guarantee of your Partici-
of Liquidity Impairment. Such a condi-
pating Securities.
tion will constitute noncompliance
(d) Distributions by Licensees issuing with the terms of your Leverage under
Participating Securities. Sections 107.1540 § 107.1820(e).
through 107.1580 govern both required (a) Definition of Liquidity Impairment.
and optional Distributions by Partici- A condition of Liquidity Impairment
pating Securities issuers. Distributions exists when your Liquidity Ratio, as
include both profit distributions and determined in paragraph (b) of this sec-
returns of capital, paid either to SBA tion, is less than 1.20. You are respon-
or to your non-SBA investors. sible for calculating whether you have
(e) Mandatory redemption of Partici- a condition of Liquidity Impairment:
pating Securities. You must redeem Par- (1) As of the close of your fiscal year;
ticipating Securities at the redemption (2) At the time you apply for Lever-
date, which is the same as the matu- age, unless SBA permits otherwise; and
rity date of the Trust Certificates for (3) At such time as you contemplate
the Trust containing such securities. making any Distribution.
The redemption date can never be later (b) Computation of Liquidity Ratio.
than 15 years after the issue date. You Your Liquidity Ratio equals your Total
must pay the Redemption Price plus Current Funds Available (A) divided by
any unpaid Earned Prioritized Pay- your Total Current Funds Required
ments and any earned Adjustments and (B), as determined in the following
earned Charges (see § 107.1520). table:
CALCULATION OF LIQUIDITY RATIO
Amount reported
Financial account Weight Weighted amount
on SBA form 468
(1) Cash and invested idle funds ........................... × 1.00

(2) Commitments from investors ............................ × 1.00
(3) Current maturities .............................................. × 0.50
(4) Other current assets ......................................... × 1.00
(5) Publicly Traded and Marketable Securities ...... × 1.00
(6) Anticipated operating revenue for next 12 1 × 1.00
months.
(7) Total Current Funds Available .......................... A
× 1.00
(8) Current liabilities ................................................

(9) Commitments to Small Businesses .................. × 0.75
(10) Anticipated operating expense for next 12 1 × 1.00
months.
104
CALCULATION OF LIQUIDITY RATIO—Continued

Amount reported
Financial account Weight Weighted amount
on SBA form 468
(11) Anticipated interest expense for next 12 1 × 1.00

months.
(12) Contingent liabilities (guarantees) ................... × 0.25
(13) Total Current Funds Required ........................ B
1 As determined by Licensee’s management under its business plan.
[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5869, Feb. 5, 1998]
§ 107.1510 How a Licensee computes compute Earmarked Profit (Loss). If

Earmarked Profit (Loss). all your Loans and Investments are
Computing your Earmarked Profit Earmarked Assets, your Earmarked
(Loss) is the first step in determining Asset Ratio equals 100 percent. Other-
your obligations to pay Prioritized wise, compute your Earmarked Asset
Payments, Adjustments and Charges Ratio using the following formula:
under § 107.1520 and Profit Participa- EAR = (EA ÷ LI) × 100
tion under § 107.1530.
(a) Requirement to compute your Ear- where:
marked Profit (Loss). While you have EAR = Earmarked Asset Ratio.
Participating Securities outstanding or EA = Average Earmarked Assets (at cost) for
have Earmarked Assets (as defined in the fiscal year or interim period.
paragraph (b) of this section), you must LI = Average Loans and Investments (at
cost) for the fiscal year or interim pe-
compute your Earmarked Profit (Loss)
riod.
for:
(1) Each full fiscal year. (d) How to compute your Earmarked
(2) Any interim period (consisting of Profit (Loss) if Earmarked Asset Ratio is
one or more fiscal quarters) for which 100 percent. (1) (i) If your Earmarked
you want to make a Distribution. Asset Ratio from paragraph (b) of this
(b) How to determine your Earmarked section is 100 percent, use the following
Assets. ‘‘Earmarked Assets’’ means all formula to compute your Earmarked
the Loans and Investments that you Profit (Loss):
have when you issue Participating Se-
EP = NI + IK + EME
curities or that you acquire while you
have Participating Securities out- where:
standing, and any non-cash assets that EP = Earmarked Profit (Loss)
you receive in exchange for such Loans NI = Net Income (Loss), as reported on SBA
and Investments. Form 468 except as otherwise provided in
(1) An Earmarked Asset remains ear- this paragraph (d)(1)
marked until you dispose of it, even if IK = Unrealized Appreciation (Depreciation)
you no longer have any outstanding on Earmarked Assets that you are dis-
tributing as an In-Kind Distribution
Participating Securities. under § 107.1580
(2) Investments you make after re- EME = Excess Management Expenses
deeming all your Participating Securi-
ties are not Earmarked Assets. How- (ii) For the purpose of determining
ever, if you issue new Participating Se- Net Income (Loss), leverage fees paid
curities, all of your Loans and Invest- to SBA and partnership syndication
ments again become Earmarked As- costs that you incur must be capital-
sets. ized and amortized on a straight-line
(3) If you were licensed before March basis over not less than five years.
31, 1993, you may be permitted to ex- (2) ‘‘Excess Management Expenses’’
clude Loans and Investments held at are those that exceed the following
that date from Earmarked Assets limit:
under § 107.1590. (i) For a full fiscal year, the limit is
(c) How to compute your Earmarked the lower of:

Asset Ratio. You must determine your (A) 2.5 percent of your weighted aver-
Earmarked Asset Ratio each time you age Combined Capital for the year, plus
105
§ 107.1520 13 CFR Ch. I (1–1–23 Edition)
$125,000 if Combined Capital is below riod, you must prorate the annual
$20,000,000; or Prioritized Payment. If your Partici-
(B) Your Management Expenses ap- pating Security was sold to a short-
proved by SBA. term investor in accordance with
(ii) For less than a full fiscal year, § 107.1240, the Prioritized Payment for
you must prorate the annual amounts the short-term period equals the Re-
in paragraph (d)(2)(i) of this section to demption Price times the short-term
determine the limit. rate.
(e) How to compute your Earmarked (2) Adjustments. Compute Adjust-
Profit (Loss) if Earmarked Asset Ratio is ments using paragraph (f) of this sec-
less than 100 percent. If your Earmarked tion.
Asset Ratio is less than 100 percent, (3) Charges. Compute Charges in ac-
compute your Earmarked Profit (Loss) cordance with § 107.1130(d)(2).
as follows: (b) Licensee’s obligation to pay
(1) Do the Earmarked Profit (Loss) Prioritized Payments, Adjustments and
computation in paragraph (d) of this Charges. You are obligated to pay
section. Prioritized Payments, Adjustments
(2) Subtract your net realized gain and Charges only if you have profit as
(loss) (as reported on SBA Form 468) on determined in paragraph (d) of this sec-
Loans and Investments that are not tion.
Earmarked Assets. (1) Prioritized Payments that you
(3) Separate the result from para- must pay (or have already paid) be-
graph (e)(2) of this section into: cause you have sufficient profit are
(i) Net realized gain (loss) (as re- ‘‘Earned Prioritized Payments’’.
ported on SBA Form 468) on Ear- (2) Prioritized Payments that have
marked Assets (‘‘EGL’’); and not become payable because you lack
(ii) The remainder (‘‘R’’). sufficient profit are ‘‘Accumulated
(4) Your Earmarked Profit (Loss) Prioritized Payments’’. Treat all
equals: Prioritized Payments as ‘‘Accumu-
EGL + (R × Earmarked Asset Ratio) lated’’ until they become ‘‘Earned’’
under this section.
(f) How to compute your cumulative (3) Adjustments (computed under
Earmarked Profit (Loss). Sum your Ear- paragraph (f) of this section) and
marked Profit (Loss) for all fiscal Charges (computed under
years and for any interim period fol- § 107.1130(d)(2)) are ‘‘earned’’ according
lowing the end of your last fiscal year. to the same criteria applied to
The total is your cumulative Ear- Prioritized Payments.
marked Profit (Loss), which you must (c) How to keep track of Prioritized
use in the Prioritized Payment com- Payments. You must establish three ac-
putations under § 107.1520. counts to record your Accumulated and
[61 FR 3189, Jan. 31, 1996, as amended at 63 Earned Prioritized Payments:
FR 5870, Feb. 5, 1998] (1) Accumulation Account. The Accu-
mulation Account is a memorandum
§ 107.1520 How a Licensee computes account. Its balance represents your
and allocates Prioritized Payments Accumulated Prioritized Payments,
to SBA. unearned Adjustments and unearned
This section tells you how to com- Charges.
pute Prioritized Payments, Adjust- (2) Distribution Account. The Distribu-
ments and Charges on Participating tion Account is a liability account. Its
Securities and determine the amounts balance represents your unpaid Earned
you must pay. To distribute these Prioritized Payments, earned Adjust-
amounts, see § 107.1540. ments and earned Charges.
(a) How to compute Prioritized Pay- (3) Earned Payments Account. The
ments and Adjustments—(1) Prioritized Earned Payments Account is a memo-
Payments. For a full fiscal year, the randum account. Each time you add to
Prioritized Payment on an outstanding the Distribution Account balance, add
Participating Security equals the Re- the same amount to the Earned Pay-
demption Price times the related Trust ments Account. Its balance represents
Certificate Rate. For an interim pe- your total (paid and unpaid) Earned
106
Prioritized Payments, earned Adjust- ments accumulate on a daily basis

ments and earned Charges. without compounding.
(d) How to determine your profit for (2) Multiply the average balance
Prioritized Payment purposes. As of the computed in paragraph (f)(1) of this
end of each fiscal year and any interim section by the average of the Trust
period for which you want to make a Certificate Rates for all the Partici-
Distribution: pating Securities poolings during the
(1) Bring the Accumulation Account fiscal year.
up to date by adding to it all (3) Add the amounts computed in this
Prioritized Payments and Charges paragraph (f) to your Accumulation
through the end of the appropriate fis- Account.
cal period. (g) Licensee’s obligation to pay
(2) Determine whether you have prof- Prioritized Payments after redeeming Par-
it for the purposes of this section by ticipating Securities. This paragraph (g)
doing the following computation: applies if you have redeemed all your
(i) Cumulative Earmarked Profit Participating Securities, but you still
(Loss) under § 107.1510(f); minus hold Earmarked Assets and still have a
(ii) The Earned Payments Account balance in your Accumulation Ac-
balance; minus count.
(iii) All Distributions previously (1) You must continue to perform all
made under §§ 107.1550, 107.1560 and the procedures in this section as of the
107.1570(a); minus end of each fiscal quarter and prior to
(iv) Any Profit Participation pre- making any Distribution. You must
viously allocated to SBA under distribute any Earned Prioritized Pay-
§ 107.1530, but not yet distributed. ments, earned Adjustments and earned
(3) The amount computed in para- Charges in accordance with § 107.1540.
graph (d)(2) of this section, if greater (2) After you dispose of all your Ear-
than zero, is your profit. If the amount marked Assets and make any required
is zero or less, you have no profit. Distributions in accordance with
(4) If you have a profit, continue with § 107.1540, your obligation to pay any
paragraph (e) of this section. Other- remaining Accumulated Prioritized
wise, continue with paragraph (f) of Payments, unearned Adjustments and
this section. unearned Charges will be extinguished.
(e) Allocating Prioritized Payments to [63 FR 5870, Feb. 5, 1998]
the Distribution Account. (1) If you have
a profit under paragraph (d) of this sec- § 107.1530 How a Licensee computes
tion, determine the lesser of: SBA’s Profit Participation.
(i) Your profit; or This section tells you how to com-
(ii) The balance in your Accumula- pute SBA’s Profit Participation. Profit
tion Account. Participation is included in the Dis-
(2) Subtract the result in paragraph tributions you make to SBA under
(e)(1) of this section from the Accumu- §§ 107.1550 and 107.1560.
lation Account and add it to the Dis- (a) How to compute Profit Participa-
tribution Account and the Earned Pay- tion. Profit Participation equals your
ments Account. ‘‘Base’’ times your ‘‘Profit Participa-
(f) How to compute Adjustments. You tion Rate’’ (if the Base is zero or less,
must compute Adjustments as of the you do not owe SBA Profit Participa-
end of each fiscal year if you have a tion). Compute the Base using para-
balance greater than zero in either graph (c) of this section and the Profit
your Accumulation Account or your Participation Rate using paragraphs
Distribution Account, after giving ef- (d) through (g) of this section. You
fect to any Distribution that will be must compute your Earmarked Profit
made no later than the second Pay- (Loss) under § 107.1510 and your
ment Date following the fiscal year Prioritized Payments and Adjustments
end. under § 107.1520 before you can compute
(1) Determine the combined average Profit Participation.
Accumulation Account and Distribu- (b) How to keep track of Profit Partici-
tion Account balances for the fiscal pation. You must establish a Profit
year, assuming that Prioritized Pay- Participation Account to record your
107
§ 107.1530 13 CFR Ch. I (1–1–23 Edition)
computations under this section and (d) How to compute the Profit Partici-
payments under §§ 107.1550 and 107.1560. pation Rate. You must determine your
Its balance represents your unpaid Profit Participation Rate each time
Profit Participation. you compute a Base that is greater
(c) How to compute the Base. As of the than zero. Compute the Rate by fol-
end of each fiscal year and any year-to- lowing the steps in paragraphs (e)
date interim period for which you want through (g) of this section.
to make a Distribution, compute your (e) Compute the ‘‘PLC ratio’’—(1) Gen-
Base using the following formula: eral rule. The ‘‘PLC ratio’’ is the high-
B = EP ¥ PPA ¥ UL est ratio of outstanding Participating
Securities to Leverageable Capital that
where: you have ever attained.
B = Base. (2) Exception. You may reduce the
EP = Earmarked Profit (Loss) for the period ratio computed under paragraph (e)(1)
from § 107.1510.
PPA = Prioritized Payments for the period of this section if you have increased
from § 107.1520(a)(1), Adjustments (if ap- your Leverageable Capital above its
plicable) from § 107.1520(f), and Charges (if highest previous level. The increase
applicable) from § 107.1130(d)(2). must have taken place at least 120 days
UL = ‘‘Unused Loss’’ from prior periods as before the date as of which your Base is
determined in this paragraph (c). computed. In addition, the increase
(1) If the Base computed as of the end must have been expressly provided for
of your previous fiscal year (your in a plan of operations submitted to
‘‘Previous Base’’) was less than zero, and approved by SBA in writing, or
your Unused Loss equals your Previous must be the result of the takedown of
Base. commitments or the conversion of non-
(2) If your Previous Base was zero or cash assets that were included in your
greater, your Unused Loss equals zero, Private Capital. If these conditions are
with the following exception: If you satisfied, compute your reduced PLC
made an interim Distribution of Profit ratio as follows:
Participation during your previous fis- (i) Divide the highest dollar amount
cal year, and your Previous Base was of Participating Securities you have
lower than the interim Base on which ever had outstanding by your increased
your Distribution was computed, then Leverageable Capital.
your Unused Loss equals the difference (ii) If the result in paragraph (e)(2)(i)
between the interim Base and the Pre- of this section is lower than your PLC
vious Base. For example, assume you ratio currently in effect, such result
are computing your Base as of Decem- will become your new PLC ratio.
ber 31, 1997, your fiscal year end. Your (f) Compute the Profit Participation
Previous Base, computed as of Decem- Rate (before indexing). Compute the
ber 31, 1996, was $3,000,000. During 1996, Profit Participation Rate (before in-
you made an interim Distribution dexing) using the table in this para-
which was computed on a Base of graph (f). Then go to paragraph (g) of
$3,500,000 as of June 30, 1996. The this section to determine whether to
$500,000 difference between the 1996 in- index the Profit Participation Rate.
terim and year-end Bases would be car-
ried forward as Unused Loss in the If your PLC ratio is: Then your Profit Participation Rate is:
computation of your Base as of Decem- 1 or less ................ 9% × PLC Ratio.
ber 31, 1997. More than 1 .......... 9% + [3% × (PLC ratio-1)].
(3) If you had no Participating Secu-
rities outstanding as of the end of your (g) Indexing the Profit Participation
last fiscal year, you may request SBA’s Rate. The Profit Participation Rate is
approval to treat your Undistributed indexed, up or down, to the yield-to-
Net Realized Loss, as reported on SBA maturity on Treasury bonds with a re-
Form 468 for that year, as Unused Loss. maining term of ten (10) years (the
If you did not file SBA Form 468 be- ‘‘Treasury Rate’’). You must perform
cause you were not yet licensed as of the indexing procedures in this para-
the end of your last fiscal year, you graph (g) unless the Treasury Rate was
may request SBA’s approval to treat exactly 8 percent on every date that
pre-licensing losses as Unused Loss. you issued Participating Securities.
108
(1) Licensees that have issued Partici- (h) Computing SBA’s Profit Participa-
pating Securities on only one occasion. tion. If the Base from paragraph (c) of
Determine the Treasury Rate for the this section is greater than zero, you
date you issued your Participating Se- must compute SBA’s Profit Participa-
curity. Adjust the Profit Participation tion as follows:
Rate from paragraph (f) of this section (1) Multiply the Base from paragraph
by the percentage difference between (c) of this section by the Profit Partici-
the Treasury Rate and 8 percent. For pation Rate from paragraph (g) of this
example, assume that you issued Par- section.
ticipating Securities when the Treas- (2) If your last Profit Participation
ury Rate was 10 percent. The percent- computation was for an interim period
age difference between 10 percent and 8 during the same fiscal year and used a
percent is 25 percent. If you had a PLC higher Profit Participation Rate than
ratio of 1, the Profit Participation the Rate you just used in paragraph
Rate before indexing would be 9 per- (h)(1) of this section, you must adjust
cent. You would increase this rate by the amount computed in paragraph
25 percent, giving you a Profit Partici- (h)(1) of this section as follows:
pation Rate of 11.25 percent. (i) Determine the difference between
(2) Licensees that have issued Partici- the Profit Participation Rate you just
pating Securities on more than one occa- used in paragraph (h)(1) of this section
sion. Determine the Treasury Rate for and the Rate used in your previous
each of the dates you issued Partici- computation;
pating Securities. (ii) Multiply the difference by the
(i) Compute an average of all such Base from your last Profit Participa-
Treasury Rates, weighted to reflect the tion computation; and
dollar amount of each issuance (ignor- (iii) Add the result to the amount
ing any redemptions) and the number you computed in paragraph (h)(1) of
of days from the date of each issuance this section.
to the date as of which you are com- (3) Reduce the Profit Participation
puting the Profit Participation Rate. computed in paragraphs (h)(1) and
(h)(2) of this section by any amounts of
Example to paragraph (g)(2)(i) of this section. Profit Participation that you distrib-
If you issued $10 million of Participating Se- uted or reserved for distribution to
curities on the 60th day of Fiscal Year 1
when the Treasury Rate was 8 percent, and
SBA, or its designated agent or Trust-
another $15 million on the 100th day of Fiscal ee, for any previous interim period(s)
Year 3 when the Treasury Rate was 10 per- during the fiscal year. The result is
cent, then the weighted average Treasury SBA’s Profit Participation (unless it is
Rate computed as of the end of Fiscal Year less than zero, in which case SBA’s
3 would be 8.55 percent. [Days elapsed since Profit Participation is zero).
first issuance of Participating Securities = (i) Allocation of Profit Participation.
1,035; days elapsed since second issuance of Before any Distribution and in any
Participating Securities = 265; weighted
amount of first issuance = $10,000,000 × 1,035/
case within 120 days following the end
1,035 = $10,000,000; weighted amount of second of your fiscal year, you must add the
issuance = $15,000,000 × 265/1035 = $3,840,579; amount of Profit Participation com-
weighted average amount of Participating puted under this § 107.1530 to the Profit
Securities issued = $10,000,000 + $3,840,579 = Participation Account. You must re-
$13,840,579; weighted average Treasury Rate= serve funds equal to this amount for
{(.08 × $10,000,000) + (.10 × $3,840,579)} / distribution to SBA, or its designated
$13,840,579 = 8.55%] agent or Trustee; you may not reinvest
(ii) Adjust the Profit Participation these funds or use them for any other
Rate from paragraph (f) of this section purpose.
by the percentage difference between [61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9,
the weighted average Treasury Rate 1996, as amended at 63 FR 5871, Feb. 5, 1998]
and 8 percent. In the example given in
paragraph (g)(2)(i) of this section, if the § 107.1540 Distributions by Licensee—
PLC ratio were equal to 2, the Profit Prioritized Payments and Adjust-
Participation Rate for the fiscal year ments.

would be 12.83 percent. [{((.0855¥.08) ÷ After you compute Prioritized Pay-
.08) + 1} × .12 × 100 = 12.83%] ments and Adjustments under § 107.1520,
109
§ 107.1550 13 CFR Ch. I (1–1–23 Edition)
you must distribute them in accord- SBA of any planned distribution under
ance with this § 107.1540. You must no- this section 10 business days before the
tify SBA of any planned distribution distribution date, unless SBA permits
under this section 10 business days be- otherwise.
fore the distribution date, unless SBA (a) Conditions for making a tax Dis-
permits otherwise. tribution. You may make a tax Dis-
(a) Requirement to distribute Prioritized tribution only if:
Payments and Adjustments. This para- (1) You have paid all your Prioritized
graph (a) applies only if you satisfy the Payments, Adjustments, and Charges,
liquidity requirement in § 107.1505. All so that the balance in both your Dis-
Distributions under this paragraph (a) tribution Account and your Accumula-
go to SBA or its designated agent or tion Account is zero (see § 107.1520).
trustee. (2) You satisfy the liquidity require-
(1) You must distribute the balance ment in § 107.1505.
in your Distribution Account from (3) The tax Distribution does not ex-
§ 107.1520 annually on the first or sec- ceed your Retained Earnings Available
ond Payment Date following your fis- for Distribution.
cal year end, and on any date when you (4) The tax Distribution does not ex-
are making any other Distribution. ceed the Maximum Tax Liability from
(2) You may distribute all or part of paragraph (b) of this section.
the balance in your Distribution Ac- (b) How to compute the Maximum Tax
count on any Payment Date regardless Liability. (1) You may compute your
of whether you are making any other Maximum Tax Liability for a full fiscal
Distribution on that date. year or for any calendar quarter. Use
(b) Additional requirement for Licensees the following formula:
with undistributed Prioritized Payments.
This paragraph (b) applies if you do not M = (TOI × HRO) + (TCG × HRC)
distribute the full amount in your Dis- where:
tribution Account by the second Pay- M = Maximum Tax Liability
ment Date following the end of your TOI = Net ordinary income allocated to your
fiscal year. At the end of each fiscal partners or other owners for Federal in-
quarter, until you reduce the balance come tax purposes for the fiscal year or
in your Distribution Account to zero, calendar quarter for which the Distribu-
you must: tion is being made, excluding Prioritized
(1) Do all the steps in § 107.1520; and Payments allocated to SBA.
HRO = The highest combined marginal Fed-
(2) Distribute the balance in your
eral and State income tax rate for cor-
Distribution Account on the next Pay- porations or individuals on ordinary in-
ment Date following the end of your come, determined in accordance with
fiscal quarter, provided you satisfy the paragraphs (b)(2) through (b)(4) of this
liquidity requirement in § 107.1505. section.
TCG = Net capital gains allocated to your
[61 FR 3189, Jan. 31, 1996, as amended at 63 partners or other owners for Federal in-
FR 5871, Feb. 5, 1998] come tax purposes for the fiscal year or
calendar quarter for which the Distribu-
§ 107.1550 Distributions by Licensee— tion is being made, excluding Prioritized
permitted ‘‘tax Distributions’’ to pri- Payments allocated to SBA.
vate investors and SBA. HRC = The highest combined marginal Fed-
If you have outstanding Partici- eral and State income tax rate for cor-
pating Securities or Earmarked Assets, porations or individuals on capital gains,
and you are a limited partnership, ‘‘S determined in accordance with para-
Corporation,’’ or equivalent pass- graphs (b)(2) through (b)(4) of this sec-
tion.
through entity for tax purposes, you
may make ‘‘tax Distributions’’ to your (2) You may compute the highest
investors in accordance with this combined marginal Federal and State
§ 107.1550, whether or not they have an income tax rate on ordinary income
actual tax liability. SBA receives a and capital gains using either indi-
share of any tax Distribution you vidual or corporate rates. However, you
make. This section tells you when you must apply the same type of rate, ei-
may make a ‘‘tax Distribution’’ and ther individual or corporate, to both
how to compute it. You must notify ordinary income and capital gains.
110
(3) In determining the combined Fed- § 107.1560 Distributions by Licensee—

eral and State income tax rate, you required Distributions to private
must assume that State income taxes investors and SBA.
are deductible from Federal income You must make Distributions under
taxes. For example, if the Federal tax this § 107.1560 if you have outstanding
rate was 35 percent and the State tax Participating Securities or Earmarked
rate was 5 percent, the combined tax Assets and you satisfy the conditions
rate would be [35% × (1¥.05)] + 5% = in paragraph (a) of this section. Dis-
38.25%. tributions under this section are deter-
(4) For purposes of this paragraph (b), mined as of the end of each fiscal year.
the ‘‘State income tax’’ is that of the You must notify SBA of any planned
State where your principal place of distribution under this section 10 busi-
business is located, and does not in- ness days before the distribution date,
clude any local income taxes. unless SBA permits otherwise.
(c) SBA’s share of the tax Distribution. (a) Conditions for making Distributions.
(1) SBA’s percentage share of the tax Distributions under this section are
Distribution is equal to the Profit Par- subject to the following conditions:
ticipation Rate computed under (1) You must have paid all Prioritized
§ 107.1530. Payments, Adjustments and Charges,
(2) SBA may direct you to pay its so that the balance in both your Dis-
share of the tax Distribution to its des- tribution Account and your Accumula-
ignated agent or Trustee. tion Account is zero (see §§ 107.1520 and
(3) SBA will apply its share of the tax 107.1540).
Distribution in the order set forth in (2) You must have made any per-
§ 107.1560(g). mitted tax Distribution that you
(d) Paying a tax Distribution. You may choose to make under § 107.1550.
make an annual tax Distribution on (3) You must satisfy the liquidity re-
the first or second Payment Date fol- quirement in § 107.1505.
lowing the end of your fiscal year. You (4) The amount you distribute under
may make a quarterly tax Distribution this section must not exceed your re-
on the first Payment Date following maining Retained Earnings Available
the end of the calendar quarter for for Distribution.
which the Distribution is being made. (b) Total amount you must distribute.
See also § 107.1575(a). Unless SBA permits otherwise, the
total amount you must distribute
(e) Excess tax Distributions. (1) As of
equals the result (if greater than zero)
the end of your fiscal year, you must
of the following computation:
determine whether you made any ex- (1) Your Retained Earnings Available
cess tax Distributions for the year in for Distribution as of the end of your
accordance with paragraph (e)(2) of this fiscal year, after giving effect to any
section. Any tax Distributions that you Distribution under §§ 107.1540 and
make for a subsequent period must be 107.1550; minus
reduced by the excess amount distrib- (2) All previous Distributions under
uted. this section and § 107.1570(a) that were
(2) Determine your excess tax Dis- applied as redemptions or repayments
tributions by adding together all your of Leverage; plus
quarterly tax Distributions for the (3) All previous Distributions under
year (ignoring any required reductions § 107.1570(b) that reduced your Retained
for excess tax Distributions made in Earnings Available for Distribution.
prior years), and subtracting the max- (c) When you must make Distributions.
imum tax Distribution that you would You must make the required Distribu-
have been permitted to make based tions on either the first or second Pay-
upon a single computation performed ment Date following the end of your
for the entire fiscal year. The result, if fiscal year.
greater than zero, is your excess tax (d) Effect of Distributions on Retained
Distribution for the year. Earnings Available for Distribution. Dis-
[61 FR 3189, Jan. 31, 1996, as amended at 63 tributions under this § 107.1560 have the
FR 5871, Feb. 5, 1998; 64 FR 70996, Dec. 20, following effect on your Retained Earn-
1999] ings Available for Distribution:
111
§ 107.1570 13 CFR Ch. I (1–1–23 Edition)
(1) All Distributions to private inves- (g) How SBA will apply your Distribu-
tors reduce Retained Earnings Avail- tions. Your Distributions to SBA (or its
able for Distribution. designated agent or Trustee) under this
(2) Distributions to SBA, or its des- § 107.1560 will be applied in the fol-
ignated agent or Trustee, reduce Re- lowing order:
tained Earnings Available for Distribu- (1) First, to Profit Participation;
tion if they are applied as payments of (2) Second, to the extent there re-
Profit Participation or distributions on main any Retained Earnings Available
Preferred Securities (see paragraph (g) for Distribution, to distributions on
of this section). Preferred Securities;
(3) Distributions to SBA, or its des- (3) Third, as a redemption of Partici-
ignated agent or Trustee, do not reduce pating Securities in order of issue;
Retained Earnings Available for Dis- (4) Fourth, as a redemption of Pre-
tribution if they are applied as a repay- ferred Securities; and
ment or redemption of Leverage (see (5) Fifth, as the repayment of prin-
paragraph (g) of this section). cipal of any outstanding Debentures,
(e) SBA’s share of the total Distribu- with such repayment to be made into
tion. Use the following table to deter- escrow on terms and conditions SBA
mine the percentage share of the total determines.
Distribution (from paragraph (b) of this
section) that goes to SBA (or its des- [61 FR 3189, Jan. 31, 1996, as amended at 63
ignated agent or Trustee): FR 5872, Feb. 5, 1998]
SBA’S PERCENTAGE SHARE OF TOTAL § 107.1570 Distributions by Licensee—

DISTRIBUTION optional Distribution to private in-
vestors and SBA.
If your ratio of Leverage to If you have outstanding Partici-
Then SBA’s percentage
Leverageable Capital as of share of the Distribution is: pating Securities or Earmarked Assets,
the fiscal period end is:
you may make two types of optional
Over 200% ............................. [Leverage / (Leverage +
Leverageable Capital)] ×
Distributions under this § 107.1570:
100. quarterly Distributions determined the
Over 100% but not over 50%. same way as the required annual Dis-
200%. tributions in § 107.1560, and Distribu-
100% or less .......................... Profit Participation Rate from
§ 107.1530. tions allocated between SBA and your
private investors in proportion to the
(f) Exceptions to the Distribution re- capital contributions of each. You
quirement. (1) With SBA’s prior written must notify SBA of any planned dis-
approval, you may withhold from distribution under this section 10 business
tribution reasonable reserves necessary days before the distribution date, un-
to protect your investments or relative less SBA permits otherwise.
position in Loans and Investments and (a) Quarterly Distributions subject to
to meet contingent liabilities. conditions in § 107.1560. (1) You may
(i) If you submit a written request for make Distributions under this para-
SBA approval, you may consider it ap- graph (a) as of the end of any fiscal
proved unless SBA notifies you other- quarter, giving SBA (or its designated
wise within 30 days from receipt. agent or Trustee) a percentage share
(ii) Reserves that you withhold from determined under § 107.1560(e).
distribution may not be used to make (2) Such Distributions are subject to
investments in additional portfolio all the provisions in § 107.1560 (a)(1),
companies. (a)(3), (a)(4), (d), (f)(2), and (g).
(iii) Withholding of reserves under (3) You may make such Distributions
this paragraph (f)(1) is not a ‘‘payment only on the next Payment Date fol-
failure’’ in violation of § 107.1820(e)(6). lowing the end of your fiscal quarter.
(2) SBA may restrict Distributions (4) The total amount of such Dis-
under this § 107.1560 if SBA determines tributions may not exceed the result of
that the value of your assets is materi- the following computation:
ally overstated. SBA must give you no- (i) Your Retained Earnings Available
tice of such a determination in advance for Distribution as of the end of your
of your proposed Distribution. fiscal quarter; minus
112
(ii) All previous Distributions under (ii) If your Capital Impairment Per-
this paragraph (a) or § 107.1560 that centage under § 107.1840 is greater than
were applied as redemptions or repay- zero, you must modify the formula in
ments of Leverage; plus paragraph (b)(2)(i) of this section by re-
(iii) All previous Distributions under placing Leverageable Capital with:
paragraph (b) of this section that re- Leverageable Capital × (100% ¥ CIP)
duced your Retained Earnings Avail-
able for Distribution. where ‘‘CIP’’ is your Capital Impairment
Percentage or 100 percent, whichever is
(b) Other optional Distributions. On less.
any Payment Date, you may make ad-
ditional Distributions to your private (3) How SBA will apply Distributions.
investors and to SBA (or its designated Any amounts you distribute to SBA, or
agent or Trustee) under this paragraph its designated agent or Trustee, under
(b). this paragraph (b) will be applied as a
(1) Conditions for making a Distribu- repayment or redemption of Leverage
tion. You may make a Distribution in the order set forth in § 107.1560(g)(3)
under this paragraph (b) only if: through (g)(5).
(i) You have distributed all Earned (4) Effect of Distributions on Retained
Prioritized Payments, earned Adjust- Earnings Available for Distribution. Any
amounts you distribute to non-SBA in-
ments, and earned Charges, so that the
vestors under this paragraph (b) must
balance in your Distribution Account
reduce your Retained Earnings Avail-
is zero (see § 107.1520).
able for Distribution to zero before re-
(ii) You have distributed all Profit
ducing your Private Capital.
Participation computed under § 107.1530 (5) Permitted exception to § 107.585. You
which you are required to distribute may make any Distribution permitted
under § 107.1560 or permitted to dis- by this paragraph (b), even if the result
tribute under paragraph (a) of this sec- is a reduction in your Regulatory Cap-
tion, as appropriate, and you have ital that would otherwise be prohibited
made all required Distributions under under § 107.585.
§ 107.1560.
(iii) You satisfy the liquidity require- [61 FR 3189, Jan. 31, 1996, as amended at 63
ment in § 107.1505 or obtain SBA’s prior FR 5872, Feb. 5, 1998]
written approval of the Distribution. § 107.1575 Distributions on other than
(iv) You do not have a condition of Payment Dates.
Capital Impairment.
(a) Permitted Distributions on other
(v) The Distribution does not reduce
than Payment Dates. Notwithstanding
your Regulatory Capital (excluding
any provisions to the contrary in
commitments from Institutional Inves-
§§ 107.1540 through 107.1570, you may
tors) below the minimum required
make Distributions on dates other
under § 107.210, unless SBA approves the
than Payment Dates as follows:
reduction as part of a plan of liquida- (1) Required annual Distributions
tion. under § 107.1540(a)(1), annual Distribu-
(vi) The Distribution does not cause tions under § 107.1550, and any Distribu-
you to have excess Leverage contrary tions under § 107.1560 must be made no
to section 303 of the Act. later than the second Payment Date
(2) SBA’s share of Distribution. (i) If following the end of your fiscal year.
your Capital Impairment Percentage (2) Required Distributions under
under § 107.1840 is zero, SBA’s percent- § 107.1540(b) must be made no later than
age share of any Distribution under the first Payment Date following the
this paragraph (b) equals: end of the applicable fiscal quarter;
[Leverage /(Leverage + Leverageable (3) Optional Distributions under
Capital)] × 100 § 107.1540(a)(2) and § 107.1570 may be
made on any date.
In this formula, use Leverage and (4) Quarterly Distributions under
Leverageable Capital as of the date of § 107.1550 must be made no earlier than
the Distribution, after giving effect to the last day of the calendar quarter for
any Distribution under § 107.1560 and which the Distribution is being made
paragraph (a) of this section. and no later than the first Payment
113
§ 107.1580 13 CFR Ch. I (1–1–23 Edition)
Date following the end of such calendar an alternative, if you agree, SBA may
quarter. direct you to dispose of its shares. In
(b) Conditions for making Distribution. this case, you must promptly remit the
All Distributions under this section are proceeds to SBA.
subject to the following conditions: (b) In-Kind Distributions after Licensee
(1) You must obtain SBA’s written has redeemed all Participating Securities.
approval before the distribution date; This paragraph (b) applies from the
(2) The ending date of the period for time you redeem all your Participating
which you compute your Earmarked Securities until you dispose of all your
Profits, Prioritized Payments, Adjust- Earmarked Assets.
ments, Charges, Profit Participation, (1) You may make an In-Kind Dis-
Retained Earnings Available for Dis- tribution of an Earmarked Asset only
tribution, liquidity ratio, Capital Im- if you pay SBA the lower of:
pairment, and any other applicable (i) An amount equal to the Unreal-
computations required under §§ 107.1500 ized Appreciation on the asset; or
through 107.1570, must be: (ii) The full amount of your Accumu-
(i) The distribution date, or lated Prioritized Payments and unpaid
(ii) If your Distribution includes an- Adjustments.
nual Distributions under (2) You must obtain SBA’s prior writ-
§§ 107.1540(a)(1), 107.1550 and/or 107.1560, ten approval of any In-Kind Distribu-
your most recent fiscal year end; tion of Earmarked Assets that are not
(3) If your Distribution includes an Distributable Securities, specifically
amount which SBA will apply as a re- including approval of the valuation of
demption of Participating Securities, the assets.
the effective date of such redemption, [61 FR 3189, Jan. 31, 1996, as amended at 63
for all purposes including future com- FR 5872, Feb. 5, 1998; 64 FR 70997, Dec. 20,
putations of Prioritized Payments, will 1999]
be the next Payment Date following
the distribution date. § 107.1585 Exchange of Debentures for
Participating Securities.
[63 FR 5872, Feb. 5, 1998, as amended at 64 FR
70997, Dec. 20, 1999] You may, in SBA’s discretion, retire
a Debenture through the issuance of
§ 107.1580 Special rules for In-Kind Participating Securities. To do so, you
Distributions by Licensees. must:
(a) In-Kind Distributions while Licensee (a) Obtain SBA’s approval to issue
has outstanding Participating Securities. Participating Securities;
A Distribution under §§ 107.1540, 107.1560 (b) Pay all unpaid accrued interest on
or 107.1570 may consist of securities (an the Debenture, plus any applicable pre-
‘‘In-Kind Distribution’’). Such a Dis- payment penalties, fees, and other
tribution must satisfy the conditions charges;
in this paragraph (a). (c) Have outstanding Equity Capital
(1) You may distribute only Distrib- Investments (at cost) equal to the
utable Securities. amount of the Debenture being refi-
(2) You must distribute each security nanced; and
pro-rata to all investors and to SBA or (d) Classify all your existing Loans
its designated agent or Trustee, based and Investments as Earmarked Assets.
on the amounts that each party would [63 FR 5869, Feb. 5, 1998]
receive if the Distribution were in
cash. § 107.1590 Special rules for companies
(3) You must impute a gain (loss) on licensed on or before March 31,
each security being distributed as if it 1993.
were being sold, using the value of the This section applies to companies li-
security as of the declaration date of censed on or before March 31, 1993 that
the Distribution (if you are a Corporate apply to issue Participating Securities.
Licensee) or the distribution date (if (a) Election to exclude pre-existing port-
you are a Partnership Licensee). folio. You may choose to exclude all
(4) You must deposit SBA’s share of (but not a portion) of your Loans and
securities being distributed with a dis- Investments as of March 31, 1993, from
position agent designated by SBA. As classification as Earmarked Assets if:
114
(1) The proceeds of your first the accompanying Schedule of Loans

issuance of Participating Securities and Investments.
are not used to refinance outstanding [61 FR 3189, Jan. 31, 1996, as amended at 63
Debentures (see § 107.1585(a)). SBA will FR 5873, Feb. 5, 1998]
consider payment or prepayment of
any outstanding Debenture to be a refi- FUNDING LEVERAGE BY USE OF SBA-
nancing unless you demonstrate to GUARANTEED TRUST CERTIFICATES
SBA’s satisfaction that you can pay (‘‘TCS’’)
the Debenture principal without rely-
§ 107.1600 SBA authority to issue and
ing on the proceeds of the Partici- guarantee Trust Certificates.
pating Securities.
(a) Authorization. Sections 319(a) and
(2) SBA, in its sole discretion, ap-
(b) of the Act authorize SBA or its CRA
proves the exclusion.
to issue TCs, and SBA to guarantee the
(b) Treatment of pre-existing portfolio if timely payment of the principal and in-
not excluded. If you do not choose to ex- terest thereon. Any guarantee by SBA
clude your Loans and Investments as of of such TC is limited to the principal
March 31, 1993, they will be Earmarked and interest due on the Debentures or
Assets for all purposes. the Redemption Price of and
(c) Requirements for Licensee’s first Prioritized Payments on Participating
issuance of Participating Securities. When Securities in any Trust or Pool back-
you apply for your first issuance of ing such TC. The full faith and credit
Participating Securities, you must of the United States is pledged to the
comply with the following: payment of all amounts due under the
(1) For each of your Loans and In- guarantee of any TC.
vestments, you must submit: (b) Periodic exercise of authority. SBA
(i) The most recent annual report (or will issue guarantees of Debentures and
fiscal year-end financial statements) Participating Securities under section
and the most recent interim financial 303 and of TCs under section 319 of the
statements of the Small Business; and Act at six month intervals, or at short-
er intervals, taking into account the
(ii) Your valuation reports on the
amount and number of such guarantees
Small Business, prepared as of the end or TCs.
of each of your last three fiscal years. (c) SBA authority to arrange public or
If you have applied for Participating private fundings of Leverage. SBA in its
Securities on the basis of interim fi- discretion may arrange for public or
nancial statements, you must also sub- private financing under its guarantee
mit a valuation report as of your in- authority. Such financing arranged by
terim financial statement date. SBA may be accomplished by the sale
(2) If you have negative Undistrib- of individual Debentures or Partici-
uted Net Realized Earnings and/or a pating Securities, aggregations of De-
net Unrealized Loss on Securities Held, bentures or Participating Securities, or
SBA may require you to undergo a Pools or Trusts of Debentures or Par-
quasi-reorganization in accordance ticipating Securities.
with generally accepted accounting (d) Pass-through provisions. TCs shall
principles. provide for a pass-through to their
(3) If your financial statements ac- holders of all amounts of principal and
companying the Participating Securi- interest paid on the Debentures, or the
ties application are for an interim pe- Redemption Price of and Prioritized
riod, you must have your SBA-ap- Payments on the Participating Securi-
ties, in the Pool or Trust against which
proved independent public accountant
they are issued.
perform a limited-scope audit of the
(e) Formation of a Pool or Trust hold-
statements. For purposes of this para- ing Leverage Securities. SBA shall ap-
graph (d)(3), ‘‘limited scope audit’’ prove the formation of each Pool or
means auditing procedures sufficient Trust. SBA may, in its discretion, es-
to enable the independent public ac- tablish the size of the Pools and their
countant to express an opinion on the composition, the interest rate on the
Statement of Financial Position and TCs issued against Trusts or Pools,
115
§ 107.1610 13 CFR Ch. I (1–1–23 Edition)
fees, discounts, premiums and other prepayment of a Debenture pursuant to

charges made in connection with the the provisions of the Guaranty Agree-
Pools, Trusts, and TCs, and any other ment relating to the Debenture, the
characteristics of a Pool or Trust it CRA shall pass through pro rata to the
deems appropriate. holders of the TCs any such prepay-
[61 FR 3189, Jan. 31, 1996, as amended at 63 ments including any prepayment pen-
FR 5873, Feb. 5, 1998] alty paid by the obligor Licensee pur-
suant to the terms of the Debenture.
§ 107.1610 Effect of prepayment or
early redemption of Leverage on a § 107.1620 Functions of agents, includ-
Trust Certificate. ing Central Registration Agent,
Selling Agent and Fiscal Agent.
(a) The rights, if any, of a Licensee to
prepay any Debenture or make early (a) Agents. SBA will appoint or cause
redemption of any Participating Secu- to be appointed agent(s) to perform
rity are established by the terms of functions necessary to market and
such securities, and no such right is service Debentures, Participating Se-
created or denied by the regulations in curities, or TCs pursuant to this part.
this part. (1) Selling Agent. As a condition of
(b) SBA’s rights to purchase or pre- guaranteeing a Debenture or Partici-
pay any Debenture without premium pating Security, SBA shall cause each
are established by the terms of the Licensee to appoint a Selling Agent to
Guaranty Agreement relating to the perform functions which include, but
Debenture. SBA’s rights to redeem, at are not limited to:
any time, any Participating Security (i) Selecting qualified entities to be-
without premium are established by come pool or Trust assemblers
the terms of the Guaranty Agreement (‘‘Poolers’’).
relating to the Participating Security. (ii) Receiving guaranteed Debentures
(c) Any prepayment of a Debenture and Participating Securities as well as
or early redemption of a Participating negotiating the terms and conditions
Security pursuant to the terms of the of periodic offerings of Debentures and/
Guaranty Agreement relating to such or TCs with Poolers on behalf of Li-
securities, shall reduce the SBA guar- censees.
antee of timely payment of principal (iii) Directing and coordinating peri-
and interest on a TC in proportion to odic sales of Debentures and Partici-
the amount of principal or Redemption pating Securities and/or TCs.
Price that such prepaid Debenture or (iv) Arranging for the production of
redeemed Participating Security rep- the Offering Circular, certificates, and
resents in the Trust or Pool backing such other documents as may be re-
such TC. quired from time to time.
(d) SBA shall be discharged from its (2) Fiscal Agent. SBA shall appoint a
guarantee obligation to the holder or Fiscal Agent to:
holders of any TC, or any successor or (i) Establish performance criteria for
transferee of such holder, to the extent Poolers.
of any such prepayment, whether or (ii) Monitor and evaluate the finan-
not such successor or transferee shall cial markets to determine those fac-
have notice of any such prepayment. tors that will minimize or reduce the
(e) Interest on prepaid Debentures cost of funding Debentures or Partici-
and Prioritized Payments on Partici- pating Securities.
pating Securities shall accrue only (iii) Monitor the performance of the
through the date of such voluntary pre- Selling Agent, Poolers, CRA, and the
payment or SBA payment, as the case Trustee.
may be. (iv) Perform such other functions as
(f) In the event that all Debentures SBA, from time to time, may prescribe.
or Participating Securities consti- (3) Central Registration Agent. Pursu-
tuting a Trust or Pool are prepaid, the ant to a contract entered into with
TCs backed by such Trust or Pool shall SBA, the CRA, as SBA’s agent, will do
be redeemed by payment of the unpaid the following with respect to the Pools
principal and interest on the TCs; Pro- or Trust Certificates for the Deben-
vided, however, that in the case of the tures or Participating Securities:
116
(i) Form an SBA-approved Pool or compliance with the financial, ethical,

Trust; and reporting requirements of such
(ii) Issue the TCs in the form pre- body. They also shall be in good stand-
scribed by SBA; ing with SBA as determined by the
(iii) Transfer the TCs upon the sale of SBA Associate Administrator for In-
original issue TCs in any secondary vestment (see paragraph (d) of this sec-
market transaction; tion) and shall provide a fidelity bond
(iv) Receive payments from Licens- or insurance in such amount as SBA
ees; may require.
(v) Make periodic payments as sched- (c) Suspension and/or termination of
uled or required by the terms of the Broker or Dealer. SBA shall exclude
TCs, and pay all amounts required to from the sale and all other dealings in
be paid upon prepayment of Debentures Debentures, Participating Securities or
or redemption of Participating Securi- TCs any broker or dealer:
ties; (1) If such broker’s or dealer’s au-
(vi) Hold, safeguard, and release all thority to engage in the securities
Debentures and Participating Securi- business has been revoked or suspended
ties constituting Trusts or Pools upon by a supervisory agency. When such
instructions from SBA; authority has been suspended, such
(vii) Remain custodian of such other broker or dealer will be suspended by
documentation as SBA shall direct by SBA for the duration of such suspen-
written instructions; sion by the supervisory agency.
(viii) Provide for the registration of (2) If such broker or dealer has been
all pooled Debentures and Partici- indicted or otherwise formally charged
pating Securities, all Pools and Trusts, with a misdemeanor or felony bearing
and all TCs; on its fitness, such broker or dealer
(ix) Perform such other functions as may be suspended while the charge is
SBA may deem necessary to imple- pending. Upon conviction, participa-
ment the provisions of this section. tion may be terminated.
(b) Functions. The function of locat- (3) If such broker or dealer has suf-
ing purchasers, and negotiating and fered an adverse final civil judgment,
closing the sale of Debentures, Partici- holding that such broker or dealer has
pating Securities and TCs, may be per-
committed a breach of trust or viola-
formed either by SBA or an agent ap-
tion of law or regulation protecting the
pointed by SBA. Nothing in the regula-
integrity of business transactions or
tions in this part shall be interpreted
relationships, participation in the mar-
to prevent the CRA from acting as
ket for Debentures, Participating Secu-
SBA’s agent for this purpose.
rities or TCs may be terminated.
§ 107.1630 SBA regulation of Brokers (4) If such broker or dealer has failed
and Dealers and disclosure to pur- to make full disclosure of the informa-
chasers of Leverage or Trust Cer- tion required by SBA in paragraph (a)
tificates. of this section, such broker’s or deal-
(a) Disclosure to purchasers. Prior to er’s participation in the market for De-
any sale of a Debenture, Participating bentures, Participating Securities or
Security, or TC, SBA shall require the TCs may be terminated.
seller, or the broker or dealer as agent (d) Termination/suspension proceedings.
for the seller, to disclose to the pur- A broker’s or dealer’s participation in
chaser, in a form prescribed or ap- the market for Debentures, Partici-
proved by SBA, specified information pating Securities or TCs will be con-
on the terms, conditions, and yield of ducted in accordance with part 134 of
such instrument. this chapter. SBA may, for any of the
(b) Brokers and Dealers. Each broker, reasons stated in paragraphs (b)(1)
dealer, and Pool or Trust assembler ap- through (b)(4) of this section, suspend
proved by SBA pursuant to these regu- the privilege of any broker or dealer to
lations shall either be regulated by a participate in this market. SBA shall
Federal financial regulatory agency, or give written notice at least ten (10)
be a member of the National Associa- business days prior to the effective

tion of Securities Dealers (NASD), and date of such suspension. Such notice
shall be in good standing in respect to shall inform the broker or dealer of the
117
§ 107.1640 13 CFR Ch. I (1–1–23 Edition)
opportunity for a hearing pursuant to charge or defense of a guarantor. Pur-

part 134 of this chapter. suant to its guarantee, SBA will make
timely payments of principal and in-
§ 107.1640 SBA access to records of the terest on the Debentures or the Re-
CRA, Brokers, Dealers and Pool or demption Price of and Prioritized Pay-
Trust assemblers.
ments on the Participating Securities.
The CRA and any broker, dealer and
Pool or Trust assembler operating [63 FR 5873, Feb. 5, 1998]
under the regulations in this part shall
make all books, records and related Subpart J—Licensee’s Noncompli-
materials associated with Debentures, ance With Terms of Leverage
Participating Securities and TCs avail-
able to SBA for review and copying § 107.1800 Licensee’s agreement to
purposes. Such access shall be at such terms and conditions in §§ 107.1810
party’s primary place of business dur- and 107.1820.
ing normal business hours. Any Licensee that violates the terms
and conditions of its Leverage is sub-
MISCELLANEOUS ject to SBA remedies. The terms, con-
§ 107.1700 Transfer by SBA of its inter- ditions and remedies in § 107.1810 apply
est in Licensee’s Leverage security. to outstanding Debentures issued after
April 25, 1994. The terms, conditions
Upon such conditions and for such and remedies in § 107.1820 apply to out-
consideration as it deems reasonable,
standing Preferred Securities and Par-
SBA may sell, assign, transfer, or oth-
ticipating Securities issued after April
erwise dispose of any Preferred Secu-
25, 1994, or if you have Earmarked As-
rity, Debenture, Participating Secu-
sets in your portfolio.
rity, or other security held by or on be-
half of SBA in connection with Lever- § 107.1810 Events of default and SBA’s
age. Upon notice by SBA, Licensee will remedies for Licensee’s noncompli-
make all payments of principal, divi- ance with terms of Debentures.
dends, interest, Prioritized Payments,
(a) Applicability of this section. This
and redemptions as shall be directed by
§ 107.1810 applies to Debentures issued
SBA. Licensee will be liable for all
after April 25, 1994. By issuing such De-
damage or loss which SBA may sustain
bentures, you automatically agree to
by reason of such disposal, up to the
amount of Licensee’s liability under the terms, conditions and remedies in
such security, plus court costs and rea- this section, as in effect at the time of
sonable attorney’s fees incurred by issuance and as if fully set forth in the
SBA. Debentures. Debentures issued before
April 25, 1994 continue to be governed
§ 107.1710 SBA authority to collect or by the remedies in effect at the time of
compromise its claims. their issuance.
SBA may, upon such conditions and (b) Automatic events of default. The oc-
for such consideration as it deems rea- currence of one or more of the events
sonable, collect or compromise all in this paragraph (b) causes the rem-
claims relating to Preferred or Partici- edies in paragraph (c) of this section to
pating Securities or obligations held or take effect immediately.
guaranteed by SBA, and all legal or eq- (1) Insolvency. You become equitably
uitable rights accruing to SBA. or legally insolvent.
(2) Voluntary assignment. You make a
§ 107.1720 Characteristics of SBA’s voluntary assignment for the benefit of
guarantee. creditors without SBA’s prior written
If SBA agrees to guarantee a Licens- approval.
ee’s Debentures or Participating Secu- (3) Bankruptcy. You file a petition to
rities, such guarantee will be uncondi- begin any bankruptcy or reorganiza-
tional, irrespective of the validity, reg- tion proceeding, receivership, dissolu-
ularity or enforceability of the Deben- tion or other similar creditors’ rights
tures or Participating Securities or proceeding, or such action is initiated

any other circumstances which might against you and is not dismissed within
constitute a legal or equitable dis- 60 days.
118
(c) SBA remedies for automatic events (9) Non-notification of defaults to oth-
of default. Upon the occurrence of one ers. You fail to notify SBA in writing
or more of the events in paragraph (b) within ten days from the date of a dec-
of this section: laration of an event of default or non-
(1) Without notice, presentation or performance under any note, debenture
demand, the entire indebtedness evi- or indebtedness of yours, issued to or
denced by your Debentures, including held by anyone other than SBA.
accrued interest, and any other (e) SBA remedies for events of default
amounts owed SBA with respect to with notice. Upon written notice to you
your Debentures, is immediately due of the occurrence (as determined by
and payable; and SBA) of one or more of the events in
(2) You automatically consent to the paragraph (d) of this section:
appointment of SBA or its designee as (1) SBA may declare the entire in-
your receiver under section 311(c) of debtedness evidenced by your Deben-
the Act. tures, including accrued interest, and/
(d) Events of default with notice. For or any other amounts owed SBA with
any occurrence (as determined by SBA) respect to your Debentures, imme-
of one or more of the events in this diately due and payable; and
paragraph (d), SBA may avail itself of (2) SBA may avail itself of any rem-
one or more of the remedies in para- edy available under the Act, specifi-
graph (e) of this section. cally including institution of pro-
(1) Fraud. You commit a fraudulent ceedings for the appointment of SBA or
act which causes detriment to SBA’s its designee as your receiver under sec-
position as a creditor or guarantor. tion 311(c) of the Act.
(2) Fraudulent transfers. You make (f) Events of default with opportunity
any transfer or incur any obligation to cure. For any occurrence (as deter-
that is fraudulent under the terms of 11 mined by SBA) of one or more of the
U.S.C. 548. events in this paragraph (f), SBA may
(3) Willful conflicts of interest. You avail itself of one or more of the rem-
willfully violate § 107.730. edies in paragraph (g) of this section.
(4) Willful non-compliance. You will- (1) Excessive Management Expenses.
fully violate one or more of the sub- Without the prior written consent of
stantive provisions of the Act, specifi- SBA, you incur Management Expenses
cally including but not limited to the in excess of those permitted under
provisions summarized in section 310(c) § 107.520.
of the Act, or any substantive regula- (2) Improper Distributions. You make
tion promulgated under the Act. any Distribution to your shareholders
(5) Repeated Events of Default. At any or partners, except with the prior writ-
time after being notified by SBA of the ten consent of SBA, other than:
occurrence of an event of default under (i) Distributions permitted under
paragraph (f) of this section, you en- § 107.585;
gage in similar behavior which results (ii) Payments from Retained Earn-
in another occurrence of the same ings Available for Distribution based
event of default. on either the shareholders’ pro-rata in-
(6) Transfer of Control. You violate terests or the provisions for profit dis-
§ 107.475 and/or willfully violate tributions in your partnership agree-
§ 107.410, and as a result of such viola- ment, as appropriate;
tion you undergo a transfer of Control. (iii) Distributions by Participating
(7) Non-cooperation under § 107.1810(h). Securities issuers as permitted under
You fail to take appropriate steps, sat- §§ 107.1540 through 107.1580; and
isfactory to SBA, to accomplish any (iv) Distributions by Early Stage
action SBA may have required under SBICs as permitted under § 107.1180.
paragraph (h) of this section. (3) Failure to make payment. Unless
(8) Non-notification of Events of De- otherwise approved by SBA, you fail to
fault. You fail to notify SBA as soon as make timely payment of any amount
you know or reasonably should have due under any security or obligation of
known that any event of default exists yours that is issued to, held or guaran-
under this section. teed by SBA.
119
§ 107.1810 13 CFR Ch. I (1–1–23 Edition)
(4) Failure to maintain Regulatory Cap- Early Stage SBIC and, beginning on
ital. You fail to maintain the minimum the first fiscal quarter end when your
Regulatory Capital required under cumulative total Financings (in dol-
these regulations or, without the prior lars) are at least equal to your Regu-
written consent of SBA, you reduce latory Capital, you have not made at
your Regulatory Capital, except as per- least 50 percent of such Financings to
mitted by §§ 107.585 and 107.1560 through Small Businesses that at the time of
107.1580. your initial Financing were ‘‘early
(5) Capital Impairment. You have a stage’’ companies, as defined under the
condition of Capital Impairment as de- definition of Early Stage SBIC in
termined under § 107.1830. § 107.50 of this part.
(6) Cross-default. An obligation of
(12) Failure by an Early Stage SBIC to
yours that is greater than $100,000 be-
comes due or payable (with or without maintain required interest reserve. You
notice) before its stated maturity date, are an Early Stage SBIC and you fail
for any reason including your failure to to maintain a sufficient reserve to pay
pay any amount when due. This provi- interest and Charges on your Deben-
sion does not apply if you pay the tures as required under § 107.1181 of this
amount due within any applicable part.
grace period or contest the payment of (g) SBA remedies for events of default
the obligation in good faith by appro- with opportunity to cure. (1) Upon writ-
priate proceedings. ten notice to you of the occurrence (as
(7) Nonperformance. You violate or determined by SBA) of one or more of
fail to perform one or more of the the events of default in paragraph (f) of
terms and conditions of any security or this section, and subject to the condi-
obligation of yours that is issued to, tions in paragraph (g)(2) of this section:
held or guaranteed by SBA, or of any (i) SBA may declare the entire in-
agreement with or conditions imposed debtedness evidenced by your Deben-
by SBA in its administration of the tures, including accrued interest, and/
Act and the regulations promulgated or any other amounts owed SBA with
under the Act. respect to your Debentures, imme-
(8) Noncompliance. Except as other-
diately due and payable; and
wise provided in paragraph (d)(5) of this
section, SBA determines that you have (ii) SBA may avail itself of any rem-
violated one or more of the substantive edy available under the Act, specifi-
provisions of the Act, specifically in- cally including institution of pro-
cluding but not limited to the provi- ceedings for the appointment of SBA or
sions summarized in section 310(c) of its designee as your receiver under sec-
the Act, or any substantive regulation tion 311(c) of the Act.
promulgated under the Act. (2) SBA may invoke the remedies in
(9) Failure to maintain investment ratio. paragraph (g)(1) of this section only if:
You fail to maintain the investment (i) It has given you at least 15 days to
ratio for Leverage in excess of 300 per- cure the default(s); and
cent of Leverageable Capital (see (ii) You fail to cure the default(s) to
§ 107.1160(c)), if applicable to you, as of SBA’s satisfaction within the allotted
the end of each fiscal year. In deter- time.
mining whether you have maintained (h) Repeated non-substantive violations.
the ratio, SBA will disregard any pre- If you repeatedly fail to comply with
payment, sale, or disposition of Ven- one or more of the non-substantive pro-
ture Capital Financing, any increase in visions of the Act or any non-sub-
Leverageable Capital, and any receipt
stantive regulation promulgated under
of additional Leverage, within 120 days
the Act, SBA, after written notifica-
prior to the end of your fiscal year.
(10) Failure to maintain diversity. You tion to you and until you cure such
fail to maintain diversity between condition to SBA’s satisfaction, may
management and ownership as required deny you additional Leverage and/or
by § 107.150, if applicable to you. require you to take such actions as

(11) Failure by an Early Stage SBIC to SBA may determine to be appropriate
meet investment requirements. You are an under the circumstances.
120
(i) Consent to removal of officers, direc- full, to prohibit Distributions by you

tors, or general partners and/or appoint- to any party other than SBA, its agent
ment of receiver. The Articles of any Li- or Trustee;
censee issuing Debentures after April (3) To require all your commitments
25, 1994 must include the following pro- from investors to be funded at the ear-
visions as a condition to the purchase liest time(s) permitted in accordance
or guarantee by SBA of such Leverage. with your Articles;
Upon the occurrence of any of the (4) To review and re-determine your
events specified in paragraphs (d)(1) approved Management Expenses; and
through (d)(6) or (f)(1) through (f)(3) of (5) To the appointment of SBA or its
this section as determined by SBA, designee as your receiver under section
SBA shall have the right, and your 311(c) of the Act for the purpose of con-
consent to SBA’s exercise of such tinuing your operations.
right: [61 FR 3189, Jan. 31, 1996, as amended at 74
(1) With respect to a Corporate Li- FR 33916, July 14, 2009; 77 FR 25054, Apr. 27,
censee, upon written notice, to require 2012]
you to replace, with individuals ap-
proved by SBA, one or more of your of- § 107.1820 Conditions affecting issuers
ficers and/or such number of directors of Preferred Securities and/or Par-
of your board of directors as is suffi- ticipating Securities.
cient to constitute a majority of such (a) Applicability of this section. This
board; or section applies if you have Preferred
(2) With respect to a Partnership Li- Securities issued after April 25, 1994, or
censee, upon written notice, to require if you issue Participating Securities or
you to remove the person(s) responsible have Earmarked Assets in your port-
for such occurrence and/or to remove folio. Your Articles must include the
the general partner of Licensee, which provisions of this § 107.1820 as a condi-
general partner shall then be replaced tion to SBA’s purchase of Preferred Se-
in accordance with Licensee’s Articles curities or guarantee of Participating
by a new general partner approved by Securities and for as long as you own
SBA; and/or Earmarked Assets. Preferred Securities
(3) With respect to either a Corporate issued before April 25, 1994 continue to
or Partnership Licensee, to obtain the be governed by the remedies in effect
appointment of SBA or its designee as at the time of their issuance.
your receiver under section 311(c) of (b) Removal Conditions. Upon the oc-
the Act for the purpose of continuing currence (as determined by SBA) of
your operations. The appointment of a any of the following conditions (‘‘Re-
receiver to liquidate a Licensee is not moval Conditions’’), SBA may avail
within such consent, but is governed itself of one or more of the remedies in
instead by the relevant provisions of paragraph (d) of this section:
the Act. (1) Insolvency or extreme Capital Im-
(j) Additional SBA remedies applicable pairment. You become equitably or le-
to Debentures issued by Early Stage gally insolvent, or have a Capital Im-
SBICs. If you are an Early Stage SBIC, pairment Percentage of 100 percent or
upon SBA’s payment pursuant to its more (‘‘extreme Capital Impairment’’)
guarantee of any of your Debentures, and have not cured such Capital Im-
SBA shall have the following addi- pairment within the time limits set by
tional rights and you consent to SBA’s SBA in writing. In this regard:
exercise of any or all of such rights: (i) You are not considered to have a
(1) To prohibit you from making any condition of extreme Capital Impair-
additional investments except for in- ment during the first eight years fol-
vestments under legally binding com- lowing your first issuance of Partici-
mitments you entered into before such pating Securities.
payment by SBA and, subject to SBA’s (ii) This paragraph (b)(1) does not
prior written approval, investments give you an additional opportunity to
that are necessary to protect your in- cure if you have already had an oppor-
vestments; tunity to cure your Capital Impair-

(2) Until all Leverage is repaid and ment under paragraph (e)(3) of this sec-
amounts related thereto are paid in tion.
121
§ 107.1820 13 CFR Ch. I (1–1–23 Edition)
(2) Voluntary assignment. You make a (1) With respect to a Corporate Li-
voluntary assignment for the benefit of censee, upon written notice, to require
creditors. you to replace, with individuals ap-
(3) Bankruptcy. You begin any bank- proved by SBA, one or more of your of-
ruptcy or reorganization proceeding, ficers and/or such number of directors
receivership, dissolution or other simi- as is sufficient to constitute a majority
lar creditors’ rights proceeding, or such of your board of directors; or
action is initiated against you and is (2) With respect to a Partnership Li-
not dismissed within 60 days. censee, upon written notice, to require
(4) Transfer of Control. You violate you to remove the person(s) responsible
§ 107.475 and/or willfully violate for such occurrence and/or to remove
§ 107.410, and such violation results in a your general partner, who shall then be
transfer of Control. replaced in accordance with your Arti-
(5) Fraud. You commit a fraudulent cles by a new general partner approved
act which causes serious detriment to by SBA; and/or
SBA’s position as a guarantor or inves- (3) With respect to either a Corporate
tor. or Partnership Licensee, to the ap-
(6) Fraudulent transfers. You make pointment of SBA or its designee as
any transfer or incur any obligation your receiver under section 311(c) of
that is fraudulent under the terms of 11 the Act for the purpose of continuing
U.S.C. 548. your operations. The appointment of a
(c) Contingent Removal Conditions. receiver to liquidate a Licensee is not
Upon the occurrence (as determined by within such consent, but is governed
SBA) of any of the following conditions instead by the relevant provisions of
(‘‘Contingent Removal Conditions’’), the Act.
SBA may avail itself of one or more of (e) Restricted Operations Conditions.
the remedies in paragraph (d) of this Upon the occurrence (as determined by
section, but only if you fail to remove SBA) of any of the following conditions
the person(s) SBA identifies as respon- (‘‘Restricted Operations Conditions’’),
sible for such occurrence and/or cure SBA may avail itself of any of the rem-
such occurrence to SBA’s satisfaction
edies in paragraph (f) of this section.
within a time period determined by
(1) Removal Conditions or Contingent
SBA (but not less than 15 days):
Removal Conditions. Any condition oc-
(1) Willful conflicts of interest. You
curs which is listed in paragraphs (b) or
willfully violate § 107.730.
(c) of this section.
(2) Willful or repeated noncompliance.
(2) Failure to maintain Regulatory Cap-
You willfully or repeatedly violate one
ital. You fail to maintain the minimum
or more of the substantive provisions
Regulatory Capital required by this
of the Act, specifically including but
not limited to the provisions summa- part.
rized in section 310(c) of the Act, or any (3) Capital or Liquidity Impairment.
substantive regulation promulgated You have a condition of Capital Im-
under the Act. pairment as determined under § 107.1830
(3) Failure to comply with restrictions or, if applicable, a condition of Liquid-
under paragraph (f) of this section. You ity Impairment as determined under
fail to comply with the restrictions im- § 107.1505, and you fail to cure the im-
posed by SBA under paragraph (f) of pairment within time limits set by
this section. SBA in writing.
(d) SBA remedies for Removal Condi- (4) Improper Distributions. You make
tions and Contingent Removal Conditions. any Distribution to your shareholders
Upon the occurrence (as determined by or partners other than those permitted
SBA) of any Removal Condition, or any by §§ 107.585 and 107.1560 through
Contingent Removal Condition accom- 107.1580.
panied by your failure to act as set (5) Excessive Management Expenses.
forth in paragraph (c) of this section, Without the prior written consent of
SBA has the following rights, and you SBA, you incur Management Expenses
consent to SBA’s exercise of any or all in excess of those permitted under
of such rights: § 107.520.
122
(6) Failure to make payment. You fail time period determined by SBA (but
to pay any amounts due under Pre- not less than 15 days), upon written no-
ferred Securities or required by tice SBA shall have the following
§§ 107.1500 through 107.1590, unless oth- rights, and you consent to SBA’s exer-
erwise permitted by SBA. cise of any or all of such rights:
(7) Noncompliance. Except as other- (1) To prohibit you from making any
wise provided for in paragraphs (c)(1) additional investments except for in-
and (c)(2) of this section, SBA deter- vestments under legally binding com-
mines that you have failed to comply mitments you entered into before such
with one or more of the substantive notice and, subject to SBA’s prior writ-
provisions of the Act, specifically inten approval, investments that are nec-
cluding but not limited to the provi- essary to protect your investments;
sions summarized in section 310(c) of (2) Until all Leverage is redeemed
the Act, or any substantive regulation and amounts due are paid, to prohibit
promulgated under the Act. Distributions by you to any party
(8) Failure to maintain diversity. You other than SBA, its agent or Trustee;
fail to maintain diversity between (3) To require all your commitments
management and ownership as required from investors to be funded at the ear-
by § 107.150, if applicable to you. liest time(s) permitted in accordance
(9) Failure to meet investment require- with your Articles; and
ments. You fail to make the amount of (4) To review and re-determine your
Equity Capital Investments required approved Management Expenses.
for Participating Securities (g) Repeated non-substantive violations.
(§ 107.1500(b)(4)), if applicable to you; or If you repeatedly fail to comply with
you fail to maintain as of the end of one or more of the non-substantive pro-
each fiscal year the investment ratios visions of the Act or any non-sub-
or amounts required for Leverage in stantive regulation promulgated there-
excess of 300 percent of Leverageable under, SBA, after written notification
Capital (§ 107.1160(c)) or Preferred Secu- to you and until such condition is
rities in excess of 100 percent of cured to SBA’s satisfaction, will deny
Leverageable Capital (§ 107.1160(d)), if you additional Leverage and/or require
applicable to you. In determining you to take such actions as SBA may
whether you have met the maintenance determine to be appropriate under the
requirements in § 107.1160(c) or (d), SBA circumstances.
will disregard any prepayment, sale, or [61 FR 3189, Jan. 31, 1996, as amended at 63
disposition of Venture Capital FR 5873, Feb. 5, 1998]
Financings, any increase in
Leverageable Capital, and any receipt COMPUTATION OF LICENSEE’S CAPITAL
of additional Leverage, within 120 days IMPAIRMENT
prior to the end of your fiscal year.
(10) Nonperformance. You violate or § 107.1830 Licensee’s Capital Impair-
fail to perform one or more of the ment—definition and general re-
terms and conditions of any Partici- quirements.
pating Security or Preferred Security (a) Applicability of this section. This
or of any agreement with or condition section applies to Leverage issued on
imposed by SBA in its administration or after April 25, 1994. For Leverage
of the Act and the regulations promul- issued before April 25, 1994, you must
gated thereunder. comply with paragraphs (e) and (f) of
(11) Noncooperation under paragraph this section and the Capital Impair-
(g) of this section. You fail to take ap- ment regulations in this part in effect
propriate steps, satisfactory to SBA, to when you issued your Leverage. For all
accomplish such action as SBA may Leverage issued, you must also comply
have required under paragraph (g) of with any contractual provisions to
this section. which you have agreed.
(f) SBA remedies for Restricted Oper- (b) Significance of Capital Impairment
ations Conditions. Upon the occurrence condition. If you have a condition of
of any Restricted Operations Condi- Capital Impairment, you are not in

tion, and until such condition(s) are compliance with the terms of your Le-
cured to SBA’s satisfaction within a verage. As a result, SBA has the right
123
§ 107.1840 13 CFR Ch. I (1–1–23 Edition)
to impose the applicable remedies for ment Percentage, as computed in

noncompliance in §§ 107.1810(g) and § 107.1840, exceeds:
107.1820(f). (1) For Section 301(d) Licensees, 75
(c) Definition of Capital Impairment percent.
condition. You have a condition of Cap- (2) For Section 301(c) Licensees, the
ital Impairment if your Capital Impair- appropriate percentage from the fol-
lowing table:
MAXIMUM PERMITTED CAPITAL IMPAIRMENT PERCENTAGES FOR SECTION 301(c) LICENSEES
Then your maximum
If the percentage of equity capital invest- And your ratio of outstanding leverage to leverageable permitted capital impair-
ments (at cost) in your portfolio is: capital is: ment percentage is:
67% ............................................................. 100% or less .................................................................... 70

Over 100% but not over 200% ........................................ 60
Over 200% ....................................................................... 50
At least 40% but under 67% ...................... 100% or less .................................................................... 55
Over 100% but not over 200% ........................................ 50
Over 200% ....................................................................... 40
Under 40% .................................................. 100% or less .................................................................... 45
Over 100% but not over 200% ........................................ 40
Over 200% ....................................................................... 35
(d) Phase-in of maximum permitted have a condition of Capital Impair-

Capital Impairment Percentages for Sec- ment.
tion 301(c) Licensees. If you are a Sec- (b) Preliminary impairment test. If you
tion 301(c) Licensee, regardless of your satisfy the preliminary impairment
maximum permitted Capital Impair- test, your Capital Impairment Percent-
ment Percentage under paragraph (c) age is zero and you do not have to per-
of this section, you will not have a conform any more procedures in this
dition of Capital Impairment if: § 107.1840. Otherwise, you must continue
(1) Your Capital Impairment Percent- with paragraph (c) of this section. You
age does not exceed 50 percent; and satisfy the test if the following
(2) You have not reached your first amounts are both zero or greater:
fiscal year end occurring after April 25, (1) The sum of Undistributed Net Re-
1995. alized Earnings, as reported on SBA
(e) Quarterly computation requirement Form 468, and Includible Non-Cash
and procedure. You must determine Gains.
whether you have a condition of Cap- (2) Unrealized Gain (Loss) on Securi-
ital Impairment as of the end of each ties Held.
fiscal quarter. You must notify SBA (c) How to compute your Capital Im-
promptly if you are capitally impaired. pairment Percentage. (1) If you have an
(f) SBA’s right to determine Licensee’s Unrealized Gain on Securities Held,
Capital Impairment condition. SBA may compute your Adjusted Unrealized
make its own determination of your Gain using paragraph (d) of this sec-
Capital Impairment condition at any tion. If you have an Unrealized Loss on
time. Securities Held, continue with para-
[61 FR 3189, Jan. 31, 1996, as amended at 63 graph (c)(2) of this Section.
FR 5873, Feb. 5, 1998] (2) Add together your Undistributed
Net Realized Earnings, your Includible
§ 107.1840 Computation of Licensee’s Non-cash Gains, and either your Unre-
Capital Impairment Percentage. alized Loss on Securities Held or your
(a) General. This section contains the Adjusted Unrealized Gain.
procedures you must use to determine (3) If the sum in paragraph (c)(2) of
your Capital Impairment Percentage if this section is zero or greater, your
you have outstanding Leverage issued Capital Impairment Percentage is zero.
after April 25, 1994. You must compare (4) If the sum in paragraph (c)(2) of
your Capital Impairment Percentage to this section is less than zero, drop the
the maximum permitted under negative sign, divide by your Regu-
§ 107.1830(c) to determine whether you latory Capital (excluding Treasury
124
Stock), and multiply by 100. The result tor whose objectives were not pri-
is your Capital Impairment Percent- marily strategic and at a price that
age. conclusively supports the Unrealized
(d) How to compute your Adjusted Un- Appreciation;
realized Gain. (1) Subtract Unrealized (ii) Such financing represents a sub-
Depreciation from Unrealized Appre- stantial investment in the form of an
ciation. This is your ‘‘Net Apprecia- arm’s length transaction by a sophisti-
tion’’. cated new investor in the issuer’s secu-
(2) Determine your Unrealized Appre- rities; and
ciation on Publicly Traded and Mar- (iii) Except as provided for Early
ketable securities. This is your ‘‘Class Stage SBICs in § 107.1845, such financ-
1 Appreciation’’. ing occurred within 24 months of the
(3) Determine your Unrealized Appre- date of the Capital Impairment com-
ciation on securities that are not Pub- putation, or the Small Business’s pre-
licly Traded and Marketable and meet tax cash flow from operations for its
the following criteria, which must be most recent fiscal year was at least 10
substantiated to the satisfaction of percent of the Small Business’s average
SBA (this is your ‘‘Class 2 Apprecia- contributed capital for such fiscal year.
tion’’): (4) Except as provided for Early
(i) The Small Business that issued Stage SBICs in § 107.1845, perform the
the security received a significant sub- appropriate computation from the fol-
sequent equity financing by an inves- lowing table:
ADJUSTED UNREALIZED GAIN BEFORE ESTIMATED TAX EFFECTS
Then adjusted unrealized gain
If: And: before taxes is:
Class 1 Appreciation ≤Net Appreciation .... Class 1 Appreciation + Class 2 Ap- (80% × Class 1 Appreciation) + (50% ×
preciation ≤Net Appreciation. Class 2 Appreciation).
Class 1 Appreciation ≤Net Appreciation .... Class 1 Appreciation + Class 2 Ap- (80% × Class 1 Appreciation) + [(50% × (Net
preciation >Net Appreciation. Appreciation ¥ Class 1 Appreciation)].
Class 1 Appreciation >Net Appreciation .... .......................................................... 80% × Net Appreciation.
(5) Reduce the gain computed in section, all provisions of § 107.1840 apply
paragraph (d)(4) of this section by your to an Early Stage SBIC.
estimate of related future income tax (a) To determine your Class 2 Appre-
expense. Subject to any adjustment re- ciation under § 107.1840(d)(3), use the
quired by paragraph (d)(6) of this sec- following provisions instead of
tion, the result is your Adjusted Unre- § 107.1840(d)(3)(iii):
alized Gain for use in paragraph (c)(2) (1) Such financing occurred within 24
of this section. months of the date of the Capital Im-
(6) If any securities that are the pairment computation. At the end of
source of either Class 1 or Class 2 Ap- the 24 month period following the fi-
preciation are pledged or encumbered nancing, you may request SBA’s writ-
in any way, you must reduce the Ad- ten approval to retain the use of the
justed Unrealized Gain computed in original Class 2 Appreciation on the in-
paragraph (d)(5) of this section by the vestment for up to 24 additional
amount of the related borrowing or months.
other obligation, up to the amount of (2) In considering your request, SBA
the Unrealized Appreciation on the se- may obtain its own valuation of the in-
curities. vestment, require you to obtain a valu-
[61 FR 3189, Jan. 31, 1996, as amended at 77 ation performed by an independent
FR 25054, Apr. 27, 2012] third party acceptable to SBA, and
may consider any other information
§ 107.1845 Determination of Capital that it deems relevant. To the extent
Impairment Percentage for Early that the valuation and any other rel-
Stage SBICs. evant information conclusively support

This section applies to Early Stage the original Class 2 appreciation, SBA
SBICs only. Except as modified by this may approve an extension to use all or
125
§ 107.1850 13 CFR Ch. I (1–1–23 Edition)
part of the original Class 2 Apprecia- § 107.1850 Exceptions to Capital Im-

tion for up to an additional 24 months pairment provisions for Licensees
(the ‘‘extension period’’). with outstanding Participating Se-
(3) At the end of any extension pe- curities.
riod, you may submit a new request to The provisions in this § 107.1850 apply
retain the use of the original Class 2 only if at least two-thirds of your out-
Appreciation, repeating the steps in standing Leverage consists of Partici-
paragraphs (a)(1) and (2) of this section. pating Securities, and at least two-
(4) SBA may reconsider its approval thirds of your Loans and Investments
to retain the use of the original Class 2 (at cost) consist of Equity Capital In-
Appreciation at any time based on investments.
formation that may affect the value of
(a) Forbearance period for Participating
an investment.
(b) Any time you submit a request Securities issuers. During the first forty-
for SBA approval to retain the use of eight (48) months following your first
the original Class 2 Appreciation under issuance of Participating Securities,
paragraph (a) of this section, you may you will not have a condition of Cap-
also request SBA’s written approval to ital Impairment if your Capital Impair-
modify your computation of Adjusted ment Percentage is below 85 percent.
Unrealized Gain under § 107.1840(d)(4) as (b) Extended forbearance period for
provided in paragraph (c) of this sec- early stage investors. If at least two-
tion. thirds of your Loans and Investments
(c) If SBA determines that the appre- (at cost) are in Start-Up Financings,
ciation on an investment, based on its the forbearance period in paragraph (a)
current fair value, is at least two times of this section is extended to 60
the original Class 2 Appreciation on months.
the investment, SBA may allow you, (c) Forbearance based on actions by Li-
based on relevant information, to com- censee. The provisions of this paragraph
pute your Adjusted Unrealized Gain for (c) apply only during the fifth and
the duration of the extension period as sixth years following your first
follows: issuance of Participating Securities. If
(1) Compute Adjusted Unrealized your Capital Impairment Percentage,
Gain in accordance with § 107.1840(d)(4). as determined either by you or by SBA,
(2) If your result in paragraph (c)(1) exceeds the maximum permitted under
of this section was computed using the § 107.1830(c) but is below 85 percent, you
first line of the table in § 107.1840(d)(4): will not have a condition of Capital Im-
(i) Calculate 50 percent of the origi- pairment if you do either of the fol-
nal Class 2 Appreciation on the indi- lowing within thirty (30) days of such
vidual investment that is the subject of determination:
this paragraph (c), and (1) Increase your Regulatory Capital
(ii) Add it to the result from para- by a cash contribution placed in an es-
graph (c)(1) of this section to determine crow account or other account satisfac-
your Adjusted Unrealized Gain. tory to SBA, for its benefit. The con-
(3) If your result in paragraph (c)(1) tribution must equal, during the fifth
of this section was computed using the year, 15 percent of your outstanding
second line of the table in Leverage or, during the sixth year, 30
§ 107.1840(d)(4): percent.
(i) Calculate 50 percent of the origi- (2) Provide a guarantee, satisfactory
nal Class 2 Appreciation on the indi- to SBA and for its benefit, for the
vidual investment that is the subject of amount of the cash contribution re-
this paragraph (c). quired in paragraph (c)(1) of this sec-
(ii) Subtract your Class 1 Apprecia- tion. SBA will credit any escrowed
tion from your Net Appreciation, and funds or guarantee received in the fifth
multiply the result by 50 percent. year toward the requirements for the
(iii) Add the lesser of (c)(3)(i) and (ii) sixth year.
of this section to the result from para- (d) Conditions for forbearance under
graph (c)(1) of this section to determine paragraph (c) of this section. (1) You can-
your Adjusted Unrealized Gain. not count any funds placed in an es-
[77 FR 25054, Apr. 27, 2012] crow or other account under paragraph
126
(c) of this section as Leverageable Cap- § 107.1920 Licensee’s application for

ital. exemption from a regulation in this
(2) Any fee and/or any claim to repay- part 107.
ment by the party making the capital You may file an application in writ-
contribution or by the guarantor must ing with SBA to have a proposed action
be deferred and subordinate to all out- exempted from any procedural or sub-
standing Leverage plus any unpaid stantive requirement, restriction, or
Earned Prioritized Payments and prohibition to which it is subject under
earned Adjustments. this part, unless the provision is man-
(3) If there is an acceleration or mandated by the Act. SBA may grant an
datory redemption under § 107.1810 or exemption for such applicant, condi-
§ 107.1820, any funds in the escrow ac- tionally or unconditionally, provided
count and/or any guarantee received the exemption would not be contrary
under paragraph (c) of this section will to the purposes of the Act. Your appli-
be applied toward repaying any cation must be accompanied by sup-
amounts due SBA. porting evidence which demonstrates
(4) If you reduce your Capital Impair- to SBA’s satisfaction that:
ment Percentage to zero, SBA will re- (a) The proposed action is fair and eq-
lease and return any escrowed funds uitable; and
and/or any guarantee received under (b) The exemption requested is rea-
paragraph (c) of this section. sonably calculated to advance the best
interests of the SBIC program in a
Subpart K—Ending Operations as manner consonant with the policy ob-
a Licensee jectives of the Act and the regulations
in this part.
§ 107.1900 Surrender of license.
§ 107.1930 Effect of changes in this
You may not surrender your license part 107 on transactions previously
without SBA’s prior written approval. consummated.
Your request for approval must be ac-
companied by an offer of immediate re- The legality of a transaction covered
payment of all of your outstanding Le- by the regulations in this part is gov-
verage (including any prepayment pen- erned by the regulations in this part in
alties thereon), or by a plan satisfac- effect at the time the transaction was
tory to SBA for the orderly liquidation consummated, regardless of later
of the Licensee. changes. Nothing in this part bars SBA
enforcement action with respect to any
transaction consummated in violation
Subpart L—Miscellaneous of provisions applicable at the time,
§ 107.1910 Non-waiver of SBA’s rights but no longer in effect.
or terms of Leverage security.
SBA’s failure to exercise or delay in PART 108—NEW MARKETS VENTURE
exercising any right or remedy under CAPITAL (‘‘NMVC’’) PROGRAM
the Act or the regulations in this part
does not constitute a waiver of such Subpart A—Introduction to Part 108
right or remedy. SBA’s failure to re- Sec.
quire you to perform any term or pro- 108.10 Description of the New Markets Ven-
vision of your Leverage does not affect ture Capital Program.
SBA’s right to enforce such term or 108.20 Legal basis and applicability of this
provision. Similarly, SBA’s waiver of, part 108.
or failure to enforce, any term or pro- 108.30 Amendments to Act and regulations.
vision of your Leverage or of any event 108.40 How to read this part 108.
or condition set forth in § 107.1810 or
§ 107.1820 does not constitute a waiver Subpart B—Definition of Terms Used in This
of any succeeding breach of such term Part 108

or provision or condition. 108.50 Definition of terms.
127
Subpart C—Qualifications for the NMVC RESTRICTIONS ON COMMON CONTROL OR OWN-

Program ERSHIP OF TWO OR MORE NMVC COMPA-
NIES
ORGANIZING A NMVC COMPANY
108.460 Restrictions on Common Control or
108.100 Business form. ownership of two (or more) NMVC Com-
108.110 Qualified management. panies.
108.120 Economic development primary mis-
sion. CHANGE IN STRUCTURE OF NMVC COMPANY
108.130 Identified Low Income Geographic
108.470 SBA approval of merger, consolida-
Areas.
tion, or reorganization of NMVC Com-
108.140 SBA approval of initial Management
pany.
Expenses.
108.150 Management and ownership diver-
sity requirement. Subpart G—Managing the Operations of a
108.160 Special rules for NMVC Companies NMVC Company
formed as limited partnerships.
GENERAL REQUIREMENTS
CAPITALIZING A NMVC COMPANY 108.500 Lawful operations under the Act.
108.200 Adequate capital for NMVC Compa- 108.502 Representations to the public.
nies. 108.503 NMVC Company’s adoption of an ap-
108.210 Minimum capital requirements for proved valuation policy.
NMVC Companies. 108.504 Equipment and office requirements.
108.230 Private Capital for NMVC Compa- 108.506 Safeguarding the NMVC Company’s
nies. assets/Internal controls.
108.507 Violations based on false filings and
Subpart D—Application and Approval nonperformance of agreements with
Process for NMVC Company Designation SBA.
108.509 Employment of SBA officials.
108.300 When and how to apply for designa-
tion as a NMVC Company. MANAGEMENT AND COMPENSATION
108.310 Contents of application.
108.320 Contents of comprehensive business 108.510 SBA approval of NMVC Company’s
plan. Investment Adviser/Manager.
108.330 Grant issuance fee. 108.520 Management Expenses of a NMVC
Company.
Subpart E—Evaluation and Selection of
NMVC Companies CASH MANAGEMENT BY A NMVC COMPANY
108.530 Restrictions on investments of idle
108.340 Evaluation and selection—general.
funds by NMVC Companies.
108.350 Eligibility and completeness.
108.360 Evaluation criteria. BORROWING BY NMVC COMPANIES FROM NON-
108.370 Conditional approval. SBA SOURCES
108.380 Final approval as a NMVC Company.
108.550 Prior approval of secured third-party
Subpart F—Changes in Ownership, debt of NMVC companies.
Structure, or Control
VOLUNTARY DECREASE IN REGULATORY
CHANGES IN CONTROL OR OWNERSHIP OF NMVC CAPITAL
COMPANY 108.585 Voluntary decrease in NMVC Com-
108.400 Changes in ownership of 10 percent pany’s Regulatory Capital.
or more of NMVC Company but no
change of Control. Subpart H—Recordkeeping, Reporting,
108.410 Changes in Control of NMVC Com- and Examination Requirements for
pany (through change in ownership or NMVC Companies
otherwise).
108.420 Prohibition on exercise of ownership RECORDKEEPING REQUIREMENTS FOR NMVC
or Control rights in NMVC Company be- COMPANIES
fore SBA approval.
108.430 Notification to SBA of transactions 108.600 General requirement for NMVC Com-
that may change ownership or Control. pany to maintain and preserve records.
108.440 Standards governing prior SBA ap- 108.610 Required certifications for Loans
proval for a proposed transfer of Control. and Investments.

108.450 Notification to SBA of pledge of 108.620 Requirements to obtain information
NMVC Company’s shares. from Portfolio Concerns.
128
REPORTING REQUIREMENTS FOR NMVC Subpart J—SBA Financial Assistance for
COMPANIES NMVC Companies (Leverage)
108.630 Requirement for NMVC companies
GENERAL INFORMATION ABOUT OBTAINING
to file financial statements and supple- LEVERAGE
mentary information with SBA (SBA
Form 468). 108.1100 Type of Leverage and application
108.640 Requirement to file portfolio financ- procedures.
ing reports (SBA Form 1031). 108.1120 General eligibility requirement for
108.650 Requirement to report portfolio Leverage.
valuations to SBA. 108.1130 Leverage fees payable by NMVC
108.660 Other items required to be filed by Company.
NMVC Company with SBA. 108.1140 NMVC Company’s acceptance of
108.680 Reporting changes in NMVC Com- SBA remedies under § 108.1810.
pany not subject to prior SBA approval.
MAXIMUM AMOUNT OF LEVERAGE FOR WHICH A
EXAMINATIONS OF NMVC COMPANIES BY SBA NMVC COMPANY IS ELIGIBLE
FOR REGULATORY COMPLIANCE 108.1150 Maximum amount of Leverage for a
108.690 Examinations. NMVC Company.
108.691 Responsibilities of NMVC Company
CONDITIONAL COMMITMENTS BY SBA TO
during examination.
RESERVE LEVERAGE FOR A NMVC COMPANY
108.692 Examination fees.
108.1200 SBA’s Leverage commitment to a
Subpart I—Financing of Small Businesses NMVC Company’s application procedure,
by NMVC Companies amount, and term.
108.1220 Requirement for NMVC Company to
DETERMINING THE ELIGIBILITY OF A SMALL file financial statements at the time of
BUSINESS FOR NMVC FINANCING request for a draw.
108.1230 Draw-downs by NMVC Company
108.700 Compliance with size standards in
under SBA’s Leverage commitment.
part 121 of this chapter as a condition of
108.1240 Funding of NMVC Company’s draw
Assistance.
request through sale to third-party.
108.710 Requirement to finance Low-Income
Enterprises. FUNDING LEVERAGE BY USE OF SBA
108.720 Small Businesses that may be ineli- GUARANTEED TRUST CERTIFICATES (‘‘TCS’’)
gible for financing.
108.730 Financings which constitute con- 108.1600 SBA authority to issue and guar-
flicts of interest. antee Trust Certificates.
108.740 Portfolio diversification (‘‘overline’’ 108.1610 Effect of prepayment or early re-
limitation). demption of Leverage on a Trust Certifi-
cate.
108.760 How a change in size or activity of a
Portfolio Concern affects the NMVC 108.1620 Functions of agents, including Cen-
tral Registration Agent, Selling Agent
Company and the Portfolio Concern.
and Fiscal Agent.
STRUCTURING NMVC COMPANY’S FINANCING OF 108.1630 SBA regulation of Brokers and
ELIGIBLE SMALL BUSINESSES Dealers and disclosure to purchasers of
Leverage or Trust Certificates.
108.800 Financings in the form of equity in- 108.1640 SBA access to records of the CRA,
terests. Brokers, Dealers and Pool or Trust as-
108.820 Financings in the form of guaran- semblers.
tees.
108.825 Purchasing securities from an under- MISCELLANEOUS
writer or other third party. 108.1700 Transfer by SBA of its interest in a
LIMITATIONS ON DISPOSITION OF ASSETS NMVC Company’s Leverage security.
108.1710 SBA authority to collect or com-
108.885 Disposition of assets to NMVC Com- promise its claims.
pany’s Associates. 108.1720 Characteristics of SBA’s guarantee.
MANAGEMENT SERVICES AND FEES Subpart K—NMVC Company’s
108.900 Fees for management services pro- Noncompliance With Terms of Leverage
vided to a Small Business by a NMVC

Company or its Associate. 108.1810 Events of default and SBA’s rem-
edies for NMVC Company’s noncompli-
ance with terms of Debentures.
129
§ 108.10 13 CFR Ch. I (1–1–23 Edition)
COMPUTATION OF NMVC COMPANY’S CAPITAL job opportunities in low-income geo-
IMPAIRMENT graphic areas and among individuals
108.1830 NMVC Company’s Capital Impair- living in such areas. SBA selects and
ment definition and general require- then enters into participation agree-
ments. ments with selected newly formed ven-
108.1840 Computation of NMVC Company’s ture capital companies, and provides
Capital Impairment Percentage. leverage in the form of debenture guar-
antees to such companies to allow
Subpart L—Ending Operations as a NMVC
them to make equity capital invest-
Company
ments in smaller enterprises located in
108.1900 Termination of participation as a low-income geographic areas. SBA also
NMVC Company. awards grants to such companies and
to Specialized Small Business Invest-
Subpart M—Miscellaneous ment Companies so that they can pro-
108.1910 Non-waiver of SBA’s rights or vide operational assistance to such
terms of Leverage security. smaller enterprises in connection with
108.1920 NMVC Company’s application for such investments.
exemption from a regulation in this part
108. § 108.20 Legal basis and applicability
108.1930 Effect of changes in this part 108 on of this part 108.
transactions previously consummated. The regulations in this part imple-
108.1940 Procedures for designation of addi-
tional Low-Income Geographic Areas ment Part B of Title III of the Small
Business Investment Act of 1958, as
Subpart N—Requirements and Procedures amended (15 U.S.C. 661 et seq.). All
for Operational Assistance Grants to NMVC Companies must comply with
NMVC Companies and SSBICs all applicable SBA regulations, ac-
counting guidelines and valuation
108.2000 Operational Assistance grants to guidelines for NMVC Companies, avail-
NMVC Companies and SSBICs. able from SBA.
108.2001 When and how SSBICs may apply
for Operational Assistance grants. § 108.30 Amendments to Act and regu-
108.2002 Eligibility of SSBICs to apply for lations.
Operational Assistance grants.
108.2003 Grant issuance fee for SSBICs. A NMVC Company is subject to all
108.2004 Contents of application submitted provisions of the Act and parts 108 and
by SSBICs. 112 of title 13 of the Code of Federal
108.2005 Contents of plan submitted by Regulations.
SSBICs.
108.2006 Evaluation and selection of SSBICs. § 108.40 How to read this part 108.
108.2007 Grant award to SSBICs.
108.2010 Restrictions on use of Operational (a) Center headings. All references in
Assistance grant funds. this part to SBA forms, and instruc-
108.2020 Amount of Operational Assistance tions for their preparation, are to the
grant. current issue of such forms (available
108.2030 Matching requirements. from Investment Division, SBA). Cen-
108.2040 Reporting and recordkeeping re- ter headings are descriptive and are
quirements.
used for convenience only. They have
AUTHORITY: 15 U.S.C. 689–689q. no regulatory effect.
SOURCE: 66 FR 28609, May 23, 2001, unless (b) Capitalizing defined terms. Terms
otherwise noted. defined in § 108.50 have initial capital-
ization in this part 108.
Subpart A—Introduction to Part (c) ‘‘You.’’ The pronoun ‘‘you’’ as
108 used in this part 108 means a NMVC
Company unless otherwise noted.
§ 108.10 Description of the New Mar-
kets Venture Capital Program. Subpart B—Definition of Terms
The New Markets Venture Capital Used in This Part 108
(‘‘NMVC’’) Program is a developmental
venture capital program for the pur- § 108.50 Definition of terms.

pose of promoting economic develop- The following definitions apply to
ment and the creation of wealth and this part 108:
130
Act means the Small Business Invest- pany and no more than five percent of
ment Act of 1958, as amended (15 U.S.C. such Person’s net worth.
661 et seq.). (3) Any officer, director, partner
Affiliate or Affiliates has the meaning (other than a limited partner), man-
set forth in § 121.103 of this chapter. ager, agent, or employee of any Asso-
Applicant means any entity submit- ciate described in paragraph (1) or (2) of
ting an application to SBA for designa- this definition.
tion as a NMVC Company under this (4) Any Person that directly or indi-
part. rectly Controls, or is Controlled by, or
Articles mean articles of incorpora- is under Common Control with, a
tion or charter for a Corporate NMVC NMVC Company.
Company, the partnership agreement (5) Any Person that directly or indi-
or certificate for a Partnership NMVC rectly Controls, or is Controlled by, or
Company, and the operating agreement is under Common Control with, any
or other organizational documents for Person described in paragraphs (1) and
a LLC NMVC Company. (2) of this definition.
Assistance or Assisted means Financ- (6) Any Close Relative of any Person
ing of or management services ren- described in paragraphs (1), (2), (4), and
dered to a Small Business by or (5) of this definition.
through a NMVC Company pursuant to (7) Any Secondary Relative of any
the Act and this part. Person described in paragraphs (1), (2),
Associate of a NMVC Company means (4), and (5) of this definition.
any of the following:
(8) Any concern in which—
(1)(i) An officer, director, employee
or agent of a Corporate NMVC Com- (i) Any person described in para-
pany; graphs (1) through (6) of this definition
(ii) A Control Person, employee or is an officer; general partner, or man-
agent of a Partnership NMVC Com- aging member; or
pany; (ii) Any such Person(s) singly or col-
(iii) A managing member of a LLC lectively Control or own, directly or in-
NMVC Company; directly, an equity interest of at least
(iv) An Investment Adviser/Manager 10 percent (excluding interests that
of any NMVC Company, including any such Person(s) own indirectly through
Person who contracts with a Control ownership interests in the NMVC Com-
Person of a Partnership NMVC Com- pany).
pany to be the Investment Adviser/ (9) Any concern in which any Per-
Manager of such NMVC Company; or son(s) described in paragraph (7) of this
(v) Any Person regularly serving a definition singly or collectively own
NMVC Company on retainer in the ca- (including beneficial ownership) a ma-
pacity of attorney at law. jority equity interest, or otherwise
(2) Any Person who owns or controls, have Control. As used in this paragraph
or who has entered into an agreement (9), ‘‘collectively’’ means together with
to own or control, directly or indi- any Person(s) described in paragraphs
rectly, at least 10 percent of any class (1) though (7) of this definition.
of stock of a Corporate NMVC Com- (10) For the purposes of this defini-
pany or 10 percent of the membership tion, if any Associate relationship de-
interests of an LLC NMVC Company, scribed in paragraphs (1) through (7) of
or a limited partner’s interest of at this definition exists at any time with-
least 10 percent of the partnership cap- in six months before or after the date
ital of a Partnership NMVC Company. that a NMVC Company provides Fi-
However, neither a limited partner in a nancing, then that Associate relation-
Partnership NMVC Company nor a ship is considered to exist on the date
non-managing member in an LLC of the Financing.
NMVC Company is considered an Asso- (11) If any NMVC Company has any
ciate if such Person is an entity Insti- ownership interest in another NMVC
tutional Investor whose investment in Company, the two NMVC companies
the Partnership, including commit- are Associates of each other.

ments, represents no more than 33 per- Capital Impairment has the meaning
cent of the capital of the NMVC Com- set forth in § 108.1830(b).
131
§ 108.50 13 CFR Ch. I (1–1–23 Edition)
Central Registration Agent or CRA fulfilling the requirements to be a

means one or more agents appointed by NMVC Company within that specified
SBA for the purpose of issuing TCs and period of time.
performing the functions enumerated Control means the possession, direct
in § 108.1620 and performing similar or indirect, of the power to direct or
functions for Debentures funded out- cause the direction of the management
side the pooling process. and policies of a NMVC Company or
Close Relative of an individual means: other concern, whether through the
(1) A current or former spouse; ownership of voting securities, by con-
(2) A father, mother, guardian, broth- tract, or otherwise.
er, sister, son, daughter; or Control Person means any Person that
(3) A father-in-law, mother-in-law, controls a NMVC Company, either di-
brother-in-law, sister-in-law, son-in- rectly or through an intervening enti-
law, or daughter-in-law. ty. A Control Person includes:
Commitment means a written agree- (1) A general partner of a Partnership
ment between a NMVC Company and NMVC Company;
an eligible Small Business that obli- (2) Any Person serving as the general
gates the NMVC Company to provide partner, officer, director, or manager
Financing (except a guarantee) to that (in the case of a limited liability com-
Small Business in a fixed or deter- pany) of any entity that controls a
minable sum, by a fixed or deter- NMVC Company, either directly or
minable future date. In this context through an intervening entity;
the term ‘‘agreement’’ means that (3) Any Person that—
there has been agreement on the prin-
(i) Controls or owns, directly or
cipal economic terms of the Financing.
through an intervening entity, at least
The agreement may include reasonable
10 percent of a Partnership NMVC
conditions precedent to the NMVC
Company or any entity described in
Company’s obligation to fund the com-
paragraphs (1) or (2) of this definition;
mitment, but these conditions must be
and
outside the NMVC Company’s control.
Common Control means a condition (ii) Participates in the investment
where two or more Persons, either decisions of the general partner of such
through ownership, management, con- Partnership NMVC Company;
tract, or otherwise, are under the Con- (4) Any Person that controls or owns,
trol of one group or Person. Two or directly or through an intervening en-
more NMVC companies are presumed tity, at least 50 percent of a Partner-
to be under Common Control if they ship NMVC Company or any entity de-
are Affiliates of each other by reason of scribed in paragraphs (1) or (2) of this
common ownership or common offi- definition.
cers, directors, or general partners; or Corporate NMVC Company. See defini-
if they are managed or their invest- tion of NMVC Company in this section.
ments are significantly directed either Debentures means debt obligations
by a common independent investment issued by NMVC companies pursuant to
advisor or managerial contractor, or by section 355 of the Act and held or guar-
two or more such advisors or contrac- anteed by SBA.
tors that are Affiliates of each other. Debt Securities are instruments evi-
This presumption may be rebutted by dencing a loan with an option or any
evidence satisfactory to SBA. other right to acquire Equity Securi-
Community Development Finance ties in a Small Business or its Affili-
means debt and equity-type invest- ates, or a loan which by its terms is
ments in low-income communities. convertible into an equity position.
Conditionally Approved NMVC Com- Consideration must be paid for all op-
pany means a company that— tions that you acquire.
(1) Has applied for participation as a Developmental Venture Capital means
NMVC Company, and capital in the form of Equity Capital
(2) SBA has conditionally approved Investments in Smaller Enterprises
to participate in the NMVC program made with a primary objective of fos-

for a specified period of time not to ex- tering economic development in Low-
ceed two years, subject to the company Income Geographic Areas.
132
Distribution means any transfer of Includible Non-Cash Gains means

cash or non-cash assets to SBA, its those non-cash gains (as reported on
agent or Trustee, or to partners in a SBA Form 468) that are realized in the
Partnership NMVC Company, or to form of Publicly Traded and Market-
shareholders in a Corporate NMVC able securities or investment grade
Company, or to members in an LLC debt instruments. For purposes of this
NMVC Company. Capitalization of Re- definition, investment grade debt in-
tained Earnings Available for Distribu- struments means those instruments
tion constitutes a Distribution to the that are rated ‘‘BBB’’ or ‘‘Baa’’, or bet-
NMVC Company’s non-SBA partners, ter, by Standard & Poor’s Corporation
shareholders, or members. or Moody’s Investors Service, respec-
Equity Capital Investments means in- tively. Non-rated debt may be consid-
vestments in the form of common or ered to be investment grade if a NMVC
preferred stock, limited partnership in- Company obtains a written opinion
terests, options, warrants, or similar from an investment banking firm ac-
equity instruments, including subordi- ceptable to SBA stating that the non-
nated debt with equity features if such
rated debt instrument is equivalent in
debt provides only for interest pay-
risk to the issuer’s investment grade
ments contingent upon and limited to
debt.
the extent of earnings. Equity Capital
Investments must not require amorti- Institutional Investor means:
zation. Equity Capital Investments (1) Entities. Any of the following enti-
may be guaranteed by one or more ties if the entity has a net worth (ex-
third parties; however, neither Equity clusive of unfunded commitments from
Capital Investments nor such guar- investors) of at least $1 million, or such
antee may be collateralized or other- higher amount as is specified in this
wise secured. Investments classified as paragraph (1). (See also § 108.230(c)(4)
Debt Securities are not precluded from for limitations on the amount of an In-
qualifying as Equity Capital Invest- stitutional Investor’s commitment
ments. Equity Capital Investments that may be included in Private Cap-
may provide for royalty payments only ital.)
if the royalty payments are based on (i) A State or National bank, trust
the earnings of the concern. company, savings bank, or savings and
Equity Securities means stock of any loan association.
class in a corporation, stock options, (ii) An insurance company.
warrants, limited partnership interests (iii) A 1940 Act Investment Company
in a limited partnership, membership or Business Development Company
interests in a limited liability com-
(each as defined in the Investment
pany, or joint venture interests.
Company Act of 1940, as amended (15
Financing or Financed means out-
U.S.C. 8a–1 et seq.).
standing financial assistance provided
(iv) A holding company of any entity
to a Small Business by a NMVC Com-
pany, whether through: described in paragraph (l)(i), (ii) or (iii)
of this definition.
(1) Loans;
(v) An employee benefit or pension
(2) Debt Securities;
plan established for the benefit of em-
(3) Equity Securities;
ployees of the Federal government, any
(4) Guarantees; or
State or political subdivision of a
(5) Purchases of securities of a Small State, or any agency or instrumen-
Business through or from an under-
tality of such government unit.
writer (see § 108.825).
(vi) An employee benefit or pension
Guaranty Agreement means the con-
plan (as defined in the Employee Re-
tract entered into by SBA which is a
guarantee backed by the full faith and tirement Income Security Act of 1974,
credit of the United States Govern- as amended (Public Law 93–406, 88 Stat.
ment as to timely payment of principal 829), excluding plans established under
and interest on Debentures and SBA’s section 401(k) of the Internal Revenue
rights in connection with such guar- Code of 1986 (26 U.S.C. 401(k)), as
antee. amended).
133
§ 108.50 13 CFR Ch. I (1–1–23 Edition)
(vii) A trust, foundation or endow- Lending Institution means a concern

ment exempt from Federal income tax- that is operating under regulations of a
ation under the Internal Revenue Code state or Federal licensing, supervising,
of 1986, as amended. or examining body, or whose shares are
(viii) A corporation, partnership or publicly traded and listed on a recog-
other entity with a net worth (exclu- nized stock exchange or NASDAQ and
sive of unfunded commitments from in- which has assets in excess of $500 mil-
vestors) of more than $10 million. lion; and which, in either case, holds
(ix) A State, a political subdivision of itself out to the public as engaged in
a State, or an agency or instrumen- the making of commercial and indus-
tality of a State or its political sub- trial loans and whose lending oper-
division. ations are not for the purpose of fi-
(x) An entity whose primary purpose nancing its own or an Associate’s sales
is to manage and invest non-Federal or business operations.
funds on behalf of at least three Insti- Leverage means financial assistance
tutional Investors described in para- provided to a NMVC Company by SBA
graphs (l)(i) through (l)(ix) of this defi- through the guaranty of a NMVC Com-
nition, each of whom must have at pany’s Debentures, and any other SBA
least a 10 percent ownership interest in financial assistance evidenced by a se-
the entity. curity of the NMVC Company.
Leverageable Capital means Regu-
(xi) Any other entity that SBA deter-
latory Capital, excluding unfunded
mines to be an Institutional Investor.
commitments.
(2) Individuals. (i) Any of the fol- LLC NMVC Company. See definition
lowing individuals if he/she is also a of NMVC Company in this section.
permanent resident of the United Loan means a transaction evidenced
States: by a debt instrument with no provision
(A) An individual who is an Accred- for you to acquire Equity Securities.
ited Investor (as defined in the Securi- Loans and Investments means Port-
ties Act of 1933, as amended (15 U.S.C. folio securities, assets acquired in liq-
77a-77aa)) and whose commitment to uidation of Portfolio securities, oper-
the NMVC Company is backed by a let- ating concerns acquired, and notes and
ter of credit from a State or National other securities received, as set forth
bank acceptable to SBA. in the Statement of Financial Position
(B) An individual whose personal net of SBA Form 468.
worth is at least $2 million and at least Low-Income Enterprise means a Small-
ten times the amount of his or her er Enterprise that, as of the time of the
commitment to the NMVC Company. initial Financing, has its Principal Of-
The individual’s personal net worth fice located in a Low-Income Geo-
must not include the value of any eq- graphic Area.
uity in his or her most valuable resi- Low-Income Geographic Area (‘‘LI
dence. Area’’) means—
(C) An individual whose personal net (1) Any population census tract (or in
worth, not including the value of any the case of an area that is not tracted
equity in his or her most valuable resi- for population census tracts, the equiv-
dence, is at least $10 million. alent county division, as defined by the
(ii) Any individual who is not a per- Bureau of the Census of the United
manent resident of the United States States Department of Commerce for
but who otherwise satisfies paragraph purposes of defining poverty areas), if—
(2)(i) of this definition provided such (i) The poverty rate for that census
individual has irrevocably appointed tract is not less than 20 percent;
an agent within the United States for (ii) In the case of a tract—
the service of process. (A) That is located within a metro-
Investment Adviser/Manager means politan area, 50 percent or more of the
any Person who furnishes advice or as- households in that census tract have
sistance with respect to operations of a an income equal to less than 60 percent
NMVC Company under a written con- of the area median gross income; or
tract executed in accordance with the (B) That is not located within a met-
provisions of § 108.510. ropolitan area, the median household
134
income for such tract does not exceed partnership organized as required by
80 percent of the statewide median § 108.160 (Partnership NMVC Company),
household income; or or a limited liability company (LLC
(C) As determined by the Adminis- NMVC Company) that—
trator in accordance with § 108.1940 of (1) Has been granted final approval
this part, a substantial population of by SBA under § 108.380, and
Low-Income Individuals reside, an in- (2) Has entered into a Participation
adequate access to investment capital Agreement with SBA. For certain pur-
exists, or other indications of economic poses, the Entity General Partner of a
distress exist in that census tract; or Partnership NMVC Company is treated
(2) Any area located within— as if it were a NMVC Company (see
(i) A Historically Underutilized Busi- § 108.160(a)).
ness Zone (‘‘HUBZone’’) as defined in 1940 Act Company means a NMVC
section 3(p) of the Small Business Act Company which is registered under the
and 13 CFR 126.103; Investment Company Act of 1940 (15
(ii) An Urban Empowerment Zone or U.S.C. 80a-1 et seq.).
Urban Enterprise Community (as des- 1980 Act Company means a NMVC
ignated by the Secretary of the United Company which is registered under the
States Department of Housing and Small Business Investment Incentive
Urban Development); or Act of 1980 (Public Law 96–447, 94 Stat.
(iii) A Rural Empowerment Zone or 2275).
Rural Enterprise Community (as des- Operational Assistance means manage-
ignated by the Secretary of the United ment, marketing, and other technical
States Department of Agriculture). assistance that assists a Small Busi-
Low-Income Individual means an indi- ness with its business development.
vidual whose income (adjusted for fam- Original Issue Price means the price
ily size) does not exceed— paid by the purchaser for securities at
(1) For metropolitan areas, 80 percent the time of issuance.
of the area median income; and Participation Agreement means an
(2) For nonmetropolitan areas, the agreement between SBA and a com-
greater of— pany to which SBA has granted final
(i) 80 percent of the area median in- approval under § 108.380, that—
come, or (1) Details the company’s operating
(ii) 80 percent of the statewide non- plan and investment criteria; and
metropolitan area median income. (2) Requires the company to make in-
Low-Income Investment means an Eq- vestments in Smaller Enterprises at
uity Capital Investment in a Low-In- least 80 percent of which Smaller En-
come Enterprise. terprises are located in LI Areas.
Management Expenses has the mean- Partnership NMVC Company. See defi-
ing set forth in § 108.520. nition of NMVC Company in this sec-
NAICS Manual means the latest issue tion.
of the North American Industrial Clas- Person means a natural person or
sification System Manual, prepared by legal entity.
the Office of Management and Budget, Pool means an aggregation of SBA
and available from the U.S. Govern- guaranteed Debentures approved by
ment Printing Office, Superintendent SBA.
of Documents, P.O. Box 371954, Pitts- Portfolio means the securities rep-
burgh, Pa., 15250–7954. resenting a NMVC Company’s total
New Markets Tax Credit program outstanding Financing of Smaller En-
means the tax credit created by the terprises. It does not include idle funds
Consolidated Appropriations Act of or assets acquired in liquidation of
2001, Public Law 106–554 (114 Stat. Portfolio securities.
2762A), enacted December 21, 2000, to be Portfolio Concern means a Small Busi-
implemented by the Internal Revenue ness Assisted by a NMVC Company.
Service, United States Department of Principal Office means the location
Treasury. where the greatest number of the con-
New Markets Venture Capital Company cern’s employees at any one location
or NMVC Company means a corporation perform their work. However, for those
(Corporate NMVC Company), a limited concerns whose ‘‘primary industry’’
135
§ 108.50 13 CFR Ch. I (1–1–23 Edition)
(see 13 CFR 121.107) is service or con- (3) A spouse of any person described
struction (see 13 CFR 121.201), the de- in paragraph (1) or (2) of this defini-
termination of principal office excludes tion.
the concern’s employees who perform Small Business means a small business
the majority of their work at job-site concern as defined in section 103(5) of
locations to fulfill specific contract ob- the Act (including its Affiliates), and
ligations. which meets the criteria applicable to
Private Capital has the meaning set the Small Business Investment Com-
forth in § 108.230. pany program as set forth in part 121 of
Publicly Traded and Marketable means this chapter.
Small Business Investment Company
securities that are salable without re-
(SBIC) means a Licensee, as that term
striction or that are salable within 12
is defined in § 107.50 of this chapter.
months pursuant to Rule 144 (17 CFR
Smaller Enterprise means any Small
230.144) of the Securities Act of 1933, as
Business that:
amended, by the holder thereof, and (1) Together with its Affiliates has a
are of a class which is traded on a regu- net worth of not more than $6.0 million
lated stock exchange, or is listed in the and average net income after Federal
Automated Quotation System of the income taxes (excluding any carry-over
National Association of Securities losses) for the preceding two years no
Dealers (NASDAQ), or has, at a min- greater than $2.0 million; or
imum, at least two market makers as (2) Both together with its Affiliates,
defined in the relevant sections of the and by itself, meets the size standard
Securities Exchange Act of 1934, as of § 121.201 of this chapter at the time
amended (15 U.S.C. 77b et seq.), and in of Financing for the industry in which
all cases the quantity of which can be it is then primarily engaged.
sold over a reasonable period of time Specialized Small Business Investment
without having an adverse impact upon Companies (SSBICs) means any Small
the price of the stock. Business Investment Company that—
Regulatory Capital means Private (1) Invests solely in small business
Capital, excluding any portion of Pri- concerns that contribute to a well-bal-
vate Capital that is designated as anced national economy by facilitating
matching resources in accordance with ownership in such concerns by persons
§ 108.2030(b)(3). whose participation in the free enter-
Relevant Venture Capital Finance prise system is hampered because of so-
means Equity Capital Investments in cial or economic disadvantages; and
small businesses in low-income com- (2) Was licensed under section 301(d)
munities or benefiting low-income of the Small Business Investment Act,
communities. as in effect before September 30, 1996.
Retained Earnings Available for Dis- Trust means the legal entity created
tribution means Undistributed Net Re- for the purpose of holding guaranteed
alized Earnings less any Unrealized De- Debentures and the guaranty agree-
preciation on Loans and Investments ment related thereto, receiving, hold-
(as reported on SBA Form 468), and ing and making any related payments,
and accounting for such payments.
represents the amount that a NMVC
Trust Certificate Rate means a fixed
Company may distribute to investors
rate determined at the time Deben-
(including SBA) as a profit Distribu-
tures are pooled.
tion, or transfer to Private Capital.
Trust Certificates (TCs) means certifi-
SBA means the Small Business Ad- cates issued by SBA, its agent or
ministration, 409 Third Street, SW., Trustee and representing ownership of
Washington, DC 20416. all or a fractional part of a Trust or
Secondary Relative of an individual Pool of Debentures.
means: Trustee means the trustee or trustees
(1) A grandparent, grandchild, or any of a Trust.
other ancestor or lineal descendent Undistributed Net Realized Earnings
who is not a Close Relative; means Undistributed Realized Earnings

(2) An uncle, aunt, nephew, niece, or less Non-cash Gains/Income, each as re-
first cousin; or ported on SBA Form 468.
136
Unrealized Appreciation means the current or proposed management team

amount by which a NMVC Company’s has sufficient qualifications, SBA will
valuation of each of its Loans and In- consider information provided by the
vestments, as determined by its Board Applicant and third parties concerning
of Directors or General Partner(s) in the background, capability, education,
accordance with NMVC Company’s training and reputation of its general
valuation policies, exceeds the cost partners, managers, officers, key per-
basis thereof. sonnel, and investment committee and
Unrealized Depreciation means the governing board members. The Appli-
amount by which a NMVC Company’s cant must designate at least one indi-
valuation of each of its Loans and In- vidual as the official responsible for
vestments, as determined by its Board contact with SBA.
of Directors or General Partner(s) in
accordance with NMVC Company’s § 108.120 Economic development pri-
valuation policies, is below the cost mary mission.
basis thereof. The primary mission of a NMVC
Unrealized Gain (Loss) on Securities Company must be economic develop-
Held means the sum of the Unrealized ment of one or more LI Areas.
Appreciation and Unrealized Deprecia-
tion on all of a NMVC Company’s § 108.130 Identified Low Income Geo-
Loans and Investments, less estimated graphic Areas.
future income tax expense or estimated A NMVC Company must identify the
realizable future income tax benefit, as specific LI Areas in which it intends to
appropriate. make Developmental Venture Capital
[66 FR 28609, May 23, 2001, as amended at 67 investments and provide Operational
FR 68502, Nov. 12, 2002] Assistance under the NMVC program.
Subpart C—Qualifications for the § 108.140 SBA approval of initial Man-

agement Expenses.
NMVC Program
A NMVC Company must have its
ORGANIZING A NMVC COMPANY Management Expenses approved by
SBA at the time of designation as a
§ 108.100 Business form. NMVC Company. (See § 108.520 for the
A NMVC Company must be a newly definition of Management Expenses.)
formed for-profit entity or, subject to
§ 108.150, a newly formed for-profit sub- § 108.150 Management and ownership
sidiary of an existing entity. It must be diversity requirement.
organized under State law solely for (a) Diversity requirement. You must
the purpose of performing the func- have diversity between management
tions and conducting the activities and ownership in order to be a NMVC
contemplated under the Act. It may be Company. To establish diversity, you
organized as a corporation (‘‘Corporate must meet the requirements in para-
NMVC Company’’), a limited partner- graphs (b) and (c) of this section.
ship (‘‘Partnership NMVC Company’’), (b) Percentage ownership requirement.
or a limited liability company (‘‘LLC No Person or group of Persons who are
NMVC Company’’). Affiliates of one another may own or
control, directly or indirectly, more
§ 108.110 Qualified management. than 70 percent of your Regulatory
An Applicant must show, to the sat- Capital or your Leverageable Capital.
isfaction of SBA, that its current or (c) Non-affiliation requirement. At
proposed management team is quali- least 30 percent of your Regulatory
fied and has the knowledge, experience, Capital and Leverageable Capital must
and capability in Community Develop- be owned and controlled by three Per-
ment Finance or Relevant Venture sons unaffiliated with your manage-
Capital Finance, necessary for investment and unaffiliated with each other,
ing in the types of businesses con- whose investments are significant in
templated by the Act, the regulations dollar and percentage terms as deter-
in this part and its business plan. In mined by SBA. Such Persons must not
determining whether an Applicant’s be your Associates (except for their
137
§ 108.160 13 CFR Ch. I (1–1–23 Edition)
status as your shareholders, limited eral partner of one or more NMVC com-
partners or members) and must not panies.
Control, be Controlled by, or be under (2) SBA must approve any person who
Common Control with any of your As- will serve as an officer, director, man-
sociates. A single ‘‘acceptable’’ Institu- ager, or general partner of the Entity
tional Investor may be substituted for General Partner. This provision must
two or three of the three investors who be stated in an Entity General Part-
are otherwise required. The following ner’s Certificate of Incorporation, oper-
Institutional Investors are ‘‘accept- ating agreement, limited partnership
able’’ for this purpose: agreement or other similar governing
(1) Entities whose overall activities instrument.
are regulated and periodically exam- (3) An Entity General Partner is sub-
ined by state, Federal or other govern- ject to the same examination and re-
mental authorities satisfactory to porting requirements as a NMVC Com-
SBA; pany under sections 361 and 362 of the
(2) Entities listed on the New York Act. The restrictions and obligations
Stock Exchange; imposed upon a NMVC Company by
(3) Entities that are publicly-traded §§ 108.1810, 108.30, 108.410 through 108.450,
and that meet both the minimum nu- 108.470, 108.500, 108.510, 108.585, 108.600,
merical listing standards and the cor- 108.680, 108.690 through 108.692, and
porate governance listing standards of 108.1910 apply also to an Entity General
the New York Stock Exchange: Partner of a NMVC Company.
(4) Public or private employee pen- (4) The general partner(s) of your En-
sion funds; tity General Partner(s) will be consid-
(5) Trusts, foundations, or endow- ered your general partner.
ments, but only if exempt from Federal (5) If your Entity General Partner is
income taxation; and a limited partnership, its limited part-
(6) Other Institutional Investors sat- ners may be considered your Control
isfactory to SBA. Person(s) if they meet the definition
for Control Person in § 108.50.
(d) Voting requirement. The investors
(b) Other requirements for Partnership
required for you to satisfy diversity
NMVC Companies. If you are a Partner-
may not delegate their voting rights to
ship NMVC Company:
any Person who is your Associate, or
(1) You must have a minimum dura-
who Controls, is Controlled by, or is
tion of 10 years or two years following
under Common Control with any of
the maturity of your last-maturing Le-
your Associates, without prior SBA ap-
verage security, whichever is longer.
proval.
After 10 years, if all Leverage has been
(e) Requirement to maintain diversity.
repaid or redeemed and all amounts
You must maintain management-own-
due SBA, its agent, or Trustee have
ership diversity while you are a NMVC
been paid, the Partnership NMVC Com-
Company. If, at any time, you no
pany may be terminated by a vote of
longer have the required management-
your partners;
ownership diversity, you must:
(2) None of your general partner(s)
(1) Notify SBA within 10 days; and may be removed or replaced by your
(2) Re-establish diversity within six limited partners without prior written
months. approval of SBA;
[66 FR 28609, May 23, 2001; 66 FR 32894, June (3) Any transferee of, or successor in
19, 2001] interest to, your general partner shall
have only the rights and liabilities of a
§ 108.160 Special rules for NMVC Com- limited partner pending SBA’s written
panies formed as limited partner- approval of such transfer or succession;
ships. and
(a) Entity General Partner. (1) A gen- (4) You must incorporate all the pro-
eral partner which is a corporation, visions in this paragraph (b) in your
limited liability company or partner- limited partnership agreement.
ship (an ‘‘Entity General Partner’’) (c) Obligations of a Control Person. All
shall be organized under state law sole- Control Persons are bound by the dis-
ly for the purpose of serving as the gen- ciplinary provisions of sections 365 and
138
366 of the Act and by the conflict-of-in- limitations in paragraph (c) of this sec-
terest rules under § 108.730. The term tion.
NMVC Company, as used in §§ 108.30, (c) Exclusions from Private Capital.
108.460, and 108.680, includes all of the Private Capital does not include:
NMVC Company’s Control Persons. The (1) Funds borrowed by a NMVC Com-
conditions specified in § 108.1810 and pany from any source.
§ 108.1910 apply to all general partners. (2) Funds obtained through the
(d) Liability of general partner for part- issuance of Leverage.
nership debts to SBA. Subject to section (3) Funds obtained directly from any
365 of the Act, your general partner is Federal agency or department.
not liable solely by reason of its status (4) Any portion of a commitment
as a general partner for repayment of from an Institutional Investor with a
any Leverage or debts you owe to SBA net worth of less than $10 million that
unless SBA, in the exercise of reason- exceeds 10 percent of such Institutional
able investment prudence, and with re- Investor’s net worth.
gard to your financial soundness, de- (5) A commitment from an investor if
termines otherwise prior to the pur- SBA determines that the collectability
chase or guaranty of your Leverage. of the commitment is questionable.
(e) Special Leverage requirement. Be- (d) Limitations on including non-cash
fore your first issuance of Leverage, capital contributions in Private Capital.
you must furnish SBA with evidence Private Capital does not include cap-
that you qualify as a partnership for ital contributions in a form other than
tax purposes, either by a ruling from cash, except as provided in this para-
the Internal Revenue Service or by an graph (d). Subject to SBA’s prior ap-
opinion of counsel. proval, Private Capital may include
payments made on behalf of an Appli-
CAPITALIZING A NMVC COMPANY cant or Conditionally Approved NMVC
Company before the Applicant or Con-
§ 108.200 Adequate capital for NMVC
Companies. ditionally Approved NMVC Company
becomes a NMVC Company for organi-
You must meet the requirements of zational expenses and Management Ex-
§§ 108.200–108.230 in order to qualify for penses incurred by the Applicant or the
designation as a NMVC Company and Conditionally Approved NMVC Com-
to receive Leverage. pany prior to its becoming a NMVC
Company.
§ 108.210 Minimum capital require-
ments for NMVC Companies. (e) Contributions with borrowed funds.
You may not accept any capital con-
You must have Regulatory Capital of tribution made with funds borrowed by
at least $5,000,000 and Leverageable a Person seeking to own an equity in-
Capital of at least $500,000 to become a terest (whether direct or indirect, ben-
NMVC Company. eficial or of record) of at least 10 per-
cent of your Private Capital. This ex-
§ 108.230 Private Capital for NMVC clusion does not apply if:
Companies.
(1) Such Person’s net worth is at
(a) General. Private Capital means least twice the amount borrowed; or
the contributed capital of a NMVC (2) SBA gives its prior written ap-
Company, plus unfunded binding com- proval of the capital contribution.
mitments by Institutional Investors
(including commitments evidenced by [66 FR 28609, May 23, 2001, as amended at 67
FR 68502, Nov. 12, 2002]
a promissory note) to contribute cap-
ital to a NMVC Company.
(b) Contributed capital. For purposes Subpart D—Application and Ap-
of this section, contributed capital proval Process for NMVC
means the paid-in capital and paid-in Company Designation
surplus of a Corporate NMVC Com-
pany, the members’ paid-in capital of a § 108.300 When and how to apply for
LLC NMVC Company, or the partners’ designation as a NMVC Company.

paid-in capital of a Partnership NMVC (a) Notice of Funds Availability
Company, in each case subject to the (‘‘NOFA’’). SBA will publish a NOFA in
139
§ 108.310 13 CFR Ch. I (1–1–23 Edition)
the FEDERAL REGISTER, advising poten- must state the amount of tax credit al-
tial applicants of the availability of location it intends to seek.
funds for the NMVC program. An enti-
ty may then submit an application for FR 68502, Nov. 12, 2002]
designation as a NMVC Company.
When submitting its application, an § 108.320 Contents of comprehensive
Applicant must comply with both these business plan.
regulations and any requirements spec- (a) Executive summary. The executive
ified in the NOFA, including submis- summary must include a description
sion deadlines. The NOFA may specify of—
limitations, special rules, procedures,
(1) The Applicant;
and restrictions for a particular fund-
(2) Its strategy for how it proposes to
ing round.
make successful Developmental Ven-
(b) Application form. An Applicant ture Capital investments in identified
must apply for designation as a NMVC
LI Areas;
Company using the application packet
(3) The markets in the LI Areas it
provided by SBA. Upon receipt of an
proposes to serve; and
application, SBA may request clari-
fying or technical information on the (4) How it intends to work with com-
materials submitted as part of the ap- munity organizations in and be ac-
plication. countable to the residents of identified
LI Areas in order to facilitate its De-
§ 108.310 Contents of application. velopmental Venture Capital invest-
ments.
Each Applicant must submit a com- (b) Capacity, skills, and experience of
plete application, including the fol- the management team. An Applicant
lowing: must provide information generally as
(a) Amounts. The Applicant must in- to the background, capability, edu-
dicate— cation, reputation and training of its
(1) The specific amount of Regulatory general partners, managers, officers,
Capital it proposes to raise (which key personnel, investment committee
amount must be at least $5,000,000); and and governing board members. The Ap-
(2) The specific amount of binding plicant also must provide information
commitments for contributions in cash specifically on these individuals’ quali-
or in-kind it proposes to raise, and/or fications and reputation in the areas of
an annuity it proposes to purchase, in Community Development Finance and/
accordance with the requirements of or Relevant Venture Capital Finance,
§ 108.2030, as its matching resources for including the impact of these individ-
its Operational Assistance grant award uals’ activities in these areas.
(the aggregate of which must be not (c) Market analysis. An Applicant
less than $1,500,000 or 30 percent of the must provide an analysis of the LI
Regulatory Capital it proposes to raise Areas in which it intends to focus its
under paragraph (a)(1) of this section, Developmental Venture Capital invest-
whichever is greater). ments and Operational Assistance to
(b) Comprehensive business plan. The Smaller Enterprises, demonstrating
Applicant must submit a comprehen- that the Applicant understands the
sive business plan covering at least a market and the unmet capital needs in
five-year period, addressing the specific such areas and how its activities will
items described in § 108.320, and which meet these unmet capital needs
demonstrates that the Applicant has through Developmental Venture Cap-
the capacity to operate successfully as ital investments and will have a posi-
a NMVC Company. tive economic impact on those areas.
(c) New Markets Tax Credit program. The analysis must include a descrip-
Applicant must address if and to what tion of the extent of the economic dis-
extent it intends to conform its activi- tress in the identified LI Areas. An Ap-
ties to the New Markets Tax Credit plicant also must analyze the extent of
laws. If Applicant plans to seek a New the demand in such areas for Develop-
Markets Tax Credit, Applicant also mental Venture Capital investments
140
and any factors or trends that may af- the amount of its total Regulatory
fect the Applicant’s ability to make ef- Capital and Leverage that it proposes
fective Developmental Venture Capital to invest in Smaller Enterprises lo-
investments. cated in LI Areas, as compared to the
(d) Operational capacity and invest- amount that it proposes to invest in
ment strategies. An Applicant must sub- Small Businesses located outside of LI
mit information concerning its policies Areas.
and procedures for underwriting and (i) Projected impact. An Applicant
approving its Developmental Venture
must describe the criteria and eco-
Capital investments, monitoring its
nomic measurements to be used to
portfolio, and maintaining internal
controls and operations. evaluate whether and to what extent it
(e) Regulatory Capital. An Applicant has met the objectives of the NMVC
must include a detailed description of program. It must include:
how it plans to raise its Regulatory (1) A description of the extent to
Capital. An Applicant must discuss its which it will concentrate its Develop-
potential sources of Regulatory Cap- mental Venture Capital investments
ital, the estimated timing on raising and Operational Assistance activities
such funds, and the extent of the ex- in identified LI Areas;
pressions of interest to commit such (2) An estimate of the social, eco-
funds to the Applicant. nomic, and community development
(f) Plan for providing Operational As- benefits to be created within identified
sistance. An Applicant must describe LI Areas over the next five years or
how it plans to use its grant funds to more as a result of its activities;
provide Operational Assistance to
(3) A description of the criteria to be
Smaller Enterprises in which it will
used to measure the benefits created as
make Developmental Venture Capital
investments. Its plan must address the a result of its activities;
types of Operational Assistance it pro- (4) A discussion about the amount of
poses to provide, and how it plans to such benefits created that it will con-
provide the Operational Assistance sider to constitute successfully meet-
through the use of licensed profes- ing the objectives of the NMVC pro-
sionals, when necessary, either from its gram.
own staff or from outside entities. (j) Affiliates and business relationships.
(g) Matching resources for Operational Applicant must submit information re-
Assistance grant. An Applicant must in- garding the management and financial
clude a detailed description of how it strength of any parent or holding enti-
plans to obtain binding commitments ty, affiliated firm or entity, or any
for cash or in-kind contributions, and/ other firm or entity essential to the
or to purchase an annuity, to match success of the Applicant’s business
the funds requested from SBA for the plan.
Applicant’s Operational Assistance
grant. If it proposes to obtain commit- [66 FR 28609, May 23, 2001, as amended at 67
ments for cash and in-kind contribu- FR 68503, Nov. 12, 2002]
tions, it also must estimate the ratio
of cash to in-kind contributions (in no § 108.330 Grant issuance fee.
event may in-kind contributions ex- An Applicant must pay to SBA a
ceed 50 percent of the total contribu- grant issuance fee of $5,000. An Appli-
tions). Applicant must discuss its po- cant must submit this fee in advance,
tential sources of matching resources, at the time of application submission.
the estimated timing on raising such If SBA does not select an Applicant as
funds, and the extent of the expressions a Conditionally Approved NMVC Com-
of interest to commit such funds to the pany or designate an Applicant as a
Applicant. Potential sources of match- NMVC Company, SBA will refund this
ing resources must satisfy the require-
fee to the Applicant.
ments in § 108.2030(b)(1).
(h) Projected amount of investment in
LI Areas. An Applicant must describe
141
§ 108.340 13 CFR Ch. I (1–1–23 Edition)
Subpart E—Evaluation and (d) The strength and likelihood for

Selection of NMVC Companies success of the Applicant’s operations
and investment strategies;
§ 108.340 Evaluation and selection— (e) The need for Developmental Ven-
general. ture Capital investments in the LI
Areas in which the Applicant intends
SBA will evaluate and select an Ap-
to invest;
plicant to participate in the NMVC
(f) The extent to which the Applicant
program solely at SBA’s discretion,
will concentrate its activities on serv-
based on SBA’s review of the Appli-
ing the LI Areas in which it intends to
cant’s application materials, inter-
invest, including the ratio of resources
views or site visits with the Applicant
that it proposes to invest in such areas
(if any), and background investigations as compared to other areas;
conducted by SBA and other Federal (g) The Applicant’s demonstrated un-
agencies. SBA’s evaluation and selec- derstanding of the markets in the LI
tion process is intended to— Areas in which it intends to focus its
(a) Ensure that Applicants are evalu- activities;
ated on a competitive basis and in a (h) The likelihood that and the time
fair and consistent manner; frame within which the Applicant will
(b) Take into consideration the be able to—
unique proposals presented by Appli- (1) Raise the Regulatory Capital it
cants; proposes to raise for its investments,
(c) Ensure that each Applicant that and
SBA designates as a NMVC Company (2) Obtain the binding commitments
can fulfill successfully the goals of its for contributions in cash or in-kind
comprehensive business plan; and and/or an annuity it proposes to obtain
(d) Ensure that SBA selects Appli- as its matching resources for its Oper-
cants in such a way as to promote De- ational Assistance grant award;
velopmental Venture Capital invest- (i) The strength of the Applicant’s
ments nationwide and in both urban proposal to provide Operational Assist-
and rural areas. ance to Smaller Enterprises in which it
plans to invest;
§ 108.350 Eligibility and completeness. (j) The extent to which the activities
SBA will not consider any applica- proposed by the Applicant will promote
tion that is not complete or that is economic development and the cre-
submitted by an Applicant that does ation of wealth and job opportunities
not meet the eligibility criteria de- in the LI Areas in which it intends to
scribed in subpart C of this part. SBA, invest and among individuals living in
at its sole discretion, may request from LI Areas; and
an Applicant additional information (k) The strength of the Applicant’s
concerning eligibility criteria or easily application compared to applications
completed portions of the application submitted by other Applicants and by
in order to allow SBA to consider that SSBICs intending to invest in the same
Applicant’s application. or proximate LI Areas.
§ 108.360 Evaluation criteria. FR 68503, Nov. 12, 2002]
SBA will evaluate and select an Ap-
plicant for participation in the NMVC § 108.370 Conditional approval.
program by considering the following From among the Applicants submit-
criteria— ting eligible and complete applications,
(a) The quality of the Applicant’s SBA will select a number of Applicants
comprehensive business plan in terms and will conditionally approve such se-
of meeting the objectives of the NMVC lected Applicants to participate in the
program; NMVC program. SBA will give each
(b) The likelihood that the Applicant such Conditionally Approved NMVC
will fulfill the goals described in its Company a specific period of time, not
comprehensive business plan; to exceed two years, to satisfy the re-

(c) The capability of the Applicant’s quirements to become a NMVC Com-
management team; pany.
142
§ 108.380 Final approval as a NMVC the elements of the exception described

Company. in paragraph (b)(1) of this section.
(a) General rule. With respect to each (3) No applicability to Regulatory Cap-
Conditionally Approved NMVC Com- ital. The exception described in this
pany, SBA will either: section applies only to matching re-
(1) Grant final approval to partici- sources for the Operational Assistance
pate in the NMVC program and des- grant award. Under no circumstances
ignate such company as a NMVC Com- will SBA designate a Conditionally Ap-
pany, if such Conditionally Approved proved NMVC Company as a NMVC
NMVC Company: Company if such Conditionally Ap-
(i) Within the specific period of time proved NMVC Company does not raise
SBA gave to it when SBA conditionally the required amount of Regulatory
approved it for participation in the Capital within the time period SBA
NMVC program, has raised: gave it to do so.
(A) The amount of Regulatory Cap- [66 FR 28609, May 23, 2001, as amended at 67
ital set forth in its application, pursu- FR 68503, Nov. 12, 2002]
ant to § 108.310(a)(1); and
(B) The amount of matching re- Subpart F—Changes in
sources for its Operational Assistance
grant award set forth in its applica-
Ownership, Structure, or Control
tion, pursuant to § 108.310(a)(2); and CHANGES IN CONTROL OR OWNERSHIP OF
(ii) Enters into a Participation NMVC COMPANY
Agreement with SBA; or
(2) Revoke SBA’s conditional ap- § 108.400 Changes in ownership of 10
proval of the company, at which time percent or more of NMVC Company
it is no longer a Conditionally Ap- but no change of Control.
proved NMVC Company and must not You must obtain SBA’s prior written
participate in the NMVC program or approval for any proposed transfer or
represent itself as a Conditionally Ap- issuance of ownership interests that re-
proved NMVC Company. sults in the ownership (beneficial or of
(b) Exception to requirement to raise record) by any Person, or group of Per-
matching resources—(1) General. At its sons acting in concert, of at least 10
discretion and based upon a showing of percent of any class of your stock,
good cause, SBA may consider a Condi- partnership capital or membership in-
tionally Approved NMVC Company to terests.
have satisfied the requirement in para-
graph (a)(1)(i)(B) of this section to § 108.410 Changes in Control of NMVC
raise matching resources in the Company (through change in own-
amount of at least 30 percent of its ership or otherwise).
Regulatory Capital if the Conditionally You must obtain SBA’s prior written
Approved NMVC Company— approval for any proposed transaction
(i) Already has raised at least 20 per- or event that results in Control by any
cent of the total amount of required Person(s) not previously approved by
matching resources; and SBA.
(ii) Has a viable plan that reasonably
projects its capacity to raise the re- § 108.420 Prohibition on exercise of
mainder of the required amount of ownership or Control rights in
matching resources. NMVC Company before SBA ap-
(2) Request for exception. Before the proval.
expiration of the time period given to Without prior written SBA approval,
it by SBA to meet the requirements to no change of ownership or Control may
become a NMVC Company, a Condi- take effect and no officer, director, em-
tionally Approved NMVC Company ployee or other Person acting on your
may submit to SBA a request that SBA behalf shall:
grant the exception described in para- (a) Register on your books any trans-
graph (b)(1) of this section. Such Condi- fer of ownership interest to the pro-
tionally Approved NMVC must present posed new owner(s);

to SBA evidence of good cause for such (b) Permit the proposed new owner(s)
request, as well as evidence supporting to exercise voting rights with respect
143
§ 108.430 13 CFR Ch. I (1–1–23 Edition)
to such ownership interest (including § 108.450 Notification to SBA of pledge

directly or indirectly procuring or vot- of NMVC Company’s shares.
ing any proxy, consent or authoriza- (a) You must notify SBA in writing,
tion as to such voting rights at any within 30 calendar days, of the terms of
meeting of shareholders, partners or any transaction in which:
members);
(1) Any Person, or group of Persons
(c) Permit the proposed new owner(s) acting in concert, pledges shares of
to participate in any manner in the your stock (or equivalent ownership in-
conduct of your affairs (including exer- terests) as collateral for indebtedness;
cising control over your books, records, and
funds or other assets; participating di-
(2) The shares pledged are at least 10
rectly or indirectly in any disposition
percent of your Regulatory Capital.
thereof; or serving as an officer, direc-
(b) If the transaction creates a
tor, partner, manager, employee or
change of ownership or Control, you
agent); or
must comply with § 108.400 or § 108.410,
(d) Allow ownership or Control to
as appropriate.
pass to another Person.
RESTRICTIONS ON COMMON CONTROL OR
§ 108.430 Notification to SBA of trans-
OWNERSHIP OF TWO OR MORE NMVC
actions that may change ownership
or Control. COMPANIES
You must promptly notify SBA as § 108.460 Restrictions on Common

soon as you have knowledge of trans- Control or ownership of two (or
actions or events that may result in a more) NMVC Companies.
transfer of Control or ownership of at Without SBA’s prior written ap-
least 10 percent of your capital. If there proval, you must not have an officer,
is any doubt as to whether a particular director, manager, Control Person, or
transaction or event will result in such owner (with a direct or indirect owner-
a change, report the facts to SBA. ship interest of at least 10 percent) who
is also:
§ 108.440 Standards governing prior
SBA approval for a proposed trans- (a) An officer, director, manager,
fer of Control. Control Person, or owner (with a direct
or indirect ownership interest of at
SBA approval is contingent upon full least 10 percent) of another NMVC
disclosure of the real parties in inter- Company; or
est, the source of funds for the new (b) An officer or director of any Per-
owners’ interest, and other data re- son that directly or indirectly controls,
quested by SBA. As a condition of ap- or is controlled by, or is under Com-
proving a proposed transfer of control, mon Control with, another NMVC Com-
SBA may: pany.
(a) Require an increase in your Regu-
latory Capital; CHANGE IN STRUCTURE OF NMVC
(b) Require the new owners or the COMPANY
transferee’s Control Person(s) to as-
sume, in writing, personal liability for § 108.470 SBA approval of merger, con-
your Leverage, effective only in the solidation, or reorganization of
event of their direct or indirect partici- NMVC Company.
pation in any transfer of Control not You may not merge, consolidate,
approved by SBA; or change form of organization (corpora-
(c) Require compliance with any tion or partnership) or reorganize with-
other conditions set by SBA, including out SBA’s prior written approval. Any
compliance with the requirements for such merger or consolidation will be
minimum capital and management- subject to § 108.440.

ownership diversity as in effect at such
time for new NMVC Companies.
144
Subpart G—Managing the to require you to engage, at your ex-

Operations of a NMVC Company pense, an independent third party ac-
ceptable to SBA to substantiate the
GENERAL REQUIREMENTS valuations.
(d) Frequency of valuations. (1) You
§ 108.500 Lawful operations under the must value your Loans and Invest-
Act. ments at the end of the second quarter
You must engage only in the activi- of your fiscal year, and at the end of
ties contemplated by the Act and in no your fiscal year.
other activities. (2) On a case-by-case basis, SBA may
require you to perform valuations more
§ 108.502 Representations to the pub- frequently.
lic.
(3) You must report material adverse
You may not represent or imply to changes in valuations at least quar-
anyone that the SBA, the U.S. Govern- terly, within thirty days following the
ment or any of its agencies or officers close of the quarter.
has approved any ownership interests (e) Review of valuations by independent
you have issued or obligations you public accountant. (1) For valuations
have incurred. Be certain to include a performed as of the end of your fiscal
statement to this effect in any solicita- year, your independent public account-
tion to investors. Example: You may ant must review your valuation proce-
not represent or imply that ‘‘SBA dures and the implementation of such
stands behind the NMVC Company’’ or procedures, including adequacy of doc-
that ‘‘Your capital is safe because umentation.
SBA’s experts review proposed invest- (2) The independent public account-
ments to make sure they are safe for ant’s report on your audited annual fi-
the NMVC Company.’’ nancial statements (SBA Form 468)
§ 108.503 NMVC Company’s adoption must include a statement that your
of an approved valuation policy. valuations were prepared in accordance
with your approved valuation policy.
(a) Valuation guidelines. You must
prepare, document and report the valu- § 108.504 Equipment and office re-
ations of your Loans and Investments quirements.
in accordance with the Valuation
Guidelines for SBICs issued by SBA. (a) Computer capability. You must
These guidelines may be obtained from have a personal computer with a
SBA’s Investment Division. modem, and be able to use this equip-
(b) SBA approval of valuation policy. ment to prepare reports (using SBA
You must have a written valuation pol- provided software) and transmit them
icy approved by SBA for use in deter- to SBA. In addition, you must have ac-
mining the value of your Loans and In- cess to the Internet and the capability
vestments. You must either: to send and receive electronic mail via
(1) Adopt without change the model the Internet.
valuation policy set forth in section III (b) Facsimile capability. You must be
of the Valuation Guidelines for SBICs; able to receive facsimile messages 24
or hours per day at your primary office.
(2) Obtain SBA’s prior written ap- (c) Accessible office. You must main-
proval of an alternative valuation pol- tain an office that is convenient to the
icy. public and is open for business during
(c) Responsibility for valuations. Your normal working hours.
board of directors, managing members,
or general partner(s) will be solely re- § 108.506 Safeguarding the NMVC
sponsible for adopting your valuation Company’s assets/Internal controls.
policy and for using it to prepare valu- You must adopt a plan to safeguard
ations of your Loans and Investments your assets and monitor the reliability
for submission to SBA. If SBA reason- of your financial data, personnel, Port-
ably believes that your valuations, in- folio, funds and equipment. You must
dividually or in the aggregate, are ma- provide your bank and custodian with
terially misstated, it reserves the right a certified copy of your resolution or
145
§ 108.507 13 CFR Ch. I (1–1–23 Edition)
other formal document describing your (a) Management contract. The con-
control procedures. tract must:
(1) Specify the services the Invest-
§ 108.507 Violations based on false fil- ment Adviser/Manager will render to
ings and nonperformance of agree- you and to the Small Businesses in
ments with SBA.
your Portfolio; and
The following shall constitute a vio- (2) Indicate the basis for computing
lation of this part: Management Expenses.
(a) Nonperformance. Nonperformance (b) Material change to approved man-
of any of the requirements of any De- agement contract. If there is a material
benture or of any written agreement change, both you and SBA must ap-
with SBA. prove such change in advance. If you
(b) False statement. In any document are uncertain if the change is material,
submitted to SBA: submit the proposed revision to SBA.
(1) Any false statement knowingly
made; or § 108.520 Management Expenses of a
(2) Any misrepresentation of a mate- NMVC Company.
rial fact; or SBA must approve your initial Man-
(3) Any failure to state a material agement Expenses and any increases in
fact. A material fact is any fact that is
your Management Expenses.
necessary to make a statement not
(a) Definition of Management Expenses.
misleading in light of the cir-
Management Expenses include:
cumstances under which the statement
(1) Salaries;
was made.
(2) Office expenses;
§ 108.509 Employment of SBA officials. (3) Travel;
(4) Business development;
Without SBA’s prior written ap-
(5) Office and equipment rental;
proval, for a period of two years after
(6) Bookkeeping; and
the date of your most recent issuance
(7) Expenses related to developing,
of Leverage (or the receipt of any SBA
Assistance as defined in part 105 of this investigating and monitoring invest-
chapter), you are not permitted to em- ments.
ploy, offer employment to, or retain for (b) Management Expenses do not in-
professional services, any person who: clude services provided by specialized
(a) Served as an officer, attorney, outside consultants, outside lawyers
agent, or employee of SBA on or within and independent public accountants, if
one year before such date; and they perform services not generally
(b) As such, occupied a position or performed by a venture capital com-
engaged in activities which, in SBA’s pany.
determination, involved discretion
CASH MANAGEMENT BY A NMVC
with respect to the granting of SBA
COMPANY
Assistance.
§ 108.530 Restrictions on investments
MANAGEMENT AND COMPENSATION of idle funds by NMVC Companies.
§ 108.510 SBA approval of NMVC Com- (a) Permitted investments of idle funds.
pany’s Investment Adviser/Man- Funds not invested in Small Businesses
ager. must be maintained in:
You may employ an Investment Ad- (1) Direct obligations of, or obliga-
viser/Manager who will be subject to tions guaranteed as to principal and in-
the supervision of your board of direc- terest by, the United States, which ma-
tors, managing members, or general ture within 15 months from the date of
partner. If you have Leverage or plan the investment; or
to seek Leverage, you must obtain (2) Repurchase agreements with fed-
SBA’s prior written approval of the erally insured institutions, with a ma-
management contract. SBA’s approval turity of seven days or less. The securi-
of an Investment Adviser/Manager for ties underlying the repurchase agree-
one NMVC Company does not indicate ments must be direct obligations of, or
approval of that manager for any other obligations guaranteed as to principal
NMVC Company. and interest by, the United States. The
146
securities must be maintained in a cus- of credit, or expansion of the scope of a

todial account at a federally insured security interest or lien. For purposes
institution; or of this paragraph (b), ‘‘expansion of the
(3) Certificates of deposit with a ma- scope of a security interest or lien’’
turity of one year or less, issued by a does not include the substitution of
federally insured institution; or one asset or group of assets for an-
(4) A deposit account in a federally other, provided the asset values (as re-
insured institution, subject to a with- ported on your most recent annual
drawal restriction of one year or less; Form 468) are comparable.
or (c) Conditions for SBA approval. As a
(5) A checking account in a federally condition of granting its approval
insured institution; or under this section, SBA may impose
(6) A reasonable petty cash fund. such restrictions or limitations as it
(b) Deposit of funds in excess of the in- deems appropriate, taking into account
sured amount. (1) You are permitted to your historical performance, current
deposit funds in a federally insured in-
financial position, proposed terms of
stitution in excess of the institution’s
the secured debt and amount of aggre-
insured amount, but only if the institu-
gate debt you will have outstanding
tion is ‘‘well capitalized’’ in accordance
(including Leverage). SBA will not fa-
with the definition set forth in regula-
tions of the Federal Deposit Insurance vorably consider any requests for ap-
Corporation, as amended (12 CFR proval which include a blanket lien on
325.103). all your assets, or a security interest
(2) Exception: You may make a tem- in your investor commitments in ex-
porary deposit (not to exceed 30 days) cess of 125 percent of the proposed bor-
in excess of the insured amount, in a rowing.
transfer account established to facili- (d) Thirty-day approval. Unless SBA
tate the receipt and disbursement of notifies you otherwise within 30 days
funds or to hold funds necessary to after it receives your request, you may
honor Commitments issued. consider your request automatically
(c) Deposit of funds in Associate institu- approved if:
tion. A deposit in, or a repurchase (1) You are in regulatory compliance;
agreement with, a federally insured in- (2) The security interest in your as-
stitution that is your Associate is not sets is limited to either those assets
considered a Financing of such Asso- being acquired with the borrowed funds
ciate under § 108.730, provided the terms or an asset coverage ratio of no more
of such deposit or repurchase agree- than 2:1;
ment are no less favorable than those (3) Your request is for approval of a
available to the general public. secured line of credit that would not
cause your total outstanding bor-
BORROWING BY NMVC COMPANIES FROM
NON-SBA SOURCES rowings (not including Leverage) to ex-
ceed 50 percent of your Leverageable
§ 108.550 Prior approval of secured Capital.
third-party debt of NMVC compa-
nies. VOLUNTARY DECREASE IN REGULATORY
(a) Definition. In this section, ‘‘se- CAPITAL
cured third-party debt’’ means any
§ 108.585 Voluntary decrease in NMVC
non-SBA debt secured by any of your Company’s Regulatory Capital.
assets, including secured guarantees
and other contingent obligations that You must obtain SBA’s prior written
you voluntarily assume and secured approval to reduce your Regulatory
lines of credit. Capital by more than two percent in
(b) General rule. You must get SBA’s any fiscal year. At all times, you must
written approval before you incur any retain sufficient Regulatory Capital to
secured third-party debt or refinance meet the minimum capital require-
any debt with secured third-party debt, ments in the Act and § 108.210, and suf-
including any renewal of a secured line ficient Leverageable Capital to avoid

of credit, increase in the maximum having excess Leverage in violation of
amount available under a secured line section 355(d) of the Act.
147
§ 108.600 13 CFR Ch. I (1–1–23 Edition)
Subpart H—Recordkeeping, Re- (iii) All documents evidencing owner-

porting, and Examination Re- ship of the NMVC Company including
quirements for NMVC Com- ownership ledgers, and ownership
transfer registers.
panies (2) You must preserve for at least six
RECORDKEEPING REQUIREMENTS FOR years all supporting documentation
NMVC COMPANIES (such as vouchers, bank statements, or
canceled checks) for the records listed
§ 108.600 General requirement for in paragraph (b)(1) of this section.
NMVC Company to maintain and (3) After final disposition of any item
preserve records. in your Portfolio, you must preserve
for at least six years:
(a) Maintaining your accounting
(i) Financing applications and Fi-
records. You must establish and main-
nancing instruments.
tain your accounting records using
(ii) All loan, participation, and es-
SBA’s standard chart of accounts for
crow agreements.
SBICs, unless SBA approves otherwise.
(iii) Size status declarations (SBA
You may obtain this chart of accounts
Form 480).
from SBA.
(iv) Any capital stock certificates
(b) Location of records. You must keep
and warrants of the Portfolio Concern
the following records at your principal
that you did not surrender or exercise.
place of business or, in the case of
(v) All other documents and sup-
paragraph (b)(3) of this section, at the
porting material relating to the Port-
branch office that is primarily respon-
folio Concern, including correspond-
sible for the transaction:
ence.
(1) All your accounting and other fi- (4) You may substitute a microfilm
nancial records; or computer-scanned or generated copy
(2) All minutes of meetings of direc- for the original of any record covered
tors, stockholders, executive commit- by this paragraph (c).
tees, partners, or other officials; and (d) Additional requirement. You must
(3) All documents and supporting ma- comply with the recordkeeping and
terials related to your business trans- record retention requirements set forth
actions, except for any items held by a in Circular A–110 of the Office of Man-
custodian under a written agreement agement and Budget. (OMB circulars
between you and a Portfolio Concern or are available from the addresses in 5
non-SBA lender, or any securities held CFR 1310.3.)
in a safe deposit box, or by a licensed
securities broker in an amount not ex- § 108.610 Required certifications for
ceeding the broker’s per-account insur- Loans and Investments.
ance coverage. For each of your Loans and Invest-
(c) Preservation of records. You must ments, you must have the documents
retain all the records that are the basis listed in this section. You must keep
for your financial reports. Such records these documents in your files and
must be preserved for the periods speci- make them available to SBA upon re-
fied in this paragraph (c), and must request.
main accessible for the first two years (a) SBA Form 480, the Size Status
of the preservation period. Declaration, executed both by you and
(1) You must preserve for at least 15 by the concern you are financing. By
years or, in the case of a Partnership executing this document, both parties
NMVC Company or LLC NMVC Com- certify that the concern is a Small
pany, at least two years beyond the Business. For securities purchased
date of liquidation: from an underwriter in a public offer-
(i) All your accounting ledgers and ing, you may substitute a prospectus
journals, and any other records of as- showing that the concern is a Small
sets, asset valuations, liabilities, eq- Business.
uity, income, and expenses. (b) SBA Form 652, a certification by
(ii) Your Articles, bylaws, minute the concern you are financing that it
books, and NMVC Company applica- will not illegally discriminate (see part
tion. 112 of this chapter).
148
(c) A certification by the concern you but only if appropriate for the size and
are financing of the intended use of the type of the business involved.
proceeds. For securities purchased (4) The requirements in this para-
from an underwriter in a public offer- graph (b) do not apply when you ac-
ing, you may substitute a prospectus quire securities from an underwriter in
indicating the intended use of proceeds. a public offering (see § 108.825). In that
(d) For each Low-Income Investment, case, you must keep copies of all re-
a certification by the concern you are ports furnished by the Portfolio Con-
financing as to the basis for its quali- cern to the holders of its securities.
fication as a Low-Income Enterprise. (c) Information required for examina-
tion purposes. You must obtain any in-
§ 108.620 Requirements to obtain information requested by SBA’s exam-
formation from Portfolio Concerns. iners for the purpose of verifying the
certifications made by a Portfolio Con-
All the information required by this
cern under § 108.610. In this regard, your
section is subject to the requirements
Financing documents must contain
of § 108.600 and must be in English.
provisions requiring the Portfolio Con-
(a) Information for initial Financing de- cern to give you and/or SBA’s exam-
cision. Before extending any Financing, iners access to its books and records
you must require the applicant to sub- for such purpose.
mit such financial statements, plans of
operation (including intended use of fi- REPORTING REQUIREMENTS FOR NMVC
nancing proceeds), cash flow analyses, COMPANIES
projections, and such community eco-
nomic development information about § 108.630 Requirement for NMVC com-
the company, as are necessary to sup- panies to file financial statements
port your investment decision. The in- and supplementary information
with SBA (SBA Form 468).
formation submitted must be con-
sistent with the size and type of the (a) Annual filing of Form 468. For each
business and the amount of the pro- fiscal year, you must submit to SBA fi-
posed Financing. nancial statements and supplementary
(b) Updated financial and community information prepared on SBA Form 468.
economic development information. (1) You must file Form 468 on or before the
The terms of each Financing must re- last day of the third month following
quire the Portfolio Concern to provide, the end of your fiscal year, except for
at least annually, sufficient financial the information required under para-
and community economic development graphs (e) and (f) of this section, which
information to enable you to perform must be filed on or before the last day
the following required procedures: of the fifth month following the end of
your fiscal year.
(i) Evaluate the financial condition
(1) Audit of Form 468. An independent
of the Portfolio Concern for the pur-
public accountant acceptable to SBA
pose of valuing your investment;
must audit the annual Form 468.
(ii) Determine the continued eligi- (2) Insurance requirement for public ac-
bility of the Portfolio Concern; countant. Unless SBA approves other-
(iii) Verify the use of Financing pro- wise, your independent public account-
ceeds; and ant must carry at least $1,000,000 of Er-
(iv) Evaluate the community eco- rors and Omissions insurance, or be
nomic development impact of the Fi- self-insured and have a net worth of at
nancing. least $1,000,000.
(2) The president, chief executive of- (b) Interim filings of Form 468. When
ficer, treasurer, chief financial officer, requested by SBA, you must file in-
general partner, or proprietor of the terim reports on Form 468. SBA may
Portfolio Concern must certify the in- require you to file the entire form or
formation submitted to you. only certain statements and schedules.
(3) For financial and valuation pur- You must file such reports on or before
poses, you may accept a complete copy the last day of the month following the
of the Federal income tax return filed end of the reporting period. When you
by the Portfolio Concern (or its propri- submit a request for a draw under an
etor) in lieu of financial statements, SBA Leverage commitment, you must
149
§ 108.640 13 CFR Ch. I (1–1–23 Edition)
also comply with any applicable filing § 108.650 Requirement to report port-
requirements set forth in § 108.1220. folio valuations to SBA.
(c) Standards for preparation of Form You must determine the value of
468. You must prepare SBA Form 468 in your Loans and Investments in accord-
accordance with SBA’s Accounting ance with § 108.503. You must report
Standards and Financial Reporting Re- such valuations to SBA within 90 days
quirements for Small Business Invest- of the end of the fiscal year in the case
ment Companies, which you may ob- of annual valuations, and within 30
tain from SBA. days following the close of other re-
(d) Where to file Form 468. Submit all porting periods. You must report mate-
filings of Form 468 to the Office of New rial adverse changes in valuations at
Markets Venture Capital in the Invest- least quarterly, within thirty days fol-
ment Division of SBA. lowing the close of the quarter.
(e) Reporting of social, economic, or
community development impact informa- § 108.660 Other items required to be
tion on Form 468. Your annual filing of filed by NMVC Company with SBA.
SBA Form 468 must include an assess- (a) Reports to owners. You must give
ment of the social, economic, or com- SBA a copy of any report you furnish
munity development impact of each Fi- to your investors, including any pro-
nancing. This assessment must specify spectus, letter, or other publication
the fulltime equivalent jobs created, concerning your financial operations or
the impact of the Financing on the rev- those of any Portfolio Concern.
enues and profits of the business and (b) Documents filed with SEC. You
on taxes paid by the business and its must give SBA a copy of any report,
employees, and a listing of the number application or document you file with
and percentage of employees who re- the Securities and Exchange Commis-
side in LI Areas. sion.
(f) Reporting of community development (c) Litigation reports. When you be-
information. For each Financing of a come a party to litigation or other pro-
Low-Income Enterprise, your Form 468 ceedings, you must give SBA a report
must include an assessment of such Fi- within 30 days that describes the pro-
nancing with respect to: ceedings and identifies the other par-
(1) The social, economic or commu- ties involved and your relationship to
nity development benefits achieved as them.
a result of the Financing; (1) The proceedings covered by this
(2) How and to what extent such ben- paragraph (c) include any action by
efits fulfilled the goals of your com- you, or by your security holder(s) in a
prehensive business plan and Participa- personal or derivative capacity,
against an officer, director, Investment
tion Agreement;
Adviser or other Associate of yours for
(3) Whether you consider the Financ-
alleged breach of official duty.
ing or the results of the Financing to
(2) SBA may require you to submit
have fulfilled the objectives of the
copies of the pleadings and other docu-
NMVC program; and ments SBA may specify.
(4) Whether, and if so, how you (3) Where proceedings have been ter-
achieved accountability to the resi- minated by settlement or final judg-
dents of the LI Area in connection with ment, you must promptly advise SBA
that Financing. of the terms.
§ 108.640 Requirement to file portfolio (4) This paragraph (c) does not apply
financing reports (SBA Form 1031). to collection actions or proceedings to
enforce your ordinary creditors’ rights.
For each Financing you make (ex- (d) Notification of criminal charges. If
cluding guarantees), you must submit any officer, director, or general partner
a Portfolio Financing Report on SBA of the NMVC Company, or any other
Form 1031 within 30 days of the closing person who was required by SBA to
date. complete a personal history statement,
is charged with or convicted of any
150
criminal offense other than a mis- § 108.692 Examination fees.

demeanor involving a minor motor ve- (a) General. SBA will assess fees for
hicle violation, you must report the in- examinations in accordance with this
cident to SBA within 5 calendar days. section. Unless SBA determines other-
Such report must fully describe the wise on a case by case basis, SBA will
facts that pertain to the incident. not assess fees for special examinations
(e) Reports concerning Operational As- to obtain specific information.
sistance grant funds. You must comply (b) Base fee. A base fee of $3,500 will
with all reporting requirements set be assessed, subject to adjustment in
forth in Circular A–110 of the Office of accordance with paragraph (c) of this
Management and Budget and any grant section.
award document executed between you (c) Adjustments to base fee. The base
and SBA. fee will be decreased based on the fol-
(f) Other reports. You must file any lowing criteria:
other reports SBA may require in writ- (1) If you have no outstanding regu-
ing. latory violations at the time of the
commencement of the examination and
§ 108.680 Reporting changes in NMVC SBA did not identify any violations as
Company not subject to prior SBA
approval. a result of the most recent prior exam-
ination, you will receive a 15% dis-
(a) Changes to be reported for post-ap- count on your base fee; and
proval. This section applies to any (2) If you were fully responsive to the
changes in your Articles, ownership, letter of notification of examination
capitalization, management, operating (that is, you provided all requested
area, or investment policies that do documents and information within the
not require SBA’s prior approval. You time period stipulated in the notifica-
must report such changes to SBA with- tion letter in a complete and accurate
in 30 days for post approval. manner, and you prepared and had
(b) Approval by SBA. You may con- available all information requested by
sider any change submitted under this the examiner for on-site review), you
section to be approved unless SBA no- will receive a 10% discount on your
tifies you to the contrary within 90 base fee.
days after receiving it. SBA’s approval (d) Delay fee. If, in the judgment of
is contingent upon your full disclosure SBA, the time required to complete
of all relevant facts and is subject to your examination is delayed due to
any conditions SBA may prescribe. your lack of cooperation or the condi-
tion of your records, SBA may assess
EXAMINATIONS OF NMVC COMPANIES BY an additional fee of up to $500 per day.
SBA FOR REGULATORY COMPLIANCE
§ 108.690 Examinations. Subpart I—Financing of Small

Businesses by NMVC Companies
All NMVC companies must submit to
annual examinations by or at the di- DETERMINING THE ELIGIBILITY OF A
rection of SBA for the purpose of eval- SMALL BUSINESS FOR NMVC FINANCING
uating regulatory compliance.
§ 108.700 Compliance with size stand-
§ 108.691 Responsibilities of NMVC ards in part 121 of this chapter as a
Company during examination. condition of Assistance.
You must make all books, records You are permitted to provide finan-
and other pertinent documents and ma- cial assistance and management serv-
terials available for the examination, ices only to a Small Business. To deter-
including any information required by mine whether an applicant meets the
the examiner under § 108.620(c). In addi- size standards for a Small Business,
tion, the agreement between you and you may use either the financial size
the independent public accountant per- standards in § 121.301(c)(1) of this chap-
forming your audit must provide that ter or the industry standard covering
any information in the accountant’s the industry in which the applicant is

working papers be made available to primarily engaged, as set forth in
SBA upon request. § 121.301(c)(2) of this chapter.
151
§ 108.710 13 CFR Ch. I (1–1–23 Edition)
§ 108.710 Requirement to finance Low- a passive business if it is a Small Busi-

Income Enterprises. ness and it passes substantially all the
(a) Low-Income Enterprise Financings. proceeds through to one or more sub-
At the close of each of your fiscal sidiary companies, each of which is an
years— eligible Small Business that is not pas-
(1) At least 80 percent of your Port- sive. For the purpose of this paragraph
folio Concerns must be Low-Income (b) (2), ‘‘subsidiary company’’ means a
Enterprises in which you have an Eq- company in which at least 50 percent of
uity Capital Investment; and the outstanding voting securities are
(2) For all Financings you have ex- owned by the Financed passive busi-
tended, you must have invested at ness.
least 80 percent (in total dollars) in Eq- (3) Exception for certain Partnership
uity Capital Investments in Low-In- NMVC companies. With the prior writ-
come Enterprises. ten approval of SBA, if you are a Part-
(b) Non-compliance with this section. If nership NMVC Company, you may form
you have not reached the percentages one or more wholly owned corporations
required in paragraph (a) of this sec- in accordance with this paragraph (b)
tion at the end of any fiscal year, then (3). The sole purpose of such corpora-
you must be in compliance by the end tion(s) must be to provide Financing to
of the following fiscal year. However, one or more eligible, unincorporated
you will not be eligible for additional Small Businesses. You may form such
Leverage until such time as you reach corporation(s) only if a direct Financ-
the required percentages (see § 108.1120). ing to such Small Businesses would
cause any of your investors to incur
§ 108.720 Small Businesses that may be unrelated business taxable income
ineligible for financing. under section 511 of the Internal Rev-
(a) Relenders or reinvestors. You are enue Code of 1986, as amended (26
not permitted to finance any business U.S.C. 511). Your investment of funds
that is a relender or reinvestor. Re- in such corporation(s) will not con-
lenders or reinvestors are businesses stitute a violation of § 108.730(a).
whose primary business activity in- (c) Real Estate Businesses. (1) You are
volves, directly or indirectly, providing not permitted to finance:
funds to others, purchasing debt obli- (i) Any business classified under sub-
gations, factoring, or long-term leasing sector 5311 (Lessors of Real Estate) of
of equipment with no provision for the NAICS Manual; or
maintenance or repair. (ii) Any business listed under sub-
(b) Passive Businesses. You are not sector 5312 (Offices of Real Estate
permitted to finance a passive busi- Agents and Brokers) unless at least 80
ness. percent of the revenue is derived from
(1) Definition. A business is passive if: non-Affiliate sources.
(i) It is not engaged in a regular and (2) You are not permitted to finance
continuous business operation (for pur- a business, regardless of NAICS classi-
poses of this paragraph (b), the mere fication, if the Financing is to be used
receipt of payments such as dividends, to acquire or refinance real property,
rents, lease payments, or royalties is unless the Small Business:
not considered a regular and contin- (i) Is acquiring an existing property
uous business operation); or and will use at least 51 percent of the
(ii) Its employees are not carrying on usable square footage for an eligible
the majority of day to day operations, business purpose; or
and the company does not provide ef- (ii) Is building or renovating a build-
fective control and supervision, on a ing and will use at least 67 percent of
day to day basis, over persons em- the usable square footage for an eligi-
ployed under contract; or ble business purpose; or
(iii) It passes through substantially (iii) Occupies the subject property
all of the proceeds of the Financing to and uses at least 67 percent of the usa-
another entity. ble square footage for an eligible busi-
(2) Exception for pass-through of pro- ness purpose.

ceeds to subsidiary. With the prior writ- (d) Project Financing. You are not per-
ten approval of SBA, you may finance mitted to finance a business if:
152
(1) The assets of the business are to (2) To repay an indebtedness incurred
be reduced or consumed, generally for the purpose of investing in a NMVC
without replacement, as the life of the Company or SBIC.
business progresses, and the nature of
the business requires that a stream of § 108.730 Financings which constitute
cash payments be made to the conflicts of interest.
business’s financing sources, on a basis (a) General rule. You must not self-
associated with the continuing sale of deal to the prejudice of a Small Busi-
assets. Examples include real estate ness, the NMVC Company, its share-
development projects and oil and gas holders or partners, or SBA. Unless you
wells; or obtain a prior written exemption from
(2) The primary purpose of the Fi- SBA for special instances in which a
nancing is to fund production of a sin- Financing may further the purposes of
gle item or defined limited number of the Act despite presenting a conflict of
items, generally over a defined produc- interest, you must not directly or indi-
tion period, and such production will rectly:
constitute the majority of the activi- (1) Provide Financing to any of your
ties of the Small Business. Examples Associates, except for a Small Business
include motion pictures and electric that satisfies all of the following condi-
generating plants. tions:
(e) Farm land purchases. You are not
(i) Your Associate relationship with
permitted to finance the acquisition of
the Small Business is described by
farmland. Farmland means land, which
paragraph (8) or (9) of the definition of
is or is intended to be used for agricul-
Associate in § 108.50;
tural or forestry purposes, such as the
(ii) No Person triggering the Asso-
production of food, fiber, or wood, or is
ciate relationship identified in para-
so taxed or zoned.
graph (a)(1)(i) of this section is a Close
(f) Public interest. You are not per-
Relative or Secondary Relative of any
mitted to finance any business if the
Person described in paragraph (1), (2),
proceeds are to be used for purposes
(4), or (5) of the definition of Associate
contrary to the public interest, includ-
in § 108.50; and
ing but not limited to activities which
are in violation of law, or inconsistent (iii) No single Associate of yours has
with free competitive enterprise. either a voting interest or an economic
(g) Foreign investment—(1) General interest in the Small Business exceed-
rule. You are not permitted to finance ing 20 percent, and no two or more of
a business if: your Associates have either a voting
(i) The funds will be used substan- interest or an economic interest ex-
tially for a foreign operation; or ceeding 33 percent. Economic interests
(ii) At the time of the Financing or shall be computed on a fully diluted
within one year thereafter, more than basis, and both voting and economic in-
49 percent of the employees or tangible terests shall exclude any interest
assets of the Small Business are lo- owned through the NMVC Company.
cated outside the United States (unless (2) Provide Financing to an Associate
you can show, to SBA’s satisfaction, of another NMVC Company if one of
that the Financing was used for a spe- your Associates has received or will re-
cific domestic purpose). ceive any direct or indirect Financing
(2) Exception. This paragraph (g) does or a Commitment from that NMVC
not prohibit a Financing used to ac- Company or a third NMVC Company
quire foreign materials and equipment (including Financing or Commitments
or foreign property rights for use or received under any understanding,
sale in the United States. agreement, or cross dealing, reciprocal
(h) Financing NMVC companies or or circular arrangement).
SBICs. You are not permitted to pro- (3) Borrow money from:
vide funds, directly or indirectly, that (i) A Small Business Financed by
the Small Business will use: you;
(1) To purchase stock in or provide (ii) An officer, director, or owner of

capital to a NMVC Company or SBIC; at least a 10 percent equity interest in
or such business; or
153
§ 108.730 13 CFR Ch. I (1–1–23 Edition)
(iii) A Close Relative of any such offi- (i) Your Associate is a Lending Insti-
cer, director, or equity owner. tution that is providing financing
(4) Provide Financing to a Small under a credit facility in order to meet
Business to discharge an obligation to the operational needs of the Small
your Associate or free other funds to Business, and the terms of such financ-
pay such obligation. This paragraph ing are usual and customary.
(a)(4) does not apply if the obligation is (ii) Your Associate invests in the
to an Associate Lending Institution Small Business on the same terms and
and is a line of credit or other obliga- conditions and at the same time as
tion incurred in the normal course of you.
business. (iii) Both you and your Associate are
(b) Rules applicable to Associates. NMVC companies.
Without SBA’ s prior written approval, (e) Use of Associates to manage Port-
your Associates must not, directly or folio Concerns. To protect your invest-
indirectly: ment, you may designate an Associate
(1) Borrow money from any Person to serve as an officer, director, or other
described in paragraph (a)(3) of this participant in the management of a
section. Small Business. You must identify any
such Associate in your records avail-
(2) Receive from a Small Business
able for SBA’s review under § 108.600.
any compensation in connection with
Without SBA’s prior written approval,
Assistance you provide (except as per-
the Associate must not:
mitted under § 108.825(c)), or anything
(1) Have any other direct or indirect
of value for procuring, attempting to financial interest in the Portfolio Con-
procure, or influencing your action cern that exceeds, or has the potential
with respect to such Assistance. to exceed, the percentages of the Port-
(c) Applicability of other laws. You are folio Concern’s equity set forth in para-
also bound by any restrictions in Fed- graph (a)(1) of this section.
eral or State laws governing conflicts (2) Receive any income or anything
of interest and fiduciary obligations. of value from the Portfolio Concern un-
(d) Financings with Associates—(1) less it is for your benefit, with the ex-
Financings with Associates requiring ception of director’s fees, expenses, and
prior approval. Without SBA’s prior distributions based upon the Associ-
written approval, you may not Finance ate’s ownership interest in the Con-
any business in which your Associate cern.
has either a voting equity interest or (f) 1940 and 1980 Act Companies: SEC
total equity interests (including poten- exemptions. If you are a 1940 or 1980 Act
tial interests) of at least five percent, Company and you receive an exemption
except as otherwise permitted under from the Securities and Exchange
paragraph (a)(1) of this section. Commission for a transaction described
(2) Other Financings with Associates. If in this section, you need not obtain
you and an Associate provide Financ- SBA’s approval of the transaction.
ing to the same Small Business, either However, you must promptly notify
at the same time or at different times, SBA of the transaction.
you must be able to demonstrate to (g) Restriction on options obtained by
SBA’s satisfaction that the terms and NMVC Company’s management and em-
conditions are (or were) fair and equi- ployees. Your employees, officers, direc-
table to you, taking into account any tors, managing members or general
differences in the timing of each par- partners, or the general partners of the
ty’s financing transactions. management company that is pro-
(3) Exceptions to paragraphs (d)(1) and viding services to you or to your gen-
(d)(2) of this section. A Financing that eral partner, may obtain options in a
falls into one of the following cat- Financed Small Business only if:
egories is exempt from the prior ap- (1) They participate in the Financing
proval requirement in paragraph (d)(1) on a pari passu basis with you; or
of this section or is presumed to be fair (2) SBA gives its prior written ap-
and equitable to you for the purposes proval; or

of paragraph (d)(2) of this section, as (3) The options received are com-
appropriate: pensation for service as a member of
154
the board of directors of the Small (b) Effect of a change in business activ-
Business, and such compensation does ity occurring within one year of NMVC
not exceed that paid to other outside Company’s initial Financing—(1) Reten-
directors. In the absence of such direction of Investment. Unless you receive
tors, fees must be reasonable when SBA’s written approval, you may not
compared with amounts paid to outside keep your investment in a Portfolio
directors of similar companies. Concern, small or otherwise, which be-
comes ineligible by reason of a change
§ 108.740 Portfolio diversification
(‘‘overline’’ limitation). in its business activity within one year
of your initial investment.
(a) Without SBA’s prior written ap- (2) Request for SBA ’s approval to re-
proval, you may provide Financing or a tain investment. If you request that SBA
Commitment to a Small Business only approve the retention of your invest-
if the resulting amount of your aggre- ment, your request must include suffi-
gate outstanding Financings and Com-
cient evidence to demonstrate that the
mitments to such Small Business and
change in business activity was caused
its Affiliates does not exceed 10 percent
of the sum of: by an unforeseen change in cir-
cumstances and was not contemplated
(1) Your Regulatory Capital as of the
date of the Financing or Commitment; at the time the Financing was made.
plus (3) Additional Financing. If SBA ap-
(2) The total amount of leverage pro- proves your request to retain an in-
jected in your participation agreement vestment under paragraph (b)(2) of this
with SBA; plus section, you may provide additional Fi-
(3) Any permitted Distribution(s) you nancing to the Portfolio Concern to the
made during the five years preceding extent necessary to protect against the
the date of the Financing or Commit- loss of the amount of your original in-
ment which reduced your Regulatory vestment, subject to the overline limi-
Capital. tations of § 108.740.
(b) For the purposes of paragraph (a) (c) Effect of a change in business activ-
of this section, you must measure each ity occurring more than one year after the
outstanding Financing at its current initial Financing. If a Portfolio Concern
cost plus any amount of the Financing becomes ineligible because of a change
that was previously written off. in business activity more than one
year after your initial Financing you
FR 63545, Oct. 12, 2011] may:
(1) Retain your investment; and
§ 108.760 How a change in size or ac- (2) Provide additional Financing to
tivity of a Portfolio Concern affects the Portfolio Concern to the extent
the NMVC Company and the Port- necessary to protect against the loss of
folio Concern.
the amount of your original invest-
(a) Effect on NMVC Company of a ment, subject to the overline limita-
change in size of a Portfolio Concern. If a tions of § 108.740.
Portfolio Concern no longer qualifies
as a Small Business you may keep your STRUCTURING NMVC COMPANY’S FI-
investment in the concern and: NANCING OF ELIGIBLE SMALL BUSI-
(1) Subject to the overline limita- NESSES
tions of § 108.740, you may provide addi-
tional Financing to the concern up to § 108.800 Financings in the form of eq-
the time it makes a public offering of uity interests.
its securities. You may not, inadvertently or other-
(2) Even after the concern makes a wise:
public offering, you may exercise any (a) Become a general partner in any
stock options, warrants, or other rights unincorporated business; or
to purchase Equity Securities which
(b) Become jointly or severally liable
you acquired before the public offering,

for any obligations of an unincor-
or fund Commitments you made before
the public offering. porated business.
155
§ 108.820 13 CFR Ch. I (1–1–23 Edition)
§ 108.820 Financings in the form of your Associate. You may pay reason-
guarantees. able and customary commissions and
(a) General rule. At the request of a expenses to an Associate underwriter
Small Business or where necessary to for the portion of an offering that you
protect your existing investment, you purchase.
may guarantee the monetary obliga- (d) Securities purchased from another
tion of a Small Business to any non-As- NMVC Company or from SBA. You may
sociate creditor. purchase from, or exchange with, an-
(b) Exception. You may not issue a other NMVC Company, Portfolio secu-
guaranty if: rities (or any interest therein). Such
(1) You would become subject to purchase or exchange may only be
State regulation as an insurance, guar- made on a non-recourse basis. You may
anty or surety business; or not have more than one-third of your
(2) The amount of the guaranty plus total assets (valued at cost) invested in
any direct Financings to the Small such securities. If you have previously
Business exceed the overline limita- sold Portfolio securities (or any inter-
tions of § 108.740, except that a pledge of est therein) on a recourse basis, you
the Equity Securities of the issuer or a shall include the amount for which you
subordination of your lien or creditor may be contingently liable in your
position does not count toward your overline computation.
overline. (e) Purchases of securities from other
(c) Pledge of NMVC Company’s assets non-issuers. You may purchase securi-
as guaranty. For purposes of this sec- ties of a Small Business from a non-
tion, a guaranty with recourse only to issuer not previously described in this
specific asset(s) you have pledged is section if such acquisition is a reason-
equal to the fair market value of such ably necessary part of the overall
asset(s) or the amount of the debt sound Financing of the Small Business.
guaranteed, whichever is less. LIMITATIONS ON DISPOSITION OF ASSETS
§ 108.825 Purchasing securities from § 108.885 Disposition of assets to
an underwriter or other third NMVC Company’s Associates.
party.
Except with SBA’s prior written ap-
(a) Securities purchased through or proval, you are not permitted to dis-
from an underwriter. You may purchase pose of assets (including assets ac-
the securities of a Small Business quired in liquidation) to any Associate.
through or from an underwriter if: As a prerequisite to such approval, you
(1) You purchase such securities
must demonstrate that the proposed
within 90 days of the date the public of-
terms of disposal are at least as favor-
fering is first made;
able to you as the terms obtainable
(2) Your purchase price is no more
elsewhere.
than the original public offering price;
and MANAGEMENT SERVICES AND FEES
(3) The amount paid by you for the
securities (less ordinary and reasonable § 108.900 Fees for management serv-
underwriting charges and commissions) ices provided to a Small Business
has been, or will be, paid to the Small by a NMVC Company or its Asso-
Business, and the underwriter certifies ciate.
in writing that this requirement has (a) General. This section applies to
been met. management services that you or your
(b) Recordkeeping requirements. You Associate provide to a Small Business
must keep records available for SBA’s during the term of a Financing or prior
inspection which show the relevant de- to a Financing. It does not apply to
tails of the transaction, including, but management services that your Asso-
not limited to, date, price, commis- ciate provides to a Small Business that
sions, and the underwriter’s certifi- you do not finance. It also does not
cations required under paragraphs apply to Operational Assistance that
(a)(3) and (c) of this section. you or your Associate provide to a

(c) Underwriter’s requirements. The un- Smaller Enterprise that you have Fi-
derwriter must certify whether it is nanced or in which you expect to make
156
a Financing, for which neither you nor ciate by a Small Business for trans-
your Associate may charge the Smaller actions work done by the Associate
Enterprise. must be allocated back to you for your
(b) SBA approval. You must obtain benefit.
SBA’s prior written approval of any (2) Your Associate may charge mar-
management services fees and other ket rate investment banking fees to a
fees described in this section that you Small Business on that portion of a Fi-
or your Associate charge. nancing that you do not provide.
(c) Permitted management services fees. (f) Recordkeeping requirements. You
You or your Associate may provide must keep a record of hours spent and
management services to a Small Busi- amounts charged to the Small Busi-
ness financed by you if: ness, including expenses charged.
(1) You or your Associate have en- [67 FR 68503, Nov. 12, 2002]
tered into a written contract with the
Small Business;
(2) The fees charged are for services
Subpart J—SBA Financial Assist-
actually performed; ance for NMVC Companies
(3) Services are provided on an hourly (Leverage)
fee, project fee, or other reasonable GENERAL INFORMATION ABOUT
basis; OBTAINING LEVERAGE
(4) You can demonstrate to SBA,
upon request, that the rate does not ex- § 108.1100 Type of Leverage and appli-
ceed the prevailing rate charged for cation procedures.
comparable services by other organiza- (a) Type of Leverage available. You
tions in the geographic area of the may apply for Leverage from SBA in
Small Business; and the form of a guarantee of your Deben-
(5) At least 50 percent of any manage- tures.
ment services fees paid to your Asso- (b) Applying for Leverage. The Lever-
ciate by a Small Business for manage- age application process has two parts.
ment services provided by the Asso- You must first apply for SBA’s condi-
ciate is allocated back to you for your tional commitment to reserve a spe-
benefit. cific amount of Leverage for your fu-
(d) Fees for service as a board member. ture use. You may then apply to draw
You or your Associate may charge a down Leverage against the commit-
Small Business Financed by you for ment. See §§ 108.1200 through 108.1240.
services provided as members of the (c) Where to send your application.
Small Business’ board of directors. The Send all Leverage applications to SBA,
fees must not exceed those paid to Investment Division Office of New Mar-
other outside board members. In the kets Venture Capital, 409 Third Street,
absence of such board members, fees SW., Washington, DC 20416.
must be reasonable when compared
with amounts paid to outside directors § 108.1120 General eligibility require-
of similar companies. Fees may be in ment for Leverage.
the form of cash, warrants, or other To be eligible for Leverage, you must
payments. At least 50 percent of any be in compliance with the Act, the reg-
such fees paid to your Associate by a ulations in this part, and your Partici-
Small Business for service by the Asso- pation Agreement.
ciate as a board member must be allo-
cated back to you for your benefit. § 108.1130 Leverage fees payable by
(e) Transaction fees. (1) You or your NMVC Company.
Associate may charge reasonable There is no fee for the issuance of De-
transaction fees for work performed bentures by a NMVC Company.
such as preparing a Small Business for
a public offering, private offering, or § 108.1140 NMVC Company’s accept-
sale of all or part of the business, and ance of SBA remedies under
for assisting with the transaction. Fees § 108.1810.
may be in the form of cash, notes, If you issue Leverage, you automati-
stock, and/or options. At least 50 per- cally agree to the terms and conditions
cent of any such fees paid to your Asso- in § 108.1810 as it exists at the time of
157
§ 108.1150 13 CFR Ch. I (1–1–23 Edition)
issuance. The effect of these terms and (1) Give SBA a financial statement
conditions is the same as if they were on Form 468 (Short Form); and
fully incorporated in the terms of your (2) File a statement of no material
Leverage. adverse change in your financial condi-
tion since your last filing of Form 468.
MAXIMUM AMOUNT OF LEVERAGE FOR (b) You will not be eligible for a draw
WHICH A NMVC COMPANY IS ELIGIBLE if you are not in compliance with this
section.
§ 108.1150 Maximum amount of Lever-
age for a NMVC Company. § 108.1230 Draw-downs by NMVC Com-
The face amount of a NMVC Com- pany under SBA’s Leverage commit-
pany’s outstanding Debentures may ment.
not exceed 150 percent of its (a) NMVC Company’s authorization of
Leverageable Capital. SBA to guarantee securities. By submit-
ting a request for a draw against SBA’s
CONDITIONAL COMMITMENTS BY SBA TO Leverage commitment, you authorize
RESERVE LEVERAGE FOR A NMVC SBA, or any agent or trustee SBA des-
COMPANY ignates, to guarantee your Debenture
and to sell it with SBA’s guarantee.
§ 108.1200 SBA’s Leverage commitment (b) Limitations on amount of draw. The
to a NMVC Company—application amount of a draw must be a multiple of
procedure, amount, and term.
$5,000. SBA, in its discretion, may de-
(a) General. Under the provisions in termine a minimum dollar amount for
§§ 108.1200 through 108.1240, you may draws against SBA’s Leverage commit-
apply for SBA’s conditional commitments. Any such minimum amounts
ment to reserve a specific amount and will be published in Notices in the FED-
type of Leverage for your future use. ERAL REGISTER from time to time.
You may then apply to draw down Le- (c) Effect of regulatory violations on
verage against the commitment. NMVC Company’s eligibility for draws—
(b) Applying for a Leverage commit- (1) General rule. You are eligible to
ment. SBA will notify you when it is make a draw against SBA’s Leverage
accepting requests for Leverage com- commitment only if you are in compli-
mitments. Upon receipt of your re- ance with all applicable provisions of
quest, SBA will send you a complete the Act and SBA regulations (i.e., no
application package. unresolved statutory or regulatory vio-
(c) Limitations on the amount of a Le- lations) and your Participation Agree-
verage commitment. The amount of a Le- ment.
verage commitment must be a multiple (2) Exception to general rule. If you are
of $5,000. SBA, in its discretion, may not in compliance, you may still be eli-
determine a minimum dollar amount gible for draws if:
for Leverage commitments. Any such (i) SBA determines that your out-
minimum amounts will be published in standing violations are of non-sub-
Notices in the FEDERAL REGISTER from stantive provisions of the Act or regu-
time to time. lations or your Participation Agree-
(d) Term of Leverage commitment. ment and that you have not repeatedly
SBA’s Leverage commitment will auto- violated any non-substantive provi-
matically lapse on the expiration date sions; or
stated in the commitment letter issued (ii) You have agreed with SBA on a
to you by SBA. course of action to resolve your viola-
tions and such agreement does not pre-
§ 108.1220 Requirement for NMVC vent you from issuing Leverage.
Company to file financial state- (d) Procedures for funding draws. You
ments at the time of request for a may request a draw at any time during
draw. the term of the commitment. With
(a) If you submit a request for a draw each request, submit the following doc-
against SBA’s Leverage commitment umentation:
more than 90 days since your submis- (1) A statement certifying that there
sion of an annual Form 468 or a Form has been no material adverse change in
468 (Short Form), you must: your financial condition since your last
158
filing of SBA Form 468 (see also with the terms of your Leverage under
§ 108.1220 for SBA Form 468 filing re- § 108.1810.
quirements).
(2) If your request is submitted more § 108.1240 Funding of NMVC Com-
than 30 days following the end of your pany’s draw request through sale to
third-party.
fiscal year, but before you have sub-
mitted your annual filing of SBA Form (a) NMVC Company’s authorization of
468 (Long Form) in accordance with SBA to arrange sale of securities to third-
§ 108.630(a), a preliminary unaudited an- party. By submitting a request for a
nual financial statement on SBA Form draw of Debenture Leverage, you au-
468 (Short Form). thorize SBA, or any agent or trustee
(3) A statement certifying that to the SBA designates, to enter into any
best of your knowledge and belief, you agreements (and to bind you to such
are in compliance with all provisions of agreements) necessary to accomplish:
the Act and SBA regulations (i.e., no (1) The sale of your Debenture to a
unresolved regulatory or statutory vio- third-party at a rate approved by SBA;
lations) and your Participation Agree- and
ment, or a statement listing any spe- (2) The purchase of your security
cific violations you are aware of. Ei- from the third-party and the pooling of
ther statement must be executed by your security with other securities
one of the following: with the same maturity date.
(i) An officer of the NMVC Company; (b) Sale of Debentures to a third-party.
(ii) An officer of a corporate general If SBA arranges for the sale of your De-
partner of the NMVC Company; benture to a third-party, the sale price
may be an amount discounted from the
(iii) An individual who is authorized
face amount of the Debenture.
to act as or for a general partner of the
NMVC Company; or FUNDING LEVERAGE BY USE OF SBA
(iv) An individual who is authorized GUARANTEED TRUST CERTIFICATES
to act as or for a member-manager of (‘‘TCS’’)
the NMVC Company.
(4) A statement that the proceeds are § 108.1600 SBA authority to issue and
needed to fund one or more particular guarantee Trust Certificates.
Small Businesses or to provide liquid- (a) Authorization. Section 356 of the
ity for your operations. If required by Act authorizes SBA to issue TCs and to
SBA, the statement must include the guarantee the timely payment of the
name and address of each Small Busi- principal and interest thereon. Any
ness, and the amount and anticipated guarantee by SBA of such TC is limited
closing date of each proposed Financ- to the principal and interest due on the
ing. Debentures in any Trust or Pool back-
(e) Reporting requirements after drawing such TC. The full faith and credit
ing funds. (1) Within 30 calendar days of the United States is pledged to the
after the actual closing date of each Fi- payment of all amounts due under the
nancing funded with the proceeds of guarantee of any TC.
your draw, you must file an SBA Form (b) SBA authority to arrange public or
1031 confirming the closing of the private fundings of Leverage. SBA in its
transaction. discretion may arrange for public or
(2) If SBA required you to provide in- private financing under its guarantee
formation concerning a specific authority. Such financing arranged by
planned Financing under paragraph SBA may be accomplished by the sale
(d)(4) of this section, and such Financ- of individual Debentures, aggregations
ing has not closed within 60 calendar of Debentures, or Pools or Trusts of
days after the anticipated closing date, Debentures.
you must give SBA a written expla- (c) Pass-through provisions. TCs shall
nation of the failure to close. provide for a pass-through to their
(3) If you do not comply with this holders of all amounts of principal and
paragraph (e), you will not be eligible interest paid on the Debentures in the
for additional draws. SBA may also de- Pool or Trust against which they are
termine that you are not in compliance issued.
159
§ 108.1610 13 CFR Ch. I (1–1–23 Edition)
(d) Formation of a Pool or Trust hold- NMVC Company pursuant to the terms
ing Leverage Securities. SBA shall ap- of the Debenture.
prove the formation of each Pool or
Trust. SBA may, in its discretion, es- § 108.1620 Functions of agents, includ-
tablish the size of the Pools and their ing Central Registration Agent,
composition, the interest rate on the Selling Agent and Fiscal Agent.
TCs issued against Trusts or Pools, (a) Agents. SBA may appoint or cause
fees, discounts, premiums and other to be appointed agent(s) to perform
charges made in connection with the functions necessary to market and
Pools, Trusts, and TCs, and any other service Debentures or TCs pursuant to
characteristics of a Pool or Trust it this part.
deems appropriate. (1) Selling Agent. As a condition of
guaranteeing a Debenture, SBA may
§ 108.1610 Effect of prepayment or cause each NMVC Company to appoint
early redemption of Leverage on a a Selling Agent to perform functions
Trust Certificate. that include, but are not limited to:
(a) The rights, if any, of a NMVC (i) Selecting qualified entities to be-
Company to prepay any Debenture is come pool or Trust assemblers
established by the terms of such secu- (‘‘Poolers’’).
rity, and no such right is created or de- (ii) Receiving guaranteed Debentures
nied by the regulations in this part. as well as negotiating the terms and
(b) SBA’s rights to purchase or pre- conditions of sales or periodic offerings
pay any Debenture without premium of Debentures and/or TCs on behalf of
are established by the terms of the NMVC companies.
Guaranty Agreement relating to the (iii) Directing and coordinating peri-
Debenture. odic sales of Debentures and/or TCs.
(c) Any prepayment of a Debenture (iv) Arranging for the production of
pursuant to the terms of the Guaranty Offering Circulars, certificates, and
Agreement relating to such security such other documents as may be re-
shall reduce the SBA guarantee of quired from time to time.
timely payment of principal and inter- (2) Fiscal Agent. SBA shall appoint a
est on a TC in proportion to the Fiscal Agent to:
amount of principal that such prepaid (i) Establish performance criteria for
Debenture represents in the Trust or Poolers.
Pool backing such TC. (ii) Monitor and evaluate the finan-
(d) SBA shall be discharged from its cial markets to determine those fac-
guarantee obligation to the holder or tors that will minimize or reduce the
holders of any TC, or any successor or cost of funding Debentures.
transferee of such holder, to the extent (iii) Monitor the performance of the
of any such prepayment. whether or Selling Agent, Poolers, CRA, and the
not such successor or transferee shall Trustee.
have notice of any such prepayment. (iv) Perform such other functions as
(e) Interest on prepaid Debentures SBA, from time to time, may prescribe.
shall accrue only through the date of (3) Central Registration Agent. Pursu-
prepayment. ant to a contract entered into with
(f) In the event that all Debentures SBA, the CRA, as SBA’s agent, will do
constituting a Trust or Pool are pre- the following with respect to the Pools
paid, the TCs backed by such Trust or or Trust Certificates for the Deben-
Pool shall be redeemed by payment of tures:
the unpaid principal and interest on (i) Form an SBA-approved Pool or
the TCs; provided, however, that in the Trust;
case of the prepayment of a Debenture (ii) Issue the TCs in the form pre-
pursuant to the provisions of the Guar- scribed by SBA;
anty Agreement relating to the Deben- (iii) Transfer the TCs upon the sale of
ture, the CRA shall pass through pro original issue TCs in any secondary
rata to the holders of the TCs any such market transaction;

prepayments including any prepay- (iv) Receive payments from NMVC
ment penalty paid by the obligor companies;
160
(v) Make periodic payments as sched- duration of such suspension by the su-
uled or required by the terms of the pervisory agency.
TCs, and pay all amounts required to (2) If such broker or dealer has been
be paid upon prepayment of Deben- indicted or otherwise formally charged
tures; with a misdemeanor or felony bearing
(vi) Hold, safeguard, and release all on its fitness, such broker or dealer
Debentures constituting Trusts or may be suspended while the charge is
Pools upon instructions from SBA; pending. Upon conviction, participa-
(vii) Remain custodian of such other tion may be terminated.
documentation as SBA shall direct by (3) If such broker or dealer has suf-
written instructions; fered an adverse final civil judgment
holding that such broker or dealer has
(viii) Provide for the registration of
committed a breach of trust or viola-
all pooled Debentures, all Pools and
tion of law or regulation protecting the
Trusts, and all TCs;
integrity of business transactions or
(ix) Perform such other functions as relationships, participation in the mar-
SBA may deem necessary to imple- ket for Debentures or TCs may be ter-
ment the provisions of this section. minated.
(b) Functions. Either SBA or an agent (c) Termination/suspension proceedings.
appointed by SBA may perform the A broker’s or dealer’s participation in
function of locating purchasers, and the market for Debentures or TCs will
negotiating and closing the sale of De- be conducted in accordance with part
bentures and TCs. Nothing in the regu- 134 of this chapter. SBA may, for any
lations in this part shall be interpreted of the reasons stated in paragraphs
to prevent the CRA from acting as (b)(1) through (b)(3) of this section, sus-
SBA’s agent for this purpose. pend the privilege of any broker or
dealer to participate in this market.
§ 108.1630 SBA regulation of Brokers SBA shall give written notice at least
and Dealers and disclosure to pur- ten (10) business days prior to the effec-
chasers of Leverage or Trust Cer- tive date of such suspension. Such no-
tificates. tice shall inform the broker or dealer
(a) Brokers and Dealers. Each broker, of the opportunity for a hearing pursu-
dealer, and Pool or Trust assembler ap- ant to part 134 of this chapter.
proved by SBA pursuant to these regu-
lations shall either be regulated by a § 108.1640 SBA access to records of the
Federal financial regulatory agency, or CRA, Brokers, Dealers and Pool or
Trust assemblers.
be a member of the National Associa-
tion of Securities Dealers (NASD), and The CRA and any broker, dealer and
shall be in good standing in respect to Pool or Trust assembler operating
compliance with the financial, ethical, under the regulations in this part shall
and reporting requirements of such make all books, records and related
body. They also shall be in good stand- materials associated with Debentures
ing with SBA as determined by the and TCs available to SBA for review
SBA Associate Administrator for In- and copying purposes. Such access
vestment (see paragraph (c) of this sec- shall be at such party’s primary place
tion) and shall provide a fidelity bond of business during normal business
or insurance in such amount as SBA hours.
may require. MISCELLANEOUS
(b) Suspension and/or termination of
Broker or Dealer. SBA shall exclude § 108.1700 Transfer by SBA of its inter-
from the sale and all other dealings in est in a NMVC Company’s Leverage
Debentures or TCs any broker or deal- security.
er: Upon such conditions and for such
(1) If such broker’s or dealer’s au- consideration as it deems reasonable,
thority to engage in the securities SBA may sell, assign, transfer, or oth-
business has been revoked or suspended erwise dispose of any Debenture held
by a supervisory agency. When such by or on behalf of SBA. Upon notice by

authority has been suspended, SBA will SBA, a NMVC Company will make all
suspend such broker or dealer for the payments of principal and interest as
161
§ 108.1710 13 CFR Ch. I (1–1–23 Edition)
shall be directed by SBA. A NMVC tion proceeding, receivership, dissolu-

Company will be liable for all damage tion or other similar creditors’ rights
or loss which SBA may sustain by rea- proceeding, or such action is initiated
son of such disposal, up to the amount against you and is not dismissed within
of the NMVC Company’s liability under 60 days.
such security, plus court costs and rea- (c) SBA remedies for automatic events
sonable attorney’s fees incurred by of default. Upon the occurrence of one
SBA. or more of the events in paragraph (b)
of this section:
§ 108.1710 SBA authority to collect or (1) Without notice, presentation or
compromise its claims.
demand, the entire indebtedness evi-
SBA may, upon such conditions and denced by your Debentures, including
for such consideration as it deems rea- accrued interest, and any other
sonable, collect or compromise all amounts owed SBA with respect to
claims relating to obligations held or your Debentures, is immediately due
guaranteed by SBA, and all legal or eq- and payable; and
uitable rights accruing to SBA. (2) You automatically consent to the
§ 108.1720 Characteristics of SBA’s appointment of SBA or its designee as
guarantee. your receiver under section 363(c) of
the Act.
If SBA agrees to guarantee a NMVC
(d) Events of default with notice. For
Company’s Debentures, such guarantee
any occurrence (as determined by SBA)
will be unconditional, irrespective of
of one or more of the events in this
the validity, regularity or enforce-
paragraph (d), SBA may avail itself of
ability of the Debentures or any other
one or more of the remedies in para-
circumstances that might constitute a
graph (e) of this section.
legal or equitable discharge or defense
(1) Fraud. You commit a fraudulent
of a guarantor. Pursuant to its guar-
act that causes detriment to SBA’s po-
antee, SBA will make timely payments
sition as a creditor or guarantor.
of principal and interest on the Deben-
tures. (2) Fraudulent transfers. You make
any transfer or incur any obligation
that is fraudulent under the terms of 11
Subpart K—NMVC Company’s U.S.C. 548.
Noncompliance With Terms of (3) Willful conflicts of interest. You
Leverage willfully violate § 108.730.
§ 108.1810 Events of default and SBA’s (4) Willful non-compliance. You will-
remedies for NMVC Company’s non- fully violate one or more of the sub-
compliance with terms of Deben- stantive provisions of the Act or any
tures. substantive regulation promulgated
(a) Applicability of this section. By under the Act or any substantive provi-
issuing Debentures, you automatically sion of your Participation Agreement.
agree to the terms, conditions and rem- (5) Repeated Events of Default. At any
edies in this section, as in effect at the time after being notified by SBA of the
time of issuance and as if fully set occurrence of an event of default under
forth in the Debentures. paragraph (f) of this section, you en-
(b) Automatic events of default. The oc- gage in similar behavior that results in
currence of one or more of the events another occurrence of the same event
in this paragraph (b) causes the rem- of default.
edies in paragraph (c) of this section to (6) Transfer of Control. You willfully
take effect immediately. violate § 108.410, and as a result of such
(1) Insolvency. You become equitably violation you undergo a transfer of
or legally insolvent. Control.
(2) Voluntary assignment. You make a (7) Non-cooperation under paragraph
voluntary assignment for the benefit of (h) of this section. You fail to take ap-
creditors without SBA’s prior written propriate steps, satisfactory to SBA, to
approval. accomplish any action SBA may have

(3) Bankruptcy. You file a petition to required under paragraph (h) of this
begin any bankruptcy or reorganiza- section.
162
(8) Non-notification of Events of De- (4) Failure to maintain Regulatory Cap-

fault. You fail to notify SBA as soon as ital. You fail to maintain the minimum
you know or reasonably should have Regulatory Capital required under
known that any event of default exists these regulations or, without the prior
under this section. written consent of SBA, you reduce
(9) Non-notification of defaults to oth- your Regulatory Capital except as per-
ers. You fail to notify SBA in writing mitted by § 108.585.
within ten days from the date of a dec- (5) Capital Impairment. You have a
laration of an event of default or non- condition of Capital Impairment as de-
performance under any note, debenture termined under § 108.1830.
or indebtedness of yours, issued to or (6) Cross-default. An obligation of
held by anyone other than SBA. yours that is greater than $100,000 be-
(e) SBA remedies for events of default comes due or payable (with or without
with notice. Upon written notice to you notice) before its stated maturity date,
of the occurrence (as determined by for any reason including your failure to
SBA) of one or more of the events in pay any amount when due. This provi-
paragraph (d) of this section: sion does not apply if you pay the
(1) SBA may declare the entire in- amount due within any applicable
debtedness evidenced by your Deben- grace period or contest the payment of
tures, including accrued interest. and/ the obligation in good faith by appro-
or any other amounts owed SBA with priate proceedings.
respect to your Debentures, imme- (7) Nonperformance. You violate or
diately due and payable; and fail to perform one or more of the
terms and conditions of any security or
(2) SBA may avail itself of any rem-
obligation of yours that is issued to,
edy available under the Act, specifi-
held or guaranteed by SBA, or of any
cally including institution of pro-
agreement (including your Participa-
ceedings for the appointment of SBA or
tion Agreement) with or conditions im-
its designee as your receiver under sec-
posed by SBA in its administration of
tion 363 (c) of the Act.
the Act and the regulations promul-
(f) Events of default with opportunity gated under the Act.
to cure. For any occurrence (as deter- (8) Noncompliance. Except as other-
mined by SBA) of one or more of the wise provided in paragraph (d) (5) of
events in this paragraph (f), SBA may this section, SBA determines that you
avail itself of one or more of the rem- have violated one or more of the sub-
edies in paragraph (g) of this section. stantive provisions of the Act or any
(1) Excessive Management Expenses. substantive regulation promulgated
Without the prior written consent of under the Act.
SBA, you incur Management Expenses (9) Failure to maintain diversity. You
in excess of those permitted under fail to maintain diversity between
§§ 108.510 and 108.520. management and ownership as required
(2) Improper Distributions. You make by § 108.150.
any Distribution to your shareholders (g) SBA remedies for events of default
or partners, except with the prior writ- with opportunity to cure. (1) Upon writ-
ten consent of SBA, other than: ten notice to you of the occurrence (as
(i) Distributions permitted under determined by SBA) of one or more of
§ 108.585; and the events of default in paragraph (f) of
(ii) Payments from Retained Earn- this section, and subject to the condi-
ings Available for Distribution based tions in paragraph (g)(2) of this section:
on either the shareholders’ or mem- (i) SBA may declare the entire in-
bers’ pro-rata interests or the provi- debtedness evidenced by your Deben-
sions for profit distributions in your tures, including accrued interest, and/
partnership agreement, as appropriate. or any other amounts owed SBA with
(3) Failure to make payment. Unless respect to your Debentures, imme-
otherwise approved by SBA, you fail to diately due and payable; and
make timely payment of any amount (ii) SBA may avail itself of any rem-
due under any security or obligation of edy available under the Act, specifi-
yours that is issued to, held or guaran- cally including institution of pro-
teed by SBA. ceedings for the appointment of SBA or
163
§ 108.1830 13 CFR Ch. I (1–1–23 Edition)
its designee as your receiver under sec- continuing your operations. The ap-
tion 363(c) of the Act. pointment of a receiver to liquidate a
(2) SBA may invoke the remedies in NMVC Company is not within such
paragraph (g)(1) of this section only if: consent, but is governed instead by the
(i) It has given you at least 15 days to relevant provisions of the Act.
cure the default(s); and
(ii) You fail to cure the default(s) to COMPUTATION OF NMVC COMPANY’S
SBA’s satisfaction within the allotted CAPITAL IMPAIRMENT
time.
§ 108.1830 NMVC Company’s Capital
(h) Repeated non-substantive violations. Impairment definition and general
If you repeatedly fail to comply with requirements.
one or more of the non-substantive pro-
(a) Significance of Capital Impairment
visions of the Act or any non-sub-
condition. If you have a condition of
stantive regulation promulgated under
Capital Impairment, you are not in
the Act, SBA, after written notifica-
compliance with the terms of your Le-
tion to you and until you cure such
verage. As a result, SBA has the right
condition to SBA’s satisfaction, may
to impose the applicable remedies for
deny you additional Leverage and/or
noncompliance in § 108.1810(g).
require you to take such actions as (b) Definition of Capital Impairment
SBA may determine to be appropriate condition. You have a condition of Cap-
under the circumstances. ital Impairment if your Capital Impair-
(i) Consent to removal of officers, direc- ment Percentage, as computed in
tors, or general partners and/or appoint- § 108.1840, exceeds 70 percent.
ment of receiver. The Articles of each (c) Quarterly computation requirement
NMVC Company must include the fol- and procedure. You must determine
lowing provisions as a condition to the whether you have a condition of Cap-
purchase or guarantee by SBA of Le- ital Impairment as of the end of each
verage. Upon the occurrence of any of fiscal quarter. You must notify SBA
the events specified in paragraphs promptly if you are capitally impaired.
(d)(1) through (d)(6) or (f)(1) through (d) SBA’s right to determine NMVC
(f)(3) of this section as determined by Company’s Capital Impairment condition.
SBA, SBA shall have the right, and you SBA may make its own determination
consent to SBA’s exercise of such of your Capital Impairment condition
right: at any time.
(1) With respect to a Corporate
NMVC Company, upon written notice, § 108.1840 Computation of NMVC Com-
to require you to replace, with individ- pany’s Capital Impairment Percent-
uals approved by SBA, one or more of age.
your officers and/or such number of di- (a) General. This section contains the
rectors of your board of directors as is procedures you must use to determine
sufficient to constitute a majority of your Capital Impairment Percentage.
such board; or You must compare your Capital Im-
(2) With respect to a Partnership pairment Percentage to the maximum
NMVC Company or an LLC NMVC permitted under § 108.1830(b) to deter-
Company, upon written notice, to re- mine whether you have a condition of
quire you to remove the person(s) re- Capital Impairment.
sponsible for such occurrence and/or to (b) Preliminary impairment test. If you
remove the general partner or manager satisfy the preliminary impairment
of the NMVC Company, which general test, your Capital Impairment Percent-
partner or manager shall then be re- age is zero and you do not have to per-
placed in accordance with NMVC Com- form any more procedures in this sec-
pany’s Articles by a new general part- tion. Otherwise, you must continue
ner or manager approved by SBA; and/ with paragraph (c) of this section. You
or satisfy the test if the following
(3) With respect to a Corporate or amounts are both zero or greater:
Partnership or LLC NMVC Company, (1) The sum of Undistributed Net Re-
to obtain the appointment of SBA or alized Earnings, as reported on SBA

its designee as your receiver under sec- Form 468, and Includible Non-Cash
tion 363(c) of the Act for the purpose of Gains.
164
(2) Unrealized Gain (Loss) on Securi- Business’ average contributed capital

ties Held. for such fiscal year.
(c) How to compute your Capital Im- (4) Perform the appropriate computa-
pairment Percentage. (1) If you have an tion from the table in § 107.1840(d)(4) of
Unrealized Gain on Securities Held, this chapter.
compute your Adjusted Unrealized (5) Reduce the gain computed in
Gain using paragraph (d) of this sec- paragraph (d) (4) of this section by your
tion. If you have an Unrealized Loss on estimate of related future income tax
Securities Held, continue with para- expense. Subject to any adjustment re-
graph (c)(2) of this section. quired by paragraph (d)(6) of this sec-
(2) Add together your Undistributed tion, the result is your Adjusted Unre-
Net Realized Earnings, your Includible alized Gain for use in paragraph (c)(2)
Non-cash Gains, and either your Unre- of this section.
alized Loss on Securities Held or your (6) If any securities that are the
Adjusted Unrealized Gain. source of either Class 1 or Class 2 Ap-
(3) If the sum in paragraph (c)(2) of preciation are pledged or encumbered
this section is zero or greater, your in any way, you must reduce the Ad-
Capital Impairment Percentage is zero. justed Unrealized Gain computed in
(4) If the sum in paragraph (c)(2) of paragraph (d)(5) of this section by the
this section is less than zero, drop the amount of the related borrowing or
negative sign, divide by your Regu- other obligation, up to the amount of
latory Capital (excluding Treasury the Unrealized Appreciation on the se-
Stock), and multiply by 100. The result curities.
is your Capital Impairment Percent-
age. Subpart L—Ending Operations as
(d) How to compute your Adjusted Un- a NMVC Company
realized Gain. (1) Subtract Unrealized
Depreciation from Unrealized Appre- § 108.1900 Termination of participa-
ciation. This is your ‘‘Net Apprecia- tion as a NMVC Company.
tion’’. You may not terminate your partici-
(2) Determine your Unrealized Appre- pation as a NMVC Company without
ciation on Publicly Traded and Mar- SBA’s prior written approval. Your re-
ketable securities. This is your ’’Class quest for approval must be accom-
I Appreciation’’. panied by an offer of immediate repay-
(3) Determine your Unrealized Appre- ment of all of your outstanding Lever-
ciation on securities that are not Pub- age (including any prepayment pen-
licly Traded and Marketable and meet alties thereon), or by a plan satisfac-
the following criteria, which must be tory to SBA for the orderly liquidation
substantiated to the satisfaction of of the NMVC Company.
SBA (this is your ‘‘Class 2 Apprecia-
tion’’): Subpart M—Miscellaneous
(i) The Small Business that issued
the security received a significant sub- § 108.1910 Non-waiver of SBA’s rights
sequent equity financing by an inves- or terms of Leverage security.
tor whose objectives were not pri- SBA’s failure to exercise or delay in
marily strategic and at a price that exercising any right or remedy under
conclusively supports the Unrealized the Act or the regulations in this part
Appreciation; does not constitute a waiver of such
(ii) Such financing represents a sub- right or remedy. SBA’s failure to re-
stantial investment in the form of an quire you to perform any term or pro-
arm’s length transaction by a sophisti- vision of your Leverage does not affect
cated new investor in the issuer’s secu- SBA’s right to enforce such term or
rities; and provision. Similarly, SBA’s waiver of,
(iii) Such financing occurred within or failure to enforce, any term or pro-
24 months of the date of the Capital vision of your Leverage or of any event
Impairment computation, or the Small or condition set forth in § 108.1810 does
Business’ pre-tax cash flow from oper- not constitute a waiver of any suc-
ations for its most recent fiscal year ceeding breach of such term or provi-
was at least 10 percent of the Small sion or condition.
165
§ 108.1920 13 CFR Ch. I (1–1–23 Edition)
§ 108.1920 NMVC Company’s applica- (1) A substantial number of Low-In-

tion for exemption from a regula- come Individuals reside in that census
tion in this part 108. tract (or equivalent county division).
(a) General. You may file an applica- (2) As adequately supported by stud-
tion in writing with SBA to have a pro- ies or other analyses or reliable data,
posed action exempted from any proce- that census tract (or equivalent county
dural or substantive requirement, re- division) has a pattern of unmet needs
striction, or prohibition to which it is for investment capital.
subject under this part, unless the pro- (3) As adequately supported by stud-
vision is mandated by the Act. SBA ies or other analyses or reliable data,
may grant an exemption for such appli- that census tract (or equivalent county
cant, conditionally or unconditionally, division) has indications of economic
provided the exemption would not be distress.
contrary to the purposes of the Act. (c) Procedure for designation. (1) If
(b) Contents of application. Your appli- SBA decides to consider the designa-
cation must be accompanied by sup- tion of an additional LI Area, SBA will
porting evidence that demonstrates to publish in the FEDERAL REGISTER a no-
SBA’s satisfaction that: tice that it is considering such designa-
(1) The proposed action is fair and eq- tion. SBA will advise the public that it
uitable; and will consider any comments supporting
(2) The exemption requested is rea- or opposing the designation, submitted
sonably calculated to advance the best within a specified time period.
interests of the NMVC program in a (2) In making a final decision on
manner consistent with the policy ob- whether to designate a particular cen-
jectives of the Act and the regulations sus tract (or equivalent county divi-
in this part. sion) as an additional LI Area, SBA
will consider evidence submitted by
§ 108.1930 Effect of changes in this any requester, SBA’s own research, any
part 108 on transactions previously public comments submitted, and any
consummated. other information deemed relevant by
The legality of a transaction covered SBA.
by the regulations in this part is gov- (3) If SBA designates a particular
erned by the regulations in this part in census tract (or equivalent county divi-
effect at the time the transaction was sion) as an additional LI Area, SBA
consummated, regardless of later will publish a notice in the FEDERAL
changes. Nothing in this part bars SBA REGISTER and, if appropriate, will
enforcement action with respect to any amend this part to include the addi-
transaction consummated in violation tional LI Area.
of provisions applicable at the time,
but no longer in effect. Subpart N—Requirements and
Procedures for Operational
§ 108.1940 Procedures for designation
of additional Low-Income Geo- Assistance Grants to NMVC
graphic Areas Companies and SSBICs
(a) General. On its own initiative or § 108.2000 Operational Assistance
upon written request by a Person Grants to NMVC Companies and
which addresses the relevant factor(s) SSBICs.
set forth in paragraph (b) of this sec-
(a) NMVC Companies. Regulations
tion, SBA may consider whether to
governing Operational Assistance
designate additional census tracts (or
grants to NMVC Companies may be
equivalent county divisions) as LI
found in subparts D and E of this part
Areas.
108, and in §§ 108.2010 through 108.2040.
(b) Criteria. SBA will consider one or
(b) SSBICs. Regulations governing
more of the following factors in deter-
Operational Assistance grants to
mining whether to designate a par-
SSBICs may be found in §§ 108.2001
ticular census tract (or equivalent

through 108.2040.
county division) as an additional LI
Area: [67 FR 68503, Nov. 12, 2002]
166
§ 108.2001 When and how SSBICs may § 108.2004 Contents of application sub-
apply for Operational Assistance mitted by SSBICs.
grants.
Each application submitted by an
(a) Notice of Funds Availability SSBIC for an Operational Assistance
(‘‘NOFA’’). SBA will publish a NOFA in grant must contain the information
the FEDERAL REGISTER, advising specified in the application packet pro-
SSBICs of the availability of funds for vided by SBA, including the following
Operational Assistance grants to information:
SSBICs. This NOFA will be the same (a) Amounts. An SSBIC must specify
NOFA described in § 108.300(a), or will the amount of Regulatory Capital it in-
be published simultaneously with that tends to raise after December 21, 2000,
NOFA. An SSBIC may submit an appli- and the amount of Operational Assist-
cation for an Operational Assistance ance grant funds it seeks from SBA,
grant only during the time period spec- which must be at least 30 percent of its
ified for such purpose in the NOFA. intended increase in its Regulatory
(b) Application form. An SSBIC must Capital since December 21, 2000.
apply for an Operational Assistance (b) Plan. An SSBIC must submit a
grant using the application packet pro- plan addressing the specific items de-
vided by SBA. Upon receipt of an appli- scribed in § 108.2005.
cation, SBA may request clarifying or
technical information on the materials [67 FR 68503, Nov. 12, 2002]
submitted as part of the application.
§ 108.2005 Contents of plan submitted
[67 FR 68503, Nov. 12, 2002] by SSBICs.
§ 108.2002 Eligibility of SSBICs to (a) Plan for providing Operational As-
apply for Operational Assistance sistance. The SSBIC must describe how
grants. it plans to use its grant funds to pro-
An SSBIC is eligible to apply for an vide Operational Assistance to Smaller
Operational Assistance grant if: Enterprises in which it will make Low-
(a) It intends to increase its Regu- Income Investments. Its plan must ad-
latory Capital, as in effect on Decem- dress the types of Operational Assist-
ber 21, 2000, and to make Low-Income ance it proposes to provide, and how it
Investments in the amount of such in- plans to provide the Operational As-
crease; sistance through the use of licensed
(b) It intends to raise binding com- professionals, when necessary, either
mitments for contributions in cash or from its own staff or from outside enti-
in-kind, and/or to purchase an annuity, ties.
in an amount not less than 30 percent (b) Matching resources for Operational
of the intended increase in its Regu- Assistance grant. The SSBIC must in-
latory Capital described in paragraph clude a detailed description of how it
(a) of this section; and plans to obtain binding commitments
(c) It has a plan describing how it infor contributions in cash or in-kind,
tends to use the requested grant funds and/or to purchase an annuity, to
to provide Operational Assistance to match the funds requested from SBA
Smaller Enterprises in which it has for the SSBIC’s Operational Assistance
made or expects to make Low-Income grant. If it proposes to obtain commit-
Investments after December 21, 2000. ments for cash and in-kind contribu-
tions, it also must estimate the ratio
[67 FR 68503, Nov. 12, 2002] of cash to in-kind contributions (in no
§ 108.2003 Grant issuance fee for event may in-kind contributions ex-
SSBICs. ceed 50 percent of the total contribu-
tions). The SSBIC must discuss its po-
An SSBIC must pay to SBA a grant tential sources of matching resources,
issuance fee of $5,000. An SSBIC must the estimated timing on raising such
submit this fee in advance, at the time match, and the extent of the expres-
of application submission. If SBA does sions of interest to commit such match
not award a grant to the SSBIC, SBA to the SSBIC.

will refund this fee to the SSBIC. (c) Identification of LI Areas. The
[67 FR 68503, Nov. 12, 2002] SSBIC must identify the specific LI
167
§ 108.2006 13 CFR Ch. I (1–1–23 Edition)
Areas in which it intends to make Low- benefits to be created within identified

Income Investments and provide Oper- LI Areas over the next five years or
ational Assistance under the NMVC more as a result of its activities;
program. (2) A description of the criteria to be
(d) Projected allocation of investments used to measure the benefits created as
among identified LI Areas. The SSBIC a result of its activities; and
must describe the amount of Low-In- (3) A discussion about the amount of
come Investments it intends to make such benefits created that it will con-
in each of the identified LI Areas. sider to constitute successfully meet-
(e) Track record of management team in ing the objectives of the NMVC pro-
obtaining public policy results through in- gram.
vestments. The SSBIC must provide in- [67 FR 68503, Nov. 12, 2002]
formation concerning the past track
record of the SSBIC in making invest- § 108.2006 Evaluation and selection of
ments that have had a demonstrable SSBICs.
impact on the socially or economically SBA will evaluate and select an
disadvantaged businesses targeted by SSBIC for an Operational Assistance
the SSBIC program (for example, new grant award under the NMVC program
businesses created, jobs created, or solely at SBA’s discretion, based on
wealth created). Such information SBA’s review of the SSBIC’s applica-
might include case studies or examples tion materials, interviews or site visits
of the SSBIC’s successful Financings. with the SSBIC (if any), and informa-
(f) Market analysis. The SSBIC must tion in SBA’s records relating to the
provide an analysis of the LI Areas in SSBIC’s regulatory compliance status
which it intends to makes its Low-In- and track record as an SSBIC. SBA’s
come Investments and provide its Oper- evaluation and selection process is in-
ational Assistance to Smaller Enter- tended to ensure that SSBIC requests
prises, demonstrating that the SSBIC are evaluated on a competitive basis
understands the market and the unmet and in a fair and consistent manner.
capital needs in such areas and how its SBA will evaluate and select SSBICs
activities will meet these unmet cap- for an Operational Assistance grant
ital needs through Low-Income Invest- award by considering the following cri-
ments and have a positive economic teria:
impact on those areas. The analysis (a) The strength of the SSBIC’s appli-
must include a description of the ex- cation, including the strength of its
tent of the economic distress in the proposal to provide Operational Assist-
identified LI Areas. The SSBIC also ance to Smaller Enterprises in which it
must analyze the extent of the demand intends to invest;
in such areas for Low-Income Invest- (b) The SSBIC’s regulatory compli-
ments and any factors or trends that ance status and past track record in
may affect the SSBIC’s ability to make being able to accomplish program goals
effective Low-Income Investments. through its investment activity;
(g) Regulatory Capital. The SSBIC (c) The likelihood that and the time
must include a detailed description of frame within which the SSBIC will be
how it plans to raise its Regulatory able to raise the Regulatory Capital it
Capital. The SSBIC must discuss its intends to raise and obtain the match-
potential sources of Regulatory Cap- ing resources described in § 108.2005(b)
ital, the estimated timing on raising and (g);
such funds, and the extent of the ex- (d) The need for Low-Income Invest-
pressions of interest to commit such ments in the LI Areas in which the
funds to the SSBIC. SSBIC intends to invest;
(h) Projected impact. The SSBIC must (e) The SSBIC’s demonstrated under-
describe the criteria and economic standing of the markets in the LI
measurements to be used to evaluate Areas in which it intends to invest;
whether and to what extent it has met (f) The extent to which the activities
the objectives of the NMVC program. It proposed by the SSBIC will promote
must include: economic development and the cre-

(1) An estimate of the social, eco- ation of wealth and job opportunities
nomic, and community development in the LI Areas in which it intends to
168
invest and among individuals living in § 108.2020 Amount of Operational As-

LI Areas; sistance grant.
(g) The likelihood that the SSBIC
(a) Amount of grant to NMVC Com-
will fulfill the goals described in its ap-
pany. NMVC Companies are eligible for
plication and meet the objectives of
an Operational Assistance grant award
the NMVC program; and
equal to the amount of matching re-
(h) The strength of the SSBIC’s appli-
sources raised by the NMVC Company
cation compared to applications sub-
in accordance with §§ 108.380(a)(1)(i)(B)
mitted by other SSBICs and by Appli-
and 108.2030.
cants intending to invest in the same
or proximate LI Areas. (b) Amount of grant to SSBIC. SSBICs
are eligible for an Operational Assist-
[67 FR 68503, Nov. 12, 2002] ance grant award equal to the amount
of matching resources raised by the
§ 108.2007 Grant award to SSBICs.
SSBIC in accordance with §§ 108.2007
An SSBIC selected for an Operational and 108.2030.
Assistance grant award will receive a (c) Pro rata reductions. In the event
grant award only if, by a date estab- that the total amount of funds avail-
lished by SBA, it increases its Regu- able to SBA for purposes of making
latory Capital in the specific amount Operational Assistance grant awards to
set forth in its application, pursuant to NMVC Companies and SSBICs is not
§ 108.2004(a), and raises matching re- sufficient to award grants in the
sources for the grant in the amount re- amounts described in paragraphs (a)
quired by § 108.2030(d)(2). and (b) of this section, SBA will make
[67 FR 68503, Nov. 12, 2002] pro rata reductions in the amounts
otherwise awarded to each such NMVC
§ 108.2010 Restrictions on use of Oper- Company and SSBIC.
ational Assistance grant funds.
(a) Restrictions applicable only to
FR 68505, Nov. 12, 2002]
SSBICs. An SSBIC that receives an
Operational Assistance grant must use § 108.2030 Matching requirements.
both grant funds awarded by SBA and
its matching resources only to provide (a) General. All Operational Assist-
Operational Assistance in connection ance grant funds SBA awards to an
with a Low-Income Investment made NMVC Company or a SSBIC must be
by the SSBIC with Regulatory Capital matched on a dollar for dollar basis
raised after December 21, 2000. with funds or other resources raised by
(b) Restrictions applicable only to the NMVC Company or SSBIC.
NMVC Companies. A NMVC Company (b) Allowable sources. (1) Any source
must use at least 80 percent of both other than SBA is an allowable source
grant funds awarded by SBA and its of matching resources for an Oper-
matching resources to provide Oper- ational Assistance grant award.
ational Assistance to Smaller Enter- (2) Neither a NMVC Company nor a
prises whose Principal Office at the SSBIC may use funds or other re-
time the Operational Assistance com- sources that it has used to satisfy a
mences is located in an LI Area. legal requirement for obtaining funds
(c) Restrictions applicable to NMVC under any other Federal program, to
Companies and SSBICs. A NMVC Com- satisfy the matching resources require-
pany or a SSBIC that receives an Oper- ments described in this part.
ational Assistance grant must not use (3) A portion of Private Capital may
either grant funds awarded by SBA or be designated as matching resources if
its matching resources for ‘‘general the designated funds are used to pur-
and administrative expense,’’ as de- chase an annuity pursuant to para-
fined in the Federal Acquisition Regu- graph (c)(2)(iv) of this section or are
lations, ‘‘Definitions of Words and otherwise segregated in a manner ac-
Terms,’’ 48 CFR 2.101. ceptable to SBA.
[66 FR 28609, May 23, 2001; 66 FR 32894, June (c) Type and form of matching re-
19, 2001, as amended at 67 FR 68505, Nov. 12, sources. (1) Matching resources may
2002] come from cash contributions or in-
169
§ 108.2040 13 CFR Ch. I (1–1–23 Edition)
kind contributions. In-kind contribu- between SBA and the SSBIC, as well as
tions cannot exceed 50 percent of the the reporting requirements in
total amount of match raised by the § 108.630(f) and the filing requirement in
NMVC Company or SSBIC. § 108.640.
(2) Matching resources may be in the
form of:
FR 68505, Nov. 12, 2002]
(i) Cash;
(ii) In-kind contributions;
(iii) Binding commitments for cash PART 109—INTERMEDIARY LENDING
or in-kind contributions that may be PILOT PROGRAM
payable over a multiyear period ac-
ceptable to SBA (but not to exceed the Subpart A—Introduction
term of the Operational Assistance
Sec.
grant from SBA and in no event more
109.10 Description of the Intermediary
than 10 years); and/or Lending Pilot program.
(iv) An annuity, purchased with 109.20 Definitions.
funds other than Regulatory Capital,
from an insurance company acceptable Subpart B—ILP Intermediary Application
to SBA and that may be payable over a and Selection Process
multiyear period acceptable to SBA
(but not to exceed the term of the 109.100 ILP Intermediary eligibility and
Operational Assistance grant from SBA continuing participation requirements.
109.200–109.220 [Reserved]
and in no event more than 10 years).
(d) Amount of matching resources—(1) Subpart C—ILP Program Requirements
NMVC Companies. The amount of
matching resources required of an 109.300 General.
NMVC Company is set forth in 109.310 Terms of loans to ILP Inter-
§ 108.380(a)(1)(i)(B). mediaries.
(2) SSBICs. The amount of matching 109.320 ILP Loan purposes.
resources required of an SSBIC is equal 109.330 ILP Relending Fund.
to the amount of Operational Assist- 109.340 Lending requirements.
109.350 Maintenance of loan loss reserve.
ance grant funds requested by the
109.360 Recordkeeping and reporting re-
SSBIC, as set forth in its application quirements.
pursuant to § 108.2004(a).
[66 FR 28609, May 23, 2001, as amended at 67 Subpart D—Requirements for ILP
FR 68505, Nov. 12, 2002] Intermediary Loans to Small Businesses
§ 108.2040 Reporting and record- 109.400 Eligible Small Business Concerns.

keeping requirements. 109.410 Loan limits—loans to Eligible Small
Business Concerns.
(a) NMVC Companies. Policies gov- 109.420 Terms of Loans from ILP Inter-
erning reporting, record retention, and mediaries to Eligible Small Business
recordkeeping requirements applicable Concerns.
to NMVC Companies may be found in 109.430 Loan purposes.
subpart H of this part. NMVC Compa- 109.440 Requirements imposed under other
nies also must comply with all report- laws and orders.
ing, record retention, and record- 109.450 SBA Review of ILP Intermediary
loans to Eligible Small Business Con-
keeping requirements set forth in Cir-
cerns.
cular A–110 of the Office of Manage- 109.460 Prohibition on sales of ILP Inter-
ment and Budget (for availability, see 5 mediary loans to Eligible Small Business
CFR 1310.3) and any grant award docu- Concerns.
ment executed between SBA and the
NMVC Company. Subpart E—Oversight
(b) SSBICs. An SSBIC receiving an
109.500 SBA access to ILP Intermediary
Operational Assistance grant award
files.
must comply with all reporting, record 109.510 Reviews.
retention and recordkeeping require- 109.520 Events of default and revocation of
ments set forth in Circular A–110 of the authority to participate in the ILP pro-
Office of Management and Budget and gram.
any grant award document executed 109.530 Debarment and Suspension.
170
AUTHORITY: 15 U.S.C. 634(b)(6), (b)(7), and (i) For an ILP Intermediary, the date
636(l). of the ILP Note;
SOURCE: 76 FR 18015, Apr. 1, 2011, unless (ii) For an Eligible Small Business
otherwise noted. Concern, the date of the loan applica-
tion to the ILP Intermediary.
Subpart A—Introduction Close Relative is a spouse; a parent; a
child or sibling, or the spouse of any
§ 109.10 Description of the Inter- such person.
mediary Lending Pilot program. Eligible Small Business Concern is a
small business that meets the require-
The Small Business Intermediary
ments of § 109.400.
Lending Pilot program (ILP program)
ILP Intermediary means a private,
provides direct loans to ILP Inter-
nonprofit entity that has received an
mediaries to make loans of up to
ILP Loan.
$200,000 to startup, newly established,
ILP Loan means a direct loan made
or growing small businesses. ILP Inter-
by SBA to an ILP Intermediary under
mediaries continue to relend a portion
this program.
of the payments received on small busi-
ILP Note means the instrument that
ness loans made under the program
represents the obligation of the ILP
until they have fully repaid their loans
Intermediary to repay the ILP Loan to
to SBA.
SBA.
§ 109.20 Definitions. ILP Program Activities Report means
the quarterly report that identifies the
Affiliate is defined in § 121.301(f) of use and management of ILP program
this chapter. funds.
Associate. (1) An Associate of an ILP ILP Program Requirements are require-
Intermediary is: ments imposed upon an ILP Inter-
(i) An officer, director, key employee, mediary by statute, SBA regulations,
or holder of 20 percent or more of the any agreement executed between SBA
value of the ILP Intermediary or its and the ILP Intermediary, SBA SOPs,
debt instruments, or an agent involved SBA procedural guidance, official SBA
in the loan process; notices and forms applicable to the ILP
(ii) Any entity in which one or more program, any NOFA applicable to the
individuals referred to in paragraph ILP program, and the ILP Note and
(1)(i) of this definition or a Close Rel- Loan Authorization, as such require-
ative of any such individual owns or ments are issued and revised by SBA
controls at least 20 percent; from time to time.
(2) An Associate of an Eligible Small ILP Relending Fund means a federally
Business Concern is: insured depository account established
(i) An officer director, owner of more by the ILP Intermediary at a well-cap-
than 20 percent of the equity, or key italized financial institution which in-
employee of the Eligible Small Busi- cludes, at a minimum, the ILP Loan
ness Concern; proceeds and the principal portion of
(ii) Any entity in which one or more repayments from Eligible Small Busi-
individuals referred to in paragraphs ness Concerns.
(2)(i) of this definition owns or controls Intermediary Lending Program Elec-
at least 20 percent; and tronic Reporting System (ILPERS) means
(iii) Any individual or entity in con- the web-based, electronic reporting
trol of or controlled by the small busi- system used by the ILP Intermediary
ness (except a Small Business Invest- to report each loan made to Eligible
ment Company (SBIC) licensed by Small Business Concerns, to provide
SBA). aging information on each loan, and to
(3) For the purposes of this defini- update the outstanding principal bal-
tion, the time during which an Asso- ance of each loan until all loans are ei-
ciate relationship exists commences ther paid in full or charged off.
six months before the following dates Native American Tribal Government
and continues as long as the ILP Note means the governing body of any Na-
or the loan to the Eligible Small Busi- tive American tribe, band, nation, or
ness Concern is outstanding: other organized group or community,
171
§ 109.100 13 CFR Ch. I (1–1–23 Edition)
including any Alaska Native village or small business loans including, but not
regional or village corporation as de- limited to:
fined in or established pursuant to the (i) Holding sufficient permanent cap-
Alaska Native Claims Settlement Act ital (as determined by SBA) to support
(43 U.S.C.A. § 1601 et seq.), which is rec- lending activities under this program;
ognized as eligible for the special pro- and
grams and services provided by the (ii) Maintaining satisfactory SBA
United States to Native Americans be- performance, as determined by SBA in
cause of their status as Native Ameri- its discretion.
cans. (3) An ILP Intermediary must meet
Portfolio Identification Report means and maintain the ethical requirements
the electronic report that collects of 13 CFR 120.140.
identifying information on loans made (4) An ILP Intermediary (and any Af-
to Eligible Small Business Concerns, filiates) that participates in other SBA
including demographic information, programs must be in compliance with
use of proceeds, payment terms, and those program requirements.
jobs created and retained. (5) An ILP Intermediary must be in
Portfolio Status Report means the good standing with its Federal and/or
quarterly electronic report that sum- State regulator, as applicable.
marizes the payment status and out- (6) An ILP Intermediary must have
standing principal balances of an ILP the ability to comply with the ILP
Intermediary’s loans to Eligible Small Program Requirements, including re-
Business Concerns. porting requirements, as such require-
[76 FR 18015, Apr. 1, 2011, as amended at 81 ments are revised from time to time,
FR 41428, June 27, 2016; 85 FR 75834, Nov. 27, and maintain compliance with ILP
2020] Program Requirements for as long as
the ILP Intermediary participates in
Subpart B—ILP Intermediary the ILP program.
Application and Selection Process §§ 109.200–109.220 [Reserved]
§ 109.100 ILP Intermediary eligibility
and continuing participation re- Subpart C—ILP Program
quirements. Requirements
(a) Organization type: An ILP Inter-
mediary must be a private, nonprofit § 109.300 General.
entity other than an intermediary par- An ILP Intermediary must maintain
ticipating in the SBA Microloan pro- compliance with all ILP Program Re-
gram as described in subpart G of Part quirements until the ILP Intermediary
120. Eligible entities include: has repaid its ILP Loan to SBA. With
(1) Private, nonprofit community de- respect to its activities in the ILP pro-
velopment corporations; gram, the ILP Intermediary is subject
(2) Consortiums of private, nonprofit to the requirements of §§ 120.140 (What
organizations or nonprofit community ethical requirements apply to partici-
development corporations; and pants?), 120.197 (Notifying SBA’s Office
(3) Agencies of or nonprofit entities of Inspector General of suspected
established by Native American tribal fraud), 120.412 (Other services Lenders
governments. may provide Borrowers), and 120.413
(b) Prior experience: An ILP Inter- (Advertisement of relationship with
mediary must have at least one year of SBA) of this chapter, in addition to the
successful experience making and serv- regulations specifically set forth in
icing loans to startup, newly estab- this Part. The ILP Intermediary and
lished, or growing small businesses. any contractor(s) it may have are inde-
(c) Management and operations. (1) An pendent contractors that are respon-
ILP Intermediary must have paid staff sible for their own actions with respect
with loan making and servicing experi- to small business loans made under
ence acceptable to SBA. this program. SBA has no responsi-
(2) An ILP Intermediary must have a bility or liability for any claim by an
continuing ability to evaluate, process, Eligible Small Business Concern or
close, disburse, service and liquidate other party for any injury as a result of
172
any wrongful action taken by the ILP under this program. The ILP Relending
Intermediary or an employee, agent or Fund must be in an account separate
contractor of an ILP Intermediary. and distinct from the ILP
Intermediary’s other assets and finan-
§ 109.310 Terms of loans to ILP Inter- cial activities.
mediaries. (b) Contents of the ILP Relending
(a) Disbursement. An ILP Inter- Fund. All ILP Loan proceeds disbursed
mediary must be in compliance with from SBA to the ILP Intermediary
ILP Program Requirements in order to must be deposited into the ILP Re-
draw down its ILP Loan funds. SBA lending Fund. All payments received
may place restrictions on disburse- by the ILP Intermediary on loans made
ment, including the amount disbursed to Eligible Small Business Concerns
to an ILP Intermediary at one time or must also be deposited into the ILP Re-
conditions on subsequent disburse- lending Fund. The ILP Intermediary
ments. must not commingle funds from any
(b) Term. An ILP Loan must be repaid other public programs (including other
within 20 years from the date of the SBA programs) in this account.
ILP Note. (c) Interest earned. The ILP Inter-
(c) Interest rate. The interest rate for mediary is not required to retain the
an ILP Loan to an ILP Intermediary is interest portion of payments received
fixed at one percent per annum. on loans made to Eligible Small Busi-
(d) Repayment. Payments of principal ness Concerns in the ILP Relending
and interest must be made on a quar- Fund or to retain the interest earned
terly basis, except SBA will defer the on the ILP Relending Fund in the ILP
first payment on an ILP Loan for two Relending Fund.
years from the date of the first dis- (d) Allowable uses of the ILP Relending
bursement. Interest will accrue on all Fund. The ILP Intermediary must use
disbursed funds during the deferment the ILP Relending Fund to disburse
period. Accrued interest will be added loans made to Eligible Small Business
to the outstanding principal balance at Concerns under this program and to
the end of the deferment period and make payments to SBA on its ILP
amortized over the remaining life of Loan; it may not use the ILP Re-
the loan. An ILP Intermediary may lending Fund for any other purposes.
prepay an ILP Loan at any time with-
out penalty. § 109.340 Lending requirements.
(e) Collateral. SBA does not require (a) Initial lending requirement. The
the ILP Intermediary to provide any ILP Intermediary must commit 100% of
collateral for an ILP Loan. its ILP Loan funds to Eligible Small
(f) Fees. SBA does not charge an ILP Business Concerns within two years of
Intermediary any fees for an ILP Loan. the date of the ILP Note. The Asso-
ciate Administrator for Capital Access
§ 109.320 ILP Loan purposes. (AA/CA) or designee may approve ex-
(a) ILP Loan funds must only be used tensions to the initial lending require-
to provide direct loans to Eligible ment on a case-by-case basis.
Small Business Concerns for working (b) Ongoing relending requirement.
capital, real estate, or the acquisition After meeting the initial lending re-
of materials, supplies, furniture, fix- quirement, the ILP Intermediary must
tures, or equipment. relend the funds in the ILP Relending
(b) ILP Loan funds must not be used Fund so that the total principal bal-
for any other purpose, including main- ance of loans outstanding to Eligible
tenance of loan loss reserves or pay- Small Business Concerns does not fall
ment of administrative costs or ex- below 75% of the outstanding principal
penses of the ILP Intermediary. balance of the ILP Loan at any time
while the ILP Loan is outstanding. Ex-
§ 109.330 ILP Relending Fund. ceptions to this requirement will be
(a) General. The ILP Intermediary considered by the AA/CA or designee on
must establish and maintain an ILP a case by case basis based on the par-
Relending Fund for as long as it has an ticular facts and circumstances of the
outstanding balance owed to SBA ILP Intermediary.
173
§ 109.350 13 CFR Ch. I (1–1–23 Edition)
§ 109.350 Maintenance of loan loss re- cipal balances of its loans to Eligible
serve. Small Business Concerns. Additionally,
The ILP Intermediary must maintain each ILP Intermediary must submit an
a reasonable loan loss reserve appro- ILP Program Activities Report with
priate for the quality of the ILP accompanying bank statements to
Intermediary’s portfolio in a federally demonstrate the use and management
insured depository account established of ILP program funds.
by the ILP Intermediary at a well-cap- (3) Audited financial statements. With-
italized financial institution. The loan in four months after the close of the
loss reserve must be in an account sep- ILP Intermediary’s fiscal year, the ILP
arate and distinct from the ILP Intermediary must submit to SBA au-
Intermediary’s other assets and finan- dited financial statements as prepared
cial activities. This reserve must be by an independent certified public ac-
maintained at not less than 5% of the countant, except that ILP Inter-
principal balance of all outstanding mediaries subject to OMB Circular A–
loans to Eligible Small Business Con- 133 must submit audits prepared in ac-
cerns made from the ILP Relending cordance with that circular. The AA/
Fund. The AA/CA or designee may re- CA or designee may provide extensions
quire the ILP Intermediary to main- to the filing deadline.
tain a larger loss reserve if the AA/CA (4) Reports of changes. An ILP Inter-
determines that the ILP mediary must submit to SBA a sum-
Intermediary’s loss reserve level is po- mary of any changes in the ILP
tentially inadequate to protect SBA Intermediary’s organization or financ-
from loss. ILP Relending Fund pro- ing (within 30 calendar days of the
ceeds must not be used to establish or change), such as:
maintain the loan loss reserve. (i) Any change in its name, address
or telephone number;
§ 109.360 Recordkeeping and reporting (ii) Any change in its charter, by-
requirements. laws, or its officers or directors (to be
(a) Maintenance of records. The ILP accompanied by a statement of per-
Intermediary must maintain at its sonal history on the form approved by
principal business office accurate and SBA);
current financial records, including (iii) Any material change in capital-
books of accounts, and all documents ization or financial condition; and
and supporting materials relating to (iv) Any change affecting the ILP
the ILP Intermediary’s activities in Intermediary’s eligibility to continue
the ILP program, including files on to participate in the ILP program.
loans made to Eligible Small Business (5) Other reports. Each ILP Inter-
Concerns. Records may be preserved mediary must submit such other re-
electronically if the original is avail- ports as SBA may require from time to
able for retrieval within 15 calendar time.
days.
(b) ILP Intermediary reporting. The
ILP Intermediary must submit the fol-
Subpart D—Requirements for ILP
lowing to SBA: Intermediary Loans to Small
(1) Portfolio Identification Reports. All Businesses
loans made by the ILP Intermediary to
an Eligible Small Business Concern § 109.400 Eligible Small Business Con-
cerns.
under this program must be entered
into the Intermediary Lending Pro- (a) To be eligible to receive loans
gram Electronic Reporting System from an ILP Intermediary under this
(ILPERS) within seven calendar days program, a small business must:
of closing the loan. (1) Be organized for profit;
(2) Quarterly reports. By the 30th cal- (2) Be located in the U.S.;
endar day following the end of each (3) Be small under the size require-
calendar quarter, each ILP Inter- ments applicable to 7(a) business loans
mediary must submit a Portfolio Sta- (including Affiliates);

tus Report via ILPERS to update the (4) Be a startup, newly established, or
payment status and outstanding prin- growing small business;
174
(5) Together with Affiliates and prin- (17) Businesses that have previously
cipal owners, not have credit else- defaulted on a Federal loan or Feder-
where; and ally assisted financing, resulting in the
(6) Be creditworthy and demonstrate Federal government or any of its agen-
reasonable assurance of repayment of cies or Departments sustaining a loss
the loan. in any of its programs, and businesses
(b) The following types of businesses owned or controlled by an applicant or
are not eligible to receive a loan from any of its Associates which previously
an ILP Intermediary under this pro- owned, operated, or controlled a busi-
gram: ness which defaulted on a Federal loan
(1) Nonprofit businesses (for-profit (or guaranteed a loan which was de-
subsidiaries are eligible); faulted) and caused the Federal govern-
(2) Financial businesses primarily en- ment or any of its agencies or Depart-
gaged in the business of lending; ments to sustain a loss in any of its
(3) Passive businesses owned by de- programs. For purposes of this section,
velopers and landlords that do not ac- a compromise agreement shall also be
tively use or occupy the assets ac- considered a loss unless the agreement
quired or improved with the loan pro- provides otherwise;
ceeds; (18) Businesses primarily engaged in
(4) Life insurance companies; political or lobbying activities; and
(5) Businesses located in a foreign (19) Speculative businesses (such as
country; oil wildcatting);
(6) Pyramid sale distribution plans; (20) Businesses located in a Coastal
(7) Businesses deriving more than Barrier Resource Area (as defined in
one-third of gross annual revenue from the Coastal Barriers Resource Act);
legal gambling activities; (21) Businesses owned or controlled
(8) Businesses engaged in any illegal by an applicant or any of its Associates
activity; who are more than 60 days delinquent
(9) Private clubs and businesses in child support under the terms of any
which limit the number of member- administrative order, court order, or
ships for reasons other than capacity; repayment agreement;
(10) Government-owned entities (ex- (22) Businesses in which any Asso-
cept for businesses owned or controlled ciate is an undocumented (illegal)
by a Native American tribe); alien; or
(11) Businesses principally engaged in (23) Businesses owned or controlled
teaching, instructing, counseling or in- by an applicant or any of its Associates
doctrinating religion or religious be- who are presently debarred, suspended,
liefs, whether in a religious or secular proposed for debarment, declared ineli-
setting; gible, or voluntarily excluded from par-
(12) [Reserved] ticipation by any Federal department
(13) Loan packagers earning more or agency.
than one third of their gross annual [76 FR 18015, Apr. 1, 2011, as amended at 82
revenue from packaging SBA loans; FR 39501, Aug. 21, 2017]
(14) Businesses in which the ILP
Intermediary or any of its Associates § 109.410 Loan limits—loans to Eligible
owns an equity interest; Small Business Concerns.
(15) Businesses with an Associate who No small business (including Affili-
is incarcerated, on probation, on pa- ates) may have more than $200,000 out-
role, or has been indicted for a felony standing under this program at one
or a crime of moral turpitude; time. The provisions of § 120.151 do not
(16) Businesses which: apply to loans under this program.
(i) Present live performances of a
prurient sexual nature; or § 109.420 Terms of loans from ILP
(ii) Derive directly or indirectly more Intermediaries to Eligible Small
than de minimis gross revenue through Business Concerns.
the sale of products or services, or the (a) General. The terms of a loan made
presentation of any depictions or dis- by the ILP Intermediary to an Eligible
plays, of a prurient sexual nature; Small Business Concern must be agreed
175
§ 109.430 13 CFR Ch. I (1–1–23 Edition)
to by the ILP Intermediary and the El- loan under this program for the fol-
igible Small Business Concern. The lowing purposes:
loan terms must be within the limits (1) Working capital;
established by SBA in these regula- (2) Real estate (except for real estate
tions. acquired and held primarily for sale,
(b) Maximum loan size. The maximum lease, or investment); and
amount of a loan by the ILP Inter- (3) The acquisition of materials, sup-
mediary to an Eligible Small Business plies, furniture, fixtures, or equipment.
Concern under this program is $200,000. (b) Revolving lines of credit are per-
(c) Maturity. The term of a loan by mitted. However, if, at any time, SBA
the ILP Intermediary to an Eligible determines that the ILP
Small Business Concern under this pro- Intermediary’s operation of revolving
gram must be the shortest appropriate lines of credit is causing excessive risk
term. The maximum loan term is 10 of loss for the intermediary or the Gov-
years or less, unless the loan finances ernment, the AA/CA or designee may
or refinances real estate or equipment terminate the ILP Intermediary’s au-
with a useful life exceeding ten years, thority to use the ILP Relending Fund
in which case the maximum loan term proceeds for revolving lines of credit.
is 25 years. Such termination will be by written
(d) Interest rate. The maximum inter- notice and will prevent the ILP Inter-
est rate the ILP Intermediary may mediary from approving any new lines
charge for loans less than or equal to of credit or extending any existing re-
$50,000 is 8.75 percent. The maximum volving lines of credit beyond the effec-
interest rate the ILP Intermediary tive date of termination contained in
may charge for loans greater than the notice.
$50,000 is 7%. SBA may adjust the max-
imum interest rates from time to time; § 109.440 Requirements imposed under
SBA will publish any such change by other laws and orders.
Notice in the FEDERAL REGISTER. Loans made by the ILP Intermediary
Changes to the maximum interest rate under this program must comply with
do not apply to loans made to Eligible all applicable laws, including §§ 120.170
Small Business Concerns prior to publi- (Flood insurance), 120.172 (Flood-plain
cation of the change in the FEDERAL and wetlands management), 120.173
REGISTER. (Earthquake hazards), and the civil
(e) Fees. The ILP Intermediary must rights laws (see parts 112, 113, 117, and
not impose any fees or direct costs on 136 of this chapter) prohibiting dis-
an Eligible Small Business Concern, crimination on the grounds of race,
except for the following allowed fees or color, national origin, religion, sex,
direct costs: marital status, disability or age.
(1) Necessary out-of-pocket expenses, [76 FR 18015, Apr. 1, 2011, as amended at 85
such as filing or recording fees; FR 75834, Nov. 27, 2020]
(2) The reasonable direct costs of any
liquidation; § 109.450 SBA review of ILP Inter-
(3) A late payment fee not to exceed mediary loans to Eligible Small
5 percent of the scheduled loan pay- Business Concerns.
ment; and (a) Review restrictions. SBA does not
(4) Reasonable application and origi- review loans made by an ILP Inter-
nation fees, subject to a maximum mediary under this program before ap-
total fee cap of 1 percent of the amount proval of the loan by the ILP Inter-
of the loan to the Eligible Small Busi- mediary. The ILP Intermediary is re-
ness Concern. SBA may adjust the sponsible for all loan decisions regard-
maximum total fee cap from time to ing eligibility (including size).
time; SBA will publish any such (b) Subsequent review. SBA will peri-
change by Notice in the FEDERAL REG- odically review loans made by an ILP
ISTER. Intermediary after approval of the loan
by the ILP Intermediary as part of the
§ 109.430 Loan purposes. on-site and off-site reviews described in

(a) An Eligible Small Business Con- § 109.510. If SBA discovers that an ILP
cern may only use the proceeds of a Intermediary has made a loan under
176
this program to an ineligible business § 109.520 Events of default and revoca-

or for an ineligible purpose, SBA will tion of authority to participate in
require the ILP Intermediary to refi- the ILP program.
nance the ineligible loan with non-ILP (a) Automatic events of default. Upon
program funds and to deposit into its the occurrence of one or more of the
ILP Relending Fund an amount equal events in this paragraph (a), the ILP
to the outstanding principal balance on Loan balance, including accrued inter-
the ineligible loan. est, is immediately due and payable to
§ 109.460 Prohibition on sales of ILP SBA without notice and the ILP
Intermediary Loans to Eligible Intermediary’s authority to participate
Small Business Concerns. in the ILP program is revoked.
An ILP Intermediary may not sell all (1) Insolvency. The ILP Intermediary
or any portion of a loan made to an El- becomes equitably or legally insolvent.
igible Small Business Concern without (2) Voluntary assignment. The ILP
prior written consent from the AA/CA Intermediary makes a voluntary as-
or designee. signment for the benefit of creditors
without SBA’s prior written approval.
Subpart E—Oversight (3) Bankruptcy. The ILP Intermediary
files a petition to begin any bank-
§ 109.500 SBA access to ILP Inter- ruptcy or reorganization proceeding,
mediary files. receivership, dissolution or other simi-
The ILP Intermediary must allow lar creditors’ rights proceeding, or such
SBA’s authorized representatives, inaction is initiated against the ILP
cluding other officers of any other Fed- Intermediary and is not dismissed
eral agency and representatives au- within 60 calendar days.
thorized by the SBA Inspector General, (b) Events of default with notice and
during normal business hours, timely possible opportunity to cure. Except as
access to its facility and files to re- provided in paragraph (c) of this sec-
view, inspect, and copy all records and tion, upon receipt of written notice to
documents, including electronic and the ILP Intermediary of the occurrence
hard copy, relating to the operations of (as determined by SBA) of one or more
the ILP Intermediary, the ILP Loan, of the events in this paragraph (b), the
and the loans made from the ILP Re- ILP loan balance, including accrued in-
lending Fund and other records and terest, is immediately due and payable
documents as requested for oversight to SBA and the ILP Intermediary’s au-
of the ILP Intermediary. thority to participate in the ILP pro-
gram is revoked.
§ 109.510 Reviews. (1) Fraud. The ILP Intermediary com-
(a) General. SBA may conduct re- mits a fraudulent act.
views and monitoring of ILP Inter- (2) Violation of SBA’s ethical require-
mediaries, including ILP Inter- ments. The ILP Intermediary violates
mediaries’ self-assessments. SBA may 13 CFR § 120.140.
also perform reviews of ILP Inter- (3) Non-notification of events of default.
mediaries as needed, as determined by The ILP Intermediary fails to notify
SBA in its discretion. SBA in writing as soon as it knows or
(b) Corrective actions. SBA may re- reasonably should have known that
quire an ILP Intermediary to take cor- any event of default exists under this
rective actions to address findings from section.
reviews. Failure to take required cor- (4) Non-notification of defaults to oth-
rective actions may constitute an ers. The ILP Intermediary fails to no-
event of default, as described in tify SBA in writing within ten calendar
§ 109.520(c). days from the date of a declaration of
(c) Confidentiality of reports. Review an event of default or nonperformance
reports and other SBA prepared review under any note, debenture or indebted-
related documents are subject to the ness, issued to or held by anyone other
confidentiality requirements of than SBA.

§ 120.1060. (5) Failure to make timely payment. Un-
[82 FR 39501, Aug. 21, 2017] less otherwise approved by the AA/CA
177
§ 109.530 13 CFR Ch. I (1–1–23 Edition)
or designee in writing, the ILP Inter- fairs of an ILP Intermediary’s SBA op-
mediary fails to make timely payment erations.
to SBA on its ILP Loan.
(6) Failure to take adequate corrective PART 112—NONDISCRIMINATION
actions. The ILP Intermediary fails to IN FEDERALLY ASSISTED PRO-
take adequate corrective actions, to GRAMS OF SBA—EFFECTUATION
SBA’s satisfaction, as required by SBA OF TITLE VI OF THE CIVIL RIGHTS
under § 109.510 within the timeframe re- ACT OF 1964
quested by SBA.
(7) Violation of ILP Program Require- Sec.
ments. The ILP Intermediary violates 112.1 Purpose.
one or more ILP Program Require- 112.2 Application of this part.
ment. 112.3 Discrimination prohibited.
(8) Actions that increase risk. The ILP 112.4 Discrimination in employment.
112.5 Discrimination in providing financial
Intermediary takes other action which assistance.
increases the risk of loss to SBA. 112.6 Discrimination in accommodations or
(c) Opportunity to Cure. SBA may, in services.
its discretion, provide the ILP Inter- 112.7 Illustrative applications.
mediary with an opportunity to cure 112.8 Assurances required.
112.9 Compliance information.
an event of default identified in para-
112.10 Conduct of investigations.
graph (b) of this section. If SBA pro- 112.11 Procedure for effecting compliance.
vides the ILP Intermediary with such a 112.12 Effect on other regulations; forms
cure opportunity, SBA will issue writ- and instructions.
ten notice discussing the relevant APPENDIX A TO PART 112
facts, and directing the ILP Inter- AUTHORITY: Sec. 602, 78 Stat. 252 (42 U.S.C.
mediary to cure the default and pro- 2000d–1).
vide SBA with documentation to show
SOURCE: 30 FR 298, Jan. 9, 1965, unless oth-
that the default has been cured within
erwise noted.
a specified period of time (generally 15
days). SBA will then provide the ILP § 112.1 Purpose.
Intermediary with a final notification
The purpose of this part is to effec-
advising whether the default has been
tuate the provisions of Title VI of the
satisfactorily cured. In the event SBA
Civil Rights Act of 1964 (hereinafter re-
determines the default has not been
ferred to as the Act) to the end that no
cured, the ILP Loan balance, including
person in the United States shall, on
accrued interest, is immediately due
the ground of race, color, or national
and payable to SBA and the ILP origin, be excluded from participation
Intermediary’s authority to participate in, be denied the benefits of, or be oth-
in the ILP program is revoked upon the erwise subjected to discrimination
ILP Intermediary’s receipt of this final under any financial assistance activi-
notification. ties of the Small Business Administra-
(d) Appeals. Notification of default tion to which the Act applies.
without opportunity to cure under
paragraph (b) of this section and final § 112.2 Application of this part.
notification of uncured default under (a) This part applies to all recipients
paragraph (c) of this section are final of Federal financial assistance admin-
agency decisions. An ILP Intermediary istered by the Small Business Adminis-
may appeal a final agency decision tration. (See appendix A)
only in the appropriate federal district (b) The term Federal financial assist-
court. ance includes: (1) Grants and loans of
Federal funds; (2) the grant or donation
§ 109.530 Debarment and Suspension. of Federal property and interests in
In accordance with 2 CFR Parts 180 property; (3) the detail of Federal per-
and 2700, SBA may take any necessary sonnel; (4) the sale and lease of, and the
action to debar or suspend an ILP permission to use (on other than a cas-
Intermediary or any officer, director, ual or transient basis), Federal prop-

general partner, manager, employee, erty or any interest in such property
agent or other participant in the af- without consideration, or at a nominal
178
consideration, or at a consideration (ii) The entire plant or other com-

which is reduced for the purpose of as- parable, geographically separate facil-
sisting the recipient, or in recognition ity to which Federal financial assist-
of the public interest to be served by ance is extended, in the case of any
such sale or lease to the recipient; and other corporation, partnership, private
(5) any Federal agreement, arrange- organization, or sole proprietorship; or
ment, or other contract which has as (4) Any other entity which is estab-
one of its purposes the provision of as- lished by two or more of the entities
sistance. described in paragraph (e)(1),(2), or (3)
(c) This part does not apply to finan- of this section.
cial assistance extended by way of in- [30 FR 298, Jan. 9, 1965, as amended at 38 FR
surance or guarantee. 17934, July 5, 1973; 50 FR 1441 Jan. 11, 1985; 68
(d) The terms applicant and recipient FR 51348, 51349, Aug. 26, 2003]
mean, respectively, one who applies for
and one who receives any of the finan- § 112.3 Discrimination prohibited.
cial assistance under any of the stat- (a) General. To the extent that this
utes referred to in paragraph (a) of this part applies, no person in the United
section. The term recipient also shall be States shall, on the ground of race,
deemed to include subrecipients of SBA color or national origin be excluded
financial assistance, i.e., concerns from participation in, be denied the
which secondarily receive financial as- benefits of, or be otherwise subjected
sistance from the primary recipients of to discrimination by any business or
such financial assistance. other activity.
(e) The terms program or activity and (b) Specific discriminatory actions pro-
program mean all of the operations of hibited. (1) To the extent that this part
any entity described in paragraphs applies, a business or other activity
(e)(1) through (4) of this section, any may not, directly or through contrac-
part of which is extended Federal fi- tual or other arrangements, on ground
nancial assistance: of race, color or national origin:
(1)(i) A department, agency, special (i) Deny an individual any services,
purpose district, or other instrumen- financial aid or other benefit provided
tality of a State or of a local govern- by the business or other activity;
ment; or (ii) Provide any service, financial aid
(ii) The entity of such State or local or other benefit to an individual which
government that distributes such as- is different or is provided in a different
sistance and each such department or manner, from that provided to others
agency (and each other State or local by the business or other activity;
government entity) to which the as- (iii) Subject an individual to segrega-
sistance is extended, in the case of as- tion or separate treatment in any man-
sistance to a State or local govern- ner related to his receipt of any serv-
ment; ice, financial aid or other benefit from
(2)(i) A college, university, or other the business or other activity;
postsecondary institution, or a public (iv) Restrict an individual in any way
system of higher education; or in the enjoyment of any advantage or
(ii) A local educational agency (as de- privilege enjoyed by others receiving
fined in 20 U.S.C. 7801), system of voca- any service, financial aid or other ben-
tional education, or other school sys- efit from the business or other activ-
tem; ity;
(3)(i) An entire corporation, partner- (v) Treat an individual differently
ship, or other private organization, or from others in determining whether he
an entire sole proprietorship— satisfies any admission, enrollment,
(A) If assistance is extended to such quota, eligibility, membership or other
corporation, partnership, private orga- requirement or condition which indi-
nization, or sole proprietorship as a viduals must meet in order to be pro-
whole; or vided any service, financial aid or
(B) Which is principally engaged in other benefit provided by the business
the business of providing education, or other activity.

health care, housing, social services, or (2) The enumeration of specific forms
parks and recreation; or of prohibited discrimination in this
179
§ 112.4 13 CFR Ch. I (1–1–23 Edition)
paragraph does not limit the generality equality of opportunity and non-
of the prohibition in paragraph (a) of discriminatory treatment.
this section. [38 FR 17934, July 5, 1973]
(3) This regulation does not prohibit
the consideration of race, color, or na- § 112.5 Discrimination in providing fi-
tional origin if the purpose and effect nancial assistance.
are to remove or overcome the con- Development companies and small
sequences of practices or impediments business investment companies which
which have restricted the availability apply for or receive any of the finan-
of, or participation in, a program or ac- cial assistance described in § 112.2(a)
tivity receiving Federal financial as- may not discriminate, on the ground of
sistance, on the grounds of race, color, race, color or national origin, in pro-
or national origin. Where previous dis- viding financial assistance to small
criminatory practice or usage tends, on business concerns.
the grounds of race, color, or national
origin, to exclude individuals from par- § 112.6 Discrimination in accommoda-
ticipation in, to deny them the benefits tions or services.
of, or to subject them to discrimina- Small business concerns which apply
tion under any program or activity to for or receive any financial assistance
which this regulation applies, the ap- of the kind described in § 112.2(a)(1),
plicant or recipient has an obligation concerns which are identifiable bene-
to take reasonable action to remove or ficiaries of loans made under
overcome the consequences of the prior § 112.2(a)(2), and physicians, hospitals,
discriminatory practice or usage, and schools, libraries, and other individuals
to accomplish the purposes of the Act. or organizations which apply for or re-
ceive financial assistance of the kind
[30 FR 298, Jan. 9, 1965, as amended at 38 FR described in § 112.2(a)(5), may not dis-
17934, July 5, 1973; 68 FR 51349, Aug. 26, 2003] criminate in the treatment accom-
modations or services they provide to
§ 112.4 Discrimination in employment.
their patients, students, visitors,
Small business concerns and develop- guests, members, passengers, or pa-
ment companies which apply for or re- trons in the conduct of such businesses
ceive any financial assistance of the or other enterprises, whether or not op-
kind described in § 112.2(a) (1) and (2), erated for profit.
including concerns which are identifi- [31 FR 2374, Feb. 4, 1966]
able beneficiaries of loans made under
§ 112.2(a)(2), may not discriminate on § 112.7 Illustrative applications.
the grounds of race, color, or national
(a) Employment. The discrimination
origin in their employment practices. prohibited by § 112.4 includes but is not
Such assistance is deemed to have as a limited to any action (taken directly
primary objective the providing of em- or through contractual or other ar-
ployment. Where a primary objective rangements) which subjects an indi-
of the Federal financial assistance is vidual to discrimination on the ground
not to provide employment, but dis- of race, color or national origin in any
crimination on the grounds of race, employment practice, including re-
color, or national origin in the employ- cruitment or recruitment advertising,
ment practices of the recipient or other employment, layoff or termination, up-
persons subject to the regulation tends, grading, demotion, or transfer, rates of
on the grounds of race, color, or na- pay or other forms of compensation,
tional origin, to exclude individuals and use of facilities.
from participation in, to deny them the (b) Financial assistance. The discrimi-
benefits of, or to subject them to dis- nation prohibited by § 112.5 includes but
crimination under any program to is not limited to the failure or refusal,
which this regulation applies, the pro- because of the race, color, or national
visions of § 112.7(a) shall apply to the origin of a person, to extend a loan or
employment practices of the recipient equity financing to him or to any busi-

or other persons subject to the regula- ness concern of which he is an owner or
tion, to the extent necessary to assure employee; or, in the case of financing
180
which has actually been extended, the ply, and provisions which give the
failure or refusal, because of the race, United States a right to seek judicial
color, or national origin of the bor- enforcement of the terms of the assur-
rower or of an owner or employee of ance. SBA shall specify the form of the
the borrower, to accord the borrower foregoing assurance, and the extent to
fair treatment and the customary cour- which like assurances will be required
tesies regarding such matters as de- of contractors and subcontractors,
fault, grace periods and the like. transferees, successors in interest, and
(c) Accommodations or services. The other participants.
discrimination prohibited by § 112.6 in- [30 FR 298, Jan. 9, 1965, as amended at 68 FR
cludes but is not limited to the failure 51349, Aug. 26, 2003]
or refusal, because of the race, color, or
national origin of a person, to accept § 112.9 Compliance information.
him on a nonsegregated basis as a pa- (a) Cooperation and assistance. SBA
tient, student, visitor, guest, member, shall to the fullest extent practicable
customer, passenger or patron. seek the cooperation of applicants and
(d) Affirmative action. (1) In some situ- recipients in obtaining compliance
ations even though past discriminatory with this part and shall provide assist-
practices have been abandoned, the ance and guidance to applicants and re-
consequences of such practices con- cipients to help them comply volun-
tinue to impede the full availability of tarily with this part.
equal opportunity. If the efforts re- (b) Compliance reports. Each applicant
quired of the applicant or recipient or recipient shall keep such records
under § 112.3(b)(3) to provide informa- and submit to SBA timely, complete
tion as to the availability of equal op- and accurate compliance reports at
portunity, and the rights of individuals such times, and in such form and con-
under this regulation, have failed to taining such information, as SBA may
overcome these consequences, it will determine to be necessary to enable
become necessary for such applicant or SBA to ascertain whether the appli-
recipient to take additional steps to cant or recipient has complied or is
make equal opportunity fully available complying with this part. In the case of
to racial and nationality groups pre- a small business concern which re-
viously subjected to discrimination. ceives financial assistance from a de-
(2) Even though an applicant or re- velopment company or from a small
cipient has never used discriminatory business investment company, such
policies, the opportunities in the busi- concern shall submit to the company
ness it operates may not in fact be such information as may be necessary
equally available to some racial or na- to enable the company to meet its re-
tionality groups. In such cir- porting requirements under this part.
cumstances a recipient may properly (c) Access to sources of information.
give special consideration to race, Each applicant or recipient shall per-
color, or national origin to make op- mit access by SBA during normal busi-
portunity more widely available to ness hours to such of its books, records,
such groups. accounts, and other sources of informa-
[30 FR 298, Jan. 9, 1965, as amended at 38 FR tion, and its facilities as may be perti-
17934, July 5, 1973] nent to ascertain compliance with this
part. Where any information required
§ 112.8 Assurances required. of an applicant or recipient is in the
An application for any of the finan- exclusive possession of any other agen-
cial assistance described in § 112.2(a) cy, institution or person and this agen-
shall, as a condition to its approval and cy, institution or person shall fail or
the extension of such assistance, con- refuse to furnish this information, the
tain or be accompanied by an assur- applicant or recipient shall so certify
ance that the recipient will comply in its report and shall set forth what
with this part. Such an assurance shall efforts it has made to obtain this infor-
contain provisions authorizing the ac- mation.
celeration of the maturity of the re- (d) Information to the public. Each re-
cipient’s financial obligation to the cipient shall make available to persons
SBA in the event of a failure to com- entitled under the Act and under this
181
§ 112.10 13 CFR Ch. I (1–1–23 Edition)
part to protection against discrimina- this part or because he has made a

tion by the recipient such information complaint, testified, assisted, or par-
as SBA may find necessary to apprise ticipated in any manner in an inves-
them of their rights to such protection. tigation, proceeding, or hearing under
[30 FR 298, Jan. 9, 1965, as amended at 38 FR
this part. The identity of complainants
17934, July 5, 1973] shall be kept confidential except to the
extent necessary to carry out the pur-
§ 112.10 Conduct of investigations. poses of this part, including the con-
(a) Periodic compliance reviews. SBA duct of any investigation, hearing, or
shall from time to time review the judicial proceeding arising thereunder.
practices of recipients to determine [30 FR 298, Jan. 9, 1965, as amended at 38 FR
whether they are complying with this 17934, July 5, 1973]
part.
(b) Complaints. Any person who be- § 112.11 Procedure for effecting com-
lieves himself or any specific class of pliance.
individuals to be subjected to discrimi- (a) General. (1) If there appears to be
nation prohibited by this part may, by a failure or threatened failure to com-
himself or by a representative, file ply with this part and if the non-
with SBA a written complaint. A com- compliance or threatened noncompli-
plaint must be filed not later than 180 ance cannot be corrected by informal
days from the date of the alleged dis- means, compliance with this part may
crimination, unless the time for filing be effected by suspending, terminating,
is extended by SBA. or refusing any financial assistance ap-
(c) Investigations. SBA will make a proved but not yet disbursed to an ap-
prompt investigation whenever a com- plicant or, in the case of a loan which
pliance review, report, complaint, or has been partially disbursed, by refus-
any other information indicates a pos- ing to make further disbursements. In
sible failure to comply with this part. addition, compliance may be effected
The investigation should include, by any other means authorized by law.
where appropriate, a review of the per- (2) Such other means may include
tinent practices and policies of the ap- but are not limited to (i) legal action
plicant or recipient, the circumstances by SBA to enforce its right, embodied
under which the possible noncompli- in the assurances described in § 112.8, to
ance with this part occurred, and other accelerate the maturity of the recipi-
factors relevant to a determination as ent’s obligation; (ii) a reference to the
to whether the applicant or recipient Department of Justice with a rec-
has failed to comply with this part. ommendation that appropriate pro-
(d) Resolution of matters. (1) If an in- ceedings be brought to enforce any
vestigation pursuant to paragraph (c) rights of the United States under any
of this section indicates a failure to law of the United States, including
comply with this part, SBA will so in- other titles of the Act; and (iii) any ap-
form the applicant or recipient and the plicable proceedings under State or
matter will be resolved by informal local law.
means whenever possible. If it has been (b) Noncompliance with § 112.8. If an
determined that the matter cannot be applicant fails or refuses to furnish an
resolved by informal means, action will assurance required under § 112.8 or oth-
be taken as provided for in § 112.11. erwise fails or refuses to comply with a
(2) If an investigation does not war- requirement imposed by or pursuant to
rant action pursuant to paragraph that section Federal financial assist-
(d)(1) of this section, SBA will so in- ance may be refused in accordance with
form the applicant or recipient and the the procedures of paragraph (c) of this
complainant, if any, in writing. section. SBA shall not be required to
(e) Intimidatory or retaliatory acts pro- provide assistance in such a case dur-
hibited. No applicant or recipient or ing the pendency of the administrative
other person shall intimidate, threat- proceedings under such paragraph ex-
en, coerce, or discriminate against any cept that SBA shall continue assist-
individual for the purpose of inter- ance during the pendency of such pro-
fering with any right or privilege se- ceedings where such assistance is due
cured by section 601 of the Act or by and payable pursuant to an application
182
therefor approved prior to the effective additional efforts shall be made to per-
date of this part. Such proceedings suade the applicant or recipient or
shall be conducted in accordance with other person to comply with this part
the provisions of part 134 of this chap- and to take such corrective action as
ter by an Administrative Law Judge of may be appropriate.
the Office of Hearings and Appeals, who
shall issue an initial decision in the [30 FR 298, Jan. 9, 1965, as amended at 38 FR
case. The Administrator shall be the 17934, July 5, 1973; 49 FR 33629, Aug. 24, 1984;
61 FR 2691, Jan. 29, 1996]
reviewing official for purposes of
§ 134.228. The applicant’s failure to file § 112.12 Effect on other regulations;
a timely motion in accordance with forms and instructions.
§§ 134.222 and 134.211, requesting that
the matter be scheduled for an oral (a) Effect on other regulations. All reg-
hearing, shall constitute waiver of the ulations, orders or like directions here-
right to an oral hearing but shall not tofore issued by SBA which impose re-
prevent the submission of written in- quirements designed to prohibit any
formation and argument for the record discrimination against individuals on
in accordance with the provisions of the grounds of race, color, or national
part 134. origin and which authorize the suspen-
(c) Conditions precedent. No order sus- sion or termination of or refusal to
pending, terminating, or refusing fi- grant to or to continue financial assist-
nancial assistance shall become effec- ance to any applicant for or recipient
tive until (1) SBA has advised the ap- of such assistance for failure to comply
plicant or recipient of his failure to with such requirements, are hereby su-
comply and has determined that com- perseded to the extent that such dis-
pliance cannot be secured by voluntary crimination is prohibited by this part,
means; (2) there has been an express except that nothing in this part shall
finding on the record after an oppor-
be deemed to relieve any person of any
tunity for an oral hearing, of a failure
obligation assumed or imposed under
by the applicant or recipient to comply
with a requirement imposed by or pur- any such superseded regulation, order,
suant to this part; (3) the initial deci- instruction, or like direction prior to
sion has become final pursuant to the effective date of this part. Nothing
§ 134.227(b); and (4) the expiration of 30 in this part, however, shall be deemed
days after SBA has filed with the com- to supersede any of the following (in-
mittee of the House and the committee cluding future amendments thereof):
of the Senate having legislative juris- (1) Executive Order 11246 and regula-
diction of the form of financial assist- tions issued thereunder, or (2) any
ance involved, a full written report of other orders, regulations or instruc-
the circumstances and the grounds for tions, insofar as such order, regula-
such action. tions, or instructions prohibit discrimi-
(d) Other means authorized by law. No nation on the grounds of race, color, or
action to effect compliance by any national origin in any program or situ-
other means authorized by law shall be ation to which this part is inapplicable
taken until (1) SBA has determined or prohibit discrimination on any other
that compliance cannot be secured by ground.
voluntary means; (2) the action has (b) Forms and instructions. SBA shall
been approved by the Administrator or issue and promptly make available to
his designee; (3) the applicant or recipi- interested persons forms and detailed
ent or other person has been notified of
instructions and procedures for effec-
its failure to comply and of the action
tuating this part.
to be taken to effect compliance; and
(4) the expiration of at least 10 days (c) Supervision and coordination. The
from the mailing of such notice to the Administrator may from time to time
applicant or recipient or other person. assign to officials of SBA or to officials
During this period of at least 10 days of other agencies of the Government
from the mailing of such notice to the with the consent of such agencies, re-
applicant or recipient or other person. sponsibilities in connection with the
During this period of at least 10 days effectuation of the purpose of Title VI
183
Pt. 112, App. A 13 CFR Ch. I (1–1–23 Edition)
of the Act and this part (other than re- Name of Federal financial as- Authority
sponsibility for final decision as pro- sistance
vided in § 112.13), including the achieve- Small Business Institute Pro- Small Business Act, sec.
ment of effective coordination and gram. 8(b)(1) and Pub. L. 85–
maximum uniformity within SBA and 536.
Certificate of competency ...... Small Business Act, sec.
within the Executive Branch of the 8(b)(7) and Pub. L 95–89.
Government in the application of Title Subcontracting Assistance Small Business Act, sec. 8(d)
VI and this part to similar programs Program. and Pub. L. 95–507.
and in similar situations. Any action Technology Assistance Pro- Small Business Act, sec. 9.
gram.
taken, determination made, or require- Small business development Small Business Act, sec. 21
ment imposed by an official of another centers. and Pub. L. 96–302.
Department or agency acting pursuant International Trade Program Small Business Act, sec. 22
to an assignment of responsibility and Pub. L. 96–481.
Service Corps of Retired Ex- Small Business Act, secs.
under this subsection shall have the ecutives and Active Corps 101 and 8(b)(1) and Pub.
same effect as though such action had of Executives. L. 95–510.
been taken by the Administrator of Veterans affairs programs ..... Pub. L. 93–237.
SBA. Private sector initiatives ......... Small Business Act, sec.
8(b)(1).
[30 FR 298, Jan. 9, 1965, as amended at 38 FR
17935, July 5, 1973. Redesignated at 49 FR NOTE: All types of Federal financial assist-
33629, Aug. 24, 1984] ance listed above are also covered by part 113
of title 13 of the Code of Federal Regulations.
APPENDIX A TO PART 112 [50 FR 1441, Jan. 11, 1985, as amended at 68
FR 51348, 51349, Aug. 26, 2003]
Name of Federal financial as- Authority
sistance
Federal Financial Assistance Involving Grants of Funds

PART 113—NONDISCRIMINATION
IN FINANCIAL ASSISTANCE PRO-
Regular business loans ......... Small Business Act, sec. 7(a) GRAMS OF SBA—EFFECTUATION
and 7(a)(11).
Handicapped assistance Small Business Act, sec.
OF POLICIES OF FEDERAL GOV-
loans. 7(a)(10) ERNMENT AND SBA ADMINIS-
Small business energy loans Small Business Act, sec. TRATOR
7(a)(12).
Small general contractors ...... Small Business Act, sec.
7(a)(9). Subpart A—General Provisions
Vietnam-era and Disabled Pub. L. 97–72.
Veterans Loan Program. Sec.
Debtor State development Small Business Investment 113.1 Purpose.
company loans (501) and Act, title V, and Small Busi- 113.2 Definitions.
their small business con- ness Act, sec. 7(a)(13). 113.3 Discrimination prohibited.
cerns. 113.3–1 Consideration of race, color, reli-
Debtor small business invest- Small Business Investment gion, sex, marital status, handicap, or
ment companies and their Act, title III.
national origin.
small business concerns.
113.3–2 Accommodations to religious observ-
Disaster Loans ance and practice.
113.3–3 Structural accommodations for
Physical ................................. Small Business Act, sec. handicapped clients.
7(b)(1). 113.4 Assurances required.
Economic injury (EIDL) .......... Small Business Act, sec. 113.5 Compliance information.
7(b)(2).
113.6 Conduct of investigations.
Federal action—economic in- Small Business Act, sec.
jury. 7(b)(3).
113.7 Procedure for effecting compliance.
Currency fluctuation—eco- Small Business Act, sec. 113.8 Effect on other regulations, forms and
nomic injury. 7(b)(4). instructions.
APPENDIX A TO SUBPART A OF PART 113
Other Federal Financial Assistance
Women’s business enterprise Executive Order 12138.

Subpart B—Nondiscrimination on the Basis
Small business innovation Small Business Act, sec. 9. of Sex in Education Programs or Activi-
and research. ties Receiving Federal Financial Assist-
Procurement automated Small Business Act, sec. 8 ance
source system. and Pub. L. 96–302.
Business Development Pro- Small Business Act, sec. 8(a) INTRODUCTION

gram. and Pub. L. 95–507, as
amended by Pub. L. 96– 113.100 Purpose and effective date.
481. 113.105 Definitions.
184
113.110 Remedial and affirmative action and PROCEDURES
self-evaluation.
113.600 Notice of covered programs.
113.115 Assurance required.
113.120 Transfers of property. 113.605 Enforcement procedures.
113.125 Effect of other requirements. AUTHORITY: 15 U.S.C. 633, 634, 687, 1691; 20
113.130 Effect of employment opportunities. U.S.C. 1681, 1682, 1683, 1685, 1686, 1687, 1688; 29
113.135 Designation of responsible employee U.S.C. 794; Sec. 5, Pub. L. 85–536, 72 Stat. 385,
and adoption of grievance procedures. as amended; Sec. 308, Pub. L. 85–699, 72 Stat.
113.140 Dissemination of policy. 694, as amended.
COVERAGE SOURCE: 44 FR 20068, Apr. 4, 1979, unless
otherwise noted.
113.200 Application.
113.205 Educational institutions and other
entities controlled by religious organiza- Subpart A—General Provisions
tions.
113.210 Military and merchant marine edu- § 113.1 Purpose.
cational institutions.
113.215 Membership practices of certain or-
(a) Part 112 of this chapter, issued
ganizations. pursuant to Title VI of the Civil Rights
113.220 Admissions. Act of 1964, prohibits discrimination on
113.225 Educational institutions eligible to the basis of race, color, or national ori-
submit transition plans. gin by some recipients of financial as-
113.230 Transition plans. sistance from SBA. The purpose of this
113.235 Statutory amendments. part is to reflect to the fullest extent
DISCRIMINATION ON THE BASIS OF SEX IN possible the nondiscrimination policies
ADMISSION AND RECRUITMENT PROHIBITED of the Federal Government as ex-
pressed in the several statutes, Execu-
113.300 Admission. tive Orders, and messages of the Presi-
113.305 Preference in admission.
113.310 Recruitment.
dent dealing with civil rights and
equality of opportunity, and in the pre-
DISCRIMINATION ON THE BASIS OF SEX IN EDU- vious determination of the Adminis-
CATION PROGRAMS OR ACTIVITIES PROHIB- trator of the Small Business Adminis-
ITED tration that discrimination based on
113.400 Education programs or activities. race, color, religion, sex, marital sta-
113.405 Housing. tus, handicap or national origin shall
113.410 Comparable facilities. be prohibited, to the extent that it is
113.415 Access to course offerings. not prohibited by part 112 of this chap-
113.420 Access to schools operated by LEAs. ter, to all recipients of financial assist-
113.425 Counseling and use of appraisal and
ance from SBA.
counseling materials.
113.430 Financial assistance. (b) In accordance with Pub. L. 94–239,
113.435 Employment assistance to students. 15 U.S.C. 1691, cited as the Equal Credit
113.440 Health and insurance benefits and Act Amendments of 1976, it is unlawful
services. for any recipient creditor to discrimi-
113.445 Marital or parental status. nate against any applicant, with re-
113.450 Athletics. spect to any aspect of a credit trans-
113.455 Textbooks and curricular material. action because of race, color, religion,
DISCRIMINATION ON THE BASIS OF SEX IN EM- national origin, sex, marital status,
PLOYMENT IN EDUCATION PROGRAMS OR AC- age: (Provided, the applicant has the ca-
TIVITIES PROHIBITED pacity to contract), because all or part
113.500 Employment. of the applicant’s income derives from
113.505 Employment criteria. any public assistance program, or be-
113.510 Recruitment. cause the applicant has in good faith
113.515 Compensation. exercised any right under the Con-
113.520 Job classification and structure. sumer Credit Protection Act.
113.525 Fringe benefits. (c) It is the intention of the Adminis-
113.530 Marital or parental status. trator that the prohibitions in this
113.535 Effect of state or local law or other
part supplement those in part 112 of
requirements.
113.540 Advertising. this chapter, that the two parts be read
113.545 Pre-employment inquiries. in pari materia, and that the proce-

113.550 Sex as a bona fide occupational qual- dures established herein be harmonized
ification. to the maximum extent feasible with
185
§ 113.2 13 CFR Ch. I (1–1–23 Edition)
those established in part 112 of this impairment, or is regarded as having

chapter. such an impairment.
(f) As used in paragraph (e) of this
§ 113.2 Definitions. section, the phrase:
As used in this part: (1) Physical or mental impairment
(a) The term Federal financial assist- means (i) any physiological disorder or
ance includes (1) grants and loans of condition, cosmetic disfigurement, or
Federal funds, (2) the grant or donation anatomical loss affecting one or more
of Federal property and interests in of the following body systems: Neuro-
property, (3) the detail of Federal per- logical; musculoskeletal; special sense
sonnel, (4) the sale and lease of, and the organs; respiratory, including speech
permission to use (on other than a cas- organs; cardiovascular; reproductive;
ual or transient basis), Federal prop- digestive; genitourinary; hemic and
erty or any interest in such property lymphatic; skin; and endocrine; or (ii)
without consideration, or at a nominal any mental or psychological disorder,
consideration, or at a consideration such as mental retardation, organic
which is reduced for the purpose of as- brain syndrome, emotional or mental
sisting the recipient, or in recognition illness, and specific learning disabil-
of the public interest to be served by ities. The term physical or mental im-
such sale or lease to the recipient, and pairment includes, but is not limited to,
(5) any Federal agreement, arrange- such diseases and conditions as ortho-
ment, or other contract which has as pedic, visual, speech, and hearing im-
one of its purposes the provision of as- pairments, cerebral palsy, epilepsy,
sistance. muscular dystrophy, multiple sclerosis,
(b) The terms applicant and recipient cancer, heart disease, diabetes, mental
mean, respectively, one who applies for retardation, emotional illness, drug ad-
and one who receives any of the finan- diction and alcoholism.
cial assistance under any of the stat- (2) Major life activities means func-
utes referred to in paragraph (a) of this tions such as caring for one’s self, per-
section. The term recipient also shall be forming manual tasks, walking, seeing,
deemed to include subrecipients of SBA hearing, speaking, breathing, learning,
financial assistance, i.e., concerns and working.
which secondarily receive financial as- (3) Has a record of such an impairment
sistance from the primary recipients of means has a history of, or has been
such financial assistance. For the pur- misclassified as having, a mental or
poses of this part, a paragraph (b) lend- physical impairment that substantially
er (13 CFR 120.4(b)) shall be deemed a limits one or more major life activi-
recipient of financial assistance. ties.
(c) The term religion includes all as- (4) Is regarded as having an impairment
pects of religious observance and prac- means (i) has a physical or mental im-
tice, as well as belief. pairment that does not substantially
(d) The term qualified handicapped limit major life activities but is treat-
person means (1) with respect to em- ed by a recipient as constituting such a
ployment, a handicapped person who, limitation; (ii) has a physical or men-
with reasonable accommodation, can tal impairment that substantially lim-
perform the essential functions of the its major life activities only as a result
job in question and (2) with respect to of the attitudes of others toward such
services, a handicapped person who impairment; or (iii) has none of the im-
meets the essential eligibility require- pairments defined in paragraph (f)(1) of
ments for the receipt of such services. this section but is treated by a recipi-
(e) The term handicapped person, as ent as having such an impairment.
defined by the guideline set forth by (g) The term reasonable accommoda-
the Department of Health, Education, tion as used in these Regulations may
and Welfare in § 85.31 of title 45 of the include: (1) making facilities used by
CFR (43 FR 2137, dated January 13, employees readily accessible to and us-
1978), means any person who has a able by handicapped persons; and (2)
physical or mental impairment that job restructuring, part-time or modi-

substantially limits one or more major fied work schedules, acquisition or
life activities, has a record of such an modification of equipment or devices,
186
the provision of readers or interpreters, ees to discrimination prohibited by

and other similar actions. this part. The relationships referred to
(h) The term facility means all or any in this paragraph include those with
portion of buildings, structures, equip- employment and referral agencies,
ment, roads, walks, parking lots, or labor unions, organizations providing
other real or personal property. or administering fringe benefits to em-
[44 FR 20068, Apr. 4, 1979, as amended at 48 ployees of the recipient, and organiza-
FR 14891, Apr. 6, 1983] tions providing training and appren-
ticeship programs. Activities covered
§ 113.3 Discrimination prohibited. by this part are as follows:
To the extent not covered or prohib- (1) Recruitment, advertising, and the
ited by part 112 of this chapter, recipi- processing of applications for employ-
ents of financial assistance may not: ment;
(a) Discriminate with regard to (2) Hiring, upgrading, promotion,
goods, services, or accommodations of- award of tenure, demotion, transfer,
fered or provided by the aided business layoff, termination, right of return
or other enterprise, whether or not op- from layoff, and rehiring;
erated for profit, because of race, color, (3) Rates of pay or any other form of
religion, sex, handicap, or national ori- compensation and changes in com-
gin of a person, or fail or refuse to ac- pensation;
cept a person on a nonsegregated basis (4) Job assignments, job classifica-
as a patient, student, visitor, guest, tions, organizational structures, posi-
customer, passenger, or patron. tion descriptions, lines of progression,
(b) With regard to employment prac- and seniority lists;
tices within the aided business or other (5) Leaves of absence, sick leave, or
enterprise, whether or not operated for any other leave;
profit; fail or refuse, because of race, (6) Fringe benefits available by vir-
color, religion, sex or national origin of tue of employment, whether or not ad-
a person, to seek or retain the person’s ministered by the recipient;
services, or to provide the person with (7) Selection and financial support
opportunities for advancement or pro- for training, including apprenticeship,
motion, or accord an employee the professional meetings, conferences, and
rank and rate of compensation, includ- other related activities, and selection
ing fringe benefits, merited by the em- for leaves of absence to pursue train-
ployee’s services and abilities. ing;
(c) With regard to employment prac- (8) Employer sponsored activities, in-
tices within the aided business or other cluding social or recreational pro-
enterprise, whether or not operated for grams; and
profit; discriminate against a qualified (9) Any other term, condition, or
handicapped person; or because of privilege of employment.
handicap, fail or refuse to seek or re- (e) Use employment tests or criteria
tain the person’s services or to provide that discriminate on the basis of race,
the person with opportunities for ad- color, religion, sex, marital status,
vancement or promotion, or accord an handicap, or national origin. Employ-
employee the rank and rate of comment tests which are used for all other
pensation, including fringe benefits, job applicants shall be adapted in an
merited by the employee’s services and appropriate mode for use by persons
abilities. All employment decisions who have handicaps that impair sen-
shall be made in a manner which en- sory, manual, or speaking skills.
sures that discrimination on the basis (f) Conduct a preemployment medical
of handicap does not occur. Such deci- examination, unless required of all job
sions may not limit, segregate, or clas- applicants, and subsequent to a condi-
sify job applicants or employees in any tional offer of employment. The results
way that adversely affects the opportu- of all such medical examinations shall
nities or status of qualified handi- be kept confidential.
capped individuals. (g) Make a preemployment inquiry as
(d) Participate in a contractual or to whether a job applicant is a handi-

other relationship that has the effect capped person or as to the nature or se-
of subjecting job applicants or employ- verity of a handicap: EXCEPT when a
187
§ 113.3–1 13 CFR Ch. I (1–1–23 Edition)
recipient is taking remedial action to ance program, or because the applicant

overcome the effects of conditions has in good faith exercised any right
which resulted in past discrimination, under the Consumer Credit Protection
or when a recipient is taking affirma- Act.
tive action pursuant to section 503 of
the Rehabilitation Act of 1973, as § 113.3–1 Consideration of race, color,
amended. religion, sex, marital status, handi-
(1) Such preemployment inquiry may cap, or national origin.
only be made after the job applicant (a) This regulation does not prohibit
has been informed that such disclosure the consideration of race, color, reli-
is for the purposes set forth in para- gion, sex, marital status, handicap, or
graph (g) of this section; that the dis- national origin if the purpose and ef-
closure is voluntary and will be kept fect are to remove or overcome the
confidential; and that refusal of the job consequences of practices or impedi-
applicant to provide such information ments which have restricted the avail-
will not subject the applicant to any ability of, or participation in, the pro-
adverse action. gram or activity receiving Federal fi-
(2) Information elicited from quali- nancial assistance, on the grounds of
fied handicapped job applicants con- race, color, religion, sex, marital sta-
cerning their medical history or condi- tus, handicap, or national origin.
tion shall be kept confidential EX- Where previous discriminatory prac-
CEPT that: tices or usage tends, on the grounds of
(i) Supervisors and managers may be race, color, religion, sex, marital sta-
informed about restrictions on or ac- tus, handicap, or national origin, to ex-
commodations to be made for the clude individuals from participation in,
qualified handicapped individual; to deny them the benefits of, or to sub-
(ii) First aid and safety personnel ject them to discrimination under any
may be informed, where appropriate, of program or activity to which this regu-
the need for possible emergency treat- lation applies, the applicant or recipi-
ment; and ent has an obligation to take reason-
(iii) Compliance officials shall be able action to remove or overcome the
given relevant information, if re- consequences of the prior discrimina-
quested. tory practice or usage, and to accom-
(h) Discriminate on the basis of race, plish the purposes of this regulation.
color, religion, handicap or national or- All programs and activities shall be ad-
igin in the use of toilets or any facili- ministered in the most integrated set-
ties for rest or comfort. Discriminate ting possible.
on the basis of race, color, religion, (b) Nothing in this part shall prohibit
sex, handicap or national origin in the the restriction of certain jobs to mem-
use of cafeterias, recreational pro- bers of one sex if a bona fide occupa-
grams or other programs sponsored by tional qualification can be dem-
the applicant or recipient. onstrated by the applicant or recipient.
(i) With regard to all recipients offer- Custom or tradition is not a bona fide
ing credit, such as Small Business In- occupational qualification.
vestment Companies and Community (c) Recipients shall take steps to en-
Development Companies, discriminate sure that communications with job ap-
against debtors on the basis of race, plicants and employees who have vi-
color, religion, sex, marital status, sion and/or hearing disabilities are
handicap, or national origin. available in appropriate modes.
(j) With regard to the granting of (d) Recipients shall make reasonable
credit by all recipient creditors, dis- accommodation to the known physical
criminate against any credit applicant, or mental limitations of an otherwise
with respect to any aspect of a credit qualified handicapped job applicant or
transaction because of race, color, reli- employee UNLESS the recipient can
gion, national origin, sex, marital sta- demonstrate that the accommodation
tus, handicap, age (provided the appli- would impose an undue hardship on the
cant has the capacity to contract), be- operation of the business. Factors to be
cause all or part of the applicant’s in- considered in determining whether an
come derives from any public assist- accommodation would impose an undue
188
Small Business Administration § 113.3–3
hardship on the operation of a recipi- § 113.3–2 Accommodations to religious

ent’s business include: observance and practice.
(1) The overall size of the recipient’s A recipient of financial assistance
business with respect to number of em- must accommodate to the religious ob-
ployees, number and type of facilities, servances and practices of an employee
size of budget, and the financial condi- or prospective employee unless the re-
tion of the business; cipient demonstrates that it is unable
(2) The type of the recipient’s oper- to reasonably accommodate to an em-
ation, including the composition and ployee’s or prospective employee’s reli-
structure of the recipient’s workforce; gious observance or practice without
and undue hardship on the conduct of the
(3) The nature and cost of the accom- employer’s business. As part of this ob-
modation needed. ligation, recipient must make reason-
(e) Such accommodation may include able accommodations to the religious
making facilities used by employees observances and practices of an em-
readily accessible to and usable by ployee or prospective employee who
handicapped persons, job restructuring, regularly observes Friday evening and
part-time or modified work schedules, Saturday, or some other day of the
acquisition or modification of equip- week, as Sabbath and/or who observes
ment or devices, the provision of read- certain religious holidays during the
ers or interpreters, and other similar year and who is conscientiously op-
posed to performing work or engaging
actions.
in similar activity on such days, when
(f) The final decision, when making a
such accommodations can be made
review or investigation of a complaint, without undue hardship on the conduct
as to whether an accommodation would of the employer’s business. In deter-
impose an undue hardship on the oper- mining the extent of a recipient’s obli-
ation of a recipient business will be gations under this section, at least the
made by the compliance officials of the following factors should be considered:
Small Business Administration. (a) Business necessity, (b) financial
(g) Recipients shall administer pro- costs and expenses, and (c) resulting
grams and activities in the most inte- personnel problems.
grated setting appropriate to the needs
of qualified handicapped persons, and § 113.3–3 Structural accommodations
shall not participate in a contractual for handicapped clients.
relationship that has the effect of sub- (a) Existing facilities. Recipients in
jecting qualified handicapped job appli- preexisting structures shall make their
cants or employees to discrimination goods or services accessible to and usa-
prohibited by this part. The relation- ble by handicapped clients. Where
ships referred to in this paragraph in- structural changes are necessary to
clude those with referral agencies, make the recipient’s goods or services
labor unions, organizations providing accessible, such changes shall be made
or administering fringe benefits to em- as soon as practicable, but in no event
ployees of the recipient, and organiza- later than three years after the effec-
tions providing training and appren- tive date of this Regulation. A plan
ticeship programs. setting forth the steps necessary to
(h) Nothing in this part shall apply complete such structural changes shall
be developed and submitted to SBA. If
to a religious corporation, association,
practical, interested persons, including
educational institution or society with
handicapped persons or organizations
respect to the membership or the em-
representing handicapped persons, will
ployment of individuals of a particular be consulted.
religion to perform work connected
(b) Design, construction, and alteration.
with the carrying on by such corpora- New facilities shall be designed and
tion, association, educational institu- constructed to be readily accessible to
tion or society of its religious activi- and usable by persons with handicaps.
ties. Alterations to existing facilities that
affect usability shall, to the maximum
189
§ 113.4 13 CFR Ch. I (1–1–23 Edition)
extent feasible, be designed and con- § 113.5 Compliance information.

structed to be readily accessible to and (a) Cooperation and assistance: SBA
usable by handicapped persons. shall to the fullest extent practicable
(c) Conformance with Uniform Federal seek the cooperation of applicants and
Accessibility Standards. (1) Effective as recipients in obtaining compliance
of January 18, 1991, design, construc- with this part and shall provide assist-
tion, or alteration of buildings in con- ance and guidance to applicants and re-
formance with sections 3-8 of the Uni- cipients to help them comply volun-
form Federal Accessibility Standards tarily with this part. Recipients are ex-
(UFAS) (appendix A to 41 CFR subpart pected to continually evaluate their
101–19.6) shall be deemed to comply compliance status, with the assistance
with the requirements of this section of interested persons, including handi-
with respect to those buildings. Depar- capped persons or organizations rep-
tures from particular technical and resenting handicapped persons.
scoping requirements of UFAS by the (b) Compliance reports: Each applicant
use of other methods are permitted or recipient shall keep such records
where substantially equivalent or and submit to SBA timely, complete
greater access to and usability of the and accurate compliance reports at
building is provided. such times, and in such form and con-
(2) For purposes of this section, sec- taining such information, as SBA may
tion 4.1.6(1)(g) of UFAS shall be inter- determine to be necessary to enable
preted to exempt from the require- SBA to ascertain whether the appli-
ments of UFAS only mechanical rooms cant or recipient has complied or is
and other spaces that, because of their complying with this part. In the case of
intended use, will not require accessi- a small business concern which re-
bility to the public or beneficiaries or ceives financial assistance from a de-
result in the employment or residence velopment company or from a small
therein of persons with physical handi- business investment company, such
caps. concern shall submit to the company
(3) This section does not require re- such information as may be necessary
cipients to make building alterations to enable the company to meet its re-
that have little likelihood of being ac- porting requirements under this part.
complished without removing or alter- (c) Access to sources of information:
ing a load-bearing structural member. Each applicant or recipient shall per-
[44 FR 20068, Apr. 4, 1979, as amended at 45 mit access by SBA during normal busi-
FR 81734, Dec. 12, 1980; 55 FR 52138, 52140, Dec. ness hours to such of its books, records,
19, 1990] accounts and other sources of informa-
tion, and its facilities as may be perti-
§ 113.4 Assurances required. nent to ascertain compliance with this
An application for financial assist- part. Where any information required
ance shall, as a condition to its ap- of an applicant or recipient is in the
proval and the extension of such assist- exclusive possession of any other agen-
ance, contain or be accompanied by an cy, institution or person; and such
assurance that the recipient will com- agency, institution or person shall fail
ply with this part. Such an assurance or refuse to furnish this information,
shall contain provisions authorizing the applicant or recipient shall so cer-
the acceleration of the maturity of the tify in its report and shall set forth
recipient’s financial obligations to what efforts it has made to obtain this
SBA in the event of a failure to com- information.
ply, and provisions which give the (d) Information to the Public. Each re-
United States a right to seek judicial cipient shall make available to persons
enforcement of the terms of the assur- entitled under this part to protection
ance. SBA shall specify the form of the against discrimination by the recipient
foregoing assurance for each program, such information as SBA may find nec-
and the extent to which like assur- essary to apprise them of their rights
ances will be required of contractors to such protection.
and subcontractors, transferees, suc- (1) In some situations even though

cessors in interest, and other partici- past discriminatory practices have
pants in the program. been abandoned, the consequences of
190
such practices continue to impede the (d) Resolution of matters. (1) If an in-
full availability of equal opportunity. vestigation pursuant to paragraph (c)
If the efforts required of the applicant of this section indicates a failure to
or recipient under § 113.5(b) to provide comply with this part, SBA will so in-
information as to the availability of form the applicant or recipient and the
equal opportunity, and the rights of in- matter will be resolved by informal
dividuals under this regulation, have means whenever possible. If it has been
failed to overcome these consequences, determined that the matter cannot be
it will become necessary for such appli- resolved by informal means, action will
cant or recipient to take additional be taken as provided for in § 113.7.
steps to make equal opportunity fully (2) If an investigation does not war-
available to racial, qualified handi- rant action pursuant to paragraph
capped, nationality groups and persons (d)(1) of this section, SBA will so in-
who because of their sex were pre- form the applicant or recipient and the
viously subjected to discrimination. complainant, if any, in writing.
(2) Even though an applicant or re- (e) Intimidatory or retaliatory acts pro-
cipient has never used discriminatory hibited. No applicant or recipient or
policies, the opportunities in the busi- other person shall intimidate, threat-
ness it operates may not in fact be en, coerce, or discriminate against any
equally available to some racial, quali- individual for the purpose of inter-
fied handicapped, or nationality fering with any right or privilege se-
groups. In such circumstances a recipi- cured by this part or because he has
ent may properly give special consider- made a complaint, testified, assisted,
ation to race, color, religion, sex, mar- or participated in any manner in an in-
ital status, qualified handicap or na- vestigation, proceeding, or hearing
tional origin to make the opportunities under this part. The identity of com-
more widely available to such groups. plainants shall be kept confidential ex-
cept to the extent necessary to carry
§ 113.6 Conduct of investigations. out the purposes of this part, including
the conduct of any investigation, hear-
(a) Periodic compliance reviews. SBA ing, or judicial proceeding arising
shall from time to time review the thereunder.
practices of recipients to determine
whether they are complying with this § 113.7 Procedure for effecting compli-
part. ance.
(b) Complaints. Any person who be- (a) General. (1) If there appears to be
lieves that he, she or any class of indi- a failure or threatened failure to com-
viduals has been subjected to discrimi- ply with this part and if the non-
nation prohibited by this part may, compliance or threatened noncompli-
personally or through a representative, ance cannot be corrected by informal
file with SBA a written complaint. A means, compliance with this part may
complaint must be filed not later than be effected by suspending, terminating,
180 days from the date of the alleged or refusing any financial assistance ap-
discrimination, unless the time for fil- proved but not yet disbursed to an ap-
ing is extended by SBA. plicant. In the case of loans partially
(c) Investigations. SBA will make a or fully disbursed, compliance with
prompt investigation whenever a com- this part may be effected by calling,
pliance review, report, complaint, or canceling, terminating, accelerating
any other information indicates a pos- repayment, or suspending in whole or
sible failure to comply with this part. in part the financial assistance pro-
The investigation should include, vided. In addition compliance may be
where appropriate, a review of the per- effected by any other means authorized
tinent practices and policies of the ap- by law.
plicant or recipient, the circumstances (2) Such other means may include
under which the possible noncompli- but are not limited to (i) legal action
ance with this part occurred, and other by SBA to enforce its rights, embodied
factors relevant to a determination as in the assurances described in § 113.4;

to whether the applicant or recipient (ii) a reference to the Department of
has failed to comply with this part. Justice with a recommendation that
191
§ 113.8 13 CFR Ch. I (1–1–23 Edition)
appropriate proceedings be brought to other means authorized by law shall be

enforce any rights of the United States taken until:
under any law of the United States; (1) SBA has determined that compli-
and (iii) any applicable proceedings ance cannot be secured by voluntary
under State or local law. means.
(b) Noncompliance with § 113.4. If an (2) The action has been approved by
applicant fails or refuses to furnish an the Administrator or the Administra-
assurance required under § 113.4 or oth- tor’s designee.
erwise fails or refuses to comply with a (3) The applicant or recipient or
requirement imposed by or pursuant to other person has been notified of its
that section, Federal financial assist- failure to comply and of the action to
ance may be refused in accordance with be taken to effect compliance.
the procedures of paragraph (c) of this (4) The expiration of at least 10 days
section. SBA shall not be required to from the mailing of such notice to the
provide assistance in such a case dur- applicant or recipient or other person.
ing the pendency of the administrative During this period of at least 10 days,
proceedings under such paragraph ex- additional efforts shall be made to per-
cept that SBA shall continue assist- suade the applicant or recipient or
ance during the pendency of such pro- other person to comply with this part
ceedings where such assistance is due and to take such corrective action as
and payable pursuant to an application may be appropriate.
therefor approved prior to the effective
date of this part. Such proceedings [44 FR 20068, Apr. 4, 1979, as amended at 49
shall be conducted in accordance with FR 33629, Aug. 24, 1984; 61 FR 2691, Jan. 29,
the provisions of part 134 of this chap- 1996]
ter by an Administrative Law Judge of
§ 113.8 Effect on other regulations,
the Office of Hearings and Appeals, who forms and instructions.
shall issue an initial decision in the
case. The Admininstrator shall be the (a) Effect on other regulations. All reg-
reviewing official for purposes of ulations, orders of like directions here-
§ 134.228. The applicant’s failure to file tofore issued by SBA which impose re-
a timely motion in accordance with quirements designed to prohibit any
§§ 134.222 and 134.211, requesting that discrimination against individuals on
the matter be scheduled for an oral the grounds of race, color, religion, sex,
hearing, shall constitute waiver of the handicap, marital status, age, or na-
right to an oral hearing but shall not tional origin and which authorize the
prevent the submission of written in- suspension or termination of a refusal
formation and argument for the record to grant to or to continue financial as-
in accordance with the provisions of sistance to any applicant for or recipi-
part 134. ent of such assistance for failure to
(c) Condition precedent. Under this comply with such requirements, are
part 113, no order suspending, termi- hereby superseded to the extent that
nating, refusing, calling, canceling, or such discrimination is prohibited by
accelerating repayment of financial as- this part, except that nothing in this
sistance in whole or in part shall be- part shall be deemed to relieve any per-
come effective until (1) SBA has ad- son of any obligation assumed or im-
vised the applicant or recipient of his posed under any such superseded regu-
failure to comply and has determined lation, order, instruction or like direc-
that compliance cannot be secured by tion prior to the effective date of this
voluntary means; (2) there has been an part.
express finding on the record after an (b) Forms and instructions. SBA shall
opportunity for an oral hearing, of a issue and promptly make available to
failure by the applicant or recipient to interested persons forms and detailed
comply with a requirement imposed by instructions and procedures for effec-
or pursuant to this part; and (3) the ini- tuating this part.
tial decision has become final pursuant (c) Supervision and coordination. The
to § 134.227(b). Administrator may from time-to-time

(d) Other means authorized by law. assign to officials of SBA or to officials
No action to effect compliance by any of other agencies of the Government,
192
with the consent of such agencies, re- Name of program Authority

sponsibilities in connection with the
Currency fluctuation—eco- Small Business Act, sec
effectuation of the purposes of this nomic injury. 7(b)(4).
part (other than responsibility of first
decisions as provided in § 113.9) includ- Nonfinancial Programs
ing the achievement of effective co- Women’s business enterprise Executive Order 12138.
ordination and maximum uniformity Small business innovation Small Business Act, sec. 9.
within SBA and within the executive and research.
branch of the Government in the appli- Procurement automated Small Business Act, sec. 8
cation of this part and of comparable source system.. and Pub. L. 96–302.
Business Development Pro- Small Business Act, sec. 8(a)
regulations issued by other agencies of gram. and Pub. L. 95–507, as
the Government to similar situations. amended by Pub. L. 96–
Any action taken, determination made, 481.
or requirement imposed by an official Small Business Institute ........ Small Business Act, sec.
8(b)(1).
of another department or agency act- Certificate of competency ...... Small Business Act, sec.
ing pursuant to an assignment of re- 8(b)(7) and Pub. L. 95–89.
sponsibility under this subsection shall Subcontracting Assistance Small Business Act, sec. 8(d)
have the same effect as though such ac- Program. and Pub. L. 95–507.
Technology Assistance Pro- Small Business Act, sec. 9.
tion had been taken by the Adminis- gram.
trator of SBA. Small business development Small Business Act, sec. 21
centers. and Pub. L. 96–302.
[44 FR 20068, Apr. 4, 1979. Redesignated at 49 International Trade Program Small Business Act, sec. 22
FR 33629, Aug. 24, 1984] and Pub. L. 96–481.
Service Corps of Retired Ex- Small Business Act, secs.
APPENDIX A TO SUBPART A OF PART 113 ecutives and Active Corps 101 and 8(b)(1) and Pub.
of Executives. L. 95–510.
Name of program Authority Veterans Affairs Programs .... Pub. L. 93–237.
Private sector initiatives ......... Small Business Act, sec.
Financial Programs 8(b)(1).
Regular business loans ......... Small Business Act, sec.

7(a). [50 FR 1442, Jan. 11, 1985]
Handicapped assistance Small Business Act, sec.
loans. 7(a)(10).
Small business energy loans Small Business Act, sec.
Subpart B—Nondiscrimination on
7(a)(12). the Basis of Sex in Education
Small general contractors
loans.
Small Business
7(a)(9).
Act, sec. Programs or Activities Receiv-
Export revolving line of credit Small Business Act, sec. ing Federal Financial Assist-
7(a)(14). ance
Vietnam-era and Disabled Pub. L. 97–72.
Veterans Loan Program.
Debtor State development Small Business Investment AUTHORITY: 20 U.S.C. 1681, 1682, 1683, 1685,
company loans (501) and Act, Title V and Small Busi- 1686, 1687, 1688.
their small business con- ness Act, sec. 7(a)(13).
cerns. SOURCE: 65 FR 52865, 52876, Aug. 30, 2000, un-
Debtor State and local devel- Small Business Investment less otherwise noted.
opment company loans Act, Title V and Small Busi-
(502) and their small business Act, sec. 7(a)(13). INTRODUCTION
ness concerns.
Debtor certified development Small Business Investment § 113.100 Purpose and effective date.
companies (503) and their Act, Title V and Small Busi-
small business concerns. ness Act, sec. 7(a)(13). The purpose of these Title IX regula-
Debtor small business invest- Small Business Investment tions is to effectuate Title IX of the
ment companies and their Act, Title III.
small business concerns. Education Amendments of 1972, as
Pollution Control .................... Small Business Investment amended (except sections 904 and 906 of
Act, Title IV, Part A. those Amendments) (20 U.S.C. 1681,
Surety bond guarantees ........ Small Business Investment 1682, 1683, 1685, 1686, 1687, 1688), which is
Act, Title IV, Part B.
Lease guarantees (not fund- Small Business Investment
designed to eliminate (with certain ex-
ed) disaster loans. Act, Title IV. ceptions) discrimination on the basis of
Physical ................................. Small Business Act, sec. sex in any education program or activ-
7(b)(1). ity receiving Federal financial assist-
Economic injury (EIDL) .......... Small Business Act, sec.

7(b)(2).
ance, whether or not such program or
Federal action—economic in- Small Business Act, sec. activity is offered or sponsored by an
jury. 7(b)(3). educational institution as defined in
193
§ 113.105 13 CFR Ch. I (1–1–23 Edition)
these Title IX regulations. The effec- (2) A grant of Federal real or per-
tive date of these Title IX regulations sonal property or any interest therein,
shall be September 29, 2000. including surplus property, and the
proceeds of the sale or transfer of such
§ 113.105 Definitions. property, if the Federal share of the
As used in these Title IX regulations, fair market value of the property is
the term: not, upon such sale or transfer, prop-
Administratively separate unit means a erly accounted for to the Federal Gov-
school, department, or college of an ernment.
educational institution (other than a (3) Provision of the services of Fed-
local educational agency) admission to eral personnel.
which is independent of admission to (4) Sale or lease of Federal property
any other component of such institu- or any interest therein at nominal con-
tion. sideration, or at consideration reduced
Admission means selection for part- for the purpose of assisting the recipi-
time, full-time, special, associate, ent or in recognition of public interest
transfer, exchange, or any other enroll- to be served thereby, or permission to
ment, membership, or matriculation in use Federal property or any interest
or at an education program or activity therein without consideration.
operated by a recipient. (5) Any other contract, agreement, or
Applicant means one who submits an arrangement that has as one of its pur-
application, request, or plan required poses the provision of assistance to any
to be approved by an official of the education program or activity, except
Federal agency that awards Federal fi- a contract of insurance or guaranty.
nancial assistance, or by a recipient, as Institution of graduate higher edu-
a condition to becoming a recipient. cation means an institution that:
Designated agency official means As- (1) Offers academic study beyond the
sistant Administrator for Equal Em- bachelor of arts or bachelor of science
ployment and Civil Rights Compliance. degree, whether or not leading to a cer-
Educational institution means a local tificate of any higher degree in the lib-
educational agency (LEA) as defined by eral arts and sciences;
20 U.S.C. 8801(18), a preschool, a private (2) Awards any degree in a profes-
elementary or secondary school, or an sional field beyond the first profes-
applicant or recipient that is an insti- sional degree (regardless of whether
tution of graduate higher education, an the first professional degree in such
institution of undergraduate higher field is awarded by an institution of
education, an institution of profes- undergraduate higher education or pro-
sional education, or an institution of fessional education); or
vocational education, as defined in this (3) Awards no degree and offers no
section. further academic study, but operates
Federal financial assistance means any ordinarily for the purpose of facili-
of the following, when authorized or tating research by persons who have
extended under a law administered by received the highest graduate degree in
the Federal agency that awards such any field of study.
assistance: Institution of professional education
(1) A grant or loan of Federal finan- means an institution (except any insti-
cial assistance, including funds made tution of undergraduate higher edu-
available for: cation) that offers a program of aca-
(i) The acquisition, construction, ren- demic study that leads to a first profes-
ovation, restoration, or repair of a sional degree in a field for which there
building or facility or any portion is a national specialized accrediting
thereof; and agency recognized by the Secretary of
(ii) Scholarships, loans, grants, Education.
wages, or other funds extended to any Institution of undergraduate higher
entity for payment to or on behalf of education means:
students admitted to that entity, or (1) An institution offering at least

extended directly to such students for two but less than four years of college-
payment to that entity. level study beyond the high school
194
level, leading to a diploma or an asso- students of one sex to being one that
ciate degree, or wholly or principally admits students of both sexes without
creditable toward a baccalaureate de- discrimination.
gree; or
(2) An institution offering academic § 113.110 Remedial and affirmative ac-
study leading to a baccalaureate de- tion and self-evaluation.
gree; or (a) Remedial action. If the designated
(3) An agency or body that certifies agency official finds that a recipient
credentials or offers degrees, but that has discriminated against persons on
may or may not offer academic study. the basis of sex in an education pro-
Institution of vocational education
gram or activity, such recipient shall
means a school or institution (except
take such remedial action as the des-
an institution of professional or grad-
uate or undergraduate higher edu- ignated agency official deems nec-
cation) that has as its primary purpose essary to overcome the effects of such
preparation of students to pursue a discrimination.
technical, skilled, or semiskilled occu- (b) Affirmative action. In the absence
pation or trade, or to pursue study in a of a finding of discrimination on the
technical field, whether or not the basis of sex in an education program or
school or institution offers certificates, activity, a recipient may take affirma-
diplomas, or degrees and whether or tive action consistent with law to over-
not it offers full-time study. come the effects of conditions that re-
Recipient means any State or polit- sulted in limited participation therein
ical subdivision thereof, or any instru- by persons of a particular sex. Nothing
mentality of a State or political sub- in these Title IX regulations shall be
division thereof, any public or private interpreted to alter any affirmative ac-
agency, institution, or organization, or tion obligations that a recipient may
other entity, or any person, to whom have under Executive Order 11246, 3
Federal financial assistance is ex- CFR, 1964–1965 Comp., p. 339; as amend-
tended directly or through another re- ed by Executive Order 11375, 3 CFR,
cipient and that operates an education 1966–1970 Comp., p. 684; as amended by
program or activity that receives such Executive Order 11478, 3 CFR, 1966–1970
assistance, including any subunit, suc-
Comp., p. 803; as amended by Executive
cessor, assignee, or transferee thereof.
Order 12086, 3 CFR, 1978 Comp., p. 230;
Student means a person who has
as amended by Executive Order 12107, 3
gained admission.
Title IX means Title IX of the Edu- CFR, 1978 Comp., p. 264.
cation Amendments of 1972, Public Law (c) Self-evaluation. Each recipient
92–318, 86 Stat. 235, 373 (codified as education institution shall, within one
amended at 20 U.S.C. 1681–1688) (except year of September 29, 2000:
sections 904 and 906 thereof), as amend- (1) Evaluate, in terms of the require-
ed by section 3 of Public Law 93–568, 88 ments of these Title IX regulations, its
Stat. 1855, by section 412 of the Edu- current policies and practices and the
cation Amendments of 1976, Public Law effects thereof concerning admission of
94–482, 90 Stat. 2234, and by Section 3 of students, treatment of students, and
Public Law 100–259, 102 Stat. 28, 28–29 employment of both academic and non-
(20 U.S.C. 1681, 1682, 1683, 1685, 1686, 1687, academic personnel working in connec-
1688). tion with the recipient’s education pro-
Title IX regulations means the provi- gram or activity;
sions set forth at §§ 113.100 through (2) Modify any of these policies and
113.605. practices that do not or may not meet
Transition plan means a plan subject the requirements of these Title IX reg-
to the approval of the Secretary of ulations; and
Education pursuant to section 901(a)(2)
(3) Take appropriate remedial steps
of the Education Amendments of 1972,
20 U.S.C. 1681(a)(2), under which an edu- to eliminate the effects of any dis-
cational institution operates in mak- crimination that resulted or may have

ing the transition from being an edu- resulted from adherence to these poli-
cational institution that admits only cies and practices.
195
§ 113.115 13 CFR Ch. I (1–1–23 Edition)
(d) Availability of self-evaluation and (3) In all other cases such assurance
related materials. Recipients shall main- shall obligate the recipient for the pe-
tain on file for at least three years fol- riod during which Federal financial as-
lowing completion of the evaluation resistance is extended.
quired under paragraph (c) of this sec- (c) Form. (1) The assurances required
tion, and shall provide to the des- by paragraph (a) of this section, which
ignated agency official upon request, a may be included as part of a document
description of any modifications made that addresses other assurances or obli-
pursuant to paragraph (c)(2) of this sec- gations, shall include that the appli-
tion and of any remedial steps taken cant or recipient will comply with all
pursuant to paragraph (c)(3) of this sec- applicable Federal statutes relating to
tion. nondiscrimination. These include but
are not limited to: Title IX of the Edu-
§ 113.115 Assurance required. cation Amendments of 1972, as amend-
(a) General. Either at the application ed (20 U.S.C. 1681–1683, 1685–1688).
stage or the award stage, Federal agen- (2) The designated agency official
cies must ensure that applications for will specify the extent to which such
Federal financial assistance or awards assurances will be required of the ap-
of Federal financial assistance contain, plicant’s or recipient’s subgrantees,
be accompanied by, or be covered by a contractors, subcontractors, trans-
specifically identified assurance from ferees, or successors in interest.
the applicant or recipient, satisfactory
to the designated agency official, that § 113.120 Transfers of property.
each education program or activity op- If a recipient sells or otherwise trans-
erated by the applicant or recipient fers property financed in whole or in
and to which these Title IX regulations part with Federal financial assistance
apply will be operated in compliance to a transferee that operates any edu-
with these Title IX regulations. An as- cation program or activity, and the
surance of compliance with these Title Federal share of the fair market value
IX regulations shall not be satisfactory of the property is not upon such sale or
to the designated agency official if the transfer properly accounted for to the
applicant or recipient to whom such as- Federal Government, both the trans-
surance applies fails to commit itself feror and the transferee shall be
to take whatever remedial action is deemed to be recipients, subject to the
necessary in accordance with provisions of §§ 113.205 through
§ 113.110(a) to eliminate existing dis- 113.235(a).
crimination on the basis of sex or to
eliminate the effects of past discrimi- § 113.125 Effect of other requirements.
nation whether occurring prior to or (a) Effect of other Federal provisions.
subsequent to the submission to the The obligations imposed by these Title
designated agency official of such as- IX regulations are independent of, and
surance. do not alter, obligations not to dis-
(b) Duration of obligation. (1) In the criminate on the basis of sex imposed
case of Federal financial assistance ex- by Executive Order 11246, 3 CFR, 1964–
tended to provide real property or 1965 Comp., p. 339; as amended by Exec-
structures thereon, such assurance utive Order 11375, 3 CFR, 1966–1970
shall obligate the recipient or, in the Comp., p. 684; as amended by Executive
case of a subsequent transfer, the Order 11478, 3 CFR, 1966–1970 Comp., p.
transferee, for the period during which 803; as amended by Executive Order
the real property or structures are used 12087, 3 CFR, 1978 Comp., p. 230; as
to provide an education program or ac- amended by Executive Order 12107, 3
tivity. CFR, 1978 Comp., p. 264; sections 704
(2) In the case of Federal financial as- and 855 of the Public Health Service
sistance extended to provide personal Act (42 U.S.C. 295m, 298b-2); Title VII of
property, such assurance shall obligate the Civil Rights Act of 1964 (42 U.S.C.
the recipient for the period during 2000e et seq.); the Equal Pay Act of 1963
which it retains ownership or posses- (29 U.S.C. 206); and any other Act of
sion of the property. Congress or Federal regulation.
196
(b) Effect of State or local law or other tion that would be prohibited by these
requirements. The obligation to comply Title IX regulations.
with these Title IX regulations is not
obviated or alleviated by any State or § 113.140 Dissemination of policy.
local law or other requirement that (a) Notification of policy. (1) Each re-
would render any applicant or student cipient shall implement specific and
ineligible, or limit the eligibility of continuing steps to notify applicants
any applicant or student, on the basis for admission and employment, stu-
of sex, to practice any occupation or dents and parents of elementary and
profession. secondary school students, employees,
(c) Effect of rules or regulations of pri- sources of referral of applicants for ad-
vate organizations. The obligation to mission and employment, and all
comply with these Title IX regulations unions or professional organizations
is not obviated or alleviated by any holding collective bargaining or profes-
rule or regulation of any organization, sional agreements with the recipient,
club, athletic or other league, or asso- that it does not discriminate on the
ciation that would render any appli- basis of sex in the educational pro-
cant or student ineligible to partici- grams or activities that it operates,
pate or limit the eligibility or partici- and that it is required by Title IX and
pation of any applicant or student, on these Title IX regulations not to dis-
the basis of sex, in any education pro- criminate in such a manner. Such noti-
gram or activity operated by a recipi- fication shall contain such informa-
ent and that receives Federal financial tion, and be made in such manner, as
assistance. the designated agency official finds
necessary to apprise such persons of
§ 113.130 Effect of employment oppor- the protections against discrimination
tunities. assured them by Title IX and these
The obligation to comply with these Title IX regulations, but shall state at
Title IX regulations is not obviated or least that the requirement not to dis-
alleviated because employment oppor- criminate in education programs or ac-
tunities in any occupation or profes- tivities extends to employment there-
sion are or may be more limited for in, and to admission thereto unless
members of one sex than for members §§ 113.300 through 113.310 do not apply to
of the other sex. the recipient, and that inquiries con-
cerning the application of Title IX and
§ 113.135 Designation of responsible these Title IX regulations to such re-
employee and adoption of grievance cipient may be referred to the em-
procedures. ployee designated pursuant to § 113.135,
(a) Designation of responsible employee. or to the designated agency official.
Each recipient shall designate at least (2) Each recipient shall make the ini-
one employee to coordinate its efforts tial notification required by paragraph
to comply with and carry out its re- (a)(1) of this section within 90 days of
sponsibilities under these Title IX reg- September 29, 2000 or of the date these
ulations, including any investigation of Title IX regulations first apply to such
any complaint communicated to such recipient, whichever comes later,
recipient alleging its noncompliance which notification shall include publi-
with these Title IX regulations or al- cation in:
leging any actions that would be pro- (i) Newspapers and magazines oper-
hibited by these Title IX regulations. ated by such recipient or by student,
The recipient shall notify all its stu- alumnae, or alumni groups for or in
dents and employees of the name, of- connection with such recipient; and
fice address, and telephone number of (ii) Memoranda or other written com-
the employee or employees appointed munications distributed to every stu-
pursuant to this paragraph. dent and employee of such recipient.
(b) Complaint procedure of recipient. A (b) Publications. (1) Each recipient
recipient shall adopt and publish griev- shall prominently include a statement
ance procedures providing for prompt of the policy described in paragraph (a)
and equitable resolution of student and of this section in each announcement,
employee complaints alleging any ac- bulletin, catalog, or application form
197
§ 113.200 13 CFR Ch. I (1–1–23 Edition)
that it makes available to any person § 113.210 Military and merchant ma-
of a type, described in paragraph (a) of rine educational institutions.
this section, or which is otherwise used These Title IX regulations do not
in connection with the recruitment of
apply to an educational institution
students or employees.
whose primary purpose is the training
(2) A recipient shall not use or dis-
of individuals for a military service of
tribute a publication of the type de-
the United States or for the merchant
scribed in paragraph (b)(1) of this sec-
marine.
tion that suggests, by text or illustra-
tion, that such recipient treats appli- § 113.215 Membership practices of cer-
cants, students, or employees dif- tain organizations.
ferently on the basis of sex except as
such treatment is permitted by these (a) Social fraternities and sororities.
Title IX regulations. These Title IX regulations do not apply
(c) Distribution. Each recipient shall to the membership practices of social
distribute without discrimination on fraternities and sororities that are ex-
the basis of sex each publication de- empt from taxation under section
scribed in paragraph (b)(1) of this sec- 501(a) of the Internal Revenue Code of
tion, and shall apprise each of its ad- 1954, 26 U.S.C. 501(a), the active mem-
mission and employment recruitment bership of which consists primarily of
representatives of the policy of non- students in attendance at institutions
discrimination described in paragraph of higher education.
(a) of this section, and shall require (b) YMCA, YWCA, Girl Scouts, Boy
such representatives to adhere to such Scouts, and Camp Fire Girls. These Title
policy. IX regulations do not apply to the
membership practices of the Young
COVERAGE Men’s Christian Association (YMCA),
the Young Women’s Christian Associa-
§ 113.200 Application.
tion (YWCA), the Girl Scouts, the Boy
Except as provided in §§ 113.205 Scouts, and Camp Fire Girls.
through 113.235(a), these Title IX regu- (c) Voluntary youth service organiza-
lations apply to every recipient and to tions. These Title IX regulations do not
each education program or activity op- apply to the membership practices of a
erated by such recipient that receives voluntary youth service organization
Federal financial assistance. that is exempt from taxation under
section 501(a) of the Internal Revenue
§ 113.205 Educational institutions and
other entities controlled by reli- Code of 1954, 26 U.S.C. 501(a), and the
gious organizations. membership of which has been tradi-
tionally limited to members of one sex
(a) Exemption. These Title IX regula- and principally to persons of less than
tions do not apply to any operation of nineteen years of age.
an educational institution or other en-
tity that is controlled by a religious § 113.220 Admissions.
organization to the extent that appli-
cation of these Title IX regulations (a) Admissions to educational insti-
would not be consistent with the reli- tutions prior to June 24, 1973, are not
gious tenets of such organization. covered by these Title IX regulations.
(b) Exemption claims. An educational (b) Administratively separate units. For
institution or other entity that wishes the purposes only of this section,
to claim the exemption set forth in §§ 113.225 and 113.230, and §§ 113.300
paragraph (a) of this section shall do so through 113.310, each administratively
by submitting in writing to the des- separate unit shall be deemed to be an
ignated agency official a statement by educational institution.
the highest-ranking official of the in- (c) Application of §§ 113.300 through
stitution, identifying the provisions of 113.310. Except as provided in para-
these Title IX regulations that conflict graphs (d) and (e) of this section,
with a specific tenet of the religious or- §§ 113.300 through 113.310 apply to each
ganization. recipient. A recipient to which §§ 113.300
198
through 113.310 apply shall not dis- plan is applicable, and the name, ad-
criminate on the basis of sex in admis- dress, and telephone number of the per-
sion or recruitment in violation of son to whom questions concerning the
§§ 113.300 through 113.310. plan may be addressed. The person who
(d) Educational institutions. Except as submits the plan shall be the chief ad-
provided in paragraph (e) of this sec- ministrator or president of the institu-
tion as to recipients that are edu- tion, or another individual legally au-
cational institutions, §§ 113.300 through thorized to bind the institution to all
113.310 apply only to institutions of vo- actions set forth in the plan.
cational education, professional edu-
(2) State whether the educational in-
cation, graduate higher education, and
stitution or administratively separate
public institutions of undergraduate
unit admits students of both sexes as
higher education.
(e) Public institutions of undergraduate regular students and, if so, when it
higher education. §§ 113.300 through began to do so.
113.310 do not apply to any public insti- (3) Identify and describe with respect
tution of undergraduate higher edu- to the educational institution or ad-
cation that traditionally and contin- ministratively separate unit any obsta-
ually from its establishment has had a cles to admitting students without dis-
policy of admitting students of only crimination on the basis of sex.
one sex. (4) Describe in detail the steps nec-
essary to eliminate as soon as prac-
§ 113.225 Educational institutions eli- ticable each obstacle so identified and
gible to submit transition plans.
indicate the schedule for taking these
(a) Application. This section applies steps and the individual directly re-
to each educational institution to sponsible for their implementation.
which §§ 113.300 through 113.310 apply (5) Include estimates of the number
that: of students, by sex, expected to apply
(1) Admitted students of only one sex for, be admitted to, and enter each
as regular students as of June 23, 1972;
class during the period covered by the
or
plan.
(2) Admitted students of only one sex
as regular students as of June 23, 1965, (c) Nondiscrimination. No policy or
but thereafter admitted, as regular stu- practice of a recipient to which § 113.225
dents, students of the sex not admitted applies shall result in treatment of ap-
prior to June 23, 1965. plicants to or students of such recipi-
(b) Provision for transition plans. An ent in violation of §§ 113.300 through
educational institution to which this 113.310 unless such treatment is neces-
section applies shall not discriminate sitated by an obstacle identified in
on the basis of sex in admission or re- paragraph (b)(3) of this section and a
cruitment in violation of §§ 113.300 schedule for eliminating that obstacle
through 113.310. has been provided as required by para-
graph (b)(4) of this section.
§ 113.230 Transition plans. (d) Effects of past exclusion. To over-
(a) Submission of plans. An institution come the effects of past exclusion of
to which § 113.225 applies and that is students on the basis of sex, each edu-
composed of more than one administra- cational institution to which § 113.225
tively separate unit may submit either applies shall include in its transition
a single transition plan applicable to plan, and shall implement, specific
all such units, or a separate transition steps designed to encourage individuals
plan applicable to each such unit. of the previously excluded sex to apply
(b) Content of plans. In order to be ap- for admission to such institution. Such
proved by the Secretary of Education,
steps shall include instituting recruit-
a transition plan shall:
ment programs that emphasize the in-
(1) State the name, address, and Fed-
eral Interagency Committee on Edu- stitution’s commitment to enrolling
cation Code of the educational institu- students of the sex previously ex-
tion submitting such plan, the admin- cluded.
istratively separate units to which the
199
§ 113.235 13 CFR Ch. I (1–1–23 Edition)
§ 113.235 Statutory amendments. sistance to a State or local govern-

ment;
(a) This section, which applies to all
provisions of these Title IX regula- (ii)(A) A college, university, or other
tions, addresses statutory amendments postsecondary institution, or a public
to Title IX. system of higher education; or
(b) These Title IX regulations shall (B) A local educational agency (as de-
not apply to or preclude: fined in section 8801 of title 20), system
(1) Any program or activity of the of vocational education, or other
American Legion undertaken in con- school system;
nection with the organization or oper- (iii)(A) An entire corporation, part-
ation of any Boys State conference, nership, or other private organization,
Boys Nation conference, Girls State or an entire sole proprietorship—
conference, or Girls Nation conference; (1) If assistance is extended to such
(2) Any program or activity of a sec- corporation, partnership, private orga-
ondary school or educational institu- nization, or sole proprietorship as a
tion specifically for: whole; or
(i) The promotion of any Boys State (2) Which is principally engaged in
conference, Boys Nation conference, the business of providing education,
Girls State conference, or Girls Nation health care, housing, social services, or
conference; or parks and recreation; or
(ii) The selection of students to at- (B) The entire plant or other com-
tend any such conference; parable, geographically separate facil-
(3) Father-son or mother-daughter ity to which Federal financial assist-
activities at an educational institution ance is extended, in the case of any
or in an education program or activity, other corporation, partnership, private
but if such activities are provided for organization, or sole proprietorship; or
students of one sex, opportunities for (iv) Any other entity that is estab-
reasonably comparable activities shall lished by two or more of the entities
be provided to students of the other described in paragraphs (c)(1)(i), (ii), or
sex; (iii) of this section.
(4) Any scholarship or other financial
(2)(i) Program or activity does not in-
assistance awarded by an institution of
clude any operation of an entity that is
higher education to an individual be-
controlled by a religious organization
cause such individual has received such
if the application of 20 U.S.C. 1681 to
award in a single-sex pageant based
such operation would not be consistent
upon a combination of factors related
to the individual’s personal appear- with the religious tenets of such orga-
ance, poise, and talent. The pageant, nization.
however, must comply with other non- (ii) For example, all of the operations
discrimination provisions of Federal of a college, university, or other post-
law. secondary institution, including but
(c) Program or activity or program not limited to traditional educational
means: operations, faculty and student hous-
(1) All of the operations of any entity ing, campus shuttle bus service, cam-
described in paragraphs (c)(1)(i) pus restaurants, the bookstore, and
through (iv) of this section, any part of other commercial activities are part of
which is extended Federal financial as- a ‘‘program or activity’’ subject to
sistance: these Title IX regulations if the col-
(i)(A) A department, agency, special lege, university, or other institution
purpose district, or other instrumen- receives Federal financial assistance.
tality of a State or of a local govern- (d)(1) Nothing in these Title IX regu-
ment; or lations shall be construed to require or
(B) The entity of such State or local prohibit any person, or public or pri-
government that distributes such as- vate entity, to provide or pay for any
sistance and each such department or benefit or service, including the use of
agency (and each other State or local facilities, related to an abortion. Med-
government entity) to which the as- ical procedures, benefits, services, and
sistance is extended, in the case of as- the use of facilities, necessary to save
200
the life of a pregnant woman or to ad- or criteria that do not have such a dis-
dress complications related to an abor- proportionately adverse effect are
tion are not subject to this section. shown to be unavailable.
(2) Nothing in this section shall be (c) Prohibitions relating to marital or
construed to permit a penalty to be im- parental status. In determining whether
posed on any person or individual be- a person satisfies any policy or cri-
cause such person or individual is seek- terion for admission, or in making any
ing or has received any benefit or serv- offer of admission, a recipient to which
ice related to a legal abortion. Accord- §§ 113.300 through 113.310 apply:
ingly, subject to paragraph (d)(1) of (1) Shall not apply any rule con-
this section, no person shall be ex- cerning the actual or potential paren-
cluded from participation in, be denied tal, family, or marital status of a stu-
the benefits of, or be subjected to dis- dent or applicant that treats persons
crimination under any academic, ex- differently on the basis of sex;
tracurricular, research, occupational (2) Shall not discriminate against or
training, employment, or other edu- exclude any person on the basis of
cational program or activity operated pregnancy, childbirth, termination of
by a recipient that receives Federal fi- pregnancy, or recovery therefrom, or
nancial assistance because such indi- establish or follow any rule or practice
vidual has sought or received, or is that so discriminates or excludes;
seeking, a legal abortion, or any ben- (3) Subject to § 113.235(d), shall treat
efit or service related to a legal abor- disabilities related to pregnancy, child-
tion. birth, termination of pregnancy, or re-
covery therefrom in the same manner
DISCRIMINATION ON THE BASIS OF SEX IN and under the same policies as any
ADMISSION AND RECRUITMENT PROHIB- other temporary disability or physical
ITED condition; and
(4) Shall not make pre-admission in-
§ 113.300 Admission. quiry as to the marital status of an ap-
(a) General. No person shall, on the plicant for admission, including wheth-
basis of sex, be denied admission, or be er such applicant is ‘‘Miss’’ or ‘‘Mrs.’’
subjected to discrimination in admis- A recipient may make pre-admission
sion, by any recipient to which inquiry as to the sex of an applicant for
§§ 113.300 through §§ 113.310 apply, except admission, but only if such inquiry is
as provided in §§ 113.225 and §§ 113.230. made equally of such applicants of both
(b) Specific prohibitions. (1) In deter- sexes and if the results of such inquiry
mining whether a person satisfies any are not used in connection with dis-
policy or criterion for admission, or in crimination prohibited by these Title
making any offer of admission, a re- IX regulations.
cipient to which §§ 113.300 through
113.310 apply shall not: § 113.305 Preference in admission.
(i) Give preference to one person over A recipient to which §§ 113.300
another on the basis of sex, by ranking through 113.310 apply shall not give
applicants separately on such basis, or preference to applicants for admission,
otherwise; on the basis of attendance at any edu-
(ii) Apply numerical limitations upon cational institution or other school or
the number or proportion of persons of entity that admits as students only or
either sex who may be admitted; or predominantly members of one sex, if
(iii) Otherwise treat one individual the giving of such preference has the
differently from another on the basis of effect of discriminating on the basis of
sex. sex in violation of §§ 113.300 through
(2) A recipient shall not administer 113.310.
or operate any test or other criterion
for admission that has a disproportion- § 113.310 Recruitment.
ately adverse effect on persons on the (a) Nondiscriminatory recruitment. A
basis of sex unless the use of such test recipient to which §§ 113.300 through
or criterion is shown to predict validly 113.310 apply shall not discriminate on

success in the education program or ac- the basis of sex in the recruitment and
tivity in question and alternative tests admission of students. A recipient may
201
§ 113.400 13 CFR Ch. I (1–1–23 Edition)
be required to undertake additional re- (4) Subject any person to separate or

cruitment efforts for one sex as reme- different rules of behavior, sanctions,
dial action pursuant to § 113.110(a), and or other treatment;
may choose to undertake such efforts (5) Apply any rule concerning the
as affirmative action pursuant to domicile or residence of a student or
§ 113.110(b). applicant, including eligibility for in-
(b) Recruitment at certain institutions. state fees and tuition;
A recipient to which §§ 113.300 through (6) Aid or perpetuate discrimination
113.310 apply shall not recruit pri- against any person by providing sig-
marily or exclusively at educational nificant assistance to any agency, or-
institutions, schools, or entities that ganization, or person that discrimi-
admit as students only or predomi- nates on the basis of sex in providing
nantly members of one sex, if such ac- any aid, benefit, or service to students
tions have the effect of discriminating or employees;
on the basis of sex in violation of (7) Otherwise limit any person in the
§§ 113.300 through 113.310. enjoyment of any right, privilege, ad-
vantage, or opportunity.
DISCRIMINATION ON THE BASIS OF SEX IN (c) Assistance administered by a recipi-
EDUCATION PROGRAMS OR ACTIVITIES ent educational institution to study at a
PROHIBITED foreign institution. A recipient edu-
cational institution may administer or
§ 113.400 Education programs or ac- assist in the administration of scholar-
tivities. ships, fellowships, or other awards es-
(a) General. Except as provided else- tablished by foreign or domestic wills,
where in these Title IX regulations, no trusts, or similar legal instruments, or
person shall, on the basis of sex, be ex- by acts of foreign governments and re-
cluded from participation in, be denied stricted to members of one sex, that
the benefits of, or be subjected to dis- are designed to provide opportunities
crimination under any academic, ex- to study abroad, and that are awarded
tracurricular, research, occupational to students who are already matricu-
training, or other education program lating at or who are graduates of the
or activity operated by a recipient that recipient institution; Provided, that a
receives Federal financial assistance. recipient educational institution that
Sections 113.400 through 113.455 do not administers or assists in the adminis-
apply to actions of a recipient in con- tration of such scholarships, fellow-
nection with admission of its students ships, or other awards that are re-
to an education program or activity of stricted to members of one sex pro-
vides, or otherwise makes available,
a recipient to which §§ 113.300 through
reasonable opportunities for similar
113.310 do not apply, or an entity, not a
studies for members of the other sex.
recipient, to which §§ 113.300 through
Such opportunities may be derived
113.310 would not apply if the entity
from either domestic or foreign
were a recipient.
sources.
(b) Specific prohibitions. Except as pro-
(d) Aids, benefits or services not pro-
vided in §§ 113.400 through 113.455, in
vided by recipient. (1) This paragraph (d)
providing any aid, benefit, or service to applies to any recipient that requires
a student, a recipient shall not, on the participation by any applicant, stu-
basis of sex: dent, or employee in any education
(1) Treat one person differently from program or activity not operated whol-
another in determining whether such ly by such recipient, or that facilitates,
person satisfies any requirement or permits, or considers such participa-
condition for the provision of such aid, tion as part of or equivalent to an edu-
benefit, or service; cation program or activity operated by
(2) Provide different aid, benefits, or such recipient, including participation
services or provide aid, benefits, or in educational consortia and coopera-
services in a different manner; tive employment and student-teaching

(3) Deny any person any such aid, assignments.
benefit, or service; (2) Such recipient:
202
(i) Shall develop and implement a § 113.410 Comparable facilities.

procedure designed to assure itself that
A recipient may provide separate toi-
the operator or sponsor of such other
let, locker room, and shower facilities
education program or activity takes no
on the basis of sex, but such facilities
action affecting any applicant, student,
provided for students of one sex shall
or employee of such recipient that
be comparable to such facilities pro-
these Title IX regulations would pro-
vided for students of the other sex.
hibit such recipient from taking; and
(ii) Shall not facilitate, require, per- § 113.415 Access to course offerings.
mit, or consider such participation if
such action occurs. (a) A recipient shall not provide any
course or otherwise carry out any of its
§ 113.405 Housing. education program or activity sepa-
rately on the basis of sex, or require or
(a) Generally. A recipient shall not, refuse participation therein by any of
on the basis of sex, apply different its students on such basis, including
rules or regulations, impose different health, physical education, industrial,
fees or requirements, or offer different business, vocational, technical, home
services or benefits related to housing, economics, music, and adult education
except as provided in this section (in- courses.
cluding housing provided only to mar- (b)(1) With respect to classes and ac-
ried students). tivities in physical education at the el-
(b) Housing provided by recipient. (1) A ementary school level, the recipient
recipient may provide separate housing shall comply fully with this section as
on the basis of sex. expeditiously as possible but in no
(2) Housing provided by a recipient to event later than one year from Sep-
students of one sex, when compared to tember 29, 2000. With respect to phys-
that provided to students of the other ical education classes and activities at
sex, shall be as a whole: the secondary and post-secondary lev-
(i) Proportionate in quantity to the els, the recipient shall comply fully
number of students of that sex apply- with this section as expeditiously as
ing for such housing; and possible but in no event later than
(ii) Comparable in quality and cost to three years from September 29, 2000.
the student. (2) This section does not prohibit
(c) Other housing. (1) A recipient shall grouping of students in physical edu-
not, on the basis of sex, administer dif- cation classes and activities by ability
ferent policies or practices concerning as assessed by objective standards of
occupancy by its students of housing individual performance developed and
other than that provided by such re- applied without regard to sex.
cipient. (3) This section does not prohibit sep-
(2)(i) A recipient which, through so- aration of students by sex within phys-
licitation, listing, approval of housing, ical education classes or activities dur-
or otherwise, assists any agency, orga- ing participation in wrestling, boxing,
nization, or person in making housing rugby, ice hockey, football, basketball,
available to any of its students, shall and other sports the purpose or major
take such reasonable action as may be activity of which involves bodily con-
necessary to assure itself that such tact.
housing as is provided to students of (4) Where use of a single standard of
one sex, when compared to that pro- measuring skill or progress in a phys-
vided to students of the other sex, is as ical education class has an adverse ef-
a whole: fect on members of one sex, the recipi-
(A) Proportionate in quantity; and ent shall use appropriate standards
(B) Comparable in quality and cost to that do not have such effect.
the student. (5) Portions of classes in elementary
(ii) A recipient may render such as- and secondary schools, or portions of
sistance to any agency, organization, education programs or activities, that
or person that provides all or part of deal exclusively with human sexuality
such housing to students of only one may be conducted in separate sessions
sex. for boys and girls.
203
§ 113.420 13 CFR Ch. I (1–1–23 Edition)
(6) Recipients may make require- sex, the recipient shall take such ac-
ments based on vocal range or quality tion as is necessary to assure itself
that may result in a chorus or choruses that such disproportion is not the re-
of one or predominantly one sex. sult of discrimination on the basis of
sex in counseling or appraisal mate-
§ 113.420 Access to schools operated by rials or by counselors.
LEAs.
A recipient that is a local edu- § 113.430 Financial assistance.
cational agency shall not, on the basis (a) General. Except as provided in
of sex, exclude any person from admis- paragraphs (b) and (c) of this section,
sion to: in providing financial assistance to any
(a) Any institution of vocational edu- of its students, a recipient shall not:
cation operated by such recipient; or (1) On the basis of sex, provide dif-
(b) Any other school or educational ferent amounts or types of such assist-
unit operated by such recipient, unless ance, limit eligibility for such assist-
such recipient otherwise makes avail- ance that is of any particular type or
able to such person, pursuant to the source, apply different criteria, or oth-
same policies and criteria of admission, erwise discriminate;
courses, services, and facilities com- (2) Through solicitation, listing, ap-
parable to each course, service, and fa- proval, provision of facilities, or other
cility offered in or through such services, assist any foundation, trust,
schools. agency, organization, or person that
provides assistance to any of such re-
§ 113.425 Counseling and use of ap- cipient’s students in a manner that dis-
praisal and counseling materials. criminates on the basis of sex; or
(a) Counseling. A recipient shall not (3) Apply any rule or assist in appli-
discriminate against any person on the cation of any rule concerning eligi-
basis of sex in the counseling or guid- bility for such assistance that treats
ance of students or applicants for ad- persons of one sex differently from per-
mission. sons of the other sex with regard to
(b) Use of appraisal and counseling ma- marital or parental status.
terials. A recipient that uses testing or (b) Financial aid established by certain
other materials for appraising or coun- legal instruments. (1) A recipient may
seling students shall not use different administer or assist in the administra-
materials for students on the basis of tion of scholarships, fellowships, or
their sex or use materials that permit other forms of financial assistance es-
or require different treatment of stu- tablished pursuant to domestic or for-
dents on such basis unless such dif- eign wills, trusts, bequests, or similar
ferent materials cover the same occu- legal instruments or by acts of a for-
pations and interest areas and the use eign government that require that
of such different materials is shown to awards be made to members of a par-
be essential to eliminate sex bias. Re- ticular sex specified therein; Provided,
cipients shall develop and use internal that the overall effect of the award of
procedures for ensuring that such ma- such sex-restricted scholarships, fel-
terials do not discriminate on the basis lowships, and other forms of financial
of sex. Where the use of a counseling assistance does not discriminate on the
test or other instrument results in a basis of sex.
substantially disproportionate number (2) To ensure nondiscriminatory
of members of one sex in any particular awards of assistance as required in
course of study or classification, the paragraph (b)(1) of this section, recipi-
recipient shall take such action as is ents shall develop and use procedures
necessary to assure itself that such dis- under which:
proportion is not the result of discrimi- (i) Students are selected for award of
nation in the instrument or its applica- financial assistance on the basis of
tion. nondiscriminatory criteria and not on
(c) Disproportion in classes. Where a the basis of availability of funds re-
recipient finds that a particular class stricted to members of a particular sex;

contains a substantially dispropor- (ii) An appropriate sex-restricted
tionate number of individuals of one scholarship, fellowship, or other form
204
of financial assistance is allocated to the other, including family planning

each student selected under paragraph services. However, any recipient that
(b)(2)(i) of this section; and provides full coverage health service
(iii) No student is denied the award shall provide gynecological care.
for which he or she was selected under
paragraph (b)(2)(i) of this section be- § 113.445 Marital or parental status.
cause of the absence of a scholarship, (a) Status generally. A recipient shall
fellowship, or other form of financial not apply any rule concerning a stu-
assistance designated for a member of dent’s actual or potential parental,
that student’s sex. family, or marital status that treats
(c) Athletic scholarships. (1) To the ex- students differently on the basis of sex.
tent that a recipient awards athletic (b) Pregnancy and related conditions.
scholarships or grants-in-aid, it must (1) A recipient shall not discriminate
provide reasonable opportunities for against any student, or exclude any
such awards for members of each sex in student from its education program or
proportion to the number of students activity, including any class or extra-
of each sex participating in inter- curricular activity, on the basis of such
scholastic or intercollegiate athletics. student’s pregnancy, childbirth, false
(2) A recipient may provide separate pregnancy, termination of pregnancy,
athletic scholarships or grants-in-aid or recovery therefrom, unless the stu-
for members of each sex as part of sep- dent requests voluntarily to partici-
arate athletic teams for members of pate in a separate portion of the pro-
each sex to the extent consistent with gram or activity of the recipient.
this paragraph (c) and § 113.450. (2) A recipient may require such a
student to obtain the certification of a
§ 113.435 Employment assistance to physician that the student is phys-
students. ically and emotionally able to continue
(a) Assistance by recipient in making participation as long as such a certifi-
available outside employment. A recipi- cation is required of all students for
ent that assists any agency, organiza- other physical or emotional conditions
tion, or person in making employment requiring the attention of a physician.
available to any of its students: (3) A recipient that operates a por-
(1) Shall assure itself that such em- tion of its education program or activ-
ployment is made available without ity separately for pregnant students,
discrimination on the basis of sex; and admittance to which is completely vol-
(2) Shall not render such services to untary on the part of the student as
any agency, organization, or person provided in paragraph (b)(1) of this sec-
that discriminates on the basis of sex tion, shall ensure that the separate
in its employment practices. portion is comparable to that offered
(b) Employment of students by recipi- to non-pregnant students.
ents. A recipient that employs any of (4) Subject to § 113.235(d), a recipient
its students shall not do so in a manner shall treat pregnancy, childbirth, false
that violates §§ 113.500 through 113.550. pregnancy, termination of pregnancy
and recovery therefrom in the same
§ 113.440 Health and insurance bene- manner and under the same policies as
fits and services. any other temporary disability with re-
Subject to § 113.235(d), in providing a spect to any medical or hospital ben-
medical, hospital, accident, or life in- efit, service, plan, or policy that such
surance benefit, service, policy, or plan recipient administers, operates, offers,
to any of its students, a recipient shall or participates in with respect to stu-
not discriminate on the basis of sex, or dents admitted to the recipient’s edu-
provide such benefit, service, policy, or cational program or activity.
plan in a manner that would violate (5) In the case of a recipient that does
§§ 113.500 through 113.550 if it were pro- not maintain a leave policy for its stu-
vided to employees of the recipient. dents, or in the case of a student who
This section shall not prohibit a recipi- does not otherwise qualify for leave
ent from providing any benefit or serv- under such a policy, a recipient shall
ice that may be used by a different pro- treat pregnancy, childbirth, false preg-
portion of students of one sex than of nancy, termination of pregnancy, and
205
§ 113.450 13 CFR Ch. I (1–1–23 Edition)
recovery therefrom as a justification (iv) Travel and per diem allowance;

for a leave of absence for as long a pe- (v) Opportunity to receive coaching
riod of time as is deemed medically and academic tutoring;
necessary by the student’s physician, (vi) Assignment and compensation of
at the conclusion of which the student coaches and tutors;
shall be reinstated to the status that (vii) Provision of locker rooms, prac-
she held when the leave began. tice, and competitive facilities;
(viii) Provision of medical and train-
§ 113.450 Athletics. ing facilities and services;
(a) General. No person shall, on the (ix) Provision of housing and dining
basis of sex, be excluded from partici- facilities and services;
pation in, be denied the benefits of, be (x) Publicity.
treated differently from another per- (2) For purposes of paragraph (c)(1) of
son, or otherwise be discriminated this section, unequal aggregate expend-
against in any interscholastic, inter- itures for members of each sex or un-
collegiate, club, or intramural ath- equal expenditures for male and female
letics offered by a recipient, and no re- teams if a recipient operates or spon-
cipient shall provide any such athletics sors separate teams will not constitute
separately on such basis. noncompliance with this section, but
(b) Separate teams. Notwithstanding the designated agency official may
the requirements of paragraph (a) of consider the failure to provide nec-
this section, a recipient may operate or essary funds for teams for one sex in
sponsor separate teams for members of assessing equality of opportunity for
each sex where selection for such members of each sex.
teams is based upon competitive skill (d) Adjustment period. A recipient that
or the activity involved is a contact operates or sponsors interscholastic,
sport. However, where a recipient oper- intercollegiate, club, or intramural
ates or sponsors a team in a particular athletics at the elementary school
sport for members of one sex but oper- level shall comply fully with this sec-
ates or sponsors no such team for mem- tion as expeditiously as possible but in
bers of the other sex, and athletic op- no event later than one year from Sep-
portunities for members of that sex tember 29, 2000. A recipient that oper-
have previously been limited, members ates or sponsors interscholastic, inter-
of the excluded sex must be allowed to collegiate, club, or intramural ath-
try out for the team offered unless the letics at the secondary or postsec-
sport involved is a contact sport. For ondary school level shall comply fully
the purposes of these Title IX regula- with this section as expeditiously as
tions, contact sports include boxing, possible but in no event later than
wrestling, rugby, ice hockey, football, three years from September 29, 2000.
basketball, and other sports the pur-
pose or major activity of which in- § 113.455 Textbooks and curricular ma-
volves bodily contact. terial.
(c) Equal opportunity. (1) A recipient Nothing in these Title IX regulations
that operates or sponsors inter- shall be interpreted as requiring or pro-
scholastic, intercollegiate, club, or in- hibiting or abridging in any way the
tramural athletics shall provide equal use of particular textbooks or cur-
athletic opportunity for members of ricular materials.
both sexes. In determining whether
equal opportunities are available, the DISCRIMINATION ON THE BASIS OF SEX IN
designated agency official will con- EMPLOYMENT IN EDUCATION PROGRAMS
sider, among other factors: OR ACTIVITIES PROHIBITED
(i) Whether the selection of sports
and levels of competition effectively § 113.500 Employment.
accommodate the interests and abili- (a) General. (1) No person shall, on
ties of members of both sexes; the basis of sex, be excluded from par-
(ii) The provision of equipment and ticipation in, be denied the benefits of,
supplies; or be subjected to discrimination in

(iii) Scheduling of games and prac- employment, or recruitment, consider-
tice time; ation, or selection therefor, whether
206
full-time or part-time, under any edu- (7) Fringe benefits available by vir-
cation program or activity operated by tue of employment, whether or not ad-
a recipient that receives Federal finan- ministered by the recipient;
cial assistance. (8) Selection and financial support
(2) A recipient shall make all em- for training, including apprenticeship,
ployment decisions in any education professional meetings, conferences, and
program or activity operated by such other related activities, selection for
recipient in a nondiscriminatory man- tuition assistance, selection for
ner and shall not limit, segregate, or sabbaticals and leaves of absence to
classify applicants or employees in any pursue training;
way that could adversely affect any ap- (9) Employer-sponsored activities, in-
plicant’s or employee’s employment cluding social or recreational pro-
opportunities or status because of sex. grams; and
(3) A recipient shall not enter into (10) Any other term, condition, or
any contractual or other relationship privilege of employment.
which directly or indirectly has the ef-
fect of subjecting employees or stu- § 113.505 Employment criteria.
dents to discrimination prohibited by A recipient shall not administer or
§§ 113.500 through 113.550, including re- operate any test or other criterion for
lationships with employment and refer- any employment opportunity that has
ral agencies, with labor unions, and a disproportionately adverse effect on
with organizations providing or admin- persons on the basis of sex unless:
istering fringe benefits to employees of (a) Use of such test or other criterion
the recipient. is shown to predict validly successful
(4) A recipient shall not grant pref- performance in the position in ques-
erences to applicants for employment tion; and
on the basis of attendance at any edu- (b) Alternative tests or criteria for
cational institution or entity that ad- such purpose, which do not have such
mits as students only or predominantly disproportionately adverse effect, are
members of one sex, if the giving of shown to be unavailable.
such preferences has the effect of dis-
criminating on the basis of sex in vio- § 113.510 Recruitment.
lation of these Title IX regulations. (a) Nondiscriminatory recruitment and
(b) Application. The provisions of hiring. A recipient shall not discrimi-
§§ 113.500 through 113.550 apply to: nate on the basis of sex in the recruit-
(1) Recruitment, advertising, and the ment and hiring of employees. Where a
process of application for employment; recipient has been found to be pres-
(2) Hiring, upgrading, promotion, ently discriminating on the basis of sex
consideration for and award of tenure, in the recruitment or hiring of employ-
demotion, transfer, layoff, termi- ees, or has been found to have so dis-
nation, application of nepotism poli- criminated in the past, the recipient
cies, right of return from layoff, and shall recruit members of the sex so dis-
rehiring; criminated against so as to overcome
(3) Rates of pay or any other form of the effects of such past or present dis-
compensation, and changes in com- crimination.
pensation; (b) Recruitment patterns. A recipient
(4) Job assignments, classifications, shall not recruit primarily or exclu-
and structure, including position de- sively at entities that furnish as appli-
scriptions, lines of progression, and se- cants only or predominantly members
niority lists; of one sex if such actions have the ef-
(5) The terms of any collective bar- fect of discriminating on the basis of
gaining agreement; sex in violation of §§ 113.500 through
(6) Granting and return from leaves 113.550.
of absence, leave for pregnancy, child-
birth, false pregnancy, termination of § 113.515 Compensation.
pregnancy, leave for persons of either A recipient shall not make or enforce
sex to care for children or dependents, any policy or practice that, on the
or any other leave; basis of sex:
207
§ 113.520 13 CFR Ch. I (1–1–23 Edition)
(a) Makes distinctions in rates of pay § 113.530 Marital or parental status.

or other compensation; (a) General. A recipient shall not
(b) Results in the payment of wages apply any policy or take any employ-
to employees of one sex at a rate less ment action:
than that paid to employees of the op- (1) Concerning the potential marital,
posite sex for equal work on jobs the parental, or family status of an em-
performance of which requires equal ployee or applicant for employment
skill, effort, and responsibility, and that treats persons differently on the
that are performed under similar work- basis of sex; or
ing conditions. (2) Which is based upon whether an
employee or applicant for employment
§ 113.520 Job classification and struc-
ture. is the head of household or principal
wage earner in such employee’s or ap-
A recipient shall not: plicant’s family unit.
(a) Classify a job as being for males (b) Pregnancy. A recipient shall not
or for females; discriminate against or exclude from
(b) Maintain or establish separate employment any employee or applicant
lines of progression, seniority lists, ca- for employment on the basis of preg-
reer ladders, or tenure systems based nancy, childbirth, false pregnancy, ter-
on sex; or mination of pregnancy, or recovery
(c) Maintain or establish separate therefrom.
lines of progression, seniority systems, (c) Pregnancy as a temporary disability.
career ladders, or tenure systems for Subject to § 113.235(d), a recipient shall
similar jobs, position descriptions, or treat pregnancy, childbirth, false preg-
job requirements that classify persons nancy, termination of pregnancy, re-
on the basis of sex, unless sex is a bona covery therefrom, and any temporary
fide occupational qualification for the disability resulting therefrom as any
positions in question as set forth in other temporary disability for all job-
§ 113.550. related purposes, including commence-
ment, duration, and extensions of
§ 113.525 Fringe benefits. leave, payment of disability income,
(a) ‘‘Fringe benefits’’ defined. For pur- accrual of seniority and any other ben-
poses of these Title IX regulations, efit or service, and reinstatement, and
fringe benefits means: Any medical, hos- under any fringe benefit offered to em-
pital, accident, life insurance, or re- ployees by virtue of employment.
tirement benefit, service, policy or (d) Pregnancy leave. In the case of a
plan, any profit-sharing or bonus plan, recipient that does not maintain a
leave, and any other benefit or service leave policy for its employees, or in the
of employment not subject to the pro- case of an employee with insufficient
vision of § 113.515. leave or accrued employment time to
(b) Prohibitions. A recipient shall not: qualify for leave under such a policy, a
(1) Discriminate on the basis of sex recipient shall treat pregnancy, child-
with regard to making fringe benefits birth, false pregnancy, termination of
available to employees or make fringe pregnancy, and recovery therefrom as a
benefits available to spouses, families, justification for a leave of absence
or dependents of employees differently without pay for a reasonable period of
upon the basis of the employee’s sex; time, at the conclusion of which the
(2) Administer, operate, offer, or par- employee shall be reinstated to the sta-
ticipate in a fringe benefit plan that tus that she held when the leave began
does not provide for equal periodic ben- or to a comparable position, without
efits for members of each sex and for decrease in rate of compensation or
equal contributions to the plan by such loss of promotional opportunities, or
recipient for members of each sex; or any other right or privilege of employ-
(3) Administer, operate, offer, or par- ment.
ticipate in a pension or retirement plan
that establishes different optional or § 113.535 Effect of state or local law or
compulsory retirement ages based on other requirements.

sex or that otherwise discriminates in (a) Prohibitory requirements. The obli-
benefits on the basis of sex. gation to comply with §§ 113.500
208
through 113.550 is not obviated or alle- let facility used only by members of
viated by the existence of any State or one sex.
local law or other requirement that im-
poses prohibitions or limits upon em- PROCEDURES
ployment of members of one sex that
are not imposed upon members of the § 113.600 Notice of covered programs.
other sex. Within 60 days of September 29, 2000,
(b) Benefits. A recipient that provides each Federal agency that awards Fed-
any compensation, service, or benefit eral financial assistance shall publish
to members of one sex pursuant to a in the FEDERAL REGISTER a notice of
State or local law or other requirement the programs covered by these Title IX
shall provide the same compensation, regulations. Each such Federal agency
service, or benefit to members of the shall periodically republish the notice
other sex. of covered programs to reflect changes
in covered programs. Copies of this no-
§ 113.540 Advertising.
tice also shall be made available upon
A recipient shall not in any adver- request to the Federal agency’s office
tising related to employment indicate that enforces Title IX.
preference, limitation, specification, or
discrimination based on sex unless sex § 113.605 Enforcement procedures.
is a bona fide occupational qualifica- The investigative, compliance, and
tion for the particular job in question. enforcement procedural provisions of
§ 113.545 Pre-employment inquiries. Title VI of the Civil Rights Act of 1964
(42 U.S.C. 2000d) (‘‘Title VI’’) are hereby
(a) Marital status. A recipient shall adopted and applied to these Title IX
not make pre-employment inquiry as regulations. These procedures may be
to the marital status of an applicant found at 13 CFR part 112.
for employment, including whether
such applicant is ‘‘Miss’’ or ‘‘Mrs.’’ [65 FR 52876, Aug. 30, 2000]
(b) Sex. A recipient may make pre-
employment inquiry as to the sex of an PART 114—ADMINISTRATIVE
applicant for employment, but only if CLAIMS UNDER THE FEDERAL
such inquiry is made equally of such
applicants of both sexes and if the re-
TORT CLAIMS ACT AND REP-
sults of such inquiry are not used in RESENTATION AND INDEM-
connection with discrimination prohib- NIFICATION OF SBA EMPLOYEES
ited by these Title IX regulations.
Subpart A—Administrative Tort Claims
§ 113.550 Sex as a bona fide occupa-
tional qualification. Sec.
A recipient may take action other- 114.101 What do these regulations cover?
wise prohibited by §§ 113.500 through 114.102 When, where and how do I present a
113.550 provided it is shown that sex is claim?
a bona fide occupational qualification 114.103 Who may file a claim?
for that action, such that consider- 114.104 What evidence and information may
ation of sex with regard to such action SBA require relating to my claim?
is essential to successful operation of 114.105 Who investigates and considers my
the employment function concerned. A claim?
recipient shall not take action pursu- 114.106 What if my claim exceeds $5,000?
ant to this section that is based upon 114.107 What if my claim exceeds $25,000 or
alleged comparative employment char- has other special features?
acteristics or stereotyped characteriza- 114.108 What if my claim is approved?
tions of one or the other sex, or upon 114.109 What if my claim is denied?
preference based on sex of the recipi-
ent, employees, students, or other per- Subpart B—Representation and
sons, but nothing contained in this sec- Indemnification of SBA Employees
tion shall prevent a recipient from con- 114.110 What is SBA’s policy with respect to
sidering an employee’s sex in relation indemnifying and providing legal rep-
to employment in a locker room or toi- resentation to SBA employees?
209
§ 114.100 13 CFR Ch. I (1–1–23 Edition)
114.111 Does the attorney-client privilege ered presented until SBA receives the
apply when SBA employees are rep- written information.
resented by the Government?
[64 FR 40283, July 26, 1999]
AUTHORITY: 15 U.S.C. 634 (b)(1), (b)(6); 28
U.S.C. 2672; 28 CFR 14.11. § 114.103 Who may file a claim?
SOURCE: 61 FR 2401, Jan. 26, 1996, unless (a) If a claim is based on factors list-
otherwise noted.
ed in the first column, then it may be
presented by persons listed in the sec-
Subpart A—Administrative Tort ond column.
Claims
Claim factors Claim presenters
§ 114.100 Definitions.
Injury to or loss of property ... The owner of the property,
As used throughout this part 114, date his or her duly authorized
of accrual means the date you know or agent, or legal representa-
tive.
reasonably should have known of your Personal injury ....................... The injured person, his or her
injury. The date of accrual will depend duly authorized agent, or
on the facts of each case. Site means legal representative.
Death ..................................... The executor, administrator,
the geographic location where the inci- or legal representative of
dent giving rise to your claim oc- the decedent’s estate, or
curred. any other person entitled to
assert the claim under ap-
§ 114.101 What do these regulations plicable state law.
cover? Loss wholly compensated by The parties individually, as
an insurer with rights as a their interests appear, or
This part applies only to monetary subrogee. jointly.
claims you assert under the Federal
Tort Claims Act, 28 U.S.C. 2671 et seq., (b) An agent or legal representative
for injury to or loss of property, per- may present your claim in your name,
sonal injury, or death arising from the but must sign the claim, state his or
negligent or wrongful act or omission her title or legal capacity, and include
of any SBA employee acting within the documentation of authority to present
scope of his or her employment. the claim on your behalf.
§ 114.102 When, where and how do I § 114.104 What evidence and informa-
present a claim? tion may SBA require relating to
my claim?
(a) When. You must present your
claim within 2 years of the date of ac- (a) For a claim based on injury to or
crual. loss of property:
(b) Where. You may present your (1) Proof you own the property.
claim at the SBA District Office near- (2) A specific statement of the dam-
est to the site of the action giving rise age you claim with respect to each
to the claim and within the same state item of property.
as the site. If your claim is based on (3) Itemized receipts for payment for
the acts or omissions of an employee of necessary repairs or itemized written
SBA’s Disaster Assistance Program, estimates of the cost of such repairs.
you may present your claim either to (4) A statement listing date of pur-
the appropriate SBA District Office or chase, purchase price and salvage
to the Disaster Assistance Office near- value, where repair is not economical.
est to the site of the action giving rise (5) Full information about potential
to the claim. insurance coverage and any insurance
(c) How. You must use an official claims or payments relating to your
form which can be obtained from the claim.
SBA office where you file the claim or (6) Any other information that may
give other written notice of your be relevant to the government’s alleged
claim, stating the specific amount of liability or the damages you claim.
your alleged damages and providing (b) For a claim based on personal in-
enough information to enable SBA to jury, including pain and suffering:
investigate your claim. You may (1) A written report from your health
present your claim in person or by care provider stating the nature and
mail, but your claim will not be consid- extent of your injury and treatment,
210
the degree of your temporary or perma- (5) A summary of the decedent’s gen-
nent disability, your prognosis, period eral physical and mental condition be-
of hospitalization, and any diminished fore death.
earning capacity. (6) Itemized bills or receipts for pay-
(2) A written report following a phys- ments for medical and burial expenses.
ical, dental or mental examination of (7) For pain and suffering damage
you by a physician employed by SBA claims, a physician’s detailed state-
or another Federal Agency. If you want ment specifying the injuries suffered,
a copy of this report, you must request the duration of pain and suffering, any
it in writing, furnish SBA with the drugs administered for pain, and the
written report of your health care pro- decedent’s physical condition in the in-
vider, if SBA requests it, and make or terval between injury and death.
agree to make available to SBA any (8) Any other information that may
other medical reports relevant to your be relevant to the government’s alleged
claim. liability or the damages claimed.
(3) Itemized bills for medical, dental
and hospital expenses you have in- § 114.105 Who investigates and con-
curred, or itemized receipts of payment siders my claim?
for these expenses. (a) SBA may investigate, or ask an-
(4) Your health care provider’s writ- other Federal agency to investigate,
ten statement of the expected expenses your claim. SBA also may request any
related to any necessary future treat- Federal agency to conduct a physical
ment. examination of you and provide a re-
(5) A statement from your employer port to SBA. SBA will reimburse the
showing actual time lost from employ- Federal agency for the costs of that ex-
ment, whether you are a full or part- amination when authorized or required
time employee, and the wages or salary by statute or regulation.
you actually lost. (b) In those cases in which SBA in-
(6) Documentary evidence showing vestigates your claim, and which arise
the amount of earnings you actually out of the acts or omissions of employ-
lost if you are self-employed. ees other than employees of the Dis-
(7) Information about the existence aster Assistance Program, the SBA
of insurance coverage and any insur- District Counsel in the office with ju-
ance claims or payments relating to risdiction over the site where the ac-
the claim in question. tion giving rise to the claim occurred
(8) Any other information that may will investigate and make rec-
be relevant to the government’s alleged ommendations or determination with
liability or the damages you claim. respect to your claim. In those cases in
which SBA investigates your claim,
(c) For a claim based on death:
and which arise out of acts or omis-
(1) An authenticated death certifi- sions of Disaster Assistance Program
cate or other competent evidence show- employees, the SBA Disaster Area
ing cause of death, date of death, and Counsel in the office with jurisdiction
age of the decedent. over the site where the action giving
(2) Evidence of decedent’s employ- rise to the claim occurred will inves-
ment or occupation at the time of tigate and make recommendations or a
death, including monthly or yearly sal- determination with respect to your
ary or earnings, and the duration of claim. The District Counsel, or Dis-
such employment or occupation. aster Area Counsel, where appropriate,
(3) Full names, addresses, birth dates, may negotiate with you, and is author-
kinship, and marital status of the dece- ized to use alternative dispute resolu-
dent’s survivors, including identification mechanisms, which are non-
tion of those survivors who were de- binding on SBA, when they may pro-
pendent upon the decedent for support mote the prompt, fair and efficient res-
at the time of his or her death. olution of your claim.
(4) Evidence of the support provided (c) If your claim is for $5,000 or less,
by the decedent to each dependent sur- the District Counsel or Disaster Area
vivor at the time of his or her death. Counsel who investigates your claim
211
§ 114.106 13 CFR Ch. I (1–1–23 Edition)
may deny the claim, or may rec- (d) SBA, acting through its General
ommend approval, compromise, or set- Counsel or designee, must make any
tlement of the claim to the Associate referrals to the Department of Justice
General Counsel for Litigation, who for approval or consultation by trans-
will in such a case take final action. mitting them in writing to the Assist-
[61 FR 2401, Jan. 26, 1996, as amended at 64 ant Attorney General, Civil Division.
FR 40283, July 26, 1999] (1) The referral must contain a short
and concise statement of the facts and
§ 114.106 What if my claim exceeds the reason for the request or referral,
$5,000? copies of the relevant portions of the
The District Counsel or Disaster claim file, and SBA’s views and rec-
Area Counsel, as appropriate, must re- ommendations.
view and investigate your claim and (2) SBA may make this referral at
forward it with a report and rec- any time after a claim is presented.
ommendation to the Associate General
Counsel for Litigation, who may ap- § 114.108 What if my claim is ap-
prove or deny an award, compromise, proved?
or settlement of claims in excess of SBA will notify you in writing if it
$5,000, but not exceeding $25,000.
approves your claim. The District
[64 FR 40283, July 26, 1999] Counsel or Disaster Area Counsel in-
vestigating your claim will forward to
§ 114.107 What if my claim exceeds you, your agent or legal representative
$25,000 or has other special fea- the forms necessary to indicate satis-
tures?
faction of your claim and your accept-
(a) The U.S. Attorney General or des- ance of the payment. Acceptance by
ignee must approve in writing any you, your agent or your legal rep-
award, compromise, or settlement of a resentative of any award, compromise
claim in excess of $25,000. For this pur- or settlement releases all your claims
pose, a principal claim and any deriva- against the United States under the
tive or subrogated claim are considered Federal Tort Claims Act. This means
a single claim.
that it binds you, your agent or your
(b) SBA must consult with the De-
legal representative, and any other per-
partment of Justice before adjusting,
son on whose behalf or for whose ben-
determining, compromising, or settling
efit the claim was presented. It also
a claim whenever the General Counsel
or designee determines: constitutes a complete release of your
claim against the United States and its
(1) The claim involves a new prece-
dent or a new point of law; or employees. If you are represented by
(2) The claim involves or may involve counsel, SBA will designate you and
a question of policy; or your counsel as joint payees and will
(3) The United States is or may be deliver the check to counsel. Payment
entitled to indemnity or contribution is contingent upon the waiver of your
from a third party and SBA is unable claim and is subject to the availability
to adjust the third party claim; or of appropriated funds.
(4) Approval of a claim, as a practical [64 FR 40283, July 26, 1999]
matter, will or may control the dis-
position of a related claim in which the § 114.109 What if my claim is denied?
amount to be paid may exceed $25,000.
SBA will notify you or your agent or
(c) SBA must consult with the De-
legal representative in writing by cer-
partment of Justice before adjusting,
determining, compromising, or settling tified or registered mail if it denies
a claim whenever SBA learns that the your claim. You have a right to file
United States, or any of its employees, suit in an appropriate U.S. District
agents, or cost-plus contractors, is in- Court not later than six months after
volved in litigation based on a claim the date the notification was mailed.
arising out of the same incident or
transaction.
212
Subpart B—Representation and SBA should provide representational

Indemnification of SBA Employees assistance for such an employee, those
attorneys undertake a full and tradi-
§ 114.110 What is SBA’s policy with re- tional attorney-client relationship
spect to indemnifying and pro- with the employee with respect to the
viding legal representation to SBA attorney-client privilege. If representa-
employees? tion is authorized, SBA attorneys who
(a) If an SBA employee engages in assist in the representation of an SBA
conduct, within the scope of his or her employee also undertake a full and tra-
employment, which gives rise to a ditional attorney-client relationship
claim, and the SBA Administrator or with the employee with respect to the
designee determines that any of the attorney-client privilege. Unless au-
following actions relating to the claim thorized by the employee, the attorney
are in SBA’s interest, SBA may: must not disclose to anyone other than
(1) Indemnify the employee after a attorneys also responsible for the em-
verdict, judgment, or other monetary ployee’s representation information
award is rendered personally against communicated to the attorney by the
the employee in any civil suit in state client-employee during the course of
or federal court or any arbitration pro- the attorney-client relationship. The
ceeding; attorney-client privilege will continue
(2) Settle or compromise the claim; with respect to that information
and/or whether or not representation is pro-
(3) Pay for, or request that the De- vided, and even if the employee’s rep-
partment of Justice provide, legal representation is denied or discontinued.
resentation to the employee once per-
sonally named in such a suit. PART 115—SURETY BOND
(b) If you are an SBA employee, you GUARANTEE
may ask SBA to settle or compromise
your claim, provide you with legal rep- Sec.
resentation, or provide you with in- 115.1 Overview of regulations.
demnification for a verdict, judgment 115.2 Savings clause.
or award entered against you in a suit.
To do so, you must submit a timely, Subpart A—Provisions for All Surety Bond
written request to the General Counsel, Guarantees
with appropriate documentation, in- 115.10 Definitions.
cluding copies of any pleadings, ver- 115.11 Applying to participate in the Surety
dict, judgment, award, or settlement Bond Guarantee Program.
proposal. The General Counsel will de- 115.12 General program policies and provi-
cide all requests for representation or sions.
115.13 Eligibility of Principal.
settlement, and will forward to the Ad- 115.14 Loss of Principal’s eligibility for fu-
ministrator, with the accompanying ture assistance and reinstatement of
documentation and a recommendation, Principal.
any requests for indemnification. 115.15 Underwriting and servicing stand-
(c) Any payments by SBA under this ards.
section will be contingent upon the 115.16 Determination of Surety’s Loss.
availability of appropriated funds. 115.17 Minimization of Surety’s Loss.
115.18 Refusal to issue further guarantees;
§ 114.111 Does the attorney-client suspension and termination of PSB sta-
privilege apply when SBA employ- tus.
ees are represented by the Govern- 115.19 Denial of liability.
ment? 115.20 Insolvency of Surety.
115.21 Audits and investigations.
When attorneys employed by SBA 115.22 Quarterly Contract Completion Re-
participate in any process in which port.
SBA seeks to determine whether SBA
should request the Department of Jus- Subpart B—Guarantees Subject to Prior
tice to provide representation to an Approval
SBA employee sued, subpoenaed, or 115.30 Submission of Surety’s guarantee ap-

charged in his or her individual capac- plication.
ity, or whether attorneys employed by 115.31 Guarantee percentage.
213
§ 115.1 13 CFR Ch. I (1–1–23 Edition)
115.32 Fees and Premiums. ance of a Contract for which there is a
115.33 Surety bonding line. guaranteed Final Bond.
115.34 Minimization of Surety’s Loss. Applicable Statutory Limit means the
115.35 Claims for reimbursement of Losses.
115.36 Indemnity settlements. maximum amount, set forth below, of
any Contract or Order for which SBA is
Subpart C—Preferred Surety Bond (PSB) authorized to guarantee, or commit to
Guarantees guarantee, a Bid Bond, Payment Bond,
Performance Bond, or Ancillary Bond:
115.60 Selection and admission of PSB Sure- (1) $6.5 million (as adjusted for infla-
ties.
115.61 [Reserved]
tion in accordance with 41 U.S.C. 1908);
115.62 Prohibition on participation in Prior (2) $10 million if a contracting officer
Approval program. of a Federal agency certifies, in accord-
115.63 Allotment of guarantee authority. ance with section 115.12(e)(3), that such
115.64 Timeliness requirement. guarantee is necessary; or
115.65 General PSB procedures. (3) if SBA is guaranteeing the bond in
115.66 Fees.
connection with a procurement related
115.67 Changes in Contract or bond amount.
115.68 Guarantee percentage. to a major disaster pursuant to section
115.69 Imminent Breach. 12079 of Pub. L. 110–246, see section
115.70 Claims for reimbursement of Losses. 115.12(e)(4).
115.71 Denial of liability. Bid Bond means a bond conditioned
AUTHORITY: 5 U.S.C. app 3; 15 U.S.C. 636i, upon the bidder on a Contract entering
687b, 687c, 694a, and 694b note. into the Contract, and furnishing the
SOURCE: 61 FR 3271, Jan. 31, 1996, unless
required Payment and Performance
otherwise noted. Bonds. The term does not include a for-
feiture bond unless it is issued for a ju-
EDITORIAL NOTE: Nomenclature changes to risdiction where statute or settled
part 115 appear at 72 FR 50038, Aug. 30, 2007.
decisional law requires forfeiture bonds
§ 115.1 Overview of regulations. for public works.
Contract means a written obligation
The regulations in this part cover the of the Principal, including an Order, re-
SBA’s Surety Bond Guarantee Pro- quiring the furnishing of services, sup-
grams under Part B of Title IV of the plies, labor, materials, machinery,
Small Business Investment Act of 1958, equipment or construction. A Contract:
as amended. Subpart A of this part (1) Must not prohibit a Surety from
contains regulations common to both performing the Contract upon default
the program requiring prior SBA ap- of the Principal;
proval of each bond guarantee (the (2) Does not include a permit, sub-
Prior Approval Program) and the pro- division contract, lease, land contract,
gram not requiring prior approval (the evidence of debt, financial guarantee
PSB Program). Subpart B of this part (e.g., a contract requiring any payment
contains the regulations applicable by the Principal to the Obligee, except
only to the Prior Approval Program. for contracts in connection with bid
Subpart C of this part contains the reg- and performance bonds for the sale of
ulations applicable only to the PSB timber and/or other forest products,
Program. such as biomass, that require the Prin-
§ 115.2 Savings clause. cipal to pay the Obligee), warranty of
performance or efficiency, warranty of
Transactions affected by this part 115 fidelity, or release of lien (other than
are governed by the regulations in ef- for claims under a guaranteed bond);
fect at the time they occur. and
(3) May include a maintenance agree-
Subpart A—Provisions for All ment under the following cir-
Surety Bond Guarantees cumstances:
(i) The maintenance agreement is an-
§ 115.10 Definitions. cillary to a Contract for which SBA is
Affiliate is defined in § 121.301(f) of guaranteeing a bond, is performed by
this chapter. the same Principal, is for a period of 2

Ancillary Bond means a bond inci- years or less, and only covers defective
dental and essential to the perform- workmanship or materials that are not
214
covered by a manufacturer’s warranty. (ii) In the case of a Final Bond, the

With SBA’s prior written approval, the Person who has contracted with a Prin-
agreement may cover a period longer cipal for the completion of the Con-
than 2 years, or cover something other tract and to whom the primary obliga-
than defective workmanship or mate- tion of the Surety runs in the event of
rials, if a longer period or something a breach by the Principal.
other than defective workmanship or (2) In either case, no Person (other
materials is customarily required in than a Federal department or agency)
the relevant trade or industry; or may be named co-Obligee or Obligee on
(ii) The maintenance agreement is a bond or on a rider to the bond unless
stand-alone and is entered into in con- that Person is bound by the Contract
nection with a Contract for which a to the Principal (or to the Surety, if
bond was not required and only covers the Surety has arranged completion of
defective workmanship or materials the Contract) to the same extent as the
that are not covered by a manufactur- original Obligee. In no event may the
er’s warranty. The agreement must addition of one or more co-Obligees in-
cover a period of 3 years or less that crease the aggregate liability of the
begins immediately after the Contract Surety under the bond.
is complete and must be executed prior Order means a task order for services
to the completion of the Contract. It or delivery order for supplies issued
must also be entered into with the under an indefinite delivery Contract
same Principal that completed the (definite quantity, indefinite quantity,
Contract. With SBA’s prior written ap- or requirements).
proval, the agreement may cover a pe-
OSG means SBA’s Office of Surety
riod longer than 3 years if a longer pe-
Guarantees.
riod is customarily required in the rel-
evant trade or industry. Payment Bond means a bond which is
D/SG means SBA’s Director, Office of conditioned upon the payment by the
Surety Guarantees. Principal of money to persons who
Execution means signing by a rep- have a right of action against such
resentative or agent of the Surety with bond, including those who have fur-
the authority and power to bind the nished labor, materials, equipment and
Surety. supplies for use in the performance of
Final Bond means a Performance the Contract. A Payment Bond can not
Bond and/or a Payment Bond. require the Surety to pay an amount
Head of Agency means in the case of which exceeds the claimant’s actual
a cabinet department, the Secretary; loss or damage.
and in the case of an independent com- Performance Bond means a bond con-
mission, board, or agency, the Chair or ditioned upon the completion by the
Administrator; or any person to whom Principal of a Contract in accordance
the Secretary, Chair, or Administrator with its terms.
has directly delegated the authority to Person means a natural person or a
request SBA to guarantee bonds on legal entity.
Contracts or Orders in excess of Premium means the amount charged
$5,000,000. by a Surety to issue bonds. The Pre-
Imminent Breach means a threat to mium is determined by applying an ap-
the successful completion of a bonded proved rate (see §§ 115.32(a) and
Contract which, unless remedied by the 115.60(a)(2)) to the bond or contract
Surety, makes a default under the bond amount. The Premium does not include
appear to be inevitable. surcharges for extra services, whether
Investment Act means the Small Busi- or not considered part of the ‘‘pre-
ness Investment Act of 1958 (15 U.S.C. mium’’ under local law.
661 et seq.), as amended. Principal means, in the case of a Bid
Loss has the meaning set forth in Bond, the Person bidding for the award
§ 115.16. of a Contract. In the case of Final
Obligee means: Bonds and Ancillary Bonds, Principal
(1)(i) In the case of a Bid Bond, the means the Person primarily liable to
Person requesting bids for the perform- complete the Contract, or to make
ance of a Contract; or Contract-related payments to other
215
§ 115.11 13 CFR Ch. I (1–1–23 Edition)
persons, and is the Person whose per- Obligee if the Principal breaches the
formance or payment is bonded by the conditions of the bond;
Surety. A Principal may be a prime (ii) Under the terms of a Performance
contractor or a subcontractor. Bond, agrees to pay a sum of money or
Prior Approval Agreement means the to incur the cost of fulfilling the terms
Surety Bond Guarantee Agreement of a Contract if the Principal breaches
(SBA Form 990) or Quick Bond Guar- the conditions of the Contract; and
antee Application and Agreement (SBA (iii) Under the terms of a Payment or
Form 990A) entered into between a an Ancillary Bond, agrees to make pay-
Prior Approval Surety and SBA under ment to all who have a right of action
which SBA agrees to guarantee a spe- against such bond, including those who
cific bond. have furnished labor, materials, equip-
Prior Approval Surety means a Surety ment and supplies in the performance
which must obtain SBA’s prior ap- of the Contract.
proval on each guarantee and which (2) The term Surety includes an
has entered into one or more Prior Ap- agent, independent agent, underwriter,
proval Agreements with SBA. or any other company or individual
PSB Agreement means the Preferred empowered to act on behalf of the Sur-
Surety Bond Guarantee Agreement en- ety.
tered into between a PSB Surety and Veteran has the meaning given the
SBA. term in Section 101(2) of Title 38,
PSB Surety means a Surety that has United States Code.
been admitted to the Preferred Surety [61 FR 3271, Jan. 31, 1996, as amended at 61
Bond (PSB) Program. FR 7985, Mar. 1, 1996; 72 FR 34599, June 25,
Service-Disabled Veteran means a vet- 2007; 72 FR 50038, Aug. 30, 2007; 74 FR 36109,
eran with a disability that is service- July 22, 2009; 76 FR 2572, Jan. 14, 2011; 76 FR
connected, as defined in Section 101(16) 9963, Feb. 23, 2011; 77 FR 41665, July 16, 2012;
of Title 38, United States Code. 79 FR 2086, Jan. 13, 2014; 81 FR 41428, June 27,
2016; 87 FR 48083, Aug. 8, 2022]
Small Business Owned and Controlled
by Service-Disabled Veterans means: § 115.11 Applying to participate in the
(1) A Small Concern of which not less Surety Bond Guarantee Program.
than 51 percent is owned by one or
Sureties interested in participating
more Service-Disabled Veterans; or a
as Prior Approval Sureties or PSB
publicly-owned Small concern of which
Sureties should apply in writing to the
not less than 51 percent of the stock is
D/SG at 409 3rd Street, SW., Wash-
owned by one or more Service-Disabled
ington, DC 20416. OSG will determine
Veterans; and
the eligibility of the applicant consid-
(2) The management and daily busi- ering its standards and procedures for
ness operations of which are controlled underwriting, administration, claims
by one or more Service-Disabled Vet- and recovery. Each applicant must be a
erans, or in the case of a Service-Dis- corporation listed by the U.S. Treasury
abled Veteran with permanent and se- as eligible to issue bonds in connection
vere disability, the spouse or perma- with Federal procurement contracts.
nent caregiver of such Veteran. At a minimum, each applicant must
Small Business Owned and Controlled have salaried staff that is employed di-
by Veterans means: rectly (not an agent or other individual
(1) A Small Concern of which not less or entity under contract with the ap-
than 51 percent is owned by one or plicant) to oversee its underwriting
more Veterans; or a publicly-owned function and perform all claims and re-
Small Concern of which not less than covery functions other than specialized
51 percent of the stock is owned by one services the costs of which may be re-
or more Veterans; and imbursable under 13 CFR 115.16(e)(1).
(2) The management and daily busi- Final settlement authority for claims
ness operations of which are controlled and recovery must be vested only in
by one or more Veterans. the applicant’s salaried claims staff.
Surety means a company which: The applicant must continue to comply

(1)(i) Under the terms of a Bid Bond, with SBA’s standards and procedures
agrees to pay a sum of money to the for underwriting, administration,
216
claims, recovery, and staffing require- antee Program (Prior Approval or PSB)
ments while participating in SBA’s to a comparable degree. Any guarantee
Surety Bond Guarantee Programs. agreement under this part is made ex-
[61 FR 3271, Jan. 31, 1996, as amended at 81 clusively for the benefit of SBA and the
FR 23565, Apr. 22, 2016] Surety, and does not confer any rights
(such as a right of action against SBA)
§ 115.12 General program policies and or benefits on any other party.
provisions. (e) Amount of Contract—(1) Determina-
(a) Description of Surety Bond Guar- tion of Amount of Contract. For a fixed
antee Programs. SBA guarantees Sure- price Contract, the amount of the Con-
ties participating in the Surety Bond tract is the price excluding any op-
Guarantee Programs against a portion tions. For a requirements Contract, the
of their Losses incurred and paid as a amount of the Contract is the price of
result of a Principal’s breach of the the total estimated quantity to be or-
terms of a Bid Bond, Final Bond or An- dered under the Contract. For an in-
cillary Bond, on any eligible Contract. definite quantity Contract, the amount
In the Prior Approval Program, the of the Contract is the price of the spec-
Surety must obtain SBA’s approval be- ified minimum quantity to be ordered
fore a guaranteed bond can be issued. under the Contract and, for each Order
In the PSB Program, selected Sureties issued under such Contract, the price
may issue, monitor, and service SBA of each such Order. The amount of the
guaranteed bonds without further SBA Contract or Order to be bonded must
approval. not exceed the Applicable Statutory
(b) Eligibility of bonds. Bid Bonds and Limit as of the date:
Final Bonds are eligible for an SBA (i) SBA approves a Prior Approval
guarantee if they are executed in con- Surety’s request for a Bid Bond guar-
nection with an eligible Contract, as antee;
defined in § 115.10, Definitions. Com-
(ii) A Preferred Surety Executes a
mercial and Fidelity bonds are not eli-
Bid Bond; or
gible for SBA guarantees. Ancillary
Bonds may also be eligible for SBA’s (iii) The date Final Bonds (and any
guarantee. A performance bond must Ancillary Bonds) unrelated to an SBA-
not prohibit a Surety from performing guaranteed Bid Bond are Executed by a
the Contract upon default of the Prin- Preferred Surety or by a Prior Ap-
cipal. proval Surety following SBA’s approval
(c) Expiration of Bid Bond Guarantee. of its request for a guarantee of Final
A Bid Bond guarantee expires 120 days Bonds.
after Execution of the Bid Bond, unless (2) Aggregation of Contract and Order
the Surety notifies SBA in writing be- amounts. (i) The amounts of two or
fore the 120th day that a later expira- more formally separate Contracts for a
tion date is required. The notification single construction project are aggre-
must include the new expiration date. gated to determine the Contract
(d) Guarantee agreement. The terms amount unless the Contracts are to be
and conditions of SBA’s bond guar- performed in phases and the prior bond
antee agreements, including the guar- is released before the beginning of each
antee percentage, may vary from Sur- succeeding phase. A bond may be con-
ety to Surety, depending on past expe- sidered released even if the warranty
rience with SBA. If the guarantee per- period it is covering has not yet ex-
centage is not fixed by the Investment pired. For purposes of this paragraph, a
Act, it is determined by OSG after con- ‘‘single construction project’’ means
sidering, among other things, the rat- one represented by two or more Con-
ing or ranking assigned to the Surety tracts of one Principal or its Affiliates
by recognized authority, and the Sure- with one Obligee or its Affiliates for
ty’s Loss rate, average Contract performance at the same location, re-
amount, average bond penalty per gardless of job title or nature of the
guaranteed bond, and ratio of Bid work to be performed.
Bonds to Final Bonds, all in compari- (ii) The amounts of two or more Con-
son with other Sureties participating tracts or Orders for supplies and serv-
in the same SBA Surety Bond Guar- ices awarded to the same Principal or
217
§ 115.13 13 CFR Ch. I (1–1–23 Edition)
its Affiliates are aggregated to deter- directly assist in the recovery efforts
mine the Contract or Order amount if in the major disaster area; or
SBA determines, after discussion with (B) For products or services procured
the contracting official responsible for under any other Contract or Order, the
the award of the contract, that award products will be manufactured or the
of a single Contract or Order could rea- services will be performed in the major
sonably have satisfied the supply or disaster area identified in the FEMA
service requirement at the time of Web site at http://www.fema.gov;
issuance. (ii) At the request of the Head of the
(3) Federal Contracts or Orders in ex- Agency involved in reconstruction ef-
cess of $6,500,000 (as adjusted for inflation forts in response to a major disaster,
in accordance with section 1908 of title 41, SBA may guarantee bonds on Federal
United States Code). SBA is authorized Contracts or Orders in excess of
to guarantee bonds on Federal Con- $5,000,000, but not more than $10,000,000;
tracts or Orders greater than $6,500,000 (iii) A guarantee may be issued under
(as adjusted for inflation in accordance this paragraph (e)(4) for any Contract
with 41 U.S.C. 1908), but not exceeding or Order for which an offer is sub-
$10,000,000, upon a signed certification mitted or an award is made within 12
of a Federal contracting officer that months from the date an area is des-
the SBA guarantee is necessary. The ignated a major disaster area in the
certification must be either express FEDERAL REGISTER. SBA may, at its
mailed to SBA, Office of Surety Guar- discretion, extend this time period for
antees, 409 Third Street SW, Wash- any particular disaster, and will pub-
ington, DC 20416 or sent by email to lish a notice of the extension in the
suretybonds@sba.gov, and include the FEDERAL REGISTER.
following additional information: (f) Transfers or sales by Surety. Sure-
(i) Name, address and telephone num- ties must not sell or otherwise transfer
ber of the small business; their files or accounts, whether before
(ii) Offer or Contract number and or after a default by the Principal has
brief description of the contract; and occurred, without the prior written ap-
(iii) Estimated Contract value and proval of SBA. A violation of this pro-
date of anticipated award determina- vision is grounds for termination from
tion. participation in the program. This pro-
(4) Alternative authority to guarantee vision does not apply to the sale of an
bonds for Contracts and Orders related to entire business division, subsidiary or
a major disaster area. Subject to the operation of the Surety.
availability of funds appropriated in [61 FR 3271, Jan. 31, 1996, as amended at 66
advance specifically for the purpose of FR 30804, June 8, 2001; 74 FR 36109, July 22,
guaranteeing bonds for any Contract or 2009; 76 FR 2572, Jan. 14, 2011; 79 FR 2086, Jan.
Order related to a major disaster, SBA 13, 2014; 87 FR 48083, Aug. 8, 2022]
may, as an alternative to the authority
otherwise set forth in this Part, guar- § 115.13 Eligibility of Principal.
antee bonds on any Contract or Order (a) General eligibility. In order to be
under the following terms and condi- eligible for a bond guaranteed by SBA,
tions: the Principal must comply with the
(i) The Contract or Order does not ex- following requirements:
ceed $5,000,000 at the time of bond exe- (1) Size. Together with its Affiliates,
cution, and: it must qualify as a small business
(A) For products or services procured under part 121 of this title.
under a Federal Contract or Order, the (2) Character. It must possess good
products will be manufactured or the character and reputation. A Principal
services will be performed in the major meets this standard if each owner of
disaster area identified in the Federal 20% or more of its equity, and each of
Emergency Management Agency its officers, directors, or general part-
(FEMA) Web site at http:// ners, possesses good character and rep-
www.fema.gov, or the products will be utation. A Person’s good character and
manufactured or the services will be reputation is presumed absent when:

performed outside the major disaster (i) The Person is under indictment
area and the products or services will for, or has been convicted of a felony,
218
or a final civil judgment has been en- tion also applies to ownership interests
tered stating that such Person has in any of the Principal’s Affiliates.
committed a breach of trust or has vio- [61 FR 3271, Jan. 31, 1996, as amended at 79
lated a law or regulation protecting FR 2087, Jan. 13, 2014; 81 FR 23565, Apr. 22,
the integrity of business transactions 2016]
or business relationships; or
(ii) A regulatory authority has re- § 115.14 Loss of Principal’s eligibility
voked, canceled, or suspended a license for future assistance and reinstate-
of the Person which is necessary to ment of Principal.
perform the Contract; or (a) Ineligibility. A Principal and its
(iii) The Person has obtained a bond Affiliates lose eligibility for further
guarantee by fraud or material mis- SBA bond guarantees if any of the fol-
representation (as described in lowing occurs under an SBA-guaran-
§ 115.19(b)), or has failed to keep the teed bond issued on behalf of the Prin-
Surety informed of unbonded contracts cipal:
or of a contract bonded by another Sur- (1) Legal action under the guaranteed
ety, as required by a bonding line com- bond has been initiated.
mitment under § 115.33. (2) The Obligee has declared the Prin-
(3) Need for bond. It must certify that cipal to be in default under the Con-
a bond is expressly required by the bid tract.
solicitation or the original Contract in (3) The Surety has established a
order to bid on the Contract or to serve claim reserve for the bond of at least
as a prime contractor or subcontractor. $10,000.
(4) The Principal, or any of its Affili-
(4) Availability of bond. It must certify
ates, has defaulted on an SBA-guaran-
that a bond is not obtainable on rea-
teed bond resulting in a Loss that has
sonable terms and conditions without not been fully reimbursed to SBA, or
SBA’s guarantee. SBA has not been fully reimbursed for
(5) Partial subcontract. It must certify any Imminent Breach payments.
the percentage of work under the Con- (5) The guarantee fee has not been
tract to be subcontracted. SBA will not paid by the Principal.
guarantee bonds for Principals who are (6) The Principal committed fraud or
primarily brokers. In addition, the material misrepresentation in obtain-
Principal must retain full responsi- ing the guaranteed bond.
bility for the oversight and manage- (b) Reinstatement of Principal’s eligi-
ment of the Contract, including any bility. At any time after a Principal be-
work performed by any subcontractor, comes ineligible for further bond guar-
and may not subcontract the full scope antees under paragraph (a) of this sec-
of the statement of work. tion:
(6) Debarment. It must certify that (1) A Prior Approval Surety may rec-
the Principal is not presently debarred, ommend that such Principal’s eligi-
suspended, proposed for debarment, de- bility be reinstated, and OSG may
clared ineligible, or voluntarily ex- agree to reinstate the Principal if:
cluded from transactions with any Fed- (i) The Surety has settled its claim
eral department or agency, under gov- with the Principal, or any of its Affili-
ernmentwide debarment and suspen- ates, for an amount that results in no
sion rules. Loss to SBA or in no amount owed for
(7) No loss of eligibility. Neither the Imminent Breach payments, or OSG
Principal nor any of its Affiliates is in- finds good cause for reinstating the
eligible for an SBA-guaranteed bond Principal notwithstanding the Loss to
under § 115.14. SBA or amount owed for Imminent
(b) Conflict of interest. A Principal is Breach payments; or
not eligible for an SBA-guaranteed (ii) OSG and the Surety determine
bond issued by a particular Surety if that further bond guarantees are ap-
that Surety, or an Affiliate of that propriate after the Principal was
Surety, or a close relative or member deemed ineligible for further SBA bond
of the household of that Surety or Af- guarantees under paragraph (a)(1), (2),
filiate owns, directly or indirectly, 10% (3), (5) or (6) of this section.
or more of the Principal. This prohibi- (2) A PSB Surety may:
219
§ 115.15 13 CFR Ch. I (1–1–23 Edition)
(i) Recommend that such Principal’s job status reports from Obligees of
eligibility be reinstated, and OSG may Final Bonds guaranteed by SBA. Docu-
agree to reinstate the Principal, if the mentation of the job status requests
Surety has settled its claim with the must be maintained by the Surety.
Principal, or any of its Affiliates, for
an amount that results in no Loss to § 115.16 Determination of Surety’s
SBA or in no amount owed for Immi- Loss.
nent Breach payments, or OSG finds Loss is determined as follows:
good cause for reinstating the Prin- (a) Loss under a Bid Bond is the lesser
cipal notwithstanding the Loss to SBA of the penal sum or the amount which
or amount owed for Imminent Breach is the difference between the bonded
payments; or bid and the next higher responsive bid.
(ii) Reinstate a Principal’s eligibility In either case, the Loss is reduced by
upon the Surety’s determination that any amounts the Surety recovers by
further bond guarantees are appro- reason of the Principal’s defenses
priate after the Principal was deemed against the Obligee’s demand for per-
ineligible for further SBA bond guaran- formance by the Principal and any
tees under paragraph (a)(1), (2), (3), (5) sums the Surety recovers from
or (6) of this section. indemnitors and other salvage.
(c) Underwriting after reinstatement. A (b) Loss under a Payment Bond is, at
guarantee application submitted after the Surety’s option, the sum necessary
reinstatement of the Principal’s eligi- to pay all just and timely claims
bility is subject to a very stringent un- against the Principal for the value of
derwriting review. labor, materials, equipment and sup-
[61 FR 3271, Jan. 31, 1996, as amended at 81 plies furnished for use in the perform-
FR 23565, Apr. 22, 2016; 87 FR 48084, Aug. 8, ance of the bonded Contract and other
2022] covered debts, or the penal sum of the
Payment Bond. In either case, the Loss
§ 115.15 Underwriting and servicing includes interest (if any), but Loss is
standards. reduced by any amounts recovered
(a) Underwriting. (1) Sureties must (through offset or otherwise) by reason
evaluate the credit, capacity, and char- of the Principal’s claims against labor-
acter of a Principal using standards ers, materialmen, subcontractors, sup-
generally accepted by the surety indus- pliers, or other rightful claimants, and
try and in accordance with SBA’s by any amounts recovered from
Standard Operating Procedures on un- indemnitors and other salvage.
derwriting and the Surety’s principles (c) Loss under a Performance Bond is,
and practices on unguaranteed bonds. at the Surety’s option, the sum nec-
The Principal must satisfy the eligi- essary to meet the cost of fulfilling the
bility requirements set forth in § 115.13. terms of a bonded Contract or the
The Surety must reasonably expect penal sum of the bond. In either case,
that the Principal will successfully the Loss includes interest (if any), but
perform the Contract to be bonded. Loss is reduced by any amounts recov-
(2) The terms and conditions of the ered (through offset or otherwise) by
bond and the Contract must be reason- reason of the Principal’s defenses or
able in light of the risks involved and causes of action against the Obligee,
the extent of the Surety’s participa- and by any amounts recovered from
tion. The bond must satisfy the eligi- indemnitors and other salvage.
bility requirements set forth in (d) Loss under an Ancillary Bond is the
§ 115.12(b). The Surety must be satisfied amount covered by such bond which is
as to the reasonableness of cost and the attributable to the Contract for which
feasibility of successful completion of guaranteed Final Bonds were Executed.
the Contract. (e) Loss includes the following ex-
(b) Servicing. The Surety must ensure penses if they are itemized, docu-
that the Principal remains viable and mented and attributable solely to the
eligible for SBA’s Surety Bond Guar- Loss under the guaranteed bond:
antee Program, must monitor the Prin- (1) Amounts actually paid by the
cipal’s progress on bonded Contracts Surety for specialized services that are
guaranteed by SBA, and must request provided under contract by an outside
220
consultant, which is not an Affiliate of Contract or Order, as well as any costs

the Surety, provided that such services that arise as a result of any agreement
are beyond the capability of the Sure- by the Principal in the Contract or
ty’s salaried claims staff, and amounts Order to indemnify the Obligee or any
actually paid by the Surety for travel other Persons.
expenses of the Surety’s claims staff. [61 FR 3271, Jan. 31, 1996, as amended at 76
The cost of the consultant’s services FR 2572, Jan. 14, 2011; 81 FR 23566, Apr. 22,
and the travel expenses of the Surety’s 2016]
claims staff must be reasonable and
necessary and must specifically con- § 115.17 Minimization of Surety’s Loss.
cern the investigation, adjustment, ne- (a) Indemnity agreements and collat-
gotiation, compromise, settlement of, eral—(1) Requirements. The Surety must
or resistance to a claim for Loss result- take all reasonable action to minimize
ing from the breach of the terms of the risk of Loss including, but not limited
bonded Contract. The cost allocation to, obtaining from each Principal a
method must be reasonable and must written indemnity agreement which
comply with generally accepted ac- covers actual Losses under the Con-
counting principles; and tract and Imminent Breach payments
(2) Amounts actually paid by the under § 115.34(a) or § 115.69. The indem-
Surety for court costs and reasonable nity agreement must be secured by
attorney’s fees incurred to mitigate such collateral as the Surety or SBA
any Loss under paragraphs (a) through finds appropriate. Indemnity agree-
(e)(1) of this section including suits to ments from other Persons, secured or
obtain sums due from Obligees, unsecured, may also be required by the
indemnitors, Principals and others. Surety or SBA.
(f) Loss does not include the following (2) Prohibitions. No indemnity agree-
expenses: ment may be obtained from the Surety,
(1) Any unallocated expenses, all di- its agent or any other representative of
rect and indirect costs incurred by the the Surety. The Surety must not sepa-
Surety’s salaried claims staff (except rately collateralize the portion of its
for reasonable and necessary travel ex- bond which is not guaranteed by SBA.
penses of such staff), or any clear (b) Salvage and recovery—(1) General.
mark-up on expenses or any overhead The Surety must pursue all possible
of the Surety, its attorney, or any sources of salvage and recovery. Sal-
other consultant hired by the Surety vage and recovery includes all pay-
or the attorney; ments made in settlement of the Sure-
(2) Expenses paid for any suits, cross- ty’s claim, even though the Surety has
claims, or counterclaims filed against incurred other losses as a result of that
the United States of America or any of Principal which are not reimbursable
its agencies, officers, or employees un- by SBA.
less the Surety has received, prior to (2) SBA’s share. SBA is entitled to its
filing such suit or claim, written con- guaranteed percentage of all salvage
currence from SBA that the suit may and recovery from a defaulted Prin-
be filed; cipal, its guarantors and indemnitors,
(3) Attorney’s fees and court costs in- and any other party, received by the
curred by the Surety in a suit by or Surety in connection with the guaran-
against SBA or its Administrator; teed bond or any other bond issued by
(4) Fees, costs, or other payments, in- the Surety on behalf of the Principal
cluding tort damages, arising from a unless such recovery is unquestionably
successful tort suit or claim by a Prin- identifiable as related solely to the
cipal or any other Person against the non-guaranteed bond. The Surety must
Surety; and reimburse or credit SBA (in the same
(5) Any costs that arise from the proportion as SBA’s share of Loss)
Principal’s failure to secure and main- within 45 days of receipt of any recov-
tain insurance coverage required by ery by the Surety.
the Contract or Order, or any costs (3) Multiple Sureties. In any dispute
that result from any claims or judg- between two or more Sureties con-
ments that exceed the amount of any cerning recovery under SBA guaran-
insurance coverage required by the teed bonds, the dispute must first be
221
§ 115.18 13 CFR Ch. I (1–1–23 Edition)
brought to the attention of OSG for an to the Surety for bonds executed there-
attempt at mediation and settlement. after.
(b) Lack of business integrity. A Sure-
FR 2087, Jan. 13, 2014]
ty’s participation in the Surety Bond
Guarantee Programs may be denied,
§ 115.18 Refusal to issue further guar- suspended, or terminated upon the oc-
antees; suspension and termination currence of any event in paragraphs (b)
of PSB status. (1) through (5) of this section involving
any of the following Persons: The Sur-
(a) Improper surety bond guarantee
ety or any of its officers, directors,
practices—(1) Imprudent practices. SBA
partners, or other individuals holding
may refuse to issue further guarantees at least 20% of the Surety’s voting se-
to a Prior Approval Surety or may sus- curities, and any agents, underwriters,
pend the preferred status of a PSB Sur- or any individual empowered to act on
ety, by written notice stating all rea- behalf of any of the preceding Persons.
sons for such decision and the effective (1) If a State or other authority has
date. Reasons for such a decision in- revoked, canceled, or suspended the li-
clude, but are not limited to, a deter- cense required of such Person to en-
mination that the Surety (in its under- gage in the surety business, the right
writing, its efforts to minimize Loss, of such Person to participate in the
its claims or recovery practices, or its SBA Surety Bond Guarantee Program
documentation related to SBA guaran- may be denied, terminated, or sus-
teed bonds) has failed to adhere to pru- pended, as applicable, in that jurisdic-
dent standards or practices, including tion or in other jurisdictions. Ineligi-
any standards or practices required by bility or suspension from the Surety
SBA, as compared to those of other Bond Guarantee Programs is for at
Sureties participating in the same SBA least the duration of the license sus-
Surety Bond Guarantee Program to a pension.
comparable degree. (2) If such Person has been indicted
(2) Regulatory violations, fraud. Acts or otherwise formally charged with a
of wrongdoing such as fraud, material misdemeanor or felony bearing on such
misrepresentation, breach of the Prior Person’s fitness to participate in the
Approval or PSB Agreement, the Sure- Surety Bond Guarantee Programs, the
ty’s failure to continue to comply with participation of such Person may be
the requirements set forth in § 115.11, or suspended pending disposition of the
regulatory violations (as defined in charge. Upon conviction, participation
§ 115.19(d) and (h)) also constitute suffi- may be denied or terminated.
cient grounds for refusal to issue fur- (3) If a final civil judgment is entered
ther guarantees, or in the case of a holding that such Person has com-
PSB Surety, termination of preferred mitted a breach of trust or violation of
status. a law or regulation protecting the in-
(3) Audit; records. The failure of a tegrity of business transactions or re-
Surety to consent to SBA’s audit or to lationships, participation may be de-
maintain and produce records con- nied or terminated.
stitutes grounds for SBA to refuse to (4) If such Person has made a mate-
issue further guarantees for a Prior Ap- rial misrepresentation or willfully
proval Surety, to suspend a PSB Sur- false statement in the presentation of
ety from participation, and to refuse to oral or written information to SBA in
honor claims submitted by a Prior Ap- connection with an application for a
proval or PSB Surety until the Surety surety bond guarantee or the presen-
consents to the audit. tation of a claim, or committed a ma-
(4) Excessive Losses. If a Surety expe- terial breach of the Prior Approval or
riences excessive Losses on SBA guar- PSB Agreement or a material violation
anteed bonds relative to those of other of the regulations (all as described in
Sureties participating in the same SBA § 115.19), participation may be denied or
Surety Bond Guarantee Program to a terminated.
comparable degree, SBA may also re- (5) If such Person is debarred, sus-
quire the renegotiation of the guar- pended, voluntarily excluded from, or
antee percentage and/or SBA’s charge declared ineligible for participation in
222
Federal programs, participation may representation includes (but is not lim-

be denied or terminated. ited to) both the making of an untrue
(c) Notification requirement. The Prior statement of material fact and the
Approval or PSB Surety must prompt- omission of a statement of material
ly notify SBA of the occurrence of any fact necessary to make a statement
event in paragraphs (b) (1) through (5) not misleading in light of the cir-
of this section, or if any of the Persons cumstances in which it was made. Ma-
described in paragraph (b) of this sec- terial misrepresentation also includes
tion does not, or ceases to, qualify as a the adoption by the Surety of a mate-
Surety. SBA may require submission of rial misstatement made by others
a Statement of Personal History (SBA which the Surety knew or under gen-
Form 912) from any of these Persons. erally accepted underwriting standards
(d) SBA proceedings. Decisions to sus- should have known to be false or mis-
pend, terminate, deny participation in, leading. The Surety’s failure to dis-
or deny reinstatement in the Surety close its ownership (or the ownership
Bond Guarantee program are made by by any owner of at least 20% of the
the D/SG. A Surety may file a petition Surety’s equity) of an interest in a
for review of suspensions and termi- Principal or an Obligee is considered
nations with the SBA Office of Hear- the omission of a statement of mate-
ings and Appeals (OHA) under part 134 rial fact.
of this chapter. SBA’s Administrator (c) Material breach. The Surety has
may, pending a decision pursuant to committed a material breach of one or
part 134 of this chapter, suspend the more terms or conditions of its Prior
participation of any Surety for any of Approval or PSB Agreement. A mate-
the causes listed in paragraphs (b) (1) rial breach is considered to have oc-
through (5) of this section. curred if:
(e) Effect on guarantee. A guarantee (1) Such breach (or such breaches in
issued by SBA before a suspension or the aggregate) causes an increase in
termination under this section remains the Contract amount or in the bond
in effect, subject to SBA’s right to amount of at least 25% or $500,000 of
deny liability under the guarantee. the original contract or bond amount,
[61 FR 3271, Jan. 31, 1996, as amended at 81 whichever is less; or
FR 23566, Apr. 22, 2016] (2) One of the conditions under Part
B of Title IV of the Investment Act is
§ 115.19 Denial of liability. not met.
In addition to equitable and legal de- (d) Substantial regulatory violation.
fenses and remedies under contract The Surety has committed a ‘‘substan-
law, the Act, and the regulations in tial violation’’ of SBA regulations. For
this Part, SBA is relieved of liability in purposes of this paragraph, a ‘‘sub-
whole or in part within its discretion if stantial violation’’ is a violation which
any of the circumstances in paragraphs causes an increase in the bond amount
(a) through (h) of this section exist, ex- of at least 25% or $500,000 of the origi-
cept that SBA shall not deny liability nal contract or bond amount, which-
on Prior Approval bonds based solely ever is less in the aggregate, or is con-
upon material information that was trary to the purposes of the Surety
provided to SBA as part of the Surety’s Bond Guarantee Programs.
guarantee application. (e) Alteration. Without obtaining
(a) Excess Contract or bond amount. prior written approval from SBA
The total Contract or Order amount at (which may be conditioned upon pay-
the time of Execution of the bond ex- ment of additional fees), the Surety
ceeds the Applicable Statutory Limit agrees to or acquiesces in any material
(see § 115.10) or the bond amount at any alteration in the terms, conditions, or
time exceeds the total Contract or provisions of the bond, including but
Order amount. not limited to the following acts:
(b) Misrepresentation or fraud. The (1) Naming as an Obligee or co-Obli-
Surety obtained the Prior Approval or gee any Person that does not qualify as
PSB Agreement, or applied for reim- an Obligee under § 115.10; or

bursement for losses, by fraud or mate- (2) In the case of a Prior Approval
rial misrepresentation. Material mis- Surety, acquiescing in any alteration
223
§ 115.20 13 CFR Ch. I (1–1–23 Edition)
to the bond which would increase the riod required by § 115.32(c). SBA may
bond amount by at least 25% or $500,000 reinstate the guarantee upon showing
of the original contract or bond that the contract is not in default and
amount, whichever is less. that a valid reason exists why a timely
(f) Timeliness. (1) Either: remittance or payment was not made.
(i) The bond was Executed prior to (h) Other regulatory violations. The oc-
the date of SBA’s guarantee; or currence of any of the following:
(ii) The bond was Executed (or ap- (1) The Principal on the bonded Con-
proved, if the Surety is legally bound tract is not a small business;
by such approval) after the work under (2) The bond was not required under
the Contract had begun, unless SBA the bid solicitation or the original Con-
executes a ‘‘Surety Bond Guarantee tract;
Agreement Addendum’’ (SBA Form 991) (3) The bond was not eligible for
after receiving all of the following guarantee by SBA because the bonded
from the Surety: contract was not a Contract as defined
(A) Satisfactory evidence, including in § 115.10;
a certified copy of the Contract (or a (4) The loss occurred under a bond
sworn affidavit from the Principal), that was not guaranteed by SBA;
showing that the bond requirement was (5) The loss incurred by the Surety
contained in the original Contract, or was not a Loss as determined under
other documentation satisfactory to § 115.16; or
SBA, showing why a bond was not pre- (6) The Surety’s loss under a Per-
viously obtained and is now being re- formance Bond did not result from the
quired; Principal’s breach or Imminent Breach
(B) Certification by the Principal of the Contract.
that all taxes and labor costs are cur- [61 FR 3271, Jan. 31, 1996, as amended at 66
rent, and listing all suppliers and sub- FR 30804, June 8, 2001; 72 FR 34599, July 25,
contractors, indicating that they are 2007; 74 FR 36110, July 22, 2009; 79 FR 2087,
all paid to date, and attaching a waiver Jan. 13, 2014; 82 FR 39501, Aug. 21, 2017; 87 FR
of lien from each; or an explanation 48084, Aug. 8, 2022]
satisfactory to SBA why such docu-
mentation cannot be produced; and § 115.20 Insolvency of Surety.
(C) Certification by the Obligee that (a) Successor in interest. If a Surety
all payments due under the Contract to becomes insolvent, all rights or bene-
date have been made and that the job fits conferred on the Surety under a
has been satisfactorily completed to valid and binding Prior Approval or
date. PSB Agreement will accrue only to the
(2)(i) For purposes of paragraph trustee or receiver of the Surety. SBA
(f)(1)(ii) of this section, work under a will not be liable to the trustee or re-
Contract is considered to have begun ceiver of the insolvent Surety except
when a Principal takes any action refor the guaranteed portion of any Loss
lated to the contract or bond that incurred and actually paid by such Sur-
would have exposed its Surety to liabil- ety or its trustee or receiver under the
ity under applicable law had a bond guaranteed bonds.
been Executed (or approved, if the Sur- (b) Filing requirement. The trustee or
ety is legally bound by such approval) receiver must submit to SBA quarterly
at the time. status reports accounting for all funds
(ii) For purposes of this paragraph (f), received and all settlements being con-
the Surety must maintain a contem- sidered.
poraneous record of the Execution and
approval of each bond. § 115.21 Audits and investigations.
(g) Delinquent fees. The Surety has (a) Audits—(1) Scope of audit. SBA
not remitted to SBA the Principal’s may audit in the office of a Prior Ap-
payment for the full amount of the proval or PSB Surety, the Surety’s at-
guarantee fee within the time period torneys or consultants, or the Prin-
required under § 115.30(d) for Prior Ap- cipal or its subcontractors, all docu-
proval Sureties or § 115.66 for PSB Sure- ments, files, books, records, tapes,
ties, or has not made timely payment disks and other material relevant to
of the Surety’s fee within the time pe- SBA’s guarantee, commitments to
224
guarantee a surety bond, or agree- (c) Purpose of audit. SBA’s audit will
ments to indemnify the Prior Approval determine, but not be limited to:
or PSB Surety. See § 115.18(a)(3) for (1) The adequacy and sufficiency of
consequences of failure to comply with the Surety’s underwriting and credit
this section. analysis, its documentation of claims
(2) Frequency of PSB audits. Each PSB and claims settlement procedures and
Surety is subject to an audit at least activities, and its recovery procedures
once every 3 years by examiners se- and practices;
lected and approved by SBA. (2) The Surety’s minimization of
(b) Records. The Surety must main-
Loss, including the exercise of bond op-
tain the records listed in this para-
tions upon Contract default; and
graph (b) for the term of each bond,
plus any additional time required to (3) The Surety’s loss ratio in com-
settle any claims of the Surety for re- parison with other Sureties partici-
imbursement from SBA and to attempt pating in the same SBA Surety Bond
salvage or other recovery, plus an addi- Guarantee Program to a comparable
tional 3 years. If there are any unre- degree.
solved audit findings in relation to a (d) Investigations. SBA may conduct
particular bond, the Surety must main- investigations to inquire into the pos-
tain the related records until the find- sible violation by any Person of the
ings are resolved. The records to be Small Business Act or the Investment
maintained include the following: Act, or of any rule or regulation under
(1) A copy of the bond; those Acts, or of any order issued under
(2) A copy of the bonded Contract; those Acts, or of any Federal law relat-
(3) All documentation submitted by ing to programs and operations of SBA.
the Principal in applying for the bond;
(4) All information gathered by the [61 FR 3271, Jan. 31, 1996, as amended at 72
Surety in reviewing the Principal’s ap- FR 34599, June 25, 2007]
plication;
§ 115.22 Quarterly Contract Comple-
(5) All documentation of any of the
tion Report.
events set forth in § 115.35(a) or
§ 115.65(c)(2); The Surety must submit a Quarterly
(6) All records of any transaction for Contract Completion Report within 45
which the Surety makes payment days after the close of each fiscal year
under or in connection with the bond, quarter ending December 31, March 31,
including but not limited to claims, June 30, and September 30, that identi-
bills (including lawyers’ and consult- fies each contract successfully com-
ants’ bills), judgments, settlement pleted during the quarter. The report
agreements and court or arbitration shall include:
decisions, consultants’ reports, Con- (a) The SBA Surety Bond Guarantee
tracts and receipts; Number,
(7) All documentation relating to ef- (b) Name of the Principal,
forts to mitigate Losses, including doc-
(c) The original Contract Dollar
umentation required by § 115.34(a) or
Amount,
§ 115.69 concerning Imminent Breach;
(8) All records of any accounts into (d) The revised Contract Dollar
which fees and funds obtained in miti- Amount (if applicable),
gation of Losses were paid and from (e) The date of Contract completion,
which payments were made under the and
bond, and any other trust accounts, (f) A summary specifying the fee
and any reconciliations of such ac- amounts paid to SBA by the Surety
counts; and Principal, the fee amounts due to
(9) Job status reports received from SBA as a result of any increases in the
Obligees and documentation of each Contract amount, and the fee amounts
unanswered request for a job status re- to be refunded to the Principal or re-
port; and bated to the Surety as a result of any
(10) All documentation relating to decreases in the Contract amount.

any collateral held by or available to
the Surety. [82 FR 39501, Aug. 21, 2017]
225
§ 115.30 13 CFR Ch. I (1–1–23 Edition)
Subpart B—Guarantees Subject to Final Bond, and this Form must be ap-
Prior Approval proved by SBA prior to the Surety’s
Execution of the bond. SBA Form 990A
§ 115.30 Submission of Surety’s guar- is a streamlined application form that
antee application. may be used only for contract amounts
(a) Legal effect of application. By sub- that do not exceed $500,000 at the time
mitting an application to SBA for a of application. The guarantee fees owed
bond guarantee, the Prior Approval in connection with Final Bonds must
Surety certifies that the Principal be paid in accordance with § 115.32.
meets the eligibility requirements set (ii) Exclusions. SBA Form 990A may
forth in § 115.13 and that the under- not be used under the following cir-
writing standards set forth in § 115.15 cumstances:
have been met. (A) The Principal has previously de-
(b) SBA’s determination. SBA’s ap- faulted on any contract or has had any
proval or decline of a guarantee appli- claims or complaints filed against it
cation is made in writing by an author- with any court or administrative agen-
ized SBA officer. The officer may pro- cy;
vide telephone notice before the Prior (B) Work on the Contract commenced
Approval Surety receives SBA’s guar- before a bond is Executed;
antee approval form if the officer has (C) The time for completion of the
already signed the form. In the event of Contract exceeds 12 months;
a conflict between the telephone notice (D) The Contract includes a provision
and the written form, the written form for liquidated damages that exceed
controls. $2,500 per day;
(c) Reconsideration-appeal of SBA de- (E) The Contract involves asbestos
termination. A Prior Approval Surety abatement, hazardous waste removal,
may request reconsideration of a de- or timber sales; or
cline from the SBA officer who made (F) The bond would be issued under a
the decision. If the decision on recon- surety bonding line approved under
sideration is negative, the Surety may § 115.33.
appeal to an individual designated by [61 FR 3271, Jan. 31, 1996, as amended at 77
the D/SG. If the decision is again ad- FR 41665, July 16, 2012; 79 FR 2087, Jan. 13,
verse, the Surety may appeal to the D/ 2014; 82 FR 39501, Aug. 21, 2017; 87 FR 48084,
SG, who will make the final decision. Aug. 8, 2022]
(d) Prior Approval Agreement. To apply
for a bond guarantee, a Prior Approval § 115.31 Guarantee percentage.
Surety must submit one of the fol- (a) Ninety percent. SBA reimburses a
lowing forms: Prior Approval Surety for 90% of the
(1) Surety Bond Guarantee Agreement Loss incurred and paid if:
(SBA Form 990). A Prior Approval Sur- (1) The total amount of the Contract
ety may complete and submit a Surety at the time of Execution of the bond is
Bond Guarantee Agreement (SBA Form $100,000 or less; or
990) to SBA for each Bid Bond or Final (2) The bond was issued on behalf of
Bond, and this Form must be approved a small business owned and controlled
by SBA prior to the Surety’s Execution by socially and economically disadvan-
of the bond, except in the case of a sur- taged individuals, on behalf of a cer-
ety bonding line approved by SBA tified HUBZone small business concern,
under § 115.33(d). The guarantee fees or on behalf of a small business owned
owed in connection with Final Bonds and controlled by veterans or a small
must be paid in accordance with business owned and controlled by Serv-
§ 115.32. ice-disabled veterans.
(2) Quick Bond Guarantee Application (b) Eighty percent. SBA reimburses a
and Agreement (SBA Form 990A)—(i) Prior Approval Surety in an amount
General procedures. Except as provided not to exceed 80% of the Loss incurred
in paragraph (d)(2)(ii) of this section, a and paid on bonds for Contracts in ex-
Prior Approval Surety may complete cess of $100,000 which are executed on
and submit the Quick Bond Guarantee behalf of non-disadvantaged concerns.

Application and Agreement (SBA Form (c) Contract increase to over $100,000. If
990A) to SBA for each Bid Bond or the Contract amount increases to more
226
than $100,000 after Execution of the amount. The percentage is determined

bond, the guarantee percentage de- by SBA and is published in Notices in
creases by one percentage point for the FEDERAL REGISTER from time to
each $5,000 of increase or part thereof, time. The Principal’s fee is rounded to
but it does not decrease below 80%. the nearest dollar, and is to be remit-
This provision applies only to guaran- ted to SBA with the form submitted
tees which qualify under paragraph under either § 115.30(d)(1) or (2). See
(a)(1) of this section. paragraph (d) of this section for addi-
(d) Contract or Order increases exceed tional requirements when the Contract
Applicable Statutory Limit. If the Con- amount changes.
tract or Order amount is increased (c) SBA charge to Surety. SBA does
above the Applicable Statutory Limit not charge Sureties application or Bid
after Execution of the bond, SBA’s Bond guarantee fees. Subject to
share of the Loss is limited to that per- § 115.18(a)(4), the Surety must pay SBA
centage of the increased Contract or a guarantee fee on each guaranteed
Order amount that the Applicable bond (other than a Bid Bond) within 60
Statutory Limit represents multiplied calendar days after SBA’s approval of
by the guarantee percentage approved the Prior Approval Agreement. The fee
by SBA. For example, if a contract is a certain percentage of the bond pre-
amount increases to $6,800,000, SBA’s mium determined by SBA and pub-
share of the loss under an 80% guar- lished in Notices in the FEDERAL REG-
antee is limited to 76.5% [6,500,000/ ISTER from time to time. The fee is
6,800,000 = 95.6% x 80% = 76.5%]. rounded to the nearest dollar. SBA
(e) Contract or Order decrease to does not receive any portion of a Sure-
$100,000 or less. If the Contract or Order ty’s non-premium charges. See para-
amount decreases to $100,000, or less, graph (d) of this section for additional
after Execution of the bond, SBA’s requirements when the Contract or
guarantee percentage increases to 90% bond amount changes.
if the Surety provides SBA with evi- (d) Contract or bond increases/de-
dence supporting the decrease and any creases—(1) Notification and approval.
other information or documents re- The Prior Approval Surety must notify
quested. SBA of any increases or decreases in
[61 FR 3271, Jan. 31, 1996, as amended at 64 the Contract or bond amount that ag-
FR 18324, Apr. 14, 1999; 66 FR 30804, June 8, gregate 25% or $500,000 of the original
2001; 72 FR 34599, June 25, 2007; 74 FR 36110, contract or bond amount, whichever is
July 22, 2009; 79 FR 2087, Jan. 13, 2014; 84 FR less, as soon as the Surety acquires
65239, Nov. 26, 2019] knowledge of the change. Whenever the
original bond amount increases as a re-
§ 115.32 Fees and Premiums. sult of a single change order of at least
(a) Surety’s Premium. A Prior Ap- 25% or $500,000 of the original contract
proval Surety must not charge a Prin- or bond amount, whichever is less, the
cipal an amount greater than that au- prior written approval of such increase
thorized by the appropriate insurance by SBA is required on a supplemental
department. The Surety must not re- Prior Approval Agreement and is con-
quire the Principal to purchase cas- ditioned upon payment by the Surety
ualty or other insurance or any other of the increase in the Principal’s guar-
services from the Surety or any Affil- antee fee as set forth in paragraph
iate or agent of the Surety. The Surety (d)(2) of this section. In notifying SBA
must not charge non-Premium fees to a of any increase or decrease in the Con-
Principal unless the Surety performs tract or bond amount, the Surety must
other services for the Principal, the ad- use the same form (SBA Form 990 or
ditional fee is permitted by State law, SBA Form 990A) that it used in apply-
and the Principal agrees to the fee. ing for the original bond guarantee.
(b) SBA charge to Principal. SBA does (2) Increases; fees. The payment for
not charge Principals application or the increase in the Principal’s guar-
Bid Bond guarantee fees. If SBA guarantee fee, which is computed on the in-
antees a Final Bond, the Principal crease in the Contract amount, is due
must pay a guarantee fee equal to a upon notification of the increase in the
certain percentage of the Contract Contract or bond amount under this
227
§ 115.33 13 CFR Ch. I (1–1–23 Edition)
paragraph (d). If the increase in the or unbonded, during the term of the
Principal’s fee is less than $250, no pay- bonding line.
ment is due until the total amount of (b) Bonding line conditions. The bond-
increases in the Principal’s fee equals ing line contains limitations on the
or exceeds $250. The Surety’s payment following:
of the increase in the Surety’s guar- (1) The term of the bonding line, not
antee fee, computed on the increase in to exceed 1 year subject to renewal in
the bond Premium, must be submitted writing;
to SBA within 60 calendar days of (2) The total dollar amount of the
SBA’s approval of the Prior Approval Principal’s bonded and unbonded work
Agreement, unless the amount of such on hand at any time, including out-
increased guarantee fee is less than standing bids, during the term of the
$250. When the total amount of in- bonding line;
crease in the guarantee fee equals or (3) The number of such bonded and
exceeds $250, the Surety must remit unbonded contracts outstanding at any
the fee within 60 calendar days. time during the term of the bonding
(3) Decreases; refunds. Whenever SBA line;
is notified of a decrease in the Contract (4) The maximum dollar amount of
or bond amount, SBA will refund to the any single guaranteed bonded Con-
Principal a proportionate amount of tract;
the Principal’s guarantee fee and re- (5) The timing of Execution of bonds
bate to the Surety a proportionate under the bonding line—bonds must be
amount of SBA’s Premium share in the dated and Executed before the work on
ordinary course of business. If the the underlying Contract has begun, or
amount to be refunded or rebated is the Surety must submit to SBA the
less than $250, such refund or rebate documentation required under
will not be made until the amounts to § 115.19(f)(1)(ii); and
be refunded or rebated, respectively, (6) Any other limitation related to
aggregate at least $250. Upon receipt of type, specialty of work, geographical
the refund, the Surety must promptly area, or credit.
pay a proportionate amount of its Pre- (c) Excess bonding. If, after a bonding
mium to the Principal. line is issued, the Principal desires a
bond and the Surety desires a guar-
[61 FR 3271, Jan. 31, 1996, as amended at 72 antee exceeding a limitation of the
FR 34599, June 25, 2007; 77 FR 41665, July 16, bonding line, the Surety must submit
2012; 79 FR 2087, Jan. 13, 2014; 82 FR 39502, an application to SBA under regular
Aug. 21, 2017; 87 FR 48084, Aug. 8, 2022] procedures.
(d) Submission of forms to SBA—(1) Bid
§ 115.33 Surety bonding line.
Bonds. Within 15 business days after
A surety bonding line is a written the Execution of any Bid Bonds under
commitment by SBA to a Prior Ap- a bonding line, the Surety must submit
proval Surety which provides for the a ‘‘Surety Bond Guarantee Agreement
Surety’s Execution of multiple bonds (Form 990)’’ to SBA for approval. If the
for a specified small business strictly Surety fails to submit the form within
within pre-approved terms, conditions this time period, SBA’s guarantee of
and limitations. In applying for a bond- the bond will be void from its inception
ing line, the Surety must provide SBA unless SBA determines otherwise upon
with information on the applicant as a showing that a valid reason exists
requested. In addition to the other lim- why the timely submission was not
itations and provisions set forth in this made.
part 115, the following conditions apply (2) Final Bonds. Within 15 business
to each surety bonding line: days after the Execution of any Final
(a) Underwriting. A bonding line may Bonds under a bonding line, the Surety
be issued by SBA for a Principal only if must submit a Surety Bond Guarantee
the underwriting evaluation is satisfac- Agreement (SBA Form 990) to SBA for
tory. The Prior Approval Surety must approval. If the surety fails to submit
require the Principal to keep it in- this form within the time period or the
formed of all its contracts, whether guarantee fees are not paid in accord-
bonded by the same or another surety ance with § 115.32, SBA’s guarantee of
228
the bond will be void from its inception to this or any other provision of this
unless SBA determines otherwise upon part 115.
a showing that the Contract is not in (3) Recordkeeping requirement. The
default and a valid reason exists why Surety must keep records of payments
the timely submission was not made. made to avoid Imminent Breach.
(3) Additional information. The Surety (b) Salvage and recovery. A Prior Ap-
must submit any other data SBA re- proval Surety must pursue all possible
quests. sources of salvage and recovery until
(e) Cancellation of bonding line—(1) SBA concurs with the Surety’s rec-
Optional cancellation. Either SBA or the ommendation for a discontinuance or
Surety may cancel a bonding line at for a settlement. The Surety must cer-
any time, with or without cause, upon tify that continued pursuit of salvage
written notice to the other party. Upon and recovery would be neither eco-
the receipt of any adverse information
nomically feasible nor a viable strat-
concerning the Principal, the Surety
egy in maximizing recovery. See also
must promptly notify SBA, and SBA
§ 115.17(b).
may cancel the bonding line.
(2) Mandatory cancellation. Upon the § 115.35 Claims for reimbursement of
occurrence of a default by the Prin- Losses.
cipal, whether under a contract bonded
by the same or another surety or an (a) Notification requirements—(1)
unbonded contract, the Surety must Events requiring notification. A Prior
immediately cancel the bonding line. Approval Surety must notify OSG of
(3) Effect of cancellation. Cancellation the occurrence of any of the following:
of a bonding line by SBA is effective (i) Legal action under the bond has
upon receipt of written notice by the been initiated.
Surety. Bonds issued before the effec- (ii) The Obligee has declared the
tive date of cancellation remain guar- Principal to be in default under the
anteed by SBA. Upon cancellation by Contract.
SBA or the Surety, the Surety must (iii) The Surety has established a
promptly notify the Principal in writ- claim reserve for the bond.
ing. (iv) The Surety has received any ad-
[61 FR 3271, Jan. 31, 1996, as amended at 77 verse information concerning the Prin-
FR 41665, July 16, 2012; 87 FR 48084, Aug. 8, cipal’s financial condition or possible
2022] inability to complete the project or to
pay laborers or suppliers.
§ 115.34 Minimization of Surety’s Loss. (2) Timing of notification. Notification
(a) Imminent Breach—(1) Prior ap- must be made in writing at the earlier
proval requirement. SBA will reimburse of the time the Surety applies for a
its guaranteed share of payments made guarantee on behalf of an affected
by a Surety to avoid or attempt to Principal, or within 30 days of the date
avoid an Imminent Breach of the terms the Surety acquires knowledge, or
of a Contract covered by an SBA guar- should have acquired knowledge, of any
anteed bond only if the payments were of the listed events.
made with the prior approval of OSG. (b) Surety action. The Surety must
OSG’s prior approval will be given only take all necessary steps to mitigate
if the Surety demonstrates to SBA’s Losses resulting from any of the events
satisfaction that a breach is imminent in paragraph (a) of this section, includ-
and that there is no other recourse to ing the disposal at fair market value of
prevent such breach. any collateral held by or available to
(2) Amount of reimbursement. The ag- the Surety. Unless SBA notifies the
gregate of the payments by SBA to Surety otherwise, the Surety must
avoid Imminent Breach cannot exceed take charge of all claims or suits aris-
10% of the Contract amount, unless the ing from a defaulted bond, and com-
Administrator finds that a greater pay- promise, settle and defend such suits.
ment (not to exceed the guaranteed The Surety must handle and process all
share of the bond penalty) is necessary claims under the bond and all settle-
and reasonable. In no event will SBA ments and recoveries as it does on non-
make any duplicate payment pursuant guaranteed bonds.
229
§ 115.36 13 CFR Ch. I (1–1–23 Edition)
(c) Claim reimbursement requests. (1) ety agree upon an amount, less than
Claims for reimbursement for Losses the actual loss under the bond, which
which the Surety has paid must be sub- will satisfy the Principal’s indebted-
mitted (together with a copy of the ness to the Surety. Sureties must not
bond, the bonded Contract, and any in- agree to any indemnity settlement pro-
demnity agreements) with the initial posal or enter into any such agreement
claim to OSG on a ‘‘Default Report, without SBA’s concurrence.
Claim for Reimbursement and Report (b) Any settlement proposal sub-
of Recoveries’’ (SBA Form 994H), with- mitted for SBA’s consideration must
in 90 days from the time of each dis- include current financial information,
bursement. Claims submitted after 90 including financial statements, tax re-
days must be accompanied by substan- turns, and credit reports, together with
tiation satisfactory to SBA. The date the Surety’s written recommendations.
of the claim for reimbursement is the It should also indicate whether the
date of receipt of the claim by SBA, or Principal is interested in further bond-
such later date as additional informa- ing.
tion requested by SBA is received. (c) The Surety must pay SBA its pro
(2) The Surety must also submit evi- rata share of the settlement amount
dence of the disposal of all collateral at within 45 days of receipt. Prior to clos-
fair market value. ing the file on a Principal, the Surety
(3) SBA may request additional infor- must certify that SBA has received its
mation prior to reimbursing the Surety pro rata share of all indemnity recov-
for its Loss. ery.
(4) Subject to the offset provisions of [61 FR 3271, Jan. 31, 1996, as amended at 79
part 140, SBA pays its share of the Loss FR 2087, Jan. 13, 2014; 81 FR 23566, Apr. 22,
incurred and paid by the Surety within 2016]
45 days of receipt of the requisite infor-
mation. Subpart C—Preferred Surety Bond
(5) Claims for reimbursement and any
additional information submitted are
(PSB) Guarantees
subject to review and audit by SBA, in- § 115.60 Selection and admission of
cluding but not limited to the Surety’s PSB Sureties.
compliance with SBA’s regulations and
(a) Selection of PSB Sureties. SBA’s se-
forms.
lection of PSB Sureties will be guided
(d) Status updates. The Surety must
by, but not limited to, these factors:
submit semiannual status reports on
(1) An underwriting limitation of at
each claim 6 months after the initial
least $6,500,000 on the U.S. Treasury
default notice, and then every 6
Department list of acceptable sureties;
months. The Surety must notify SBA (2) An agreement that the Surety
immediately of any substantial will neither charge a bond premium in
changes in the status of the claim or excess of that authorized by the appro-
the amounts of Loss reserves. priate State insurance department, nor
(e) Reservation of SBA rights. The pay-
impose any non-premium fee unless
ment by SBA of a Surety’s claim does
such fee is permitted by applicable
not waive or invalidate any of the
State law and approved by SBA.
terms of the Prior Approval Agree- (3) Premium income from contract
ment, the regulations set forth in this bonds guaranteed by any government
part 115, or any defense SBA may have agency (Federal, State or local) of no
against the Surety. Within 30 days of more than one- quarter of the total
receipt of notification that a claim or contract bond premium income of the
any portion of a claim should not have Surety;
been paid by SBA, the Surety must (4) The vesting of underwriting au-
repay the specified amounts to SBA. thority for SBA guaranteed bonds only
[61 FR 3271, Jan. 31, 1996, as amended at 79 in employees of the Surety;
FR 2087, Jan. 13, 2014] (5) The rating or ranking designa-
tions assigned to the Surety by recog-
§ 115.36 Indemnity settlements. nized authority.

(a) An indemnity settlement occurs (b) Admission of PSB Sureties. A Sur-
when a defaulted Principal and its Sur- ety admitted to the PSB program must
230
execute a PSB Agreement before ap- tract is then awarded for an amount
proving SBA guaranteed bonds. No other than the bid amount, or if the bid
SBA guarantee attaches to bonds ap- is withdrawn or the Bid Bond guar-
proved before the D/SG or designee has antee has expired (see § 115.12(c)), SBA
countersigned the Agreement. For a debits or credits the Surety’s allot-
period of nine months following admis- ment accordingly.
sion to the PSB program, the Surety (c) Execution of Final Bonds. If the
must obtain SBA’s prior written ap- PSB Surety Executes a guaranteed
proval before executing a bond greater Final Bond, but not the related Bid
than $2 million so that SBA may evalu- Bond, SBA debits the Surety’s allot-
ate the Surety’s performance in its un- ment for an amount equal to the guar-
derwriting and claims and recovery antee percentage of the penal sum of
functions. At the end of this nine the Final Bond. SBA will debit the al-
month period, SBA may in its discre- lotment for increases, and credit the
tion extend this period to allow SBA to allotment for decreases, in the bond
further evaluate the Surety’s perform- amount.
ance. (d) Release and non-issuance of Final
Bonds. The release of Final Bonds upon
FR 30804, June 8, 2001; 72 FR 34600, June 25, completion of the Contract does not re-
2007; 81 FR 23566, Apr. 22, 2016; 82 FR 39502, store the corresponding allotment. If,
Aug. 21, 2017] however, a PSB Surety approves a
Final Bond but never issues the bond,
§ 115.61 [Reserved] SBA will credit the Surety’s allotment
for an amount equal to the guarantee
§ 115.62 Prohibition on participation percentage of the penal sum of the
in Prior Approval program. bond. In that event, the Surety must
A PSB Surety is not eligible to sub- notify SBA as soon as possible, but in
mit applications under subpart B of no event later than 5 business days
this part. This prohibition does not ex- after the non-issuance has been deter-
tend to an Affiliate, as defined in 13 mined. Until the Surety has so notified
CFR § 121.103, of a PSB Surety that is SBA, it cannot rely on such credit.
not itself a PSB Surety provided that
the relationship between the PSB Sur- § 115.64 Timeliness requirement.
ety and the Affiliate has been fully dis- There must be no Execution or ap-
closed to SBA and that such Affiliate proval of a bond by a PSB Surety after
has been approved by SBA to partici- commencement of work under a Con-
pate as a Prior Approval Surety pursu- tract unless the Surety obtains written
ant to § 115.11. approval from the D/SG. To apply for
[72 FR 34600, June 25, 2007]
such approval, the Surety must submit
a completed ‘‘Surety Bond Guarantee
§ 115.63 Allotment of guarantee au- Agreement Addendum’’ (SBA Form
thority. 991), together with the evidence and
(a) General. SBA allots to each PSB certifications described in
Surety a periodic maximum guarantee § 115.19(f)(1)(ii). For purposes of this
authority. No SBA guarantee attaches section, work has commenced under a
to bonds approved by a PSB Surety if Contract when a Principal takes any
the bonds exceed the allotted authority action related to the contract or bond
for the period in which the bonds are that would have exposed its Surety to
approved. No reliance on future author- liability under applicable law had a
ity is permitted. An allotment can be bond been Executed (or approved, if the
increased only by prior written permis- Surety is legally bound by such ap-
sion of SBA. proval) at the time.
(b) Execution of Bid Bonds. When the [61 FR 3271, Jan. 31, 1996, as amended at 87
PSB Surety Executes a Bid Bond, SBA FR 48084, Aug. 8, 2022]
debits the Surety’s allotment for an
amount equal to the guarantee per- § 115.65 General PSB procedures.
centage of the estimated penal sum of (a) Retention of information. A PSB

the Final Bond SBA would guarantee if Surety must comply with all applica-
the Contract were awarded. If the Con- ble SBA regulations and obtain from
231
§ 115.66 13 CFR Ch. I (1–1–23 Edition)
its applicants all the information and cision by the Surety to bond any such
certifications required by SBA. The Principal again.
PSB Surety must document compli-
ance with SBA regulations and retain § 115.66 Fees.
such certifications in its files, includ- The PSB Surety must pay SBA a cer-
ing a contemporaneous record of the tain percentage of the Premium it
date of approval and Execution of each charges on Final Bonds. The PSB Sur-
bond. See also § 115.19(f). The certifi- ety must also remit to SBA the Prin-
cations and other information must be cipal’s payment for its guarantee fee,
made available for inspection by SBA equal to a certain percentage of the
or its agents and must be available for Contract amount. The fee percentages
submission to SBA in connection with are determined by SBA and are pub-
the Surety’s claims for reimbursement. lished in Notices in the FEDERAL REG-
The PSB Surety must retain the cer- ISTER from time to time. Each fee is
tifications and other information for rounded to the nearest dollar. The Sur-
the term of the bond, plus such addi- ety must remit SBA’s Premium share
tional time as may be required to set- and the Principal’s guarantee fee with
tle any claims of the Surety for reim- the bordereau listing the related Final
bursement from SBA and to attempt Bond, as required in the PSB Agree-
salvage or other recovery, plus an addi- ment.
tional 3 years. If there are any unre-
solved audit findings in relation to a § 115.67 Changes in Contract or bond
particular bond, the Surety must main- amount.
tain the related certifications and (a) Increases. The PSB Surety must
other information until the findings process Contract or bond amount in-
are resolved. creases within its allotment in the
(b) Usual staff and procedures. The ap- same manner as initial guaranteed
proval, Execution and administration bond issuances (see § 115.65(c)(1)). The
by a PSB Surety of SBA guaranteed Surety must present checks for addi-
bonds must be handled in the same tional fees due from the Principal and
manner and with the same staff as the the Surety on any increases aggre-
Surety’s activity outside the PSB pro- gating 25% of the original Contract or
gram. The Surety must request job sta- bond amount or $500,000, whichever is
tus reports from Obligees in accordance less, and attach such payments to the
with its own procedures. respective monthly bordereau. If the
(c) Notification to SBA—(1) Approvals. additional Principal’s fee or Surety’s
A PSB Surety must notify SBA by fee is less than $250, such fee is not due
electronic transmission or monthly until all unpaid increases in such fee
bordereau, as agreed between the Sur- aggregate at least $250.
ety and SBA, of all approved Bid and (b) Decreases. If the Contract or bond
Final Bonds, and of the Surety’s ap- amount is decreased, SBA will refund
proval of increases and decreases in the to the Principal a proportionate
Contract or bond amount. The notice amount of the guarantee fee, and ad-
must contain the information specified just SBA’s Premium share accordingly
from time to time in agreements be- in the ordinary course of business. No
tween the Surety and SBA. SBA may refund or adjustment will be made
deny liability with respect to Final until the amounts to be refunded or re-
Bonds for which SBA has not received bated, respectively, aggregate at least
timely notice. $250.
(2) Other events requiring notification.
The PSB Surety must notify SBA with- [61 FR 3271, Jan. 31, 1996, as amended at 79
FR 2087, Jan. 13, 2014; 82 FR 39502, Aug. 21,
in 30 calendar days of the name and ad- 2017; 87 FR 48084, Aug. 8, 2022]
dress of any Principal against whom
legal action on the bond has been insti- § 115.68 Guarantee percentage.
tuted; whenever an Obligee has de-
SBA reimburses a PSB Surety in the
clared a default; whenever the Surety
same percentages and under the same

has established or added to a claim re-
terms as set forth in § 115.31.
serve; of the recovery of any amounts
on the guaranteed bond; and of any de- [82 FR 39502, Aug. 21, 2017]
232
§ 115.69 Imminent Breach. ing from a defaulted bond, and com-

promise, settle or defend the suits. The
(a) No prior approval requirement. SBA
Surety must handle and process all
will reimburse a PSB Surety for the
claims under the bond and all settle-
guaranteed portion of payments the
ments and recoveries in the same man-
Surety makes to avoid or attempt to
ner as it does on non-guaranteed bonds.
avoid an Imminent Breach of the terms
(c) Reservation of SBA’s rights. The
of a Contract covered by an SBA guar-
payment by SBA of a PSB Surety’s
anteed bond. The aggregate of the pay-
claim does not waive or invalidate any
ments by SBA under this section can-
of the terms of the PSB Agreement,
not exceed 10% of the Contract
the regulations in this part 115, or any
amount, unless the Administrator finds
defense SBA may have against the Sur-
that a greater payment (not to exceed
ety. Within 30 days of receipt of notifi-
the guaranteed portion of the bond
cation that a claim or any portion of a
penalty) is necessary and reasonable.
claim should not have been paid by
The PSB Surety does not need to ob-
SBA, the Surety must repay the speci-
tain prior SBA approval to make Immi-
fied amounts to SBA.
nent Breach payments, except that the
PSB Surety may request SBA to ap- [61 FR 3271, Jan. 31, 1996, as amended at 79
prove payments that exceed 10% of the FR 2087, Jan. 13, 2014]
Contract amount prior to the Surety
making the payment. In no event will § 115.71 Denial of liability.
SBA make any duplicate payment In addition to the grounds set forth
under any provision of these regula- in § 115.19, SBA may deny liability to a
tions in this part. PSB Surety if:
(b) Recordkeeping requirement. The (a) The PSB Surety’s guaranteed
PSB Surety must keep records of pay- bond was in an amount which, together
ments made to avoid Imminent Breach. with all other guaranteed bonds, ex-
ceeded the allotment for the period
[79 FR 2087, Jan. 13, 2014]
during which the bond was approved,
§ 115.70 Claims for reimbursement of and no prior SBA approval had been ob-
Losses. tained;
(b) The PSB Surety’s loss was in-
(a) How claims are submitted. A PSB
curred under a bond which was not list-
Surety must submit claims for reim-
ed on the bordereau for the period
bursement on a form approved by SBA
when it was approved; or
no later than 90 days from the date the
(c) The loss incurred by the PSB Sur-
Surety paid the amount. Loss is deter-
ety is not attributable to the par-
mined as of the date of receipt by SBA
ticular Contract for which an SBA
of the claim for reimbursement, or as
guaranteed bond was approved.
of such later date as additional infor-
mation requested by SBA is received.
Subject to the offset provisions of part PART 117—NONDISCRIMINATION
140, SBA pays its share of Loss within IN FEDERALLY ASSISTED PRO-
45 days of receipt of the requisite infor- GRAMS OR ACTIVITIES OF SBA—
mation. Claims for reimbursement and EFFECTUATION OF THE AGE DIS-
any additional information submitted CRIMINATION ACT OF 1975, AS
are subject to review and audit by AMENDED
SBA.
(b) Surety responsibilities. The PSB Sec.
Surety must take all necessary steps 117.1 Purpose.
to mitigate Losses when legal action 117.2 Application of this part.
against a bond has been instituted, 117.3 Definitions.
when the Obligee has declared a de- 117.4 Discrimination prohibited and excep-
fault, and when the Surety has estab- tions.
117.5 Illustrative applications.
lished a claim reserve. The Surety may
117.6 Remedial and affirmative action by re-
dispose of collateral at fair market cipients.
value only. Unless SBA notifies the 117.7 Assurances required.

Surety otherwise, the Surety must 117.8 Responsibilities of SBA recipients.
take charge of all claims or suits aris- 117.9 Compliance information.
233
§ 117.1 13 CFR Ch. I (1–1–23 Edition)
117.10 Review procedures. § 117.3 Definitions.
117.11 Complaint procedures.
117.12 Mediation. As used in this part:
117.13 Investigation and resolution of mat- (a) The term act means the Age Dis-
ters. crimination Act of 1975, as amended
117.14 Intimidating or retaliatory acts pro- (Title III of Pub. L. 94–135).
hibited. (b) The term action means any act,
117.15 Procedure for effecting compliance.
activity, policy, rule, standard, or
117.16 Hearings.
117.17 Decisions and notices.
method of administration; or the use of
117.18 Judicial review. any policy, rule, standard, or method
117.19 Effect on other regulations. of administration.
117.20 Supervision and coordination. (c) The term age means how old a
APPENDIX A TO PART 117 person is, or the number of years from
the date of a person’s birth.
AUTHORITY: Age Discrimination Act of 1975,
42 U.S.C. 6101 et seq. (d) The term age distinction means
any action using age or an age-related
SOURCE: 50 FR 41648, Oct. 11, 1985, unless term.
otherwise noted.
(e) The term age-related means a word
EDITORIAL NOTE: Nomenclature changes to or words which necessarily imply a
part 117 appear at 68 FR 51349, Aug. 26, 2003. particular age or range of ages (for ex-
§ 117.1 Purpose. ample, children, adult, older persons, but
not student).
The purpose of this part is to effec- (f) The term agency means a Federal
tuate the provisions of The Age Dis- department or agency that is empow-
crimination Act of 1975, as amended ered to extend financial assistance.
(hereinafter referred to as the Act), to
(g) The term applicant means one who
the end that no person in the United
applies for Federal financial assist-
States shall, on the basis of age, be ex-
ance.
cluded from participation in, be denied
the benefits of, or be subjected to dis- (h) The term Federal financial assist-
crimination under programs or activi- ance includes: (1) Grants and loans of
ties receiving financial assistance or Federal funds; (2) the grant or donation
any financial activities of the Small of Federal property and interests in
Business Administration to which this property; (3) the detail of Federal per-
Act applies. The Act also permits re- sonnel; (4) the sale and lease of, and the
cipients of Federal funds to continue to permission to use (on other than a cas-
use certain age distinctions and other ual or transient basis), Federal prop-
factors other than age which meet the erty or any interest in such property
requirements of the Act and these reg- without consideration, or at a nominal
ulations in the conduct of programs or consideration, or at a consideration
activities and the provision of services which is reduced for the purpose of as-
to the public. sisting the recipient, or in recognition
of the public interest to be served by
§ 117.2 Application of this part. such sale or lease to the recipient; and
(a) This part applies to all recipients (5) any Federal agreement, arrange-
of Federal financial assistance admin- ment, or other contract which has as
istered by the Small Business Adminis- one of its purposes the provision of as-
tration, whether or not the specific sistance.
type of Federal financial assistance ad- (i) The term normal operation means
ministered is listed in appendix A. the operation of a business or activity
(b) For the purposes of this part, the without significant changes that would
prohibition against age discrimination impair its ability to meet its objec-
applies to natural persons of all ages. tives.
(c) This part does not apply to the (j) The term program or activity means
employment practices of any recipi- all of the operations of any entity de-
ents. scribed in paragraphs (j)(1) through (4)

[50 FR 41648, Oct. 11, 1985, as amended at 68 of this section, any part of which is ex-
FR 51349, Aug. 26, 2003] tended Federal financial assistance:
234
(1)(i) A department, agency, special ed in an act, statute or ordinance or

purpose district, or other instrumen- can be shown in the legislative history
tality of a State or of a local govern- of any Federal statute, State statute,
ment; or or local statute or ordinance adopted
(ii) The entity of such State or local by an elected, general purpose legisla-
government that distributes such as- tive body.
sistance and each such department or
[50 FR 41648, Oct. 11, 1985, as amended at 68
agency (and each other State or local FR 51349, Aug. 26, 2003]
government entity) to which the as-
sistance is extended, in the case of as- § 117.4 Discrimination prohibited and
sistance to a State or local govern- exceptions.
ment;
(2)(i) A college, university, or other (a) General. To the extent that this
postsecondary institution, or a public part applies, no person in the United
system of higher education; or States shall, on the basis of age, be ex-
(ii) A local educational agency (as de- cluded from participation in, be denied
fined in 20 U.S.C. 7801), system of voca- the benefits of, or be subjected to dis-
tional education, or other school sys- crimination under any business or ac-
tem; tivity receiving Federal financial as-
(3)(i) An entire corporation, partner- sistance.
ship, or other private organization, or (b) Specific discriminatory actions pro-
an entire sole proprietorship— hibited. To the extent that this part ap-
(A) If assistance is extended to such plies, a recipient business or other ac-
corporation, partnership, private orga- tivity may not, directly or through
nization, or sole proprietorship as a contractual arrangements, on the
whole; or ground of age:
(B) Which is principally engaged in (1) Deny an individual any services,
the business of providing education, financial aid or other benefit provided
health care, housing, social services, or by the business or other activity, ex-
parks and recreation; or cept where sanctioned by one of the ex-
(ii) The entire plant or other com- ceptions stated in § 117.4 (d), (e) or (f) of
parable, geographically separate facil- this section.
ity to which Federal financial assist- (2) Provide any service, financial aid
ance is extended, in the case of any or other benefit, except as sanctioned
other corporation, partnership, private by one of the exceptions stated below,
organization, or sole proprietorship; or in such a way as to deny or limit per-
(4) Any other entity which is estab- sons in their efforts to participate in
lished by two or more of the entities federally-assisted programs or activi-
described in paragraph (j)(1), (2), or (3) ties;
of this section. (3) Treat an individual differently
(k) The term recipient means one who from others, except as sanctioned by an
receives any Federal financial assist- exception stated below, in determining
ance administered by the Small Busi- whether the person satisfied any ad-
ness Administration. (See Appendix A.) mission, enrollment, eligibility, mem-
The term recipient also shall be deemed bership, or other requirement or condi-
to include subrecipients of SBA finan- tion which individuals must meet in
cial assistance. order to be provided any service, finan-
(l) The term SBA means the Small cial aid or other benefit provided by
Business Administration. the business or activity.
(m) The term subrecipient means any (c) The specific forms of prohibited
business concern that receives Federal discrimination in paragraph (b) of this
financial assistance from the primary section does not limit the generality of
recipient of such financial assistance. the prohibition in paragraph (a) of this
A subrecipient is generally regarded as section.
a recipient of Federal financial assist- (d) Exception 1. A recipient is per-
ance and has all the duties of a recipi- mitted to take an action otherwise pro-
ent in these regulations. hibited by paragraphs (a) and (b) of this

(n) The term statutory objective means section, if the action reasonably takes
the purposes of the legislation as stat- into account age as a factor necessary
235
§ 117.5 13 CFR Ch. I (1–1–23 Edition)
to the normal operation or the achieve- § 117.5 Illustrative applications.

ment of any statutory objective of a
(a) Discrimination in providing finan-
business or activity. An action reason-
cial assistance. Development companies
ably takes into account age as a factor
and small business investment compa-
necessary to the normal operation or
nies, which apply for or receive any fi-
the achievement of any statutory ob-
nancial assistance may not discrimi-
jective of a business or activity, if:
nate on the ground of age in providing
(1) Age is used as a measure or ap- financial assistance to small business
proximation of one or more other char- concerns. Such discrimination prohib-
acteristics; and ited by § 117.4 includes but is not lim-
(2) The other characteristic(s) must ited to the failure or refusal, because of
be measured or approximated in order the age of the applicant, or the age of
for the normal operation of the busi- the applicant’s principal owner or oper-
ness or activity to continue, or to ating official to extend a loan or equity
achieve any statutory objective of the financing to any business concern; or,
business or activity; and in the case of financing which has actu-
(3) The other characteristic(s) can be ally been extended, the failure or re-
reasonably measured or approximated fusal because of the age of the recipi-
by the use of age; and ent, or the age of recipient’s principal
(4) The other characteristic(s) are owner or operating official to accord
impractical to measure directly on an the recipient fair treatment and the
individual basis. customary courtesies regarding such
NOTE: All of the above factors must be met matters as default, grace periods and
in order to exclude a business activity from the like.
the provisions of this part. (b) Discrimination in accommodations
(e) Exception 2. A recipient is per- or services. Small Business Concerns
mitted to take an action otherwise pro- and others who or which apply for or
hibited by paragraphs (a) and (b) of this receive any financial assistance admin-
section which is based on a factor other istered by the Small Business Adminis-
than age, even though that action may tration, such as but not limited to phy-
have a disproportionate effect on per- sicians, dentists, hospitals, schools, li-
sons of different ages. An action may braries, and other individuals or orga-
be based on a factor other than age if nizations may not discriminate in the
the factor bears a direct and substan- treatment, accommodations or services
tial relationship to the normal oper- they provide to their patients, stu-
ation of the business or activity or to dents, members, passengers, or mem-
the achievement of a statutory objec- bers of the public, except when the nor-
tive. mal operation or statutory objective of
(f) Exception 3. A recipient is per- the business or activity of the intended
mitted to take an action otherwise pro- beneficiary is designated in age-related
hibited by paragraphs (a) and (b) of this terms, whether or not operated for
section if an age distinction is con- profit. Action by such business or ac-
tained in that part of a Federal, State tivity to be excluded from compliance
or local statute or ordinance adopted with this regulation must fall within
by an elected general purpose legisla- the exceptions enumerated in § 117.4 (d),
tive body which provides any benefits (e), and (f) of this part.
or assistance to, establishes criteria for (c) The discrimination prohibited by
participation in, or describes intended § 117.5(b) includes, but is not limited to
beneficiaries or target groups in age- the failure or refusal, because of age, to
related terms. accept a patient, student, member, cus-
(g) The burden of proving that an age tomer, client, or passenger, except
distinction or other action falls within when the imposition of this prohibition
the exceptions outlined in paragraphs would interfere with the normal oper-
(d), (e), and (f) of this section on the re- ation of the business, e.g., pediatri-
cians, nursery schools, geriatric clin-
cipient of Federal financial assistance.
ics.
236
§ 117.6 Remedial and affirmative ac- (b) Where a recipient passes on Fed-
tion by recipients. eral financial assistance from SBA to
(a) Where a recipient is found to have subrecipients, the recipient shall pro-
discriminated on the basis of age, the vide the subrecipients written notice of
recipient shall take any remedial ac- their obligations under the Act and
tion which the Agency may require to these regulations.
overcome the effects of the discrimina- (c) Each recipient shall make nec-
tion. If another recipient exercises con- essary information about the Act and
trol over the recipient that has dis- these regulations available to the bene-
criminated, both recipients may be re- ficiaries of its programs or activities in
quired to take remedial action. order to inform them about the protec-
(b) Even in the absence of a finding of tions against discrimination provided
discrimination, a recipient may take by the Act and these regulations.
affirmative action to overcome the ef- (d) Whenever an assessment indicates
fects of conditions that resulted in lim- a violation of the Act and the SBA reg-
ited participation in the recipient’s ulations, the recipient shall take cor-
program or activity on the basis of age. rective action.
(c) If a recipient operating a program
or activity which serves the elderly or § 117.9 Compliance information.
children in addition to persons of other (a) Cooperation and assistance. SBA
ages, provides special benefits to the shall, to the fullest extent practicable,
elderly or to children, the provision of seek the cooperation of recipients in
those benefits shall be presumed to be
obtaining compliance with this part
voluntary affirmative action provided
and shall provide assistance and guid-
that it does not have the effect of ex-
ance to recipients to help them comply
cluding otherwise eligible persons from
voluntarily with this part.
participation in the program or activ-
ity. (b) Record Keeping. Each recipient
shall keep records in such form, and
§ 117.7 Assurances required. containing such information which
SBA determines may be necessary to
An application for financial assist-
ascertain whether the recipient has
ance administered by the Small Busi-
complied or is complying with this part
ness Administration shall, as a condi-
(OMB No. 3245 0076). In the case of a
tion of its approval and the extension
small business concern which receives
of such assistance, contain or be ac-
financial assistance from a develop-
companied by an assurance that the re-
cipient will comply with this part. SBA ment company or from a small busi-
shall specify the form of the foregoing ness investment company, the small
assurance, and the extent to which like business concern shall also keep such
assurances will be required of contrac- records and information as may be nec-
tors and subcontractors, transferees, essary to enable SBA to determine if
successors, and other participants. the small business concern is com-
plying with this part.
§ 117.8 Responsibilities of SBA recipi- (c) Each recipient shall provide to
ents. SBA, upon request, information and re-
(a) Each SBA recipient has the pri- ports which SBA determines are nec-
mary responsibility to ensure that its essary to ascertain whether the recipi-
programs or activities are in compli- ent is complying with the Act and
ance with the Act and these regula- these regulations.
tions, and shall take steps to eliminate (d) Access to sources of information.
violations of the Act. A recipient also Each recipient shall permit reasonable
has responsibility to maintain records, access by SBA during normal business
provide information, and to afford SBA hours to such of its books, records, ac-
access to its records to the extent SBA counts, and other sources of informa-
finds necessary to determine whether tion, and its facilities as may be perti-
the recipient is in compliance with the nent to ascertain compliance with this
Act and these regulations. (OMB No. part. Where any information required
3245 0076) of an applicant or recipient is in the
237
§ 117.10 13 CFR Ch. I (1–1–23 Edition)
exclusive possession of any other agen- alleged discrimination, unless the time
cy, institution or person and that agen- filing is extended by SBA. The
cy, institution or person shall fail or Adminstrator, the Assistant Adminis-
refuse to furnish the information, the trator, Office of Equal Employment
recipient shall so certify and shall set Opportunity & Civil Rights Compli-
forth what efforts it has made to ob- ance, are the only officials who may
tain the required information. The re- waive the 180-day time limit for filing
cipient will be held responsible for sub- complaints under this part. SBA will
mitting the information. Failure to consider the date a complaint is filed
submit information or permit access to to be the date upon which the com-
sources of information required by SBA plaint is sufficient to be processed.
will subject the recipient to enforce- (c) Each complaint will be reviewed
ment procedure as provided in § 117.15 to ensure that it falls within the cov-
of this part. erage of the Act and contains all infor-
(Information collection requirements in
mation necessary for further proc-
paragraph (c) were approved by the Office of essing.
Management and Budget under control num- (d) SBA will attempt to facilitate the
ber 3245–0076) filing of complaints wherever possible,
including taking the following actions:
§ 117.10 Review procedures. (1) Accepting as a sufficient com-
(a) SBA shall from time to time re- plaint, any written statement which
view the practices of recipients to de- identifies the parties involved and the
termine whether they are complying date the complainant first had knowl-
with this part. As part of a compliance edge of the alleged violation, describes
review or complaint investigation, SBA generally the action or practice com-
may require a recipient employing 15 plained of, and is signed by the com-
or more full-time employees to complainant.
plete a written self-evaluation, in a (2) Freely permitting a complainant
manner specified by the Agency, of any to add information to the complaint to
age distinction imposed in its program meet the requirements of a sufficient
or activity receiving Federal financial complaint.
assistance. (3) Notifying the complainant and
(b) If a compliance review or pre- the recipient of their rights and obliga-
award review indicates a violation of tions under the complaint procedure,
the Act or these regulations, SBA will including the right to have a represent-
attempt to achieve voluntary compli- ative at all stages of the complaint
ance with the Act. If voluntary compli- procedure.
ance with the recipient cannot be (4) Notifying the complainant and
achieved, such recipient will be subject the recipient (or their representatives)
to the enforcement procedure con- of their right to contact the Assistant
tained in § 117.15 of these regulations. A Administrator, Office of Equal Employ-
refusal to permit an on-site compliance ment Opportunity & Civil Rights Com-
review during normal working hours pliance, for information and assistance
may constitute noncompliance with regarding the complaint resolution
this part. process.
(e) SBA will return to the complain-
§ 117.11 Complaint procedures. ant any complaint filed under the ju-
(a) Any person who believes that he/ risdiction of this regulation, but found
she or any specific class of individuals to be outside the jurisdiction of this
is being or has been subjected to dis- regulation, and will state the reason(s)
crimination by SBA, a recipient, or an why it is outside the jurisdiction of
applicant for assistance, prohibited by this regulation.
this part may, by himself/herself or by [50 FR 41648, Oct. 11, 1985, as amended at 72
a representative, file with SBA a writ- FR 50038, Aug. 30, 2007]
ten complaint. The complainant has
the right to have a representative at § 117.12 Mediation.
all stages of the complaint procedure. (a) SBA shall, after ensuring that the
(b) A complaint must be filed not complaint falls within the coverage of
later than 180 days from the date of the this Act and all information necessary
238
for further processing is contained ditional information is needed by SBA

therein, unless the age distinction to assure compliance with this part, or
complained of is clearly within an ex- when an unresolved complaint has been
ception, promptly refer the complaint returned by the FMCS, or when it ap-
to the Federal Mediation and Concilia- pears that the complainant or the re-
tion Service (FMCS). cipient is failing to comply with a me-
(b) SBA shall, to the extent possible, diation agreement. The investigation
require the participation of the recipi- shall include a review of the pertinent
ent and the complainant in the medi- practices and policies of the recipient,
ation process in an effort to reach a the circumstances under which the pos-
mutually satisfactory settlement of sible noncompliance with this part oc-
the complaint or make an informed curred, and other factors relevant to a
judgment that an agreement is not pos- determination as to whether the recipi-
sible. Both parties need not meet with ent is complying, is not complying, or
the mediator at the same time. has failed to comply with this part.
(c) If the complainant and the recipi- (b) Resolution of matters. If an inves-
ent reach a mutually satisfactory reso- tigation indicates a failure to comply
lution of the complaint during the me- with this part, SBA will so inform the
diation period, the mediator shall pre- complainant, if applicable, and the re-
pare a written statement of the agree- cipient that the matter will be resolved
ment and have the complainant and re- by informal means that are mutually
cipient sign it. agreeable to the parties, whenever pos-
(d) A copy of the written mediation sible.
agreement will be referred to SBA, and (1) If, during the course of an inves-
no further action will be taken unless tigation, the matter is resolved by in-
it appears that either the complainant formal means, SBA will put any agree-
or the recipient (or other alleged dis- ment in writing and have it signed by
criminator subject to this part) fails to
the parties and an authorized official of
comply with the agreement.
SBA.
(e) If at the end of 60 days after the
(2) If investigation indicates a viola-
receipt of a complaint by SBA, or at
any time prior thereto, an agreement tion of the Act or these regulations,
is reached or the mediator determines SBA will attempt to achieve voluntary
an agreement cannot be reached compliance. If SBA cannot achieve vol-
through mediation, the agreement or untary compliance, it will begin en-
complaint will be returned to SBA. forcement as described in § 117.15.
(f) This 60-day period may be ex- (3) If an investigation does not war-
tended by the mediator, with the con- rant action, SBA will so inform the
currence of SBA for not more than 30 complainant, if applicable, and the re-
days if the mediator determines that cipient in writing.
an agreement will likely be reached
during the extended period. § 117.14 Intimidating or retaliatory
acts prohibited.
(g) The mediator shall protect the
confidentiality of all information ob- No complainant, recipient or other
tained in the course of the mediation person shall intimidate, threaten, co-
process. No mediator shall testify in erce, or discriminate against any indi-
any adjudicative proceeding, produce vidual for the purpose of interfering
any document, or otherwise disclose with any right or privilege secured by
any information obtained during the this part or because an individual or
course of the mediation process with- group has made a complaint, testified,
out prior approval of the head of the assisted, or participated in any manner
agency appointing the mediator. in an investigation, review, enforce-
ment process, or hearing under this
§ 117.13 Investigation and resolution part. The identity of complainants
of matters. shall be kept confidential except to the
(a) SBA will make a prompt inves- extent necessary to carry out the pur-
tigation whenever a compliance review poses of this part, including the con-
indicates a possible failure to comply duct of any investigation, hearing, me-
with this part by the recipient and ad- diation, or judicial proceeding.
239
§ 117.15 13 CFR Ch. I (1–1–23 Edition)
§ 117.15 Procedure for effecting com- fuses to comply with a requirement im-
pliance. posed by or pursuant to those sections,
(a) General. (1) If there appears to be Federal financial assistance may be de-
a failure or threatened failure to com- ferred for a period not to exceed 60 days
ply with this part by an applicant or after the applicant has received a no-
recipient and if the noncompliance or tice for an opportunity for hearing
threatened noncompliance cannot be under § 117.16, or unless a hearing has
resolved by informal means, compli- begun within that time, or the time for
ance with this part may be effected by beginning the hearing has been ex-
suspending, terminating, or refusing tended by mutual consent of the recipi-
any financial assistance approved but ent and the Agency, for purposes of de-
not yet disbursed to an applicant. In termining what constitutes mutual
the case of loans partially or fully dis- consent, the Agency shall be deemed to
bursed, compliance with this part may have consented to any extension re-
be effected by calling, canceling, termi- quested by the recipient and granted
nating, accelerating repayment, or sus- by the administrative law judge (hear-
pending in whole or in part the Federal ing officer), whether or not the Agency
financial assistance provided. The de- initially approved the extension. A de-
termination of the recipient’s violation ferral may not continue for more than
may be made only after a recipient has 30 days after the close of the hearing,
had an opportunity for a hearing on the unless the hearing results in a finding
record before an administrative law against the applicant or recipient.
judge. (c) SBA will not take action toward
(2) In addition, compliance may be ef- accelerating repayment, suspending,
fected by any other means authorized terminating, or refusing financial as-
by law. Such other means may include, sistance until:
but are not limited to: (1) SBA has advised the applicant or
(i) Action by SBA to accelerate the recipient of the failure to comply and
maturity of the recipient’s obligation; has determined that compliance cannot
(ii) Referral to the Department of be secured by voluntary means;
Justice with a recommendation that (2) There has been an express finding
appropriate proceedings be brought to on the record, after an opportunity for
enforce any rights of the United States hearing, of a failure by the applicant or
under any law of the United States or recipient to comply with a requirement
obligations of the recipient created by imposed by or pursuant to this part;
the Act or this part; and (3) The action has been approved by
(iii) Use of any requirement of or re- the Administrator of SBA pursuant to
ferral to any Federal, State or local § 117.17; and
government agency that will have the (4) The expiration of 30 days after
effect of correcting a violation of the SBA has filed with the committee of
Act or these regulations. the House and the committee of the
(3) If there appears to be a failure or Senate having legislative jurisdiction
threatened failure to comply with this over the form of financial assistance
part by an SBA office or official, the involved, a full written report of the
Assistant Administrator, Office of circumstances and the grounds for such
Equal Employment Opportunity & action.
Civil Rights Compliance, will rec- (d) Other means authorized by law.
ommend appropriate corrective action No action to effect compliance by any
to the Administrator. Any resulting other means authorized by law shall be
adverse action against an SBA em- taken until:
ployee shall follow Office of Personnel (1) SBA has determined that compli-
Management and SBA procedures for ance cannot be secured by voluntary
such action. means;
(b) Noncompliance with §§ 117.7 and (2) The action has been approved by
117.9. If an applicant fails or refuses to the Administrator or designee;
furnish an assurance required under (3) The expiration of 30 days after
§ 117.7, or fails to provide information SBA has filed with the committee of
or allow SBA access to information the House and the committee of the
under § 117.9 or otherwise fails or re- Senate having legislative jurisdiction
240
over the form of financial assistance (b) Time and place of hearing. Hear-
involved, a full written report of the ings shall be held at OHA in Wash-
circumstances and the grounds for such ington, DC, at a time fixed by OHA un-
action; less that office determines that the
(4) The applicant or recipient has convenience of the complainant, appli-
been notified of the failure to comply, cant, recipient or SBA requires that
and of the action to be taken to effect another place be selected. Hearings
compliance; and shall be held before an administrative
(5) The expiration of at least 10 days law judge designated in accordance
from the mailing of such notice to the with the Administrative Procedure
applicant or recipient or other person. Act.
During this period of at least 10 days (c) Right to counsel. In all proceedings
from the mailing of such notice to the under this section, the applicant or re-
applicant or recipient or other person, cipient and SBA shall have the right to
additional efforts shall be made to per- be represented by counsel.
suade the applicant or recipient to (d) Procedures, evidence, and record. (1)
comply with this part and to take such The hearings, decisions, and any ad-
corrective action as may be appro- ministrative review shall be conducted
priate. in conformity with the Administrative
[50 FR 41648, Oct. 11, 1985, as amended at 72 Procedure Act and 13 CFR part 134.
FR 50038, Aug. 30, 2007] Such rules of procedure should be con-
sistent with this section, relate to the
§ 117.16 Hearings. conduct of the hearing, provide for giv-
(a) Opportunity for hearing. Whenever ing of notices to those referred to in
an opportunity for a hearing is re- paragraph (a) of this section, taking of
quired by § 117.15, reasonable notice testimony, exhibits, arguments, and
shall be given by registered or certified briefs, request for findings and other
mail, return receipt requested, to the related matters. SBA, the complainant,
affected applicant or recipient. This if any, and the applicant or recipient
notice shall advise the applicant or re- shall be entitled to introduce all rel-
cipient of the action proposed to be evant evidence on the issues as stated
taken, the specific provision under in the notice for hearing, or as deter-
which the proposed action against it is mined by the administrative law judge
to be taken, and the matters of fact or conducting the hearing at the outset of
law asserted as the basis for this ac- or during the hearing.
tion, and either. (2) Technical rules of evidence may
(1) Fix a date not less than 20 days be waived by the administrative law
after the date of such notice within judge conducting a hearing pursuant to
which the applicant or recipient may this part, but rules or principles de-
request the Office of Hearings and Ap- signed to assure production of the most
peals (OHA) that the matter be sched- credible evidence available, and subject
uled for hearing; or testimony to test by cross-examination
(2) Advise the applicant or recipient shall be applied where reasonably nec-
that the matter in question has been essary. The administrative law judge
set down for hearing at a stated place may exclude irrelevant, immaterial, or
and time. The time and place so fixed unduly repetitious evidence. All docu-
shall be reasonable and shall be subject ments and other evidence offered or
to change for cause. The complainant taken for the record shall be open to
shall be advised of the time and place examination by the parties and oppor-
of the hearing. An applicant or recipi- tunity shall be given to refute facts
ent may waive a hearing and submit and arguments advanced on either side
written information and argument for of the issues. A transcript shall be
the record. The failure of an applicant made of the oral evidence except to the
or recipient to appear at a hearing for extent the substance thereof is stipu-
which a date has been set shall be lated for the record. All decisions shall
deemed to be a waiver of the right to a be based upon the hearing record and
hearing and as consent to the making written findings shall be made.

of a decision on the basis of such infor- (e) Consolidated or joint hearings. In
mation as is available. cases in which the same or related
241
§ 117.17 13 CFR Ch. I (1–1–23 Edition)
facts are asserted to constitute non- pursuant to paragraph (a) of this sec-
compliance or threatened noncompli- tion, or whenever the Secretary of the
ance with this part, with respect to two Department of Health and Human
or more forms of financial assistance Services or the Department of Justice
to which this part applies, or non- conducts the hearing, the applicant or
compliance with this part and the reg- recipient shall be given reasonable op-
ulations of one or more other Federal portunity to file briefs or other written
agencies issued under the Act, the Ad- statements of its contentions and a
ministrator may, by agreement with copy of the final decision of the Admin-
such other agencies, provide for the istrator shall be given in writing to the
conduct of consolidated or joint hear- applicant or recipient and the com-
ings, and for the application to such plainant, if any.
hearings of rules and procedures not in- (c) Decisions on record where a hearing
consistent with this part. Final deci- is waived. Whenever a hearing is waived
sions in such cases, insofar as this part pursuant to § 117.16, a decision shall be
is concerned, shall be made in accord- made by the Administrator on the
ance with § 117.17. record and a copy of such decision shall
be given in writing to the applicant or
§ 117.17 Decisions and notices. recipient, and to the complainant, if
(a) Decision by an administrative law any.
judge. If the hearing is held by an ad- (d) Rulings required. Each decision of
ministrative law judge, such adminis- an administrative law judge or the Ad-
trative law judge shall either make an ministrator shall set forth the ruling
initial decision, if so authorized, or on each finding, conclusion, or excep-
certify the entire record, including rection presented, and shall identify the
ommended findings and proposed deci- requirement or requirements imposed
sion, to the Administrator for a final by or pursuant to this part with which
decision and a copy of such initial deci- it is found that the applicant or recipi-
sion or certification shall be mailed to ent has failed to comply.
the applicant or recipient and the com- (e) Decision by the Administrator. The
plainant. Where the initial decision is Administrator shall make any final de-
made by the administrative law judge, cision which provides for the suspen-
the applicant or recipient may, within sion or termination of, or the refusal to
30 days of the mailing of such notice of grant or continue Federal financial as-
initial decision, file with the Adminis- sistance, acceleration repayment or
trator exceptions to the initial deci- the imposition of any other sanction
sion, with the reasons therefor. In the available under the regulations or
absence of exceptions, the Adminis- taken under other means authorized by
trator may, by motion within 45 days law.
after the initial decision, serve on the (f) Content of orders. The final deci-
applicant or recipient a notice that he/ sion may provide for accelerating of re-
she will review the decision. Upon the payment, suspension or termination of,
filing of such exceptions or of such no- or refusal to approve, disburse, or con-
tice of review, the Administrator shall tinue Federal financial assistance, in
review the initial decision and issue whole or in part, to which this regula-
his/her decision thereon, including the tion applies, and may contain such
reasons therefor. The decision of the terms, conditions, and other provisions
Administrator shall be mailed prompt- as are consistent with and will effec-
ly to the applicant or recipient, and tuate the purposes of the Act and this
the complainant, if any. In the absence part, including provisions designed to
of either exceptions or a notice of re- assure that no Federal financial assist-
view, the initial decision shall con- ance to which this regulation applies
stitute the final decision of the Admin- will, thereafter, be extended to the ap-
istrator. plicant or recipient determined by such
(b) Decisions on record or review by the decision to have failed to comply with
Administrator. Whenever a record is cer- this part, unless and until it corrects
tified to the Administrator for decision its noncompliance and satisfies the Ad-
or the Administrator reviews the deci- ministrator that it will fully comply
sion of an administrative law judge with this part.
242
(g) Post termination proceedings. (1) An in favor of the recipient, the Agency
applicant or recipient adversely af- shall:
fected by an order issued under para- (1) Advise the complainant of this
graph (e) of this section shall be re- fact;
stored to full eligibility to receive Fed- (2) Advise the complainant of the
eral financial assistance only if it sat- right to file a civil action for injunc-
isfies the terms and conditions of that tive relief; and
order for such eligibility and it brings (3) Inform the complainant:
itself into compliance with this regula- (i) That the complainant may bring a
tion and provides reasonable assurance civil action only in a United States dis-
that it will fully comply with this reg- trict court for the district in which the
ulation. recipient is found or transacts busi-
(2) Any applicant or recipient ad- ness;
versely affected by an order entered (ii) That a complainant prevailing in
pursuant to paragraph (f) of this sec- a civil action has the right to be
tion may at any time request the Ad- awarded the costs of the action, includ-
ministrator to restore fully its eligi- ing reasonable attorney’s fees, but that
bility to receive Federal financial as- the complainant must demand these
sistance. Any such request shall be costs in the complaint;
supported by information showing that (iii) That before commencing the ac-
the applicant or recipient has met the tion the complainant shall give 30 days
requirements of paragraph (g)(1) of this notice by registered mail to the Sec-
section. If the Administrator deter- retary of the Department of Health and
mines that those requirements have Human Services, the Attorney General
been satisfied, he/she shall restore such of the United States and the recipient;
eligibility. (iv) That the notice must state: The
(3) If the Administrator denies any alleged violation of the Act; the relief
such request, the applicant or recipient requested; the court in which the com-
may submit a request for a hearing in plainant is bringing the action; and
writing, specifying why it believes the whether or not attorney’s fees are de-
denial to have been in error. It shall manded in the event the complainant
there upon be given an expeditious prevails; and
hearing, with a decision on the record, (v) That the complainant may not
in accordance with rules and proce- bring an action if the same alleged vio-
dures issued by the Administrator. The lation of the Act by the same recipient
applicant or recipient shall be restored is the subject of a pending action in
to such eligibility if it proves at such any court of the United States.
hearing that it satisfied the require-
ments of paragraph (g)(1) of this sec- § 117.19 Effect on other regulations.
tion. While proceedings under this (a) All regulations, orders or like di-
paragraph are pending, the sanctions rections heretofore issued by SBA
imposed by the order issued under which impose requirements designed to
paragraph (f) of this section shall re- prohibit any discrimination against in-
main in effect. dividuals on the grounds of age and
which authorize the suspension or ter-
§ 117.18 Judicial review. mination of or refusal to grant or to
(a) The complainant may file a civil continue financial assistance to any
action following the exhaustion of ad- applicant for or recipient of such as-
ministrative remedies under the Act. sistance for failure to comply with
Administrative remedies are exhausted such requirements, are hereby super-
if: seded to the extent that such discrimi-
(1) 180 days have elapsed since the nation is prohibited by this part, ex-
complainant filed the complaint and cept that nothing in this part shall be
the Agency has made no finding with deemed to relieve any person of any ob-
regard to the complaint; or ligation assumed or imposed under any
(2) The Agency has issued a finding in such superseded regulation, order, in-
favor of the recipient. struction, or like direction prior to the

(b) If the Agency fails to make a find- effective date of this part. Nothing in
ing within 180 days or issues a finding this part, however, shall be deemed to
243
§ 117.20 13 CFR Ch. I (1–1–23 Edition)
supersede any of the following (includ- Type of Federal financial as- Authority
ing future amendments thereof): sistance
(1) Executive Order 11246, as amend- Debtor State Development Small Business Investment
ed, and regulations issued thereunder; companies (501) and their Act, Title V.
small business concerns.
(2) Title VI of the Civil Rights Act of
Debtor State Development Small Business Investment
1964, as amended; companies (502) and their Act, Title V.
(3) The Equal Credit Opportunity small business concerns.
Act, as amended and Regulation B of Debtor certified development Small Business Investment
companies (503) and their Act, Title V.
the Board of Governors of the Federal small business concerns.
Reserve System, (12 CFR part 202); Debtor small business invest- Small Business Investment
(4) Section 504 of the Rehabilitation ment companies and their Act, Title III.
Act of 1973, as amended; small business concerns.
Pollution Control .................... Small Business Investment
(5) Title VIII of the Civil Rights Act Act, Title IV, Part A.
of 1968; Disaster Loans:
(6) Title IX of the Educational Physical, including riot ....... Small Business Act, section
Amendments of 1972; 7(b)(1).
Economic Injury (EIDL) ...... Small Business Act, section
(7) Section 633(b) of the Small Busi- 7(b)(2).
ness Act; Federal Action Loan Pro- Small Business Act, section
(8) Part 113 of title 13 of the Code of gram. 7(b)(3).
Federal Regulations (13 CFR part 113); Small Business Institute ..... Small Business Act, section
8(b)(1).
or
Small Business Develop- Small Business Act, section
(9) Any other statute, order, regula- ment Centers. 21.
tion or instruction, insofar as such International Trade Pro- Small Business Act, section
order, regulations, or instruction program. 22.
hibits discrimination on the grounds of Technical and Management Small Business Act, section
Assistance. 7(j).
age in any program or activity or situ-
1 None of the programs administered have any age distinc-
ation to which this part is inapplicable tions except as statutorily required.
on any other ground.
§ 117.20 Supervision and coordination. PART 119—PROGRAM FOR INVEST-

The Administrator may from time to MENT IN MICROENTREPRENEURS
time assign to officials of SBA or to of- (‘‘PRIME’’ OR ‘‘THE ACT’’)
ficials of other agencies of the Govern-
ment with the consent of such agen- Sec.
cies, responsibilities in connection 119.1 What is the Program for Investment in
with the effectuation of the purpose of Microentrepreneurs (‘‘PRIME’’)?
the Act and this part (other than re- 119.2–119.20 [Reserved]
sponsibility for final decision as pro- AUTHORITY: 15 U.S.C. 634(b)(6), 6901–6910.
vided in § 117.17), including the achieve-
SOURCE: 66 FR 29013, May 29, 2001, unless
ment of effective coordination and otherwise noted.
maximum uniformity within SBA and
within the Executive Branch of the § 119.1 What is the Program for Invest-
Government in the application of the ment in Microentrepreneurs
Act and this part to similar programs (PRIME)?
or activities and in similar situations. (a) The PRIME program authorizes
Responsibility for administering and SBA to award grants to qualified orga-
enforcing this part is assigned by the nizations to fund training and tech-
Administrator, to the Office of Civil nical assistance for disadvantaged
Rights Compliance, Office of Equal microentrepreneurs; training and ca-
Employment Opportunity and Compli- pacity-building services for microen-
ance of the Small Business Administra- terprise development organizations; re-
tion. search and development of the best
practices in the fields of microenter-
APPENDIX A TO PART 11 1
prise development and the provision of
Type of Federal financial as- Authority
technical assistance to disadvantaged
sistance microentrepreneurs; and such other ac-

Business Loans ..................... Small Business Act, section tivities as the Agency deems appro-
7(a). priate.
244
(b) Dependent upon the availability 120.104 Are businesses financed by SBICs el-
of funds and continuing program au- igible?
thority, SBA will issue, via Grants.gov 120.105 Special consideration for veterans.
or any successor platform, funding an- INELIGIBLE BUSINESSES AND ELIGIBLE PASSIVE
nouncements specifying the terms, COMPANIES
conditions, and evaluation criteria for 120.110 What businesses are ineligible for
each potential round of PRIME awards. SBA business loans?
These funding announcements will 120.111 What conditions must an Eligible
identify who is eligible to apply for Passive Company satisfy?
PRIME awards; summarize the pur-
USES OF PROCEEDS
poses for which the available funds
may be used; advise potential appli- 120.120 What are eligible uses of proceeds?
cants regarding the process for obtain- 120.130 Restrictions on uses of proceeds.
120.131 Leasing part of new construction or
ing, completing, and submitting an ap- existing building to another business.
plication packet; and provide informa-
tion regarding application deadlines ETHICAL REQUIREMENTS
and any additional limitations, special 120.140 What ethical requirements apply to
rules, procedures, and restrictions participants?
which SBA may deem advisable.
(c) SBA will evaluate applications for CREDIT CRITERIA FOR SBA LOANS
PRIME awards in accordance with the 120.150 What are SBA’s lending criteria?
stated statutory goals of the program 120.151 What is the statutory limit for total
and the specific criteria described in loans to a Borrower?
the relevant funding announcement. 120.160 Loan conditions.
(d) In administering the PRIME pro- REQUIREMENTS IMPOSED UNDER OTHER LAWS
gram, SBA will require recipients to AND ORDERS
provide reports in accordance with the 120.170 Flood insurance.
subject matter areas and schedule iden- 120.171 Compliance with child support obli-
tified in the terms and conditions of gations.
their awards. In addition, SBA may, as 120.172 Flood-plain and wetlands manage-
it deems appropriate, make site visits ment.
to recipients’ premises and review all 120.174 Earthquake hazards.
120.175 Coastal barrier islands.
applicable documentation and records.
120.176 Compliance with other laws.
[85 FR 62951, Oct. 6, 2020]
APPLICABILITY AND ENFORCEABILITY OF LOAN
§§ 119.2–119.20 [Reserved] PROGRAM REQUIREMENTS
120.180 Compliance with Loan Program Re-
PART 120—BUSINESS LOANS quirements.
120.181 Status of Lenders and CDCs.
GENERAL DESCRIPTIONS OF SBA’S BUSINESS LOAN APPLICATIONS
LOAN PROGRAMS
120.190 Where does an applicant apply for a
Sec. loan?
120.1 Which loan programs does this part 120.191 The contents of a business loan ap-
cover? plication.
120.2 Descriptions of the business loan pro- 120.192 Approval or denial.
grams. 120.193 Reconsideration after denial.
120.3 Pilot programs.
COMPUTERIZED SBA FORMS
DEFINITIONS
120.194 [Reserved]
120.10 Definitions.
REPORTING
Subpart A—Policies Applying to All 120.195 Disclosure of fees.
Business Loans 120.197 Notifying SBA’s Office of Inspector
General of suspected fraud.
ELIGIBILITY REQUIREMENTS
120.100 What are the basic eligibility re- Subpart B—Policies Specific to 7(a) Loans
quirements for all applicants for SBA
BONDING REQUIREMENTS
business loans?
120.101 Credit not available elsewhere. 120.200 What bonding requirements exist
120.102 [Reserved] during construction?
245
LIMITATIONS ON USE OF PROCEEDS INTERNATIONAL TRADE LOANS
120.201 Refinancing unsecured or under- 120.345 Policy.
secured loans. 120.346 Eligibility.
120.202 Restrictions on loans for changes in 120.347 Use of proceeds.
ownership. 120.348 Amount of guarantee.
120.349 Collateral.
MATURITIES; INTEREST RATES; LOAN AND
GUARANTEE AMOUNTS QUALIFIED EMPLOYEE TRUSTS (ESOP)
120.210 What percentage of a loan may SBA 120.350 Policy.
guarantee? 120.351 Definitions.
120.211 What limits are there on the 120.352 Use of proceeds.
amounts of direct loans? 120.353 Eligibility.
120.212 What limits are there on loan matu- 120.354 Creditworthiness.
rities?
VETERANS LOAN PROGRAM
120.213 What fixed interest rates may a
Lender charge? 120.360 Which veterans are eligible?
120.214 What conditions apply for variable 120.361 Other conditions of eligibility.
interest rates?
LOANS TO PARTICIPANTS IN THE 8(a) PROGRAM
FEES FOR GUARANTEED LOANS
120.375 Policy.
120.220 Fees that Lender pays SBA. 120.376 Special requirements.
120.221 Fees and expenses that the Lender 120.377 Use of proceeds.
may collect from a loan applicant or Bor-
rower. CAPLINES PROGRAM
120.222 Prohibition on sharing premiums for 120.390 Revolving credit.
secondary market sales.
120.223 Subsidy recoupment fee payable to BUILDERS LOAN PROGRAM
SBA by Borrower. 120.391 What is the Builders Loan Program?
120.392 Who may apply?
Subpart C—Special Purpose Loans 120.393 Are there special application re-
120.300 Statutory authority. quirements?
120.394 What are the eligible uses of pro-
DISABLED ASSISTANCE LOAN PROGRAM (DAL) ceeds?
120.395 What is SBA’s collateral position?
120.310 What assistance is available for the 120.396 What is the term of the loan?
disabled? 120.397 Are there any special restrictions?
120.312 DAL–1 use of proceeds and other pro- AMERICA’S RECOVERY CAPITAL (BUSINESS STA-
gram conditions. BILIZATION) LOAN PROGRAM—ARC LOAN
120.313 DAL–2 use of proceeds and other pro- PROGRAM
gram conditions.
120.398 America’s Recovery Capital (ARC)
120.314 Resolving doubts about credit-
Loan Program.
worthiness.
120.315 Interest rate and loan limit.
Subpart D—Lenders
BUSINESSES OWNED BY LOW INCOME
120.400 Loan Guarantee Agreements.
INDIVIDUALS
120.320 Policy. PARTICIPATION CRITERIA
120.410 Requirements for all participating
ENERGY CONSERVATION
Lenders.
120.330 Who is eligible for an energy con- 120.411 Preferences.
servation loan? 120.412 Other services Lenders may provide
120.331 What devices or techniques are eligi- Borrowers.
ble for a loan? 120.413 Advertisement of relationship with
120.332 What are the eligible uses of pro- SBA.
ceeds?
120.333 Are there any special credit criteria? PARTICIPATING LENDER FINANCINGS
EXPORT WORKING CAPITAL PROGRAM (EWCP)
120.421 Which Lenders may securitize?
120.340 What is the Export Working Capital 120.422 Are all securitizations subject to
Program? this subpart?
120.341 Who is eligible? 120.423 Which 7(a) loans may a Lender
120.342 What are eligible uses of proceeds? securitize?

120.343 Collateral. 120.424 What are the basic conditions a
120.344 Unique requirements of the EWCP. Lender must meet to securitize?
246
120.425 What are the minimum elements 120.471 What are the minimum capital re-
that SBA will require before consenting quirements for SBLCs?
to a securitization? 120.472 Higher individual minimum capital
120.426 What action will SBA take if a requirement.
securitizer transfers the subordinated 120.473 Procedures for determining indi-
tranche prior to the termination of the vidual minimum capital requirement.
holding period? 120.474 Relation to other actions.
120.427 Will SBA approve a securitization 120.475 [Reserved]
application from a capital impaired 120.476 Prohibited financing.
Securitizer? 120.490 Audits.
120.428 What happens to a securitizer’s
other PLP responsibilities if SBA sus- Subpart E—Servicing, Liquidation and Debt
pends its PLP approval privilege? Collection Litigation of 7(a) and 504 Loans
OTHER CONVEYANCES SBA’S PURCHASE OF A GUARANTEED PORTION
120.430 What conveyances are covered by 120.520 Purchase of 7(a) loan guarantees.
§§ 120.430 through 120.435? 120.521 What interest rate applies after SBA
120.431 Which Lenders may sell, sell partici- purchases its guaranteed portion?
pations in, or pledge 7(a) loans? 120.522 Payment of accrued interest to the
120.432 Under what circumstances does this Lender or Registered Holder when SBA
subpart permit sales of, or sales of par- purchases the guaranteed portion.
ticipating interests in, 7(a) loans? 120.523 What is the ‘‘earliest uncured pay-
120.433 What are SBA’s other requirements ment default’’?
for sales and sales of participating inter- 120.524 When is SBA released from liability
ests? on its guarantee?
120.434 What are SBA’s requirements for 120.530 Deferment of payment.
loan pledges? 120.531 Extension of maturity.
120.435 Which loan pledges do not require 120.535 Standards for Lender and CDC loan
notice to or consent by SBA? servicing, loan liquidation and debt col-
lection litigation.
DELEGATED AUTHORITY CRITERIA 120.536 Servicing and liquidation actions
120.440 How does a 7(a) Lender obtain dele- that require the prior written consent of
gated authority? SBA.
120.441–120.447 [Reserved] 120.540 Liquidation and litigation plans.
120.541 Time for approval by SBA.
PREFERRED LENDERS PROGRAM (PLP) 120.542 Payment by SBA of legal fees and
120.450 What is the Preferred Lenders Pro- other expenses.
gram? 120.545 What are SBA’s policies concerning
120.451 [Reserved] the liquidation of collateral and the sale
120.452 What are the requirements of PLP of business loans and physical disaster
loan processing? assistance loans, physical disaster busi-
ness loans and economic injury disaster
SBA SUPERVISED LENDERS loans?
120.546 Loan asset sales.
120.460 What are SBA’s additional require-
ments for SBA Supervised Lenders? HOMESTEAD PROTECTION FOR FARMERS
120.461 What are SBA’s additional require-
ments for SBA Supervised Lenders con- 120.550 What is homestead protection for
cerning records? farmers?
120.462 What are SBA’s additional require- 120.551 Who is eligible for homestead pro-
ments on capital maintenance for SBA tection?
Supervised Lenders? 120.552 Lease.
120.463 Regulatory accounting—What are 120.553 Appeal.
SBA’s regulatory accounting require- 120.554 Conflict of laws.
ments for SBA Supervised Lenders?
120.464 Reports to SBA. Subpart F—Secondary Market
120.465 Civil penalty for late submission of
FISCAL AND TRANSFER AGENT (FTA)
required reports.
120.466 SBA Supervised Lender application. 120.600 Definitions.
120.467 Evaluation of SBA Supervised Lend- 120.601 SBA Secondary Market.
er applicants.
120.468 Change of ownership or control re- CERTIFICATES
quirements for SBA Supervised Lenders. 120.610 Form and terms of Certificates.
120.611 Pools backing Pool Certificates.
SMALL BUSINESS LENDING COMPANIES (SBLC)

120.612 Loans eligible to back Certificates.
120.470 What are SBA’s additional require- 120.613 Secondary Participation Guarantee
ments for SBLCs? Agreement.
247
THE SBA GUARANTEE OF A CERTIFICATE 120.801 How a 504 Project is financed.
120.620 SBA guarantee of a Pool Certificate.
120.621 SBA guarantee of an Individual Cer- CERTIFICATION PROCEDURES TO BECOME A CDC
tificate.
120.810 Applications for certification as a
POOL ASSEMBLERS CDC.
120.630 Qualifications to be a Pool Assem- 120.812 Probationary period for newly cer-
bler. tified CDCs.
120.631 Suspension or termination of Pool
REQUIREMENTS FOR CDC CERTIFICATION AND
Assembler.
OPERATION
MISCELLANEOUS PROVISIONS 120.816 CDC non-profit status and good
120.640 Administration of the Pool and Indi- standing.
vidual Certificates. 120.818 Applicability to existing for-profit
120.641 Disclosure to purchasers. CDCs.
120.642 Requirements before the FTA issues 120.820 CDC Affiliation.
Pool Certificates. 120.821 CDC Area of Operations.
120.643 Requirements before the FTA issues 120.823 CDC Board of Directors.
Individual Certificates. 120.824 Professional management and staff,
120.644 Transfers of Certificates. and contracts for services.
120.645 Redemption of Certificates. 120.825 Financial ability to operate.
120.650 Registration duties of FTA in Sec- 120.826 Basic requirements for operating a
ondary Market. CDC.
120.651 Claim to FTA by Registered Holder 120.827 Other services a CDC may provide to
to replace Certificate. small businesses.
120.652 FTA fees. 120.828 Minimum level of 504 loan activity
and restrictions on portfolio concentra-
SUSPENSION OR REVOCATION OF PARTICIPANT tions.
IN SECONDARY MARKET
120.829 Job Opportunity average a CDC
120.660 Suspension or revocation. must maintain.
120.830 Reports a CDC must submit.
Subpart G—Microloan Program
EXTENDING A CDC’S AREA OF OPERATIONS
120.700 What is the Microloan Program?
120.835 Application to expand an Area of Op-
erations.
120.702 Are there limitations on who can be
120.837 SBA decision on application for a
an Intermediary or on where an Inter-
new CDC or for an existing CDC to ex-
mediary may operate?
120.703 How does an organization apply to pand Area of Operations.
become an Intermediary? 120.839 Case-by-case application to make a
120.704 How are applications evaluated? 504 loan outside of a CDC’s Area of Oper-
120.705 What is a Specialized Intermediary? ation.
120.706 What are the terms and conditions ACCREDITED LENDERS PROGRAM (ALP)
of an SBA loan to an intermediary?
120.707 What conditions apply to loans by 120.840 Accredited Lenders Program (ALP).
Intermediaries to Microloan borrowers? 120.841 Qualifications for the ALP.
120.708 What is the Intermediary’s financial 120.842 ALP Express Loans.
contribution?
120.709 What is the Microloan Revolving PREMIER CERTIFIED LENDERS PROGRAM
Fund? 120.845 Premier Certified Lenders Program
120.710 What is the Loan Loss Reserve (PCLP).
Fund? 120.846 Requirements for maintaining and
120.711 What rules govern Intermediaries? renewing PCLP status.
120.712 How does an Intermediary get a 120.847 Requirements for the Loan Loss Re-
grant to assist Microloan borrowers? serve Fund (LLRF).
120.713 Does SBA provide technical assist-
120.848 Requirements for 504 loan proc-
ance to Intermediaries?
essing, closing, servicing, liquidating,
120.714–120.715 [Reserved]
and litigating by PCLP CDCs.
120.716 What is the minimum number of
loans an Intermediary must make each OTHER CDC REQUIREMENTS
Federal fiscal year?
120.851 CDC ethical requirements.
Subpart H—Development Company Loan 120.852 [Reserved]
Program (504) 120.853 Inspector General audits of CDCs.

120.857 Voluntary transfer and surrender of
120.800 [Reserved] CDC certification.
248
PROJECT ECONOMIC DEVELOPMENT GOALS 120.953 Trustee.
120.954 Central Servicing Agent.
120.860 Required objectives.
120.861 Job creation or retention. 120.955 Agent bonds and records.
120.862 Other economic development objec- 120.956 Suspension or revocation of brokers
tives. and dealers.
LEASING POLICIES SPECIFIC TO 504 LOANS CLOSINGS
120.870 Leasing Project Property. 120.960 Responsibility for closing.

120.871 Leasing part of Project Property to 120.961 Construction escrow accounts.
another business.
SERVICING
LOAN-MAKING POLICIES SPECIFIC TO 504 LOANS 120.970 Servicing of 504 loans and Deben-
120.880 Basic eligibility requirements. tures.
120.881 Ineligible Projects for 504 loans.
120.882 Eligible Project costs for 504 loans. FEES
120.883 Eligible administrative costs for 504 120.971 Allowable fees paid by Borrower.
loans. 120.972 Third Party Lender participation fee
120.884 Ineligible costs for 504 loans. and CDC fee.
INTERIM FINANCING AUTHORITY OF CDCS TO PERFORM LIQUIDA-
120.890 Source of interim financing. TION AND DEBT COLLECTION LITIGATION
120.891 Certifications of disbursement and 120.975 CDC Liquidation of loans and debt
completion. collection litigation.
120.892 Certifications of no adverse change.
ENFORCEABILITY OF 501, 502 AND 503 LOANS
PERMANENT FINANCING AND OTHER LAWS
120.900 Sources of permanent financing. 120.990 501, 502 and 503 loans.
120.991 Effect of other laws.
THE BORROWER’S CONTRIBUTION
120.910 Borrower contributions. Subpart I—Risk-Based Lender Oversight
120.911 Land contributions.
120.912 Borrowed contributions. SUPERVISION
120.913 Limitations on any contributions by 120.1000 Risk-Based Lender Oversight.
a Licensee. 120.1005 Bureau of PCLP Oversight.
120.1010 SBA access to SBA Lender and
THIRD PARTY LOANS
Intermediary files.
120.920 Required participation by the Third 120.1015 Risk Rating System.
Party Lender. 120.1025 Monitoring.
120.921 Terms of Third Party loans. 120.1050 Reviews and examinations.
120.922 Pre-existing debt on the Project 120.1051 Frequency of reviews and examina-
Property. tions.
120.923 Policies on subordination. 120.1055 Review and examination results.
120.925 [Reserved] 120.1060 Confidentiality of Reports, Risk
120.926 Referral fee. Ratings, and related Confidential Infor-
mation.
504 LOANS AND DEBENTURES 120.1070 SBA Lender oversight fees
120.930 Amount.
120.931 504 Lending limits. ENFORCEMENT ACTIONS
120.932 Interest rate. 120.1300 Informal enforcement actions—7(a)
120.933 Maturity. Lenders.
120.934 Collateral. 120.1400 Grounds for enforcement actions—
120.935 Deposit from the Borrower that a SBA Lenders.
CDC may require. 120.1425 Grounds for formal enforcement ac-
120.937 Assumption. tions—Intermediaries participating in
120.938 Default. the Microloan Program.
120.939 Borrower prohibition. 120.1500 Types of formal enforcement ac-
120.940 Prepayment of the 504 loan or De- tions—SBA Lenders.
benture. 120.1510 Other Regulated SBLCs.
120.941 Certificates. 120.1511 Certification and other reporting
and notification requirements for Other
DEBENTURE SALES AND SERVICE AGENTS
Regulated SBLCs.
120.950 SBA and CDC must appoint agents. 120.1540 Types of formal enforcement ac-
120.951 Selling agent. tions—Intermediaries participating in
120.952 Fiscal agent. the Microloan Program.
249
§ 120.1 13 CFR Ch. I (1–1–23 Edition)
120.1600 General procedures for formal en- loans’’) authorized by section 7(a) of
forcement actions against SBA Lenders, the Small Business Act (‘‘the Act’’), 15
SBA Supervised Lenders, Other Regu- U.S.C. 636(a), its microloan demonstra-
lated SBLCs, Management Officials,
Other Persons, and Intermediaries.
tion loan program (‘‘Microloans’’) au-
thorized by section 7(m) of the Act, 15
Subpart J—Establishment of SBA Sec- U.S.C. 636(m), and its development
ondary Market Guarantee Program for company program (‘‘504 loans’’) author-
First Lien Position 504 Loan Pools ized by Title V of the Small Business
Investment Act, 15 U.S.C. 695 to 697f
120.1700 Definitions used in subpart J. (‘‘Title V’’). These three programs con-
120.1701 Program purpose.
120.1702 Program fee.
stitute the business loan programs of
120.1703 Qualifications to be a Pool Origi- the SBA.
nator.
120.1704 Pool Loans eligible for Pooling. § 120.2 Descriptions of the business
120.1705 Pool formation requirements. loan programs.
120.1706 Pool Originator’s retained interest (a) 7(a) loans. (1) 7(a) loans provide fi-
in Pool. nancing for general business purposes
120.1707 Seller’s retained Loan Interest.
120.1708 Pool Certificates. and may be:
120.1709 Transfers of Pool Certificates. (i) A direct loan by SBA;
120.1710 Central servicing of the Program. (ii) An immediate participation loan
120.1711 Suspension or termination of Pro- by a Lender and SBA; or
gram participation privileges. (iii) A guaranteed loan (deferred par-
120.1712 Seller responsibilities with respect ticipation) by which SBA guarantees a
to Seller’s Pool Loan.
portion of a loan made by a Lender.
120.1713 Seller’s Pool Loan origination.
120.1714 Seller’s Pool Loan servicing. (2) A guaranteed loan is initiated by
120.1715 Seller’s Pool Loan liquidation. a Lender agreeing to make an SBA
120.1716 Required SBA approval of servicing guaranteed loan to a small business
actions. and applying to SBA for SBA’s guar-
120.1717 Seller’s Pool Loan deferments. antee under a blanket guarantee agree-
120.1718 SBA’s right to assume Seller’s re- ment (participation agreement) be-
sponsibilities.
120.1719 SBA’s right to recover from Seller.
tween SBA and the Lender. If SBA
120.1720 SBA’s right to review Pool Loan agrees to guarantee (authorizes) a por-
documents. tion of the loan, the Lender funds and
120.1721 SBA’s right to investigate. services the loan. If the small business
120.1722 SBA’s offset rights. defaults on the loan, SBA’s guarantee
120.1723 Pool Loan receivables received by requires SBA to purchase its portion of
Seller. the outstanding balance, upon demand
120.1724 Servicing and liquidation expenses.
120.1725 No Program Preference by Seller or by the Lender and subject to specific
Pool Originator. conditions. Regulations specific to 7(a)
120.1726 Pool Certificates a Seller cannot loans are found in subpart B of this
purchase. part.
AUTHORITY: 15 U.S.C. 634(b)(6), (b)(7), (b) Microloans. SBA makes loans and
(b)(14), (h), and note, 636(a), (h) and (m), and loan guarantees to non-profit Inter-
note, 636m, 650, 657t, and note, 657u, and note, mediaries that make short-term loans
687(f), 696(3), and (7), and note, 697, 697a and up to $50,000 to eligible small busi-
e, and note; Pub. L. 116–260, 134 Stat. 1182. nesses for general business purposes,
SOURCE: 61 FR 3235, Jan. 31, 1996, unless except payment of personal debts. SBA
otherwise noted. also makes grants to Intermediaries
EDITORIAL NOTE: Nomenclature changes to
for use in providing management as-
part 120 appear at 72 FR 50039, Aug. 30, 2007. sistance and counseling to small busi-
nesses. Regulations specific to these
GENERAL DESCRIPTIONS OF SBA’S loans are found in subpart G of this
BUSINESS LOAN PROGRAMS part.
(c) 504 loans. Projects involving 504
§ 120.1 Which loan programs does this loans require long-term fixed-asset fi-
part cover? nancing for small businesses. A Cer-
This part regulates SBA’s financial tified Development Company (CDC)

assistance to small businesses under its provides the final portion of this fi-
general business loan programs (‘‘7(a) nancing with a 504 loan made from the
250
proceeds of a Debenture issued by the ment Company (‘‘SBIC’’) licensed by

CDC, guaranteed 100 percent by SBA SBA).
(with the full faith and credit of the (3) For purposes of this definition,
United States), and sold to investors. the time during which an Associate re-
The regulations specific to these loans lationship exists commences six
are found in subpart H of this part. months before the following dates and
continues as long as the certification,
FR 63545, Oct. 12, 2011] participation agreement, or loan is
outstanding:
§ 120.3 Pilot programs. (i) For a CDC, the date of certifi-
The Administrator of SBA may from cation by SBA;
time to time suspend, modify, or waive (ii) For a Lender, the date of applica-
rules for a limited period of time to tion for a loan guarantee on behalf of
test new programs or ideas. The Ad- an applicant; or
ministrator shall publish a document (iii) For a small business, the date of
in the FEDERAL REGISTER explaining the loan application to SBA, the CDC,
the reasons for these actions. the Intermediary, or the Lender.
Authorization is SBA’s written agree-
DEFINITIONS ment providing the terms and condi-
tions under which SBA will make or
§ 120.10 Definitions. guarantee business loans. It is not a
The following terms have the same contract to make a loan.
meaning wherever they are used in this Authorized CDC Liquidator is a CDC in
part. Defined terms are capitalized good standing with authority under the
wherever they appear. Act and SBA regulations to conduct
Acceptable Risk Rating is an SBA-as- liquidation and certain debt collection
signed Risk Rating, currently defined litigation in connection with 504 loans,
by SBA as ‘‘1’’, ‘‘2’’ or ‘‘3’’ on a scale of as authorized by § 120.975.
1 to 5, which represents an acceptable Borrower is the obligor of an SBA
level of risk as determined by SBA, and business loan.
which may be revised by SBA from Certified Development Company
time to time as published in the FED- (‘‘CDC’’) is an entity authorized by
ERAL REGISTER through notice and SBA to deliver 504 financing to small
comment. businesses.
Associate. (1) An Associate of a Lend- Close Relative is a spouse; a parent; or
er or CDC is: a child or sibling, or the spouse of any
(i) An officer, director, key employee, such person.
or holder of 20 percent or more of the Eligible Passive Company is a small en-
value of the Lender’s or CDC’s stock or tity or trust which does not engage in
debt instruments, or an agent involved regular and continuous business activ-
in the loan process; or ity, which leases real or personal prop-
(ii) Any entity in which one or more erty to an Operating Company for use
individuals referred to in paragraphs in the Operating Company’s business,
(1)(i) of this definition or a Close Rel- and which complies with the conditions
ative of any such individual owns or set forth in § 120.111.
controls at least 20 percent. Federal Financial Institution Regulator
(2) An Associate of a small business is the Federal banking regulator of a
is: 7(a) Lender and may include the Fed-
(i) An officer, director, owner of more eral Deposit Insurance Corporation,
than 20 percent of the equity, or key the Federal Reserve Board, the Office
employee of the small business; of the Comptroller of the Currency, the
(ii) Any entity in which one or more National Credit Union Administration,
individuals referred to in paragraphs and the Farm Credit Administration.
(2)(i) of this definition owns or controls Intermediary is the entity in the
at least 20 percent; and Microloan program that receives SBA
(iii) Any individual or entity in con- financial assistance and makes loans to
trol of or controlled by the small busi- small businesses in amounts up to
ness (except a Small Business Invest- $50,000.
251
§ 120.10 13 CFR Ch. I (1–1–23 Edition)
Lender or 7(a) Lender is an institution pervised Lender’s activities under the

that has executed a participation 7(a) program.
agreement with SBA under the guaran- Non-Federally Regulated Lender
teed loan program. (NFRL) is a business concern that is
Lender Oversight Committee (LOC) is a authorized by the SBA to make loans
committee established within SBA by under section 7(a) and is subject to reg-
legislation, which meets at least quar- ulation by a state but whose lending
terly, and which has the membership activities are not regulated by a Fed-
and duties set forth in section 48 of the eral Financial Institution Regulator.
Small Business Act as further outlined Operating Company is an eligible
in Delegations of Authority published small business actively involved in
in the FEDERAL REGISTER. The LOC’s conducting business operations now or
duties include, but are not limited to, about to be located on real property
reviewing (in an advisory capacity) any owned by an Eligible Passive Company,
lender oversight, portfolio risk man- or using or about to use in its business
agement, or program integrity matters operations personal property owned by
brought by the Director of the Office of an Eligible Passive Company.
Credit Risk Management (D/OCRM), Other Regulated SBLC is a Small
and voting on formal enforcement ac- Business Lending Company whose SBA
tion recommendations. operations receive regular safety and
Less Than Acceptable Risk Rating is an soundness examinations by a state
SBA-assigned Risk Rating, currently banking regulator or a Federal Finan-
defined by SBA as ‘‘4’’ or ‘‘5’’ on a scale cial Institution Regulator, and which
of 1 to 5, which represents a higher meets the requirements set forth in
level of risk as determined by SBA, and § 120.1511.
which may be revised by SBA from Person is any individual, corporation,
time to time as published in the FED- partnership, association, unit of gov-
ERAL REGISTER through notice and ernment, or legal entity, however orga-
comment. nized.
Loan Instruments are the Authoriza- Preference is any arrangement giving
tion, note, instruments of a Lender or a CDC a preferred position
hypothecation, and all other agree- compared to SBA relating to the mak-
ments and documents related to a loan. ing, servicing, or liquidation of a busi-
Loan Program Requirements or SBA ness loan with respect to such things as
Loan Program Requirements are require- repayment, collateral, guarantees, con-
ments imposed upon Lenders, CDCs, or trol, maintenance of a compensating
Intermediaries by statute; SBA and ap- balance, purchase of a Certificate of de-
plicable government-wide regulations; posit or acceptance of a separate or
any agreement the Lender, CDC, or companion loan, without SBA’s con-
Intermediary has executed with SBA; sent.
SBA Standard Operating Procedures Rentable Property is the total square
(SOPs); FEDERAL REGISTER notices; of- footage of all buildings or facilities
ficial SBA notices and forms applicable used for business operations.
to the 7(a) Loan Program, 504 Loan Risk Rating is an SBA internal com-
Program or Microloan Program; and posite rating assigned to individual
loan authorizations, as such require- SBA Lenders and Intermediaries that
ments are issued and revised by SBA reflects the risk associated with the
from time to time. For CDCs, this term SBA Lender’s or Intermediary’s port-
also includes requirements imposed by folio of SBA loans. Risk Ratings cur-
Debentures, as that term is defined in rently range from one to five, with one
§ 120.802. For Intermediaries, this term representing the least risk and five rep-
also includes requirements imposed by resenting the most risk, and may be re-
promissory notes, collateral docu- vised by SBA from time to time as pub-
ments, and grant agreements. lished in the FEDERAL REGISTER
Management Official is an officer, di- through notice and comment.
rector, general partner, manager, em- Rural Area is a political subdivision
ployee participating in management, or unincorporated area in a non-metro-

agent or other participant in the man- politan county (as defined by the De-
agement of the affairs of the SBA Su- partment of Agriculture), or, if in a
252
metropolitan county, any such subdivi- § 120.101 Credit not available else-
sion or area with a resident population where.
under 20,000 which is designated by
SBA provides business loan assist-
SBA as rural.
ance only to applicants for whom the
SBA Lender is a 7(a) Lender or a CDC.
desired credit is not otherwise avail-
This term includes SBA Supervised
able on reasonable terms from non-
Lenders.
Federal, non-State, and non-local gov-
SBA Supervised Lender is a 7(a) Lend-
ernment sources. Accordingly, SBA re-
er that is either a Small Business
Lending Company or a NFRL. quires the Lender or CDC to certify or
otherwise show that the desired credit
Service Provider is an entity that con-
tracts with a Lender or CDC to perform is unavailable to the applicant on rea-
management, marketing, legal or other sonable terms and conditions from non-
services. Federal, non-State, and non-local gov-
Small Business Lending Company ernment sources without SBA assist-
(SBLC) is a nondepository lending in- ance, taking into consideration factors
stitution that is SBA licensed and is associated with conventional lending
authorized by SBA to only make loans practices, including: The business in-
pursuant to section 7(a) of the Small dustry of the loan applicant; whether
Business Act and loans to Inter- the loan applicant has been in oper-
mediaries in SBA’s Microloan program. ation two years or less; the adequacy of
SBA has imposed a moratorium on li- collateral available to secure the loan;
censing new SBLCs since January 1982. the loan term necessary to reasonably
SOPs are SBA Standard Operating assure repayment of the loan from ac-
Procedures, as issued and revised by tual or projected business cash flow;
SBA from time to time. SOPs are pub- and any other factor relating to the
licly available on SBA’s Web site at particular loan application that cannot
http://www.sba.gov in the online library. be overcome except through obtaining
[61 FR 3235, Jan. 31, 1996, as amended at 64 a Federal loan guarantee under pru-
FR 2117, Jan. 13, 1999; 68 FR 57980, Oct. 7, 2003; dent lending standards. Submission of
72 FR 18360, Apr. 12, 2007; 73 FR 75510, Dec. 11, an application to SBA by a Lender or
2008; 76 FR 63545, Oct. 12, 2011; 85 FR 7647, CDC constitutes certification by the
Feb. 10, 2020; 85 FR 14780, Mar. 16, 2020; 85 FR Lender or CDC that it has examined
80588, Dec. 14, 2020; 87 FR 38908, June 30, 2022]
the availability of credit to the appli-
cant, has based its certification upon
Subpart A—Policies Applying to that examination, and has substan-
All Business Loans tiation in its file to support the certifi-
cation.
ELIGIBILITY REQUIREMENTS
§ 120.100 What are the basic eligibility FR 14780, Mar. 16, 2020]
requirements for all applicants for
SBA business loans? § 120.102 [Reserved]
To be eligible for an SBA business
§ 120.104 Are businesses financed by
loan, a small business applicant must: SBICs eligible?
(a) Be an operating business (except
for loans to Eligible Passive Compa- SBA may make or guarantee loans to
nies); a business financed by an SBIC if
(b) Be organized for profit; SBA’s collateral position will be supe-
(c) Be located in the United States; rior to that of the SBIC. SBA may also
(d) Be small under the size require- make or guarantee a loan to an other-
ments of part 121 of this chapter (in- wise eligible small business which tem-
cluding affiliates). See subpart H of porarily is owned or controlled by an
this part for the size standards of part SBIC under the regulations in part 107
121 of this chapter which apply only to of this chapter. SBA neither guaran-
504 loans; and tees SBIC loans nor makes loans joint-
(e) Be able to demonstrate a need for ly with SBICs.
the desired credit.
253
§ 120.105 13 CFR Ch. I (1–1–23 Edition)
§ 120.105 Special consideration for vet- (m) Loan packagers earning more
erans. than one third of their gross annual
SBA will give special consideration revenue from packaging SBA loans;
to a small business owned by a veteran (n) Businesses with an Associate who
or, if the veteran chooses not to apply, is incarcerated, on probation, on pa-
to a business owned or controlled by role, or is under indictment for a fel-
one of the veteran’s dependents. If the ony or any crime involving or relating
veteran is deceased or permanently dis- to financial misconduct or a false
abled, SBA will give special consider- statement;
(o) Businesses in which the Lender or
ation to one survivor or dependent.
CDC, or any of its Associates owns an
SBA will process the application of a
equity interest;
business owned or controlled by a vet-
(p) Businesses which:
eran or dependent promptly, resolve
(1) Present live performances of a
close questions in the applicant’s favor,
prurient sexual nature; or
and pay particular attention to max-
(2) Derive directly or indirectly more
imum loan maturity. For SBA loans, a
than de minimis gross revenue through
veteran is a person honorably dis-
the sale of products or services, or the
charged from active military service.
presentation of any depictions or dis-
INELIGIBLE BUSINESSES AND ELIGIBLE plays, of a prurient sexual nature;
PASSIVE COMPANIES (q) Unless waived by SBA for good
cause, businesses that have previously
§ 120.110 What businesses are ineli- defaulted on a Federal loan or Feder-
gible for SBA business loans? ally assisted financing, resulting in the
Federal government or any of its agen-
The following types of businesses are
cies or Departments sustaining a loss
ineligible:
in any of its programs, and businesses
(a) Non-profit businesses (for-profit owned or controlled by an applicant or
subsidiaries are eligible); any of its Associates which previously
(b) Financial businesses primarily owned, operated, or controlled a busi-
engaged in the business of lending, ness which defaulted on a Federal loan
such as banks, finance companies, and (or guaranteed a loan which was de-
factors (pawn shops, although engaged faulted) and caused the Federal govern-
in lending, may qualify in some cir- ment or any of its agencies or Depart-
cumstances); ments to sustain a loss in any of its
(c) Passive businesses owned by de- programs. For purposes of this section,
velopers and landlords that do not ac- a compromise agreement shall also be
tively use or occupy the assets ac- considered a loss;
quired or improved with the loan pro- (r) Businesses primarily engaged in
ceeds (except Eligible Passive Compa- political or lobbying activities; and
nies under § 120.111); (s) Speculative businesses (such as oil
(d) Life insurance companies; wildcatting).
(e) Businesses located in a foreign
country (businesses in the U.S. owned
FR 39502, Aug. 21, 2017; 87 FR 38908, June 30,
by aliens may qualify); 2022]
(f) Pyramid sale distribution plans;
(g) Businesses deriving more than § 120.111 What conditions must an Eli-
one-third of gross annual revenue from gible Passive Company satisfy?
legal gambling activities; An Eligible Passive Company must
(h) Businesses engaged in any activ- use loan proceeds only to acquire or
ity that is illegal under Federal, State, lease, and/or improve or renovate, real
or local law; or personal property (including eligible
(i) Private clubs and businesses refinancing), that it leases to one or
which limit the number of member- more Operating Companies for con-
ships for reasons other than capacity; ducting the Operating Company’s busi-
(j) Government-owned entities (ex- ness, or to finance a change of owner-
cept for businesses owned or controlled ship between the existing owners of the
by a Native American tribe); Eligible Passive Company. When the
(k)–(l) [Reserved] Operating Company is a co-borrower on
254
the loan, loan proceeds also may be Company, must have a remaining term
used by the Operating Company for at least equal to the term of the loan;
working capital and/or the purchase of (5) The Operating Company must be a
other assets, including intangible as- guarantor or co-borrower with the Eli-
sets, for the Operating Company’s use gible Passive Company. In a 7(a) loan
as provided in paragraph (a)(5) of this that includes working capital and/or
section. (References to Operating Com- the purchase of other assets, including
pany in paragraphs (a) and (b) of this intangible assets, for the Operating
section mean each Operating Com- Company’s use, the Operating Com-
pany.) In the 504 loan program, if the pany must be a co-borrower.
Eligible Passive Company owns assets (6) Each holder of an ownership inter-
in addition to the real estate or other est constituting at least 20 percent of
eligible long-term fixed assets, loan either the Eligible Passive Company or
proceeds may not be used to finance a the Operating Company must guar-
change of ownership between existing antee the loan. The trustee shall exe-
owners of the Eligible Passive Com- cute the guaranty on behalf of any
pany unless the additional assets trust. When deemed necessary for cred-
owned by the Eligible Passive Company it or other reasons, SBA or, for a loan
are directly related to the real estate
processed under an SBA Lender’s dele-
or other eligible long-term fixed assets,
gated authority, the SBA Lender may
the amount attributable to the addi-
require other appropriate individuals
tional assets is de minimis, and the ad-
or entities to provide full or limited
ditional assets are excluded from the
guarantees of the loan without regard
Project financing. Any ownership
to the percentage of their ownership
structure or legal form may qualify as
interests, if any.
an Eligible Passive Company.
(b) Additional conditions that apply to
(a) Conditions that apply to all legal
trusts. The eligibility status of the
forms:
trustor will determine trust eligibility.
(1) The Operating Company must be
All donors to the trust will be deemed
an eligible small business, and the pro-
to have trustor status for eligibility
posed use of the proceeds must be an
purposes. A trust qualifying as an Eli-
eligible use if the Operating Company
gible Passive Company may engage in
were obtaining the financing directly;
other activities as authorized by its
(2) The Eligible Passive Company
trust agreement. The trustee must
(with the exception of a trust) and the
warrant and certify that the trust will
Operating Company each must be small
not be revoked or substantially amend-
under the appropriate size standards in
ed for the term of the loan without the
part 121 of this chapter;
consent of SBA. The trustor must guar-
(3) The lease between the Eligible antee the loan. For purposes of this
Passive Company and the Operating section, the trustee shall certify to
Company must be in writing and must SBA that:
be subordinate to SBA’s mortgage,
(1) The trustee has authority to act;
trust deed lien, or security interest on
the property. The Eligible Passive (2) The trust has the authority to
Company (as landlord) must furnish as borrow funds, pledge trust assets, and
collateral for the loan an assignment of lease the property to the Operating
all rents paid under the lease. The rent Company;
or lease payments cannot exceed the (3) The trustee has provided accurate,
amount necessary to make the loan pertinent language from the trust
payment to the lender, and an addi- agreement confirming the above; and
tional amount to cover the Eligible (4) The trustee has provided and will
Passive Company’s direct expenses of continue to provide SBA with a true
holding the property, such as mainte- and complete list of all trustors and
nance, insurance and property taxes; donors.
(4) The lease between the Eligible [61 FR 3235, Jan. 31, 1996; 61 FR 7986, Mar. 1,
Passive Company and the Operating 1996, as amended at 64 FR 2117, Jan. 13, 1999;
Company, including options to renew 77 FR 19533, Apr. 2, 2012; 82 FR 39502, Aug. 21,
exercisable solely by the Operating 2017; 87 FR 38908, June 30, 2022]
255
§ 120.120 13 CFR Ch. I (1–1–23 Edition)
USES OF PROCEEDS for ordinary compensation for services

rendered);
§ 120.120 What are eligible uses of pro- (b) Refinancing a debt owed to a
ceeds? Small Business Investment Company
A small business must use an SBA (‘‘SBIC’’) or a New Markets Venture
business loan for sound business pur- Capital Company (‘‘NMVCC’’);
poses. The uses of proceeds are pre- (c) Floor plan financing or other re-
scribed in each loan’s Authorization. volving line of credit, except under
(a) A Borrower may use loan proceeds § 120.340 or § 120.390;
from any SBA loan to: (d) Investments in real or personal
(1) Acquire land (by purchase or property acquired and held primarily
lease); for sale, lease, or investment (except
(2) Improve a site (e.g., grading, for a loan to an Eligible Passive Com-
streets, parking lots, landscaping), in- pany or to a small contractor under
cluding up to 5 percent for community § 120.310);
improvements such as curbs and side-
(e) The applicant may not use any of
walks;
the proceeds to pay past-due Federal,
(3) Purchase one or more existing
state, or local payroll taxes, sales
buildings;
taxes, or other similar taxes that are
(4) Convert, expand or renovate one
or more existing buildings; required to be collected by the appli-
(5) Construct one or more new build- cant and held in trust on behalf of a
ings; and/or Federal, state, or local government en-
(6) Acquire (by purchase or lease) and tity.
install fixed assets (for a 504 loan, these (f) A purpose which does not benefit
assets must have a useful life of at the small business; or
least 10 years and be at a fixed loca- (g) Any use restricted by §§ 120.201,
tion, although short-term financing for 120.202, and 120.884 (specific to 7(a)
equipment, furniture, and furnishings loans and 504 loans respectively).
may be permitted where essential to [61 FR 3235, Jan. 31, 1996, as amended at 76
and a minor portion of the 504 Project). FR 9218, Feb. 17, 2011; 76 FR 63545, Oct. 12,
(b) A Borrower may also use 7(a) and 2011; 82 FR 39502, Aug. 21, 2017; 85 FR 7648,
microloan proceeds for: Feb. 10, 2020; 85 FR 80588, Dec. 14, 2020]
(1) Inventory;
(2) Supplies; § 120.131 Leasing part of new con-
(3) Raw materials; and struction or existing building to an-
(4) Working capital (if the Operating other business.
Company is a co-borrower with the Eli- (a) If the SBA financing (whether 7(a)
gible Passive Company, part of the or 504) is for the construction of a new
loan proceeds may be applied for work- building, a Borrower may permanently
ing capital and/or the purchase of other lease up to 20 percent of the Rentable
assets, including intangible assets, for Property to one or more tenants if the
use by the Operating Company). Borrower permanently occupies and
(c) A Borrower may use 7(a) loan pro- uses no less than 60 percent of the
ceeds for refinancing certain out- Rentable Property, and plans to perma-
standing debts. nently occupy and use within three
[61 FR 3235, Jan. 31, 1996, as amended at 77 years some of the remaining space not
FR 19533, Apr. 2, 2012] immediately occupied and not perma-
nently leased and plans to permanently
§ 120.130 Restrictions on uses of pro- occupy and use within ten years all of
ceeds. the remaining space not permanently
SBA will not authorize nor may a leased. If the Borrower is an Eligible
Borrower use loan proceeds for the fol- Passive Company which leases 100 per-
lowing purposes (including the replace- cent of the new building’s space to one
ment of funds used for any such pur- or more Operating Companies, the Op-
pose): erating Company, or Operating Compa-

(a) Payments, distributions or loans nies together, must follow the same
to Associates of the applicant (except rules set forth in this paragraph.
256
(b) If the SBA financing (whether 7(a) ness in time of the activity or activi-
or 504) is for the acquisition, renova- ties in question;
tion, or reconstruction of an existing (h) Accept funding from any source
building, the Borrower may perma- that restricts, prioritizes, or conditions
nently lease up to 49 percent of the the types of small businesses that the
Rentable Property if the Borrower per- Participant may assist under an SBA
manently occupies and uses no less program or that imposes any condi-
than 51 percent of the Rentable Prop- tions or requirements upon recipients
erty. If the Borrower is an Eligible Pas- of SBA assistance inconsistent with
sive Company which leases 100 percent SBA’s loan programs or regulations;
of the space of the existing building to (i) Fail to disclose to SBA all rela-
one or more Operating Companies, the tionships between the small business
Operating Company, or Operating Com- and its Associates (including Close Rel-
panies together, must follow the same atives of Associates), the Participant,
rules set forth in this paragraph. and/or the lenders financing the
[68 FR 51679, Aug. 28, 2003] Project of which it is aware or should
be aware;
ETHICAL REQUIREMENTS (j) Fail to disclose to SBA whether
the loan will:
§ 120.140 What ethical requirements (1) Reduce the exposure of a Partici-
apply to participants? pant or an Associate of a Participant
Lenders, Intermediaries, and CDCs in a position to sustain a loss;
(in this section, collectively referred to (2) Directly or indirectly finance the
as ‘‘Participants’’), must act ethically purchase of real estate, personal prop-
and exhibit good character. Ethical in- erty or services (including insurance)
discretion of an Associate of a Partici- from the Participant or an Associate of
pant or a member of a CDC will be at- the Participant;
tributed to the Participant. A Partici- (3) Repay or refinance a debt due a
pant must promptly notify SBA if it Participant or an Associate of a Partic-
obtains information concerning the un- ipant; or
ethical behavior of an Associate. The (4) Require the small business, or an
following are examples of such uneth- Associate (including Close Relatives of
ical behavior. A Participant may not: Associates), to invest in the Partici-
(a) Self-deal; pant (except for institutions which re-
(b) Have a real or apparent conflict of quire an investment from all members
interest with a small business with as a condition of membership, such as
which it is dealing (including any of its a Production Credit Association);
Associates or an Associate’s Close Rel- (k) Issue a real estate forward com-
atives) or SBA; mitment to a builder or developer; or
(c) Own an equity interest in a busi- (l) Engage in any activity which
ness that has received or is applying to taints its objective judgment in evalu-
receive SBA financing (during the term ating the loan.
of the loan or within 6 months prior to [61 FR 3235, Jan. 31, 1996, as amended at 68
the loan application); FR 57980, Oct. 7, 2003]
(d) Be incarcerated, on parole, or on
probation; CREDIT CRITERIA FOR SBA LOANS
(e) Knowingly misrepresent or make
a false statement to SBA; § 120.150 What are SBA’s lending cri-
(f) Engage in conduct reflecting a teria?
lack of business integrity or honesty; The applicant (including an Oper-
(g) Be a convicted felon, or have an ating Company) must be creditworthy.
adverse final civil judgment (in a case Loans must be so sound as to reason-
involving fraud, breach of trust, or ably assure repayment. SBA will con-
other conduct) that would cause the sider:
public to question the Participant’s (a) Character, reputation, and credit
business integrity, taking into consid- history of the applicant (and the Oper-
eration such factors as the magnitude, ating Company, if applicable), its Asso-
repetition, harm caused, and remote- ciates, and guarantors;
257
§ 120.151 13 CFR Ch. I (1–1–23 Edition)
(b) Experience and depth of manage- (c) Hazard Insurance. SBA requires
ment; hazard insurance on all collateral.
(c) Strength of the business;
(d) Past earnings, projected cash FR 39502, Aug. 21, 2017]
flow, and future prospects;
(e) Ability to repay the loan with REQUIREMENTS IMPOSED UNDER OTHER
earnings from the business; LAWS AND ORDERS
(f) Sufficient invested equity to oper-
ate on a sound financial basis; § 120.170 Flood insurance.
(g) Potential for long-term success; Under the Flood Disaster Protection
(h) Nature and value of collateral (al- Act of 1973 (Sec. 205(b) of Pub. L. 93–234;
though inadequate collateral will not 87 Stat. 983 (42 U.S.C. 4000 et seq.)), a
be the sole reason for denial of a loan loan recipient must obtain flood insur-
request); and ance if any building (including mobile
(i) The effect any affiliates (as de- homes), machinery, or equipment ac-
fined in part 121 of this chapter) may quired, installed, improved, con-
have on the ultimate repayment abil- structed, or renovated with the pro-
ity of the applicant. ceeds of SBA financial assistance is lo-
§ 120.151 What is the statutory limit cated in a special flood hazard area.
for total loans to a Borrower? The requirement applies also to any in-
ventory (business loan program), fix-
The aggregate amount of the SBA tures or furnishings contained or to be
portions of all loans to a single Bor- contained in the building. Mobile
rower, including the Borrower’s affili- homes on a foundation are buildings.
ates as defined in § 121.301(f) of this SBA, Lenders, CDCs, and Inter-
chapter, must not exceed a guaranty mediaries must notify Borrowers that
amount of $3,750,000, except as other- flood insurance must be maintained.
wise authorized by statute for a spe-
cific program. The maximum loan § 120.171 Compliance with child sup-
amount for any one 7(a) loan is port obligations.
$5,000,000. The amount of any loan re- Any holder of 50% or more of the
ceived by an Eligible Passive Company ownership interest in the recipient of
applies to the loan limit of both the El- an SBA loan must certify that he or
igible Passive Company and the Oper- she is not more than 60 days delinquent
ating Company. on any obligation to pay child support
[61 FR 3235, Jan. 31, 1996, as amended at 68 arising under:
FR 51680, Aug. 28, 2003; 76 FR 63546, Oct. 12, (a) An administrative order;
2011; 81 FR 41428, June 27, 2016] (b) A court order;
(c) A repayment agreement between
§ 120.160 Loan conditions. the holder and a custodial parent; or
The following requirements are nor- (d) A repayment agreement between
mally required by SBA for all business the holder and a State agency pro-
loans: viding child support enforcement serv-
(a) Personal guarantees. Holders of at ices.
least a 20 percent ownership interest
generally must guarantee the loan. § 120.172 Flood-plain and wetlands
When deemed necessary for credit or management.
other reasons, SBA or, for a loan proc- (a) All loans must conform to re-
essed under an SBA Lender’s delegated quirements of Executive Orders 11988,
authority, the SBA Lender, may re- ‘‘Flood Plain Management’’ (3 CFR,
quire other appropriate individuals or 1977 Comp., p. 117) and 11990, ‘‘Protec-
entities to provide full or limited guar- tion of Wetlands’’ (3 CFR, 1977 Comp.,
antees of the loan without regard to p. 121). Lenders, Intermediaries, CDCs,
the percentage of their ownership in- and SBA must comply with require-
terests, if any. ments applicable to them. Applicants
(b) Appraisals. SBA may require pro- must show:
fessional appraisals of the applicant’s (1) Whether the location for which fi-
and principals’ assets, a survey, or a nancial assistance is proposed is in a
feasibility study. floodplain or wetland;
258
(2) If it is in a floodplain, that the as- grounds of race, color, national origin,
sistance is in compliance with local religion, sex, marital status, disability
land use plans; and or age. SBA requests agreements or
(3) That any necessary construction evidence to support or document com-
or use permits will be issued. pliance with these laws, including re-
(b) Generally, there is an 8-step deci- ports required by applicable statutes or
sion making process with respect to: the regulations in this chapter.
(1) Construction or acquisition of
anything, other than a building; APPLICABILITY AND ENFORCEABILITY OF
(2) Repair and restoration equal to LOAN PROGRAM REQUIREMENTS
more than 50% of the market value of
a building; or § 120.180 Compliance with Loan Pro-
(3) Replacement of destroyed struc- gram Requirements.
tures. SBA Lenders and Intermediaries
(c) SBA may determine for the fol- must comply and maintain familiarity
lowing types of actions, on a case-by- with Loan Program Requirements for
case basis, that the full 8-step process the 7(a) Loan Program, 504 Loan Pro-
is not warranted and that only the first gram, and the Microloan Program, as
step (determining if a proposed action applicable, and as such requirements
is in the base floodplain) need be com- are revised from time to time. Loan
pleted: Program Requirements in effect at the
(1) Actions located outside the base time that an SBA Lender or Inter-
floodplain; mediary takes an action in connection
(2) Repairs, other than to buildings, with a particular loan govern that spe-
that are less than 50% of the market cific action. For example, although
value; loan closing requirements in effect
(3) Replacement of building contents, when an SBA Lender closes a loan will
materials, and equipment; govern the closing actions, an SBA
(4) Hazard mitigation measures; Lender’s liquidation actions on the
(5) Working capital loans; or same loan are subject to the liquida-
(6) SBA loan assistance of $1,500,000 tion requirements in effect at the time
or less. that a liquidation action is taken. An
SBA Lender or Intermediary must
§ 120.174 Earthquake hazards. maintain sufficient documentation to
When loan proceeds are used to con- demonstrate that Loan Program Re-
struct a new building or an addition to quirements have been satisfied.
an existing building, the construction
[85 FR 14781, Mar. 16, 2020]
must conform with the ‘‘National
Earthquake Hazards Reduction Pro- § 120.181 Status of Lenders and CDCs.
gram (‘‘NEHRP’’) Recommended Provi-
sions for the Development of Seismic Lenders, CDCs and their contractors
Regulations for New Buildings’’ (which are independent contractors that are
can be obtained from the Federal responsible for their own actions with
Emergency Management Agency, Pub- respect to a 7(a) or 504 loan. SBA has
lications Office, Washington, DC) or a no responsibility or liability for any
code identified by SBA as being sub- claim by a borrower, guarantor or
stantially equivalent. other party alleging injury as a result
of any allegedly wrongful action taken
§ 120.175 Coastal barrier islands. by a Lender, CDC or an employee,
SBA and Intermediaries may not agent, or contractor of a Lender or
make or guarantee any loan within the CDC.
Coastal Barrier Resource System. [72 FR 18360, Apr. 12, 2007]
§ 120.176 Compliance with other laws. LOAN APPLICATIONS

All SBA loans are subject to all ap-
plicable laws, including (without limi- § 120.190 Where does an applicant
tation) the civil rights laws (see parts apply for a loan?
112, 113, 117 and 136 of this chapter), An applicant for a business loan
prohibiting discrimination on the should apply to:
259
§ 120.191 13 CFR Ch. I (1–1–23 Edition)
(a) A Lender for a guaranteed or im- COMPUTERIZED SBA FORMS

mediate participation loan;
(b) A CDC for a 504 loan; § 120.194 [Reserved]
(c) An Intermediary for a Microloan;
REPORTING
or
(d) SBA for a direct loan. § 120.195 Disclosure of fees.
§ 120.191 The contents of a business An Applicant for a business loan
loan application. must identify to SBA the name of each
Agent as defined in part 103 of this
For most business loans, SBA re- chapter that helped the applicant ob-
quires that an application for a busi- tain the loan, describing the services
ness loan contain, among other things, performed, and disclosing the amount
a description of the history and nature of each fee paid or to be paid by the ap-
of the business, the amount and pur- plicant to the Agent in conjunction
pose of the loan, the collateral offered with the performance of those services.
for the loan, current financial state-
ments, historical financial statements § 120.197 Notifying SBA’s Office of In-
(or tax returns if appropriate) for the spector General of suspected fraud.
past three years, IRS tax verification, Lenders, CDCs, Borrowers, and others
and a business plan, when applicable. must notify the SBA Office of Inspec-
Personal histories and financial state- tor General of any information which
ments will be required from principals indicates that fraud may have occurred
of the applicant (and the Operating in connection with a 7(a) or 504 loan.
Company, if applicable). Send the notification to the Assistant
Inspector General for Investigations,
§ 120.192 Approval or denial. Office of Inspector General, U.S. Small
Applicants receive notice of approval Business Administration, 409 3rd
Street, SW., Washington, DC 20416.
or denial by the Lender, CDC, Inter-
mediary, or SBA, as appropriate. No- [72 FR 18360, Apr. 12, 2007]
tice of denial will include the reasons.
If a loan is approved, an Authorization Subpart B—Policies Specific to
will be issued. 7(a) Loans
§ 120.193 Reconsideration after denial. BONDING REQUIREMENTS
An applicant or recipient of a busi-
ness loan may request reconsideration § 120.200 What bonding requirements
exist during construction?
of a denied loan or loan modification
request within 6 months of denial. Ap- On 7(a) loans which finance construc-
plicants denied due to a size deter- tion, the Borrower must supply a 100
mination can appeal that determina- percent payment and performance bond
tion under part 121 of this chapter. All and builder’s risk insurance, unless
others must be submitted to the office waived by SBA.
that denied the original request. To LIMITATIONS ON USE OF PROCEEDS
prevail, the applicant must dem-
onstrate that it has overcome all le- § 120.201 Refinancing unsecured or
gitimate reasons for denial. Six months undersecured loans.
after denial, a new application is re- A Borrower may not use 7(a) loan
quired. If the reconsideration is denied, proceeds to pay any creditor in a posi-
a second and final reconsideration may tion to sustain a loss causing a shift to
be considered by the Director, Office of SBA of all or part of a potential loss
Financial Assistance (D/FA), whose de- from an existing debt.
cision is final.
§ 120.202 Restrictions on loans for
changes in ownership.
A Borrower may not use 7(a) loan
proceeds to purchase a portion of a
260
business or a portion of another own- (a) The shortest appropriate term,

er’s interest. One or more current own- depending upon the Borrower’s ability
ers may use loan proceeds to purchase to repay;
the entire interest of another current (b) Ten years or less, unless it fi-
owner, or a Borrower can purchase nances or refinances real estate or
ownership of an entire business. equipment with a useful life exceeding
ten years. The term for a loan to fi-
MATURITIES; INTEREST RATES; LOAN nance equipment and/or leasehold im-
AND GUARANTEE AMOUNTS provements may include an additional
reasonable period, not to exceed 12
§ 120.210 What percentage of a loan months, when necessary to complete
may SBA guarantee? the installation of the equipment and/
SBA’s guarantee percentage must or complete the leasehold improve-
not exceed the applicable percentage ments.
established in section 7(a) of the Act. (c) A maximum of 25 years, including
The maximum allowable guarantee extensions. (A portion of a loan used to
percentage on a loan will be deter- acquire or improve real property may
mined by the loan amount. Loans of have a term of 25 years plus an addi-
$150,000 or less may receive a maximum tional period needed to complete the
guaranty of 85 percent. Loans more construction or improvements.)
than $150,000 may receive a maximum [61 FR 3235, Jan. 31, 1996, as amended at 87
guaranty of 75 percent, except as other- FR 38908, June 30, 2022]
wise authorized by law.
§ 120.213 What fixed interest rates may
[61 FR 3235, Jan. 31, 1996, as amended at 68 a Lender charge?
FR 51680, Aug. 28, 2003; 76 FR 63546, Oct. 12,
2011] (a) Fixed Rates for Guaranteed Loans.
A loan may have a reasonable fixed in-
§ 120.211 What limits are there on the terest rate. SBA periodically publishes
amounts of direct loans? the maximum allowable rate in the
(a) The statutory limit for direct FEDERAL REGISTER.
loans made under the authority of sec- (b) Direct loans. A statutory formula
tion 7(a)(1)-(19) of the Small Business based on the cost of money to the Fed-
Act is $350,000. SBA has established an eral government determines the inter-
administrative limit of $150,000 for di- est rate on direct loans. SBA publishes
rect loans. The D/FA may authorize ac- the rate periodically in the FEDERAL
ceptance of an application up to the REGISTER.
statutory limit.
§ 120.214 What conditions apply for
(b) The statutory limit for direct variable interest rates?
loans made under the authority of sec-
tion 7(a)(20) is $750,000. SBA has estab- A Lender may use a variable rate of
lished an administrative limit of interest for guaranteed loans under the
$150,000. The Associate Administrator following conditions:
for Business Development may author- (a) Frequency. The first change may
ize the acceptance of an application occur on the first calendar day of the
that exceeds the administrative limit. month following initial disbursement,
using the base rate (see paragraph (c)
(c) The statutory limit on SBA’s por-
of this section) in effect on the first
tion of an immediate participation
business day of the month. After that,
loan is $350,000. The administrative
changes may occur no more often than
limit is the lesser of 75 percent of the
monthly.
loan or $150,000. The D/FA may author-
(b) Range of fluctuation. The amount
ize exceptions to the administrative
of fluctuation shall be equal to the
limit up to $350,000.
movement in the base rate. The dif-
[61 FR 3235, Jan. 31, 1996, as amended at 74 ference between the initial rate and the
FR 45753, Sept. 4, 2009] ceiling rate may be no greater than the
difference between the initial rate and
§ 120.212 What limits are there on loan the floor rate.

maturities? (c) Base rate. The base rate will be
The term of a loan shall be: one of the following: the prime rate or
261
§ 120.220 13 CFR Ch. I (1–1–23 Edition)
the Optional Peg Rate. The prime rate Lender’s negligence, misconduct or
will be that which is in effect on the violation of any provision of these reg-
first business day of the month, as ulations, the guaranty agreement, or
printed in a national financial news- the loan authorization.
paper published each business day. SBA (a) Amount of guaranty fee—(1) In gen-
may from time to time permit the use eral. Except to the extent paragraph
of alternative base rate options that (a)(2) of this section applies, for a loan
are widely adopted for small business with a maturity of twelve (12) months
commercial lending and will publish or less, the guarantee fee which the
notice of such alternative options in Lender must pay to SBA is one-quarter
the FEDERAL REGISTER. SBA publishes (1⁄4) of one percent of the guaranteed
the Optional Peg Rate quarterly in the portion of the loan. For a loan with a
FEDERAL REGISTER. maturity of more than twelve (12)
(d) Maximum Allowable Variable Inter- months, the guarantee fee is payable as
est Rates. The maximum allowable vari- follows:
able interest rates are set forth below, (i) Not more than 2 percent of the
with the initial maximum allowable guaranteed portion of a loan if the
rate for the loan determined as of the total amount of the loan is not more
date SBA receives the loan application: than $150,000;
(1) For all 7(a) loans of $50,000 and (ii) Not more than 3 percent of the
less, the interest rate shall not exceed guaranteed portion of a loan if the
six and a half (6.5) percentage points total amount of the loan is more than
over the base rate; $150,000 but not more than $700,000;
(2) For all 7(a) loans of more than
(iii) Except as provided in paragraph
$50,000 and up to and including $250,000,
(a)(1)(iv) of this section, not more than
the maximum interest rate shall not
3.5 percent of the guaranteed portion of
exceed six (6.0) percentage points over
a loan if the total amount of the loan
the base rate;
is more than $700,000; and
(3) For all 7(a) loans of more than
$250,000 and up to and including (iv) An additional 0.25 percent of the
$350,000, the maximum interest rate guaranteed portion of a loan if the
shall not exceed four and a half (4.5) total amount of the loan is more than
percentage points over the base rate; $1,000,000.
and (2) For loans approved October 1, 2002,
(4) For all 7(a) loans of more than through September 30, 2004. For a loan
$350,000, the maximum interest rate with a maturity of twelve (12) months
shall not exceed three (3.0) percentage or less, the guarantee fee which the
points over the base rate. Lender must pay to SBA is one-quarter
(e) Amortization. Initial amortization (1⁄4) of one percent of the guaranteed
of principal and interest may be recom- portion of the loan. For a loan with a
puted and reassessed as interest rates maturity of more than twelve (12)
fluctuate, as directed by SBA. With months, the guarantee fee is:
prior approval of SBA, the Lender may (i) 1 percent of the guaranteed por-
use certain other amortization meth- tion of the loan if the total loan
ods, except that SBA does not allow amount is not more than $150,000,
balloon payments. (ii) 2.5 percent of the guaranteed por-
tion of a loan if the total loan amount
FR 67101, Nov. 13, 2008; 87 FR 38908, June 30,
is more than $150,000, but not more
2022] than $700,000, and
(iii) 3.5 percent of the guaranteed
FEES FOR GUARANTEED LOANS portion if the total loan amount is
more than $700,000.
§ 120.220 Fees that Lender pays SBA. (3) For loans approved under section
A Lender must pay a guaranty fee to 7(a)(31) of the Small Business Act (SBA
SBA for each loan it makes. If the Express loans) to veterans and/or the
guarantee fee is not paid, SBA may ter- spouse of a veteran. SBA will not collect
minate the guarantee. Acceptance of a guarantee fee in connection with a

the guaranty fee by SBA does not loan made under section 7(a)(31) of the
waive any right of SBA arising from a Small Business Act to a business
262
owned and controlled by a veteran or cover administrative costs associated

the spouse of a veteran. with collecting delinquent fees.
(b) When the guaranty fee is payable. (2) For loans approved from October 1,
For a loan with a maturity of twelve 2002, through September 30, 2004. The
(12) months or less, the Lender must lender shall pay SBA an annual service
pay the guaranty fee to SBA electroni- fee equal to 0.25 percent of the out-
cally within 10 business days after re- standing balance of the guaranteed
ceiving SBA loan approval. The Lender portion of each loan. The service fee
may only charge the Borrower for the cannot be charged to the Borrower.
fee after the Lender pays the guaranty SBA may institute a late fee charge for
fee. For a loan with a maturity in ex- delinquent payments of the annual
cess of twelve (12) months, the Lender service fee to cover administrative
must pay the guaranty fee to SBA elec- costs associated with collecting delin-
tronically within 90 days after SBA quent fees.
gives its loan approval. The Lender
[61 FR 3235, Jan. 31, 1996; 61 FR 11471, Mar. 20,
may charge the Borrower the fee after 1996, as amended at 68 FR 51680, Aug. 28, 2003;
the Lender has made the first disburse- 68 FR 56554, Oct. 1, 2003; 76 FR 63546, Oct. 12,
ment of the loan. The Borrower may 2011; 82 FR 39502, Aug. 21, 2017; 87 FR 38908,
use the loan proceeds to pay the guar- June 30, 2022]
anty fee. However, the first disburse-
ment must not be made solely or pri- § 120.221 Fees and expenses that the
marily to pay the guaranty fee. Lender may collect from a loan ap-
(c) Refund of guaranty fee. For a loan plicant or Borrower.
with a maturity of more than twelve Unless otherwise allowed by SBA
(12) months, SBA will refund the guar- Loan Program Requirements, the
anty fee if the Lender has not made Lender may charge and collect from
any disbursement and the lender re- the applicant or Borrower only the fol-
quests in writing the refund and can- lowing fees and expenses:
cellation of the SBA guaranty. (a) Service and packaging fees. The
(d) Lender’s retention of portion of Lender may charge an applicant rea-
guaranty fee. With respect to a loan sonable fees (customary for similar
with a maturity of more than twelve Lenders in the geographic area where
(12) months, where the total loan the loan is being made) for packaging
amount is no more than $150,000 Lender and other services. The Lender must
may retain not more than 25 percent of advise the applicant in writing that the
the guaranty fee. applicant is not required to obtain or
(e) If the guarantee fee is not paid, pay for unwanted services. The appli-
SBA may terminate the guarantee. The cant is responsible for deciding wheth-
Borrower may use working capital loan er fees are reasonable. SBA may review
proceeds to reimburse the Lender for these fees at any time. Lender must re-
the guarantee fee. Acceptance of the fund any such fee considered unreason-
guarantee fee by SBA shall not waive able by SBA.
any right of SBA arising from the (b) Extraordinary servicing. Subject to
Lender’s misconduct or violation of prior written SBA approval, if all or
any provision of this part, the guar- part of a loan will have extraordinary
antee agreement, the Authorization, or servicing needs, the Lender may charge
other loan documents. the applicant a service fee not to ex-
(f) Lender’s annual service fee payable ceed 2 percent per year on the out-
to SBA—(1) In general. Except to the ex- standing balance of the part requiring
tent paragraph (f)(2) of this section ap- special servicing.
plies, the lender shall pay SBA an an- (c) Out-of-pocket expenses. The Lender
nual service fee in an amount not to may collect from the applicant nec-
exceed 0.55 percent of the outstanding essary out-of-pocket expenses such as
balance of the guaranteed portion of filing or recording fees.
each loan. The service fee cannot be (d) Late payment fee. The Lender may
charged to the Borrower. SBA may in- charge the Borrower a late payment fee
stitute a late fee charge for delinquent not to exceed 5 percent of the regular
payments of the annual service fee to loan payment.
263
§ 120.222 13 CFR Ch. I (1–1–23 Edition)
(e) Legal services. Lender may charge of the total amount of all prepayments
the Borrower for legal services ren- made during that period.
dered on an hourly basis. [68 FR 51680, Aug. 28, 2003]
FR 39503, Aug. 21, 2017; 85 FR 7648, Feb. 10, Subpart C—Special Purpose Loans
2020; 85 FR 80588, Dec. 14, 2020]
§ 120.300 Statutory authority.
§ 120.222 Prohibition on sharing pre-
miums for secondary market sales. Congress has authorized several spe-
cial purpose programs in various sub-
The Lender or its Associates may not sections of section 7(a) of the Act. Gen-
share any premium received from the erally, 7(a) loan policies, eligibility re-
sale of an SBA guaranteed loan in the quirements and credit criteria enumer-
secondary market with a Service Pro- ated in subpart B of this part apply to
vider, packager, or other loan-referral these programs. The sections of this
source. subpart prescribe the special condi-
[82 FR 39503, Aug. 21, 2017, as amended at 85 tions applying to each special purpose
FR 7648, Feb. 10, 2020; 85 FR 80588, Dec. 14, program. As with other business loans,
2020; 87 FR 38908, June 30, 2022] special purpose loans are available
only to the extent funded by annual ap-
§ 120.223 Subsidy recoupment fee pay- propriations.
able to SBA by Borrower.
DISABLED ASSISTANCE LOAN PROGRAM
(a) The subsidy recoupment fee is
(DAL)
payable to SBA when:
(1) Loan has a maturity of 15 years or § 120.310 What assistance is available
more. for the disabled?
(2) Borrower makes a voluntary pre- Section 7(a)(10) of the Act authorizes
payment (or several prepayments in SBA to guarantee or make direct loans
the aggregate) during any one of the to the disabled. SBA distinguishes two
first three successive 12 month periods kinds of assistance:
following the first disbursement of the (a) DAL–1. DAL–1 Financial Assist-
loan. Prepayment is defined as a pay- ance is available to non-profit public or
ment of principal in excess of the private organizations for disabled indi-
amount due according to the amortiza- viduals that employ such individuals;
tion schedule. or
(3) The prepayment (or several pre- (b) DAL–2. DAL–2 Financial Assist-
payments in the aggregate) is more ance is available to:
than 25 percent of the highest out- (1) Small businesses wholly owned by
standing principal balance of the loan disabled individuals; and
in any one of the first three successive (2) Disabled individuals to establish,
12 month periods following the first acquire, or operate a small business.
disbursement.
(b) When all the conditions above § 120.311 Definitions.
exist, the following subsidy (a) Organization for the disabled means
recoupment fees apply: one which:
(1) If the prepayment is made during (1) Is organized under federal or state
the first 12 month period after first dis- law to operate in the interest of dis-
bursement, the charge is 5 percent of abled individuals;
the total amount of all prepayments (2) Is non-profit;
made during such period; (3) Employs disabled individuals for
(2) If the prepayment is made during seventy-five percent of the time needed
the second 12 month period after first to produce commodities or services for
disbursement, the charge is 3 percent sale; and
of the total amount of all prepayments (4) Complies with occupational and
made during that period; and safety standards prescribed by the De-
(3) If the prepayment is made during partment of Labor.

the third 12 month period after first (b) Disabled individual means a person
disbursement, the charge is 1 percent who has a permanent physical, mental
264
or emotional impairment, defect, ail- § 120.315 Interest rate and loan limit.
ment, disease or disability which lim-
The interest rate on direct DAL
its the type of employment for which loans is three percent. There is an ad-
the person would otherwise be quali- ministrative limit of $150,000 on a di-
fied. rect DAL loan.
§ 120.312 DAL–1 use of proceeds and BUSINESSES OWNED BY LOW INCOME
other program conditions. INDIVIDUALS
(a) DAL–1 applicants must submit ap-
propriate documents to establish pro- § 120.320 Policy.
gram eligibility. Section 7(a)(11) of the Act authorizes
(b) Generally, applicants may use SBA to guarantee or make direct loans
loan proceeds for any 7(a) loan pur- to establish, preserve or strengthen
poses. Loan proceeds may not be used: small business concerns:
(1) To purchase or construct facilities (a) Located in an area having high
if construction grants and mortgage unemployment according to the De-
assistance are available from another partment of Labor;
Federal source; or (b) Located in an area in which a
(2) For supportive services (expenses high percentage of individuals have a
incurred by a DAL–1 organization to low income inadequate to satisfy basic
subsidize wages of low producers, family needs; and
health and rehabilitation services, (c) More than 50 percent owned by
low income individuals.
management, training, education, and
housing of disabled workers). ENERGY CONSERVATION
(c) SBA does not consider a DAL–1
organization to have a conflict of inter- § 120.330 Who is eligible for an energy
est if one or more of its Associates is conservation loan?
an Associate of the Lender. SBA may make or guarantee loans to
assist a small business to design, engi-
§ 120.313 DAL–2 use of proceeds and neer, manufacture, distribute, market,
other program conditions. install, or service energy devices or
(a) The DAL–2 loan proceeds may be techniques designed to conserve the
used for any 7(a) loan purposes. Nation’s energy resources.
(b) An applicant may use DAL–2 loan
proceeds to acquire an eligible small § 120.331 What devices or techniques
are eligible for a loan?
business without complying with the
change of ownership conditions in Eligible energy conservation devices
§ 120.202. or techniques include:
(c) A DAL–2 applicant must submit (a) Solar thermal equipment;
evidence from a physician, psychia- (b) Photovoltaic cells and related
trist, or other qualified professional as equipment;
to the permanent nature of the dis- (c) A product or service which in-
ability and the limitation it places on creases the energy efficiency of exist-
the applicant. ing equipment, methods of operation or
systems which use fossil fuels, and
§ 120.314 Resolving doubts about cred- which is on the Energy Conservation
itworthiness. Measures list of the Secretary of En-
ergy;
For the purpose of the DAL Program, (d) Equipment producing energy from
SBA shall resolve doubts concerning wood, biological waste, grain or other
the creditworthiness of an applicant in biomass energy sources;
favor of the applicant. However, the ap- (e) Equipment for cogeneration of en-
plicant must present satisfactory evi- ergy, district heating or production of
dence of repayment ability. Personal energy from industrial waste;
guarantees of Associates are not re- (f) Hydroelectric power equipment;

quired for purposes of DAL–1 financial (g) Wind energy conversion equip-
assistance. ment; and
265
§ 120.332 13 CFR Ch. I (1–1–23 Edition)
(h) Engineering, architectural, con- ceive a guaranty of 90 percent, not to

sulting, or other professional services exceed $4,500,000.
necessary or appropriate for any of the
devices or techniques in paragraphs (a) FR 63546, Oct. 12, 2011]
through (g) of this section.
§ 120.341 Who is eligible?
§ 120.332 What are the eligible uses of
proceeds? In addition to the eligibility criteria
applicable to all 7(a) loans, an appli-
(a) Acquire property. The Borrower cant must be in business for one full
may use the loan proceeds to acquire year at the time of application, but not
land necessary for imminent plant con- necessarily in the exporting business.
struction, buildings, machinery, equip- SBA may waive this requirement if the
ment, furniture, fixtures, facilities, applicant has sufficient export trade
supplies, and material needed to ac- experience or other managerial experi-
complish any of the eligible program ence.
purposes in § 120.330.
(b) Research and development. Up to § 120.342 What are eligible uses of pro-
30% of loan proceeds may be used for ceeds?
research and development: Loan proceeds may be used:
(1) Of an existing product or service; (a) To acquire inventory;
or (b) To pay the manufacturing costs of
(2) A new product or service. goods for export;
(c) Working capital. The Borrower (c) To purchase goods or services for
may use proceeds for working capital export;
for entering or expanding in the energy (d) To support standby letters of
conservation market. credit;
(e) For pre-shipment working capital;
§ 120.333 Are there any special credit and
criteria? (f) For post-shipment foreign ac-
In addition to regular credit evalua- counts receivable financing.
tion criteria, SBA shall weigh the
greater risk associated with energy § 120.343 Collateral.
projects. SBA shall consider such fac- A Borrower must give SBA a first se-
tors as quality of the product or serv- curity interest sufficient to cover 100
ice, technical qualifications of the ap- percent of the EWCP loan amount
plicant’s management, sales projec- (such as insured accounts receivable or
tions, and financial status. letters of credit). Collateral must be lo-
cated in the United States, its terri-
EXPORT WORKING CAPITAL PROGRAM tories or possessions.
(EWCP)
§ 120.344 Unique requirements of the
§ 120.340 What is the Export Working EWCP.
Capital Program? (a) An applicant must submit cash
Under the EWCP, SBA guarantees flow projections to support the need for
short-term working capital loans made the loan and the ability to repay. After
by participating lenders to exporters the loan is made, the loan recipient
(section 7(a)(14) of the Act). Loan ma- must submit continual progress re-
turities may be for up to three years ports.
with annual renewals. Proceeds can be (b) SBA does not limit the amount of
used only to finance export trans- extraordinary servicing fees, as ref-
actions. Loans can be for single or mul- erenced in § 120.221(b), under the EWCP.
tiple export transactions. An export (c) SBA does not prescribe the inter-
transaction is the production and pay- est rates for the EWCP, but will mon-
ment associated with a sale of goods or itor these rates for reasonableness.
services to a foreign buyer. The max- [61 FR 3235, Jan. 31, 1996, as amended at 85
imum loan amount for any one EWCP FR 7648, Feb. 10, 2020; 85 FR 80588, Dec. 14,
loan is $5,000,000. EWCP loans shall re- 2020]
266
INTERNATIONAL TRADE LOANS loan is counted against the $4,000,000

guaranty limit for the IT loan.
§ 120.345 Policy.
[76 FR 63546, Oct. 12, 2011]
Section 7(a)(16) of the Act authorizes
SBA to guarantee loans to small busi- § 120.349 Collateral.
nesses that are: Each IT loan must be secured either
(a) Engaged or preparing to engage in by a first lien position or first mort-
international trade; or gage on the property or equipment fi-
(b) Adversely affected by import nanced by the IT loan or on other as-
competition. sets of the Borrower, except that an IT
loan may be secured by a second lien
§ 120.346 Eligibility. position on the property or equipment
(a) An applicant must establish that: financed by the IT loan or on other as-
(1) The loan proceeds will signifi- sets of the Borrower, if the SBA deter-
cantly expand an existing export mar- mines the second lien position provides
ket or develop new export markets; or adequate assurance of the payment of
(2) The applicant business is ad- the IT loan.
versely affected by import competi- [76 FR 63546, Oct. 12, 2011]
tion; and
(3) The loan will improve the appli- QUALIFIED EMPLOYEE TRUSTS (ESOP)
cant’s competitive position.
§ 120.350 Policy.
(b) The applicant must have a busi-
ness plan reasonably supporting its Section 7(a)(15) of the Act authorizes
projected export sales. SBA to guarantee a loan to a:
(a) Qualified employee trust
[61 FR 3235, Jan. 31, 1996, as amended at 76 (‘‘ESOP’’) to:
FR 63546, Oct. 12, 2011] (1) Help finance the growth of its em-
ployer’s small business; or
§ 120.347 Use of proceeds.
(2) Purchase ownership or voting con-
The Borrower may use loan proceeds trol of the employer; and a
to acquire, construct, renovate, mod- (b) Small business concern, if the
ernize, improve, or expand facilities proceeds from the loan are only used to
and equipment to be used in the United make a loan to a qualified employee
States to produce goods or services in- trust that results in the qualified em-
volved in international trade, and to ployee trust owning at least 51 percent
develop and penetrate foreign markets. of the small business concern.
The Borrower may also use proceeds in
[87 FR 38908, June 30, 2022]
the refinancing of existing indebted-
ness that is not structured with reason- § 120.351 Definitions.
able terms and conditions, including
any debt that qualifies for refinancing All terms specific to ESOPs have the
under 7(a) Loan Program Require- same definition for purposes of this
ments, and to provide working capital. section as in the Internal Revenue
Service (IRS) Code (title 26 of the
[61 FR 3235, Jan. 31, 1996, as amended at 76 United States Code) or regulations (26
FR 63546, Oct. 12, 2011] CFR chapter I).
§ 120.348 Amount of guarantee. § 120.352 Use of proceeds.
The maximum loan amount for any Loan proceeds may be used for:
one International Trade (IT) loan is (a) Qualified employee trust. A quali-
$5,000,000. IT loans may receive a max- fied employee trust may use loan pro-
imum guaranty of 90 percent or ceeds for two purposes:
$4,500,000, except that the maximum (1) Qualified employer securities. A
guaranty amount for any working cap- qualified employee trust may relend
ital component of an IT loan is limited loan proceeds to the employer by pur-
to $4,000,000. To the extent that the chasing qualified employer securities.
Borrower has a separate EWCP loan or The small business concern may use
any other 7(a) loan for working capital, these funds for any general 7(a) pur-
the guaranty amount for the other pose.
267
§ 120.353 13 CFR Ch. I (1–1–23 Edition)
(2) Control of employer. A qualified § 120.361 Other conditions of eligi-

employee trust may use loan proceeds bility.
to purchase a controlling interest (51 (a) Management and daily operations
percent) in the employer. Ownership of the business must be directed by one
and control must vest in the trust by or more of the veteran owners whose
the time the loan is repaid. veteran status was used to qualify for
(b) Small business concern. A small the loan.
business concern may only use loan (b) This direct loan program is avail-
proceeds to make a loan to a qualified able only if private sector financing
employee trust that results in the and guaranteed loans are not available.
qualified employee trust owning at (c) A veteran may qualify only once
least 51 percent of the small business for this program on a direct loan basis.
concern.
LOANS TO PARTICIPANTS IN THE 8(a)
[87 FR 38908, June 30, 2022] PROGRAM
§ 120.353 Eligibility. § 120.375 Policy.
SBA may assist a qualified employee Section 7(a)(20) of the Act authorizes
trust (or equivalent trust) that meets SBA to provide direct (unilaterally or
the requirements and conditions for an together with Lenders) or guaranteed
ESOP prescribed in all applicable IRS, loans to firms participating in the 8(a)
Treasury and Department of Labor Program.
(DOL) regulations. In addition, the fol-
lowing conditions apply: § 120.376 Special requirements.
(a) The small business must provide The following special conditions
the funds needed by the trust to repay apply (otherwise, 7(a) loan eligibility
the loan; and criteria apply):
(b) The small business must provide (a) The Associate Administrator for
adequate collateral. Business Development may waive the
direct loan administrative ceiling of
§ 120.354 Creditworthiness. $150,000, and raise it to $750,000.
(b) The SBA portion of a guaranteed
In determining repayment ability, loan must not exceed $750,000.
SBA shall not consider the personal as- (c) The interest rate on a guaranteed
sets of the employee-owners of the loan shall be the same as on 7(a) guar-
trust. SBA shall consider the earnings anteed business loans. The interest
history and projected future earnings rate on a direct loan shall be one per-
of the employer small business. SBA cent less than on a regular direct loan.
may consider the business and manage- (d) For a direct loan or SBA’s portion
ment experience of the employee-own- of an immediate participation loan,
ers. SBA shall subordinate its security in-
terest on all collateral to other debt of
VETERANS LOAN PROGRAM the applicant.
§ 120.360 Which veterans are eligible? [61 FR 3235, Jan. 31, 1996, as amended at 74
FR 45753, Sept. 4, 2009]
SBA may guarantee or make direct
loans to a small business 51 percent § 120.377 Use of proceeds.
owned by one or more of the following The loan proceeds shall not be used
eligible veterans: for debt refinancing. Only a manufac-
(a) Vietnam-era veterans who served turing concern may use loan proceeds
for a period of more than 180 days be- for working capital.
tween August 5, 1964, and May 7, 1975,
and were discharged other than dishon- CAPLINES PROGRAM
orably;
(b) Disabled veterans of any era with § 120.390 Revolving credit.
a minimum compensable disability of (a) CapLines finances eligible small
30 percent; or businesses’ short-term, revolving and

(c) A veteran of any era who was dis- non-revolving working-capital needs.
charged for disability. SBA regulations governing the 7(a)
268
loan program govern business loans (b) The Borrower may substitute a
made under this program. The max- letter from a qualified Lender for one
imum guaranteed amount and the max- or more of the letters.
imum loan amount are the same under
CapLines as other 7(a) loans, as stated § 120.394 What are the eligible uses of
in § 120.151. proceeds?
(b) CapLines proceeds can be used to A Borrower must use the loan pro-
finance the cyclical, recurring, or other ceeds solely to acquire, construct or
identifiable short-term operating cap- substantially rehabilitate an indi-
ital needs of small businesses. Proceeds vidual residential or commercial build-
can be used to create current assets or ing for sale. ‘‘Substantial’’ means reha-
used to provide financing against the bilitation expenses of more than one-
current assets that already exist. third of the purchase price or fair mar-
ket value at the time of the applica-
FR 63546, Oct. 12, 2011] tion. A Borrower may use up to 33 per-
cent of the proceeds to acquire land,
BUILDERS LOAN PROGRAM and up to 5 percent for community im-
provements such as curbs and side-
§ 120.391 What is the Builders Loan walks.
Program?
Under section 7(a)(9) of the Act, SBA FR 39503, Aug. 21, 2017]
may make or guarantee loans to fi-
nance small general contractors to § 120.395 What is SBA’s collateral posi-
construct or rehabilitate residential or tion?
commercial property for resale. This SBA will require a lien on the build-
program provides an exception under ing which must be in no less than a
specified conditions to the general rule second position.
against financing investment property.
‘‘Construct’’ and ‘‘rehabilitate’’ mean § 120.396 What is the term of the loan?
only work done on-site to the struc- The loan must not exceed sixty (60)
ture, utility connections and land- months plus the estimated time to
scaping. complete construction or rehabilita-
tion.
§ 120.392 Who may apply?
A construction contractor or home- § 120.397 Are there any special restric-
builder with a past history of profit- tions?
able construction or rehabilitation The borrower must not use loan pro-
projects of comparable type and size ceeds to purchase vacant land for pos-
may apply. An applicant may sub- sible future construction or to operate
contract the work. Subcontracts in ex- or hold rental property for future reha-
cess of $25,000 may require 100 percent bilitation. SBA may allow rental of the
payment and performance bonds. property only if the rental will improve
the ability to sell the property. The
§ 120.393 Are there special application sale must be a legitimate change of
requirements?
ownership.
(a) An applicant must submit docu-
mentation from: AMERICA’S RECOVERY CAPITAL (BUSI-
(1) A mortgage lender indicating that NESS STABILIZATION) LOAN PROGRAM—
permanent mortgage money is avail- ARC LOAN PROGRAM
able to qualified purchasers to buy
such properties; § 120.398 America’s Recovery Capital
(2) A real estate broker indicating (ARC) Loan Program.
that a market exists for the proposed (a) Purpose. The purpose of the ARC
building and that it will be compatible Loan Program is to enable SBA to
with its neighborhood; and guarantee certain loans to viable small
(3) An architect, appraiser or engi- businesses that are experiencing imme-
neer agreeing to make inspections and diate financial hardship. Loans made
certifications to support interim dis- under this loan program are referred to
bursements. as ARC Loans and are subject to the
269
§ 120.398 13 CFR Ch. I (1–1–23 Edition)
requirements set forth in this Part for one ARC Loan but ARC Loans may be
7(a) loans except as noted in this sec- used to pay multiple Qualifying Small
tion. Business Loans.
(b) Definitions. (1) (i) Eligible Borrower (4) Viable small business is a small
is a small business concern as defined business that is a Going Concern but
in Section 3 of the Small Business Act which is having difficulty making peri-
and § 120.100. Eligible Borrower does not odic payments of principal and interest
include: on Qualifying Small Business Loan(s)
(A) Ineligible small businesses as and/or meeting operating expenses of
listed in § 120.110; and the business although it can reason-
(B) Small business concerns with the ably demonstrate its projected contin-
following primary industry North ued operation for a reasonable period
American Industry Classification Sys- beyond the six month period of pay-
tem (NAICS) codes: ment assistance with an ARC Loan.
(1) 713210 (Casinos (Except Casino Ho- (c) Period of program. The ARC Loan
tels)); Program is authorized through Sep-
(2) 721120 (Casino Hotels); tember 30, 2010, or until appropriated
(3) 713290 (Other Gambling Indus- funds are exhausted, whichever is soon-
tries); er.
(4) 713910 (Golf Courses and Country (d) Use of proceeds. Loans made under
Clubs); and the ARC Loan Program are for the sole
(5) 712130 (Zoos and Botanical Gar- purpose of making periodic payments
dens). of principal and interest (including de-
(ii) Applications submitted by small fault interest), in full or in part, for up
business concerns with a primary in- to six (6) months, on one or more exist-
dustry NAICS code of 713940 (Fitness ing Qualifying Small Business Loans.
and Recreational Sports Centers) will ARC Loan proceeds cannot be used to
be identified and reviewed by SBA to make payments on loans made or guar-
determine eligibility in accordance anteed by SBA prior to February 17,
with the statutory restriction on as- 2009.
sistance to swimming pools. (e) Loan terms. (1) Guaranty percent-
(2) Going Concern is a small business age. ARC Loans are 100% guaranteed by
concern actively engaging in business SBA.
with the expectation of indefinite con- (2) Maximum loan size. An ARC Loan
tinuance. may not exceed $35,000.
(3) Qualifying Small Business Loan is a (3) Interest rate. The interest rate for
loan previously made to an Eligible ARC Loans will be published by SBA in
Borrower for any of the purposes set the FEDERAL REGISTER.
forth in § 120.120 and not for any of the (4) Loan maturity. An ARC Loan may
purposes set forth in § 120.130 or be made with a maturity of up to six
120.160(d). Qualifying Small Business and one-half years.
Loans may include credit card obliga- (5) Disbursement period. The disburse-
tions, capital leases for major equipment period for an ARC Loan is up to
ment and vehicles, notes payable to six consecutive months.
vendors or suppliers, loans in the first (6) Loan payments.
lien position made by commercial lend- (i) Borrower’s payments. The borrower
ers in connection with the Develop- will be responsible for all principal
ment Company Loan Program (504), payments.
home equity loans used to finance busi- (ii) Payment of interest by SBA. SBA
ness operations, other loans to small will make periodic interest payments
businesses made without an SBA guar- to the lender on ARC Loans. Interest
anty, and loans made by or with an will accrue only until the date 120 days
SBA guaranty on or after February 17, after the earliest uncured payment de-
2009. Loans made or guaranteed by SBA fault on the ARC Loan. However, the
before February 17, 2009 are not Quali- amount paid by SBA on a defaulted
fying Small Business Loans for the ARC Loan, when it honors its guar-
purposes of the ARC Loan Program. A antee, will be adjusted to reconcile for
Qualifying Small Business Loan may any overpayments or underpayments of
not be used as the basis for more than interest previously paid to the Lender.
270
Interim adjustments to interest paid ating Company, if applicable) and its

by SBA to lenders may be made during Associates;
the term of the ARC Loan and interest (2) Experience and depth of manage-
payments due the Lender will be ad- ment;
justed to accommodate the interim in- (3) Strength of the business;
terest adjustments. (4) Past earnings, current earnings,
(iii) Deferral period. No principal re- and projected cash flow; and
payment is required during the dis- (5) Ability to repay the loan with
bursement period or for 12 months fol- earnings from the business.
lowing the final loan disbursement. (j) Statement of hardship. In addition
(iv) Repayment period. The borrower to the certifications required for 7(a)
will be required to pay the loan prin- loans generally, ARC Loan recipients
cipal over five years beginning in the must submit a statement certifying
13th month following the final loan dis- that they are experiencing immediate
bursement. The ARC Loan balance will financial hardship and provide docu-
be fully amortized over the five year mentation to support the certification.
repayment period. Balloon payments (k) Loan application. The provisions
may not be required by lenders. The of § 120.191 do not apply for ARC Loans.
borrower may prepay all or a portion of A lender making an ARC Loan will pro-
the principal during the life of the loan vide an application with information
without penalty. on the small business that includes the
nature and history of the business, cur-
(f) Number of ARC Loans per small
rent and historical financial state-
business. No small business may obtain
ments (or tax returns), and other infor-
more than one ARC Loan, but the pro-
mation that SBA may require.
ceeds of the ARC loan may be used to
(l) Preferences and refinancing. A lend-
pay more than one Qualifying Small
er may make an ARC Loan to an Eligi-
Business Loan.
ble Borrower that intends to use the
(g) Personal guarantees. Holders of at proceeds of the ARC Loan to make
least a 20 percent ownership interest in periodic payments of principal and in-
the borrower generally must guarantee terest on a Qualifying Small Business
the ARC Loan. Loan that is owned or serviced by that
(h) Collateral. SBA requires each lend- same lender. The provisions of §§ 120.10,
er to follow the collateral policies and 120.536(a)(2) and 120.925 with regard to
procedures that it has established and Preference for repayments without
implemented for similarly-sized non- prior SBA approval do not apply to
SBA guaranteed commercial loans. The ARC Loans. The provisions of § 120.201
lender’s collateral policies must be restricting refinancing also do not
commercially reasonable and prudent. apply to ARC Loans.
Lenders will certify that the collateral (m) Loan fees. Neither the lender nor
policies applied to the ARC Loan meet SBA shall impose any fees or direct
this standard. Lenders may charge bor- costs on a borrower of an ARC Loan,
rowers the direct cost of securing and except that lenders may charge bor-
liquidating collateral for ARC Loans. rowers for the direct costs of securing
SBA will reimburse Lenders for the di- and liquidating collateral for the ARC
rect cost of liquidating collateral that Loan. Fees include, but are not limited
are not reimbursed by the borrower in to, points, bonus points, prepayment
the event of default. Reimbursement of penalties, brokerage fees, fees for proc-
the direct costs of liquidation by SBA essing, origination, or application, and
to the Lender is limited to the amount out of pocket expenses (other than the
of the recovery received on the ARC direct costs of securing and liquidating
Loan. collateral). SBA will not impose any
(i) Credit criteria. To be approved for fees on a lender making an ARC Loan.
an ARC Loan, the applicant must be a (n) Lender reporting. Lenders shall re-
creditworthy small business with a rea- port on its ARC Loans in accordance
sonable expectation of repayment, tak- with requirements established by SBA
ing into consideration the following: from time to time for 7a loans and
(1) Character, reputation, and credit loans made under the American Recov-
history of the applicant (and the Oper- ery and Reinvestment Act of 2009.
271
§ 120.400 13 CFR Ch. I (1–1–23 Edition)
(o) Loan servicing. Each originating (r) Prohibition on secondary market

lender shall service all of its ARC sales and loan participations. A lender
Loans in accordance with the existing may not sell an ARC loan into the sec-
practices and procedures that the ondary market nor may a lender par-
Lender uses for its non-SBA guaran- ticipate a portion of an ARC loan with
teed commercial loans. In all cir- another lender.
cumstances, such practices and proce- (s) Loan volume. SBA reserves the
dures must be commercially reasonable right to allocate loan volume under the
and consistent with prudent lending ARC Loan Program among Lenders (as
standards and in accordance with SBA defined in § 120.10).
Loan Program Requirements as defined (t) Delegated authority. SBA may
in § 120.10. SBA’s prior written consent allow lenders to use their delegated au-
is required for servicing actions that thority to process ARC Loans.
may have significant exposure implica- (u) Personal resources test. The per-
tions for SBA. SBA may require writ- sonal resources test provisions of
ten notice of other servicing actions it § 120.102 do not apply to ARC Loans.
considers necessary for portfolio man- (v) Statutory loan limit. The provisions
agement purposes. of § 120.151 do not apply to ARC Loans.
(p) Liquidations. Each Lender shall be
responsible for liquidating any de- [74 FR 27247, June 9, 2009]
faulted ARC Loan originated by the
Lender. ARC Loans will be liquidated Subpart D—Lenders
in accordance with the existing prac-
tices and procedures that the Lender § 120.400 Loan Guarantee Agreements.
uses for its non-SBA guaranteed com- SBA may enter into a Loan Guar-
mercial loans. In all circumstances, antee Agreement with a Lender to
such practices and procedures must be make deferred participation (guaran-
commercially reasonable and con- teed) loans. Such an agreement does
sistent with prudent lending standards not obligate SBA to participate in any
and in accordance with SBA Loan Pro- specific proposed loan that a Lender
gram Requirements as defined in Sec- may submit. The existence of a Loan
tion 120.10. Loans with de minimis Guarantee Agreement does not limit
value may, at the Lender’s request and SBA’s rights to deny a specific loan or
with SBA’s approval, be liquidated by establish general policies. See also
SBA or its agent(s). Significant liq- § 120.440(c) concerning Supplemental
uidation actions taken on ARC Loans Guarantee Agreements.
must be documented. The reimburse-
ment of liquidation related fees by SBA [61 FR 3235, Jan. 31, 1996, as amended at 82
to the Lender is limited to the amount FR 39503, Aug. 21, 2017]
of the recovery on the ARC Loan.
(q) Purchase requests. Any purchase PARTICIPATION CRITERIA
request to SBA to honor its guaranty § 120.410 Requirements for all partici-
on a defaulted ARC Loan shall be made pating Lenders.
by the originating lender. Lenders may
request SBA to purchase an ARC Loan A Lender must:
when there has been an uncured pay- (a) Have a continuing ability to
ment default exceeding 60 days or when evaluate, process, close, disburse, serv-
the borrower has declared bankruptcy. ice, liquidate and litigate small busi-
SBA requires Lenders to submit loans ness loans including, but not limited
for purchase no later than 120 days to:
after the earliest uncured payment de- (1) Holding sufficient permanent cap-
fault on the ARC Loan. Additionally, ital to support SBA lending activities
SBA may honor its guarantee and re- (for SBA Lenders with a Federal Finan-
quire a Lender to submit an ARC Loan cial Institution Regulator, meeting
for purchase at any time. Except as capital requirements for an adequately
noted above, the Lender is required to capitalized financial institution is con-

complete all recovery actions on the sidered sufficient permanent capital to
ARC Loan after purchase. support SBA lending activities; and for
272
SBLCs and NFRLs, meeting their re- § 120.412 Other services Lenders may
spective minimum capital require- provide Borrowers.
ment); and Subject to § 120.140 Lenders, their As-
(2) Maintaining satisfactory SBA per- sociates or the designees of either may
formance, as determined by SBA in its provide services to and contract for
discretion. The 7(a) Lender’s Risk Rat- goods with a Borrower only after full
ing, among other factors, will be con- disbursement of the loan to the small
sidered in determining satisfactory business or to an account not con-
SBA performance. Other factors may trolled by the Lender, its Associate, or
include, but are not limited to, review/ the designee. A Lender, an Associate,
examination assessments, historical or a designee providing such services
performance measures (like default must do so under a written contract
rate, purchase rate and loss rate), loan with the small business, based on time
volume to the extent that it impacts and hourly charges, and must maintain
performance measures, and other per- time and billing records for examina-
formance related measurements and tion by SBA. Fees cannot exceed those
information (such as contribution to- charged by established professional
consultants providing similar services.
ward SBA mission);
See also § 120.195.
(b) Be open to the public for the mak-
ing of such loans (not be a financing § 120.413 Advertisement of relation-
subsidiary, engaged primarily in fi- ship with SBA.
nancing the operations of an affiliate); A Lender may refer in its advertising
(c) Have continuing good character to its participation with SBA. The ad-
and reputation, and otherwise meet vertising may not:
and maintain the ethical requirements (a) State or imply that the Lender, or
of § 120.140 any of its Borrowers, has or will re-
(d) Be supervised and examined by ei- ceive preferential treatment from SBA;
ther: (b) Be false or misleading; or
(1) A Federal Financial Institution (c) Make use of SBA’s seal.
Regulator,
PARTICIPATING LENDER FINANCINGS
(2) A state banking regulator satis-
factory to SBA, or
SOURCE: Sections 120.420 through 120.428 ap-
(3) SBA; pear at 64 FR 6507, Feb. 10, 1999, unless other-
(e) Be in good standing with SBA, as wise noted.
defined in § 120.420(f) (and determined
by SBA in its discretion), and, as appli- § 120.420 Definitions.
cable, with its state regulator and be (a) 7(a) Loans—All references to 7(a)
considered Satisfactory by its Federal loans under this subpart include loans
Financial Institution Regulator (as de- made under section 7(a) of the Small
termined by SBA and based on, for ex- Business Act (15 U.S.C. 631 et seq.) and
ample, information in published orders/ loans made under section 502 of the
agreements and call reports); and Small Business Investment Act (15
(f) Operate in a safe and sound condi- U.S.C. 661 et seq.), both of which may be
tion using commercially reasonable securitized under this subpart.
lending policies, procedures, and stand- (b) Benchmark Number—The max-
ards employed by prudent Lenders. imum number of percentage points
that a securitizer’s Currency Rate can
[61 FR 3235, Jan. 31, 1996, as amended at 62 decrease without triggering the PLP
FR 302, Jan. 3, 1997; 73 FR 75510, Dec. 11, 2008; suspension provision set forth in
82 FR 39503, Aug. 21, 2017; 85 FR 78213, Dec. 4, § 120.425. SBA will publish the Bench-
2020] mark Number in the FEDERAL REG-
ISTER.
§ 120.411 Preferences. (c) Currency Rate—A securitizer’s
An agreement to participate under ‘‘Currency Rate’’ is the dollar balance
the Act may not establish any Pref- of its 7(a) guaranteed loans that are
erences in favor of the Lender. less than 30 days past due divided by
the dollar balance of its portfolio of
273
§ 120.421 13 CFR Ch. I (1–1–23 Edition)
7(a) guaranteed loans outstanding, as tween a securitizer’s Initial Currency

calculated quarterly by SBA, excluding Rate and the SBA 7(a) loan portfolio
loans approved in SBA’s current fiscal Currency Rate at the time of the first
year. securitization after April 12, 1999. The
(d) Currency Rate Percentage—The re- ICRP is calculated by dividing the
lationship between the securitizer’s securitizer’s Currency Rate by the SBA
Currency Rate and the SBA 7(a) loan 7(a) loan portfolio Currency Rate. SBA
portfolio Currency Rate as calculated will calculate the securitizer’s ICRP as
by dividing the securitizer’s Currency of the end of the calendar quarter im-
Rate by the SBA 7(a) loan portfolio mediately prior to the first
Currency Rate. securitization completed after April 12,
(e) Good Standing—In general, a Lend- 1999.
er is in ‘‘good standing’’ with SBA if it: (h) Loss Rate—A securitizer’s ‘‘loss
(1) Is in compliance with all applica- rate,’’ as calculated by SBA, is the ag-
ble: gregate principal amount of the
(i) Laws and regulations; securitizer’s 7(a) loans determined
(ii) Policies; and uncollectible by SBA for the most re-
(iii) Procedures; cent 10-year period, excluding SBA’s
(2) Is in good financial condition as current fiscal year activity, divided by
determined by SBA; the aggregate original principal
(3) Is not under investigation or in- amount of 7(a) loans disbursed by the
dictment for, or has not been convicted securitizer during that period.
of, or had a judgment entered against (i) Nondepository Institution—A ‘‘non-
it for felony or fraud, or charges relat- depository institution’’ is a Small
ing to a breach of trust or violation of Business Lending Company (‘‘SBLC’’)
a law or regulation protecting the in- regulated by SBA or a Business and In-
tegrity of business transactions or re- dustrial Development Company
lationships, unless the Lender Over- (‘‘BIDCO’’) or other nondepository in-
sight Committee has determined that stitution participating in SBA’s 7(a)
good standing exists despite the exist- program.
ence of such factors. (j) Securitization—A ‘‘securitization’’
(4) Does not have any officer or em- is the pooling and sale of the
ployee who has been under investiga- unguaranteed portion of SBA guaran-
tion or indictment for, or has been con- teed loans to a trust, special purpose
victed of or had a judgment entered vehicle, or other mechanism, and the
against him for, a felony or fraud, or issuance of securities backed by those
charges relating to a breach of trust or loans to investors in either a private
violation of a law or regulation pro- placement or public offering.
tecting the integrity of business trans- [64 FR 6507, Feb. 10, 1999, as amended at 73
actions or relationships, unless the FR 75511, Dec. 11, 2008; 87 FR 38909, June 30,
Lender Oversight Committee has deter- 2022]
mined that good standing exists de-
spite the existence of such person. § 120.421 Which Lenders may
(f) Initial Currency Rate—The Initial securitize?
Currency Rate (ICR) is the securitizer’s All SBA participating Lenders may
benchmark Currency Rate. SBA will securitize subject to SBA’s approval.
calculate the securitizer’s ICR as of the
end of the calendar quarter imme- § 120.422 Are all securitizations sub-
diately prior to the first securitization ject to this subpart?
completed after April 12, 1999. This cal- All securitizations are subject to this
culation will include all 7(a) loans subpart. Until additional regulations
which are outstanding and were ap- are promulgated, SBA will consider
proved in any fiscal year prior to SBA’s securitizations involving multiple
current fiscal year. Each quarter, SBA Lenders on a case by case basis, using
will compare each securitizer’s Cur- the conditions in § 120.425 as a starting
rency Rate to its ICR. point. SBA will consider
(g) Initial Currency Rate Percentage— securitizations by affiliates as single

The Initial Currency Rate Percentage Lender securitizations for purposes of
(ICRP) measures the relationship be- this subpart.
274
§ 120.423 Which 7(a) loans may a Lend- tion to be in compliance with this sec-
er securitize? tion if it meets the definition of ‘‘well
A Lender may only securitize 7(a) capitalized’’ used by its bank regu-
loans that will be fully disbursed with- lator. SBA’s capital requirement does
in 90 days of the securitization’s clos- not change the requirements that
ing date. If the amount of a fully dis- banks already meet. For nondepository
bursed loan increases after a institutions, SBA, as the regulator,
securitization settles, the Lender must will consider a non-depository institu-
retain the increased amount. tion to be ‘‘well capitalized’’ if it main-
tains a minimum unencumbered paid
§ 120.424 What are the basic conditions in capital and paid in surplus equal to
a Lender must meet to securitize? at least 10 percent of its assets, exclud-
To securitize, a Lender must: ing the guaranteed portion of 7(a)
(a) Be in good standing with SBA as loans. The capital charge applies to the
defined in § 120.420(f) of this chapter and remaining balance outstanding on the
determined by SBA in its discretion; unguaranteed portion of the
(b) Have satisfactory SBA perform- securitizer’s 7(a) loans in its portfolio
ance, as determined by SBA in its dis- and in any securitization pools. Each
cretion. The Lender’s Risk Rating, nondepository institution must submit
among other factors, will be considered annual audited financial statements
in determining satisfactory SBA per- demonstrating that it has met SBA’s
formance. Other factors may include, capital requirement.
but are not limited to, review/examina- (b) Subordinated Tranche—A
tion assessments, historical perform- securitizer or its wholly owned sub-
ance measures (like default rate, pur- sidiary must retain a tranche of the se-
chase rate and loss rate), loan volume curities issued in the securitization
to the extent that it impacts perform- (subordinated tranche) equal to the
ance measures, and other performance greater of two times the securitizer’s
related measurements and information Loss Rate or 2 percent of the principal
(such as contribution toward SBA mis- balance outstanding at the time of
sion); securitization of the unguaranteed por-
(c) Use a securitization structure tion of the loans in the securitization.
which is satisfactory to SBA; This tranche must be subordinate to
(d) Use documents acceptable to all other securities issued in the
SBA, including SBA’s model multi- securitization including other subordi-
party agreement, as amended from nated tranches. The securitizer or its
time to time; wholly owned subsidiary may not sell,
(e) Obtain SBA’s written consent, pledge, transfer, assign, sell participa-
which it may withhold in its sole dis- tions in, or otherwise convey the sub-
cretion, prior to executing a commit- ordinated tranche during the first 6
ment to securitize; and years after the closing date of the
(f) Cause the original notes to be securitization. The securities evidenc-
stored at the FTA, as defined in ing the subordinated tranche must bear
§ 120.600, and other loan documents to a legend stating that the securities
be stored with a party approved by may not be sold until 6 years after the
SBA. issue date. SBA’s Securitization Com-
[64 FR 6507, Feb. 10, 1999, as amended at 73
mittee may modify the formula for de-
FR 75511, Dec. 11, 2008; 82 FR 39503, Aug. 21, termining the tranche size for a
2017] securitizer creating a securitization
from a pool of loans located in a region
§ 120.425 What are the minimum ele- affected by a severe economic down-
ments that SBA will require before turn if the Securitization Committee
consenting to a securitization? concludes that enforcing this section
A securitizer must comply with the might exacerbate the adverse economic
following three conditions: conditions in the region. SBA will
(a) Capital Requirement—All work with the securitizer to verify the
securitizers must be considered to be accuracy of the data used to make the

‘‘well capitalized’’ by their regulator. Loss Rate calculation.
SBA will consider a depository institu- (c) PLP Privilege Suspension.
275
§ 120.426 13 CFR Ch. I (1–1–23 Edition)
(1) Suspension: If a securitizer’s Cur- only one petition by a securitizer per

rency Rate declines, SBA may suspend quarter.
the securitizer’s PLP unilateral loan (3) The Benchmark Number. SBA will
approval privileges (PLP approval monitor the Benchmark Number. If
privileges) if the decline from the economic conditions or policy consid-
securitizer’s ICR is more than the erations warrant, SBA may modify the
Benchmark Number as published in the Benchmark Number to protect the
FEDERAL REGISTER from time to time safety and soundness of the 7(a) pro-
and the securitizer’s Currency Rate gram.
Percentage is less than its ICRP. The (4) Data. SBA will calculate Currency
securitizer will first be placed on pro- Rate and Currency Rate Percentages
bation for one quarter. If, at the end of quarterly from financial information
the probationary quarter the that securitizers provide. SBA will
securitizer has not met either of the work with a securitizer to verify the
following conditions in paragraph accuracy of the data used to make the
(c)(1)(i) or (c)(1)(ii) of this section, SBA Currency Rate calculation.
will suspend the securitizer’s PLP ap-
proval privileges and will not approve [64 FR 6508, Feb. 10, 1999, as amended at 65
additional securitization requests from FR 49481, Aug. 14, 2000; 73 FR 75511, Dec. 11,
that securitizer. SBA will provide writ- 2008]
ten notice at least 10 days prior to the
§ 120.426 What action will SBA take if
effective date of suspension. The sus-
a securitizer transfers the subordi-
pension will last a minimum of 3 nated tranche prior to the termi-
months. During the suspension period, nation of the holding period?
the securitizer must use Certified
Lender or Regular Procedures to proc- If a securitizer transfers the subordi-
ess 7(a) loan applications. The prohibi- nated tranche prior to the termination
tion will end if, at the end of the proba- of the holding period, SBA will suspend
tionary quarter: (i) the securitizer has immediately the securitizer’s ability to
improved its Currency Rate to above make new 7(a) loans. The securitizer
its ICR less the Benchmark Number; or will have 30 calendar days to submit an
(ii) its Currency Rate Percentage is ei- explanation to Lender Oversight Com-
ther the same or greater than its ICRP. mittee (‘‘Committee’’). The Committee
(2) Reinstatement: The suspension will will have 30 calendar days to review
remain in effect until the securitizer the explanation and determine whether
meets either the condition in para- to lift the suspension. If an explanation
graph (c)(1)(i) or (c)(1)(ii) of this sec- is not received within 30 calendar days
tion. If the securitizer meets either or the explanation is not satisfactory
condition by the end of the 3-month pe- to the Committee, SBA may transfer
riod, notifies SBA with acceptable doc- the servicing of the applicable
umentation, and SBA agrees, SBA will securitized loans, including the
reinstate the securitizer. If the securitizers’ servicing fee on the guar-
securitizer cannot meet either condi- anteed and unguaranteed portions and
tion, the suspension will remain in ef- the premium protection fee on the
fect. The securitizer may then petition guaranteed portion, to another SBA
the Lender Oversight Committee (Com- participating Lender.
mittee) for reinstatement. The Com-
mittee will review the reinstatement [64 FR 6507, Feb. 10, 1999, as amended at 73
petition and determine if the FR 75511, Dec. 11, 2008]
securitizer’s PLP approval privilege
§ 120.427 Will SBA approve a
and securitization status should be re-
securitization application from a
instated. The Committee may consider capital impaired Securitizer?
the economic conditions in the
securitizer’s market area, the If a securitizer does not maintain the
securitizer’s efforts to improve its Cur- level of capital required by this sub-
rency Rate, and the quality of the part, SBA will not approve a
securitizer’s 7(a) loan packages and securitization application from that
servicing. The Committee will consider securitizer.
276
§ 120.428 What happens to a This paragraph (a) applies to all 7(a)

securitizer’s other PLP responsibil- loans purchased from any Federal or
ities if SBA suspends its PLP ap- state banking regulator, any receiver,
proval privilege? or any conservator, unless SBA agrees
The securitizer must continue to otherwise in writing.
service and liquidate loans according (b) A Lender may sell, or sell a par-
to its PLP Supplemental Agreement. ticipating interest in, a part of a 7(a)
loan to another participating Lender.
OTHER CONVEYANCES If the Lender retains ownership of a
part of the unguaranteed portion of the
SOURCE: Sections 120.430 through 120.435 ap- loan equal to at least 10 percent of the
pear at 64 FR 6509, 6510, Feb. 10, 1999, unless outstanding principal balance of the
otherwise noted.
loan, the Lender must give SBA prior
§ 120.430 What conveyances are cov- written notice of the transaction, and
ered by §§ 120.430 through 120.435? the Lender must continue to hold the
note and service the loan. If a Lender
Sections 120.430 through 120.435 cover
retains ownership of a part of the
all other transactions in which a Lend-
unguaranteed portion of the loan equal
er sells, sells a participating interest
to less than 10 percent of the out-
in, or pledges an SBA guaranteed loan
standing principal balance of the loan,
other than for the purpose of
the Lender must obtain SBA’s prior
securitizing and other than convey-
written consent to the transaction,
ances covered under Subpart F, Sec-
which consent SBA may withhold in its
ondary Market, of this part.
sole discretion. The Lender must con-
§ 120.431 Which Lenders may sell, sell tinue to hold the note and other loan
participations in, or pledge 7(a) documents, and service the loan unless
loans? SBA otherwise agrees in its sole discre-
All Lenders may sell, sell participation.
tions in, or pledge 7(a) loans in accord- (c) For purposes of determining the
ance with this subpart. percentage of ownership a Lender has
retained, SBA will not consider a Lend-
§ 120.432 Under what circumstances er to be the owner of the part of a loan
does this subpart permit sales of, or in which it has sold a participating in-
sales of participating interests in, terest.
7(a) loans?
[64 FR 6509, 6510, Feb. 10, 1999, as amended at
(a) A Lender may sell all of its inter- 85 FR 7648, Feb. 10, 2020; 85 FR 80588, Dec. 14,
est in a 7(a) loan to another Lender op- 2020; 87 FR 38909, June 30, 2022]
erating under a current Loan Guar-
antee Agreement (SBA Form 750) § 120.433 What are SBA’s other re-
(‘‘participating Lender’’), with SBA’s quirements for sales and sales of
prior written consent, which SBA may participating interests?
withhold in its sole discretion. A Lend- SBA requires the following:
er may not sell any of its interest in a (a) The Lender must be in good
7(a) loan to a nonparticipating Lender. standing with SBA as defined in
The purchasing Lender must take pos- § 120.420(f) and determined by SBA in
session of the promissory note and its discretion;
other loan documents, and service the (b) The Lender has satisfactory SBA
sold 7(a) loan. The purchasing Lender performance, as determined by SBA in
purchases the loan subject to SBA’s ex- its discretion. The Lender’s Risk Rat-
isting rights including its right to deny ing, among other factors, will be con-
liability on its guarantee as provided sidered in determining satisfactory
in § 120.524. After purchase, the pur- SBA performance. Other factors may
chased loan will be subject to the pur- include, but are not limited to, review/
chasing Lender’s Loan Guarantee examination assessments, historical
Agreement. This paragraph (a) applies performance measures (like default
to all 7(a) loans purchased from any rate, purchase rate and loss rate), loan
Federal or state banking regulator, volume to the extent that it impacts

any receiver, or any conservator, un- performance measures, and other per-
less SBA agrees otherwise in writing. formance related measurements and
277
§ 120.434 13 CFR Ch. I (1–1–23 Edition)
information (such as contribution to- of loss on the unguaranteed portion of

ward SBA mission); and the loans.
(c) In transactions requiring SBA’s
consent, all documentation must be FR 75511, Dec. 11, 2008; 82 FR 39503, Aug. 21,
satisfactory to SBA, including, if SBA 2017]
determines it to be necessary, a multi-
party agreement. § 120.435 Which loan pledges do not re-
quire notice to or consent by SBA?
FR 75511, Dec. 11, 2008; 82 FR 39503, Aug. 21, (a) Notwithstanding the provisions of
2017] § 120.434(e), 7(a) loans may be pledged
for the following purposes without no-
§ 120.434 What are SBA’s requirements tice to or consent by SBA:
for loan pledges?
(1) Treasury tax and loan accounts;
(a) Except as set forth in § 120.435, (2) The deposit of public funds;
SBA must give its prior written con- (3) Uninvested trust funds;
sent to all pledges of any portion of a (4) Borrowings from a Federal Re-
7(a) loan, which consent SBA may serve Bank; or
withhold in its sole discretion; (5) Advances by a Federal Home Loan
(b) The Lender must be in good Bank.
standing with SBA as defined in (b) For purposes of the Paycheck
§ 120.420(f) and determined by SBA in Protection Program (PPP), the other
its discretion; provisions of § 120.434 shall also not
(c) The Lender has satisfactory SBA apply to PPP loans pledged under para-
performance, as determined by SBA in graph (a)(4) or (5) of this section.
its discretion. The Lender’s Risk Rat-
ing, among other factors, will be con- [85 FR 21752, Apr. 20, 2020]
sidered in determining satisfactory
SBA performance. Other factors may DELEGATED AUTHORITY CRITERIA
include, but are not limited to, review/
examination assessments, historical § 120.440 How does a 7(a) Lender ob-
tain delegated authority?
performance measures (like default
rate, purchase rate and loss rate), loan (a) In making its decision to grant or
volume to the extent that it impacts renew a delegated authority, SBA con-
performance measures, and other per- siders whether the Lender, as deter-
formance related measurements and mined by SBA in its discretion:
information (such as contribution to- (1) Has the continuing ability to
ward SBA mission); evaluate, process, close, disburse, serv-
(d) All loan documents must be satis- ice, liquidate and litigate SBA loans.
factory to SBA and must include a This includes the ability to develop and
multi-party agreement among SBA, analyze complete loan packages. SBA
Lender, the pledgee, FTA and such may consider the experience and capa-
other parties as SBA determines are bility of Lender’s management and
necessary; staff.
(e) The Lender must use the proceeds (2) Has satisfactory SBA performance
of the loan secured by the 7(a) loans (as defined in § 120.410(a)(2));
only for financing 7(a) loans and for (3) Is in compliance with SBA Loan
costs and expenses directly connected Program Requirements (e.g., Form 1502
with the borrowing for which the loans reporting, timely payment of all fees to
are pledged; SBA);
(f) The Lender must remain the (4) Has completed to SBA’s satisfac-
servicer of the loans and retain posses- tion all required corrective actions;
sion of all loan documents other than (5) Whether Lender is subject to any
the original promissory notes; enforcement action, order or agree-
(g) The Lender must deposit the ment with a regulator or the presence
original promissory notes at the FTA; of other regulatory concerns as deter-
and mined by SBA; and

(h) The Lender must retain an eco- (6) Whether Lender exhibits other
nomic interest in and the ultimate risk risk factors (e.g., has rapid growth; low
278
SBA activity; SBA loan volume; Lend- to SBA’s loan processing center appro-
er, an officer or director is under inves- priate documentation signed by two of
tigation or indictment). the PLP’s authorized representatives.
(b) Delegated authority decisions are SBA will attach the SBA guarantee
made by the appropriate SBA official and notify the PLP Lender of the SBA
in accordance with Delegations of Au- loan number (if it does not identify a
thority, and are final. problem with eligibility, and funds are
(c) If delegated authority is approved available).
or renewed, Lender must execute a (c) The PLP Lender is responsible for
Supplemental Guarantee Agreement, all PLP loan decisions regarding eligi-
which will specify a term not to exceed bility (including size) and creditworthi-
two years. SBA may grant shortened ness. The PLP Lender is also respon-
renewals based on risk or any of the sible for confirming that all PLP loan
other delegated authority criteria. closing decisions are correct, and that
Lenders with less than 3 years of SBA it has complied with all requirements
lending experience will be limited to a of law and SBA regulations.
term of 1 year or less.
SBA SUPERVISED LENDERS
[82 FR 39503, Aug. 21, 2017, as amended at 85
FR 7648, Feb. 10, 2020; 85 FR 80588, Dec. 14, § 120.460 What are SBA’s additional re-
2020] quirements for SBA Supervised
Lenders?
§ 120.441–§ 120.447 [Reserved]
(a) In general. In addition to com-
PREFERRED LENDERS PROGRAM (PLP) plying with SBA’s requirements for
SBA Lenders, an SBA Supervised Lend-
§ 120.450 What is the Preferred Lend- er must meet the additional require-
ers Program? ments set forth in this regulation and
Under the Preferred Lenders Pro- the SBA Supervised Lender regulations
gram (PLP), designated Lenders proc- that follow.
ess, close, service, and liquidate SBA (b) Operations and internal controls.
guaranteed loans with reduced require- Each SBA Supervised Lender’s board of
ments for documentation to and prior directors (or management, if the SBA
approval by SBA. Supervised Lender is a division of an-
other company and does not have its
§ 120.451 [Reserved] own board of directors) must adopt an
internal control policy which provides
§ 120.452 What are the requirements of adequate direction to the institution in
PLP loan processing?
establishing effective control over and
(a) Subparts A and B of this part gov- accountability for operations, pro-
ern the making of PLP loans, except grams, and resources. The internal con-
for the following: trol policy must, at a minimum:
(1) Certain types of businesses, loans, (1) Direct management to assign re-
and loan programs are not eligible for sponsibility for the internal control
PLP, as detailed in published SBA pol- function (covering financial, credit,
icy and procedures. credit review, collateral, and adminis-
(2) A Lender may not make a PLP trative matters) to an officer or offi-
business loan which reduces its exist- cers of the SBA Supervised Lender;
ing credit exposure for any Borrower, (2) Adopt and set forth procedures for
except in cases where an interim maintenance and periodic review of the
loan(s) has been made for other than internal control function; and
real estate construction purposes to (3) Direct the operation of a program
the Borrower which was approved by to review and assess the SBA Super-
the Lender within 90 days of receipt of vised Lender’s assets. The asset review
the issuance fo a subsequent PLP loan program policies must specify the fol-
number. lowing:
(3) SBA will not guarantee more than (i) Loan, loan-related asset, and ap-
the specified statutory percentage of praisal review standards, including
any PLP loan. standards for scope of selection for re-

(b) A PLP Lender notifies SBA of its view (of any such loan, loan-related
approval of a PLP loan by submitting asset or appraisal) and standards for
279
§ 120.461 13 CFR Ch. I (1–1–23 Edition)
work papers and supporting docu- graph will apply on or after January 4,
mentation; 2022.
(ii) Asset quality classification [73 FR 75512, Dec. 11, 2008, as amended at 85
standards consistent with the stand- FR 78213, Dec. 4, 2020]
ardized classification systems used by
the Federal Financial Institution Reg- § 120.461 What are SBA’s additional re-
ulators; quirements for SBA Supervised
(iii) Specific internal control require- Lenders concerning records?
ments for the SBA Supervised Lender’s (a) Report filing. All SBA Supervised
major asset categories (cash and in- Lender-specific reports (including all
vestment securities), lending, and the SBLC-only reports) must be filed with
issuance of debt; the appropriate Office of Capital Ac-
(iv) Specific internal control require- cess official in accordance with Delega-
ments for the SBA Supervised Lender’s tions of Authority.
oversight of Lender Service Providers; (b) Maintenance of records. An SBA
and Supervised Lender must maintain at
(v) Standards for training to imple- its principal business office accurate
ment the asset review program. and current financial records, includ-
(c) An SBA Supervised Lender must ing books of accounts, minutes of
have qualified full-time professional stockholder, directors, and executive
management including, but not limited committee meetings, and all docu-
to, a chief executive officer or the ments and supporting materials relat-
equivalent to manage daily operations, ing to the SBA Supervised Lender’s
and a chief credit/risk officer. An SBA transactions. However, securities held
Supervised Lender must also have at by a custodian pursuant to a written
least one other part-time professional agreement are exempt from this re-
employee (which may be a shared em- quirement.
ployee of the lender’s affiliates) quali- (c) Permanent preservation of records.
fied by training and experience to An SBA Supervised Lender must per-
carry out its business plan. An SBA Su- manently preserve in a manner permit-
pervised Lender is expected to sustain ting immediate (one business day) re-
a sufficient level of lending activity in trieval the following documentation
its lending area, which means obtain- for the financial statements and other
ing at least four 7(a) loan approvals reports required by § 120.464 (and the
during two consecutive fiscal years. accompanying certified public account-
This paragraph only applies to SBA Su- ant’s opinion):
pervised Lenders that make or acquire (1) All general and subsidiary ledgers
a 7(a) loan after January 4, 2021, or to (or other records) reflecting asset, li-
any SBA Supervised Lender approved ability, capital stock and additional
after such date, including in the event paid-in capital, income, and expense
of a change of ownership or control of accounts;
an SBA Supervised Lender. (2) All general and special journals
(d) An NFRL may only make or ac- (or other records forming the basis for
quire 7(a) loans in the state in which entries in such ledgers); and
its primary state regulator is located, (3) The corporate charter, bylaws, ap-
except that an NFRL’s lending area plication for determination of eligi-
may include a local trade area that is bility to participate with SBA, and all
contiguous to such state (e.g., a city or minutes books, capital stock certifi-
metropolitan statistical area that is bi- cates or stubs, stock ledgers, and stock
sected by a state line) if the NFRL re- transfer registers.
ceives SBA’s prior written approval. (d) Other preservation of records. An
This paragraph applies to all NFRLs on SBA Supervised Lender must preserve
or after January 4, 2021, including in for at least 6 years following final dis-
the event of approval of a new NFRL or position of each individual SBA loan:
a change of ownership or control of an (1) All applications for financing;
NFRL; provided however, that if SBA (2) Lending, participation, and es-
has approved any NFRL to make 7(a) crow agreements;
loans out of their state, then this para- (3) Financing instruments; and
280
(4) All other documents and sup- formal written capital plan. The plan
porting material relating to such must include any interim capital tar-
loans, including correspondence. gets that are necessary to achieve the
(e) Electronic preservation. Records SBA Supervised Lender’s capital ade-
and other documents referred to in this quacy goals as well as the minimum
section may be preserved electroni- capital standards. The plan must ad-
cally if the original is available for re- dress any projected dividend goals, eq-
trieval within 15 working days. uity retirements, or any other antici-
[73 FR 75512, Dec. 11, 2008] pated action that may decrease the
SBA Supervised Lender’s capital. The
§ 120.462 What are SBA’s additional re- plan must set forth the circumstances
quirements on capital maintenance in which capital retirements (e.g., divi-
for SBA Supervised Lenders? dends, distributions of capital or pur-
(a) Minimum capital requirements—(1) chase of treasury stock) can occur. In
For NFRLs. (i) Beginning on January 4, addition to factors described above
2024, each NFRL that makes or ac- that must be considered in meeting the
quires a 7(a) loan must maintain the minimum standards, the board of direc-
minimum capital required by its state tors must also address the following
regulator, or $2,500,000, whichever is factors in developing the SBA Super-
greater. vised Lender’s capital adequacy plan:
(ii) Any NFRL approved on or after (i) Management capability;
January 4, 2021, including in the event (ii) Quality of operating policies, pro-
of a change of ownership or control, cedures, and internal controls;
must maintain the minimum capital (iii) Quality and quantity of earn-
requirement set forth in paragraph ings;
(a)(1)(i) of this section.
(iv) Asset quality and the adequacy
(iii) Unless subject to paragraph
of the allowance for loan losses within
(a)(1)(i) or (ii) of this section, an NFRL
the loan portfolio;
must comply with the minimum cap-
ital requirements for NFRLs that were (v) Sufficiency of liquidity; and
in effect on January 3, 2021. (vi) Any other risk-oriented activi-
(2) For SBLCs. For information on ties or conditions that warrant addi-
minimum capital requirements for tional capital (e.g., portfolio growth
SBLCs, see § 120.471. rate).
(b) Capital adequacy. The board of di- (2) An SBA Supervised Lender must
rectors (or management, if the SBA keep its capital plan current, updating
Supervised Lender is a division of an- it at least annually or more often as
other company and does not have its operating conditions may warrant.
own board of directors) of each SBA (d) Certification of compliance. Within
Supervised Lender must determine 45 days of the end of each fiscal quar-
capital adequacy goals; that is, the ter, each SBA Supervised Lender must
total amount of capital needed to as- furnish the SBA with a calculation of
sure the SBA Supervised Lender’s con- capital and certification of compliance
tinued financial viability and provide with its minimum capital requirement
for any necessary growth. The min- as set forth in §§ 120.471, 120.472, or
imum standards set in § 120.471 for 120.474, as applicable, for SBLCs and as
SBLCs and those established in established in § 120.462(a)(1) for NFRLs.
§ 120.462(a)(1) for NFRLs are not to be The SBA Supervised Lender’s chief fi-
adopted as the ideal capital level for a nancial officer must certify the cal-
given SBA Supervised Lender. Rather, culation to be correct. The quarterly
the minimum standards are to serve as calculation and certification of compli-
minimum levels of capital that each ance may be included in the SBA Su-
SBA Supervised Lender must maintain pervised Lender’s Quarterly Condition
to protect against the credit risk and Report.
other general risks inherent in its op- (e) Capital impairment. An SBA Super-
eration. vised Lender must meet its minimum
(c) Capital plan. (1) The board of di- regulatory capital requirement and
rectors of each SBA Supervised Lender avoid capital impairment. Capital im-
must establish, adopt, and maintain a pairment exists if an SBA Supervised
281
§ 120.463 13 CFR Ch. I (1–1–23 Edition)
Lender fails to meet its minimum reg- vised capital restoration plan within
ulatory capital requirement under the timeframe specified by SBA.
§§ 120.471, 120.472, and 120.474 for SBLCs (4) Amendment of capital restoration
or as established in § 120.462(a)(1) for plan. An SBA Supervised Lender that
NFRLs. An SBA Supervised Lender has submitted an approved capital res-
must provide the appropriate Office of toration plan may, after prior written
Capital Access official in accordance notice to and approval by SBA, amend
with Delegations of Authority written the plan to reflect a change in cir-
notice of any failure to meet its min- cumstance. Until such time as a pro-
imum capital requirement within 30 posed amendment has been approved,
calendar days of the month-end in the SBA Supervised Lender must im-
which the impairment occurred. Unless plement the capital restoration plan as
otherwise waived by the appropriate approved prior to the proposed amend-
Office of Capital Access official in ac- ment.
cordance with Delegations of Author- (5) Failure. If an SBA Supervised
ity in writing, an SBA Supervised Lender fails to submit a capital res-
Lender may not present any loans to toration plan that is acceptable to SBA
SBA for guaranty until the impairment within its discretion within the re-
is cured. SBA may waive the present- quired timeframe, or fails to imple-
ment prohibition for good cause as de- ment, in any material respect as deter-
termined by SBA in its discretion. In mined by SBA in its discretion, its
the case of differences in calculating SBA approved capital restoration plan
capital or capital requirements be- within the plan timeframe, SBA may
tween the SBA Supervised Lender and undertake enforcement actions under
SBA, SBA’s calculations will prevail § 120.1500.
until differences between the two cal-
[73 FR 75512, Dec. 11, 2008, as amended at 85
culations are resolved. FR 78213, Dec. 4, 2020]
(f) Capital restoration plan— (1) Filing
requirement. An SBA Supervised Lender § 120.463 Regulatory accounting—
must file a written capital restoration What are SBA’s regulatory account-
plan with SBA within 45 days of the ing requirements for SBA Super-
date that the SBA Supervised Lender vised Lenders?
provides notice to SBA under para- (a) Books and records. The books and
graph (d) of this section or receives no- records of an SBA Supervised Lender
tice from SBA (whichever is earlier) must be kept on an accrual basis in ac-
that the SBA Supervised Lender has cordance with Generally Accepted Ac-
not met its minimum capital require- counting Principles (GAAP) as promul-
ment, unless SBA notifies the SBA Su- gated by the Financial Accounting
pervised Lender in writing that the Standards Board (FASB), supplemented
plan is to be filed within a different by Regulatory Accounting Principles
time period. (RAP) as identified by SBA in Policy,
(2) Plan content. An SBA Supervised Procedural or Information Notices,
Lender must detail the steps it will from time to time.
take to meet its minimum capital re- (b) Annual audit. Each SBA Super-
quirement; the time within which each vised Lender must have its financial
step will be taken; the timeframe for statements audited annually by a cer-
accomplishing the entire capital res- tified public accountant experienced in
toration; and the person or department auditing financial institutions. The
at the SBA Supervised Lender charged audit must be performed in accordance
with carrying out the capital restora- with generally accepted auditing
tion plan. standards as adopted by the Auditing
(3) SBA response. SBA will provide Standards Board of the American Insti-
written notice of whether the capital tute of Certified Public Accountants
restoration plan is approved or not or (AICPA) for non-public companies and
whether SBA will seek additional in- by the Public Company Accounting
formation. If the capital restoration Oversight Board (PCAOB) for public

plan is not approved by SBA, the SBA companies. Annually, the auditor must
Supervised Lender will submit a re- issue an audit report with an opinion
282
as to the fairness of the SBA Super- calculations and analysis in sufficient

vised Lender’s financial statements detail to permit the SBA to understand
and their compliance with GAAP. the assumptions used and the applica-
(c) Auditor qualifications. The audit tion of those assumptions to the assets
shall be conducted by an independent of the SBA Supervised Lender.
certified public accountant who: (2) The unguaranteed portions of
(1) Is registered or licensed to prac- loans determined to be uncollectible
tice as a certified public accountant, must be charged-off promptly. If the
and is in good standing, under the laws portion determined to be uncollectible
of the state or other political subdivi- by the SBA Supervised Lender is dif-
sion of the United States in which the ferent from the amount determined by
SBA Supervised Lender’s principal of- its auditors or the SBA, the SBA Su-
fice is located; pervised Lender must charge-off such
(2) Agrees in the engagement letter amount as the SBA may direct.
with the SBA Supervised Lender to (3) Each SBA Supervised Lender
provide the SBA with access to and must classify loans as:
copies of any work papers, policies, and (i) ‘‘Nonaccrual,’’ if any portion of
procedures relating to the services per- the principal or interest is determined
formed; to be uncollectible and
(3)(i) Is in compliance with the (ii) ‘‘Formally restructured,’’ if the
AICPA Code of Professional Conduct; loan meets the ‘‘troubled debt restruc-
and turing’’ definition set forth in FASB
(ii) Meets the independence require- Statement of Financial Accounting
ments and interpretations of the Secu- Standards No. 15, Accounting by Debt-
rities and Exchange Commission and ors and Creditors for Troubled Debt
its staff; Restructurings.
(4) Has received a peer review or is (4) When one loan to a borrower is
enrolled in a peer review program, that classified as nonaccrual or formally re-
meets AICPA guidelines; and structured, all loans to that borrower
(5) Is otherwise acceptable to SBA. must be so classified unless the SBA
(d) Change of auditor. If an SBA Su- Supervised Lender can document that
pervised Lender discharges or changes the loans have independent sources of
its auditor, it must notify SBA in writ- repayment.
ing within ten days of the occurrence.
(f) Valuing loan servicing rights and re-
Such notification must provide:
sidual interests. Each SBA Supervised
(1) The name, address, and telephone
Lender must account for loan sales
number of the discharged auditor; and
transactions and the valuation of loan
(2) If the discharge/change involved a
servicing rights in accordance with
dispute over the financial statements,
GAAP. At the end of each quarter, the
a reasonably detailed statement of all
SBA Supervised Lender must review
the reasons for the discharge or
for reasonableness the existing envi-
change. This statement must set out
ronmental assumptions used in the
the issue in dispute, the position of the
valuation. Particular attention must
auditor, the position of the SBA Super-
be given to interest rate and repay-
vised Lender, and the effect of each po-
ment rate assumptions. Assumptions
sition on the balance sheet and income
considered no longer reasonable must
statement of the SBA Supervised Lend-
be modified and modifications must be
er.
reflected in the valuation and must be
(e) Specific accounting requirements. (1)
documented and supported by a market
Each SBA Supervised Lender must
analysis. Work papers reflecting the
maintain an allowance for losses on
analysis of assumptions and any result-
loans and other assets that is sufficient
ing adjustment in the valuation must
to absorb all probable and estimated
be maintained for SBA review in ac-
losses that may reasonably be expected
cordance with § 120.461. SBA may re-
based on the SBA Supervised Lender’s
quire an SBA Supervised Lender to use
historical performance and reasonably-
industry averages for the valuation of
anticipated events. Each SBA Super-

servicing rights.
vised Lender must maintain docu-
mentation of its loan loss allowance [73 FR 75513, Dec. 11, 2008]
283
§ 120.464 13 CFR Ch. I (1–1–23 Edition)
§ 120.464 Reports to SBA. in any reporting required under other

provisions of SBA regulations.
(a) An SBA Supervised Lender must
submit the following to SBA: (4) Stockholder Reports. Each SBA Su-
pervised Lender must submit to SBA a
(1) Annual Report. Within three
months after the close of each fiscal copy of any report furnished to its
year, each SBA Supervised Lender stockholders in any manner, within 30
must submit to SBA two copies of an calendar days after submission to
annual report including audited finan- stockholders, including any prospectus,
cial statements as prepared by a cer- letter, or other document, concerning
tified public accountant in accordance the financial operations or condition of
with § 120.463. Specifically, the annual the SBA Supervised Lender.
report must, at a minimum, include (5) Reports of Changes. Each SBA Su-
the following: pervised Lender must submit to SBA a
(i) Audited balance sheet; summary of any changes in the SBA
(ii) Audited statement of income and Supervised Lender’s organization or fi-
expense; nancing (within 30 calendar days of the
(iii) Audited reconciliation of capital change), such as:
accounts; (i) Any change in its name, address
(iv) Audited source and application of or telephone number;
funds; (ii) Any change in its charter, by-
(v) Such footnotes as are necessary laws, or its officers or directors (to be
to an understanding of the report; accompanied by a statement of per-
(vi) Auditor’s letter to management sonal history on the form approved by
on internal control weaknesses; and SBA);
(vii) The auditor’s report. (iii) Any change in capitalization, in-
(2) Quarterly Condition Reports. By the cluding such types of change as are
45th calendar day following the end of identified in this part 120;
each calendar quarter, each SBA Su- (iv) Any changes affecting an SBA
pervised Lender must submit a Quar- Supervised Lender’s eligibility to con-
terly Condition Report in a form and tinue to participate as an SBA Super-
content as the SBA may prescribe from vised Lender; and
time to time. At a minimum, the Quar- (v) Notice of any pledge of stock
terly Condition Report must include (within 30 calendar days of the trans-
the SBA Supervised Lender’s quarterly action) if 10 percent or more of the
financial statements, which may be in- stock is pledged by any person (or
ternally prepared. The SBA Supervised group of persons acting in concert) as
Lender must apply uniform definitions collateral for indebtedness.
to categories of nonperforming loans (6) Report of Changes in Financial Con-
and include recovery amounts on liq- dition. In addition to other reports re-
uidated loans. SBA may, on a case-by- quired under this part 120, each SBA
case basis, depending on an SBA Super- Supervised Lender must submit a re-
vised Lender’s size and the quality of port to SBA on any material change in
its assets, adjust the requirements for financial condition. The SBA Super-
content and frequency of filing Quar- vised Lender must submit such report
terly Condition Reports. promptly, but no later than ten days
(3) Legal and Administrative Proceeding after its management becomes aware
Report. Each SBA Supervised Lender of such change (except as provided for
must report any legal or administra- in § 120.462(d)). Failure to promptly no-
tive proceeding by or against the SBA tify SBA concerning a material change
Supervised Lender, or against any offi- in financial condition may lead to en-
cer, director or employee of the SBA forcement action.
Supervised Lender for an alleged (7) Other Reports. Each SBA Super-
breach of official duty, within ten busi- vised Lender must submit such other
ness days after initiating or learning of reports as SBA from time to time may
the proceeding, and also must notify in writing require.
the SBA of the terms of any settlement (b) Preparing financial reports for fil-
or final judgment. The SBA Supervised ing. Each SBA Supervised Lender must
Lender must include such information prepare financial reports:
284
(1) In accordance with all applicable cess official in accordance with Delega-
laws, regulations, procedures, stand- tions of Authority is final.
ards, and such instructions and speci- [73 FR 75514, Dec. 11, 2008]
fications and in such form and media
format as may be prescribed by SBA § 120.465 Civil penalty for late submis-
from time to time; sion of required reports.
(2) On an accrual basis, in accordance (a) Obligation to submit required reports
with GAAP principles and such other by applicable due dates. SBA Supervised
accounting requirements, standards, Lenders must submit complete reports
and procedures as may be prescribed by by the due dates described in the regu-
the SBA from time to time; lations or as directed in writing by
(3) That contain all applicable foot- SBA. SBA considers any report that an
notes in accordance with GAAP prin- SBA Supervised Lender sends to SBA
cipals, one of which includes a brief by the applicable due date but that is
analysis of how the SBA Supervised submitted only in part, to have not
Lender complies with SBA’s capital been submitted by the applicable due
regulations, as applicable; and date. SBA also considers any report
that is postmarked by the due date to
(4) In such manner as to facilitate
be submitted by the due date.
the reconciliation of these reports with (b) Amount of civil penalty. For each
the books and records of the SBA Su- day past the due date for such report,
pervised Lender. the SBA Supervised Lender must pay
(c) Responsibility for assuring the accu- to SBA a civil penalty of not more
racy of filed financial reports. Each fi- than $7,244 per day per report. Such
nancial report filed with SBA must be civil penalty continues to accrue until
certified as having been prepared in ac- and including the date upon which SBA
cordance with all applicable regula- Supervised Lender submits the com-
tions, SOPs, notices, and instructions plete report. In determining the
and to be a true, accurate, and com- amount of the civil penalty to be as-
plete representation of the financial sessed, SBA may consider the financial
condition and financial performance of resources and good faith of the SBA
the SBA Supervised Lender to which it Supervised Lender, the gravity of the
applies. The reports must be certified violation, the history of previous viola-
by the officer of the reporting SBA Su- tions and any such other matters as
pervised Lender named for that pur- justice may require.
pose by action of the institution’s (c) Notification of amount of civil pen-
board of directors. If the institution’s alty. SBA will notify the SBA Super-
board of directors has not acted to vised Lender in writing of the amount
name an officer to certify the correct- of civil penalties imposed either upon
receiving the required complete report
ness of its reports of financial condi-
or at such other time as SBA deter-
tion and financial performance, then
mines. The SBA Supervised Lender
the reports must be certified by the
must pay this amount to SBA within 30
president or chief executive officer of
days of the date of SBA’s written de-
the reporting SBA Supervised Lender. mand.
(d) Waiver. The appropriate Office of (d) Identification during examination.
Capital Access official in accordance SBA may also impose on an SBA Su-
with Delegations of Authority may in pervised Lender a civil penalty as de-
his/her discretion waive any § 120.464 re- scribed in this section if SBA discovers,
porting requirement for SBA Super- during an examination pursuant to
vised Lenders for good cause (includ- subpart I of this Part 120 or otherwise,
ing, but not limited to, where an SBA that the SBA Supervised Lender did
Supervised Lender has a relatively not submit a required report by the due
small SBA loan portfolio), as deter- date.
mined by SBA. SBA Supervised Lend- (e) Extensions of submission due dates.
ers must request the waiver in writing (1) An SBA Supervised Lender may re-
and include all supporting reasons and quest in writing to SBA that SBA ex-
documentation. The waiver decision of tend its report due date. The request
the appropriate Office of Capital Ac- must reference the report and its due
285
§ 120.466 13 CFR Ch. I (1–1–23 Edition)
date, state the reasonable cause for ex- request, that it would have difficulty
tension, and assert how much addi- paying the civil penalty assessed.
tional time is needed in order to sub- (2) SBA must also determine that a
mit a complete report. SBA will advise reduction or exemption is not incon-
SBA Supervised Lender in writing as to sistent with the public interest or the
whether it approved or denied the ex- protection of SBA.
tension request. If SBA determines (3) SBA may in writing approve the
that there is reasonable cause to grant exemption, reduce the civil penalty, or
an extension and it is not due to willful deny the exemption.
neglect, SBA will establish a new due (4) If SBA grants the reduction re-
date. Such determination as to willful quest or denies the reduction or exemp-
neglect and reasonable cause is in tion, the SBA Supervised Lender must
SBA’s discretion. SBA will consider the pay the amount owed within 30 days of
following factors in determining willful the letter date. Civil penalties will ac-
neglect: crue while the request is pending.
(i) Whether the SBA Supervised (g) Reconsideration of decisions. An
Lender failed to file required reports SBA Supervised Lender may request in
for more than two reporting periods writing to the Associate Administrator
and for Capital Access (AA/CA) to recon-
(ii) If SBA provided the SBA Super- sider its request for extension, reduc-
vised Lender notice of the failure to tion, or exemption. The reconsider-
file and the SBA Supervised Lender ation request must be received by SBA
failed to respond or failed to provide a within 30 days of the date of the letter
reasonable explanation for the filing denying the SBA Supervised Lender’s
failure in its response. original request. SBA will not consider
(2) If SBA disapproves the extension, untimely requests. The SBA Super-
the due date remains the same. The vised Lender must include any addi-
civil penalty accrues regardless of tional information or documentation
whether the SBA Supervised Lender to support its reconsideration request.
files an extension request. If SBA ap- SBA will issue a written decision on
proves the extension, SBA will waive the reconsideration request. The deci-
the civil penalty that has accrued so sion is a final agency decision. If on re-
far for that particular report. However, consideration, a civil penalty remains
a new civil penalty will accrue if the due, the SBA Supervised Lender must
SBA Supervised Lender does not sub- pay to SBA the civil penalty within 30
mit a complete report by the new due days of the written decision or as oth-
date established by SBA. erwise directed. Civil penalties will
(f) Requests for reduction or exemption. continue to accrue while the reconsid-
(1) An SBA Supervised Lender may re- eration request is pending.
quest a reduction or exemption from (h) Other enforcement actions. SBA
the civil penalty in writing to SBA. may seek additional remedies for fail-
The request must reference the re- ure to timely file reports as authorized
quired report, its due date and the by law.
amount sought for reduction, and state (i) Exception for affiliate of SBLC.
in detail the reasons for the reduction. Civil penalties under this section do
SBA will consider the following fac- not apply to any affiliate of an SBLC
tors: that procures at least 10% of its annual
(i) Whether there is reasonable cause purchasing requirements from small
for failure to file timely and it was not manufacturers.
due to willful neglect; [73 FR 75515, Dec. 11, 2008, as amended at 81
(ii) Whether the SBA Supervised FR 31491, May 19, 2016; 82 FR 9969, Feb. 9,
Lender has demonstrated to SBA’s sat- 2017; 83 FR 7363, Feb. 21, 2018; 84 FR 12061,
isfaction that it has modified its inter- Apr. 1, 2019; 85 FR 13727, Mar. 10, 2020; 86 FR
nal procedures to comply with report- 52957, Sept. 24, 2021; 87 FR 28758, May 11, 2022]
ing requirements in the future; and
(iii) Whether the SBA Supervised § 120.466 SBA Supervised Lender ap-
Lender has demonstrated to SBA’s sat- plication.

isfaction, based on financial informa- An entity seeking to participate as
tion fully disclosed together with its an SBA Supervised Lender must apply
286
to SBA. SBA evaluates SBA Supervised (6) In connection with any applica-
Lender applicants through an initial tion to become an SBLC, the applicant
review and final review, as follows: must include a letter agreement signed
(a) Initial review. SBA Supervised by an authorized official of an existing
Lender applicants must submit a writ- SBLC certifying that the SBLC is seek-
ten plan containing information about ing to transfer its SBA lending author-
the organization and its current and ity to the applicant; and
proposed lending activities (‘‘Lender (7) If approval of any state or Federal
Assessment Plan’’). After SBA’s review chartering, licensing or other regu-
of the Lender Assessment Plan, the Of- latory authority is required, copies of
fice of Capital Access may require an any licenses issued by or documents
interview with the applicant and its filed with such authority.
management team. SBA will deter- (b) Final review. Each applicant that
mine, in its sole discretion, whether an receives notice from SBA in writing
applicant may proceed to the final re- that it may proceed to the final review
view. If SBA determines that an appli- must submit a complete application to
SBA within 90 calendar days. The ap-
cant may not proceed to the final re-
plication requirements for SBA Super-
view, the applicant must wait at least
vised Lenders are set forth in official
6 months before it may submit a new
SBA policy and procedures. An incom-
Lender Assessment Plan. Each appli-
plete application submitted to SBA
cant must demonstrate to SBA’s satis-
will not be processed and will be re-
faction that it meets the ethical returned to the applicant. SBA may, in
quirements and the participation cri- its sole discretion, approve or deny any
teria set forth in 13 CFR 120.140 and SBA Supervised Lender application.
120.410. The Lender Assessment Plan The decision to approve or deny an
must include the following items: SBA Supervised Lender application is a
(1) The legal name, address, tele- final agency decision. If an SBA Super-
phone number and email address of the vised Lender application is denied by
applicant; SBA or if a complete application is not
(2) Business plan, detailing the appli- timely submitted, the applicant may
cant’s proposed lending area and the not submit a new Lender Assessment
volume of loan activity projected over Plan and restart the application proc-
the next 3 years (supported by current ess until 12 months from the date of de-
and projected balance sheets, income nial or the date a complete application
statements and statements of cash was due to SBA, as applicable.
flows); (c) NFRL operating and lending experi-
(3) Capitalization (current and pro- ence requirement. For an entity seeking
posed), including the form of organiza- to become an NFRL, evidence of at
tion and the identification of all debt least 1 year of current operating and
and classes of equity capital and pro- relevant commercial lending experi-
posed funding amounts, including any ence by the entity must be provided.
rights or preferences accorded to such [85 FR 78213, Dec. 4, 2020]
interests (e.g., voting rights, redemp-
tion rights and rights of convertibility) § 120.467 Evaluation of SBA Super-
and any conditions for the transfer, vised Lender applicants.
sale or assignment of such interests; (a) SBA will evaluate an SBA Super-
(4) A list of all members of the appli- vised Lender applicant based on infor-
cant’s management team, including mation from, among other sources, the
the applicant’s officers, directors, man- Lender Assessment Plan, an interview
agers and key employees, as well as the with the applicant’s management team
applicant’s owners, Associates (as de- (if required), the application and any
fined in § 120.10) and Affiliates (as de- other documentation submitted by the
fined in § 121.103 of this chapter); applicant, the results of background in-
(5) A written summary of the profes- vestigations, public record searches
sional experience (including any prior and due diligence conducted by SBA or
experience with any SBA program) of other Federal or state agencies. SBA’s
the applicant’s management team (in- evaluation will consider factors such as
cluding key employees); the following:
287
§ 120.468 13 CFR Ch. I (1–1–23 Edition)
(1) Professional qualifications of its (2) Previously participated in a mate-

management team (including key em- rial way with any past or present SBA
ployees), including demonstrated com- Lender or Intermediary that failed to
mercial lending experience, business maintain satisfactory SBA perform-
reputation, adherence to legal and eth- ance;
ical standards, track record in making (3) Previously defaulted on any Fed-
and monitoring business loans, and eral loan or Federally assisted financ-
prior history, if any, working as an of- ing that resulted in the Federal Gov-
ficer, manager, director or key em- ernment or any of its agencies or de-
ployee of a lender involved in any SBA partments sustaining a loss in any of
program or any other Federal or state its programs; or
lending program. (4) Ever failed to pay when due any
(2) Historical performance measures debt or obligation, including any
of loans originated by the applicant or amounts in dispute, to the Federal
attributable to its management team Government or guaranteed by the Fed-
(including key employees), including eral Government (including but not
loan default rates, purchase rates and limited to taxes or business or student
loss rates, measured in both percentage loans).
terms and in comparison to appro-
priate industry benchmarks, review/ex- [85 FR 78214, Dec. 4, 2020]
amination assessments and other per-
formance measures. § 120.468 Change of ownership or con-
trol requirements for SBA Super-
(3) The applicant’s capitalization, or- vised Lenders.
ganizational structure, business plan
(including any risk factors), projected (a) SBA prior approval required. Any
financial performance, financial change of ownership or control of an
strength, liquidity, the soundness of its SBA Supervised Lender without SBA’s
financial projections and underlying prior written approval is prohibited.
assumptions, loan underwriting proc- Prior to entering into any agreement,
ess, operations plan and the history of other than a non-binding letter of in-
compliance of the applicant and its tent, for a change of ownership or con-
management team (including key em- trol, SBA Supervised Lenders must re-
ployees) with SBA Loan Program Re- ceive SBA’s prior written approval
quirements. from the appropriate SBA official in
(4) Whether the NFRL’s state regu- accordance with the prevailing Delega-
lator and the state statute or regulations of Authority. An SBA Supervised
tions governing the NFRL’s operations, Lender may not register proposed new
including but not limited to those per- owners on its books and records or per-
taining to audit, examination, super- mit them to participate in any manner
vision, enforcement and information in the conduct of the SBA Supervised
sharing, are satisfactory to SBA in its Lender’s affairs unless approved in
sole discretion. writing by SBA. Any type of non-bind-
(5) For changes of ownership or con- ing letter of intent regarding a pro-
trol, in addition to the factors listed in spective change of ownership or control
paragraphs (a)(1) through (4) of this must be reported to SBA within 30 cal-
section, SBA will consider whether the endar days. A change of ownership or
applicant’s plan for the resolution of control includes the following:
any outstanding monetary liabilities (1) Any transfer(s) (direct or indirect)
to SBA, including repairs and denials of 10 percent or more of any class of
and civil monetary penalties, is accept- the SBA Supervised Lender’s stock or
able to SBA in its sole discretion. ownership interests (or series of trans-
(b) SBA may prohibit any individual fers which, in the aggregate over an 18
or entity from participating as an offi- month period, equals 10 percent or
cer, director, manager, owner or key more), or any agreement providing for
employee of the applicant if such indi- such transfer;
vidual or entity: (2) Any transfer(s) (direct or indirect)
(1) Has a previous record of failing to that could result in the beneficial own-
materially comply with SBA Loan Pro- ership by any person or group of per-
gram Requirements; sons acting in concert of 10 percent or
288
more of any class of the SBA Super- etary liabilities, to SBA’s satisfaction.
vised Lender’s stock or ownership in- SBA may, in its sole discretion, take
terests, or any agreement providing for over the servicing of an SBA Super-
such transfer(s); vised Lender’s 7(a) loan portfolio in ac-
(3) Any merger, consolidation, or re- cordance with § 120.535(d) upon the vol-
organization; untary surrender of its SBA lending
(4) Any other transaction or agree- authority.
ment that transfers control of an SBA [85 FR 78214, Dec. 4, 2020]
Supervised Lender; or
(5) Any other transaction or event SMALL BUSINESS LENDING COMPANIES
that results in any change in the pos- (SBLC)
session (direct or indirect) of the right
to control, or the power to direct or § 120.470 What are SBA’s additional re-
cause the direction of, the management quirements for SBLCs?
or policies of an SBA Supervised Lend- In addition to complying with SBA’s
er, whether through the ownership of requirements for SBA Lenders and SBA
voting securities, by contract or other- Supervised Lenders, an SBLC must
wise. meet the requirements contained in
(b) Approval required by other regu- this regulation and the SBLC regula-
latory authorities. If a change of owner- tions that follow.
ship or control of an SBA Supervised (a) Lending. An SBLC may only
Lender is subject to the approval of make:
any state or Federal chartering, licens- (1) Loans under section 7(a) (except
ing or other regulatory authority, cop- section 7(a)(13) of the Act in participa-
ies of any documents filed with such tion with SBA); and/or
authority must, at the same time, be (2) SBA guaranteed loans to Inter-
transmitted to the appropriate SBA of- mediaries (see subpart G of this part).
ficial in accordance with the prevailing Such loans are subject to the same con-
Delegations of Authority. The approval ditions as guaranteed loans made to
of any state or Federal authority will Intermediaries by 7(a) Lenders.
be required in addition to SBA’s prior (b) Business structure. An SBLC must
written approval. be a corporation (profit or non-profit)
(c) Application requirements for or a limited liability company or lim-
changes of ownership or control. An ap- ited partnership.
plicant must submit a Lender Assess- (c) Written agreement. An SBLC must
ment Plan and a new application in ac- sign a written agreement with SBA.
cordance with § 120.466 for any change (d) Dual control. An SBLC must main-
of ownership or control. If a proposed tain dual control over disbursement of
change of ownership is for less than 50 funds and withdrawal of securities.
percent of the ownership interests in (1) An SBLC may disburse funds only
an SBA Supervised Lender, SBA may, by checks or wire transfers authorized
in its sole discretion, limit the require- by signatures of two or more officers
ments of the Lender Assessment Plan covered by the SBLC’s fidelity bond,
or the complete application as set forth except that checks in an amount of
in official SBA policy and procedures. $10,000 or less may be signed by one
(d) Voluntary surrender of SBA lending bonded officer, provided that such ac-
authority. An SBA Supervised Lender tion is permitted under the SBLC’s fi-
may voluntarily surrender its SBA delity bond.
lending authority (including its SBLC (2) There must be two or more bonded
license or NFRL lending authority, as officers, or one bonded officer and a
applicable) and withdraw as a partici- bonded employee to open safe deposit
pating Lender with SBA’s prior written boxes or withdraw securities from safe-
approval. The SBA Supervised Lender keeping. The SBLC must furnish to
must agree to transfer its entire 7(a) each depository bank, custodian, or en-
loan portfolio to one or more Lenders tity providing safe deposit boxes a cer-
acceptable to SBA in accordance with tified copy of the resolution imple-
§ 120.432(a), and enter into a withdrawal menting control procedures.

agreement to resolve any outstanding (e) Fidelity insurance. An SBLC must
issues, including any outstanding mon- maintain a Brokers Blanket Bond,
289
§ 120.471 13 CFR Ch. I (1–1–23 Edition)
Standard Form 14, or Finance Compa- unless the shareholder receives SBA’s
nies Blanket Bond, Standard Form 15, prior written approval for a lower
or such other form of coverage as SBA ratio.
may approve, in a minimum amount of
$2,000,000 executed by a surety holding FR 78215, Dec. 4, 2020; 87 FR 38909, June 30,
a certificate of authority from the Sec- 2022]
retary of the Treasury pursuant to 31
U.S.C. 9304–9308. § 120.471 What are the minimum cap-
(f) Common control. (1) An SBLC must ital requirements for SBLCs?
not control, be controlled by, or be (a) Minimum capital requirements. (1)
under common control with another Beginning on January 4, 2024, each
SBLC. SBLC that makes or acquires a 7(a)
(2) In the case of a purchase of an loan must maintain, at a minimum,
SBLC by an organization that already unencumbered paid-in capital and paid-
owns an SBLC, the purchasing entity in surplus of at least $5,000,000, or 10
will have six months to submit a plan percent of the aggregate of its share of
to SBA for the divestiture of one of the all outstanding loans, whichever is
SBLCs. All divestiture plans must be greater.
approved by SBA and SBA may with- (2) Any SBLC approved on or after
hold approval in its discretion. Divesti- January 4, 2021, including in the event
ture of the SBLC must occur within of a change of ownership or control,
one year of purchase date. must maintain the minimum capital
(3) Without prior written SBA ap- requirement set forth in paragraph
proval, an Associate of one SBLC must (a)(1) of this section.
not be an Associate of another SBLC or
(3) Unless subject to paragraph (a)(1)
of any entity which directly or indi-
or (2) of this section, an SBLC must
rectly controls, or is under common
comply with the minimum capital re-
control with, another SBLC.
quirements that were in effect on Jan-
(4) For purposes of paragraph (f) of
uary 3, 2021.
this section, common control means a
(b) Composition of capital. For pur-
condition where two or more SBLCs,
poses of complying with paragraph (a)
either through ownership, manage-
of this section, capital consists only of
ment, contract, or otherwise, are under
one or more of the following:
the Control of one group or Person (as
defined in § 120.10 of this chapter). Two (1) Common stock;
or more SBLCs are presumed to be (2) Preferred stock that is noncumu-
under common control if they are Af- lative as to dividends and does not
filiates of each other by reason of com- have a maturity date;
mon ownership or common officers, di- (3) Unrestricted net assets (for non-
rectors, or general partners. profit corporations);
(5) ‘‘Affiliate’’ has the meaning set (4) Additional paid-in capital rep-
forth in § 121.103 of this chapter. resenting amounts paid for stock in ex-
(6) ‘‘Control’’ means the possession, cess of the par value;
direct or indirect, of the power to di- (5) Retained earnings of the business;
rect or cause the direction of the man- and/or
agement and policies of an SBLC or (6) For limited liability companies
other concern, whether through the and limited partnerships, capital con-
ownership of voting securities, by contributions must not be subject to re-
tract, or otherwise. The common con- payment at any specific time, must not
trol presumption may be rebutted by be subject to withdrawal and must
evidence satisfactory to SBA. have no cumulative priority return.
(g) Borrowed funds. In general, an (c) Voluntary capital reduction. With-
SBLC may not be capitalized with bor- out prior written SBA approval, an
rowed funds. Shareholders owning 10 SBLC must not voluntarily reduce its
percent or more of any class of its capital, or repurchase and hold more
stock must not use personally-bor- than 2 percent of any class or combina-
rowed funds to purchase the stock un- tion of classes of its stock.
less the net worth of the shareholder is (d) Issuance of securities. Without
at least twice the amount borrowed or prior written SBA approval, an SBLC
290
must not issue any securities (includ- requirements should be, and, if applica-
ing stock options and debt securities) ble, when they should be achieved. The
except stock dividends. response must be in writing and deliv-
ered to the AA/CA within 30 days after
FR 78215, Dec. 4, 2020] the date on which the SBLC received
the notice. SBA may shorten the time
§ 120.472 Higher individual minimum for response when, in the opinion of
capital requirement. SBA, the condition of the SBLC so war-
The Associate Administrator for Cap- rants, provided that the SBLC is in-
ital Access (AA/CA) may require, under formed promptly of the new time pe-
§ 120.473(d), an SBLC to maintain a riod, or the SBLC consents to the
higher level of capital, if the AA/CA de- shortening of its response time. In its
termines, in his/her discretion, that the discretion, SBA may extend the time
SBLC’s level of capital is potentially period for good cause.
inadequate to protect the SBA from (c) Failure to respond. An SBLC that
loss due to the financial failure of the does not respond within 30 days or such
SBLC. The factors to be considered in other time period as may be specified
the determination will vary in each by SBA will have waived any objec-
case and may include, for example: tions to the proposed minimum capital
(a) Specific conditions or cir- requirement and the deadline for its
cumstances pertaining to the SBLC; achievement. Failure to respond will
(b) Exigency of those circumstances also constitute consent to the indi-
or potential problems; vidual minimum capital requirement.
(c) Overall condition, management (d) Decision. After the close of the
strength, and future prospects of the SBLC’s response period, the AA/CA will
SBLC and, if applicable, its parent or decide, based on a review of SBA rea-
affiliates; sons for proposing the individual min-
(d) The SBLC’s liquidity and existing imum capital requirement, the SBLC’s
capital level, and the performance of response, and other information con-
its SBA loan portfolio; cerning the SBLC, whether the indi-
(e) The management views of the vidual minimum capital requirement
SBLC’s directors and senior manage- should be established for the SBLC
ment; and and, if so, the requirement and the date
(f) Other risk-related factors, as de- it will become effective. The SBLC will
termined by SBA. be notified of the decision in writing.
[73 FR 75516, Dec. 11, 2008] The notice will include an explanation
of the decision; except for a decision
§ 120.473 Procedures for determining not to establish an individual min-
individual minimum capital re- imum capital requirement for the
quirement. SBLC.
(a) Notice. When SBA determines that (e) Submission of plan. The decision
an individual minimum capital re- may require the SBLC to develop and
quirement above that set forth in this submit to SBA, within a time period
subpart or other legal authority is nec- specified, an acceptable plan to reach
essary or appropriate for a particular the individual minimum capital re-
SBLC, SBA will notify the SBLC in quirement by the date required.
writing of the proposed individual min- (f) Change in circumstances. If, after
imum capital requirement, the date by SBA’s decision in paragraph (d) of this
which it should be reached and will section, there is a change in the cir-
provide an explanation of why the re- cumstances affecting the SBLC’s cap-
quirement proposed is considered nec- ital adequacy or its ability to reach the
essary or appropriate. required individual minimum capital
(b) SBLC response. The SBLC may re- requirement by the specified date, ei-
spond to the notice. The response ther the SBLC or the AA/CA may pro-
should include any matters which the pose to the other a change in the indi-
SBLC would have SBA consider in de- vidual minimum capital requirement
ciding whether individual minimum for the SBLC, the date when the indi-
capital requirements should be estab- vidual minimum must be achieved,
lished for the SBLC, what those capital and/or the SBLC’s plan (if applicable).
291
§ 120.474 13 CFR Ch. I (1–1–23 Edition)
The AA/CA may decline to consider A Lender may demand in writing that
proposals that are not based on a sig- SBA honor its guarantee if the Bor-
nificant change in circumstances or are rower is in default on any installment
repetitive or frivolous. Pending a deci- for more than 60 calendar days (or less
sion by the AA/CA on reconsideration, if SBA agrees) and the default has not
SBA’s original decision and any plan been cured, provided all business per-
required under that decision will con- sonal property securing the defaulted
tinue in full force and effect. SBA loan has been liquidated. A Lend-
er may also submit a request for pur-
[73 FR 75516, Dec. 11, 2008]
chase of a defaulted 7(a) loan when a
§ 120.474 Relation to other actions. Borrower files for federal bankruptcy
once a period of at least 60 days has
In lieu of, or in addition to, the pro- elapsed since the last full installment
cedures in this subpart, the individual payment. If a Borrower cures a default
minimum capital requirement for an before a Lender requests purchase by
SBLC may be established or revised SBA, the Lender’s right to request pur-
through a written agreement or cease chase on that default lapses. SBA con-
and desist proceedings under subpart I siders liquidation of business personal
of this part. property collateral to be completed
[73 FR 75517, Dec. 11, 2008] when a Lender has exhausted all pru-
dent and commercially reasonable ef-
§ 120.475 [Reserved] forts to collect upon these assets. In
addition, SBA, in its sole discretion,
§ 120.476 Prohibited financing. may purchase the guaranteed portion
An SBLC may not make a loan to a of a loan at any time whether in de-
small business that has received fi- fault or not, with or without the re-
nancing (or a commitment for financ- quest from a Lender.
ing) from an SBIC that is an Associate (2) For loans approved before May 14,
of the SBLC. 2007. The regulations applicable to the
[61 FR 3235, Jan. 31, 1996. Redesignated at 73
time that a Lender may make demand
FR 75516, Dec. 11, 2008] for purchase that were in effect imme-
diately prior to this date will govern
§ 120.490 Audits. such loans.
(b) Documentation for purchase. SBA
Every SBLC is subject to periodic au-
will not purchase its guaranteed por-
dits by SBA’s Office of Inspector Gen-
tion of a loan from a Lender unless the
eral, Auditing Division, and the cost of
Lender has submitted to SBA docu-
such audits will be assessed against the
mentation that SBA deems sufficient
SBLC, except for the first audit. Fees
to allow SBA to determine whether
are structured based on the SBLC’s as-
purchase of the guarantee is warranted
sets as of the date of the latest audited
under § 120.524.
financial statement submitted to SBA
(c) Purchase of loans sold in Secondary
before the audit. The fee schedule is set
Market. When the Lender has sold the
forth in SBA’s Standard Operating Pro-
guaranteed portion of a loan in the
cedures manual.
Secondary Market, under subpart F of
[61 FR 3235, Jan. 31, 1996. Redesignated at 73 this part, Lenders must perform all
FR 75516, Dec. 11, 2008] necessary servicing and liquidation ac-
tions for such loan even after SBA has
Subpart E—Servicing, Liquidation purchased the guaranteed portion of
and Debt Collection Litigation such loan from a Registered Holder (as
of 7(a) and 504 Loans that term is defined in § 120.600(i)). In
the event that SBA purchases its guar-
SBA’S PURCHASE OF A GUARANTEED anteed portion of such a loan from the
PORTION Registered Holder, Lenders must pro-
vide SBA with a loan status report
§ 120.520 Purchase of 7(a) loan guaran- within 15 business days of such pur-
tees. chase. This report should include but

(a) When SBA will purchase—(1) For not be limited to, a status report on
loans approved on or after May 14, 2007. the borrower and current condition of
292
the collateral, plans for any type of the Secondary Market), it will pay ac-
loan workout or loan restructuring, ex- crued interest at:
isting liquidation activities including (1) The rate in the note if it is a fixed
the sale of loan collateral, or the sta- rate loan; or
tus of ongoing foreclosure proceedings. (2) The rate in effect on the date of
The report should accompany re- the earliest uncured payment default,
quested documentation that SBA or of SBA’s purchase (if there has been
deems sufficient to be able to review no default).
the Lender’s administration of the loan (b) Payment to Lender—(1) For loans
under § 120.524. A Lender’s failure to approved on or after May 14, 2007. SBA
provide sufficient documentation may will pay up to a maximum of 120 days
constitute a material failure to comply interest to a Lender at the time of
with SBA requirements under guarantee purchase.
§ 120.524(a)(1), and may lead to initi- (2) For loans approved before May 14,
ation of an action for recovery from 2007. The regulations applicable to the
the Lender of all or some of the mon- amount of interest that SBA will pay
eys SBA paid to a Registered Holder on to a Lender upon loan default that
a guarantee. SBA will also evaluate the were in effect immediately prior to
Lender’s continued participation in the this date will govern such loans.
Secondary Market and may restrict (c) Payment to Registered Holder. SBA
further sale of guaranteed portions will pay a Registered Holder all ac-
into the Secondary Market until SBA crued interest up to the date of pay-
determines that the Lender has pro- ment.
vided sufficient documentation for pur-
chases. [61 FR 3235, Jan. 31, 1996, as amended at 72
(d) No waiver of SBA’s rights. Purchase FR 18361, Apr. 12, 2007]
by SBA of the guaranteed portion of a
§ 120.523 What is the ‘‘earliest uncured
loan, or of a portion of SBA’s guar- payment default’’?
antee of a loan, either through a nego-
tiated agreement with a Lender or oth- The earliest uncured payment default
erwise, does not waive any of SBA’s is the date of the earliest failure by a
rights to recover from the responsible Borrower to pay a regular installment
Lender any money paid on the guar- of principal and/or interest when due.
antee based upon the occurrence of any Payments made by the Borrower before
of the events set forth in § 120.524(a) in a Lender makes its request to SBA to
connection with that loan. purchase are applied to the earliest
uncured payment default. If the in-
[72 FR 18360, Apr. 12, 2007] stallment is paid in full, the earliest
§ 120.521 What interest rate applies uncured payment default date will ad-
after SBA purchases its guaranteed vance to the next unpaid installment
portion? date. If a Borrower makes any payment
after the Lender makes its request to
When SBA purchases the guaranteed
SBA to purchase, the earliest uncured
portion of a fixed interest rate loan,
payment default date does not change
the rate of interest remains as stated
because the Lender has already exer-
in the note. On loans with a fluc-
cised its right to request purchase.
tuating interest rate, the interest rate
that the Borrower owes will be at the § 120.524 When is SBA released from li-
rate in effect at the time of the earliest ability on its guarantee?
uncured payment default, or the rate
in effect at the time of purchase (where (a) SBA is released from liability on
no default has occurred). a loan guarantee (in whole or in part,
within SBA’s exclusive discretion), if
§ 120.522 Payment of accrued interest any of the events below occur:
to the Lender or Registered Holder (1) The Lender has failed to comply
when SBA purchases the guaran- materially with any Loan Program Re-
teed portion. quirement for 7(a) loans.
(a) Rate of interest. If SBA purchases (2) The Lender has failed to make,
the guaranteed portion from a Lender close, service, or liquidate a loan in a
or from a Registered Holder (if sold in prudent manner;
293
§ 120.530 13 CFR Ch. I (1–1–23 Edition)
(3) The Lender’s improper action or (e) Unless SBA provides written no-
inaction has placed SBA at risk; tice to the contrary, the Lender re-
(4) The Lender has failed to disclose a mains responsible for all loan servicing
material fact to SBA regarding a guar- ad liquidation actions until SBA hon-
anteed loan in a timely manner; ors its guarantee in full.
(5) The Lender has misrepresented a [61 FR 3235, Jan. 31, 1996, as amended at 72
material fact to SBA regarding a guar- FR 18361, Apr. 12, 2007; 82 FR 39503, Aug. 21,
anteed loan; 2017]
(6) SBA has received a written re-
quest from the Lender to terminate the § 120.530 Deferment of payment.
guarantee; SBA may agree to defer payments on
(7) The Lender has not paid the guar- a business loan for a stated period of
antee fee within the period required time, and use such other methods as it
under SBA rules and regulations; considers necessary and appropriate to
(8) The Lender has failed to request help in the successful operation of the
that SBA purchase a guarantee within Borrower. This policy applies to all
180 days after maturity of the loan. business loan programs, including 504
However, if the Lender is conducting loans.
liquidation or debt collection litigation
in connection with a loan that has ma- § 120.531 Extension of maturity.
tured, SBA will be released from its SBA may agree to extend the matu-
guarantee only if the Lender fails to rity of a loan for up to 10 years beyond
request that SBA purchase the guar- its original maturity if the extension
antee within 180 days after the comple- will aid in the orderly repayment of
tion of the liquidation or debt collec- the loan.
tion litigation;
(9) The Lender has failed to use re- § 120.535 Standards for Lender and
quired SBA forms or exact electronic CDC loan servicing, loan liquida-
copies; or tion and debt collection litigation.
(10) The Borrower has paid the loan (a) Service using prudent lending stand-
in full. ards. Lenders and CDCs must service
(b) If SBA determines, at any time, 7(a) and 504 loans in their portfolio no
that any of the events set forth in less diligently than their non-SBA
paragraph (a) of this section occurred portfolio, and in a commercially rea-
in connection with that loan, SBA is sonable manner, consistent with pru-
entitled to recover any moneys paid on dent lending standards, and in accord-
the guarantee plus interest from the ance with Loan Program Require-
Lender. In the exercise of its rights, ments. Those Lenders and CDCs that
SBA may utilize all legal means avail- do not maintain a non-SBA loan port-
able, including offset and judicial rem- folio must adhere to the same prudent
edies. lending standards for loan servicing
(c) If the Lender’s loan documenta- followed by commercial lenders on
tion or other information indicates loans without a government guarantee.
that one or more of the events in para- (b) Liquidate using prudent lending
graph (a) of this section occurred, SBA standards. Lenders and Authorized CDC
may undertake such investigation as it Liquidators must liquidate and con-
deems necessary to determine whether duct debt collection litigation for 7(a)
to honor or deny the guarantee, and and 504 loans in their portfolio no less
may withhold a decision on whether to diligently than for their non-SBA port-
honor the guarantee until the comple- folio, and in a prompt, cost-effective
tion of such investigation. and commercially reasonable manner,
(d) Any information provided to SBA consistent with prudent lending stand-
by a Lender or other party will not ards, and in accordance with Loan Pro-
prejudice, or be construed as effecting gram Requirements and with any SBA
any waiver of, SBA’s right to deny li- approval of either a liquidation or liti-
ability for a guarantee if one or more gation plan or any amendment of such
of the events listed in paragraph (a) of a plan. Lenders and CDCs that do not
this section occur. maintain a non-SBA loan portfolio
294
must adhere to the same prudent lend- operation and control of a business
ing standards followed by commercial that handles hazardous substances or
lenders that liquidate loans without a hazardous wastes.
government guarantee. They are also (6) Transfers, sells or pledges more
to operate in accordance with Loan than 90% of a loan.
Program Requirements and with any (7) Takes any action for which prior
SBA approval of either a liquidation or written consent is required by a Loan
litigation plan or any amendment of
Program Requirement.
such a plan.
(c) Absence of actual or apparent con- (b) Actions by CDCs only (other than
flict of interest. A CDC must not take PCLP CDCs). SBA must give its prior
any action in the liquidation or debt written consent before a CDC, other
collection litigation of a 504 loan that than a PCLP CDC, takes any of the fol-
would result in an actual or apparent lowing actions with respect to a 504
conflict of interest between the CDC loan:
(or any employee of the CDC) and any (1) Alters substantially the terms or
Third Party Lender, associate of a conditions of any Loan Instrument.
Third Party Lender, or any person par- (2) Releases collateral having a cu-
ticipating in a liquidation, foreclosure mulative market value in excess of 10
or loss mitigation action. percent of the Debenture amount or
(d) SBA rights to take over servicing or $10,000, whichever is less.
liquidation. SBA may, in its sole discre- (3) Accelerates the maturity of the
tion, undertake the servicing, liquida- note.
tion and/or litigation of any 7(a) or 504 (4) Compromises or releases any
loan. If SBA elects to service, liquidate
claim against any Borrower or obligor,
and/or litigate a loan, it will notify the
or against any guarantor, standby
relevant Lender or CDC in writing,
and, upon receiving such notice, the creditor, or any other person that is
Lender or CDC must assign the Loan contingently liable for moneys owed on
Instruments to SBA and provide any the loan.
needed assistance to allow SBA to serv- (5) Purchases or pays off any indebt-
ice, liquidate and/or litigate the loan. edness secured by the property that
SBA will notify the Borrower of the serves as collateral for a defaulted 504
change in servicing. SBA may use con- loan, such as payment of the debt(s)
tractors to perform these actions. owed to a lien holder or lien holders
with priority over the lien securing the
[72 FR 18361, Apr. 12, 2007]
loan.
§ 120.536 Servicing and liquidation ac- (6) Accepts a workout plan to re-
tions that require the prior written structure the material terms and con-
consent of SBA. ditions of a loan that is in default or
(a) Actions by Lenders and CDCs. Ex- liquidation.
cept as otherwise provided in a Supple- (7) Takes any action for which prior
mental Guarantee Agreement with a written consent is required by a Loan
Lender or an Agreement with a CDC, Program Requirement.
SBA must give its prior written con- (c) Documentation requirements. For
sent before a Lender or CDC takes any all servicing/liquidation actions not re-
of the following actions: quiring SBA’s prior written consent,
(1) Increases the principal amount of Lenders and CDCs must document the
a loan above that authorized by SBA at
justifications for their decisions and
loan origination.
retain these and supporting documents
(2) Confers a Preference on the Lend-
er or CDC or engages in an activity in their file for future SBA review to
that creates a conflict of interest. determine if the actions taken by the
(3) Compromises the principal bal- Lender or CDC were prudent, commer-
ance of a loan. cially reasonable, and complied with
(4) Takes title to any property in the all Loan Program Requirements.
name of SBA. [72 FR 18361, Apr. 12, 2007]

(5) Takes title to environmentally
contaminated property, or takes over
295
§ 120.540 13 CFR Ch. I (1–1–23 Edition)
§ 120.540 Liquidation and litigation mines that the outcome of the litiga-
plans. tion could adversely affect SBA’s ad-
(a) SBA oversight. SBA may monitor ministration of the loan program or
or review liquidation through the re- that the Government is entitled to
view of liquidation plans which all Au- legal remedies that are not available to
thorized CDC Liquidators and certain the Lender or Authorized CDC Liqui-
Lenders must submit to SBA for ap- dator. Examples of cases that could ad-
proval prior to undertaking liquida- versely affect SBA’s administration of
tion, and through liquidation wrap-up a loan program include, but are not
reports which Lenders must submit to limited to, situations where SBA deter-
SBA at the completion of liquidation. mines that:
SBA will monitor debt collection liti- (1) The litigation involves important
gation, such as judicial foreclosures, governmental policy or program issues.
bankruptcy proceedings and other (2) The case is potentially of great
state and federal insolvency pro- precedential value or there is a risk of
ceedings, through the review of litiga- adverse precedent to the Government.
tion plans, as set forth in this section. (3) The Lender or Authorized CDC
(b) Liquidation plan. An Authorized Liquidator has an actual or potential
CDC Liquidator and a Lender for a loan conflict of interest with SBA.
made under its authority as a CLP (4) The legal fees of the Lender or Au-
Lender must, prior to undertaking any thorized CDC Liquidator’s outside
liquidation, submit a written proposed counsel are unnecessary, unreasonable
liquidation plan to SBA and receive or not customary in the locality.
SBA’s written approval of that plan. (e) Amendments to a liquidation or liti-
(c) Litigation plan. An Authorized gation plan. Lenders and Authorized
CDC Liquidator and a Lender must ob- CDC Liquidators must submit an
tain SBA’s prior approval of a litiga- amended liquidation or litigation plan
tion plan before proceeding with any to address any material changes aris-
Non-Routine Litigation, as defined in ing during the course of the liquidation
paragraph (c)(1) of this section. SBA’s or litigation that were not addressed in
prior approval is not required for Rou- the original plan or an amended plan.
tine Litigation, as defined in paragraph Lenders and Authorized CDC Liquida-
(c)(2) of this section. tors must obtain SBA’s written ap-
(1) Non-Routine Litigation includes: proval of the amended plan prior to
(i) All litigation where factual or taking any further liquidation or liti-
legal issues are in dispute and require gation action. Examples of such mate-
resolution through adjudication; rial changes that would require the ap-
(ii) Any litigation where legal fees proval of an amended plan include, but
are estimated to exceed $10,000; are not limited to:
(iii) Any litigation involving a loan (1) Changes arising during the course
where a Lender or Authorized CDC Liq- of Routine Litigation that transform
uidator has an actual or potential con- the litigation into Non-Routine Litiga-
flict of interest with SBA; and tion, such as when the debtor contests
(iv) Any litigation involving a 7(a) or a foreclosure or when the actual legal
504 loan where the Lender or CDC has fees incurred exceed $10,000.
made a separate loan to the same bor- (2) If SBA has approved a litigation
rower which is not a 7(a) or 504 loan. plan where anticipated legal fees ex-
(2) Routine Litigation means ceed $10,000, or has approved an amend-
uncontested litigation, such as non-ad- ed plan, and thereafter the anticipated
versarial matters in bankruptcy and or actual legal fees increase by more
undisputed foreclosure actions, having than 15 percent.
estimated legal fees not exceeding (3) If SBA has approved a liquidation
$10,000. plan, or an amended plan, and there-
(d) Decision by SBA to take over litiga- after the anticipated or actual costs of
tion. If a Lender or Authorized CDC conducting the liquidation increase by
Liquidator is conducting, or proposes more than 15 percent.
to conduct, debt collection litigation (f) Limited waiver of need for a written
on a 7(a) loan or 504 loan, SBA may liquidation or litigation plan. SBA may,
take over the litigation if SBA deter- in its discretion, and upon request by a
296
Lender or Authorized CDC Liquidator, § 120.541 Time for approval by SBA.

waive the requirements of paragraphs
(a) Except as set forth in paragraph
(b), (c) or (e) of this section, if one of (c) of this section, in responding to a
the following extraordinary cir- request for approval under §§ 120.540(b),
cumstances warrant such a waiver: the 120.540(c), 120.536(b)(5) or 120.536(b)(6),
need for expeditious action to avoid the SBA will approve or deny the request
potential risk of loss on the loan or dis- within 15 business days of the date
sipation of collateral exists; an imme- when SBA receives the request. If SBA
diate response is required to litigation is unable to approve or deny the re-
by a borrower, guarantor or third quest within this 15-day period, SBA
party; or another urgent reason arises. will provide a written notice of no deci-
The Lender or Authorized CDC Liqui- sion to the Lender or Authorized CDC
dator must obtain SBA’s written con- Liquidator, stating the reason for
sent to such waiver before undertaking SBA’s inability to act; an estimate of
the Emergency action, if at all prac- the additional time required to act on
ticable. SBA’s waiver will apply only the plan or request; and, if SBA deems
to the specific action(s) which the appropriate, requesting additional in-
Lender or Authorized CDC Liquidator formation.
has identified to SBA as being nec- (b) Except as set forth in paragraph
essary to address the Emergency. The (c) of this section, unless SBA gives its
Lender or Authorized CDC Liquidator written consent to a proposed liquida-
must, as soon after the Emergency as tion or litigation plan, or a proposed
is practicable, submit a written liq- amendment of a plan, or any of the ac-
uidation or litigation plan to SBA or, if tions set forth in § 120.536(b)(5) or
appropriate, a written amended plan, § 120.536(b)(6), SBA will not be deemed
and may not take further liquidation to have approved the proposed action.
or litigation action without written ap- (c) If a Lender seeks to perform liq-
proval of such plan or amendment by uidation on a loan made under its au-
SBA. thority as a CLP Lender by submitting
(g) Appeals. A Lender for loans made a liquidation plan to SBA for approval,
under its authority as a CLP Lender or SBA will approve or deny such plan
an Authorized CDC Liquidator that dis- within ten business days. If SBA fails
agrees with an SBA office’s decision to approve or deny the plan within ten
pertaining to an original or amended business days, SBA will be deemed to
liquidation plan, other than such por- have approved such plan.
tions of the plan that address litigation
[72 FR 18362, Apr. 12, 2007]
matters, may submit a written appeal
to the Director/Office of Financial Pro- § 120.542 Payment by SBA of legal fees
gram Operations (D/OFPO) within 30 and other expenses.
days of the decision. The D/OFPO or
(a) Legal fees SBA will not pay. (1)
designee will make the final Agency SBA will not pay legal fees or other
decision in consultation with the Asso- costs that a Lender or Authorized CDC
ciate General Counsel for Litigation. A Liquidator incurs:
Lender or Authorized CDC Liquidator (i) In asserting a claim, cross claim,
that disagrees with an SBA office’s de- counterclaim, or third-party claim
cision pertaining to an original or against SBA or in defense of an action
amended litigation plan, or the portion brought by SBA, unless payment of
of a liquidation plan addressing litiga- such fees or costs is otherwise required
tion matters, may submit a written ap- by federal law.
peal to the Associate General Counsel (ii) In connection with actions of a
for Litigation within 30 days of the de- Lender or Authorized CDC Liquidator’s
cision. The Associate General Counsel outside counsel for performing non-
for Litigation will make the final legal liquidation services, unless au-
Agency decision in consultation with thorized by SBA prior to the action.
the D/OFPO. (iii) In taking actions which solely
[72 FR 18362, Apr. 12, 2007, as amended at 74 benefit a Lender or Authorized CDC
FR 45753, Sept. 4, 2009; 87 FR 38909, June 30, Liquidator and which do not benefit
2022] SBA, as determined by SBA.
297
§ 120.542 13 CFR Ch. I (1–1–23 Edition)
(2) SBA will not pay legal fees or CDC’s contractor retained in accord-
other costs a Lender or CDC incurs in ance with § 120.975(a)(2) or (b)(2)(ii). The
the defense of, or pay for any settle- compensation fee will be a percentage
ment or adverse judgment resulting (to be published in the FEDERAL REG-
from, a suit, counterclaim or other ISTER from time to time, but not to ex-
claim by a borrower, guarantor, or ceed 10%) of the net recovery proceeds
other party that seeks damages based realized from the sale of collateral or
upon a claim that the Lender or CDC other liquidation actions on an indi-
breached any duty or engaged in any vidual loan, up to a fee of $25,000 for
wrongful actions, unless SBA expressly such loan, and a lower percentage (also
directed the Lender or CDC to under- to be published in the FEDERAL REG-
take the allegedly wrongful action that
ISTER from time to time, but not to ex-
is the subject of the suit, counterclaim
ceed 5%) of the realized net recovery
or other claim.
(b) Legal fees SBA may decline to pay. proceeds above such amounts. The
In addition to any right or authority compensation fee limits set forth in
SBA may have under law or contract, this paragraph (c) do not include rea-
SBA may, in its discretion, decline to sonable, customary and necessary ad-
pay a Lender or Authorized CDC Liqui- ministrative costs related to liquida-
dator for all, or a portion, of legal fees tion activities on such loan that are in-
and/or other costs incurred in connec- curred in accordance with the liquida-
tion with the liquidation and/or litigation plan, or amendments thereto, ap-
tion of a 7(a) loan or 504 loan under any proved by SBA pursuant to § 120.540(b).
of the following circumstances: The Authorized CDC Liquidator may
(1) SBA determines that the Lender compensate its contractor up to the
or Authorized CDC Liquidator failed to amount it receives from SBA. All re-
perform liquidation or litigation quests for compensation fees must be
promptly and in accordance with com- received by SBA within nine months
mercially reasonable standards, in a from the date of SBA’s purchase of the
prudent manner, or in accordance with defaulted debenture. Fee requests not
any Loan Program Requirement or received within such timeframe will be
SBA approvals of either a liquidation automatically rejected.
or litigation plan or any amendment of (d) Appeals—liquidation costs. A Lend-
such a plan.
er or Authorized CDC Liquidator that
(2) A Lender or Authorized CDC Liq-
disagrees with a decision by an SBA of-
uidator fails to obtain prior written ap-
proval from SBA for any liquidation or fice to decline to reimburse all, or a
litigation plan, or for any amended liq- portion, of the fees and/or costs in-
uidation or litigation plan, or for any curred in conducting liquidation may
action set forth in § 120.536, when such appeal this decision in writing to the
approval is required by these regula- D/OFPO within 30 days of the decision.
tions or a Loan Program Requirement. The decision of the D/OFPO or designee
(3) If SBA has not specifically ap- will be made in consultation with the
proved fees or costs identified in an Associate General Counsel for Litiga-
original or amended liquidation or liti- tion, and will be the final Agency deci-
gation plan under § 120.540, and SBA de- sion.
termines that such fees or costs are not (e) Appeals—litigation costs. A Lender
reasonable, customary or necessary in or Authorized CDC Liquidator that dis-
the locality in question. In such cases, agrees with a decision by SBA to de-
SBA will pay only such fees as it deems cline to reimburse all, or a portion, of
are necessary, customary and reason- the legal fees and/or costs incurred in
able in the locality in question. conducting debt collection litigation
(c) Fees for liquidation actions per- may appeal this decision in writing to
formed by Authorized CDC Liquidators. the Associate General Counsel for Liti-
Subject to paragraph (d) of this sec- gation within 30 days of the decision.
tion, SBA will compensate Authorized The decision of the Associate General
CDC Liquidators for their liquidation

Counsel for Litigation will be made in
actions on 504 loans, whether such ac-
tions are performed by the CDC or the
298
consultation with the D/OFPO, and will grant options to purchase. SBA and the
be the final Agency decision. Lender will consider proposals for a
lease if it appears a property cannot be
[72 FR 18362, Apr. 12, 2007, as amended at 74
FR 45753, Sept. 4, 2009; 87 FR 38909, June 30, sold advantageously and the lease may
2022] be terminated on reasonable notice
upon receipt of a favorable purchase
§ 120.545 What are SBA’s policies con- offer.
cerning the liquidation of collateral (d) Recoveries and security interests
and the sale of business loans and shared. SBA and the Lender will share
physical disaster assistance loans, pro rata (in accordance with their re-
physical disaster business loans
and economic injury disaster loans? spective interests in a loan) all loan
payments or recoveries, including pro-
(a) Liquidation policy. SBA or the ceeds from asset sales, all reasonable
Lender may liquidate collateral secur- expenses (including advances for the
ing a loan if the loan is in default or care, preservation, and maintenance of
there is no reasonable prospect that collateral securing the loan and the
the loan can be repaid within a reason- payment of senior lienholders), and any
able period. security interest or guarantee (exclud-
(b) Sale and conversion of loans. With- ing SBA’s guarantee) which the Lender
out the consent of the Borrower, SBA or SBA may hold or receive in connec-
may: tion with a loan.
(1) Sell a direct loan; (e) Guarantors. Guarantors of finan-
(2) Convert a guaranteed or imme- cial assistance have no rights of con-
diate participation loan to a direct tribution against SBA on an SBA guar-
loan; or anteed or direct loan. SBA is not
(3) Convert an immediate participa- deemed to be a co-guarantor with any
tion loan to a guaranteed loan or a other guarantors.
loan owned solely by the Lender.
(4) Sell direct and purchased 7(a) and [61 FR 3235, Jan. 31, 1996, as amended at 64
501, 502, 503 and 504 loans and physical FR 44110, Aug. 13, 1999; 65 FR 17133, Mar. 31,
2000; 68 FR 51680, Aug. 28, 2003. Redesignated
disaster home loans, physical disaster
and amended at 72 FR 18362, Apr. 12, 2007]
business loans and economic injury dis-
aster loans in asset sales. SBA will § 120.546 Loan asset sales.
offer these loans for sale to qualified
bidders by means of competitive proce- (a) General. Loan asset sales are gov-
dures at publicly advertised sales. Bid- erned by § 120.545(b)(4) and by this sec-
der qualifications will be set for each tion.
sale in accordance with the terms and (b) 7(a) loans—(1) For loans approved
conditions of each sale. on or after May 14, 2007. The Lender will
(c) Disposal of collateral and assets ac- be deemed to have consented to SBA’s
quired through foreclosure or conveyance. sale of the loan (guaranteed and
SBA or the Lender may sell real and unguaranteed portions) in an asset sale
personal property (including contracts conducted or overseen by SBA upon the
and claims) pledged to secure a loan occurrence any of the following:
that is in default in accordance with (i) SBA’s purchase of the guaranteed
the provisions of the related security portion of the loan from the Registered
instrument (see § 120.550 for Homestead Holder for a loan where the guaranteed
Protection for Farmers). portion has been sold in the Secondary
(1) Competitive bids or negotiated sales. Market pursuant to subpart F of this
Generally, SBA will offer loan collat- part and after default, the Lender has
eral and acquired assets for public sale not exercised its option to purchase
through competitive bids at auctions such guaranteed portion; or
or sealed bid sales. The Lender may use (ii) SBA’s purchase of the guaranteed
negotiated sales if consistent with its portion from the Lender, provided how-
usual practice for similar non-SBA as- ever, that if SBA purchased the guar-
sets. anteed portion pursuant to
(2) Lease of acquired property. Nor- § 120.520(a)(1) prior to the Lender’s com-
mally, neither SBA nor a Lender will pletion of liquidation for the loan, then
rent or lease acquired property or SBA will not sell such loan in an asset
299
§ 120.550 13 CFR Ch. I (1–1–23 Edition)
sale until nine months from the date of its sole discretion sell a defaulted 504
SBA’s purchase; or loan in an asset sale conducted or over-
(iii) SBA receives written consent seen by SBA.
from the Lender. [72 FR 18364, Apr. 12, 2007]
(2) For loans identified in paragraph
(b)(1)(i) of this section, the Lender may HOMESTEAD PROTECTION FOR FARMERS
request that SBA withhold the loan
from an asset sale if the Lender sub- § 120.550 What is homestead protec-
mits a written request to SBA within tion for farmers?
15 business days of SBA’s purchase of SBA may lease to a farmer-Borrower
the guaranteed portion of the loan the farm residence occupied by the
from the Registered Holder and if such Borrower and a reasonable amount of
request addresses the issues described adjoining property (no more than 10
in this subparagraph. The Lender’s acres and seven farm buildings), if they
written request must advise SBA of the were acquired by SBA as a result of a
status of the loan, the Lender’s plans defaulted farm loan made or guaran-
for workout and/or liquidation, includ- teed by SBA (see the Consolidated
ing and pending sale of loan collateral Farm and Rural Development Act, 7
or foreclosure proceedings arranged U.S.C. 1921, for qualifying loan pur-
prior to SBA’s purchase that already poses).
are underway, and the Lender’s esti-
mated schedule for restructuring the § 120.551 Who is eligible for homestead
loan or liquidating the collateral. SBA protection?
will consider the Lender’s request and, SBA must notify the Borrower in
based on the circumstances, SBA in its possession of the availability of these
sole discretion may elect to defer in- homestead protection rights within 30
cluding the loan in an asset sale in days after SBA acquires the property.
order to provide the Lender additional A farmer-Borrower must:
time to complete the planned restruc- (a) Apply for the homestead occu-
turing and/or liquidation actions. pancy to the SBA field office which
(3) For loans approved before May 14, serviced the loan within 90 days after
2007. SBA must obtain written consent SBA acquires the property;
from the Lender for the sale of such (b) Provide evidence that the farm
loans in an asset sale. produces farm income reasonable for
(4) After SBA has purchased the the area and economic conditions;
guaranteed portion of a loan from the (c) Show that at least 60 percent of
Registered Holder or from the Lender, the Borrower and spouse’s gross annual
the Lender must continue to perform income came from farm or ranch oper-
all necessary servicing and liquidation ations in at least any two out of the
actions for the loan up to the point the last six calendar years;
loan is transferred to the purchaser in (d) Have resided on the property dur-
an asset sale. The Lender also must co- ing the previous six years; and
operate and take all necessary actions (e) Be personally liable for the debt.
to effectuate both the asset sale and
the transfer of the loan to the pur- § 120.552 Lease.
chaser in the asset sale. If approved, the applicant must per-
(c) 504 loans—(1) PCLP Loans. After sonally occupy the residence during
SBA’s purchase of a Debenture, SBA the term of the lease and pay a reason-
may at its sole discretion sell a de- able rent to SBA. The lease will be for
faulted PCLP Loan in an asset sale a period of at least 3 years, but no
conducted or overseen by SBA, after more than 5 years. A lease of less than
providing to the PCLP CDC that made 5 years may be renewed, but not be-
the loan advance notice of not less yond 5 years from the original lease
than 90 days before the date upon date. During or at the end of the lease
which SBA first makes its records con- period, the lessee has a right of first re-
cerning such loan available to prospec- fusal to reacquire the homestead prop-
tive purchasers for examination. erty under terms and conditions no less
(2) All other 504 loans. After SBA’s favorable than those offered to any
purchase of a Debenture, SBA may at other purchaser.
300
§ 120.553 Appeal. (g) Pool is an aggregation of SBA

guaranteed portions of loans made by
If the application is denied, the Bor-
Lenders.
rower may appeal the decision to the (h) Pool Assembler is a financial insti-
D/FA. Until the conclusion of any ap- tution that:
peal, the Borrower may retain posses- (1) Organizes and packages a Pool by
sion of the homestead property. acquiring the SBA guaranteed portions
of loans from Lenders;
§ 120.554 Conflict of laws. (2) Resells fractional interests in the
In the event of a conflict between the Pool to Registered Holders; and
homestead provisions at §§ 120.550 (3) Directs the FTA to issue Certifi-
through 120.553 of this part, and any cates.
state law relating to the right of a Bor- (i) Pool Rate is the interest rate on a
rower to designate for separate sale or Pool Certificate.
to redeem part or all of the real prop- (j) Registered Holder is the Certificate
erty securing a loan foreclosed by the owner listed in FTA’s records.
Lender, state law shall prevail. (k) SBA’s Secondary Market Program
Guide is an issuance from SBA which
describes the characteristics of Sec-
Subpart F—Secondary Market ondary Market transactions.
FISCAL AND TRANSFER AGENT (FTA) (l) Weighted Average Coupon (WAC)
Pool is a Pool where the interest rate
§ 120.600 Definitions. payable to the investor is equal to the
Dollar-Weighted Average Net Rate of
(a) Certificate is the document the the Pool.
FTA issues representing either a bene-
ficial fractional undivided interest in a [61 FR 3235, Jan. 31, 1996, as amended at 73
FR 67102, Nov. 13, 2008; 76 FR 63546, Oct. 12,
Pool (Pool Certificate), or a fractional 2011]
undivided interest in some or all of the
guaranteed portion of an individual § 120.601 SBA Secondary Market.
7(a) guaranteed loan (Individual Cer- The SBA secondary market (‘‘Sec-
tificate). ondary Market’’) consists of the sale of
(b) Current means that no repayment Certificates, representing either a frac-
from a Borrower to a Lender is over 29 tional undivided interest in some or all
days late measured from the due date of the guaranteed portion of an indi-
of the payment on the records of the vidual 7(a) guaranteed loan or a frac-
FTA’s central registry (Pools) or the tional undivided interest in a Pool con-
entity servicing the loan (individual sisting of the SBA guaranteed portions
guaranteed portion). of a number of 7(a) guaranteed loans.
(c) Dollar-Weighted Average Net Rate Transactions involving interests in
of a Pool is calculated by multiplying Pools or the sale of individual guaran-
the interest rate of each loan in the teed portions of loans are governed by
Pool by the ratio of that loan’s current the contracts entered into by the par-
outstanding guaranteed principal to ties, SBA’s Secondary Market Program
the current outstanding guaranteed Guide, and this subpart. See sections
principal of all loans in the Pool, and 5(f), (g), and (h) of the Small Business
adding the sum of the resulting prod- Act (15 U.S.C. 634(f), (g), and (h)).
ucts. The Dollar-Weighted Average Net
[76 FR 63546, Oct. 12, 2011]
Rate of a Pool will fluctuate over the
life of the Pool as loan defaults, pre- CERTIFICATES
payments and normal loan repayments
occur. § 120.610 Form and terms of Certifi-
(d) FTA is the SBA’s fiscal and trans- cates.
fer agent. (a) General form and content. Each
(e) Note Rate is the interest rate on Certificate must be registered with the
the Borrower’s note. FTA. SBA must approve the terms of
(f) Net Rate is the interest rate on an the Certificate.

individual guaranteed portion of a loan (b) Face amount of Pool Certificate.
in a Pool. The face amount of a Pool Certificate
301
§ 120.611 13 CFR Ch. I (1–1–23 Edition)
cannot be less than a minimum (6) A minimum weighted average ma-

amount as specified in the Program turity at Pool formation; and
Guide, and the dollar amount of Cer- (7) A maximum allowable difference
tificates must be in increments which between the highest and lowest Net
SBA will specify in the Program Guide Rate on the guaranteed portions that
(except for one Certificate in each are placed in a WAC Pool.
Pool). SBA may change these require- (b) Adjustment of Pool characteristics.
ments based upon an analysis of mar-
SBA may adjust the Pool characteris-
ket conditions and program experience,
tics periodically based upon program
and will publish any such change in the
FEDERAL REGISTER. experience and market conditions.
(c) Basis of payment for Pool Certifi- (c) Increments of guaranteed portion. If
cates. Principal installments and inter- the amount of the guaranteed portion
est payments are based on the unpaid of an individual 7(a) guaranteed loan is
principal balance of the portion of the more than $500,000, a Pool Assembler
Pool represented by a Pool Certificate. may elect to divide the guaranteed por-
All prepayments on loans in the Pool tion into increments of $500,000 and one
must be passed through to the appro- increment of any remaining amount
priate Registered Holders with the reg- less than $500,000, in order to permit
ularly scheduled payments to such the maximum amount of any guaran-
Holders. teed portion in a Pool to be not more
(d) Basis of payment for Individual Cer- than $500,000. Only one increment from
tificates. Principal installments and in- a loan to a specific borrower may be in-
terest payments are based on the un- cluded in a Pool.
paid principal balance of the SBA guar-
anteed portion of the loan supporting [61 FR 3235, Jan. 31, 1996, as amended at 73
an Individual Certificate. The Certifi- FR 67102, Nov. 13, 2008; 76 FR 63546, Oct. 12,
cate must provide for a pass through to 2011]
the Registered Holder of payments
§ 120.612 Loans eligible to back Certifi-
which the FTA receives from a Lender cates.
or any entity servicing the loan, less
applicable fees. (a) Pool Certificates are backed by
(e) Interest rate on Pool Certificate. The the SBA guaranteed portions of loans
interest rate on a Pool Certificate will comprising the Pool. An Individual
be either the lowest Net Rate of any in- Certificate is backed by the SBA guar-
dividual guaranteed portion of a loan anteed portion of a single loan. Any
in the Pool or the Dollar-Weighted Av- such loan must:
erage Net Rate of the Pool. (1) Be current as of the date the Pool
[61 FR 3235, Jan. 31, 1996, as amended at 73 is formed or the individual guaranteed
FR 67102, Nov. 13, 2008] portion of a loan is initially sold in the
Secondary Market;
§ 120.611 Pools backing Pool Certifi- (2) Be guaranteed under the Act; and
cates.
(3) Meet such other standards as SBA
(a) Pool characteristics. As set forth in may determine to be necessary for the
the Program Guide, each Pool must successful operation of the Secondary
have: Market program.
(1) A minimum number of guaranteed
(b) The loans that back a Pool must
portions of loans;
meet the SBA requirements in effect at
(2) A minimum aggregate principal
balance of the guaranteed portions; the time the Pool is formed.
(3) A maximum percentage of the
§ 120.613 Secondary Participation
Pool which an individual guaranteed Guarantee Agreement.
portion may constitute;
(4) A maximum allowable difference When a Lender wants to sell the
between the highest and lowest note guaranteed portion of a loan, it enters
interest rates; into a Secondary Participation Guar-
(5) A maximum allowable difference antee Agreement (‘‘SPGA’’) with SBA

between the remaining terms to matu- and the prospective purchaser. The
rity of the loans in the Pool; terms of sale between the Lender and
302
the purchaser cannot require the Lend- (2) The Lender fails to send to the
er or SBA to repurchase the guaran- FTA on a timely basis payments it re-
teed portion of the loan except in ac- ceived from the Borrower; or
cordance with the terms of the SPGA. (3) The FTA fails to send to the Reg-
Before execution of the SPGA, the istered Holder on a timely basis any
Lender must: payments it has received from the
(a) Submit to FTA a copy of the pro- Lender.
posed SPGA, the note, and such other (c) Full faith and credit. SBA’s guar-
documents as SBA may require; antee to the Registered Holder is
(b) Except for export working capital backed by the full faith and credit of
loans, disburse to the Borrower the full the United States.
amount of the loan; and
(c) Pay SBA all guarantee fees rel- POOL ASSEMBLERS
evant to the loan in full.
§ 120.630 Qualifications to be a Pool
FR 51680, Aug. 28, 2003]
Assembler.
(a) Application to become Pool Assem-
THE SBA GUARANTEE OF A CERTIFICATE bler. The application to become a Pool
Assembler is available from the D/FA.
§ 120.620 SBA guarantee of a Pool Cer-
tificate. In order to qualify as a Pool Assem-
bler, an entity must send the applica-
(a) Extent of Guarantee. SBA guaran- tion to the D/FA, with an application
tees to a Registered Holder the timely fee, and certify that it:
payment of principal and interest in- (1) Is regulated by the appropriate
stallments and any prepayment or
agency as defined in section 3(a)(34)(G)
other recovery of principal to which
of the Securities Exchange Act of 1934
the Registered Holder is entitled. If the
(15 U.S.C. 78c(a)(34)(G));
Borrower of a loan in a Pool backing
the Certificates does not make a re- (2) Meets all financial and other ap-
quired installment payment, SBA, plicable requirements of its regulatory
through the FTA, will make advances authority and the Government Securi-
to maintain the schedule of interest ties Act of 1986, as amended (Pub. L. 99–
and principal payments to the Reg- 571, 100 Stat. 3208);
istered Holders. (3) Has the financial capability to as-
(b) SBA guarantee backed by full faith semble acceptable and eligible guaran-
and credit. SBA’s guarantee of the Pool teed loan portions in sufficient quan-
Certificate is backed by the full faith tity to support the issuance of Pool
and credit of the United States. Certificates; and
(4) Is in good standing with SBA (as
§ 120.621 SBA guarantee of an Indi- the D/FA determines in his or her dis-
vidual Certificate. cretion), and is Satisfactory with the
(a) Extent of SBA guarantee. With re- Office of the Comptroller of the Cur-
spect to Individual Certificates, SBA rency (‘‘OCC’’) if it is a national bank,
guarantees to purchase from the Reg- the Federal Deposit Insurance Corpora-
istered Holder the guaranteed portion tion if it is a bank not regulated by the
of the loan for an amount equal to the OCC, or the Financial Industry Regu-
unpaid principal and accrued interest latory Authority (‘‘FINRA’’) if it is a
due as of the date of SBA’s purchase, member as determined by SBA.
less deductions for applicable fees. Un- (5) For any pool assembler that is an
like the SBA guarantee with respect to SBA Lender, that the SBA Lender has
pooled loans, SBA does not guarantee satisfactory SBA performance, as de-
timely payment on Individual Certifi- termined by SBA in its discretion. The
cates. Lender’s Risk Rating, among other fac-
(b) What triggers the SBA guarantee. tors, will be considered in determining
SBA’s guarantee to the Registered satisfactory SBA performance. Other
Holder may be called upon when: factors may include, but are not lim-
(1) The Borrower remains in uncured ited to, review/examination assess-

default for 60 days on payments of prin- ments, historical performance meas-
cipal or interest due on the note; ures (like default rate, purchase rate
303
§ 120.631 13 CFR Ch. I (1–1–23 Edition)
and loss rate), loan volume to the ex- pursuant to the procedures set forth in
tent that it impacts performance meas- part 134 of this chapter. The action of
ures, and other performance related the D/FA shall remain in effect pending
measurements and information (such resolution of the appeal.
as contribution toward SBA mission). (c) Notice of termination. In order to
(b) Approval by SBA. An entity may terminate a Pool Assembler, the D/FA
not submit Pool applications to the must issue an order to show cause why
FTA until SBA has approved the appli- the SBA should not terminate the Pool
cation to become a Pool Assembler. Assembler’s participation in the Sec-
(c) Conduct of business by Pool Assem- ondary Market. The Pool Assembler
bler. An entity continues to qualify as may appeal the termination made
a Pool Assembler so long as it: under this section pursuant to proce-
(1) Meets the eligibility standards in dures set forth in part 134 of this chap-
paragraph (a) of this section; ter. The action of the D/FA shall re-
(2) Conducts its business in accord- main in effect pending resolution of
ance with SBA regulations and accept- the appeal.
ed securities or banking industry prac-
tices, ethics, and standards; and MISCELLANEOUS PROVISIONS
(3) Maintains its books and records in
accordance with generally accepted ac- § 120.640 Administration of the Pool
counting principles or in accordance and Individual Certificates.
with the guidelines of the regulatory (a) FTA responsibility. The FTA has
body governing its activities. the responsibility to administer each
[61 FR 3235, Jan. 31, 1996, as amended at 73 Pool or Individual Certificate. It shall
FR 75517, Dec. 11, 2008; 82 FR 39503, Aug. 21, maintain a registry of Registered Hold-
2017] ers and other information as SBA re-
quires.
§ 120.631 Suspension or termination of
Pool Assembler. (b) Self-liquidating. Each Pool or indi-
vidual guaranteed portion of a loan in
(a) Suspension or termination. The D/ the Secondary Market is self-liqui-
FA may suspend a Pool Assembler dating because of Borrower payments
from operating in the Secondary Mar- or prepayments, redemption by SBA,
ket for up to 18 months or terminate and/or payments by SBA or the Lender
its status as a Pool Assembler, if the after default by the Borrower. Substi-
Pool Assembler (and/or its Associates):
tution of the guaranteed portions of ex-
(1) Does not comply with any of the
isting loans for defaulted loans is not
requirements in § 120.630 (a) and (c);
permitted.
(2) Has been indicted or otherwise
formally charged with, or convicted of, (c) SBA’s right to subrogation. If SBA
a misdemeanor or felony; pays a claim under a guarantee with
(3) Has received an adverse civil judg- respect to a Certificate issued under
ment that it has committed a breach of this subpart, it must be subrogated
trust or a violation of a law or regula- fully to the rights satisfied by such
tion protecting the integrity of busi- payment.
ness transactions or relationships; (d) SBA ownership rights not limited.
(4) Has not formed a Pool for at least No Federal, State or local law can pre-
three years; or clude or limit the exercise by SBA of
(5) Is under investigation by its regu- its ownership rights in the portions of
lating authority for activities which loans constituting the Pool against
may affect its fitness to participate in which the Certificates are issued.
the Secondary Market.
(b) Suspension procedures. The D/FA § 120.641 Disclosure to purchasers.
shall notify a Pool Assembler by cer- (a) Information to purchaser. Prior to
tified mail, return receipt requested, of any sale, the Pool Assembler, Reg-
the decision to suspend and the reasons istered Holder of an Individual Certifi-
therefore at least 10 business days prior cate, or any subsequent seller must dis-
to the effective date of the suspension. close to the purchaser, verbally or in

The Pool Assembler may appeal the writing, information on the terms, con-
suspension made under this section ditions, and yield as described in the
304
SBA Secondary Market Program § 120.644 Transfers of Certificates.

Guide.
(a) General rule. Certificates are
(b) Information on transfer document.
transferable. Transfers in the Sec-
The seller must provide the same infor-
ondary Market must comply with Arti-
mation described in paragraph (a) of
cle 8 of the Uniform Commercial Code
this section in writing on the transfer
of the State of New York. The seller
document when the seller submits it to
must use the detached form of assign-
the FTA. After the sale of an Indi-
ment (SBA Form 1088), unless the sell-
vidual Certificate, the FTA will pro-
er and purchaser choose to use another
vide the disclosure information in writ-
form which the SBA approves. The
ing to the purchaser.
FTA may refuse to issue a Certificate
(c) Information in prospectus. If the
until it is satisfied that the documents
Registered Holder is a trust, invest-
of transfer are complete.
ment Pool, mutual fund or other secu-
(b) Transfer on FTA records. In order
rity, it must disclose the information
in paragraph (a) of this section to infor the transfer of a Certificate to be
vestors through a prospectus and other effective the FTA must reflect it on its
promotional material if an Individual records.
Certificate or Pool Certificate is placed (c) Contents of letter of transmittal ac-
into or used as the backing for the in- companying the transfer of Certificates.
vestment vehicle. (1) A letter of transmittal must accom-
pany each Certificate which a Reg-
§ 120.642 Requirements before the FTA istered Holder submits to the FTA for
issues Pool Certificates. transfer. The Registered Holder must
Before the FTA issues any Pool Cer- supply the following information in the
tificate, the Pool Assembler must de- letter:
liver to it the following documents: (i) Pool number, if applicable;
(a) A properly completed Pool appli- (ii) Certificate number;
cation form; (iii) Name of purchaser of Certificate;
(b) Either: (iv) Address and tax identification
(1) Individual Certificates evidencing number of the purchaser;
the guaranteed portions comprising the (v) Name and telephone number of
Pool; or the person handling or facilitating the
(2) An executed SPGA and related transfer;
documentation for the loans whose (vi) Instructions for the delivery of
guaranteed portions are to be part of the new Certificate.
the Pool; and (2) The Registered Holder must also
(c) Any other documentation which send the fee which the FTA charges for
SBA may require. this service. The FTA will supply fee
information to the Registered Holder.
§ 120.643 Requirements before the FTA (d) Lender cannot purchase guaranteed
issues Individual Certificates. portion of loan it made. The Lender (or
(a) FTA issuance of initial Certificate. its Associate) that made a 7(a) guaran-
Before the FTA can issue the Indi- teed loan cannot purchase the guaran-
vidual Certificate for a guaranteed por- teed portion of that loan in the Sec-
tion of a loan, the original seller must ondary Market. If a Lender does pur-
provide the following documents to the chase the guaranteed portion of one of
FTA: its own loans, it shall not have the un-
(1) An executed SPGA; conditional guarantee of SBA.
(2) A copy of the note representing
the guaranteed loan; and § 120.645 Redemption of Certificates.
(3) Any other documentation which (a) Redemption of Individual Certifi-
SBA may require. cate. The prepayment of the underlying
(b) Review of documentation. SBA loan or a default on such loan will trig-
may review or require the FTA to re- ger the redemption of the Certificate
view any documentation before the by FTA/SBA in accordance with the
FTA issues a Certificate. procedures prescribed in the SPGA.
305
§ 120.650 13 CFR Ch. I (1–1–23 Edition)
(b) Redemption of Pool Certificate. The § 120.652 FTA fees.

FTA and SBA may redeem a Pool Cer- The FTA may charge reasonable
tificate because of prepayment or de- servicing fees, transfer fees, and other
fault of all loans in a Pool. fees as the SBA and FTA may nego-
tiate under contract.
§ 120.650 Registration duties of FTA in
Secondary Market. SUSPENSION OR REVOCATION OF
The FTA registers all Certificates. PARTICIPANT IN SECONDARY MARKET
This means it issues, transfers title to,
and redeems them. All financial trans- § 120.660 Suspension or revocation.
actions relating to a guaranteed por- (a) Temporary suspension or revocation
tion of a loan flow through the FTA. In of Lender, broker, dealer, or Registered
fulfilling its obligation to keep the Holder for violation of Secondary Market
central registry current, the FTA may, rules and regulations or other risks to
with SBA’s approval, obtain any nec- SBA. The D/FA together with the Di-
essary information from the parties in- rector, Office of Credit Risk Manage-
volved in the Secondary Market. ment (D/OCRM) may suspend for a pe-
riod of no more than 120 calendar days
§ 120.651 Claim to FTA by Registered or revoke for a period of no more than
Holder to replace Certificate. two (2) years, the privilege of a Lender,
broker, dealer, or Registered Holder to
(a) To replace a Certificate because
sell, purchase, broker, or deal in loans
of loss, theft, destruction, mutilation,
or Certificates for:
or defacement, the Registered Holder (1) Committing a serious violation, in
must: SBA’s discretion, of:
(1) Give the FTA information about (i) The regulations governing the
the Certificate and the facts relating to Secondary Market; or
the claim; (ii) Any provisions in the contracts
(2) File an indemnity bond acceptable entered into by the parties, including
to SBA and the FTA with a surety to SBA Forms 1086, 1088 and 1454;
protect the interests of SBA and the (2) Knowingly submitting false or
FTA; fraudulent information to the SBA or
(3) Pay the FTA its fee to replace a FTA; or
Certificate; and (3) A Lender’s receipt, from its pri-
(4) Use an affidavit of loss (form mary Federal or state regulator (in-
available from the FTA) to report: cluding SBA), of a cease and desist
(i) The name and address of the Reg- order, a consent agreement affecting
istered Holder (and the name and ca- capital or commercial lending issues, a
pacity of any representative actually supervisory action citing unsafe or un-
filing the claim); sound banking practices, or any other
(ii) The Certificate by Pool number, supervisory action a primary regulator
if applicable; establishes hereafter that addresses un-
(iii) The Certificate number; safe or unsound lending practices; or a
going concern opinion issued by the
(iv) The original principal amount;
Lender’s auditor. A Lender subject to a
(v) The name in which the Certificate public action or going concern opinion
was registered; must notify the D/FA and the D/OCRM
(vi) Any assignment, endorsement or within five (5) business days (or as soon
other writing on the Certificate; and as practicable thereafter) of the public
(vii) A statement of the cir- issuance of any such action or the
cumstances of the theft or loss. issuance of a going concern opinion.
(b) When the FTA receives notice of The Lender notice shall include copies
the theft or loss, it will stop any trans- of all relevant documents for SBA re-
fer of the Certificate. The Registered view.
Holder must send to the FTA all avail- (b) Additional rules for suspension or
able portions of a mutilated or defaced revocation of broker or dealer. In addi-
Certificate. When the Registered Hold- tion to acting under paragraph (a) of
er completes these steps, the FTA will this section, the D/FA may suspend or
replace the Certificate. revoke the privilege of any broker or
306
dealer to sell or otherwise deal in Cer- Intermediaries and other qualified non-
tificates in the Secondary Market if: profit entities to be used for mar-
(1) Its supervisory agency has re- keting, management, and technical as-
voked or suspended the broker or deal- sistance to the program’s target popu-
er from engaging in the securities busi- lation.
ness, or is investigating the firm or
broker for a practice which SBA con-
FR 47073, Sept. 11, 2001]
siders, in its sole discretion, to be rel-
evant to the broker’s or dealer’s fitness § 120.701 Definitions.
to participate in the Secondary Mar-
ket; (a) Deposit account is a demand, time,
(2) The broker or dealer has been in- savings, passbook, or similar account
dicted or otherwise formally charged maintained with an insured depository
with a misdemeanor or felony which institution (not including an account
bears on its fitness to participate in evidenced by a Certificate of Deposit).
the Secondary Market; or (b) Grant is a Federal award of
(3) A civil judgment is entered hold- money, or property in lieu of money
ing that the broker or dealer has com- (including cooperative agreements) to
mitted a breach of trust or a violation an eligible grantee that must account
of any law or regulation protecting the for its use. The term does not include
integrity of business transactions or the provision of technical assistance,
relationships. revenue sharing, loans, loan guaran-
(c) Notice to suspend or revoke. The D/ tees, interest subsidies, insurance, di-
FA and the D/OCRM shall notify the af- rect appropriations, or any fellowship
fected party in writing, providing the or other lump sum award.
reasons therefore, at least 10 business (c) Insured depository institution
days prior to the effective date of the means any Federally insured bank,
suspension or revocation. The affected savings association, or credit union.
party may appeal the suspension or (d) Intermediary is an entity partici-
revocation made under this section pating in the Microloan Program which
pursuant to the procedures set forth in makes and services Microloans to eligi-
part 134 of this chapter. The action ble small businesses and which pro-
taken by the D/FA and the D/OCRM vides marketing, management, and
will remain in effect pending resolu- technical assistance to its borrowers.
tion of the appeal. It may be:
(d) Early termination of suspension or (1) A private, nonprofit community
revocation. SBA may, by written notice, development corporation or other enti-
terminate a Secondary Market suspen- ty;
sion or revocation under this section, if (2) A consortium of private, nonprofit
the D/FA and the D/OCRM, in their sole community development corporations
discretion, determine that such termi- or other entities;
nation is warranted for good cause. (3) A quasi-governmental economic
[61 FR 3235, Jan. 31, 1996, as amended at 82 development entity, other than a state,
FR 39503, Aug. 21, 2017] county, municipal government or any
agency thereof; or
Subpart G—Microloan Program (4) An agency of or a nonprofit entity
established by a Native American Trib-
§ 120.700 What is the Microloan Pro- al Government.
gram? (e) Microloan is a short-term, fixed in-
The Microloan Program assists terest rate loan of not more than
women, low income individuals, minor- $50,000 made by an Intermediary to an
ity entrepreneurs, and other small eligible small business.
businesses which need small amounts (f) Non-Federal sources are sources of
of financial assistance. Under this pro- funds other than the Federal Govern-
gram, SBA makes direct and guaran- ment and may include indirect costs or
teed loans to Intermediaries (as defined in-kind contributions paid for under
below) who use the proceeds to make non-Federal programs. Community

loans to eligible borrowers. SBA may Block Development Grants are consid-
also make grants under the program to ered non-Federal sources.
307
§ 120.702 13 CFR Ch. I (1–1–23 Edition)
(g) Specialized Intermediary is an (5) The availability and cost of ob-

Intermediary which maintains a port- taining credit for small businesses in
folio of Microloans averaging $10,000 or the area;
less. (6) The applicant’s experience and
[61 FR 3235, Jan. 31, 1996, as amended at 66 qualifications in providing marketing,
FR 47073, Sept. 11, 2001; 66 FR 47878, Sept. 14, management, and technical assistance
2001; 76 FR 63546, Oct. 12, 2011; 80 FR 34046, to small businesses; and
June 15, 2015; 87 FR 38909, June 30, 2022] (7) Any plan to use other technical
assistance resources (such as coun-
§ 120.702 Are there limitations on who selors from the Service Corps of Re-
can be an Intermediary or on where tired Executives) to help Microloan
an Intermediary may operate?
borrowers.
(a) Prior experience requirement. To be
eligible to be an Intermediary, an orga- § 120.704 How are applications evalu-
nization must: ated?
(1) Have made and serviced short- (a) Evaluation criteria. In selecting
term fixed rate loans of not more than Intermediaries, SBA will attempt to
$50,000 to newly established or growing insure that Microloans are available to
small businesses for at least one year: small businesses in all industries and
and particularly to small businesses lo-
(2) Have at least one year of experi- cated in urban and rural areas.
ence providing technical assistance to
(b) Preference for organizations which
its borrowers.
make very small loans. In selecting
(b) Limitation to one state. An Inter-
Intermediaries, SBA will give priority
mediary may not operate in more than
to applicants which maintain a port-
one state unless the appropriate Office
folio of loans averaging $10,000 or less.
of Capital Access official in accordance
with Delegations of Authority deter- (c) Consideration of quasi-governmental
mines that it would be in the best in- organizations. Generally, SBA will con-
terests of the small business commu- sider applications by quasi-govern-
nity for it to operate across state lines. mental organizations only when it de-
termines that program services for a
[61 FR 3235, Jan. 31, 1996, as amended at 66 particular geographic area would be
FR 47878, Sept. 14, 2001; 73 FR 75517, Dec. 11, best provided by such organization.
2008; 76 FR 63546, Oct. 12, 2011]
§ 120.703 How does an organization FR 47878, Sept. 14, 2001]
apply to become an Intermediary?
(a) Application Process. Organizations § 120.705 What is a Specialized Inter-
mediary?
interested in becoming Intermediaries
should contact SBA for information on At the end of an Intermediary’s first
the application process. year of participation in the program,
(b) Documentation in support of appli- SBA will determine whether it quali-
cation. The application must include a fies as a Specialized Intermediary. An
detailed narrative statement describ- Intermediary qualifies as a Specialized
ing: Intermediary if it maintains a port-
(1) The types of businesses assisted in folio of Microloans averaging $10,000 or
the past and those the applicant in- less. Specialized Intermediaries qualify
tends to assist with Microloans; for more favorable interest rates on
(2) The average size of the loans made SBA loans. If, after the first year, an
in the past and the average size of in- Intermediary qualifies as a Specialized
tended Microloans; Intermediary, the special interest rate
(3) The extent to which the applicant is applied retroactively to SBA loans
will make Microloans to small busi- made to the Intermediary. After the
nesses in rural areas; first year SBA will determine an
(4) The geographic area in which the Intermediary’s qualifications as a Spe-
applicant intends to operate, including cialized Intermediary annually, based
a description of the economic and de- on its lending practices during the
mographic conditions existing in the term of its participation in the pro-
intended area of operations; gram. Specialized Intermediaries also
308
qualify for a greater amount of tech- (f) Fees. SBA does not charge Inter-
nical assistance grant funding. mediaries any fees for loans under this
Program. An Intermediary may, how-
FR 47878, Sept. 14, 2001] ever, pay minimal closing costs to
third parties, such as filing and record-
§ 120.706 What are the terms and con- ing fees.
ditions of an SBA loan to an Inter-
mediary? [61 FR 3235, Jan. 31, 1996, as amended at 66
FR 47073, Sept. 11, 2001; 76 FR 63546, Oct. 12,
(a) Loan Amount. An Intermediary 2011; 87 FR 38909, June 30, 2022]
may not borrow more than $750,000 in
the first year of participation in the § 120.707 What conditions apply to
program. In later years, the loans by Intermediaries to
Intermediary’s obligation to SBA may Microloan borrowers?
not exceed an aggregate of $6 million, (a) Except as otherwise provided in
subject to statutory limitations on the this paragraph, an Intermediary may
total amount of funds available per only make Microloans to small busi-
state. nesses eligible to receive financial as-
(b) Repayment terms. During the first sistance under this part. A borrower
year of the loan, an Intermediary is may also use Microloan proceeds to es-
not required to make any payments, tablish a nonprofit child care business.
but interest accrues from the date that An Intermediary may also make
SBA disburses the loan proceeds to the Microloans to businesses with an Asso-
Intermediary. After that, SBA will de- ciate who is currently on probation or
termine the periodic payments. The parole; provided, however, that the As-
loan must be repaid within 10 years. sociate is not on probation or parole
(c) Interest rate. The interest rate is for an offense involving fraud or dis-
equal to the rate applicable to five- honesty or, in the case of a child care
year obligations of the United States business, is not on probation or parole
Treasury, adjusted to the nearest one- for an offense against children. Pro-
eighth percent, less 1.25 percent. How- ceeds from Microloans may be used
ever, the interest rate for Specialized only for working capital and acquisi-
Intermediaries is equal to the rate ap- tion of materials, supplies, furniture,
plicable to five-year obligations of the fixtures, and equipment. SBA does not
United States Treasury, adjusted to review Microloans for creditworthi-
the nearest one-eighth percent, less ness.
two percent. (b) Amount and maturity. Generally,
(d) Collateral. As security for repay- Intermediaries should not make a
ment of the SBA loan, an Intermediary Microloan of more than $10,000 to any
must pledge to SBA a first lien posi- borrower. An Intermediary may not
tion in the MRF (described below), make a Microloan of more than $20,000
LLRF (described below), and all notes unless the borrower demonstrates that
receivable from Microloans. it is unable to obtain credit elsewhere
(e) Default. If for any reason an Inter- at comparable interest rates and that
mediary is unable to make payment to it has good prospects for success. An
SBA when due, SBA may accelerate Intermediary may not make a
maturity of the loan and demand pay- Microloan of more than $50,000, and no
ment in full. In this event, or if an borrower may owe an Intermediary
Intermediary violates this part or the more than $50,000 at any one time.
terms of its loan agreement, it must Each Microloan must be repaid within
surrender possession of all collateral seven years.
described in paragraph (d) of this sec- (c) Interest rate. The maximum inter-
tion to SBA. The Intermediary is not est rate that can be charged a
obligated to pay SBA any loss or defi- Microloan borrower is:
ciency which may remain after liquida- (1) On loans of more than $10,000, the
tion of the collateral unless the loss interest rate charged on the SBA loan
was caused by fraud, negligence, viola- to the Intermediary, plus 7.75 percent-
tion of any of the ethical requirements age points; and

of § 120.140, or violation of any other (2) On loans of $10,000 or less, the in-
provision of this part. terest rate charged on the SBA loan to
309
§ 120.708 13 CFR Ch. I (1–1–23 Edition)
the Intermediary, plus 8.5 percentage Portfolio which it must maintain in its
points. LLRF to an amount equal to the ac-
[61 FR 3235, Jan. 31, 1996, as amended at 66 tual average loan loss rate during the
FR 47073, Sept. 11, 2001; 66 FR 47878, Sept. 14, preceding five-year period. Upon re-
2001; 76 FR 63547, Oct. 12, 2011; 80 FR 34046, ceipt of such request, he/she will review
June 15, 2015; 85 FR 7651, Feb. 10, 2020; 85 FR the Intermediary’s annual loss rate for
80588, Dec. 14, 2020; 87 FR 38909, June 30, 2022] the most recent five-year period pre-
ceding the request.
§ 120.708 What is the Intermediary’s fi-
nancial contribution? (d) Reduction of Loan Loss Reserve
Fund. The appropriate Office of Capital
The Intermediary must contribute
Access official in accordance with Del-
from non-Federal sources an amount
equal to 15 percent of any loan that it egations of Authority has the author-
receives from SBA. The contribution ity to reduce the percentage of an
may not be borrowed. For purposes of Intermediary’s Portfolio that it must
this program, Community Develop- maintain in its LLRF to an amount
ment Block Grants are considered non- equal to the actual average loan loss
Federal sources. rate during the preceding five-year pe-
riod. The appropriate Office of Capital
§ 120.709 What is the Microloan Re- Access official in accordance with Del-
volving Fund? egations of Authority cannot reduce
The Microloan Revolving Fund the LLRF to less than ten percent of
(‘‘MRF’’) is a Deposit Account into the Portfolio.
which an Intermediary must deposit (e) What must an intermediary dem-
the proceeds from SBA loans, its con- onstrate to get a reduction in Loan Loss
tributions from non-Federal sources, Reserve Fund? To receive a reduction in
and payments from its Microloan bor- its LLRF, an Intermediary must:
rowers. An Intermediary may only (1) Have satisfactory SBA perform-
withdraw from this account the money ance, as determined by SBA in its dis-
needed to establish the Loan Loss Re- cretion. The Intermediary’s Risk Rat-
serve Fund (§ 120.710), proceeds for each ing, among other factors, will be con-
Microloan it makes, and any payments sidered in determining satisfactory
to be made to SBA. SBA performance. Other factors may
[61 FR 3235, Jan. 31, 1996, as amended at 80 include, but are not limited to, review/
FR 34046, June 15, 2015] examination assessments, historical
performance measures (like default
§ 120.710 What is the Loan Loss Re- rate, purchase rate and loss rate), loan
serve Fund?
volume to the extent that it impacts
(a) General. The Loan Loss Reserve performance measures, and other per-
Fund (‘‘LLRF’’) is a Deposit Account formance related measurements and
which an Intermediary must establish information (such as contribution to-
to pay any shortage in the MRF caused ward SBA mission); and
by delinquencies or losses on (2) No other factors exist that may
Microloans. impair the Intermediary’s ability to
(b) Level of Loan Loss Reserve Fund. repay all obligations which it owes to
Until it is in the Microloan program the SBA under the Microloan program.
for at least five years, an Intermediary
must maintain a balance on deposit in [61 FR 3235, Jan. 31, 1996, as amended at 65
its LLRF equal to 15 percent of the FR 17439, Apr. 3, 2000; 73 FR 75517, Dec. 11,
outstanding balance of the notes re- 2008; 80 FR 34046, June 15, 2015; 82 FR 39504,
ceivable owed to it by its Microloan Aug. 21, 2017]
borrowers (‘‘Portfolio’’).
(c) SBA review of Loan Loss Reserve § 120.711 What rules govern Inter-
mediaries?
Fund. After an Intermediary has been
in the Microloan program for five Intermediaries must operate in ac-
years, it may request SBA’s appro- cordance with applicable statutes, reg-
priate Office of Capital Access official ulations, policy notices, SBA’s Stand-
in accordance with Delegations of Au- ard Operating Procedures (SOPs), and
thority to reduce the percentage of its the information in the application.
310
§ 120.712 How does an Intermediary the country that are either not served
get a grant to assist Microloan bor- or underserved by an existing Inter-
rowers? mediary.
(a) General. An Intermediary is eligi-
ble to receive grant funding from SBA §§ 120.714–120.715 [Reserved]
of not more than 25 percent of the out-
§ 120.716 What is the minimum num-
standing balance of all SBA loans to ber of loans an Intermediary must
the Intermediary. The Intermediary make each Federal fiscal year?
must contribute, solely from non-Fed-
eral sources, an amount equal to 25 (a) Minimum loan requirement. Inter-
percent of the grant. Contributions mediaries must close and fund the re-
may be made in cash or in kind. quired number of microloans per year
(b) Limitations on grant funds. An (October 1–September 30) as follows,
Intermediary may not borrow its con- except that an Intermediary entering
tribution. It may only use grant funds the program will not be required to
to provide Microloan borrowers with meet the minimum in that year:
marketing, management, and technical (1) For fiscal year 2015, four
assistance, except that: microloans,
(1) Up to 50 percent of the grant funds (2) For fiscal year 2016, six
may be used to provide information microloans,
and technical assistance to prospective (3) For fiscal year 2017, eight
Microloan borrowers; provided, how- microloans, and
ever, that no more than 5 percent of (4) For fiscal years 2018 and there-
the grant funds may be used to market after, ten microloans per year.
or advertise the products and services (b) Intermediaries that do not meet
of the Microloan Intermediary directly the minimum loan requirement are not
related to the Microloan Program; and eligible to receive new grant funding
(2) Grant monies may be used to at- unless they submit a corrective action
tend training required by SBA. plan acceptable to SBA, in its discre-
(c) Intermediaries eligible to receive ad- tion. Intermediaries that have sub-
ditional grant monies. An Intermediary mitted acceptable corrective action
may receive an additional SBA grant plans may receive a reduced grant at
equal to five percent of the outstanding SBA’s discretion.
balance of all loans received from SBA
[80 FR 34047, June 15, 2015]
(with no obligation to contribute addi-
tional matching funds) if the Inter-
mediary is a Specialized Intermediary. Subpart H—Development
(d) Third party contracts for technical Company Loan Program (504)
assistance. An Intermediary may use no
more than 50 percent of the grant funds § 120.800 [Reserved]
it receives from SBA for contracts with
§ 120.801 How a 504 Project is fi-
third parties for the latter to provide nanced.
technical assistance to Microloan bor-
rowers. (a) One or more small businesses may
apply for 504 financing through a CDC
[61 FR 3235, Jan. 31, 1996, as amended at 66 serving the area where the 504 Project
FR 47073, Sept. 11, 2001; 76 FR 63547, Oct. 12,
2011; 80 FR 34047, June 15, 2015; 85 FR 7651,
is located. SBA issues an Authorization
Feb. 10, 2020; 85 FR 80588, Dec. 14, 2020; 87 FR if it agrees to guarantee part of the
38909, June 30, 2022] funding for a Project.
(b) Usually, a Project requires in-
§ 120.713 Does SBA provide technical terim financing from an interim lender
assistance to Intermediaries? (often the same lender that later pro-
SBA may procure technical assist- vides a portion of the permanent fi-
ance for an Intermediary to improve nancing).
its knowledge, skill, and understanding (c) Generally, permanent financing of
of microlending by awarding a grant to the Project consists of:
a more experienced Intermediary. SBA (1) A contribution by the small busi-

may also obtain such assistance for ness in an amount of at least 10 percent
prospective Intermediaries in areas of of the Project costs;
311
§ 120.802 13 CFR Ch. I (1–1–23 Edition)
(2) A loan made with the proceeds of or retained in the community because
a CDC Debenture for up to 40 percent of of a 504 loan.
the Project costs and certain adminis- Lead SBA Office is the SBA District
trative costs, collateralized by a second Office designated by SBA as the pri-
lien on the Project Property; and mary liaison between SBA and a CDC
(3) A Third Party Loan comprising the and with responsibility for managing
balance of the financing, collateralized SBA’s relationship with that CDC.
by a first lien on the Project property
Local Economic Area is an area, as de-
(see § 120.920).
(d) The Debenture is guaranteed 100 termined by SBA, that is in a State
percent by SBA (with the full faith and other than the State in which an exist-
credit of the United States), and sold ing CDC (or an applicant applying to
to Underwriters who form Debenture become a CDC) is incorporated, is con-
Pools. Investors purchase interests in tiguous to the CDC’s existing Area of
Debenture Pools and receive Certifi- Operations (or the applicant’s proposed
cates representing ownership of all or Area of Operations) of its State of in-
part of a Debenture Pool. SBA and corporation, and is a part of a local
CDCs use various agents to facilitate trade area that is contiguous to the
the sale and service of the Certificates CDC’s Area of Operations (or appli-
and the orderly flow of funds among cant’s proposed Area of Operations) of
the parties. its State of incorporation. Examples of
[61 FR 3235, Jan. 31, 1996, as amended at 64 a local trade area would be a city that
FR 2118, Jan. 13, 1999] is bisected by a State line or a metro-
politan statistical area that is bisected
§ 120.802 Definitions. by a State line.
The following terms have the same Multi-State CDC is a CDC that is in-
meaning wherever they are used in this corporated in one State and is author-
subpart. Defined terms are capitalized ized by SBA to operate as a CDC in a
wherever they appear. State contiguous to its State of incor-
Area of Operations is the geographic poration beyond any contiguous Local
area where SBA has approved a CDC’s Economic Areas.
request to provide 504 program services Net Debenture Proceeds are the por-
to small businesses on a permanent tion of Debenture proceeds that finance
basis. The minimum Area of Oper-
eligible Project costs (excluding ad-
ations is the State in which the CDC is
ministrative costs).
incorporated.
Central Servicing Agent (CSA) is an en- Priority CDC is a CDC certified to par-
tity that receives and disburses funds ticipate on a permanent basis in the 504
among the various parties involved in program (see § 120.812) that SBA has ap-
504 financing under a master servicing proved to participate in an expedited
agent agreement with SBA. 504 loan and Debenture closing process.
Certificate is a document issued by Project is the purchase or lease, and/
SBA or its agent representing owner- or improvement or renovation of long-
ship of all or part of a Debenture Pool. term fixed assets by a small business,
Debenture is an obligation issued by a with 504 financing, for use in its busi-
CDC and guaranteed 100 percent by ness operations.
SBA, the proceeds of which are used to Project Property is one or more long-
fund a 504 loan. term fixed assets, such as land, build-
Debenture Pool is an aggregation of ings, machinery, and equipment, ac-
Debentures. quired or improved by a small business,
Designated Attorney is the CDC clos- with 504 financing, for use in its busi-
ing attorney that SBA has approved to
ness operations.
close loans under an expedited closing
Third Party Loan is a loan from a
process for a Priority CDC.
Investor is an owner of a beneficial in- commercial or private lender, investor,
terest in a Debenture Pool. or Federal (non-SBA), State or local
Job Opportunity is a full time (or government source that is part of the
equivalent) permanent job created Project financing.
within two years of receipt of 504 funds,
312
Underwriter is an entity approved by period, the CDC must petition the Lead
SBA to form Debenture Pools and ar- SBA Office for permanent CDC status
range for the sale of Certificates. or an additional one-year extension of
probation.
FR 2118, Jan. 13, 1999; 65 FR 42632, July 11, (b) SBA will consider the failure to
2000; 68 FR 57980, Oct. 7, 2003] file a petition before the end of the pro-
bationary period as a withdrawal from
CERTIFICATION PROCEDURES TO BECOME the 504 program. If the CDC elects
A CDC withdrawal, SBA will direct the CDC to
transfer all funded and/or approved
§ 120.810 Applications for certification loans to another CDC, SBA, or another
as a CDC.
servicer approved by SBA.
(a) An applicant for certification as a (c) The Lead SBA Office will send the
CDC must apply to the SBA District petition and its recommendation to the
Office serving the jurisdiction in which D/FA, who will make the final decision.
the applicant has or proposes to locate SBA will determine permanent CDC
its headquarters (see § 101.103 of this status or an extension of probation, in
chapter). part, based upon the CDC’s compliance
(b) The applicant must apply for an with the certification and operational
Area of Operations. The applicant’s requirements in §§ 120.820 through
proposed Area of Operations must in- 120.830. To be considered for permanent
clude the entire State in which the ap- CDC status or an extension of proba-
plicant is incorporated, and may in- tion, the CDC must have satisfactory
clude Local Economic Areas. An appli- SBA performance, as determined by
cant may not apply to cover an area as SBA in its discretion. The CDC’s Risk
a Multi-State CDC. Rating, among other factors, will be
(c) The applicant must demonstrate considered in determining satisfactory
that it satisfies the CDC certification SBA performance. Other factors may
and operational requirements in include, but are not limited to, review/
§§ 120.820, and 120.822 through 120.824. examination assessments, historical
The applicant also must include an op- performance measures, loan volume to
erating budget, approved by the appli- the extent that it impacts performance
cant’s Board of Directors, which dem- measures, and other performance re-
onstrates the required financial ability lated measurements and information
(as described in § 120.825), and a plan to (such as contribution toward SBA mis-
meet CDC operational requirements sion).
(without specializing in a particular in- (d) SBA will notify the CDC in writ-
dustry) in §§ 120.821, and 120.826 through ing of its decision, and, if the petition
120.830. is declined, the reasons for the deci-
(d) The District Office will forward sion. If SBA declines the petition, the
the application and its recommenda- CDC will no longer have authority to
tion to the D/FA, who will make the participate in the 504 Loan Program
final decision. SBA will notify the CDC and SBA will direct the CDC to trans-
in writing of its decision, and, if the pe- fer all funded and/or approved loans to
tition is declined, the reasons for the another CDC, SBA, or another servicer
decision. approved by SBA.
[68 FR 57980, Oct. 7, 2003] [68 FR 57980, Oct. 7, 2003, as amended at 73 FR
75517, Dec. 11, 2008; 82 FR 39504, Aug. 21, 2017;
§ 120.812 Probationary period for 87 FR 38909, June 30, 2022]
newly certified CDCs.
(a) Newly certified CDCs will be on REQUIREMENTS FOR CDC CERTIFICATION
probation for a period of two years AND OPERATION
from the date of certification, at the
end of which the CDC must petition the § 120.816 CDC non-profit status and
Lead SBA Office for: good standing.
(1) Permanent CDC status; or A CDC must be a non-profit corpora-
(2) A one-year extension of probation. tion, except that for-profit CDCs cer-
If a one-year extension of probation is tified by SBA prior to January 1, 1987
granted, at the end of this extension may retain their certifications. An
313
§ 120.818 13 CFR Ch. I (1–1–23 Edition)
SBIC may not become a CDC. A CDC other CDC) whose function is economic
must be in good standing based upon development in the same Area of Oper-
the following criteria: ations and that is either a non-profit
(a) In good standing in the State in entity or a State or local government
which the CDC is incorporated and any or political subdivision (e.g., council of
other State in which the CDC conducts governments).
business. (c) A CDC must not be affiliated (as
(b) In compliance with all laws, in-
determined in accordance with § 121.103)
cluding taxation requirements, in the
with or invest, directly or indirectly,
State in which the CDC is incorporated
and any other State in which the CDC in a 7(a) Lender. A CDC that was affili-
conducts business. ated with a 7(a) Lender as of November
(c) Must have satisfactory SBA per- 6, 2003 may continue such affiliation.
formance, as determined by SBA in its (d) A CDC must not be affiliated (as
discretion. The CDC’s Risk Rating, determined in accordance with § 121.103
among other factors, will be considered of this chapter) with another CDC. In
in determining satisfactory SBA per- addition, a CDC must not directly or
formance. Other factors may include, indirectly invest in or finance another
but are not limited to, review/examina- CDC, except with the prior written ap-
tion assessments, historical perform- proval of D/FA or designee and D/
ance measures, loan volume to the ex- OCRM or designee if they determine in
tent that it impacts performance meas- their discretion that such approval is
ures, and other performance related in the best interests of the 504 Loan
measurements and information (such Program.
as contribution toward SBA mission).
(e) A CDC may remain affiliated with
(d) If a non-profit CDC has a member-
a for-profit entity (other than a 7(a)
ship and the members are responsible
for electing or appointing voting direc- Lender) if such affiliation existed prior
tors to the CDC’s Board of Directors, to March 21, 2014. A CDC may also be
no person or entity can control more affiliated with a for-profit entity
than 25 percent of the CDC’s voting (other than a 7(a) Lender) whose func-
membership. tion is economic development in the
same Area of Operations with the prior
[68 FR 57980, Oct. 7, 2003, as amended at 73 FR
75518, Dec. 11, 2008. Redesignated at 79 FR
written approval of the D/FA or des-
15649, Mar. 21, 2014; 82 FR 39504, Aug. 21, 2017; ignee if he or she determines in his or
84 FR 66294, Dec. 4, 2019] her discretion that such approval is in
the best interests of the 504 Loan Pro-
§ 120.818 Applicability to existing for- gram.
profit CDCs. (f) A CDC must not directly or indi-
(a) Unless expressly provided other- rectly invest in a Licensee (as defined
wise in the regulations, any Loan Pro- in § 107.50 of this chapter) licensed by
gram Requirement that applies to non- SBA under the SBIC program author-
profit CDCs also applies to for-profit ized in Part A of Title III of the Small
CDCs. Business Investment Act, 15 U.S.C. 681
(b) No person or entity can own or et seq. A CDC that has an SBA-ap-
control more than 25 percent of a for-
proved investment in a Licensee as of
profit CDC’s stock.
November 6, 2003 may retain such in-
[79 FR 15649, Mar. 21, 2014, as amended at 84 vestment.
FR 66294, Dec. 4, 2019]
[79 FR 15649, Mar. 21, 2014]
§ 120.820 CDC Affiliation.
§ 120.821 CDC Area of Operations.
(a) A CDC must be independent and
must not be affiliated (as determined A CDC must operate only within its
in accordance with § 121.103 of this designated Area of Operations approved
chapter) with any Person (as defined in by SBA except as provided in § 120.839.
§ 120.10) except as permitted under this
[68 FR 57980, Oct. 7, 2003]

section.
(b) A CDC may be affiliated with an
entity (other than a 7(a) Lender or an-
314
§ 120.823 CDC Board of Directors. Board. The Board is responsible for en-
(a) The CDC, whether for-profit or suring that the structure and operation
non-profit, must have a Board of Direc- of the CDC, as set forth in the Bylaws,
tors with at least seven (7) voting di- comply with SBA’s Loan Program Re-
rectors who live or work in the CDC’s quirements. The responsibilities of the
State of incorporation or in an area Board include, but are not limited, to
that is contiguous to that State that the following:
meets the definition of a Local Eco- (1) Approving the mission and the
nomic Area for the CDC. The Board policies for the CDC;
must be actively involved in encour- (2) Hiring, firing, supervising and an-
aging economic development in the nually evaluating the CDC manager;
Area of Operations. The initial Board (3) Setting the salary for the CDC
may be created by any method per- manager and reviewing all salaries;
mitted by applicable State law. At a (4) Establishing committees, at its
minimum, the Board must have direc- discretion, including the following:
tors with background and expertise in (i) Executive Committee. To the extent
internal controls, financial risk man- authorized in the Bylaws, the Board of
agement, commercial lending, legal Directors may establish an Executive
issues relating to commercial lending, Committee. The Executive Committee
corporate governance, and economic, may exercise the authority of the
community or workforce development. Board; however, the delegation of its
Directors may be either currently em- authority does not relieve the Board of
ployed or retired. its responsibility imposed by law or
(b) At least two voting members of Loan Program Requirements. No fur-
the Board of Directors, other than the ther delegation or redelegation of this
CDC manager, must possess commer- authority is permitted. If the Board es-
cial lending experience satisfactory to tablishes an Executive Committee and
SBA. When the Board votes on SBA delegates any of its authority to the
loan approval or servicing actions, at Executive Committee as set forth in
least two voting Board members, with the Bylaws of the CDC, the Executive
such commercial lending experience, Committee must:
other than the CDC manager, must be (A) Be chosen by and from the Board
present and vote. of Directors from the Board; and
(c) The Board of Directors must meet (B) Meet the same organizational and
at least quarterly and shall be respon- representational requirements as the
sible for the actions of the CDC and Board of Directors, except that the Ex-
any committees established by the ecutive Committee must have a min-
Board of Directors. In addition, the imum of four voting members who
Board of Directors is subject to the fol- must be present to conduct business.
lowing requirements: (ii) Loan Committee. The Board of Di-
(1) Except for the CDC manager, no rectors may establish a Loan Com-
person on the CDC’s staff may be a vot- mittee. The Loan Committee may ex-
ing director of the Board; ercise the authority of the Board only
(2) A quorum must be present to as set forth below; however, the delega-
transact business. The quorum shall be tion of its authority does not relieve
set by the CDC but shall be no less the Board of its responsibility imposed
than 50% of the voting members of the by law or Loan Program Requirements.
Board of Directors; If the Board of Directors chooses to es-
(3) Attendance at meetings may be tablish a Loan Committee, no CDC
through any format permitted by State staff or manager may serve on the
law; Loan Committee. The Loan Committee
(4) No CDC Board member may serve must:
on the Board of another CDC. (A) Be chosen by the Board of Direc-
(d) The Board shall have and exercise tors, and consist of individuals with a
all corporate powers and authority and background in either financial risk
be responsible for all corporate actions management, commercial lending, or
and business. There must be no actual legal issues relating to commercial

or appearance of a conflict of interest lending who are not associated with
with respect to any actions of the another CDC;
315
§ 120.824 13 CFR Ch. I (1–1–23 Edition)
(B) Have a Quorum of at least four (13) Establishing written internal

Loan Committee members authorized control policies, in accordance with
to vote; § 120.826;
(C) Have at least two (2) Loan Com- (14) Establishing commercially rea-
mittee members with commercial lend- sonable loan approval policies, proce-
ing experience satisfactory to SBA; dures, and standards. The Bylaws must
(D) Have no actual or appearance of a include any delegations of authority to
conflict of interest, including for exam- the Loan Committee and Executive
ple, a Loan Committee member partici- Committee, if either Committee has
pating in deliberations on a loan for been established. In addition, the CDC
which the Third Party Lender is the must establish and set forth in detail
member’s employer or the member is in a policy manual its credit approval
otherwise associated with the Third process. All 504 loan applications must
Party Lender; and have credit approval prior to submis-
(E) Consist only of Loan Committee sion to the Agency. The Loan Com-
members who live or work in the CDC’s mittee, if established, may be dele-
State of incorporation or in an area gated the authority to provide credit
that meets the definition of a Local approval for loans up to $2,000,000 but,
Economic Area for the CDC, except for loans of $1,000,000 to $2,000,000, the
that, for Projects that are financed Loan Committee’s action must be rati-
under a CDC’s Multi-State authority, fied by the Board or Executive Com-
the CDC must satisfy the requirements mittee prior to Debenture closing. Only
of either § 120.835(c)(1) or (2) when vot- the Board or Executive Committee, if
ing on that Project. authorized by the Board, may provide
(5) Ensuring that the CDC’s expenses credit approval for loans greater than
are reasonable and customary; $2,000,000.
(15) All members of the Board of Di-
(6) Hiring directly an independent
rectors must annually certify in writ-
auditor to provide the financial state-
ing that they have read and understand
ments in accordance with Loan Pro-
this section, and copies of the certifi-
gram Requirements;
cation must be included in the Annual
(7) Monitoring the CDC’s portfolio Report to SBA.
performance on a regular basis; (e) The Board of Directors shall
(8) Reviewing a semiannual report on maintain Directors’ and Officers’ Li-
portfolio performance from the CDC ability and Errors and Omissions insur-
manager, which would include, but not ance in amounts established by SBA
be limited to, asset quality and indus- that are based on the size of the CDC’s
try concentration; portfolio and other relevant factors.
(9) Ensuring that the CDC establishes
and maintains adequate reserves for [79 FR 15649, Mar. 21, 2014, as amended at 82
FR 39504, Aug. 21, 2017; 84 FR 66294, Dec. 4,
operations; 2019]
(10) Ensuring that the CDC invests in
economic development in each of the § 120.824 Professional management
States in its Area of Operations in and staff, and contracts for serv-
which it has a portfolio, and approving ices.
each investment. If the investment is (a) Management. A CDC must have
included in the CDC’s budget, the full-time professional management, in-
Board’s approval of the budget may be cluding an executive director or the
deemed approval of the investment. If equivalent (CDC manager) to manage
the investment is not included in the daily operations. This requirement is
budget, the Board must separately ap- met if the CDC has at least one sala-
prove the investment; ried professional employee that is em-
(11) Establishing a policy in the By- ployed directly (not a contractor or an
laws of the CDC prohibiting an actual officer, director, 20 percent or more eq-
conflict of interest or the appearance uity owner, or key employee of a con-
of same, and enforcing such policy (see tractor) on a full-time basis to manage
§ 120.140 and § 120.851); the CDC. The CDC manager must be

(12) Retaining accountability for all hired by the CDC’s Board of Directors
of the actions of the CDC; and subject to termination only by the
316
Board. A CDC may obtain, under a (i) CDCs may contract for legal, ac-
written contract, management services counting, and information technology
provided by a qualified individual services without SBA approval, except
under the following circumstances: for legal services in connection with
(1) The CDC must submit a request loan liquidation or litigation.
for the D/FA (or designee) to approve, (ii) CDCs may contract for inde-
in consultation with the D/OCRM (or pendent loan review services with non-
designee), a waiver of the requirement CDC entities without SBA approval.
that the manager be employed directly Contracts between CDCs for inde-
by the CDC. In its request, the CDC pendent loan reviews must be pre-ap-
must demonstrate that: proved by SBA in accordance with
(i) Another non-profit entity (that is paragraph (d) of this section.
not a CDC) that has the economic de- (2) If the contract requires SBA’s
velopment of the CDC’s Area of Oper- prior approval under paragraph (c)(1) of
ations as one of its principal activities this section, the CDC’s Board must ex-
will provide management services to plain to SBA why it is in the best in-
the CDC and, if the manager is also terest of the CDC to obtain services
performing services for the non-profit through a contract and must dem-
entity, the manager will be available onstrate that:
to small businesses interested in the (i) The compensation under the con-
504 program and to 504 loan borrowers tract is paid only by the CDC obtaining
during regular business hours; or the services, is reasonable and cus-
(ii) The CDC submitting the request tomary for similar services in the Area
for the waiver is rural, has insufficient of Operations, and is only for actual
loan volume to justify having manage- services performed;
ment employed directly by the CDC, (ii) The full term of the contract (in-
and is requesting to contract with an- cluding options) is necessary and ap-
other CDC located in the same general propriate and the contract permits the
area to provide the management. CDC procuring the services to termi-
(2) The CDC must submit a request nate the contract prior to its expira-
for the D/FA (or designee), in consultation date with or without cause; and
tion with the D/OCRM (or designee), to (iii) There is no actual or apparent
pre-approve the contract for manage- conflict of interest or self-dealing on
ment services. This contract must the part of any of the CDC’s officers,
comply with paragraphs (c)(2) through management, or staff, including mem-
(4) and, if applicable, paragraph (d) of bers of the Board and Loan Committee,
this section. in the negotiation, approval or imple-
(b) Professional staff. The CDC must mentation of the contract.
have a full-time professional staff (3) Neither the contractor nor any of-
qualified by training and experience to ficer, director, 20 percent or more eq-
market the 504 Loan Program, package uity owner, or key employee of a con-
and process loan applications, close tractor may be a voting or non-voting
loans, service, and, if authorized by member of the CDC’s Board.
SBA, liquidate the loan portfolio, and (4) The CDC procuring the services
to sustain a sufficient level of service must provide a copy of all executed
and activity in the Area of Operations. contracts requiring SBA prior approval
(c) Professional services contracts. to SBA as part of the CDC’s Annual Re-
Through a written contract with quali- port submitted under § 120.830(a) unless
fied individuals or entities, a CDC may the CDC certifies that it has previously
obtain services for marketing, pack- submitted an identical copy of the exe-
aging, processing, closing, servicing, or cuted contract to SBA.
liquidation functions, or for other serv- (5) With respect to any contract
ices (e.g., legal, accounting, informa- under which the CDC’s staff are deemed
tion technology, independent loan re- co-employees of both the CDC and the
views, and payroll and employee bene- contractor (e.g., contracts with profes-
fits), provided that: sional employer organizations to ob-
(1) The contract must be pre-ap- tain employee benefits, such as retire-
proved by the D/FA (or designee), sub- ment and health benefits, for the CDC’s
ject to the following exceptions: staff), the contract must provide that
317
§ 120.825 13 CFR Ch. I (1–1–23 Edition)
the CDC retains the final authority to bias the outcome or integrity of the
hire and fire the CDC’s employees. independent loan review.
(6) If the contract is between CDCs, (5) The contract must satisfy the re-
the CDCs and the contract must also quirements set forth in paragraphs
comply with paragraph (d) of this sec- (c)(2) through (4) of this section.
tion.
[84 FR 66294, Dec. 4, 2019]
(d) Professional Services Contracts be-
tween CDCs. Notwithstanding the pro- § 120.825 Financial ability to operate.
hibition in 13 CFR 120.820(d) against a
CDC affiliating with another CDC, a A CDC must be able to sustain its op-
CDC may obtain services through a erations continuously, with reliable
written contract with another CDC for sources of funds (such as income from
managing, marketing, packaging, proc- services rendered and contributions
essing, closing, servicing, independent from government or other sponsors).
loan review, or liquidation functions, Any funds generated from 503 and 504
provided that: loan activity by a CDC remaining after
(1) The contract between the CDCs payment of staff and overhead expenses
must be pre-approved by the D/FA (or must be retained by the CDC as a re-
designee), in consultation with the D/ serve for future operations or for in-
OCRM (or designee), who determines in vestment in other local economic de-
his or her discretion that such approval velopment activity in its Area of Oper-
is in the best interests of the 504 Loan ations. If a CDC is operating as a
Program and that the terms and condi- Multi-State CDC, it must maintain a
tions of the contract are satisfactory separate accounting for each State of
to SBA. For management services, a all 504 fee income and expenses and
CDC may contract with another CDC provide, upon SBA’s request, evidence
only in accordance with paragraph that the funds resulting from its Multi-
(a)(1)(ii) of this section. State CDC operations are being in-
(2) Except for contracts for liquida- vested in economic development activi-
tion services and independent loan re- ties in each State in which they were
views: generated.
(i) The CDCs entering into the con- [65 FR 42633, July 11, 2000]
tract must be located in the same SBA
Region or, if not located in the same § 120.826 Basic requirements for oper-
SBA Region, must be located in contig- ating a CDC.
uous States. For purposes of this provi- A CDC must operate in accordance
sion, the location of a CDC is the CDC’s with the following requirements:
State of incorporation; (a) In general. CDCs must meet all 504
(ii) A CDC may provide assistance to Loan Program Requirements. In its
only one CDC per State; and Area of Operations, a CDC must mar-
(iii) No CDC may provide assistance ket the 504 program, package and proc-
to another CDC in its State of incorpo- ess 504 loan applications, close and
ration or in any State in which it has service 504 loans, and if authorized by
Multi-State authority. SBA, liquidate and litigate 504 loans. It
(3) The Board of Directors for each must supply to SBA current and accu-
CDC entering into the contract must rate information about all certification
be separate and independent and may and operational requirements, and
not include any common directors. In maintain the records and submit all re-
addition, if either of the CDCs is for- ports required by SBA.
profit, neither CDC may own any stock (b) Operations and internal controls.
in the other CDC. The CDCs are also Each CDC’s board of directors must
prohibited from comingling any funds. adopt an internal control policy which
(4) With respect to contracts for inde- provides adequate direction to the in-
pendent loan reviews, CDCs may not stitution for effective control over and
review each other’s portfolios or ex- accountability for operations, pro-
change any other services, nor may grams, and resources. The board adopt-
they enter into any other arrangement ed internal control policy must, at a
with each other that could appear to minimum:
318
(1) Direct management to assign the audited financial statement in the

responsibility for the internal control event the D/OCRM determines, in his
function (covering financial, credit, or her discretion, that such audit is
credit review, collateral, and adminis- necessary or appropriate when the CDC
trative matters) to an officer or offi- is in material noncompliance with
cers of the CDC; Loan Program Requirements.
(2) Adopt and set forth procedures for (d) Auditor qualifications. The audit or
maintenance and periodic review of the review must be conducted by an inde-
internal control function; pendent certified public accountant
(3) Direct the operation of a program who:
to review and assess the CDC’s 504-re- (1) Is registered or licensed to prac-
lated loans. For the 504 review pro- tice as a public accountant, and is in
gram, the internal control policies good standing, under the laws of the
must specify the following: state or other political subdivision of
(i) Loan, loan-related collateral, and the United States in which the CDC’s
appraisal review standards, including principal office is located;
standards for scope of selection (for re- (2) Agrees in the engagement letter
view of any such loan, loan-related col- with the CDC to provide the SBA with
lateral or appraisal) and standards for access to and copies of any work pa-
work papers and supporting docu- pers, policies, and procedures relating
mentation; to the services performed;
(ii) Loan quality classification stand- (3)(i) Is in compliance with the
ards consistent with the standardized AICPA Code of Professional Conduct;
classification systems used by the Fed- and
eral Financial Institution Regulators; (ii) Meets the independence require-
(iii) Specific control requirements for ments and interpretations of the Secu-
the CDC’s oversight of Lender Service rities and Exchange Commission and
Providers; and its staff;
(iv) Standards for training to imple- (4) Has received a peer review or is
ment the loan review program; and enrolled in a peer review program that
(4) Address other control require- meets AICPA guidelines; and
ments as may be established by SBA. (5) Is otherwise acceptable to SBA.
(c) Annual Audited/Reviewed Financial
Statements. Each CDC with a 504 loan [73 FR 75518, Dec. 11, 2008, as amended at 84
FR 66295, Dec. 4, 2019]
portfolio balance of $30 million or more
(as calculated by SBA) must have its § 120.827 Other services a CDC may
financial statements audited annually provide to small businesses.
by a certified public accountant that is
independent and experienced in audit- A CDC may provide a small business
ing financial institutions. The audit with assistance unrelated to the 504
must be performed in accordance with loan program as long as the CDC does
generally accepted auditing standards not make such assistance a condition
as adopted by the Auditing Standards of the CDC accepting from that small
Board of the American Institute of Cer- business an application for a 504 loan.
tified Public Accountants (AICPA). An example of other services a CDC
The auditor must be independent, as may provide is assisting a small busi-
defined by the AICPA, of the CDC. An- ness in applying for a 7(a) loan (as de-
nually, the auditor must issue an opin- scribed in § 120.2). A CDC is subject to
ion as to the fairness of the CDC’s fi- part 103 of this chapter when providing
nancial statements and their compli- such assistance.
ance with GAAP. For CDCs with a 504 [68 FR 57981, Oct. 7, 2003]
portfolio balance of less than $30 mil-
lion (as calculated by SBA), the CDC’s § 120.828 Minimum level of 504 loan ac-
annual financial statements submitted tivity and restrictions on portfolio
to SBA must be reviewed by an inde- concentrations.
pendent CPA in accordance with (a) A CDC is required to receive SBA
GAAP, except that the D/OCRM may approval of at least four 504 loan ap-
require a CDC with a portfolio balance provals during two consecutive fiscal
of less than $30 million to submit an years.
319
§ 120.829 13 CFR Ch. I (1–1–23 Edition)
(b) A CDC’s 504 loan portfolio must be (E) Auditor’s letter to management
diversified by business sector. on internal control weaknesses; and
[68 FR 57981, Oct. 7, 2003] (F) The auditor’s report; and
(ii) Reviewed financial statements
§ 120.829 Job Opportunity average a must, at a minimum, include the fol-
CDC must maintain. lowing:
(a) A CDC’s portfolio must maintain (A) Balance sheet;
a minimum average of one Job Oppor- (B) Statement of income (or receipts)
tunity per an amount of 504 loan fund- and expenses;
ing that will be specified by SBA from (C) Statement of source and applica-
time to time in a FEDERAL REGISTER tion of funds;
notice. Such Job Opportunity average (D) Such footnotes as are necessary
remains in effect until changed by sub- to an understanding of the financial
sequent FEDERAL REGISTER publica- statements;
tion. A CDC is permitted two years
(E) The accountant’s review report;
from its certification date to meet this
and
average.
(b) A CDC must indicate in its annual (2) Report on compensation: CDCs are
report the Job Opportunities actually required to provide detailed informa-
or estimated to be provided by each tion on total compensation (including
Project. salary, bonuses and expenses) paid
(c) If a CDC does not maintain the re- within the CDC’s most recent tax year
quired average, it may retain its cer- for current and former officers and di-
tification if it justifies to SBA’s satis- rectors, and for current and former em-
faction its failure to do so in its annual ployees and independent contractors
report and shows how it intends to at- with total compensation of more than
tain the required average. $100,000 during that period.
(3) Certification of members of the
FR 57981, Oct. 7, 2003] Board of Directors. Written annual cer-
tification by each Board member that
§ 120.830 Reports a CDC must submit. he or she has read and understands the
A CDC must submit the following re- requirements set forth in § 120.823.
ports to SBA: (4) Report on investment in economic
(a) An Annual Report within one development. Written report on invest-
hundred-eighty days after the end of ments in economic development in
the CDC’s fiscal year (to include Fed- each State in which the CDC has an
eral tax returns for that year). A CDC outstanding 504 loan.
that is certified by SBA within 6 (b) For each new associate and staff,
months of the CDC’s fiscal year-end is a Statement of Personal History (for
not required to submit an Annual Re- use by non-bank lenders and CDCs) and
port for that year. The Annual Report other information required by SBA;
must include, but is not limited to, the (c) Reports of involvement in any
following: legal proceeding;
(1) Audited or Reviewed Financial
(d) Changes in organizational status;
Statements as required in § 120.826(c)
(e) Changes in any condition that af-
and (d) for the CDC and any affiliates
or subsidiaries of the CDC. fects its eligibility to continue to par-
(i) Audited financial statements ticipate in the 504 program; and
must, at a minimum, include the fol- (f) Quarterly service reports on each
lowing: loan in its portfolio which is 60 days or
(A) Audited balance sheet; more past due (and interim reports
(B) Audited statement of income (or upon request by SBA).
receipts) and expenses; (g) Other reports as required by SBA.
(C) Audited statement of source and
application of funds; FR 57981, Oct. 7, 2003; 73 FR 75518, Dec. 11,
(D) Such footnotes as are necessary 2008; 79 FR 15650, Mar. 21, 2014]
to an understanding of the financial
statements;
320
EXTENDING A CDC’S AREA OF agement or staff contracts, and the

OPERATIONS timely submission of all annual re-
ports. In making its recommendation
§ 120.835 Application to expand an on the application, the District Office
Area of Operations. may consider any information pre-
(a) General. A CDC that has been cer- sented to it regarding the requesting
tified to participate in the 504 program CDC, the existing CDC, or CDCs that
may apply to expand its Area of Oper- may be affected by the application, and
ations if it meets all requirements to the proposed Area of Operations.
be an Accredited Lender Program (a) The SBA District office will sub-
(ALP) CDC, as set forth in § 120.840(c), mit the application, recommendation,
and demonstrates that it can com- and supporting materials within 60
petently fulfill its 504 program respon- days of the receipt of a complete appli-
sibilities in the proposed area. cation from the CDC to the D/FA, who
(b) Local Economic Area Expansion. A will make the final decision. The D/FA
CDC seeking to expand its Area of Op- may consider any information sub-
erations into a Local Economic Area mitted or available related to the ap-
must apply in writing to the Lead SBA plicant and the application.
Office. (b) SBA will notify the CDC of its de-
(c) Multi-State expansion. A CDC seek- cision in writing, and if the application
ing to become a Multi-State CDC must is denied, the reasons for its decision.
apply to the SBA District Office that (c) If a CDC is approved to operate as
services the area within each State a Multi-State CDC, the CDC’s ALP,
where the CDC intends to locate its PCLP, or Priority CDC authority will
principal office for that State. A CDC carry over into every additional State
may apply to be a Multi-State CDC in which it is approved to operate as a
only if the State the CDC seeks to ex- Multi-State CDC.
pand into is contiguous to the State of [65 FR 42633, July 11, 2000, as amended at 68
the CDC’s incorporation and either: FR 57981, Oct. 7, 2003]
(1) The CDC establishes a Loan Com-
mittee in the additional State con- § 120.839 Case-by-case application to
sisting only of members who live or make a 504 loan outside of a CDC’s
work in that State and that satisfies Area of Operations.
the other requirements in A CDC may apply to make a 504 loan
§ 120.823(d)(4)(ii)(A) through (D); or for a Project outside its Area of Oper-
(2) For any Project located in the ad- ations by submitting a request to the
ditional State, the CDC’s Board or 504 loan processing center. The appli-
Loan Committee (if established in the cant CDC must demonstrate that it can
CDC’s State of incorporation) includes adequately fulfill its 504 program re-
at least two members who live or work sponsibilities for the 504 loan, includ-
in that State when voting on that ing proper servicing. In addition, the
Project. These two members may vote CDC must have satisfactory SBA per-
only on Projects located in the addi- formance, as determined by SBA in its
tional State. discretion. The CDC’s Risk Rating,
[68 FR 57981, Oct. 7, 2003, as amended at 79 FR among other factors, will be considered
15650, Mar. 21, 2014; 84 FR 66295, Dec. 4, 2019] in determining satisfactory SBA per-
formance. Other factors may include,
§ 120.837 SBA decision on application but are not limited to, review/examina-
for a new CDC or for an existing tion assessments, historical perform-
CDC to expand Area of Operations. ance measures, loan volume to the ex-
The processing District Office must tent that it impacts performance meas-
solicit the comments of any other Dis- ures, and other performance related
trict Office in which the CDC operates measurements and information (such
or proposes to operate. The processing as contribution toward SBA mission).
District Office must determine that the The 504 loan processing center may ap-
CDC is in compliance with SBA’s regu- prove the application if:
lations, policies, and performance (a) The applicant CDC has previously
benchmarks, including pre-approval assisted the business or its affiliate(s)
and annual review by SBA of any man- to obtain a 504 loan; or
321
§ 120.840 13 CFR Ch. I (1–1–23 Edition)
(b) The existing CDC or CDCs serving tion, the ALP CDC may exercise its
the area agree to permit the applicant ALP authority in its entire Area of Op-
CDC to make the 504 loan; or erations. If an application or renewal is
(c) There is no CDC within the Area declined, SBA will notify the CDC of
of Operations. the reasons for the decision.
[68 FR 57982, Oct. 7, 2003, as amended at 73 FR [68 FR 57982, Oct. 7, 2003, as amended at 85 FR
75518, Dec. 11, 2008; 82 FR 39504, Aug. 21, 2017; 7651, Feb. 10, 2020; 85 FR 80588, Dec. 14, 2020;
84 FR 66296, Dec. 4, 2019] 87 FR 38909, June 30, 2022]
ACCREDITED LENDERS PROGRAM (ALP) § 120.841 Qualifications for the ALP.

§ 120.840 Accredited Lenders Program An applicant for ALP status must
(ALP). show that it substantially meets the
(a) General. Under the ALP program, following criteria:
SBA designates qualified CDCs as ALP (a) CDC staff experience. The CDC’s
CDCs, gives them increased authority staff must have well-trained, qualified
to process, close, and service 504 loans, loan officers who are knowledgeable
and provides expedited processing of concerning SBA’s lending policies and
loan approval and servicing actions. procedures for the 504 program. The
(b) Application. A CDC must apply for CDC must have at least one loan officer
ALP status by submitting an applica- with three years of 504 loan processing
tion in accordance with SBA’s Stand- experience and at least one loan officer
ard Operating Procedure 50 10, avail- with three years of 504 servicing experi-
able at http://www.sba.gov. A final deci- ence or two years experience plus satis-
sion will be made by the appropriate factory completion of SBA-approved
SBA official in accordance with Dele- processing and servicing training. The
gations of Authority. same loan officer may meet these
(c) Eligibility. In order for a CDC to be qualifications. In addition, the CDC’s
eligible to receive ALP status, its ap- staff must have demonstrated satisfac-
plication must show that it meets the torily to SBA the ability to process
criteria set forth in § 120.841. and service 504 loans.
(d) Additional application requirements. (b) Number of 504 loans approved and
The CDC’s application must include size of portfolio. SBA must have ap-
the following: proved at least 20 504 loan applications
(1) Certified copy of the CDC’s Board by the CDC in the most recent three
of Directors’ resolution authorizing the years, and the CDC must have a port-
application for ALP status. folio of at least 30 active 504 loans. (An
(2) Summary of the experience of ‘‘active’’ 504 loan is a loan that was ap-
each of the CDC’s loan processing, clos- proved and closed by the CDC and has
ing, and servicing staff members with a status of either current, delinquent,
significant authority. or in liquidation.)
(3) Name, address, and summary of (c) CDC reviews. CDC reviews con-
experience of Designated Attorney. ducted by SBA must be current (within
(4) Documentation of any SBA re- the last 24 months, if applicable) for
quired insurance. applicants for ALP status. The CDC
(5) Any other documentation re- must have received a review assess-
quired by SBA. ment of either ‘‘Acceptable’’ or ‘‘Ac-
(e) Term of ALP designation. SBA gen- ceptable With Corrective Actions Re-
erally will designate a CDC as an ALP quired.’’ In addition, the CDC must
CDC for a two-year period. SBA may have satisfactory SBA performance, as
renew the designation for additional determined by SBA in its discretion.
two-year periods if the CDC continues The CDC’s Risk Rating, among other
to meet the ALP program eligibility factors, will be considered in deter-
requirements. mining satisfactory SBA performance.
(f) SBA approval or decline decision. Other factors may include, but are not
SBA will notify the CDC in writing of limited to, review/examination assess-
an approval or decline of either an ALP ments, historical performance meas-

application or of an ALP renewal. If ures, loan volume to the extent that it
the SBA approves the CDC’s applica- impacts performance measures, and
322
other performance related measure- high rate of default in a notice in the

ments and information (such as con- FEDERAL REGISTER.
tribution toward SBA mission); (b) Requirements for the underwriting,
(d) Record of compliance with 504 pro- approving, closing, and servicing of ALP
gram requirements. The CDC must have Express Loans—(1) General. When under-
a record of conforming to SBA’s poli- writing, approving, closing, and serv-
cies and procedures and of satisfac- icing 504 loans under this section, the
torily underwriting, closing and serv- ALP CDC must comply with Loan Pro-
icing 504 loans. SBA will consider all gram Requirements and conduct such
relevant material information, which activities in accordance with prudent
will include but is not limited to and commercially reasonable lending
whether the CDC meets all SBA’s CDC standards.
portfolio benchmarks, when deter- (2) Documentation of decision making.
mining the CDC’s record of compliance, For each ALP Express Loan, the ALP
including: CDC must document in its files the
(1) Submission of satisfactory 504 basis for its decisions with respect to
loan analyses and applications, and all underwriting, approving, closing, and
required, and properly completed, loan servicing the loan.
documents.
(3) Processing requirements—(i) Eligi-
(2) Careful and thorough analysis and
bility. An ALP Express Loan is subject
screening of all 504 loan applications
to SBA’s final approval as to eligibility
for conformance with SBA credit and
and, for each loan, an ALP CDC must
eligibility standards;
(3) Proper completion of required 504 submit the documents required by SBA
loan closing documents and compliance to complete the eligibility review. ALP
with SBA 504 loan closing policies and CDCs must submit to SBA for review
procedures. and approval any servicing action that
(4) Compliance with SBA loan serv- the ALP CDC proposes prior to closing
icing policies and procedures. that may affect the eligibility of the
(5) Compliance with the certification borrower or the ALP Express Loan.
and operational requirements as set (ii) Credit decisions. The ALP CDC is
forth in §§ 120.820 through 120.830. responsible for properly determining
(6) Submission of timely, complete the applicant’s creditworthiness and
and acceptable annual reports. establishing the terms and conditions
(7) Compliance with CDC ethical re- under which the ALP Express Loan
quirements (see § 120.851). will be made in accordance with SBA’s
(e) Priority CDC. The CDC must be a Loan Program Requirements and pru-
Priority CDC with a Designated Attor- dent lending standards. The ALP CDC’s
ney and SBA required insurance. determination regarding creditworthi-
(f) Record of Cooperation. The CDC ness will not be subject to SBA review.
must have a record of effective commu- (4) Submission of loan documents. An
nication and a cooperative relationship ALP CDC must notify SBA of its credit
with all SBA offices including district decision on an ALP Express Loan by
offices and SBA’s loan processing and submitting to SBA all required docu-
servicing centers. mentation. SBA will review these docu-
[68 FR 57982, Oct. 7, 2003, as amended at 72 FR ments to determine whether the appli-
18364, Apr. 12, 2007; 73 FR 75519, Dec. 11, 2008; cant and the ALP Express Loan are eli-
82 FR 39504, Aug. 21, 2017] gible and whether SBA funds are avail-
able for the ALP Express Loan. If ap-
§ 120.842 ALP Express Loans. proved, SBA will notify the ALP CDC
(a) Definition. For the purposes of of the loan number assigned to the loan
this section, an ALP Express Loan: and provide the CDC with a signed copy
(1) Means a 504 loan in an amount of the Loan Authorization.
that is not more than $500,000; and (5) Loan and Debenture closing. After
(2) Does not include a loan made to a receiving notification of the loan num-
borrower that is in an industry that ber and a signed copy of the Loan Au-
has a high rate of default, as annually thorization from SBA, the ALP CDC is
determined by SBA. SBA will publish responsible for properly undertaking
an annual list of the industries with a all actions necessary to close the ALP
323
§ 120.845 13 CFR Ch. I (1–1–23 Edition)
Express Loan and Debenture in accord- (1) The CDC must be an ALP CDC in
ance with the expedited loan closing substantial compliance with Loan Pro-
procedures applicable to a Priority gram Requirements or meet the cri-
CDC and with § 120.960. teria to be an ALP CDC set forth in
(6) Servicing. The ALP CDC is respon- § 120.841(a) through (f).
sible for servicing its ALP Express (2) The CDC can adequately comply
Loans in accordance with § 120.970. SBA with SBA liquidation and litigation re-
may in certain circumstances, in its quirements.
discretion, elect to handle such duties (d) Additional application requirements.
with respect to a particular ALP Ex- The application must include the fol-
press Loan or Loans. Additional serv- lowing:
icing requirements are set forth in sub- (1) Certified copy of the CDC’s Board
part E of this part. The CDC must of Directors’ resolution authorizing the
promptly notify SBA when it approves application for PCLP status.
any servicing action delegated to the (2) Summary of the experience of
CDC under Loan Program Require- each of the CDC’s loan processing, clos-
ments. ing, servicing and liquidation staff
(c) Prohibition against making a 504 members with significant authority.
loan previously submitted to the SBA. An (3) Name, address and summary of ex-
ALP CDC may not process a 504 loan perience of Designated Attorney.
application under paragraph (b)(3) of (4) Documentation of any SBA re-
this section from an applicant whose quired insurance.
application was previously submitted (5) Any other documentation re-
to SBA and was withdrawn by the CDC quired by SBA.
or was declined or otherwise not ap- (e) Term of designation. If approved,
proved by SBA. SBA generally will confer PCLP status
(d) Applicability. The authority to for a period of two years. However, if
make ALP Express Loans is available SBA deems it appropriate, it may con-
for applications submitted to the ALP fer PCLP status for a period of less
CDC on or after June 27, 2022 and ap- than two years.
proved through September 30, 2023. (f) Area of Operations for PCLP CDCs.
If the SBA approves the CDC’s applica-
[87 FR 37982, June 27, 2022]
tion, the PCLP CDC may exercise its
PREMIER CERTIFIED LENDERS PROGRAM PCLP authority in its entire Area of
Operations.
§ 120.845 Premier Certified Lenders (g) SBA approval or decline decision.
Program (PCLP). SBA will notify the CDC in writing of
(a) General. Under the PCLP, SBA an approval or decline of a PCLP appli-
designates qualified CDCs as PCLP cation. If an application is declined,
CDCs and delegates to them increased SBA will notify the CDC of the reasons
authority to process, close, service, and for the decision.
liquidate 504 loans. SBA also may give [68 FR 57982, Oct. 7, 2003, as amended at 72 FR
PCLP CDCs increased authority to liti- 18364, Apr. 12, 2007; 73 FR 75519, Dec. 11, 2008;
gate 504 loans. 87 FR 38909, June 30, 2022]
(b) Application. A CDC must apply for
PCLP status to the Lead SBA Office. § 120.846 Requirements for maintain-
The Lead SBA Office will send its writing and renewing PCLP status.
ten recommendation and the applica- (a) To maintain its status as a PCLP
tion to SBA’s PCLP Loan Processing CDC, a CDC must continue to:
Center. The PCLP Loan Processing (1) Meet the PCLP eligibility require-
Center will review these materials and ments in § 120.845.
forward them to the appropriate Office (2) Timely conform with all require-
of Capital Access official in accordance ments and deadlines set forth in SBA’s
with Delegations of Authority for final regulations and policy and procedural
determination. guidance concerning properly estab-
(c) Eligibility. In order for a CDC to be lishing, funding and reporting a PCLP
eligible to receive PCLP status, its ap- Loan Loss Reserve Fund (LLRF).
plication must show that it meets the (3) Substantially comply with all
following criteria: Loan Program Requirements.
324
(4) Remain an active CDC. tion costs; and care of collateral, ap-
(5) In accordance with statutory re- praisal and other liquidation costs and
quirements set forth in section 508(i) of expenses) sustained by SBA as a result
Title V, 15 U.S.C. 697e(i), establish a of a default in the payment of principal
goal of processing at least 50 percent of or interest on a PCLP Debenture. For
its 504 loans using PCLP procedures. each PCLP Debenture a PCLP CDC
(b) SBA will notify the PCLP CDC in issues, it must establish and maintain
writing of a renewal or non-renewal of an LLRF equal to one percent of the
PCLP status. If PCLP status is not re- original principal amount of the PCLP
newed, SBA will notify the CDC of the Debenture. The amount the PCLP CDC
reasons for the decision. must maintain in the LLRF for each
[68 FR 57983, Oct. 7, 2003, as amended at 72 FR PCLP Debenture remains the same
18364, Apr. 12, 2007] even as the principal balance of the
PCLP Debenture is paid down over
§ 120.847 Requirements for the Loan time except that, after the first 10
Loss Reserve Fund (LLRF).
years of the term of the Debenture, the
(a) General. PCLP CDCs must estab- amount maintained in the LLRF may
lish and maintain a LLRF (or multiple be based on one percent of the current
accounts which together constitute one principal amount of the PCLP Deben-
LLRF) which complies with paragraphs ture (the declining balance method-
(b) through (g) of this section. A PCLP ology), as determined by SBA. All
CDC must use the LLRF or other funds withdrawals must be made in accord-
to reimburse the SBA for 10 percent of ance with the requirements of para-
any loss sustained by SBA as a result graph (g) of this section. A CDC may
of a default in the payment of principal not use the declining balance method-
or interest on a Debenture it issued ology:
under the PCLP (‘‘PCLP Debenture’’).
(1) With respect to any Debenture
A CDC that is participating in the
that has been purchased. Within 30
PCLP as of January 1, 2004, and a CDC
days after purchase, the CDC must re-
that has participated in the PCLP in
store the balance maintained in the
the past but which does not have PCLP
LLRF for the Debenture that was pur-
status as of that date, must establish a
chased to one percent of the original
LLRF within 30 days of that date to
principal amount of that Debenture; or
cover potential losses for all 504 loans
made in connection with PCLP Deben- (2) With respect to any other Deben-
tures that remain outstanding as of ture if SBA notifies the CDC in writing
that date. A CDC that receives PCLP that it has failed to satisfy the require-
status after that date must establish ments in paragraph (e), (f), (h), (i), or
and maintain a LLRF prior to closing (j) of this section. In such case, the
any 504 loans processed under its PCLP CDC will not be required to restore the
status. The LLRF is the accumulation balance maintained in the LLRF to one
of deposits that a PCLP CDC must es- percent of the original principal
tablish and maintain for each PCLP amount of the Debenture but must
Debenture that it issues. PCLP CDCs base the amount maintained in the
must coordinate with their Lead SBA LLRF on one percent of the principal
Office to ensure that the LLRF is prop- amount of the Debenture as of the date
erly established, that all necessary of notification. The CDC may not begin
documentation is executed and deliv- to use the declining balance method-
ered by all parties in a timely fashion, ology again until SBA notifies the CDC
and that all required deposits are in writing that SBA has determined, in
made. its discretion, that the CDC has cor-
(b) PCLP CDC Exposure and LLRF de- rected the noncompliance and has dem-
posit requirements. A PCLP CDC’s ‘‘Ex- onstrated its ability to comply with
posure’’ is defined as its reimburse- these requirements.
ment obligation to SBA with respect to (c) Establishing a LLRF. The LLRF
default in the payment of any PCLP must be a deposit account (or ac-
Debenture. The amount of a PCLP counts) with a federally insured deposi-

CDC’s Exposure is 10 percent of any tory institution selected by the PCLP
loss (including attorney’s fees; litiga- CDC. A ‘‘deposit account’’ is a demand,
325
§ 120.847 13 CFR Ch. I (1–1–23 Edition)
time, savings, or passbook account, in- each PCLP Debenture in accordance

cluding a certificate of deposit (CD) with the following schedule:
which is either uncertificated or, if cer- (1) At least 50 percent of the required
tificated, non-transferable. A ‘‘deposit deposits to the LLRF on or about the
account’’ is not an investment account date that it issues the PCLP Deben-
and must not contain securities or ture.
other investment properties. A deposit (2) At least an additional 25 percent
account may contain only cash and of the required deposits to the LLRF
CDs credited to that account. A PCLP no later than one year after it issues
CDC may pool its deposits for multiple the PCLP Debenture.
PCLP Debentures in a single account (3) Any remainder of the required de-
in one institution. The LLRF must be posits to the LLRF no later than two
segregated from the PCLP CDC’s other years after it issues the PCLP Deben-
operating accounts. The PCLP CDC is ture.
responsible for all fees, costs and ex- (f) LLRF reporting requirements. Each
penses incurred in connection with es- PCLP CDC must periodically report to
tablishing, managing and maintaining SBA the amount in the LLRF in a form
the LLRF, including fees associated that will readily facilitate reconcili-
with transferring funds or early with- ation of the amount maintained in the
drawal of CDs, and related income tax LLRF with the amount required to
expenses. meet a PCLP CDC’s Exposure for its
(d) Creating and perfecting a security entire portfolio of PCLP Debentures.
interest in a LLRF. A PCLP CDC must (g) Withdrawal of excess funds. Inter-
give SBA a first priority, perfected se- est and other funds in the LLRF that
curity interest in the LLRF to secure exceed the required minimums as set
the PCLP CDC’s obligation to reim- forth in paragraph (b) of this section,
burse SBA for the PCLP CDC’s Expo- within the time frames set forth in
sure under all of its outstanding PCLP paragraph (e) of this section, accrue to
Debentures. (If a PCLP CDC’s LLRF is the benefit of the PCLP CDC. PCLP
comprised of multiple deposit ac- CDCs are authorized to withdraw ex-
counts, it must give SBA this security cess funds, including interest, from the
interest with respect to each such ac- LLRF if such funds exceed the required
count.) The PCLP CDC must grant to minimums set forth in paragraph (b) of
SBA the security interest in the LLRF this section. The PCLP CDC must for-
pursuant to a security agreement be- ward requests for withdrawals to the
tween the PCLP CDC and SBA, and a Lead SBA Office, which will verify the
control agreement between the PCLP existence and amount of excess funds
CDC, SBA, and the applicable deposi- and notify the financial institution to
tory institution. The control agree- transfer the excess funds to the PCLP
ment must include provisions requiring CDC.
the depository institution to follow (h) Determining SBA loss. When a
SBA instructions regarding withdrawal PCLP CDC has concluded the liquida-
from the account without a require- tion of a defaulted 504 loan made with
ment for obtaining further consent the proceeds of a PCLP Debenture and
from the PCLP CDC, and must restrict has submitted a liquidation wrap-up re-
the PCLP CDC’s ability to make with- port to SBA, or when SBA otherwise
drawals from the account without SBA determines that the PCLP CDC has ex-
consent. When establishing the LLRF, hausted all reasonable collection ef-
a PCLP CDC must coordinate with its forts with respect to that 504 loan, SBA
Lead SBA Office to execute and deliver will determine the amount of the loss
the required documentation. The PCLP to SBA. SBA will notify the PCLP CDC
CDC must provide to the Lead SBA Of- of the amount of its reimbursement ob-
fice a fully executed original of the se- ligation to SBA (if any) and will ex-
curity and control agreements. All doc- plain how SBA calculated the loss.
uments must be satisfactory to SBA in (1) If the PCLP CDC agrees with
both form and substance. SBA’s calculations of the loss, it must
(e) Schedule for contributions to a reimburse SBA for ten percent of the
LLRF. The PCLP CDC must contribute amount of that loss no later than 30
to the LLRF the required deposits for days after SBA’s notification to the
326
PCLP CDC of the CDC’s reimbursement § 120.848 Requirements for 504 loan
obligation. processing, closing, servicing, liqui-
(2) If the PCLP CDC disputes SBA’s dating, and litigating by PCLP
calculations, it must reimburse SBA CDCs.
for ten percent of any loss amount that (a) General. In processing closing,
is not in dispute no later than 30 days servicing, liquidating and litigating 504
after SBA’s notification to the PCLP loans under the PCLP (‘‘PCLP Loans’’),
CDC of the CDC’s reimbursement obli-
the PCLP CDC must comply with Loan
gation. No later than 30 days after
Program Requirements and conduct
SBA’s notification, the PCLP CDC may
submit to the D/FA or his or her dele- such activities in accordance with pru-
gate a written appeal of any disagree- dent and commercially reasonable
ment regarding the calculation of lending standards.
SBA’s loss. The PCLP CDC must in- (b) Documentation of decision making.
clude with that appeal an explanation For each PCLP Loan, the PCLP CDC
of its reasons for the disagreement. must document in its files the basis for
Upon the D/FA’s final decision as to its decisions with respect to loan proc-
the disputed amount of the loss, the essing, closing, servicing, liquidating,
PCLP CDC must promptly reimburse and litigating.
SBA for ten percent of that amount. (c) Processing requirements. SBA ex-
(i) Reimbursing SBA for loss. A PCLP pects PCLP CDCs to handle most 504
CDC may use funds in the LLRF or loan processing situations, although
other funds to reimburse SBA for the SBA may require that the PCLP CDC
PCLP CDC’s Exposure on a defaulted process 504 loans involving complex or
PCLP Debenture. If a PCLP CDC does problematic eligibility issues through
not satisfy the entire reimbursement the SBA using standard 504 loan proc-
obligation within 30 days after SBA’s essing procedures. The PCLP CDC is re-
notification to the PCLP CDC’s of its sponsible for properly determining bor-
reimbursement obligation, SBA may
rower creditworthiness and estab-
cause funds in the LLRF to be trans-
lishing the terms and conditions under
ferred to SBA in order to cover the
which the PCLP Loan will be made.
PCLP CDC’s Exposure, unless the
PCLP CDC has filed an appeal under The PCLP CDC also is responsible for
paragraph (h)(2) of this section. If the properly undertaking such other proc-
PCLP CDC has filed such an appeal, essing actions as SBA may delegate to
SBA may cause such a transfer of funds the PCLP CDC.
to SBA 30 days after the D/FA’s or his (d) Submission of loan documents. A
or her delegate’s decision. If the LLRF PCLP CDC must notify SBA of its ap-
does not contain sufficient funds to re- proval of a 504 loan by submitting to
imburse SBA for any unpaid Exposure SBA’s PCLP Loan Processing Center
with respect to any PCLP Debenture, all documentation required by SBA, in-
the PCLP CDC must pay SBA the dif- cluding SBA’s PCLP eligibility check-
ference within 30 days after demand for list, signed by an authorized represent-
payment by SBA. ative of the PCLP CDC. The PCLP
(j) Insufficient funding of LLRF. A Loan Processing Center will review
PCLP CDC must diligently monitor the these documents to determine whether
LLRF to ensure that it contains suffi- the PCLP CDC has identified any prob-
cient funds to cover its Exposure for its lems with the PCLP Loan approval,
entire portfolio of PCLP Debentures. and whether SBA funds are available
If, at any time, the LLRF does not con- for the PCLP Loan. If appropriate, the
tain sufficient funds, the PCLP CDC PCLP Processing Center will notify the
must, within 30 days of the earlier of PCLP CDC of the loan number assigned
the date it becomes aware of this defi- to the loan.
ciency or the date it receives notifica- (e) Loan and Debenture closing. After
tion from SBA of this deficiency, make receiving notification from SBA PCLP
additional contributions to the LLRF Loan Processing Center, the PCLP CDC
to make up this difference. is responsible for properly undertaking

[68 FR 57983, Oct. 7, 2003, as amended at 84 FR all actions necessary to close the PCLP
66296, Dec. 4, 2019] Loan and Debenture in accordance
327
§ 120.851 13 CFR Ch. I (1–1–23 Edition)
with the expedited loan closing proce- nate audits pursuant to the Inspector
dures applicable to a Priority CDC and General Act. The CDC must cooperate
with § 120.960. and make its staff, records, and facili-
(f) Servicing, liquidation and litigation ties available.
responsibilities. The PCLP CDC gen-
erally must service, liquidate and liti-
75519, Dec. 11, 2008]
gate its entire portfolio of PCLP
Loans, although SBA may in certain § 120.857 Voluntary transfer and sur-
circumstances elect to handle such du- render of CDC certification.
ties with respect to a particular PCLP
Loan or Loans. Additional servicing A CDC may not transfer its certifi-
and liquidation requirements are set cation or withdraw from the 504 pro-
forth in subpart E of this part. gram without SBA’s consent. The CDC
(g) Making a 504 loan previously con- must provide a plan to SBA to transfer
sidered by another CDC. A PCLP CDC its portfolio. The portfolio may only be
also may utilize its PCLP status to transferred with SBA’s written con-
process a 504 loan application from an sent. If a CDC desires to withdraw from
applicant whose application was de- the 504 program, it must forfeit its
clined or rejected by another CDC oper- portfolio to SBA. SBA may conduct an
ating in that same Area of Operations, audit of the transferring or with-
if the applicant is located within that drawing CDC.
area and as long as SBA has not pre- [61 FR 3235, Jan. 31, 1996. Redesignated at 68
viously declined that applicant’s 504 FR 57987, Oct. 7, 2003]
loan application. This may include the
processing of a 504 loan application PROJECT ECONOMIC DEVELOPMENT
from an applicant that has withdrawn GOALS
its application from another CDC.
§ 120.860 Required objectives.
18364, Apr. 12, 2007] A Project must achieve at least one
of the economic development objec-
OTHER CDC REQUIREMENTS tives set forth in § 120.861 or § 120.862.
§ 120.851 CDC ethical requirements. § 120.861 Job creation or retention.
CDCs and their Associates must act A Project must create or retain one
ethically and exhibit good character. Job Opportunity per an amount of 504
They must meet all of the ethical re- loan funding that will be specified by
quirements of § 120.140. In addition, SBA from time to time in a FEDERAL
they are subject to the following: REGISTER notice. Such Job Opportunity
(a) Any benefit flowing to a CDC’s average remains in effect until changed
Associate or his or her employer from by subsequent FEDERAL REGISTER pub-
activities as an Associate must be lication.
merely incidental (this requirement
does not prevent an Associate or an As- [68 FR 57987, Oct. 7, 2003]
sociate’s employer from providing in-
terim financing as described in § 120.890 § 120.862 Other economic development
or Third Party Loans as described in objectives.
§ 120.920, as long as such activity does A Project that achieves any of the
not violate § 120.140); and following community development or
(b) A CDC’s Associate may not be an public policy goals is eligible if the
officer, director, or manager of more CDC’s overall portfolio of 504 loans, in-
than one CDC. cluding the subject loan, meets or ex-
[68 FR 57984, Oct. 7, 2003]
ceeds the CDC’s required Job Oppor-
tunity average. Loan applications must
§ 120.852 [Reserved] indicate how the Project will meet the
specified economic development objec-
§ 120.853 Inspector General audits of tive.
CDCs. (a) Community Development goals:

The SBA Office of Inspector General (1) Improving, diversifying or stabi-
may also conduct, supervise or coordi- lizing the economy of the locality;
328
(2) Stimulating other business devel- energy for individual buildings’ or

opment; communities’ consumption, commonly
(3) Bringing new income into the known as micropower, or renewable
community; fuels producers including biodiesel and
(4) Assisting manufacturing firms ethanol producers.
(North American Industry Classifica-
tion System (NAICS), Sectors 31 ‘‘ 33); [61 FR 3235, Jan. 31, 1996, as amended at 64
or FR 2118, Jan. 13, 1999; 68 FR 57987, Oct. 7, 2003;
76 FR 63547, Oct. 12, 2011; 87 FR 38909, June 30,
(5) Assisting businesses in Labor Sur-
2022]
plus Areas as defined by the Depart-
ment of Labor. LEASING POLICIES SPECIFIC TO 504
(b) Public Policy goals: LOANS
(1) Revitalizing a business district of
a community with a written revitaliza- § 120.870 Leasing Project Property.
tion or redevelopment plan;
(2) Expansion of exports; (a) A Borrower may use the proceeds
(3) Expansion of small businesses of a 504 loan to acquire, construct, or
owned and controlled by women as de- modify buildings and improvements,
fined in section 29(a)(3) of the Act, 15 and/or to purchase and install machin-
U.S.C. 656(a)(3); ery and equipment located on land
(4) Expansion of small businesses leased to the Borrower by an unrelated
owned and controlled by veterans (es- lessor if:
pecially service-disabled veterans) as (1) The remaining term of the lease,
defined in section 3(q) of the Act, 15 including options to renew, exercisable
U.S.C. 632(q); only by the lessee, equals or exceeds
(5) Expansion of minority enterprise the term of the Debenture;
development (see § 124.103(b) of this (2) The Borrower assigns its interest
chapter for minority groups who qual- in the lease to the CDC with right of
ify for this description); reassignment to SBA; and
(6) Aiding rural development;
(3) The 504 loan is secured by a re-
(7) Increasing productivity and com-
corded lien against the leasehold estate
petitiveness (retooling, robotics, mod-
ernization, competition with imports); and other collateral as necessary.
(8) Modernizing or upgrading facili- (b) If the Project is for new construc-
ties to meet health, safety, and envi- tion, the Borrower may lease long term
ronmental requirements; up to 20 percent of the Rentable Prop-
(9) Assisting businesses in or moving erty in the Project to one or more ten-
to areas affected by Federal budget re- ants if the Borrower immediately occu-
ductions, including base closings, ei- pies at least 60 percent of the Rentable
ther because of the loss of Federal con- Property, plans to occupy within three
tracts or the reduction in revenues in years some of the remaining space not
the area due to a decreased Federal immediately occupied and not leased
presence; long term, and plans to occupy all of
(10) Reduction of rates of unemploy- the remaining space not leased long
ment in labor surplus areas, as such term within ten years.
areas are determined by the Secretary
of Labor; [61 FR 3235, Jan. 31, 1996, as amended at 64
FR 2118, Jan. 13, 1999; 68 FR 57987, Oct. 7,
(11) Reduction of energy consumption
2003]
by at least 10 percent;
(12) Increased use of sustainable de- § 120.871 Leasing part of Project Prop-
sign, including designs that reduce the erty to another business.
use of greenhouse gas emitting fossil
fuels, or low-impact design to produce (a) The costs of interior finishing of
buildings that reduce the use of non-re- space to be leased out to another busi-
newable resources and minimize envi- ness are not eligible Project costs.
ronmental impact; or (b) Third-party loan proceeds used to
(13) Plant, equipment and process up- renovate the leased space do not count
grades of renewable energy sources towards the 504 first mortgage require-
such as the small-scale production of ment or the Borrower’s contribution.
329
§ 120.880 13 CFR Ch. I (1–1–23 Edition)
LOAN-MAKING POLICIES SPECIFIC TO 504 Project, prior to applying to SBA for

LOANS the 504 loan;
(b) In Projects involving construc-
§ 120.880 Basic eligibility require- tion, a contingency reserve for cost
ments. overruns not to exceed 10 percent of
In addition to the eligibility require- construction cost;
ments specified in subpart A, to be an (c) Professional fees directly attrib-
eligible Borrower for a 504 loan, a small utable and essential to the Project,
business must: such as title insurance, opinion of title,
(a) Use the Project Property (except architectural and engineering costs,
that an Eligible Passive Company may appraisals, environmental studies, and
lease to an Operating Company); and legal fees related to zoning, permits, or
(b) Together with its Affiliates, meet platting; and
one of the size standards set forth in (d) Repayment of interim financing
§ 121.301(b) of this chapter. including points, fees and interest.
[61 FR 3235, Jan. 31, 1996, as amended at 68 (e) If the project involves expansion
FR 57987, Oct. 7, 2003] of a small business concern, any
amount of existing indebtedness that
§ 120.881 Ineligible Projects for 504 does not exceed 100 percent of the
loans. project cost of the expansion may be
In addition to the ineligible busi- refinanced and added to the expansion
nesses and uses of proceeds specified in cost if:
subpart A of this part, the following (1) Substantially all (85% or more) of
Projects are ineligible for 504 financ- the proceeds of the indebtedness were
ing: used to acquire land, including a build-
(a) Relocation of any of the oper- ing situated thereon, to construct a
ations of a small business which will building thereon, or to purchase equip-
cause a net reduction of one-third or ment. The assets acquired must be eli-
more in the workforce of a relocating gible for financing under the 504 loan
small business or a substantial in- program. If the acquisition, construc-
crease in unemployment in any area of tion or purchase of the asset was origi-
the country, unless the CDC can justify nally financed through a commercial
the loan because: loan that would have satisfied the
(1) The relocation is for key eco- ‘‘substantially all’’ requirement and
nomic reasons and crucial to the con- that was subsequently refinanced one
tinued existence, economic wellbeing, or more times, with the current com-
and/or competitiveness of the appli- mercial loan being the most recent re-
cant; and financing, the current commercial loan
(2) The economic development bene- will be deemed to satisfy this para-
fits to the applicant and the receiving graph (e)(1).
community outweigh the negative im- (2) The existing indebtedness is
pact on the community from which the collateralized by fixed assets. The 504
applicant is moving; and eligible fixed assets collateralizing any
(b) Projects in foreign countries debt to be refinanced or relating to the
(loans financing real or personal prop- portion of debt being refinanced in the
erty located outside the United States case of a partial refinance must also
or its possessions). collateralize the 504 Loan unless SBA
approves a waiver due to extraordinary
§ 120.882 Eligible Project costs for 504 circumstances. PCLP CDCs may not
loans. use their delegated authority to ap-
Eligible Project costs which may be prove a loan requiring this waiver;
paid with the proceeds of 504 loans are: (3) The existing indebtedness was in-
(a) Costs directly attributable to the curred for the benefit of the small busi-
Project including expenditures in- ness concern for which any new Project
curred by the Borrower (with its own costs are incurred. Existing 7(a) and 504
funds or from a loan) to acquire land loans may be refinanced under this sec-
used in the Project, or for any other tion in accordance with SBA policies or
expense directly attributable to the procedures;
330
(4) The financing will be used only for tion, construction or improvement of
refinancing existing indebtedness or land, building or equipment for use by
costs relating to the project financed; the small business concern.
(5) The financing will provide a sub- (g) SBA may approve a Refinancing
stantial benefit to the borrower when Project of a qualified debt subject to
prepayment penalties, financing fees, the following conditions and require-
and other financing costs are ac- ments:
counted for. For purposes of this para- (1) The Refinancing Project does not
graph, ‘‘substantial benefit’’ means involve the expansion of a small busi-
that the portion of the new installment ness;
amount attributable to the debt being (2) The applicant for the refinancing
refinanced must be at least 10 percent available under this paragraph (g) has
less than the existing installment been in operation for all of the 2 year
amount(s). Prepayment penalties, fi- period ending on the date of applica-
nancing fees, and other financing costs tion;
must also be added to the amount (3) A loan that is subject to a guar-
being refinanced in calculating the per- antee by a Federal agency or depart-
centage reduction in the new installment may be refinanced under the fol-
ment payment. Exceptions to the 10% lowing conditions and requirements:
reduction requirement may be ap- (i) An existing 504 loan may be refi-
proved by the D/FA or designee for nanced if both the Third Party Loan
good cause. PCLP CDCs may not use and the 504 Loan are being refinanced
their delegated authority to approve a or the Third Party Loan has been paid
loan requiring this exception; in full.
(6) The borrower has been current on (ii) An existing 7(a) loan may be refi-
all payments due on the existing debt nanced if the CDC verifies in writing
for not less than 1 year preceding the that the present lender is either un-
date of refinancing. For purposes of willing or unable to modify the current
this section, ‘‘date of refinancing’’ repayment schedule. In the case of same
fers to the date the 504 loan is approved institution debt, if the Third Party
by SBA. Any unremedied delinquency Lender or the CDC affiliate as author-
after approval must be reported to SBA ized under § 120.820 is the 7(a) lender,
as an adverse change; the loan will be eligible for 504 refi-
(7) The financing under section 504 nancing only if the lender is unable to
will provide better terms or rate of in- modify the terms of the existing loan
terest than the existing indebtedness because a secondary market investor
on the date of refinancing. For pur- will not agree to modified terms.
poses of this paragraph, ‘‘better terms (iii) The refinancing will provide a
or rate of interest’’ may include longer substantial benefit to the borrower.
maturity (but always commensurate For purposes of this paragraph
with the assets’ useful life), a lower in- (g)(3)(iii), ‘‘substantial benefit’’ means
terest rate committed on the Third that the portion of the new installment
Party Lender Loan or projected on the amount attributable to the debt being
504 loan, improved collateral condi- refinanced must be at least 10 percent
tions, or less restrictive loan cov- less than the existing installment
enants. amount(s). Prepayment penalties, fi-
(8) The authority to approve the refinancing fees, and other financing costs
nancing of same institution debt must must be added to the amount being re-
be approved by SBA and is not dele- financed in calculating the percentage
gated to the PCLP CDCs. For the pur- reduction in the new installment pay-
poses of this paragraph, ‘‘same institu- ment, but the portion of the new in-
tion debt’’ means any debt of the CDC stallment amount attributable to Eli-
or the Third Party Lender financing gible Business Expenses (as described
the new project, or of affiliates of ei- in paragraph (g)(6)(ii) of this section) is
ther. not included in this calculation. Excep-
(f) For the purposes of paragraph (e), tions to the 10 percent reduction re-
the phrase ‘‘project involves expansion quirement may be approved by the Di-
of a small business concern’’ includes rector, Office of Financial Assistance
any project that involves the acquisi- (D/FA) or designee for good cause.
331
§ 120.882 13 CFR Ch. I (1–1–23 Edition)
PCLP CDCs may not use their dele- application includes a request to fi-
gated authority to approve a loan re- nance the Eligible Business Expenses
quiring the exception in this paragraph described in paragraph (g)(6)(ii) of this
(g)(3)(iii). section, the portion of the Refinancing
(4) In addition to the annual guar- Project provided by the 504 loan and
antee fee assessed under § 120.971(d)(2), the Third Party Loan may be no more
Borrower must pay SBA a supple- than 85% of the fair market value of
mental annual guarantee fee to cover the fixed assets that will serve as col-
the additional cost attributable to the lateral and the Borrower may receive
refinancing in an amount established no more than 20% of the fair market
by SBA each fiscal year. value of the Eligible Fixed Asset(s) se-
(5) The funding for the Refinancing curing the Qualified Debt for Eligible
Project must come from three sources Business Expenses;
based on the current fair market value (ii) The Borrower’s application may
of the fixed assets serving as collateral include a request to finance eligible
for the Refinancing Project, including business expenses as part of the Refi-
a Third Party Loan that is at least as nancing Project if the amount of cash
much as the 504 loan, not less than 10% funds that will be provided for the Refi-
from the Borrower (excluding adminis-
nancing Project exceeds the amount to
trative costs), and not more than 40%
be paid to the lender of the Qualified
from the 504 loan. If the Refinancing
Debt. The Borrower’s application must
Project involves a limited or single
include a specific description of the
purpose building or structure, the Bor-
business expenses for which the financ-
rower must contribute not less than
15% (excluding administrative costs), ing is requested and an itemization of
unless SBA determines, in its discre- the amount of each expense. For the
tion, and publishes a notice in the FED- purposes of this paragraph (g), ‘‘Eligi-
ERAL REGISTER, that due to an eco- ble Business Expenses’’ are limited to
nomic recession, as determined by the the operating expenses of the business
National Bureau of Economic Research that were incurred but not paid prior
or its equivalent, Borrowers may con- to the date of application or that will
tribute not less than 10% for Refi- become due for payment within 18
nancing Projects involving a limited or months after the date of application.
single purpose property during the re- These expenses may include salaries,
cession. The lower required contribu- rent, utilities, inventory, and other ex-
tion by the Borrower will be in effect penses of the business that are not cap-
until the first day of the calendar quar- ital expenditures. Debt is not included
ter following the end of the economic as an Eligible Business Expense, except
recession as determined by the Na- debt that was incurred with a credit
tional Bureau of Economic Research or card or a business line of credit may be
its equivalent. SBA will publish a no- included if the credit card or business
tice in the FEDERAL REGISTER announc- line of credit is issued in the name of
ing the date on which the requirement the small business and the Applicant
of the lower Borrower contribution certifies that the debt being refinanced
ended. In addition to a cash contribu- was incurred exclusively for business
tion, the Borrower’s contribution may related purposes. Loan proceeds must
be satisfied as set forth in § 120.910 or not be used to refinance any personal
by the equity in any other fixed assets expenses. Both the CDC and the Bor-
that are acceptable to SBA as collat- rower must certify in the application
eral for the Refinancing Project, pro- that the funds will be used to cover Eli-
vided that there is an independent ap- gible Business Expenses. Borrower
praisal of the fair market value of the must, upon request, substantiate the
asset; use of the funds provided for business
(6)(i) The portion of the Refinancing expenses through, for example, bank
Project provided by the 504 loan and statements, invoices marked ‘‘paid,’’
the Third Party Loan may be no more cleared checks, or any other documents
than 90% of the fair market value of that demonstrate that a business obli-
the fixed assets that will serve as col- gation was satisfied with the funds pro-
lateral, except that if the Borrower’s vided.
332
(7) If the qualified debt is not fully rector, Office of Financial Assistance,
satisfied by the funding provided by or his or her designee, may approve a
the Refinancing Project, the lender of request for extension of the disburse-
the qualified debt must take one of the ment period for an additional 6 months
following actions, or some combination for good cause.
thereof, to address the deficiency: (13) The Third Party Loan may not
(i) Forgiveness of all or part of the be sold on the secondary market as a
deficiency; part of a pool guaranteed under sub-
(ii) Acceptance of payment by the part J of this part, or any successor to
Borrower, or this program, when the debt being refi-
(iii) Acceptance of a Note executed nanced is same institution debt;
by the Borrower for the balance, or any (14) The Third Party Lender must
portion of the balance. Such Note must certify that it would not refinance the
be subordinate to the 504 loan if the qualified debt except for the assistance
Note and the 504 loan are secured by provided under this paragraph (g);
any of the same collateral. The Note is (15) Notwithstanding § 120.860, a debt
subject to any other restrictions that may be refinanced under this para-
SBA may establish to protect its cred- graph (g) if it does not meet the job
itor position, including standby recreation or other economic develop-
quirements; ment objectives set forth in § 120.861 or
(8) The Third Party Lender must § 120.862. In such case, the 504 loan may
have a first lien position, and the 504 not exceed the product obtained by
loan must have a second lien position, multiplying the number of employees
on all Eligible Fixed Assets securing of the Borrower by $75,000. The number
the Refinancing Project. Any other of employees of the Borrower is equal
lien must be junior in priority to these to the sum of:
lien positions. For other fixed assets (i) The number of full-time employ-
serving as collateral for the Refi- ees of the Borrower on the date of the
nancing Project, the lien positions of application; and
the Third Party Lender and the 504 (ii) The product obtained by multi-
loan may be junior to any existing plying:
liens acceptable to SBA; (A) The number of part-time employ-
(9) Eligible Project costs which may ees of the Borrower on the date of the
be paid with the proceeds of the 504 application; by
loan are the amount used to refinance (B) The quotient obtained by dividing
the qualified debt and other costs the average number of hours each part-
under § 120.882(c) and (d) and eligible time employee of the Borrower works
administrative costs under § 120.883; each week by 40.
(10) A CDC must limit the amount of Example to paragraph (g)(15): 30 full-
its loans under this paragraph (g) so time employees and 35 part-time em-
that, during any Federal fiscal year, ployees working 20 hours per week is
the amount of the new loans approved calculated as follows: 30 + (35 × (20/40))
under this paragraph (g) does not ex- = 47.5. The maximum amount of the 504
ceed 50% of the total dollar amount of loan would be 47.5 multiplied by $75,000,
the CDC’s 504 loans approved (including or $3,562,500.
the loans approved under this para- (16) For the purposes of this para-
graph (g)) during the previous fiscal graph (g), the terms below are defined
year. This limitation may be waived as follows:
upon application by the CDC and upon Date of application refers to the date
a determination by SBA that the 504 the 504 loan application is received by
loan is needed for good cause. SBA.
(11) PCLP CDCs may not approve the Eligible Fixed Assets are one or more
refinancing of same institution debt long-term fixed assets, such as land,
under their delegated authority and buildings, machinery, and equipment,
must submit the application to SBA acquired, constructed or improved by a
for approval. small business for use in its business
(12) The 504 loans approved under this operations.

paragraph (g) must be disbursed within Fair market value refers to the cur-
9 months after loan approval. The Di- rent appraised value of an asset that is
333
§ 120.883 13 CFR Ch. I (1–1–23 Edition)
established by an independent ap- § 120.883 Eligible administrative costs

praiser in accordance with the stand- for 504 loans.
ards established by SBA in its SOPs. The following administrative costs
Qualified debt is a commercial loan: are not part of Project costs, but may
(A) That was incurred not less than 6 be paid with the proceeds of the 504
months before the date of the applica- loan and the Debenture (see § 120.971):
tion for refinancing available under (a) SBA guarantee fee;
this paragraph (g). (b) Funding fee (to cover the cost of
(B) Substantially all (85% or more) of a public issuance of securities and the
which was for an Eligible Fixed Asset. Trustee);
If the Eligible Fixed Asset was origi- (c) CDC processing fee;
nally financed through a commercial (d) Borrower’s out-of-pocket costs as-
loan that would have satisfied the sociated with 504 loan and Debenture
‘‘substantially all’’ standard (the closing other than legal fees (for exam-
‘‘original loan’’) and that was subse- ple, certifications and the copying
quently refinanced one or more times, costs associated with them, overnight
with the current commercial loan delivery, postage, and messenger serv-
being the most recent refinancing, the ices) but not to include fees and costs
current commercial loan will be described in § 120.882;
deemed to satisfy this paragraph (B). If (e) CDC Closing Fee (see
the original loan was for the construc- § 120.971(a)(2)) up to a maximum of
tion of a new building, or the acquisi- $2,500; and
tion, renovation, or reconstruction of (f) Underwriters’ fee.
an existing building, and such loan [64 FR 2118, Jan. 13, 1999, as amended at 68
would not have satisfied the leasing FR 57987, Oct. 7, 2003]
policies set forth in 120.131 and
120.870(b), the current commercial loan § 120.884 Ineligible costs for 504 loans.
will be deemed to satisfy these policies, Costs not directly attributable and
provided that Borrower demonstrates necessary for the Project may not be
compliance with 120.131(b) for existing paid with proceeds of the 504 loan.
buildings as of the date of application. These include, but are not limited to,
(C) That was for the benefit of the the following:
small business concern; (a) Debt refinancing (other than in-
(D) That is collateralized by Eligible terim financing), except as provided in
Fixed Assets; and § 120.882(e) and (g).
(E) That is not a Third Party Loan (b) A CDC may not use 504 loan pro-
that is part of an existing 504 Project, ceeds to pay any creditor in a position
except as allowed under paragraph to sustain a loss causing a shift to SBA
(g)(3) of this section. of all or part of a potential loss from
Refinancing Project means the fair an existing debt.
market value of the Eligible Fixed (c) Third-Party Loan fees (commit-
Asset(s) securing the qualified debt and ment, broker, finders, origination,
any other fixed assets acceptable to processing fees of permanent financ-
SBA, except that if the Refinancing ing).
Project includes the financing of Eligi- (d) Ancillary business expenses, such
ble Business Expenses, SBA will not ac- as:
cept as collateral any fixed assets (1) Working capital;
other than the Eligible Fixed Asset(s) (2) Counseling or management serv-
securing the Qualified Debt. ices fees;
Same institution debt means any debt (3) Incorporation/organization costs;
of the CDC or the Third Party Lender, (4) Franchise fees; and
or an affiliate of either, that is pro- (5) Advertising.
viding funds for the refinancing. (e) Fixed-asset Project components,
such as:
FR 57987, Oct. 7, 2003; 74 FR 29591, June 23,
(1) Short-term equipment, furniture,
2009; 76 FR 9218, Feb. 17, 2011; 76 FR 63155, and furnishings (unless essential to and
Oct. 12, 2011; 79 FR 15650, Mar. 21, 2014; 81 FR a minor portion of the Project);
33125, May 25, 2016; 83 FR 19920, May 7, 2018; (2) Automobiles, trucks, and air-
86 FR 40779, July 29, 2021] planes; and
334
(3) Construction equipment (except dition or its ability to repay the 504
for heavy duty construction equipment loan since the date of application, and
integral to the business’ operations must furnish interim financial state-
with a remaining useful life of a min- ments, current within 120 days of clos-
imum of 10 years). ing; and
[61 FR 3235, Jan. 31, 1996, as amended at 64 (c) The CDC must issue an opinion to
FR 2118, Jan. 13, 1999; 74 FR 29591, June 23, the best of its knowledge that there
2009; 76 FR 9219, Feb. 17, 2011; 82 FR 39504, has been no unremedied substantial ad-
Aug. 21, 2017] verse change in the Borrower’s (or Op-
erating Company’s) ability to repay
INTERIM FINANCING the 504 loan since its submission of the
loan application to SBA.
§ 120.890 Source of interim financing.
A Project may use interim financing [61 FR 3235, Jan. 31, 1996, as amended at 68
for all Project costs except the Bor- FR 57987, Oct. 7, 2003]
rower’s contribution. Any source (in-
PERMANENT FINANCING
cluding a CDC) may supply interim fi-
nancing provided: § 120.900 Sources of permanent financ-
(a) The financing is not derived from ing.
any SBA program, directly or indi-
rectly; Permanent financing for each Project
(b) The terms and conditions of the must come from three sources: the Bor-
financing are acceptable to SBA; rower’s contribution, Third-Party
(c) The source is not the Borrower or Loans, and the 504 loan. Typically, the
an Associate of the Borrower; and Borrower contributes 10 percent of the
(d) The source has the experience and permanent financing, Third-Party
qualifications to monitor properly all Loans 50 percent and the 504 loan 40
Project construction and progress pay- percent.
ments. (If the source lacks such experi-
ence or qualifications, SBA may re- THE BORROWER’S CONTRIBUTION
quire the interim loan to be managed
§ 120.910 Borrower contributions.
by a third party such as a bank or pro-
fessional construction manager.) (a) The Borrower must contribute to
the Project cash (or property accept-
§ 120.891 Certifications of disburse- able to SBA obtained with the cash) or
ment and completion. land (that is part of the Project Prop-
Before the Debenture is issued, the erty), in an amount equal to the fol-
interim lender must certify the lowing percentage of the Project cost,
amount disbursed. The CDC must cer- excluding administrative costs:
tify that the Project was completed in (1) At least 15 percent, if the Bor-
accordance with the final plans and rower (or Operating Company if the
specifications (except as provided in Borrower is an Eligible Passive Com-
§ 120.961). pany) has operated for two years or
less;
§ 120.892 Certifications of no adverse (2) At least 15 percent, if the Project
change.
involves the acquisition, construction,
Following completion of the Project, conversion, or expansion of a limited or
the following certifications must be single purpose building or structure;
made before the 504 loan closing: (3) At least 20 percent, if the Project
(a) The interim lender must certify involves conditions described in para-
to the CDC that it has no knowledge of graphs (a)(1) and (2) of this section; or
any unremedied substantial adverse (4) At least 10 percent, in all other
change in the condition of the small circumstances.
business since the application to the
(b) The source of the contribution
interim lender;
may be a CDC or any other source ex-
(b) The Borrower (or Operating Com-
cept an SBA business loan program
pany) must certify to the CDC that

(see § 120.913 for SBIC exception).
there has been no unremedied substan-
tial adverse change in its financial con- [64 FR 2118, Jan. 13, 1999]
335
§ 120.911 13 CFR Ch. I (1–1–23 Edition)
§ 120.911 Land contributions. (2) The Project is for the acquisition,

construction, conversion or expansion
The Borrower’s contribution may be
of a limited or single purpose asset.
land (including buildings, structures (b) Third party loan collateral. The 504
and other site improvements which loan is usually collateralized by a sec-
will be part of the Project Property) ond lien on Project Property. The
previously acquired by the Borrower. Third Party Lender may obtain addi-
[68 FR 57987, Oct. 7, 2003] tional collateral or other security for
the Third Party Loan (‘‘Additional Col-
§ 120.912 Borrowed contributions. lateral’’) only if in the event of liquida-
The Borrower may borrow its cash tion and unless otherwise approved in
writing by SBA:
contribution from the CDC or a third
(1) The Third Party Lender liquidates
party. If any of the contribution is bor-
or otherwise exhausts all reasonable
rowed, the interest rate must be rea-
avenues of collection with respect to
sonable. If the loan is secured by any of
the Additional Collateral no later than
the Project assets, the loan must be
the disposition of the Project Property,
subordinate to the liens securing the
and
504 Loan, and the loan may not be re-
(2) The Third Party Lender applies
paid at a faster rate than the 504 Loan any proceeds received as a result of the
unless SBA gives prior written ap- Additional Collateral to the balance
proval. A third party lender may not outstanding on the Third Party Loan
receive voting rights, stock options, or prior to the application of proceeds
any other actual or potential voting in- from the disposition of the Project
terest in the small business. Property to the Third Party Loan.
§ 120.913 Limitations on any contribu- [64 FR 2118, Jan. 13, 1999, as amended at 79
tions by a Licensee. FR 15650, Mar. 21, 2014]
Subject to part 107 of this chapter, a § 120.921 Terms of Third Party loans.
Licensee may provide financing for all
or part of the Borrower’s contribution (a) Maturity. A Third Party Loan
to the Project. SBA will consider Li- must have a term of at least 7 years
censee funds to be derived from federal when the 504 loan is for a term of 10
sources if the Licensee has Leverage years and 10 years when the 504 loan is
(as defined in § 107.50 of this chapter). If for 20 years. If there is more than one
the Licensee does not have Leverage, Third Party Loan, an overall loan ma-
SBA will consider the investment to be turity must be calculated, taking into
from private funds. Licensee financing account the maturities and amounts of
must be subordinated to the 504 loan each loan. If there is a balloon pay-
and must not be repaid at a faster rate ment, it must be justified in the loan
than the Debenture. (Refer to report and clearly identified in the
§ 120.930(a) for additional limitations.) Loan Authorization.
(b) Interest rates. Interest rates must
[68 FR 57987, Oct. 7, 2003] be reasonable. SBA must establish and
publish in the FEDERAL REGISTER a
THIRD PARTY LOANS maximum interest rate for any Third
Party Loan from commercial financial
§ 120.920 Required participation by institutions. The rate shall remain in
the Third Party Lender.
effect until changed.
(a) Amount of Third Party Loans. A (c) Other terms. The Third Party Loan
Project financing must include one or must not have any early call feature or
more Third Party Loans totaling at contain any demand provisions unless
least as much as the 504 loan. However, the loan is in default. By participating,
the Third Party Loans must total at a Third Party Loan lender waives, as
least 50 percent of the total cost of the to the CDC/SBA financing, any provi-
Project if: sion in its deed of trust, or mortgage,
(1) The Borrower (or Operating Com- or other documents prohibiting further
pany, if the Borrower is an Eligible encumbrances or subordinate debt. In

Passive Company) has operated for two the event of default, the Third Party
years or less, or Lender must give the CDC and SBA
336
written notice of default within 30 days from the proceeds of the tax-exempt
of the event of default and at least 60 obligation.
days prior to foreclosure. (c) The Borrower must not prepay
(d) Future advances. The Third Party any Project financing subordinate to
Loan must not be open-ended. After the 504 loan without SBA’s prior writ-
completion of the Project, the Third ten consent.
Party Lender may not make future ad-
vances under the Third Party Loan ex- [61 FR 3235, Jan. 31, 1996, as amended at 68
cept expenditures to collect amounts FR 57988, Oct. 7, 2003]
due the Third Party Loan notes, main-
§ 120.925 [Reserved]
tain collateral and protect the Third
Party Lender’s lien position on the § 120.926 Referral fee.
Third Party Loan.
(e) Subordination. The Third Party The CDC can receive a reasonable re-
Lender’s lien will be subordinate to the ferral fee from the Third Party Lender
CDC/SBA lien regarding any prepay- if the CDC secured the Third Party
ment penalties, late fees, other default Lender for the Borrower under a writ-
charges, and escalated interest after ten contract between the CDC and the
default due under the Third Party Third Party Lender. Both the CDC and
Loan. the Third Party Lender are prohibited
(f) Escalation upon default. A Third- from charging this fee to the Borrower.
Party Lender may not escalate the If a CDC charges a referral fee, the CDC
rate of interest upon default to a rate will be construed as a Referral Agent
greater than the maximum rate set under part 103 of this chapter.
forth in paragraph (b) of this section.
Regarding any Project that SBA ap- [68 FR 57988, Oct. 7, 2003]
proved after September 30, 1996, SBA
504 LOANS AND DEBENTURES
will only pay the interest rate on the
note in effect before the date of the § 120.930 Amount.
Borrower’s default.
(a) Generally, a 504 loan may not ex-
[61 FR 3235, Jan. 31, 1996, as amended at 64 ceed 40 percent of total Project cost
FR 2118, Jan. 13, 1999]
plus 100 percent of eligible administra-
§ 120.922 Pre-existing debt on the tive costs. For good cause shown, SBA
Project Property. may authorize an increase in the per-
centage of Project costs covered up to
In addition to its share of Project
cost, a Third-Party Loan may include 50 percent. No more than 50 percent of
consolidation of existing debt on the eligible Project costs can be from Fed-
Project Property. The consolidation eral sources, whether received directly
must not improve the lien position of or indirectly through an intermediary.
the Lender on the pre-existing debt, (b) A 504 loan must not be less than
unless the debt is a previous Third- $25,000.
Party Loan. (c) Upon completion of the Project,
the Debenture amount will be reduced
§ 120.923 Policies on subordination. by the amount that the unused contin-
(a) Financing provided by the seller gency reserve exceeds 2 percent of the
of Project Property must be subordi- anticipated Debenture.
nate to the 504 loan. SBA may waive [61 FR 3235, Jan. 31, 1996, as amended at 68
the subordination requirement if the FR 57988, Oct. 7, 2003]
property is classified as ‘‘other real es-
tate owned’’ by a national bank or § 120.931 504 Lending limits.
other Federally regulated lender and
SBA considers the property to be of 504 loan amounts shall be limited to:
sufficient value to support the 504 loan. (a) An outstanding balance of
(b) A Borrower is eligible for a 504 $5,000,000 for each Borrower and its af-
loan even if part of the Project financ- filiates if the loan proceeds will not be
ing is tax-exempt. SBA’s lien position directed towards a Project in para-
must not be subordinate to loans made graph (c) of this section,
337
§ 120.932 13 CFR Ch. I (1–1–23 Edition)
(b) An outstanding balance of of the Net Debenture Proceeds, which-

$5,000,000 for each Borrower and its af- ever is less. The deposit may be applied
filiates if one or more of the public pol- to the loan processing fee if the appli-
icy goals enumerated in § 120.862(b) ap- cation is accepted, but must be re-
plies to the Project; and funded if the application is denied. If
(c) $5,500,000 for each Project for: the small business withdraws its appli-
(1) Small Manufacturers (NAICS cation, the CDC may deduct from the
Codes 31–33) with all production facili- deposit reasonable costs incurred in
ties located in the United States; packaging and processing the applica-
(2) Reduction of the Borrower’s, or if tion.
the Borrower is an Eligible Passive
Company, the Operating Company’s en- § 120.937 Assumption.
ergy consumption by at least 10%; or A 504 loan may be assumed with
(3) Plant, equipment and process up- SBA’s prior written approval.
grades of renewable energy sources
such as the small-scale production of § 120.938 Default.
energy for individual buildings’ or (a) Upon occurrence of an event of de-
communities’ consumption, commonly fault specified in the 504 note which re-
known as micropower, or renewable quires automatic acceleration, the
fuel producers including biodiesel and note becomes due and payable. Upon
ethanol producers. occurrence of an event of default which
[76 FR 63547, Oct. 12, 2011] does not require automatic accelera-
tion, SBA may forbear acceleration of
§ 120.932 Interest rate. the note and attempt to resolve the de-
The interest rate of the 504 Loan and fault. If the default is not cured subse-
the Debenture which funds it is set by quently, the note shall be accelerated.
the SBA and approved by the Secretary In either case, upon acceleration of the
of the Treasury. note, the Debenture which funded it is
also due immediately, and SBA must
§ 120.933 Maturity. honor its guarantee of the Debenture.
From time to time, SBA will publish SBA shall not reimburse the investor
in the FEDERAL REGISTER the available for any premium paid.
maturities for a 504 loan and the De- (b) If a CDC defaults on a Debenture,
benture that funds it. Such available SBA generally shall limit its recovery
maturities remain in effect until to the payments made by the small
changed by subsequent FEDERAL REG- business to the CDC on the loan made
ISTER publication. from the Debenture proceeds, and the
collateral securing the defaulted loan.
[68 FR 57988, Oct. 7, 2003] However, SBA will look to the CDC for
§ 120.934 Collateral. the entire amount of the Debenture in
the case of fraud, negligence, or mis-
The CDC usually takes a second lien representation by the CDC.
position on the Project Property to se-
cure the 504 loan. Sometimes addi- § 120.939 Borrower prohibition.
tional collateral is required. (In rare Neither a Borrower nor an Associate
circumstances, SBA may permit other of the Borrower may purchase an inter-
collateral substituted for Project Prop- est in a Debenture Pool in which the
erty.) All collateral must be insured Debenture that funded its 504 loan has
against such hazards and risks as SBA been placed.
may require, with provisions for notice
to SBA and the CDC in the event of im- § 120.940 Prepayment of the 504 loan
pending lapse of coverage. or Debenture.
[68 FR 57988, Oct. 7, 2003] The Borrower may prepay its 504
loan, if it pays the entire principal bal-
§ 120.935 Deposit from the Borrower ance, unpaid interest, any unpaid fees,
that a CDC may require. and any prepayment premium estab-
At the time of application for a 504 lished in the note. If the Borrower pre-
loan, the CDC may require a deposit pays, the CDC must prepay the cor-
from the Borrower of $2,500 or 1 percent responding Debenture with interest
338
and premium. If one of the Debentures (c) Maintain physical possession of

in a Debenture Pool is prepaid, the In- the Debentures for SBA and the Cer-
vestors in that Debenture Pool must be tificate holders;
paid pro rata, and SBA’s guarantee on (d) Establish and maintain a central
the entire Debenture Pool must be pro- registry of:
portionately reduced. If the entire De- (1) Debenture Pools, including the
benture Pool is paid off, SBA may call CDC obligors and the interest rate pay-
all Certificates backed by the Pool for able on the Debentures in each Pool;
redemption. (2) Certificates issued or transferred,
including the Debenture Pool backing
§ 120.941 Certificates. the Certificate, name and address of
(a) The face value of a Certificate the purchaser, price paid, the interest
must be at least $25,000. Certificates rate on the Certificate, and fees or
are issued in registered form and trans- charges assessed by the transferror;
ferred only by entry on the central reg- and
istry maintained by the Trustee. SBA (3) Brokers and dealers in Certifi-
guarantees the timely payment of prin- cates, and the commissions, fees or dis-
cipal and interest on the Certificates. counts granted to the brokers and deal-
(b) Before the sale of a Certificate, ers;
the seller, or the broker or dealer act- (e) Receive semi-annual Debenture
ing as the seller’s agent, must disclose payments and prepayments;
to the purchaser the terms, conditions, (f) Make regularly scheduled and pre-
yield, and premium and other charac- payment payments to Investors; and
teristics not guaranteed by SBA. (g) Assure before any resale of a De-
benture or Certificate is recorded in
DEBENTURE SALES AND SERVICE AGENTS the registry that the seller has pro-
vided the purchaser a written disclo-
§ 120.950 SBA and CDC must appoint sure statement approved by SBA.
agents.
SBA and the CDC must appoint the § 120.954 Central Servicing Agent.
following agents to facilitate the sale (a) SBA has entered into a Master
and service of the Certificates and dis- Servicing Agreement designating a
bursement of the proceeds. Central Servicing Agent (CSA) to sup-
port the orderly flow of funds among
§ 120.951 Selling agent. Borrowers, CDCs, and SBA. The CDC
The CDC, with SBA approval, shall and Borrower must enter into an indi-
appoint a Selling Agent to select un- vidual Servicing Agent Agreement
derwriters, negotiate the terms and with the CSA for each 504 loan, consti-
conditions of Debenture offerings with tuting acceptance by the CDC and the
the underwriters, and direct and co- Borrower of the terms of the Master
ordinate Debenture sales. Servicing Agreement.
(b) The CSA has established a master
§ 120.952 Fiscal agent. reserve account. All funds related to
the 504 loans and Debentures flow
SBA shall appoint a Fiscal Agent to
through the master reserve account
assess the financial markets, minimize
under the provisions of the Master
the cost of sales, arrange for the pro-
Servicing Agreement. The master re-
duction of the Offering Circular, De-
serve account will be funded by a guar-
benture Certificates, and other re-
antee fee, a funding fee to be published
quired documents, and monitor the
from time to time in the FEDERAL REG-
performance of the Trustee and the un-
ISTER, and by principal and interest
derwriters.
payments of 504 loans. At SBA’s direc-
§ 120.953 Trustee. tion, the CSA may use funds in the
master reserve account to defray pro-
SBA must appoint a Trustee to: gram expenses. In the event a Borrower
(a) Issue Certificates; defaults and its 504 note is accelerated,

(b) Transfer the Certificates upon re- SBA shall add funds under its guar-
sale in the secondary market; antee to ensure the full and timely
339
§ 120.955 13 CFR Ch. I (1–1–23 Edition)
payment of the Debenture which fund- (c) SBA may, within its sole discre-
ed the 504 loan. At SBA’s direction, the tion, decline to close the Debenture; di-
CSA must pay to the CDC servicing rect the transfer of the 504 loan to an-
each loan the interest accruing in the other CDC; or cancel its guarantee of
master reserve account on loan pay- the Debenture, prior to sale, if any of
ments made by each Borrower between the following occur:
the date of receipt of each monthly (1) The CDC has failed to comply ma-
payment and the date of disbursement terially with any requirement imposed
to investors. The CSA may disburse by statute, regulation, SOP, policy and
such interest periodically to CDCs on a procedural notice, any agreement the
pro rata basis. SBA may use interest CDC has executed with SBA, or the
accruals in the master reserve account terms of a Debenture or loan author-
earned prior to October 1991 (not pre- ization;
viously distributed to the CDCs) for the (2) The CDC has failed to make or
costs of 504 program administration. close the 504 loan or prepare the Deben-
§ 120.955 Agent bonds and records. ture closing in a prudent or commer-
cially reasonable manner;
(a) Each agent (in §§ 120.951 through (3) The CDC’s improper action or in-
120.954) must provide a fidelity bond or action places SBA at risk;
insurance in such amount as necessary
(4) The CDC has failed to use required
to fully protect the interest of the gov-
SBA forms or electronic versions of
ernment.
those forms;
(b) SBA must have access at the
(5) The CDC, Third Party Lender or
agent’s place of business to all books,
Borrower has failed to timely disclose
records and other documents relating
to SBA a material fact regarding the
to Debenture activities.
Project or 504 loan;
§ 120.956 Suspension or revocation of (6) The CDC, Third Party Lender or
brokers and dealers. Borrower has misrepresented a mate-
rial fact to SBA regarding the Project
The appropriate Office of Capital Ac-
cess official in accordance with Delega- or 504 loan; or
tions of Authority may suspend or re- (7) SBA determines that there has
voke the privilege of any broker or been an unremedied material adverse
dealer to participate in the sale or change, such as deterioration in the
marketing of Debentures and Certifi- Borrower’s financial condition, since
cates for actions or conduct bearing the 504 loan was approved, or that ap-
negatively on the broker’s fitness to proving the closing of the Debenture
participate in the securities market. will put SBA at unacceptable financial
SBA must give the broker or dealer risk.
written notice, stating the reasons, at [68 FR 57988, Oct. 7, 2003]
least 10 business days prior to the ef-
fective date of the suspension or rev- § 120.961 Construction escrow ac-
ocation. A broker or dealer may appeal counts.
the suspension or revocation made
The CSA, title company, CDC attor-
under this section pursuant to the pro-
ney, or bank may hold Debenture pro-
cedures set forth in part 134 of this
ceeds in escrow to complete Project
chapter. The action of this official will
components such as landscaping and
remain in effect pending resolution of
parking lots, and acquire machinery
the appeal.
and equipment if the component or ac-
[73 FR 75519, Dec. 11, 2008] quisition is a minor portion of the
total Project and has been contracted
CLOSINGS for completion or delivery at a speci-
fied price and specific future date. The
§ 120.960 Responsibility for closing. escrow agent must disburse funds upon
(a) The CDC is responsible for the 504 approval by the CDC and the SBA, sup-
loan closing. ported by invoices and payable jointly

(b) The Debenture closing is the joint to the small business and the des-
responsibility of the CDC and SBA. ignated contractor.
340
SERVICING the Borrower may be reimbursed from

the Debenture proceeds;
§ 120.970 Servicing of 504 loans and (2) Closing fee. The CDC may charge a
Debentures.
reasonable closing fee sufficient to re-
(a) In servicing 504 loans, CDCs must imburse it for the expenses of its in-
comply with Loan Program Require- house or outside legal counsel, and
ments and in accordance with prudent other miscellaneous closing costs (CDC
and commercially reasonable lending Closing Fee). Some closing costs may
standards. be funded out of the Debenture pro-
(b) The CDC is responsible for routine ceeds (see § 120.883 for limitations);
servicing including receipt and review
(3) Servicing fee. The CDC will charge
of the Borrower’s or Operating Com-
a monthly servicing fee of at least 0.625
pany’s financial statements on an an-
percent per annum and no more than 2
nual or more frequent basis and moni-
toring the status of the Borrower and percent per annum on the unpaid bal-
504 loan collateral. ance of the loan as determined at five-
(c) The CDC is responsible for assur- year anniversary intervals. A servicing
ing that the Borrower makes all re- fee greater than 1.5 percent in a rural
quired insurance premium payments area and 1 percent everywhere else re-
and has paid all taxes when due. quires SBA’s prior written approval,
(d) The CDC is responsible for filing based on evidence of substantial need.
renewals and extensions of security in- The servicing fee may be paid only
terests on collateral for the 504 loan, as from loan payments received. The fees
required. may be accrued without interest and
(e) The CDC must timely respond to collected from the CSA when the pay-
Borrower requests for loan modifica- ments are made.
tions. (4) Late fees. Loan payments received
(f) For any 504 loan that is more than after the 15th of each month may be
three months past due, the CDC must subject to a late payment fee of 5 per-
promptly request that SBA purchase cent of the late payment or $100,
the Debenture unless the 504 loan has whichever is greater. These fees will be
an SBA-approved deferment or is in collected by the CSA on behalf of the
compliance with an SBA-approved plan CDC; and
to allow the Borrower to catch up on (5) Assumption fee. Upon SBA’s writ-
delinquent loan payments. ten approval, a CDC may charge an as-
(g) The CDC must cooperate with sumption fee not to exceed 1 percent of
SBA to cure defaults and initiate work- the outstanding principal balance of
outs. the loan being assumed.
(h) Additional servicing requirements
(b) CSA fees. The CSA may charge an
are set forth in subpart E of this part.
initiation fee on each loan and a
[68 FR 57988, Oct. 7, 2003, as amended at 72 FR monthly servicing fee under the terms
18364, Apr. 12, 2007] of the Master Servicing Agreement.
(c) Other agent fees. Agent fees and
FEES
charges necessary to market and serv-
§ 120.971 Allowable fees paid by Bor- ice Debentures and Certificates may be
rower. assessed to the Borrower or the inves-
(a) CDC fees. The fees a CDC may tor. The fees must be approved by SBA
charge the Borrower in connection and published periodically in the FED-
with a 504 loan and Debenture are lim- ERAL REGISTER.
ited to the following: (d) SBA fees. (1) SBA charges a 0.5
(1) Processing fee. The CDC may percent guarantee fee on the Deben-
charge up to 1.5 percent of the net De- ture.
benture proceeds to process the financ- (2) For loans approved by SBA after
ing. Two-thirds of this fee will be con- September 30, 1996, SBA charges a fee
sidered earned and may be collected by of not more than 0.9375 percent annu-
the CDC when the Authorization for ally on the unpaid principal balance of
the Debenture is issued by SBA. The the loan as determined at five-year an-
portion of the processing fee paid by niversary intervals.
341
§ 120.972 13 CFR Ch. I (1–1–23 Edition)
(e) Miscellaneous fees. A funding fee problem loans secured in a manner sub-
not to exceed 0.25 percent of the Deben- stantially similar to loans funded with
ture may be charged to cover costs in- 504 loan program debentures, and who
curred by the trustee, fiscal agent, have completed a training program on
transfer agent. loan liquidation developed by the
[61 FR 3235, Jan. 31, 1996, as amended at 64 Agency in conjunction with qualified
FR 2119, Jan. 13, 1999; 68 FR 57988, Oct. 7, CDCs that meet the requirements of
2003] this section; or
(2) The PCLP CDC has entered into a
§ 120.972 Third Party Lender partici- contract with a qualified third party
pation fee and CDC fee. for the performance of its liquidation
(a) Participation fee. For loans ap- responsibilities and obtains the ap-
proved by SBA after September 30, proval of SBA with respect to the
1996, SBA must collect a one-time fee qualifications of the contractor and the
equal to 50 basis points on the Third terms and conditions of the contract.
Party Lender’s participation in a (b) All other CDCs. A CDC that is not
Project when the Third Party Lender authorized under paragraph (a) of this
occupies a senior credit position to section may apply to become an Au-
SBA in the Project. thorized CDC Liquidator with author-
(b) CDC fee. For loans approved by ity to liquidate and handle debt collec-
SBA after September 30, 1996, SBA tion litigation with respect to 504 loans
must collect an annual fee from the on behalf of SBA, in accordance with
CDC equal to 0.125 percent of the out-
subpart E of this part, if the CDC
standing principal balance of the De-
meets the following requirements:
benture. The fee must be paid from the
servicing fees collected by the CDC and (1) The CDC meets either of the fol-
cannot be paid from any additional fees lowing criteria:
imposed on the Borrower. (i) The CDC participated in the loan
liquidation pilot program established
[68 FR 57988, Oct. 7, 2003] by the Small Business Programs Im-
AUTHORITY OF CDCS TO PERFORM LIQ- provement Act of 1996 prior to October
UIDATION AND DEBT COLLECTION LITI-
1, 2006; or
GATION (ii) During the three fiscal years im-
mediately prior to seeking such au-
§ 120.975 CDC Liquidation of loans and thority, the CDC made an average of
debt collection litigation. not less than ten 504 loans per year;
(a) PCLP CDCs. If a CDC is designated and
as a PCLP CDC under § 120.845, the CDC (2) The CDC meets either of the fol-
must liquidate and handle debt collec- lowing requirements:
tion litigation with respect to all (i) The CDC has one or more employ-
PCLP Loans in its portfolio on behalf ees who have not less than two years of
of SBA as required by § 120.848(f), in ac- substantive, decision-making experi-
cordance with subpart E of this part. ence in administering the liquidation
With respect to all other 504 loans that and workout of defaulted or problem
a PCLP CDC makes, the PCLP CDC is loans secured in a manner substan-
an Authorized CDC Liquidator and tially similar to loans funded with 504
must exercise its delegated authority loan program debentures, and who have
to liquidate and handle debt-collection completed a training program on loan
litigation in accordance with subpart E liquidation developed by the Agency in
of this part for such loans, if the PCLP conjunction with qualified CDCs that
CDC is notified by SBA that it meets meet the requirements of this section;
either of the following requirements to or
be an Authorized CDC Liquidator, as (ii) The CDC has entered into a con-
determined by SBA: tract with a qualified third party for
(1) The PCLP CDC has one or more the performance of its liquidation re-
employees who have not less than two sponsibilities and obtains the approval
years of substantive, decision-making of SBA with respect to the qualifica-

experience in administering the liq- tions of the contractor and the terms
uidation and workout of defaulted or and conditions of the contract.
342
(c) CDC counsel. To perform debt col- SUPERVISION

lection litigation under paragraphs (a)
or (b) of this section, a CDC must also § 120.1000 Risk-Based Lender Over-
have either in-house counsel with ade- sight.
quate experience as approved by SBA (a) Risk-Based Lender Oversight. SBA
or entered into a contract for the per- monitors, supervises, examines, regu-
formance of debt collection litigation lates, and enforces laws against SBA
with an experienced attorney or law Supervised Lenders and the SBA oper-
firm as approved by SBA. ations of SBA Lenders and Inter-
(d) Application for authority to liq- mediaries.
uidate and litigate. To seek authority to (b) Scope. Most rules and standards
perform liquidation and debt collection
set forth in this subpart apply to SBA
litigation under paragraphs (b) and (c)
Lenders as well as Intermediaries; how-
of this section, a CDC other than a
ever, SBA has separate regulations for
PCLP CDC must submit a written ap-
plication to SBA and include docu- enforcement grounds and formal en-
mentation demonstrating that the CDC forcement actions for Intermediaries
meets the requirements of paragraph at §§ 120.1425 and 120.1540.
(b) and (c) of this section. If a CDC in- [85 FR 14781, Mar. 16, 2020]
tends to use a contractor to perform
liquidation, it must obtain approval § 120.1005 Bureau of PCLP Oversight.
from SBA of both the qualifications of
SBA’s Bureau of PCLP Oversight
the contractor and the terms and con-
within OCRM, monitors the capitaliza-
ditions in the contract covering the
tion of PCLP CDC pilot participants’
CDC’s retention of the contractor. SBA
will notify a CDC in writing when the LLRFs and performs other related
CDC can begin to perform liquidation functions.
and/or debt collection litigation under [73 FR 75519, Dec. 11, 2008]
this section.
§ 120.1010 SBA access to SBA Lender
[72 FR 18365, Apr. 12, 2007]
and Intermediary files.
ENFORCEABILITY OF 501, 502 AND 503 An SBA Lender and Intermediary
LOANS AND OTHER LAWS must allow SBA’s authorized rep-
resentatives, including representatives
§ 120.990 501, 502 and 503 loans. authorized by the SBA Inspector Gen-
SBA has discontinued loan programs eral, during normal business hours, ac-
for 501, 502, and 503 loans. Outstanding cess to its files to review, inspect, and
loans remain under these programs, copy all records and documents, relat-
and Borrowers, CDCs, and SBA must ing to SBA guaranteed loans or as re-
comply with the terms and conditions quested for SBA oversight.
of the corresponding notes and Deben-
tures, and the regulations in this part [73 FR 75519, Dec. 11, 2008, as amended at 85
FR 14781, Mar. 16, 2020]
in effect when the obligations were un-
dertaken or last in effect, if applicable. § 120.1015 Risk Rating System.
§ 120.991 Effect of other laws. (a) Risk Rating. SBA may assign a
No State or local law may preclude Risk Rating to all SBA Lenders and
or limit SBA’s exercise of its rights Intermediaries on a periodic basis.
with respect to notes, guarantees, De- Risk Ratings are based on certain risk-
bentures and Debenture Pools, or of its related portfolio performance factors
enforcement rights to foreclose on col- as set forth in notices or SBA’s SOPs
lateral. and as published from time to time.
(b) Rating categories. Risk Ratings fall
Subpart I—Risk-Based Lender into one of two broad categories: Ac-
Oversight ceptable Risk Ratings or Less Than Ac-
ceptable Risk Ratings.

SOURCE: 72 FR 25194, May 4, 2007, unless [73 FR 75519, Dec. 11, 2008, as amended at 85
otherwise noted. FR 14781, Mar. 16, 2020]
343
§ 120.1025 13 CFR Ch. I (1–1–23 Edition)
§ 120.1025 Monitoring. (a) Results of monitoring, including

an SBA Lender’s or Intermediary’s
SBA may conduct monitoring of SBA
Risk Rating;
Lenders and Intermediaries including,
(b) SBA loan portfolio size;
but not limited to, SBA Lenders’ or
(c) Previous review or examination
Intermediaries’ self-assessments.
findings;
[85 FR 14781, Mar. 16, 2020] (d) Responsiveness in correcting defi-
ciencies noted in prior reviews or ex-
§ 120.1050 Reviews and examinations. aminations; and
(a) Reviews. SBA may conduct re- (e) Such other risk-related informa-
views of the SBA loan operations of tion as SBA, in its discretion, deter-
SBA Lenders. The review may include, mines to be appropriate.
but is not limited to, an evaluation of [73 FR 75519, Dec. 11, 2008, as amended at 82
the following: FR 39504, Aug. 21, 2017; 85 FR 14781, Mar. 16,
(1) Portfolio performance; 2020]
(2) SBA operations management;
(3) Credit administration; and § 120.1055 Review and examination re-
(4) Compliance with Loan Program sults.
Requirements. (a) Written Reports. SBA will provide
(b) Examinations. SBA may conduct an SBA Lender and Intermediary a
safety and soundness examinations of copy of SBA’s written report prepared
SBA Supervised Lenders, except SBA as a result of the SBA Lender or Inter-
will not conduct safety and soundness mediary review or examination (‘‘Re-
examinations of Other Regulated port’’). SBA will provide the Report
SBLCs under §§ 120.1510 and 1511. The generally within 60 business days fol-
safety and soundness examination may lowing SBA’s conclusion of the review/
include, but is not limited to, an eval- examination unless SBA notifies the
uation of: SBA Lender or Intermediary of a later
(1) Capital adequacy; date and the reason for the delay. The
(2) Asset quality (including credit ad- Report may contain findings, conclu-
ministration and allowance for loan sions, corrective actions, and rec-
losses); ommendations. Each director (or man-
(3) Management quality (including ager, in the absence of a Board of Di-
internal controls, loan portfolio man- rectors) of the SBA Lender or Inter-
agement, and asset/liability manage- mediary, in keeping with his or her re-
ment); sponsibilities, must become fully in-
(4) Earnings; formed regarding the contents of the
(5) Liquidity; and Report.
(6) Compliance with Loan Program (b) Response to review and examination
Requirements. Reports. SBA Lenders and Inter-
(c) Reviews/examinations of Inter- mediaries must respond to Report find-
mediaries. SBA may perform reviews or ings, recommendations, and corrective
examinations of Intermediaries. actions, if any, in writing to SBA and,
(d) Other reviews or examinations. SBA if requested, submit proposed correc-
may perform other reviews/examina- tive actions and/or a capital restora-
tions as needed as determined by SBA tion plan. An SBA Lender or Inter-
in its discretion. mediary must respond within 45 busi-
[73 FR 75519, Dec. 11, 2008, as amended at 82 ness days from the date the Report is
FR 39504, Aug. 21, 2017; 85 FR 14781, Mar. 16, received unless SBA notifies the SBA
2020] Lender or Intermediary in writing that
the response, proposed corrective ac-
§ 120.1051 Frequency of reviews and tions or capital restoration plan is to
examinations. be filed within a different time period
SBA may conduct reviews and exami- (either shortened or extended in SBA’s
nations of SBA Lenders and Inter- discretion). The SBA Lender or Inter-
mediaries on a periodic basis. SBA may mediary response must address each
consider, but is not limited to, the fol- finding, recommendation, and correc-
lowing factors in determining fre- tive action. In proposing a corrective
quency: action or capital restoration plan, the
344
SBA Lender or Intermediary must de- § 120.1060 Confidentiality of Reports,

tail the steps it will take to correct the Risk Ratings and related Confiden-
finding(s); the time within which each tial Information.
step will be taken; the timeframe for (a) In general. Reports and other SBA
accomplishing the entire corrective ac- prepared review or examination related
tion plan; and the person(s) or depart- documents are the property of SBA and
ment at the SBA Lender or Inter- are loaned to an SBA Lender or Inter-
mediary charged with carrying out the mediary for its confidential use only.
corrective action or capital restoration The Reports, Risk Ratings, and related
plan, as applicable. In addition, SBA Confidential Information are privileged
Lenders and Intermediaries must im- and confidential as more fully ex-
plement corrective actions within 90 plained in paragraph (b) of this section.
calendar days from the date the Report The Report, Risk Rating, and Confiden-
or SBA’s letter requiring corrective ac- tial Information must not be relied
tion is received, unless SBA provides upon for any purpose other than SBA’s
Lender oversight and SBA’s portfolio
written notice of another timeframe.
management purposes. An SBA Lender
For purposes of this paragraph (b), a
or Intermediary must not make any
Report will be deemed to have been re-
representations concerning the Report
ceived on the date it was emailed to (including its findings, conclusions,
the last known email address of the and recommendations), the Risk Rat-
SBA Lender or Intermediary unless the ing, or the Confidential Information.
SBA Lender or Intermediary can pro- For purposes of this regulation, Report
vide compelling evidence to the con- means the review or examination re-
trary. port and related documents. For pur-
(c) SBA response. SBA will provide poses of this regulation, Confidential
written notice of whether the response Information is defined in the SBA
and, if applicable, any corrective ac- Lender information portal and by no-
tion or capital restoration plan, is ap- tice issued from time to time. Access
proved, or whether SBA will seek addi- to the Lender information portal may
tional information or require other ac- be obtained by contacting the OCRM.
tion. (b) Disclosure prohibition. Each SBA
(d) Failure to respond or to submit or Lender and Intermediary is prohibited
implement an acceptable plan. If an SBA from disclosing its Report, Risk Rat-
Lender or Intermediary fails to respond ing, and Confidential Information, in
in writing to SBA, respond timely to full or in part, in any manner, without
SBA, or provide a response acceptable SBA’s prior written permission. An
to SBA within SBA’s discretion, or re- SBA Lender and Intermediary may use
spond to all findings and required cor- the Report, Risk Rating, and Confiden-
rective actions in a Report, then SBA tial Information for confidential use
may take enforcement action under within its own immediate corporate or-
this subpart. If an SBA Lender or ganization. SBA Lender’s and
Intermediary that is requested to sub- Intermediary’s must restrict access to
mit a corrective action plan or capital their Report, Risk Rating and Con-
restoration plan to SBA fails to do so fidential Information to their respec-
in writing; fails to submit timely such tive parent entities, officers, directors,
plan to SBA; or fails to submit a plan employees, auditors and consultants,
acceptable to SBA within SBA’s discre- in each case who demonstrate a legiti-
tion, then SBA may take enforcement mate need to know such information
action under this subpart. If an SBA for the purpose of assisting in improv-
Lender or Intermediary fails to imple- ing the SBA Lender’s or Intermediary’s
SBA program operations in conjunc-
ment in any material respect a correc-
tion with SBA’s Program and SBA’s
tive action or capital restoration plan
portfolio management (for purposes of
within the required timeframe, then
this regulation, each referred to as a
SBA may undertake enforcement ac-
‘‘permitted party’’), and to those for
tion under this subpart.

whom SBA has approved access by
[73 FR 75519, Dec. 11, 2008, as amended at 85 prior written consent, and those for
FR 14781, Mar. 16, 2020] whom access is required by applicable
345
§ 120.1070 13 CFR Ch. I (1–1–23 Edition)
law or legal process. If such law or reviews and, if assessed by SBA, other
process requires SBA Lender or Lender oversight activities.
Intermediaryto disclose the Report, (a) Fee components: The fees may
Risk Rating, or Confidential Informa- cover the following:
tion to any person other than a per- (1) Examinations. The costs of con-
mitted party, SBA Lender or Inter- ducting a safety and soundness exam-
mediary will promptly notify SBA and ination and related activities of an
SBA’s Information Provider in writing SBA-Supervised Lender, including any
and in advance of such disclosure so expenses that are incurred in relation
that SBA and the Information Provider to the examination and such activities.
have, within their discretion, the op- (2) Reviews. The costs of conducting a
portunity to seek appropriate relief review of a 7(a) Lender or a 7(a) Lend-
such as an injunction or protective er’s loans, and related review activities
order prior to disclosure. For purposes (e.g., corrective action assessments,
of this regulation, ‘‘consultants’’ delegated loan reviews), including any
means only those consultants that are expenses that are incurred in relation
under written contract with an SBA to the review and such activities.
Lender or Intermediary specifically to (3) Monitoring. The costs of con-
assist with addressing its Report Find- ducting monitoring reviews of a 7(a)
ings and Corrective Actions to SBA’s Lender, including any expenses that
satisfaction. The consultant contract are incurred in relation to the moni-
must provide for both the consultant’s toring review activities.
agreement to abide by the disclosure (4) Other lender oversight activities.
prohibition in this paragraph and the The costs of additional expenses that
consultant’s agreement not to use the SBA incurs in carrying out other lend-
Report, Risk Rating, and Confidential er oversight activities (for example,
Information for any purpose other than the salaries and travel expenses of SBA
to assist with addressing the Report employees and equipment expenses
Findings and Corrective Actions. ‘‘In- that are directly related to carrying
formation Provider’’ means any con- out lender oversight activities, tech-
tractor that provides SBA with the nical assistance and analytics to sup-
Risk Rating. Each SBA Lender and port the monitoring and review pro-
Intermediary must ensure that each gram, and supervision and enforcement
permitted party is aware of and agrees activity costs).
to these regulatory requirements and (b) Allocation. SBA will assess to 7(a)
must ensure that each such permitted Lender(s) the costs associated with the
party abides by them. Any disclosure review, examination, monitoring, or
of the Report, Risk Rating, or Con- other lender oversight activity, as de-
fidential Information other than as termined by SBA in its discretion. In
permitted by this regulation may re- general:
sult in appropriate action as author- (1) Where the costs that SBA incurs
ized by law. An SBA Lender and Inter- for a review, exam, monitoring or other
mediary will indemnify and hold harm- lender oversight activity are specific to
less SBA from and against any and all a particular 7(a) Lender, SBA will
claims, demands, suits, actions, and li- charge that 7(a) Lender a fee for the ac-
abilities to any degree based upon or tual costs of conducting the review,
resulting from any unauthorized use or exam, monitoring or other lender over-
disclosure of the Report, Risk Rating, sight activity; and
or Confidential Information. Informa- (2) Where the costs that SBA incurs
tion Provider contact information is for the lender oversight activity are
available from the Office of Capital Ac- not sufficiently specific to a particular
cess. Lender, SBA will assess a fee based on
[73 FR 75519, Dec. 11, 2008, as amended at 82 each 7(a) Lender’s portion of the total
FR 39504, Aug. 21, 2017; 85 FR 14781, Mar. 16, dollar amount of SBA guarantees in
2020] SBA’s total portfolio or in the relevant
portfolio segment being reviewed or ex-
§ 120.1070 SBA Lender oversight fees. amined, to cover the costs of such ac-
Lenders are required to pay to SBA tivity. SBA may waive the assessment
fees to cover costs of examinations and of this fee for all 7(a) Lenders owing
346
less than a threshold amount below SBA taking informal enforcement ac-
which SBA determines that it is not tion rather than formal enforcement
cost effective to collect the fee. action include, for example, when prob-
(c) Billing process. For the examina- lems are narrow in scope and are
tions or reviews conducted under para- correctible and SBA is confident of a
graphs (a)(1) and (2) of this section, 7(a) Lender’s Board of Directors
SBA will bill each 7(a) Lender for the (‘‘Board’’) and management commit-
amount owed following completion of ment and ability to correct; where vio-
the examination, review or related ac- lations are less frequent or less severe
tivity. For monitoring conducted under but warrant enforcement; or while
paragraph (a)(3) of this section and the more fully assessing risk.
other lender oversight activity ex- (b) Informal enforcement actions in-
penses incurred under paragraph (a)(4) clude, but are not limited to:
of this section, SBA will bill each 7(a) (1) An SBA supervisory letter. The let-
Lender for the amount owed on an an- ter may discuss serious or persistent
nual basis. SBA will state in the bill supervisory concerns, as determined by
the date by which payment is due SBA SBA, and expected corrective action by
and the approved payment method(s). the 7(a) Lender. Supervisory letters in-
The payment due date will be no less clude, for example, Notices of Material
than 30 calendar days from the bill Non-Compliance;
date. (2) Mandatory training. SBA may re-
(d) Delinquent payment and late-pay- quire a 7(a) Lender to complete train-
ment charges. Payments that are not re- ing to address certain findings, weak-
ceived by the due date specified in the nesses, and deficiencies;
bill shall be considered delinquent. (3) A commitment letter or Board resolu-
SBA will charge interest, and other ap- tion. SBA may require a 7(a) Lender to
plicable charges and penalties, on de- submit a commitment letter or Board
linquent payments, as authorized by 31 resolution, satisfactory to SBA, signed
U.S.C. 3717. SBA may waive or abate by the 7(a) Lender’s Board on behalf of
the collection of interest, charges and/ the entity that may:
or penalties if circumstances warrant. (i) Include specific written commit-
In addition, a 7(a) Lender’s failure to ments to take corrective actions in re-
pay any of the fee components de- sponse to the 7(a) Lender’s acknowl-
scribed in this section, or to pay inter- edged deficiencies;
est, charges and penalties that have (ii) Identify the person(s) responsible
been charged, may result in a decision for taking the corrective action; and
to suspend or revoke a participant’s (iii) Set forth the timeframe for tak-
eligibility, limit a participant’s dele- ing the corrective action. The docu-
gated authority, or other remedy avail- ment may be drafted by SBA or the
able under law. 7(a) Lender;
[61 FR 3235, Jan. 31, 1996, as amended at 82 (4) Agreements. SBA may request that
FR 39505, Aug. 21, 2017] a 7(a) Lender enter into a written
agreement with, and drafted by, SBA
ENFORCEMENT ACTIONS to address and correct identified weak-
nesses and/or limit or mitigate risk.
§ 120.1300 Informal enforcement ac- The agreement may provide, for exam-
tions—7(a) Lenders. ple, that a 7(a) Lender take certain ac-
(a) Upon a determination that the tions or refrain from certain actions;
grounds in § 120.1400 exist, the D/OCRM and
may undertake, in his/her discretion, (5) Other informal enforcement actions.
one or more of the informal enforce- Others as SBA determines appropriate
ment actions listed in this section and on a case by case basis.
is not restricted from delegating as ap- (c) A 7(a) Lender may appeal infor-
propriate. SBA will consider the sever- mal enforcement actions to the appro-
ity or frequency of the violation or ac- priate Federal district court or SBA’s
tion triggering the ground and the cir- Office of Hearings and Appeals (OHA)
cumstances in determining whether within 20 calendar days of the date of

and what type of informal action to the decision, and in the event of an
take. Circumstances that may lead to OHA appeal, OHA will issue its decision
347
§ 120.1400 13 CFR Ch. I (1–1–23 Edition)
in accordance with part 134 of this remedies in § 120.1500(c)(3) and waives in

title. The enforcement action will re- advance any right it may have to con-
main in effect pending resolution of test the validity of the appointment of
the appeal, if any. SBA is not precluded a receiver. The SBA Supervised Lender
from taking one or more formal en- agrees that its consent to SBA’s appli-
forcement actions under § 120.1500, or as cation to a Federal court of competent
otherwise authorized by law, while an jurisdiction for appointment of a re-
appeal of an informal enforcement ac- ceiver of SBA’s choosing, an injunction
tion is pending. or other equitable relief, and the SBA
[85 FR 14781, Mar. 16, 2020] Supervised Lender’s consent in advance
to the court’s granting of SBA’s appli-
§ 120.1400 Grounds for enforcement cation, may be enforced upon any basis
actions—SBA Lenders. in law or equity recognized by the
(a) Agreements. By making SBA 7(a) court. The SBA Supervised Lender’s
guaranteed loans or 504 loans, SBA consent does not preclude such Lender
Lenders automatically agree to the from contesting whether or not SBA
terms, conditions, and remedies in has established the grounds for seeking
Loan Program Requirements, as pro- the remedy of a receivership. The SBA
mulgated or issued from time to time Supervised Lender’s consent to receiv-
and as if fully set forth in the SBA ership as a remedy does not require
Form 750 (Loan Guaranty Agreement),
SBA to seek appointment of a receiver
Development Company 504 Debenture,
in any particular SBA enforcement ac-
CDC Certification, Servicing Agent
Agreement, or other applicable partici- tion.
pation, guaranty, or supplemental (b) Scope. SBA may undertake one or
agreement. SBA Lenders further agree more of the enforcement actions listed
that a violation of Loan Program Re- in §§ 120.1300 and 120.1500, or as other-
quirements constitutes default under wise authorized by law, if SBA deter-
their respective agreements with SBA. mines that the grounds applicable to
(1) Additional agreements by CDCs. By the enforcement action exist. Para-
obtaining approval for 504 loans after graphs (c) through (e) of this section
January 1, 2018, a CDC consents to the list the grounds that trigger enforce-
remedies in § 120.1500(e)(3) and waives in ment actions against each type of SBA
advance any right it may have to con- Lender. In general, the grounds listed
test the validity of the appointment of in paragraph (c) apply to all SBA Lend-
a receiver. The CDC agrees that its ers. However, certain enforcement ac-
consent to SBA’s application to a Fed- tions against SBA Supervised Lenders
eral court of competent jurisdiction for require the existence of certain
appointment of a receiver of SBA’s grounds, as set forth in paragraphs (d)
choosing, an injunction or other equi- and (e). In addition, paragraph (f) of
table relief, and the CDC’s consent in this section lists two additional
advance to the court’s granting of grounds for taking enforcement action
SBA’s application, may be enforced against CDCs that do not apply to
upon any basis in law or equity recog- other SBA Lenders. SBA considers the
nized by the court. The CDC’s consent
severity or frequency of a violation in
does not preclude the CDC from con-
determining whether to take an en-
testing whether or not SBA has estab-
forcement action and the type of en-
lished the grounds for seeking the rem-
edy of a receivership. A CDC’s consent forcement action to take.
to receivership as a remedy does not (c) Grounds in general. Except as pro-
require SBA to seek appointment of a vided in paragraphs (d) and (e) of this
receiver in any particular SBA enforce- section, the grounds that may trigger
ment action. an enforcement action against any
(2) Additional agreements by SBA Su- SBA Lender (regardless of its Risk Rat-
pervised Lenders (except Other Regulated ing) include:
SBLCs). By making SBA 7(a) guaran- (1) Failure to maintain eligibility re-
teed loans after January 1, 2018, an quirements for specific SBA programs
SBA Supervised Lender (except an and delegated authorities, including
Other Regulated SBLC) consents to the but not limited to: 7(a), PLP,
348
SBAExpress, 504, ALP, PCLP, the al- (7) Repeated failure to correct con-
ternative loss reserve pilot program tinuing deficiencies;
and any pilot loan program; (8) Unauthorized disclosure of Re-
(2) Failure to comply materially with ports, Risk Rating, or Confidential In-
any requirement imposed by Loan Pro- formation;
gram Requirements; (9) Any other reason that SBA deter-
(3) Making a material false state- mines may increase SBA’s financial
ment or failure to disclose a material risk (for example, repeated Less Than
fact to SBA. (A material fact is any Acceptable Risk Ratings (generally in
fact which is necessary to make a conjunction with other indicators of
statement not misleading in light of increased financial risk); failure to
the circumstances under which the properly oversee Agent activity
statement was made.); (‘‘Agent’’ as defined in part 103 of this
(4) Not performing underwriting, title); or, indictment on felony or fraud
closing, disbursing, servicing, liquida- charges of an officer, key employee, or
tion, litigation or other actions in a loan agent involved with SBA loans for
commercially reasonable and prudent the SBA Lender);
manner for 7(a) or 504 loans, respec- (10) As otherwise authorized by law;
tively, as applicable. Evidence of such (11) For immediate suspension of all
performance or actions may include, SBA Lenders from delegated authori-
but is not limited to, the SBA Lender ties—upon a determination by SBA
having a repeated Less Than Accept- that:
able Risk Rating (generally in conjunc- (i) One or more of the grounds in
tion with other evidence) or an on-site paragraph (c) or (f) of this section, as
review/examination assessment which applicable, exists; and
is Less Than Acceptable; (ii) Immediate action is needed to
(5) Failure within the time period protect the interests of the Federal
specified to correct an underwriting, Government (such as where there is
closing, disbursing, servicing, liquida- risk of immediate harm or loss, a sig-
tion, litigation, or reporting defi- nificant program integrity concern, or
ciency, or failure in any material re- clear evidence of conduct indicating a
spect to take other corrective action, lack of business integrity); and
after receiving notice from SBA of a (12) For immediate suspension of all
deficiency and the need to take correc- SBA Lenders (except SBA Supervised
tive action; Lenders, which are covered under para-
(6) Engaging in a pattern of unco- graph (d)(2) of this section) from the
operative behavior or taking an action authority to participate in the SBA
that SBA determines is detrimental to loan program, including the authority
the integrity or reputation of an SBA to make, service, liquidate, or litigate
program, that undermines manage- 7(a) or 504 loans—upon a determination
ment or administration of a program, by SBA that:
or that is not consistent with stand- (i) One or more of the grounds in
ards of good conduct. Prior to issuing a paragraph (c) or (f) of this section, as
notice of a proposed enforcement ac- applicable, exists; and
tion or immediate suspension under (ii) Immediate action is needed to
§ 120.1500 based upon this paragraph, protect the interests of the Federal
SBA must send prior written notice to Government (such as where there is
the SBA Lender explaining why the risk of immediate harm or loss, a sig-
SBA Lender’s actions were uncoopera- nificant program integrity concern, or
tive, detrimental to the program, un- clear evidence of conduct indicating a
dermined SBA’s management of the lack of business integrity).
program, or were not consistent with (d) Grounds required for certain en-
standards of good conduct. The prior forcement actions against SBA Supervised
notice must also state that the SBA Lenders (except Other Regulated SBLCs)
Lender’s actions could give rise to a or, as applicable, Other Persons. For pur-
specified enforcement action, and proposes of Subpart I, Other Person means
vide the SBA Lender with a reasonable a Management Official, attorney, ac-
time to cure the deficiency before any countant, appraiser, Lender Service
further action is taken; Provider or other individual involved
349
§ 120.1400 13 CFR Ch. I (1–1–23 Edition)
in the SBA Supervised Lender’s oper- meaning of this provision when all of
ations. For the below listed SBA Su- its capital, surplus, and undivided prof-
pervised Lender enforcement actions, its are absorbed in funding losses and
the grounds that are required to take the remaining assets are not sufficient
the enforcement action are: to pay and discharge its contracts,
(1) For SBA program suspensions and debts, and other obligations as they
revocations— come due.
(i) False statements knowingly made (6) For transfer of servicing activity—
in any required written submission to (i) Where grounds for transfer of
SBA; or Loan portfolio are met; or
(ii) An omission of a material fact (ii) Where the SBA Supervised Lend-
from any written submission required er is otherwise operating in an unsafe
by SBA; or and unsound condition.
(iii) A willful or repeated violation of (7) For order to remove Management Of-
SBA Loan Program Requirements; or ficial—where, in the opinion of the Ad-
(iv) A willful or repeated violation of ministrator or his/her delegatee, the
any condition imposed by SBA with re- Management Official—
spect to any application or request (i) Willfully and knowingly com-
with SBA; or mitted a substantial violation of the
(v) A violation of any cease and de- Act, SBA regulation, a final cease and
sist order of SBA. desist order, or any agreement by the
(2) For SBA program immediate suspen- Management Official or the SBA Su-
sion—SBA may suspend an SBA Super- pervised Lender under the Act or SBA
vised Lender, effective immediately, if regulations, or
in addition to meeting the grounds set (ii) Willfully and knowingly com-
forth in paragraph (d)(1) of this section, mitted a substantial breach of a fidu-
the Administrator (or the Deputy Ad- ciary duty of that person as a Manage-
ministrator, only if the Administrator ment Official and the violation or
is unavailable to take such action) breach of fiduciary duty is one involv-
finds extraordinary circumstances and ing personal dishonesty on the part of
takes such action in order to protect such Management Official, or
the financial or legal position of the (iii) The Management Official is con-
United States. victed of a felony involving dishonesty
(3) For cease and desist orders— or breach of trust and the conviction is
(i) A violation of SBA Loan Program no longer subject to further judicial re-
Requirements; or view (excludes writ of habeas corpus).
(ii) Where an SBA Supervised Lender (8) For order to suspend or prohibit par-
or Other Person engages in or is about ticipation of Management Official (in-
to engage in any acts or practices that terim measure pending removal)—
will violate SBA Loan Program Re- where SBA is undertaking enforcement
quirements. action of removal of a Management Of-
(4) For an emergency cease and desist ficial.
order— (9) For order to suspend or prohibit par-
(i) Where grounds for cease and desist ticipation of Management Official due to
order are met, criminal charges—where the Manage-
(ii) The Administrator (or the Deputy ment Official is charged in any infor-
Administrator, only if the Adminis- mation, indictment or complaint au-
trator is unavailable to take such ac- thorized by a United States attorney
tion) finds extraordinary cir- with a felony involving dishonesty or
cumstances, and breach of trust.
(iii) In order to protect the financial (e) Grounds required for certain en-
or legal position of the United States. forcement actions against SBLCs and
(5) For transfer of Loan portfolio— Other Regulated SBLCs—(1) Capital di-
(i) Where a court has appointed a re- rective. If the AA/CA determines that
ceiver; or an SBLC is capitally impaired or is
(ii) The SBA Supervised Lender is ei- otherwise being operated in an impru-
ther not in compliance with capital re- dent manner, the AA/CA may, in addi-
quirements or is insolvent. An SBA Su- tion to any other action authorized by
pervised Lender is insolvent within the law, issue a directive to the SBLC to
350
increase capital consistent with (iv) Communicate and file reports

§ 120.1500(d)(1). within six months after beginning par-
(2) Civil action for termination. If an ticipation in program;
SBLC violates the Act or SBA regula- (v) Maintain a currency rate of 85%
tions, SBA may institute a civil action or more for the Intermediary’s SBA
to terminate SBLC rights, privileges, Microloan portfolio (that is, loans that
and the franchise under § 120.1500(d)(2). are no more than 30 days late in sched-
(f) Additional grounds specific to CDCs. uled payments);
In addition to the grounds set forth in (vi) Maintain a default rate in the
paragraphs (b) and (c) of this section, Intermediary’s Microloan portfolio of
SBA may take enforcement action 15% or less of the cumulative dollars
against a CDC for: loaned under the program;
(1) Failure to receive SBA approval (vii) Maintain a staff trained in
for at least four 504 loans during the Microloan Program issues and Loan
last two consecutive fiscal years, or Program Requirements;
(2) For PCLP CDCs, failure to estab- (viii) Maintain the financial ability
lish or maintain a LLRF as required by to sustain the Intermediary’s oper-
the PCLP. ations (including, but not limited to,
adequate capital), as determined by
[73 FR 75521, Dec. 11, 2008, as amended at 82 SBA;
FR 39505, Aug. 21, 2017; 85 FR 14782, Mar. 16, (ix) Satisfactorily provide in-house
2020; 87 FR 38909, June 30, 2022] technical assistance to Microloan bor-
rowers and prospective Microloan bor-
§ 120.1425 Grounds for formal enforce-
ment actions—Intermediaries par- rowers; or
ticipating in the Microloan Pro- (x) Close and fund the required num-
gram. ber of microloans per year under
§ 120.716;
(a) Agreement. By participating in the
(3) Failure within the time period
SBA Microloan Program, Inter-
specified to correct an underwriting,
mediaries automatically agree to the
closing, disbursing, servicing, liquida-
terms, conditions, and remedies in this
tion, litigation, or reporting defi-
part as if fully set forth in their par-
ciency, or failure in any material re-
ticipation agreement and all other
spect to take other corrective action,
agreements jointly executed by the
after receiving notice from SBA of a
Intermediary and SBA.
deficiency and the need to take correc-
(b) Scope. SBA may undertake one or tive action;
more of the formal enforcement ac- (4) Engaging in a pattern of unco-
tions listed in § 120.1540, or as otherwise operative behavior or taking an action
authorized by law, if SBA determines that SBA determines is detrimental to
that any of the grounds listed in para- the integrity or reputation of the
graph (c) of this section exist. Microloan Program, that undermines
(c) Grounds in general. For any Inter- management or administration of the
mediary, grounds that may trigger en- program, or that is not consistent with
forcement action against the Inter- standards of good conduct. Prior to
mediary (regardless of its Risk Rating) issuing a notice of a proposed formal
include: enforcement action or immediate sus-
(1) Failure to comply materially with pension under § 120.1540 based upon the
any requirement imposed by Loan Pro- grounds discussed in this paragraph
gram Requirements; (c)(4), SBA must send prior written no-
(2) Failure to meet any one of the fol- tice to the Intermediary explaining
lowing performance standards: why the Intermediary’s actions were
(i) Coverage of the service territory uncooperative, detrimental to the pro-
assigned by SBA, including honoring gram, undermined SBA’s management
SBA’s determined boundaries of neigh- of the program, or were not consistent
boring intermediaries; with standards of good conduct. The
(ii) Fulfill reporting requirements; prior notice must also state that the
(iii) Manage program funds and Intermediary’s actions could give rise
matching funds in a satisfactory and fi- to a specified formal enforcement ac-
nancially sound manner; tion, and provide the Intermediary
351
§ 120.1500 13 CFR Ch. I (1–1–23 Edition)
with a reasonable time to cure the defi- tion will not, by itself, invalidate a
ciency before any further action is guaranty previously provided by SBA.
taken; (a) Formal enforcement actions for all
(5) Any other reason that SBA deter- SBA Lenders—(1) Imposition of portfolio
mines may increase SBA’s financial or guaranty dollar limit. SBA may limit
program risk (for example, repeated the maximum dollar amount that SBA
Less Than Acceptable Risk Ratings will guarantee on the SBA Lender’s
(generally in conjunction with other SBA loans or debentures.
indicators of increased risk) or indict- (2) Suspension or revocation of dele-
ment on felony or fraud charges of an gated authority. SBA may suspend or
officer, key employee, or loan agent in- revoke an SBA Lender’s delegated au-
volved with SBA programs for the thority (including, but not limited to,
Intermediary); PLP, SBA Express, or PCLP delegated
(6) For immediate suspension of an authorities).
Intermediary—upon a determination (3) Suspension or revocation from SBA
by SBA that: program. SBA may suspend or revoke
(i) One or more of the grounds in an SBA Lender’s authority to partici-
paragraph (c) of this section exists; and pate in the SBA loan program, includ-
(ii) Immediate action is needed to ing the authority to make, service, liq-
protect the interests of the Federal uidate, or litigate 7(a) or 504 loans. Sec-
Government (such as where there is tion 120.1400(d)(1) sets forth the
risk of immediate harm or loss, a sig- grounds for SBA program suspension or
nificant program integrity concern, or revocation of an SBA Supervised Lend-
clear evidence of conduct indicating a er (except Other Regulated SBLCs).
lack of business integrity); and The grounds for SBA program suspen-
(7) As otherwise authorized by law. sion or revocation for all other SBA
[73 FR 75521, Dec. 11, 2008, as amended at 80 Lenders are set forth in § 120.1400(c)
FR 34047, June 15, 2015; 85 FR 14782, Mar. 16, and, as applicable, paragraph (f) of
2020] § 120.1400.
(4) Immediate suspension. SBA may
§ 120.1500 Types of formal enforce- suspend, effective immediately, an
ment actions—SBA Lenders. SBA Lender’s delegated authority or
Upon a determination that the authority to participate in the SBA
grounds set forth in § 120.1400 exist, the loan program, or the authority to
D/OCRM may undertake, in his/her dis- make, service, liquidate, or litigate
cretion (and with the involvement of 7(a) or 504 loans. Section 120.1400(d)(2)
the LOC as appropriate and consistent sets forth the grounds for SBA program
with its assigned responsibilities), one immediate suspension of an SBA Su-
or more of the following formal en- pervised Lender (except Other Regu-
forcement actions for each of the types lated SBLCs). The grounds for SBA
of SBA Lender listed, and is not re- program immediate suspension for all
stricted from delegating as appro- other SBA Lenders and the grounds for
priate. SBA will consider the severity immediate suspension of delegated au-
or frequency of the violation or action thority for all SBA Lenders are set
and the circumstances triggering the forth in § 120.1400(c)(11) and
ground in determining whether and § 120.1400(c)(12).
what type of enforcement action to (5) Debarment. In accordance with 2
take. SBA will take formal enforce- CFR Parts 180 and 2700, SBA may take
ment action in accordance with proce- any necessary action to debar a Per-
dures set forth in § 120.1600. If formal son, as defined in § 120.10, including but
enforcement action is taken under this not limited to an officer, a director, a
section and the SBA Lender fails to im- general partner, a manager, an em-
plement required corrective action in ployee, an agent or other participant in
any material respect within the re- the affairs of an SBA Lender’s SBA op-
quired timeframe in response to the erations.
formal enforcement action, the D/ (6) Other actions available under law.
OCRM may take further enforcement SBA may take all other enforcement
action, as authorized by law. SBA’s de- actions against SBA Lenders available
cision to take a formal enforcement ac- under law.
352
(b) Formal enforcement actions specific of the SBA Supervised Lender or in re-
to 7(a) Lenders. In addition to those for- viewing, approving, closing, servicing,
mal enforcement actions applicable to liquidating or litigating any 7(a) loan,
all SBA Lenders, SBA may take the or any other activities of the SBA Su-
following actions: pervised Lender while the removal pro-
(1) Secondary market suspension or ceeding is pending in order to protect
revocation (other than temporary sus- an SBA Supervised Lender or the inter-
pension and revocation under § 120.660). ests of SBA or the United States.
SBA may suspend or revoke a 7(a) (3) Initiate request for appointment of
Lender’s authority to sell or purchase receiver and/or other relief. The SBA
loans or certificates in the Secondary may make application to any Federal
Market; or court of competent jurisdiction for the
(2) Civil monetary penalty (other court to take exclusive jurisdiction,
than SBA Supervised Lender civil mon- without notice, of an SBA Supervised
etary penalty under § 120.465). SBA may Lender, and SBA shall be entitled to
assess a civil monetary penalty against the appointment of a receiver of SBA’s
a 7(a) Lender. The civil monetary pen- choosing to hold, administer, operate,
alty will be in an amount not to exceed and/or liquidate the SBA Supervised
the maximum published in the FED- Lender; and to such injunctive or other
ERAL REGISTER from time to time, equitable relief as may be appropriate.
which will be $268,694 plus any in- Without limiting the foregoing and
creases required under law. In deter- with SBA’s written consent, the re-
mining whether to assess a civil mone- ceiver may take possession of the port-
tary penalty and, if so, in what folio of 7(a) loans and sell such loans to
amount, SBA may consider, for exam- a third party, and/or take possession of
ple, the following: The gravity (e.g., se- servicing activities of 7(a) loans and
verity and frequency) of the violation; sell such servicing rights to a third
the history of previous violations; the party. In deciding whether to seek the
financial resources and good faith of appointment of a receiver and in deter-
the 7(a) Lender; and any other matters mining the scope of a receivership,
as justice may require. SBA will consider the following fac-
(c) Formal enforcement actions specific tors, in its discretion:
to SBA Supervised Lenders and Other (i) for NFRLs:
Persons (except Other Regulated SBLCs). (A) the existence of fraud or false
In addition to those enforcement ac- statements;
tions listed in paragraphs (a) and (b) of (B) the NFRL’s refusal to cooperate
this section, SBA may take any one or with SBA enforcement action instruc-
more of the following enforcement actions or orders;
tions specific to SBA Supervised Lend- (C) the NFRL’s insolvency (legal or
ers and as applicable, Other Persons: equitable);
(1) Cease and desist order. SBA may
(D) the size of the NFRL’s SBA loan
issue a cease and desist order against
portfolio(s) in relation to other activi-
the SBA Supervised Lender or Other
ties of the NFRL;
Person. The Cease and Desist order
(E) the dollar amount of any claims
may either require the SBA Supervised
SBA may have against the NFRL;
Lender or the Other Person to take a
specific action, or to refrain from a (F) the NFRL’s failure to comply ma-
specific action. The Cease and Desist terially with any requirement imposed
Order may be issued as effective imme- by Loan Program Requirements; and/or
diately (or as a proposal for Order). (G) the existence of other non-SBA
SBA may include in the cease and de- enforcement actions against the NFRL;
sist order the suspension of authority (ii) for SBLCs:
to lend. (A) the existence of fraud or false
(2) Remove Management Official. SBA statements;
may issue an order to remove a Man- (B) the SBLC’s refusal to cooperate
agement Official from office. SBA may with SBA enforcement action instruc-
suspend a Management Official from tions or orders;

office or prohibit a Management Offi- (C) the SBLC’s insolvency (legal or
cial from participating in management equitable);
353
§ 120.1510 13 CFR Ch. I (1–1–23 Edition)
(D) the dollar amount of any claims (v) Undertake a combination of any
SBA may have against the SBLC; and/ of these or similar actions.
or (2) Civil action for termination. SBA
(E) the SBLC’s failure to comply ma- may institute a civil action to termi-
terially with any requirement imposed nate the rights, privileges, and fran-
by Loan Program Requirements. chises of an SBLC.
(4) Civil monetary penalties for report (e) Formal enforcement actions specific
filing failure under § 120.465. SBA may to CDCs. In addition to those enforce-
seek civil penalties, in accordance with ment actions listed in paragraph (a) of
§ 120.465, against an SBA Supervised this section, SBA may take any one or
Lender that fails to file any regular or more of the following enforcement ac-
special report by its due date as speci- tions specific to CDCs:
fied by regulation or SBA written di- (1) Require the CDC to transfer part
rective. or all of its existing 504 loan portfolio
(d) Formal enforcement actions specific and/or part or all of its pending 504
to SBLCs. In addition to those super- loan applications to SBA, another CDC,
visory actions listed in paragraphs (a), or any other entity designated by SBA.
(b), and (c) of this section, SBA may Any such transfer may be on a tem-
take the following enforcement actions porary or permanent basis, in SBA’s
specific to SBLCs. discretion; or
(1) Capital directive. The AA/CA may (2) Instruct the Central Servicing
issue a capital directive upon a deter- Agent to withhold payment of serv-
mination that the grounds in icing, late and/or other fee(s) to the
§ 120.1400(e)(1) exist. A directive may CDC.
order the SBLC to: (3) Apply to any Federal court of
(i) Achieve its minimum capital re- competent jurisdiction for the court to
quirement applicable to it by a speci- take exclusive jurisdiction, without no-
fied date; tice, of the CDC, and SBA shall be enti-
(ii) Adhere to a previously submitted tled to the appointment of a receiver of
capital restoration plan (provided SBA’s choosing to hold, administer, op-
under § 120.462 or § 120.1055) to achieve erate and/or liquidate the CDC; and to
the applicable capital requirement; such injunctive or other equitable re-
(iii) Submit and adhere to a capital lief as may be appropriate. SBA will
restoration plan acceptable to SBA de- limit the scope of the receivership to
scribing the means and time schedule the CDC’s assets related to the SBA
by which the SBLC will achieve the ap- loan program(s) except where the
plicable capital requirement (The CDC’s business is almost exclusively
SBLC must provide its capital restora- SBA-related. SBA will only seek a re-
tion plan within 30 days from the date ceivership if there is either the exist-
of the SBA order unless SBA notifies ence of fraud or false statements, or if
the SBLC that the plan is to be filed the CDC has refused to cooperate with
within a different time period. SBA SBA enforcement action instructions
may perform an on-site examination or orders. Without limiting the fore-
(generally within 90 days after the res- going and with SBA’s consent, the re-
toration plan is submitted) to verify ceiver may take possession of the port-
the implementation of the plan and folio of 504 loans and/or pending 504
verify that the SBLC meets minimum loan applications, including for the
capital requirements.); purpose of carrying out an enforcement
(iv) Refrain from taking certain ac- order under paragraph (e)(1) of this sec-
tions without obtaining SBA’s prior tion.
written approval (Such actions may in- [73 FR 75521, Dec. 11, 2008, as amended at 82
clude but are not limited to: paying FR 39506, Aug. 21, 2017; 84 FR 12061, Apr. 1,
any dividend; retiring any equity; 2019; 85 FR 14783, Mar. 16, 2020; 86 FR 52957,
maintaining a rate of growth that Sept. 24, 2021; 87 FR 28758, May 11, 2022; 87 FR
causes further deterioration in the cap- 38910, June 30, 2022]
ital percentage; securitizing any
unguaranteed portion of its 7(a) loans; § 120.1510 Other Regulated SBLCs.

or selling participations in any of its Other Regulated SBLCs are exempt
7(a) loans); or from §§ 120.465, 120.1050(b), 120.1400(d),
354
120.1500(c), and 120.1600(b). This exemp- ceiving the results of the examination.
tion is not intended to preclude SBA To retain its status as an Other Regu-
from seeking any other remedy author- lated SBLC, the Other Regulated SBLC
ized by law or equity. must receive such examination, and
[73 FR 75521, Dec. 11, 2008] provide the written notification to
SBA, at least once every two years fol-
§ 120.1511 Certification and other re- lowing initial certification.
porting and notification require- (d) Report. An Other Regulated SBLC
ments for Other Regulated SBLCs. must report in writing to SBA on its
(a) Certification. An SBLC seeking interactions with other Federal Finan-
Other Regulated SBLC status must cial Institution Regulators or state
certify to SBA in writing that its lend- banking regulator (e.g., the results of
ing activities are subject to regulation the safety and soundness examinations
by a Federal Financial Institution Reg- and any order issued against the Other
ulator or state banking regulator. This Regulated SBLC), to the extent al-
certification must be executed by the lowed by law.
chair of the board of directors of the (e) Notification of change in status. If,
SBLC and submitted to SBA either: for any reason, an Other Regulated
(1) Within 60 calendar days of the ef- SBLC becomes no longer subject to
fective date of this section or regulation by a Federal Financial In-
(2) If the SBLC becomes subject to stitution Regulator or state banking
regulation by a Federal Financial In- regulator, the Other Regulated SBLC
stitution Regulator or state banking must immediately notify SBA in writ-
regulator after the effective date of ing, and the exemption provided in
this section for any reason (e.g. license § 120.1510 will immediately no longer
transfers), within 60 days of the date apply.
that the SBLC becomes directly exam- (f) Extension of timeframes. SBA may
ined and directly regulated by such in its discretion extend any timeframe
regulator. imposed on the SBLC under this sec-
(b) Contents of Certification: This cer- tion if the SBLC can show good cause
tification must include: for any delay in meeting the time re-
(1) The identity of the Federal Finan- quirement. The SBLC may appeal this
cial Institution Regulator or state decision to the AA/CA.
banking regulator that regulates the (g) Failure to satisfy requirements. In
lending activities of the SBLC; the event that an SBLC fails to satisfy
(2) A statement that the Federal Fi- the requirements set forth in para-
nancial Institution Regulator or state graphs (a), (b), and (c) of this section,
banking regulator identified in para- then the exemption provided in
graph (b)(1) of this section regularly § 120.1510 will not apply to the SBLC.
conducts safety and soundness exami-
nations on the SBLC itself and not [73 FR 75521, Dec. 11, 2008]
only on the SBLC’s parent company or
affiliate, if any; and § 120.1540 Types of formal enforce-
(3) The date of the most recent safety ment actions—Intermediaries par-
and soundness examination conducted ticipating in the Microloan Pro-
gram.
on the SBLC by the Federal Financial
Institution Regulator or state banking Upon a determination that any
regulator. To qualify as an Other Regu- ground set out in § 120.1425 exists, the
lated SBLC, the SBLC must have re- D/OCRM may undertake, in his/her dis-
ceived this examination within the cretion (and with the involvement of
past 3 years of the date of certification. the LOC as appropriate and consistent
(c) Notification of examination. An with its assigned responsibilities), one
Other Regulated SBLC must notify or more of the following formal en-
SBA in writing each time a Federal Fi- forcement actions against an Inter-
nancial Institution Regulator or state mediary, and is not restricted from del-
banking regulator conducts a safety egating as appropriate:
and soundness examination, and this (a) Suspension. SBA may suspend an
notification must be submitted to SBA Intermediary’s authority to participate
within 30 calendar days of the SBLC rein the Microloan Program, which may
355
§ 120.1600 13 CFR Ch. I (1–1–23 Edition)
include, but is not limited to, the au- SBA will follow the procedures listed
thority to make, service, liquidate, in this section.
and/or litigate SBA microloans, and (1) SBA’s notice of formal enforcement
the imposition of a freeze on the action. (i) When undertaking an imme-
Intermediary’s MRF and LLRF ac- diate suspension under § 120.1500(a)(4),
counts. or prior to undertaking a formal en-
(b) Immediate suspension. SBA may forcement action set forth in
suspend, effective immediately, an § 120.1500(a), (b), and (e) and § 120.1540,
Intermediary’s authority to participate SBA will issue a written notice to the
in the Microloan Program, which may affected SBA Lender or Intermediary
include, but is not limited to, the au- identifying the proposed formal en-
thority to make, service, liquidate, forcement action or notifying it of an
and/or litigate SBA microloans, and immediate suspension. The notice will
the imposition of an immediate freeze set forth in reasonable detail the un-
on the Intermediary’s MRF and LLRF derlying facts and reasons for the pro-
accounts. Section 120.1425(c)(6) sets posed action or immediate suspension.
forth the grounds for SBA Microloan If the notice is for a proposed or imme-
Program immediate suspension of an diate suspension, SBA will also state
Intermediary. the scope and term of the proposed or
(c) Revocation. SBA may revoke an immediate suspension.
Intermediary’s authority to participate (ii) If a proposed formal enforcement
in the Microloan Program which may action or immediate suspension is
include, but is not limited to: based upon information obtained from
(1) Removal from the program; a third party other than the SBA Lend-
(2) Liquidation of the Intermediary’s er, Intermediary, or SBA, SBA’s notice
MRF and LLRF accounts by SBA, and of proposed action or immediate sus-
application of the liquidated funds to pension will provide copies of docu-
any outstanding balance owed to SBA; mentation received from such third
party, or the name of the third party in
(3) Payment of outstanding debt to
case of oral information, unless SBA
SBA by the Intermediary;
determines that there are compelling
(4) Forfeiture or repayment of any
reasons not to provide such informa-
unused grant funds by the Inter-
tion. If compelling reasons exist, SBA
mediary;
will provide a summary of the informa-
(5) Debarment of the organization tion it received to the SBA Lender or
from receipt of Federal funds until Intermediary.
loan and grant repayments are met; (2) SBA Lender’s or Intermediary’s op-
and portunity to object. (i) An SBA Lender or
(6) Surrender of possession of Intermediary that desires to contest a
Intermediary’s SBA microloan port- proposed formal enforcement action or
folio to SBA, with the microloan port- an immediate suspension must file,
folio and all associated rights trans- within 30 calendar days of its receipt of
ferred on a permanent basis to SBA, in the notice or within some other term
accordance with SBA’s rights as a se- established by SBA in its notice, a
cured creditor. written objection with the appropriate
(d) Other actions. Such other actions Office of Capital Access official in ac-
available under law. cordance with Delegations of Author-
[85 FR 14783, Mar. 16, 2020] ity or other SBA official identified in
the notice. Notice will be presumed to
§ 120.1600 General procedures for for- have been received within five days of
mal enforcement actions against the date of the notice unless the SBA
SBA Lenders, SBA Supervised Lender or Intermediary can provide
Lenders, Other Regulated SBLCs, compelling evidence to the contrary.
Management Officials, Other Per- (ii) The objection must set forth in
sons, and Intermediaries. detail all grounds known to the SBA
(a) In general. Except as otherwise set Lender or Intermediary to contest the
forth for the formal enforcement ac- proposed action or immediate suspen-
tions listed in paragraphs (a)(6), (b), sion and all mitigating factors, and
and (c) of this section and in § 120.465, must include documentation that the
356
SBA Lender or Intermediary believes is compelling reasons beyond the SBA

most supportive of its objection. An Lender’s or Intermediary’s control as
SBA Lender or Intermediary must ex- to why it was not able to present a ma-
haust this administrative remedy in terial fact or argument to SBA, and
order to preserve its objection to a pro- that the SBA Lender or Intermediary
posed formal enforcement action or an has been prejudiced by not being able
immediate suspension. to present such information, the SBA
(iii) If an SBA Lender or Inter- Lender or Intermediary may submit
mediary can show legitimate reasons such information to SBA and request
as determined by SBA in SBA’s discre- that the Agency consider such informa-
tion why it does not understand the tion in its final agency decision.
reasons given by SBA in its notice of (3) SBA’s notice of final agency decision
the action, the Agency will provide on a formal enforcement action where an
clarification. SBA will provide the re- SBA Lender or Intermediary filed objec-
quested clarification in writing to the tion to the proposed action or immediate
SBA Lender or Intermediary or notify suspension. (i) If the affected SBA Lend-
the SBA Lender or Intermediary in er or Intermediary files a timely writ-
writing that SBA has determined that ten objection to a proposed formal en-
such clarification is not necessary. forcement action other than an imme-
SBA, in its discretion, will further ad- diate suspension in accordance with
vise in writing whether the SBA Lend- this section, SBA must issue a written
er or Intermediary may have addi- notice of final agency decision to the
tional time to present its objection to
affected SBA Lender or Intermediary
the notice. Requests for clarification
advising whether SBA is undertaking
must be made to the appropriate Office
the proposed formal enforcement ac-
of Capital Access official in accordance
tion and setting forth the grounds for
with Delegations of Authority in writ-
the decision. SBA will issue such a no-
ing and received by SBA within the 30
tice of decision within 90 days of either
day timeframe or the timeframe given
receiving the objection or from when
by the notice for response.
additional information is provided
(iv) An SBA Lender or Intermediary
under paragraph (a)(2)(v) or (a)(3)(iii) of
may request additional time to respond
this section, whichever is later, unless
to SBA’s notice if it can show that
there are compelling reasons why it is SBA provides notice that it requires
not able to respond within the 30 day additional time.
timeframe or the response timeframe (ii) If the affected SBA Lender or
given by the notice. If such requests Intermediary files a timely written ob-
are submitted to the Agency, SBA jection to a notice of immediate sus-
may, in its discretion, provide the SBA pension, SBA must issue a written no-
Lender or Intermediary with additional tice of final agency decision to the af-
time to respond to the notice of pro- fected SBA Lender or Intermediary
posed action or immediate suspension. within 30 days of receiving the objec-
Requests for additional time to respond tion advising whether SBA is con-
must be made in writing to the appro- tinuing with the immediate suspen-
priate Office of Capital Access official sion, unless SBA provides notice that
in accordance with Delegations of Au- it requires additional time. If the SBA
thority or other official identified in Lender or Intermediary submits addi-
the notice and received by SBA within tional information to SBA (under para-
the 30 day timeframe or the response graph (a)(2)(v) or (a)(3)(iii) of this sec-
timeframe given by the notice. tion) after submitting its objection but
(v) Prior to the issuance of a final before SBA issues its final agency deci-
agency decision by SBA, if an SBA sion, SBA must issue its final agency
Lender or Intermediary can show that decision within 30 days of receiving
there is newly discovered material evi- such information, unless SBA provides
dence which, despite the SBA Lender’s notice that it requires additional time.
or Intermediary’s exercise of due dili- (iii) Prior to issuing a notice of deci-
gence, could not have been discovered sion, SBA in its discretion can request
within the timeframe given by SBA to additional information from the af-
respond to a notice, or that there are fected SBA Lender or Intermediary or
357
§ 120.1600 13 CFR Ch. I (1–1–23 Edition)
other partiesand conduct any other in- remedies and to enforce the Certified
vestigation it deems appropriate. If Development Company’s consent and
SBA determines, in its discretion, to waiver in advance to those remedies.
consider an untimely objection, it (b) Procedures for certain formal en-
must issue a notice of final agency de- forcement actions against SBA Supervised
cision pursuant to this paragraph Lenders (except Other Regulated SBLCs)
(a)(3). and, where applicable, Management Offi-
(4) SBA’s notice of final agency decision cials and Other Persons—(1) Suspension
on a formal enforcement action where no and revocation actions and cease and de-
filed objection or untimely objection not sist orders. If SBA seeks to suspend or
considered. If SBA chooses not to con- revoke loan program authority (includ-
sider an untimely objection or if the af- ing, the authority to make, service,
fected SBA Lender or Intermediary liquidate, or litigate SBA loans), or
fails to file a written objection to a issue a cease and desist order to an
proposed formal enforcement action or SBA Supervised Lender or, as applica-
an immediate suspension, and if SBA ble, Other Person, SBA will follow the
continues to believe that such proposed procedures below in lieu of those in
formal enforcement action or imme- paragraph (a) of this section.
diate suspension is appropriate, SBA (i) Show cause order and hearing. The
must issue a written notice of final Administrator will serve upon the SBA
agency decision to the affected SBA Supervised Lender or Other Person an
Lender or Intermediary that SBA is order to show cause why an order sus-
undertaking one or more of the pro- pending or revoking the authority or
posed formal enforcement actions why a cease and desist order should not
against the SBA Lender or Inter- be issued. The show cause order will
mediary or that an immediate suspen- contain a statement of the matters of
sion of the SBA Lender or Inter- fact and law asserted by SBA, as well
mediary will continue. Such a notice of as the legal authority and jurisdiction
final agency decision need not state under which an administrative hearing
any grounds for the action other than will be held, and will set forth the
to reference the SBA Lender’s or place and time of the administrative
Intermediary’s failure to file a timely hearing. The hearing will be conducted
objection, and represents the final by an administrative law judge in ac-
agency decision. cordance with 5 U.S.C. 554–557, 15 U.S.C.
(5) Appeals. An SBA Lender or Inter- 650, and applicable sections of part 134
mediary may appeal the final agency of this chapter. The Administrative
decision to the appropriate Federal dis- Law Judge will issue a recommended
trict court. Alternatively, 7(a) Lenders decision based on the record.
may appeal such decisions (except for (ii) Witnesses. The party calling wit-
decisions against SBA Supervised nesses will pay the witness the same
Lenders that are covered by procedures fees and mileage paid witnesses for
in § 120.1600(b) or (c) or § 120.465) to their appearance in U.S. courts.
SBA’s Office of Hearings and Appeals (iii) Administrator finding and order
(‘‘OHA’’) within 30 calendar days of the issuance. If after the administrative
date of the decision, and in the event of hearing, or the SBA Supervised Lend-
such an appeal, OHA will issue its deci- er’s or Other Person’s waiver of the ad-
sion in accordance with part 134 of this ministrative hearing, the Adminis-
title. The enforcement action will re- trator determines that the order
main in effect pending resolution of should be issued, the Administrator
the appeal, if any. will issue an order to suspend or revoke
(6) Receiverships of Certified Develop- authority or a cease and desist order,
ment Companies and/or other relief. If as applicable. The order will include a
SBA undertakes the appointment of a statement of findings, the grounds and
receiver for a Certified Development reasons, and will specify the order’s ef-
Company and/or injunctive or other eq- fective date. SBA will serve the order
uitable relief, paragraphs (a)(1) through on the SBA Supervised Lender or Other
(5) of this section will not apply and Person. The Administrator may dele-
SBA will follow the applicable proce- gate the power to issue a cease and de-
dures under Federal law to obtain such sist order or to suspend or revoke loan
358
program authority only if the Adminis- misses the charges in the removal no-
trator is unavailable and only to the tice or, if an order to remove or pro-
Deputy Administrator. hibit participation is issued, until the
(iv) Judicial review. The order con- effective date of an order to remove or
stitutes a final agency action. The SBA prohibit. In the case of suspension or
Supervised Lender or Other Person will prohibition following criminal charges,
have 20 days from the order issuance it may remain in effect until the infor-
date to file an appeal in the appro- mation, indictment, or complaint is fi-
priate federal district court. nally disposed of, or until the suspen-
(2) Immediate suspension or immediate sion is terminated by SBA or by order
cease and desist order. If SBA under- of a district court. A Management Offi-
takes an immediate suspension of au- cial may appeal to the appropriate fed-
thority to participate in the 7(a) loan eral district court for a stay of the sus-
program or immediate cease and desist pension or prohibition pending comple-
order against an SBA Supervised Lend- tion of the administrative hearing not
er or, as applicable, Other Person, SBA later than 10 days from the suspension
will within two business days follow or prohibition’s effective date.
the procedures set forth in paragraph (iii) Decision. SBA may issue the
(b)(1) of this section. order of removal if the Management
(3) Removal of Management Official. If Official consents or is convicted of the
SBA undertakes the removal of a Man- criminal charges and the judgment is
agement Official of an SBA Supervised not subject to further judicial review
Lender, SBA will follow the procedures (not including writ of habeas corpus),
below in lieu of those in paragraph (a) or if upon a record of a hearing, SBA
of this section. finds that any of the notice grounds
(i) Notice and hearing. SBA will serve have been established. After the hear-
upon the Management Official and the ing, in the latter case, and within 30
SBA Supervised Lender written notice days after SBA has notified the parties
of intention to remove that includes a that the case has been submitted for
statement of the facts constituting the final decision, SBA will render a deci-
grounds and the date, time, and place sion (which includes findings of fact
for an administrative hearing. The ad- upon which the decision is predicated)
ministrative hearing will be held be- and issue and serve an order upon each
tween 30 and 60 days from the date no- party to the proceeding. The decision
tice is served, unless an earlier or later will constitute final agency action.
date is set at the request of the Man- (iv) Effective date and judicial review.
agement Official for good cause shown The removal order will take effect 30
or at the request of the Attorney Gen- days after date of service upon the SBA
eral. The hearing will be conducted in Supervised Lender and the Manage-
accordance with 5 U.S.C. 554–557, 15 ment Official except in case of consent
U.S.C. 650 and applicable sections of which will be effective at the time
part 134 of this chapter. Failure of the specified in the order or in case of re-
Management Official to appear at the moval for conviction on criminal
administrative hearing will constitute charges the order will be effective upon
consent to the removal order. SBA will removal order service on the SBA Su-
serve on the SBA Supervised Lender a pervised Lender and the Management
copy of each notice that is served on a Official. The order will remain effec-
Management Official. tive and enforceable, except to the ex-
(ii) Suspension from office or prohibi- tent it is stayed, modified, terminated,
tion in participation, pending removal. or set aside by Administrator or a re-
The suspension or prohibition will take viewing court. The adversely affected
effect upon service of intention to re- party will have 20 days from the order
move the Management Official or such issuance date to seek judicial review in
subsequent time as the Administrator the appropriate federal district court.
or his/her delegate deems appropriate (4) Receiverships, transfer of assets and
and serves notice. It will remain in ef- servicing activities. If SBA undertakes
fect pending the completion of the ad- the appointment of a receiver for, or
ministrative proceedings to remove the transfer of assets or servicing
and until such time as either SBA dis- rights of an SBA Supervised Lender
359
§ 120.1600 13 CFR Ch. I (1–1–23 Edition)
and/or injunctive or other equitable re- (3) Decision. After the closing date of
lief, SBA will follow the applicable pro- the SBLC’s response period, or receipt
cedures under Federal law to obtain of the SBLC’s response, if earlier, SBA
such remedies and to enforce the SBA may seek additional information or
Supervised Lender’s consent and waiv- clarification of the response. There-
er in advance to those remedies. after, SBA will determine whether or
(5) Civil penalties for report filing fail- not to issue a capital directive, and if
ure. If SBA seeks to impose civil pen- one is to be issued, whether it should
alties against an SBA Supervised Lend- be as originally proposed or in modified
er for failure to file a report in accord- form.
ance with SBA regulations or written (4) Issuance of a capital directive. (i) A
directive, SBA will follow the proce- capital directive will be served by de-
dures set forth for enforcement actions livery to the SBLC. It will include, or
in § 120.465. be accompanied by, a statement of rea-
(c) Additional procedures for certain sons for its issuance.
formal enforcement actions against (ii) A capital directive is effective
SBLCs. Capital directive—(1) Notice of in-
immediately upon its receipt by the
tent to issue capital directive. SBA will
SBLC, or upon such later date as may
notify an SBLC in writing of its inten-
be specified therein, and will remain ef-
tion to issue a directive. The notice
will state: fective and enforceable until it is
stayed, modified, or terminated by
(i) Reasons for issuance of the direc-
tive and SBA.
(ii) The proposed contents of the di- (5) Reconsideration based on change in
rective. circumstances. Upon a change in cir-
(2) Response to notice. (i) An SBLC cumstances, an SBLC may request SBA
may respond to the notice by stating to reconsider the terms of its capital
why a capital directive should not be directive or may propose changes in
issued and/or by proposing alternative the plan to achieve the SBLC’s applica-
contents for the capital directive or ble minimum capital requirement. SBA
seeking other appropriate relief. The also may take such action on its own
response must include any informa- initiative. SBA may decline to consider
tion, mitigating circumstances, docu- requests or proposals that are not
mentation, or other relevant evidence based on a significant change in cir-
that supports its position. The re- cumstances or are repetitive or frivo-
sponse may include a plan for achiev- lous. Pending a decision on reconsider-
ing the minimum capital requirement ation, the capital directive and plan
applicable to the SBLC. The response will continue in full force and effect.
must be in writing and delivered to the (6) Relation to other administrative ac-
SBA within 30 days after the date on tions. A capital directive may be issued
which the SBLC received the notice. In in addition to, or in lieu of, any other
its discretion, SBA may extend the action authorized by law, including
time period for good cause. SBA may cease and desist proceedings. SBA also
shorten the 30-day time period: may, in its discretion, take any action
(A) When, in the opinion of SBA, the authorized by law, in lieu of a capital
condition of the SBLC so requires, pro- directive, in response to an SBLC’s
vided that the SBLC will be informed failure to achieve or maintain the ap-
promptly of the new time period;
plicable minimum capital requirement.
(B) With the consent of the SBLC; or
(7) Appeals. The capital directive con-
(C) When the SBLC already has ad- stitutes a final agency action. An
vised SBA that it cannot or will not
SBLC may appeal the final agency de-
achieve its applicable minimum capital
cision only in the appropriate federal
requirement.
district court.
(ii) Failure to respond within 30 days
or such other time period as may be [73 FR 75521, Dec. 11, 2008, as amended at 82
specified by SBA will constitute a FR 39506, Aug. 21, 2017; 85 FR 14784, Mar. 16,
waiver of any objections to the pro- 2020]
posed capital directive.
360
Subpart J—Establishment of SBA property and any improvements there-

Secondary Market Guarantee on, and any other amounts received in
Program for First Lien Position connection with the liquidation of the
504 Loan Pools Pool Loan, whether through Seller’s
sale, foreclosure sale, any offset or
workout, or otherwise.
SOURCE: 74 FR 56093, Oct. 30, 2009, unless
otherwise noted. Loan Interest. The right to receive the
owned portion of the principal balance
§ 120.1700 Definitions used in subpart of the Pool Loan together with interest
J. thereon at a per annum rate in effect
504 financing. The loans made to a from time to time in accordance with
small business to fund a Project under the First Lien Position 504 Loan Pool
the SBA’s development company loan Guarantee Agreement.
program authorized by Title V of the Maturity. The maturity of the Loan
Small Business Investment Act of 1958. Interest in the Pool that has the long-
Affiliate. A person or entity SBA de- est remaining term of any Loan Inter-
termines to be an affiliate of a Pro- est in the Pool. The maturity will
gram Participant pursuant to the ap- change from time to time due to pre-
plication of the principles and guide- payment or default on Loan Interests
lines set forth in § 121.103 of this Title. in the Pool.
Central Servicing Agent or CSA. The Ongoing Guarantee Fee. An annual fee
entity serving as SBA’s central serv-
collected monthly and based on the
icing agent for the Program.
percentage of the Pool Loan amount,
Certified Development Company or
CDC. An entity that meets the defini- pursuant to section 503(C)(3)(B)(ii) of
tion of a Certified Development Com- the Recovery Act, to result in a cost of
pany as defined in § 120.10 of this Part. the loan guarantee of zero as deter-
Current. That no scheduled payment mined under the Federal Credit Reform
owed by an Obligor pursuant to a Pool Act of 1990, as amended. The funds gen-
Note is over 29 days past due. erated by the fee serve as a reserve to
First Lien Position 504 Loan. The fi- pay for program losses.
nancing provided by the First Lien Po- Obligor. The obligor(s) under a Pool
sition 504 lender that is part of the 504 Note.
project financing. Pool. The aggregate of Loan Interests
First Lien Position 504 Loan Pool Guar- formed into a single pool by the Pool
antee Agreement. The agreement, in the Originator in accordance with the Pro-
form approved by SBA, wherein enti- gram. The Pool is comprised of an
ties agree to participate in the forming unguaranteed portion and an SBA-
of a Pool under the Program, available guaranteed portion. The unguaranteed
at http://www.sba.gov/aboutsba/ portion of the Pool backs the Pool
sbaprograms/elending/index.html/. Originator Receipt, and cannot be sold
Guide. The First Lien Position 504 to Pool Investors. The SBA-guaranteed
Loan Pooling Program Guide published portion of the Pool backs the Pool Cer-
by SBA which provides information ap- tificates sold to Pool Investors. The
plicable to the Program including, Seller’s Loan Interest is not included
among other things, requirements re-
in the Pool.
lating to the formation of a Pool,
available at http://www.sba.gov/ Pool Assembler. An entity that meets
aboutsba/sbaprograms/elending/ the qualifications of a Pool Assembler
index.html/. as set forth in section 120.630 of this
Liquidation Proceeds. Cash, including Part and has been approved as such by
insurance proceeds, proceeds of any SBA.
foreclosed-on property disposition, rev- Pool Certificate. The document rep-
enues received with respect to the con- resenting a beneficial fractional inter-
servation and disposition of a fore- est in the SBA-guaranteed portion of a
closed-on property or repossessed col- Pool.
lateral, including any real property se- Pooled. When one or more Loan Inter-
curing the Pool Loan, consisting of a ests in a Pool Loan has been put into a
commercial property or residential Pool.
361
§ 120.1700 13 CFR Ch. I (1–1–23 Edition)
Pooling. The transfer of one or more such things as repayment, collateral,

Loan Interests in a Pool Loan into a guarantees, control, maintenance of a
Pool. compensating balance, purchase of a
Pool Investor. An entity which holds a certificate of deposit or acceptance of a
Pool Certificate in accordance with separate or companion loan, without
Program Rules and Regulations. SBA’s consent. Seller’s agreement to
Pool Loan. A loan that meets the Pro- grant a Pool Loan’s Obligor a
gram eligibility requirements as set deferment in return for receiving more
forth in § 120.1704 of this subpart J and collateral on a different loan owned by
has been pooled. Seller is an example of a preference.
Pool Loan Receivables. Pool Loan pay- Program Rules and Regulations. This
ments, prepayments, or collections subpart J, as may be amended from
made in connection with the Pool Loan time to time by SBA (the Program
by the Obligor pursuant to Pool Note Regulations), the First Lien Position
or any other Pool Loan documents or 504 Loan Pool Guarantee Agreement,
agreements, or by another person or any other Program agreements signed
entity made on behalf of any such Pool by a Program Participant, if applica-
Loan obligor, and Liquidation Pro- ble, the Guide, the Recovery Act, and
ceeds. the provisions of subpart H governing
Pool Note. The document evidencing a Third Party Loans and Third Party
Pool Loan. Lenders.
Pool Originator. An entity approved Project. A project as defined by
by SBA to pool Loan Interests under § 120.802 of the Part.
the Program. SBA. The United States Small Busi-
Pool Originator Receipt. The document ness Administration, an agency of the
evidencing the Pool Originator’s re- United States Government.
tained ownership in a Pool it has Seller. An entity that has sold a Pool
formed under the Program. Loan to a Pool Originator to be Pooled
Premier Certified Lenders Program. The and any successor entity that has exe-
program defined in § 120.845 of this cuted the First Lien Position 504 Loan
Part. Pool Guaranty Agreement pursuant to
Program. The program authorized by § 120.1707.
section 503 of the American Recovery Seller’s Pool Loan. The Pool Loan sold
and Reinvestment Act of 2009. to a Pool Originator pursuant to the
Program Participant. An entity that First Lien Position 504 Loan Pool
executes the First Lien Position 504 Guarantee Agreement.
Loan Pool Guarantee Agreement as Seller Receipt. The document that evi-
Seller, Pool Originator, or Pool Inves- dences a Seller’s Loan Interest.
tor, and any successors or assignees Servicing Retention Amount. The
thereof. amount of a Pool Loan interest pay-
Program Participant Associate. (1) An ment retained by Seller for servicing
officer, director, key employee, or the Pool Loan that is payable and cal-
holder of 20 percent or more of the culated pursuant to the First Lien Po-
value of a Program Participant’s stock sition 504 Loan Pool Guarantee Agree-
or debt instruments, or (2) Any indi- ment.
vidual in which one or more individuals Weighted Average Interest Rate. The
referred to in paragraph (1) of this defi- dollar-weighted average interest rate
nition, or a spouse, or child, or sibling, of a Pool Certificate calculated by mul-
or the spouse of any such individual, tiplying the interest rate of each Loan
owns or controls at least 20 percent. Interest in the Pool by the ratio of
Program Preference. Any arrangement that Loan Interest’s current out-
giving the Seller, Pool Originator, or a standing principal in the SBA-guaran-
Program Associate or Affiliate of Sell- teed portion of the Pool (that is, the
er or Pool Originator, a preference or portion of the Pool Loan backing the
benefit of proportion greater than its Pool Certificates) to the current aggre-
Loan Interest as compared to Pool gate or outstanding principal of each
Originator, Pool Investor, or SBA re- Loan Interest in the SBA-guaranteed

lating to the making, servicing, or liq- portion of the Pool, and adding the
uidation of the Loan with respect to sum of the resulting products. The
362
Pool Certificate interest rate will fluc- Agreement. This fee is used to pay pro-
tuate over the life of the Pool as de- gram losses.
faults, prepayments and normal repay-
ments applicable to Loan Interests in § 120.1703 Qualifications to be a Pool
the Pool occur. Originator.
Weighted Average Maturity. The (a) Application to become Pool Origi-
weighted average maturity of a Pool nator. The application to become a
Certificate is a dollar weighted average Pool Originator is available from the
maturity that is calculated by multi- SBA and can be found on SBA’s
plying the remaining term, in months, website. In order to qualify as a Pool
of each Loan Interest in a Pool by the Originator, an entity must send the ap-
ratio of that Loan Interest’s current plication to the SBA and certify that it
outstanding pooled principal to the is a Pool Assembler or it:
current aggregate outstanding pooled (1) Is regulated by the appropriate
principal of all Loan Interests in the agency as defined in section 3(a)(34)(G)
Pool, and adding the sum of the result- of the Securities Exchange Act of 1934
ing products. The weighted average (15 U.S.C. 78c(a)(34)(G));
maturity of a Pool Certificate will (2) Meets all financial and other ap-
fluctuate over the life of the Pool as plicable requirements of its regulatory
Loan Interest defaults, prepayments authority and the Government Securi-
and normal Loan Interest repayments ties Act of 1986, as amended (Pub. L. 99–
occur. 571, 100 Stat. 3208);
(3) Has the financial capability to
§ 120.1701 Program purpose.
originate acceptable pools consisting of
As authorized by the American Re- eligible First Lien Position 504 Loans
covery and Reinvestment Act of 2009 in sufficient quantity to support the
(Recovery Act), SBA establishes the issuance of Pool Certificates;
Program to authorize an entity to (4) Is in good standing with SBA (as
apply for SBA’s guarantee of Pools the SBA determines), and is Satisfac-
comprised of portions of First Lien Po- tory with the Office of the Comptroller
sition 504 Loans backing Pool Certifi- of the Currency (OCC) if it is a national
cates to be sold to Pool Investors. The bank, the Federal Deposit Insurance
purpose of the Program is to tempo- Corporation if it is a bank not regu-
rarily provide a federal guarantee for lated by the OCC, the Financial Insti-
Pools of First Lien Position 504 Loans tutions Regulatory Authority if it is a
to facilitate the sale of such loans and member, the National Credit Union Ad-
increase the liquidity of the lenders ministration if it is a credit union, as
holding the loans so that the lenders determined by SBA; and
can use the sale proceeds to fund more (5) for any Pool Originator that is an
such loans. The Program’s authoriza- SBA Lender, that the SBA Lender has
tion expires on September 23, 2012 and satisfactory SBA performance, as de-
the Administrator may guarantee not termined by SBA in its sole discretion.
more than $3,000,000,000 of pools under (b) Approval by SBA. An entity may
this authority pursuant to section not submit applications to form Pools
503(c)(B)(iii) of the Recovery Act, as to the CSA until SBA has approved its
amended by section 1119 of the Small application to become a Pool Origi-
Business Jobs Act of 2010. nator.
[61 FR 3235, Jan. 31, 1996, as amended at 76 (c) Conduct of business by Pool Origi-
FR 63547, Oct. 12, 2011] nator. An entity continues to qualify as
a Pool Originator so long as it:
§ 120.1702 Program fee. (1) Meets the eligibility standards in
Ongoing Guarantee Fee. The Ongoing paragraph (a) of this section;
Guarantee Fee is payable to SBA, and (2) Conducts its business in accord-
it is calculated and payable monthly ance with SBA regulations and accept-
from the amounts received in respect ed securities or banking industry prac-
of interest on Loan Interests in the tices, ethics, and standards;
SBA-guaranteed portion of a Pool. This (3) Maintains its books and records in
amount is set forth in the First Lien accordance with generally accepted ac-
Position 504 Loan Pool Guarantee counting principles or in accordance
363
§ 120.1704 13 CFR Ch. I (1–1–23 Edition)
with the guidelines of the regulatory tions—713290 (‘‘Other Gambling Indus-

body governing its activities; and tries’’); golf courses—713910 (‘‘Golf
(4) Has not been suspended or termi- Courses and Country Clubs’’); or aquar-
nated from the Program by SBA. iums and zoos—712130 (‘‘Zoos and Bo-
[74 FR 56093, Oct. 30, 2009, as amended at 82 tanical Gardens’’).
FR 39506, Aug. 21, 2017] (b) SBA review of a Pool Loan prior to
pool formation. SBA has the right to re-
§ 120.1704 Pool Loans eligible for Pool- view any Pool Loan before a Loan In-
ing. terest in it is added to a Pool, and SBA
(a) General Pool Loan eligibility re- may prohibit the Pool’s formation as
quirements. For a First Lien Position proposed based on SBA’s review in
504 Loan to be eligible for Pooling it SBA’s sole discretion. In the event SBA
must: decides to review Pool Loan documents
(1) Be a loan that is: related to a Loan Interest prior to the
(i) A Third Party Loan as defined in requested Pool formation, that Loan
§ 120.801(c)(3); Interest may not be added to the Pool
(ii) Made by a private sector lender until SBA reviews and approves the
acceptable to SBA in its sole discre- Pool Loan for such purpose. Copies of
tion; and Pool Loan documents related to under-
(iii) Secured by a first lien on the writing and origination, and any other
Project Property as defined in § 120.801 Pool Loan-related documents SBA
of this chapter; may, in its sole discretion, request to
(2) Be part of a 504 financing that is review in writing, must be sent to
comprised of only one Third Party SBA’s Sacramento Pool Loan Proc-
Loan and one CDC 504 loan; the CDC 504 essing Center. The Pool Originator
loan must be funded by a Debenture must identify and SBA must review
that was been sold on or after February Pool Loan documents before a Loan In-
17, 2009; terest is added to a Pool if:
(3) Be Current and have been Current (1) The Pool Loan is to a business
for the six-month-period immediately within NAICS code 713940 covering Fit-
prior to the date the Pool is formed or ness and Recreational Sports Centers;
for the life of the Pool Loan, whichever (If SBA determines that a Pool Loan
time period is shorter; has had any of its proceeds used for
(4) Have been made and closed in a any of the restricted purposes listed
commercially reasonable manner, con- above, the Pool Loan will be prohibited
sistent with prudent lending standards;
from being part of a Pool.)
(5) Be part of a completed 504 financ-
ing, funded by a 504 debenture, which (2) The Pool Loan was part of a 504 fi-
means that the Pool Loan must be nancing involving a 504 loan that was
fully disbursed and the debenture fund- processed under SBA’s Premier Cer-
ing the related loan by a CDC must tified Lenders Program; or
have been sold on or after February 17, (3) The Project the Pool Loan fi-
2009; and nanced included the refinancing of ex-
(6) Not be: isting debt owed to the Seller or Third
(i) To a business deriving more than Party Lender (not including interim fi-
one-third of its gross annual revenue nancing associated with the Project).
from legal gambling activities;
(ii) To a casino, gambling establish- § 120.1705 Pool formation require-
ments.
ment, or casino hotel;
(iii) For financing the acquisition, (a) Initiation of Pool formation. Only
construction or renovation of an aquar- an entity approved by SBA to be a Pool
ium, zoo, golf course, or swimming Originator under the Program that
pool; or continues to qualify to be a Pool Origi-
(iv) To a business covered by a six- nator pursuant to this subpart may ini-
digit North American Industry Classi- tiate the formation of a Pool. The Pool
fication System (NAICS) code for casi- Originator creates the Pool subject to
nos—713210 (‘‘Casinos (Except Casino Program Rules and Regulations, in-

Hotels)’’); casino hotels—721120 (‘‘Ca- cluding the parameters set forth in the
sino Hotels’’); other gambling institu- Guide, and SBA approval.
364
(b) Adjustment of Pool requirements. § 120.1706 Pool Originator’s retained

SBA may adjust the Pool characteris- interest in Pool.
tics periodically based on program ex- The Pool Originator must retain an
perience and market conditions and ownership interest in any Pool it has
will publish a revised version of the formed that is equal to at least 5% of
Guide in the FEDERAL REGISTER to im- the aggregate of the total outstanding
plement such adjustments. Any such principal balance of each Pool Loan
adjustments shall not affect Pools with a Loan Interest in the Pool as cal-
formed prior to the adjustment. culated at the time of Pool formation.
(c) When the Pool Originator is the Sell- Such interest will decline with Loan
er. When a Pool Originator proposes to Interest payments, prepayments, de-
form a Pool involving a Pool Loan it faults and any other early termination.
owns, it must execute the First Lien At Pool formation, the CSA will issue
the Pool Originator a Pool Originator
Position 504 Loan Pool Guarantee
Receipt evidencing the Pool Origina-
Agreement as Pool Originator and as
tor’s retained interest in the Pool. The
Seller and, consequently, will be sub- Pool Originator may not sell, pledge,
ject to all applicable Program Rules participate, or otherwise transfer its
and Regulations pertaining to both Pool Originator Receipt or any interest
roles. therein for the life of the Pool.
(d) When the Pool Originator does not
own the Pool Loan. When a Pool Origi- § 120.1707 Seller’s retained Loan Inter-
nator proposes to form a Pool involv- est.
ing a Pool Loan it does not own, it The Seller must retain a 15% or
must purchase the Loan Interest it greater Loan Interest in each of its
proposes to pool from a Seller that loans included in a Pool. At Pool for-
owns the whole Pool Loan and that has mation, the CSA will issue the Seller a
the servicing rights. The Pool Origi- Seller Receipt evidencing the Seller’s
nator must purchase the Loan Interest retained ownership in the Pool Loan.
and take it into inventory or settle the With SBA’s written permission, the
purchase of the Loan Interest through Seller may sell the Seller Receipt and
Servicing Retention Amount in whole,
the CSA concurrently with the forma-
but not in part, to a single entity at
tion of the Pool. The entity selling the
one time. The Seller may not sell less
Loan Interest to the Pool Originator than 100% of the Seller Receipt and
must execute the First Lien Position Servicing Retention Amount, and may
504 Loan Pool Guarantee Agreement as not sell a participation interest in any
Seller and, consequently, will be sub- portion of any of its Pooled loans. In
ject to all applicable Program Rules addition, in order to complete such
and Regulations pertaining to a Seller. sale, Seller must have the purchaser of
The Pool Originator must also execute its rights to the Pool Loan execute an
the First Lien Position 504 Loan Pool allonge to the Seller’s First Lien Posi-
Guaranty Agreement. tion 504 Loan Pool Guarantee Agree-
(e) What CSA must receive prior to Pool ment in a form acceptable to SBA, ac-
formation. Before the CSA may carry knowledging and accepting all terms of
out its responsibilities relating to the the Seller’s First Lien Position 504
formation of a Pool, it must receive: Loan Pool Guarantee Agreement, and
(1) From the Pool Originator: A prop- deliver the executed original allonge
and a copy of the corresponding First
erly completed First Lien Position 504
Lien Position 504 Loan Pool Guarantee
Loan Pool application form, First Lien
Agreement to the CSA. All Pool Loan
Position 504 Loan Guarantee Agree- payments related to a Seller Receipt
ment, and any other documentation and Servicing Retention Amount pro-
which SBA may require, if applicable; posed for sale will be withheld by the
and CSA pending SBA acknowledgement of
(2) All cost reimbursement due and receipt of all executed documents re-
payable to the CSA prior to Pool for- quired to complete the transfer.
mation owed by the Participants par-
[74 FR 56093, Oct. 30, 2009, as amended at 82
ticipating in the formation of the Pool. FR 39506, Aug. 21, 2017]
365
§ 120.1708 13 CFR Ch. I (1–1–23 Edition)
§ 120.1708 Pool Certificates. represented by the Pool Certificate.

(a) SBA Guarantee of Pool Certificates. Any Pool Loan Receivables applicable
SBA guarantees to a Pool Investor the to a Loan Interest in the SBA-guaran-
timely payment of principal and inter- teed portion of a Pool will be passed
est installments and any prepayment through to the appropriate Pool Inves-
or other recovery of principal to which tors with the regularly scheduled pay-
the Pool Investor is entitled. If an Obli- ments to such Pool Investors.
gor misses a scheduled payment pursu- (i) Pool Certificate interest rate. A Pool
ant to the terms of the Pool Note un- Certificate must have a Weighted Aver-
derlying a Loan Interest backing a age Interest Rate.
Pool Certificate, SBA, through the (j) Pool Certificate maturity. A Pool
CSA, will make advances to maintain Certificate must have a Maturity and a
the schedule of interest and principal Weighted Average Maturity.
payments to the Pool Investor. If SBA (k) Early Pool Certificate redemption.
makes such payments, it is subrogated SBA, or the CSA on behalf of SBA, may
fully to the rights satisfied by such redeem a Pool Certificate prior to its
payment. Maturity because of Obligor prepay-
(b) SBA guarantee backed by full faith ment and/or SBA purchase of all Loan
and credit. SBA’s guarantee of the Pool Interests in the Pool backing the Pool
Certificate is backed by the full faith Certificate.
and credit of the United States.
(c) SBA purchase of a Loan Interest. § 120.1709 Transfers of Pool Certifi-
cates.
SBA will determine whether to pur-
chase a Loan Interest backing a Pool (a) Transfer of Pool Certificates. A Pool
Certificate with an underlying Pool Certificate is transferable. A transfer
Note that is 60 days or more in arrears. of a Pool Certificate must comply with
SBA reserves the right to purchase a Article 8 of the Uniform Commercial
Loan Interest from a Pool at any time. Code of the State of New York. The
(d) Self-liquidating. A Pool Certificate seller may use any form of assignment
represents a fractional beneficial inter- acceptable to SBA and the CSA. The
est in a Pool that is self-liquidating by CSA may refuse to issue a Pool Certifi-
Pool Loan Receivables and/or SBA cate until it is satisfied that the docu-
Loan Interest payment or redemption. ments of transfer are complete.
(e) Pool Certificate form. The CSA pre- (b) Transfer on CSA records. In order
pares the Pool Certificate. SBA must for the transfer of a Pool Certificate to
approve the form and terms of the Pool be effective, the CSA must reflect the
Certificate. transfer on its records.
(f) Pool Certificate registration. A Pool (c) Contents of letter of transmittal for
Certificate must be registered with the Pool Certificate. A letter of transmittal
CSA. must accompany each Pool Certificate
(g) Face amount of Pool Certificate. which a Pool Investor submits to the
The face amount of a Pool Certificate CSA for transfer. The Pool Investor
cannot be less than a minimum must supply the following information
amount as specified in the Guide, and in the letter:
the dollar amount of Pool Certificates (1) Pool number;
must be in increments which SBA will (2) Pool Certificate number;
specify in the Guide (except for one (3) Name of purchaser of Pool Certifi-
Pool Certificate for each Pool). SBA cate;
may change these requirements based (4) Address and tax identification
upon an analysis of market conditions number of the purchaser;
and program experience, and will pub- (5) Name, e-mail address and tele-
lish any such change in the FEDERAL phone number of the person handling
REGISTER. or facilitating the transfer; and
(h) Basis of payment for Pool Certifi- (6) Instructions for the delivery of
cates. All payments on a Pool Certifi- the new Pool Certificate.
cate are due pursuant to terms, condi- (d) CSA transfer cost recovery. At the
tions, and percentages set forth or ref- same time a Pool Investor submits a
erenced therein and are based on the letter of transmittal for a Pool Certifi-
unpaid principal balance of the Pool cate pursuant to this section, it must
366
send to the CSA sufficient funds to gram Rules and Regulations or other
cover its cost for this service. The CSA SBA rules and regulations; or
will supply the transfer information to (2) Made a material false statement
the Pool Investor. or failed to disclose a material fact to
SBA.
§ 120.1710 Central servicing of the Pro- (b) Additional rules for suspension or
gram. termination of Pool Originator. In addi-
(a) Pool Certificates and Receipts issued tion to the conditions set forth in para-
at Pool formation. As part of its role as graph (a) above, SBA may also suspend
Central Servicing Agent for the Pool, or terminate the Program participa-
at Pool formation, CSA issues a Seller tion privileges of a Pool Originator if
Receipt to the Seller, a Pool Originator the Pool Originator (and/or its Associ-
Receipt to the Pool Originator, and a ates):
Pool Certificate to each Pool Investor. (1) Does not comply with any of the
(b) CSA fiscal transfer responsibilities. requirements in 120.1703(a) or (c);
All Pool Loan Receivables on a Pool (2) Has been revoked or suspended it
Loan received by the CSA must be for- from engaging in the securities busi-
warded by it to pay the Servicing Re- ness by its supervisory agency, or is
tention Amount, Ongoing Guarantee under investigation for a practice
Fee, Seller Receipt, Pool Originator which SBA considers, in its sole discre-
Receipt, Pool Certificates, any SBA- tion, to be relevant to its fitness to
purchased Loan Interest, and any other participate in the Program;
payment applicable to the Pooling of (3) Has been indicted or otherwise
such Pooled Loan, in accordance with formally charged with, or convicted of,
Program Rules and Regulations. a felony, or a misdemeanor which, in
(c) Administration of the Pool Certifi- SBA’s sole discretion, bears on its fit-
cates. CSA must administer each Pool ness to participate in the Program;
Certificate. It shall maintain a registry (4) Has received an adverse civil judg-
of Pool Investors and other informa- ment that it has committed a breach of
tion as SBA requires. CSA registers all trust or a violation of a law or regula-
Pool Certificates. This means it issues, tion protecting the integrity of busi-
transfers title to, and redeems them. It ness transactions or relationships; or
shall maintain a registry of Pool Inves- (5) Has been suspended or terminated
tors and other information as SBA re- as a Pool Assembler under 120.631.
quires. In fulfilling its obligation to (c) Suspension procedures. SBA may
keep the central registry current, the undertake suspension or enforcement
CSA may, with SBA’s approval, obtain actions under this section using the
any necessary information from the procedures set forth in § 120.1600(a).
parties involved in the Program.
(d) CSA Monthly Report. CSA must § 120.1712 Seller responsibilities with
provide SBA with a list, by Pool, of respect to Seller’s Pool Loan.
each Loan Interest with an underlying Seller shall remain obligated for
Pool Note that is 60 days or more in ar- servicing and liquidating Seller’s Pool
rears on a monthly basis. Loan until the Pool Loan is repaid in
full unless SBA provides written ap-
§ 120.1711 Suspension or termination proval or notice to the contrary.
of Program participation privileges.
(a) Participant suspension or termi- § 120.1713 Seller’s Pool Loan origina-
nation. The SBA may suspend or termi- tion.
nate the privilege of a Participant, and/ SBA is entitled to recover from the
or any Associate or Affiliate of the Seller losses incurred by SBA on its
Participant, to sell, purchase, broker, guarantee of a Pool if such losses re-
or deal in Pool Loans, Loan Interests, sulted because Seller’s Pool Loan was
or Pool Certificates under the Program not made and closed in a commercially
if any such Participant or its Associate reasonable manner, consistent with
or Affiliate has: prudent lending standards, and in ac-

(1) Failed to comply materially with cordance with any applicable Program
any requirement imposed by the Pro- Rules and Regulations.
367
§ 120.1714 13 CFR Ch. I (1–1–23 Edition)
§ 120.1714 Seller’s Pool Loan servicing. (d) The date Obligor is to resume
payment; and
Subject to § 120.1718 of this subpart J,
(e) Reconfirmation of the basis of in-
the Seller must service Seller’s Pool
terest calculation (e.g. 30/360 or Actual
Loan in a commercially reasonable
Days/365).
manner, consistent with prudent lend-
ing standards, and in accordance with § 120.1718 SBA’s right to assume Sell-
applicable Program Rules and Regula- er’s responsibilities.
tions. The Seller receives the Servicing
SBA may, in its sole discretion, un-
Retention Amount for servicing the
dertake the servicing, liquidation and/
Seller’s Pool Loan.
or litigation of Seller’s Pool Loan at
§ 120.1715 Seller’s Pool Loan liquida- any time and, in such event, Seller
tion. must take any steps necessary to fa-
cilitate the assumption by SBA of such
Subject to § 120.1718 of this subpart J, responsibilities, which can be trans-
the Seller must liquidate and conduct ferred by SBA at its discretion to a
debt collection litigation for Seller’s contractor, agent or other entity, and
Pool Loan in a prompt, cost-effective such steps shall include, among other
and commercially reasonable manner, things, providing or assigning to SBA
consistent with prudent lending stand- any documents requested by SBA with-
ards, in accordance with applicable in 15 calendar days of Seller’s receipt of
Program Rules and Regulations, and such request. SBA will notify the Obli-
with SBA approval of a liquidation gor of the change in servicing.
plan and any litigation plan, and any
amendment of either such a plan, if ap- § 120.1719 SBA’s right to recover from
plicable. Seller.
§ 120.1716 Required SBA approval of SBA is entitled to recover from Sell-
servicing actions. er any monies paid on SBA’s guarantee
of a Pool Certificate backed in part by
Seller shall not, without prior writ- Seller’s Pool Loan, plus interest, if
ten consent of SBA, take the following SBA in its sole discretion determines
actions with respect to Seller’s Pool that any of the following events has oc-
Loan: curred:
(a) Make or consent to any substan- (a) Seller’s improper action or inac-
tial alteration in the terms (‘‘substan- tion has put SBA at risk;
tial’’ includes, but is not limited to, (b) Seller has failed to disclose a ma-
any changes to the principal amount or terial fact to SBA regarding a Seller’s
interest rate); Pool Loan in a timely manner;
(b) Accelerate the maturity; (c) Seller has misrepresented a mate-
(c) Sue; or rial fact to SBA regarding Seller’s Pool
(d) Waive or release any claim. Guid- Loan;
ance on other servicing actions, some (d) Seller has failed to comply mate-
of which may need prior SBA approval, rially with § 120.1720 of this subpart;
is provided in the Guide. (e) SBA has received a written re-
quest from Seller to terminate the
§ 120.1717 Seller’s Pool Loan SBA’s guarantee on the Loan Interest
deferments.
in Seller’s Pool Loan;
Without the prior written consent of (f) Seller has failed to comply mate-
SBA, Seller, at the request of Obligor, rially with Program Rules and Regula-
may grant one deferment of Obligor’s tions; or
scheduled payments for a continuous (g) Seller has failed to make, close,
period not to exceed three months of service or liquidate Seller’s Pool Loan
past or future installments. Seller in a prudent manner.
shall immediately notify CSA of any
payment deferment and that notifica- § 120.1720 SBA’s right to review Pool
tion shall include: Loan documents.
(a) The SBA Pool Loan number; In the event that SBA purchases a
(b) The Obligor’s name; Loan Interest in Seller’s Pool Loan,
(c) The terms of such deferment; Seller must provide to SBA copies of
368
the Pool Loan collateral documents, Position 504 Loan Pool Guarantee
Pool Loan underwriting documents, Agreement.
and any other documents SBA may re-
quire in writing within 15 calendar § 120.1725 No Program Preference by
days of a written request from SBA Seller or Pool Originator.
(which SBA will review in connection The Seller and the Pool Originator
with its efforts to determine if Seller is must not establish a Program Pref-
obligated to reimburse SBA pursuant erence, which is defined in 13 CFR
to this subpart). A Seller’s failure to 120.10.
provide the requested documentation
may constitute a material failure to § 120.1726 Pool Certificates a Seller
comply with the Program Rules and cannot purchase.
Regulations and may lead to an action Neither a Seller, nor any of its Pro-
for recovery under § 120.1719. SBA will gram Associates or Affiliates, may pur-
also evaluate a Seller’s continued par- chase a Pool Certificate that is backed
ticipation in the Program and may re- by a Loan Interest in a Pool Loan that
strict further sales under the Program the Seller, or any of its Program Asso-
until SBA determines that the Seller ciates or Affiliates, originated or
has provided sufficient documentation. owned, and, in the event such purchase
occurs, SBA’s guarantee shall not be in
§ 120.1721 SBA’s right to investigate. effect with respect to any such Pool
SBA may undertake such investiga- Certificate.
tion as it deems necessary to deter-
mine whether it is entitled to seek re- PART 121—SMALL BUSINESS SIZE
covery from the Seller and Seller REGULATIONS
agrees to take whatever actions are
necessary to facilitate such investiga- Subpart A—Size Eligibility Provisions and
tion. Standards
PROVISIONS OF GENERAL APPLICABILITY
§ 120.1722 SBA’s offset rights.
Sec.
SBA shall have the right to offset 121.101 What are SBA size standards?
any amount owed by Lender to SBA, 121.102 How does SBA establish size stand-
including, without limitation, an offset ards?
against CSA’s obligation to pay Lender 121.103 How does SBA determine affiliation?
pursuant to any Section 504 First Mort- 121.104 How does SBA calculate annual re-
gage Loan Pool Guarantee Agreement. ceipts?
121.105 How does SBA define ‘‘business con-
§ 120.1723 Pool Loan receivables re- cern or concern’’?
ceived by Seller. 121.106 How does SBA calculate number of
employees?
Any Pool Loan Receivables received 121.107 How does SBA determine a concern’s
by Seller in connection with obliga- ‘‘primary industry’’?
tions under Seller’s Pool Loan must be 121.108 What are the penalties for misrepre-
forwarded by Seller to CSA within two sentation of size status?
121.109 What is a small business status advi-
business days of receipt of collected sory opinion?
funds. 121.110 What must a concern do in order to
be identified as a small business concern
§ 120.1724 Servicing and liquidation in any Federal procurement databases?
expenses.
SIZE STANDARDS USED TO DEFINE SMALL
All ordinary and reasonable expenses BUSINESS CONCERNS
of servicing and liquidating Seller’s
Pool Loan shall be paid by, or be recov- 121.201 What size standards has SBA identi-
fied by North American Industry Classi-
erable from, Obligor, and all such ordi-
fication System codes?
nary and reasonable expenses incurred
by Seller or SBA which are not recov- SIZE ELIGIBILITY REQUIREMENTS FOR SBA
erable from Obligor shall be shared rat- FINANCIAL ASSISTANCE
ably by Seller, SBA, and the Pool 121.301 What size standards and affiliation
Originator pursuant to the applicable principles are applicable to financial as-
percentages set forth in the First Lien sistance programs?
369
121.302 When does SBA determine the size 121.507 What are the size standards and
status of an applicant? other requirements for the purchase of
121.303 What size procedures are used by Government-owned timber (other than
SBA before it makes a formal size deter- Special Salvage Timber)?
mination? 121.508 What are the size standards and
121.304 What are the size requirements for other requirements for the purchase of
refinancing an existing SBA loan? Government-owned Special Salvage Tim-
121.305 What size eligibility requirements
ber?
exist for obtaining financial assistance
121.509 What is the size standard for leasing
relating to particular procurements?
of Government land for coal mining?
SIZE ELIGIBILITY REQUIREMENTS FOR 121.510 What is the size standard for leasing
GOVERNMENT PROCUREMENT of Government land for uranium mining?
121.401 What procurement programs are 121.511 What is the size standard for buying
subject to size determinations? Government-owned petroleum?
121.402 What size standards are applicable 121.512 What is the size standard for stock-
to Federal Government Contracting pro- pile purchases?
grams?
121.403 Are SBA size determinations and SIZE ELIGIBILITY REQUIREMENTS FOR THE 8(a)
NAICS code designations binding on par- BUSINESS DEVELOPMENT PROGRAM
ties? 121.601 What is a small business for pur-
121.404 When is the size status of a business poses of admission to SBA’s 8(a) Business
concern determined? Development program?
121.405 May a business concern self-certify
121.602 At what point in time must a 8(a)
its small business size status?
BD applicant be small?
121.406 How does a small business concern
qualify to provide manufactured prod- 121.603 How does SBA determine whether a
ucts or other supply items under a small Participant is small for a particular 8(a)
business set-aside, service-disabled vet- BD subcontract?
eran-owned small business, HUBZone, 121.604 Are 8(a) BD Participants considered
WOSB or EDWOSB, or 8(a) contract? small for purposes of other SBA assist-
121.407 What are the size procedures for ance?
multiple item procurements?
121.408 What are the size procedures for SIZE AND ELIGIBILITY REQUIREMENTS FOR THE
SBA’s Certificate of Competency Pro- SMALL BUSINESS INNOVATION RESEARCH
gram? (SBIR) AND SMALL BUSINESS TECHNOLOGY
121.409 What size standard applies in an un- TRANSFER (STTR) PROGRAMS
restricted procurement for Certificate of 121.701 What SBIR and STTR programs are
Competency purposes?
subject to size and eligibility determina-
121.410 What are the size standards for
tions and what definitions are impor-
SBA’s Section 8(d) Subcontracting Pro-
tant?
gram?
121.411 What are the size procedures for 121.702 What size and eligibility standards
SBA’s Section 8(d) Subcontracting Pro- are applicable to the SBIR and STTR
gram? programs?
121.412 What are the size procedures for par- 121.703 Are formal size determinations bind-
tial small business set-asides? ing on parties?
121.413 [Reserved] 121.704 When does SBA determine the size
and eligibility status of a business con-
SIZE ELIGIBILITY REQUIREMENTS FOR SALES cern?
OR LEASE OF GOVERNMENT PROPERTY
121.705 Must a business concern self-certify
121.501 What programs for sales or leases of its size and eligibility status?
Government property are subject to size
determinations? SIZE ELIGIBILITY REQUIREMENTS FOR PAYING
121.502 What size standards are applicable REDUCED PATENT FEES
to programs for sales or leases of Govern- 121.801 May patent fees be reduced if a con-
ment property?
cern is small?
121.503 Are SBA size determinations binding
121.802 What size standards are applicable
on parties?
121.504 When does SBA determine the size to reduced patent fees programs?
status of a business concern? 121.803 Are formal size determinations bind-
121.505 What is the effect of a self-certifi- ing on parties?
cation? 121.804 When does SBA determine the size
121.506 What definitions are important for status of a business concern?

sales or leases of Government-owned tim- 121.805 May a business concern self-certify
ber? its size status?
370
SIZE ELIGIBILITY REQUIREMENTS FOR COMPLI- APPENDIX A TO PART 121—PAYCHECK PROTEC-
ANCE WITH PROGRAMS OF OTHER AGENCIES TION PROGRAM SAMPLE ADDENDUM A
121.901 Can other Government agencies ob- AUTHORITY: 15 U.S.C. 632, 634(b)(6),
tain SBA size determinations? 636(a)(36), 662, 694a(9), and 9012.
121.902 What size standards are applicable
to programs of other agencies? SOURCE: 61 FR 3286, Jan. 31, 1996, unless
121.903 How may an agency use size stand- otherwise noted.
ards for its programs that are different EDITORIAL NOTE: Nomenclature changes to
than those established by SBA? part 121 appear at 72 FR 50039 and 50040, Aug.
121.904 When does SBA determine the size 30, 2007.
status of a business concern?
PROCEDURES FOR SIZE PROTESTS AND Subpart A—Size Eligibility

REQUESTS FOR FORMAL SIZE DETERMINATIONS Provisions and Standards
121.1001 Who may initiate a size protest or a
request for formal size determination? PROVISIONS OF GENERAL APPLICABILITY
121.1002 Who makes a formal size deter-
mination? § 121.101 What are SBA size standards?
121.1003 Where should a size protest be filed?
121.1004 What time limits apply to size pro- (a) SBA’s size standards define
tests? whether a business entity is small and,
121.1005 How must a protest be filed with thus, eligible for Government programs
the contracting officer? and preferences reserved for ‘‘small
121.1006 When will a size protest be referred business’’ concerns. Size standards
to an SBA Government Contracting Area have been established for types of eco-
Office?
nomic activity, or industry, generally
121.1007 Must a protest of size status relate
to a particular procurement and be spe- under the North American Industry
cific? Classification System (NAICS).
121.1008 What occurs after SBA receives a (b) NAICS is described in the North
size protest or request for a formal size American Industry Classification Man-
determination? ual–United States, which is available
121.1009 What are the procedures for making from the National Technical Informa-
the size determination?
121.1010 How does a concern become recer-
tion Service, 5285 Port Royal Road,
tified as a small business? Springfield, VA 22161; by calling 1(800)
553–6847 or 1(703) 605–6000; or via the
APPEALS OF SIZE DETERMINATIONS AND Internet at http://www.ntis.gov/products/
NAICS CODE DESIGNATIONS naics.aspx. The manual includes defini-
121.1101 Are formal size determinations sub- tions for each industry, tables showing
ject to appeal? relationships between 1997 NAICS and
121.1102 Are NAICS code designations sub- 1987 SICs, and a comprehensive index.
ject to appeal? NAICS assigns codes to all economic
121.1103 What are the procedures for appeal-
activity within twenty broad sectors.
ing a NAICS code or size standard des-
ignation? Section 121.201 provides a full table of
small business size standards matched
Subpart B—Other Applicable Provisions to the U.S. NAICS industry codes. A
full table matching a size standard
WAIVERS OF THE NONMANUFACTURER RULE with each NAICS Industry or U.S. In-
FOR CLASSES OF PRODUCTS AND INDIVIDUAL
dustry code is also published annually
CONTRACTS
by SBA in the FEDERAL REGISTER.
121.1201 What is the Nonmanufacturer Rule?
121.1202 When will a waiver of the Non- [65 FR 30840, May 15, 2000, as amended at 67
manufacturer Rule be granted for a class FR 52602, Aug. 13, 2002; 74 FR 46313, Sept. 9,
of products? 2009]
121.1203 When will a waiver of the Non-
manufacturer Rule be granted for an in- § 121.102 How does SBA establish size
dividual contract? standards?
121.1204 What are the procedures for re-
(a) SBA considers economic charac-
questing and granting waivers?
121.1205 How is a list of previously granted teristics comprising the structure of an
class waivers obtained? industry, including degree of competi-

121.1206 How will potential offerors be noti- tion, average firm size, start-up costs
fied of applicable waivers? and entry barriers, and distribution of
371
§ 121.103 13 CFR Ch. I (1–1–23 Edition)
firms by size. It also considers techno- standard is filed, unless it appears OHA
logical changes, competition from will dismiss the petition for reconsider-
other industries, growth trends, histor- ation, SBA will publish a document in
ical activity within an industry, the FEDERAL REGISTER announcing the
unique factors occurring in the indus- size standard or standards that have
try which may distinguish small firms been challenged, the FEDERAL REG-
from other firms, and the objectives of ISTER citation of the final rule, the as-
its programs and the impact on those signed OHA docket number, and the
programs of different size standard lev- date of the close of record. The docu-
els. ment will further state that interested
(b) As part of its review of a size parties may contact OHA to intervene
standard, SBA will investigate if any in the dispute pursuant to § 134.906 of
concern at or below a particular stand- this chapter.
ard would be dominant in the industry. (g) Where OHA grants a petition for
SBA will take into consideration mar- reconsideration of a size standard that
ket share of a concern and other appro- had been revised or modified, OHA will
priate factors which may allow a con- remand the case to SBA’s Office of Size
cern to exercise a major controlling in- Standards for further action in accord-
fluence on a national basis in which a ance with § 134.916(a) of this chapter.
number of business concerns are en-
gaged. Size standards seek to ensure [61 FR 3286, Jan. 31, 1996, as amended at 67
FR 3045, Jan. 23, 2002; 82 FR 25506, June 2,
that a concern that meets a specific 2017]
size standard is not dominant in its
field of operation. § 121.103 How does SBA determine af-
(c) As part of its review of size stand- filiation?
ards, SBA’s Office of Size Standards
will examine the impact of inflation on (a) General Principles of Affiliation. (1)
monetary-based size standards (e.g., re- Concerns and entities are affiliates of
ceipts, net income, assets) at least once each other when one controls or has
every five years and submit a report to the power to control the other, or a
the Administrator or designee. If SBA third party or parties controls or has
finds that inflation has significantly the power to control both. It does not
eroded the value of the monetary-based matter whether control is exercised, so
size standards, it will issue a proposed long as the power to control exists.
rule to increase size standards. (2) SBA considers factors such as
(d) Please address any requests to ownership, management, previous rela-
change existing size standards or estab- tionships with or ties to another con-
lish new ones for emerging industries cern, and contractual relationships, in
to the Division Chief, Office of Size determining whether affiliation exists.
Standards, Small Business Administra- (3) Control may be affirmative or
tion, 409 3rd Street, SW., Washington, negative. Negative control includes,
DC 20416. but is not limited to, instances where a
(e) When SBA publishes a final rule minority shareholder has the ability,
in the FEDERAL REGISTER revising, under the concern’s charter, by-laws,
modifying, or establishing a size stand- or shareholder’s agreement, to prevent
ard, SBA will include in the final rule, a quorum or otherwise block action by
an instruction that interested persons the board of directors or shareholders.
may file a petition for reconsideration (4) Affiliation may be found where an
of a revised, modified, or established individual, concern, or entity exercises
size standard at SBA’s Office of Hear- control indirectly through a third
ings and Appeals (OHA) within 30 cal- party.
endar days after publication of the (5) In determining whether affiliation
final rule in accordance with 15 U.S.C. exists, SBA will consider the totality
632(a)(9) and part 134, subpart I of this of the circumstances, and may find af-
chapter. The instruction will provide filiation even though no single factor is
the mailing address, facsimile number, sufficient to constitute affiliation.
and email address of OHA. (6) In determining the concern’s size,

(f) Within 14 calendar days after a pe- SBA counts the receipts, employees, or
tition for reconsideration of a size other measure of size of the concern
372
whose size is at issue and all of its do- concern without interfering with the
mestic and foreign affiliates, regardless control of the subject firm.
of whether the affiliates are organized (B) Contract administration services
for profit. include both services that could be con-
(7) For SBA’s Small Business Innova- sidered ‘‘common administrative serv-
tion Research (SBIR) and Small Busi- ices’’ under the exception to affiliation
ness Technology Transfer (STTR) pro- and those that could not.
grams, the bases for affiliation are set (1) Contract administration services
forth in § 121.702. that encompass actual and direct day-
(8) For applicants in SBA’s Business to-day oversight and control of the per-
Loan, Disaster Loan, and Surety Bond formance of a contract/project are not
Guarantee Programs, the size stand- shared common administrative serv-
ards and bases for affiliation are set ices, and would include tasks or func-
forth in § 121.301. tions such as negotiating directly with
(b) Exceptions to affiliation coverage. the government agency regarding pro-
(1) Business concerns owned in whole posal terms, contract terms, scope and
or substantial part by investment com- modifications, project scheduling, hir-
panies licensed, or development compa- ing and firing of employees, and overall
nies qualifying, under the Small Busi- responsibility for the day-to-day and
ness Investment Act of 1958, as amend- overall project and contract comple-
tion.
ed, are not considered affiliates of such
(2) Contract administration services
investment companies or development
that are administrative in nature may
companies.
constitute administrative services that
(2)(i) Business concerns owned and can be shared, and would fall within
controlled by Indian Tribes, Alaska Na- the exception to affiliation. These ad-
tive Corporations (ANCs) organized ministrative services include tasks
pursuant to the Alaska Native Claims such as record retention not related to
Settlement Act (43 U.S.C. 1601 et seq.), a specific contract (e.g., employee time
Native Hawaiian Organizations (NHOs), and attendance records), maintenance
Community Development Corporations of databases for awarded contracts,
(CDCs) authorized by 42 U.S.C. 9805, or monitoring for regulatory compliance,
wholly-owned entities of Indian Tribes, template development, and assisting
ANCs, NHOs, or CDCs are not consid- accounting with invoice preparation as
ered affiliates of such entities. needed.
(ii) Business concerns owned and con- (C) Business development may in-
trolled by Indian Tribes, ANCs, NHOs, clude both services that could be con-
CDCs, or wholly-owned entities of In- sidered ‘‘common administrative serv-
dian Tribes, ANCs, NHOs, or CDCs, are ices’’ under the exception to affiliation
not considered to be affiliated with and those that could not. Efforts at the
other concerns owned by these entities holding company or parent level to
because of their common ownership or identify possible procurement opportu-
common management. In addition, af- nities for specific subsidiary companies
filiation will not be found based upon may properly be considered ‘‘common
the performance of common adminis- administrative services’’ under the ex-
trative services so long as adequate ception to affiliation. However, at
payment is provided for those services. some point the opportunity identified
Affiliation may be found for other rea- by the holding company’s or parent en-
sons. tity’s business development efforts be-
(A) Common administrative services comes concrete enough to assign to a
which are subject to the exception to subsidiary and at that point the sub-
affiliation include, bookkeeping, pay- sidiary must be involved in the busi-
roll, recruiting, other human resource ness development efforts for such op-
support, cleaning services, and other portunity. At the proposal or bid prep-
duties which are otherwise unrelated aration stage of business development,
to contract performance or manage- the appropriate subsidiary company for
ment and can be reasonably pooled or the opportunity has been identified and
otherwise performed by a holding com- a representative of that company must
pany, parent entity, or sister business be involved in preparing an appropriate
373
§ 121.103 13 CFR Ch. I (1–1–23 Edition)
offer. This does not mean to imply that Revenue Code of 1986, as amended (26
one or more representatives of a hold- U.S.C. 501(c));
ing company or parent entity cannot (v) Investment companies registered
also be involved in preparing an offer. under the Investment Company Act of
They may be involved in assisting with 1940, as amended (1940 Act) (15 U.S.C.
preparing the generic part of an offer, 80a-1, et seq.); and
but the specific subsidiary that intends (vi) Investment companies, as defined
to ultimately perform the contract under the 1940 Act, which are not reg-
must control the technical and con- istered under the 1940 Act because they
tract specific portions of preparing an are beneficially owned by less than 100
offer. In addition, once award is made, persons, if the company’s sales lit-
employee assignments and the logistics erature or organizational documents
for contract performance must be con- indicate that its principal purpose is
trolled by the specific subsidiary com- investment in securities rather than
pany and should not be performed at a the operation of commercial enter-
holding company or parent entity prises.
level. (6) A firm that has an SBA-approved
(3) Business concerns which are part mentor-protégé agreement authorized
of an SBA approved pool of concerns under § 125.9 of this chapter is not af-
for a joint program of research and de- filiated with its mentor or protégé firm
velopment or for defense production as solely because the protégé firm re-
authorized by the Small Business Act ceives assistance from the mentor
are not affiliates of one another be- under the agreement. Similarly, a
cause of the pool. protégé firm is not affiliated with its
(4) Business concerns which lease em- mentor solely because the protégé firm
ployees from concerns primarily en- receives assistance from the mentor
gaged in leasing employees to other under a federal mentor-protégé pro-
businesses or which enter into a co-em- gram where an exception to affiliation
ployer arrangement with a Profes- is specifically authorized by statute or
sional Employer Organization (PEO) by SBA under the procedures set forth
are not affiliated with the leasing com- in § 121.903. Affiliation may be found in
pany or PEO solely on the basis of a either case for other reasons as set
leasing agreement. forth in this section.
(5) For financial, management or (7) The member shareholders of a
technical assistance under the Small small agricultural cooperative, as de-
Business Investment Act of 1958, as fined in the Agricultural Marketing
amended, (an applicant is not affiliated Act (12 U.S.C. 1141j), are not considered
with the investors listed in paragraphs affiliated with the cooperative by vir-
(b)(5) (i) through (vi) of this section. tue of their membership in the cooper-
(i) Venture capital operating compa- ative.
nies, as defined in the U.S. Department (8) These exceptions to affiliation
of Labor regulations found at 29 CFR and any others set forth in § 121.702
2510.3–101(d); apply for purposes of SBA’s SBIR and
(ii) Employee benefit or pension STTR programs.
plans established and maintained by (9) In the case of a solicitation for a
the Federal government or any state, bundled contract or a Multiple Award
or their political subdivisions, or any Contract with a value in excess of the
agency or instrumentality thereof, for agency’s substantial bundling thresh-
the benefit of employees; old, a small business contractor may
(iii) Employee benefit or pension enter into a Small Business Teaming
plans within the meaning of the Em- Arrangement with one or more small
ployee Retirement Income Security business subcontractors and submit an
Act of 1974, as amended (29 U.S.C. 1001, offer as a small business without re-
et seq.); gard to affiliation, so long as each
(iv) Charitable trusts, foundations, team member is small for the size
endowments, or similar organizations standard assigned to the contract or

exempt from Federal income taxation subcontract. The agency shall evaluate
under section 501(c) of the Internal the offer in the same manner as other
374
offers with due consideration of the ca- respect to that relationship, the faith-
pabilities of the subcontractors. based organization may indicate on a
(10)(i) The relationship of a faith- separate sheet that it is entitled to the
based organization to another organi- exemption. That sheet may be identi-
zation is not considered an affiliation fied as addendum A, and no further
with the other organization under this listing of the other organization or de-
subpart if the relationship is based on scription of the relationship to that or-
a religious teaching or belief or other- ganization is required. See appendix A
wise constitutes a part of the exercise to this part for a sample ‘‘Addendum
of religion. In addition, the eligibility A’’, but the format need not be used as
criteria set forth in 15 U.S.C. long as the substance is the same.
636(a)(36)(D) are satisfied for any faith- (c) Affiliation based on stock owner-
based organization having not more
ship. (1) A person (including any indi-
than 500 employees (including individ-
vidual, concern or other entity) that
uals employed on a full-time, part-
owns, or has the power to control, 50
time, or other basis) that pays Federal
percent or more of a concern’s voting
payroll taxes using its own Internal
Revenue Service Employer Identifica- stock, or a block of voting stock which
tion Number (EIN) or that would sup- is large compared to other outstanding
port a deduction under the second sen- blocks of voting stock, controls or has
tence of 26 U.S.C. 512(b)(12) if the orga- the power to control the concern.
nization generated unrelated business (2) If two or more persons (including
taxable income. For purposes of this any individual, concern or other enti-
paragraph (b)(10), the term ‘‘faith- ty) each owns, controls, or has the
based organization’’ includes, but is power to control less than 50 percent of
not limited to, any organization associ- a concern’s voting stock, and such mi-
ated with a church or convention or as- nority holdings are equal or approxi-
sociation of churches within the mean- mately equal in size, and the aggregate
ing of 26 U.S.C. 414(e)(3)(D). The term of these minority holdings is large as
‘‘organization’’ has the meaning given compared with any other stock hold-
in 26 U.S.C. 414(m)(6)(A). The terms ing, SBA presumes that each such per-
‘‘church’’ and ‘‘convention or associa- son controls or has the power to con-
tion of churches’’ have the same mean- trol the concern whose size is at issue.
ing that they have in 26 U.S.C. 414. This presumption may be rebutted by a
(ii) No specific process or filing is showing that such control or power to
necessary to claim the benefit of the control does not in fact exist.
exemption in paragraph (b)(10)(i) of (3) If a concern’s voting stock is
this section. In applying for a loan widely held and no single block of
under the Paycheck Protection Pro- stock is large as compared with all
gram (PPP), a faith-based organization other stock holdings, the concern’s
may make all necessary certifications
Board of Directors and CEO or Presi-
with respect to common ownership or
dent will be deemed to have the power
management or other eligibility cri-
to control the concern in the absence
teria based upon affiliation, if the or-
ganization would be an eligible bor- of evidence to the contrary.
rower but for application of SBA affili- (d) Affiliation arising under stock op-
ation rules and if the organization falls tions, convertible securities, and agree-
within the terms of the exemption de- ments to merge. (1) In determining size,
scribed in paragraph (b)(10)(i) of this SBA considers stock options, convert-
section. If a faith-based organization ible securities, and agreements to
indicates any relationship that may merge (including agreements in prin-
pertain to affiliation, such as owner- ciple) to have a present effect on the
ship of, ownership by, or common man- power to control a concern. SBA treats
agement with any other organization, such options, convertible securities,
on or in connection with a loan appli- and agreements as though the rights
cation, and if the faith-based organiza- granted have been exercised.
tion applying for a loan falls within the (2) Agreements to open or continue
terms of the exemption described in negotiations towards the possibility of
paragraph (b)(10)(i) of this section with a merger or a sale of stock at some
375
§ 121.103 13 CFR Ch. I (1–1–23 Edition)
later date are not considered ‘‘agree- tween the concerns. Other types of fa-
ments in principle’’ and are thus not milial relationships are not grounds for
given present effect. affiliation on family relationships.
(3) Options, convertible securities, (2) SBA may presume an identity of
and agreements that are subject to interest based upon economic depend-
conditions precedent which are incapa- ence if the concern in question derived
ble of fulfillment, speculative, conjec- 70% or more of its receipts from an-
tural, or unenforceable under state or other concern over the previous three
Federal law, or where the probability fiscal years.
of the transaction (or exercise of the (i) This presumption may be rebutted
rights) occurring is shown to be ex- by a showing that despite the contrac-
tremely remote, are not given present tual relations with another concern,
effect. the concern at issue is not solely de-
(4) An individual, concern or other pendent on that other concern, such as
entity that controls one or more other where the concern has been in business
concerns cannot use options, convert- for a short amount of time and has
ible securities, or agreements to appear only been able to secure a limited num-
to terminate such control before actu- ber of contracts or where the contrac-
ally doing so. SBA will not give present tual relations do not restrict the con-
effect to individuals’, concerns’ or cern in question from selling the same
other entities’ ability to divest all or type of products or services to another
part of their ownership interest in purchaser.
order to avoid a finding of affiliation. (ii) A business concern owned and
(e) Affiliation based on common man- controlled by an Indian Tribe, ANC,
agement. Affiliation arises where one or NHO, CDC, or by a wholly-owned entity
more officers, directors, managing of an Indian Tribe, ANC, NHO, or CDC,
members, or partners who control the is not considered to be affiliated with
board of directors and/or management another concern owned by that entity
of one concern also control the board of based solely on the contractual rela-
directors or management of one or tions between the two concerns.
more other concerns.
Example 1 to paragraph (f). Firm A has been
(f) Affiliation based on identity of inter-
in business for 9 months and has two con-
est. Affiliation may arise among two or tracts. Contract 1 is with Firm B and is val-
more persons with an identity of inter- ued at $900,000 and Contract 2 is with Firm C
est. Individuals or firms that have and is valued at $200,000. Thus, Firm B ac-
identical or substantially identical counts for over 70% of Firm A’s receipts. Ab-
business or economic interests (such as sent other connections between A and B, the
family members, individuals or firms presumption of affiliation between A and B
with common investments, or firms is rebutted because A is a new firm.
that are economically dependent Example 2 to paragraph (f). Firm A has been
in business for five years and has approxi-
through contractual or other relation- mately 200 contracts. Of those contracts, 195
ships) may be treated as one party with are with Firm B. The value of Firm A’s con-
such interests aggregated. Where SBA tracts with Firm B is greater than 70% of its
determines that such interests should revenue over the previous three years. Un-
be aggregated, an individual or firm less Firm A can show that its contractual re-
may rebut that determination with lations with Firm B do not restrict it from
evidence showing that the interests selling the same type of products or services
deemed to be one are in fact separate. to another purchaser, SBA would most likely
find the two firms affiliated.
(1) Firms owned or controlled by
married couples, parties to a civil (g) Affiliation based on the newly orga-
union, parents, children, and siblings nized concern rule. Except as provided
are presumed to be affiliated with each in § 124.109(c)(4)(iii), affiliation may
other if they conduct business with arise where former or current officers,
each other, such as subcontracts or directors, principal stockholders, man-
joint ventures or share or provide aging members, or key employees of
loans, resources, equipment, locations one concern organize a new concern in
or employees with one another. This the same or related industry or field of
presumption may be overcome by operation, and serve as the new con-
showing a clear line of fracture be- cern’s officers, directors, principal
376
stockholders, managing members, or ture partners will lead to a finding of

key employees, and the one concern is general affiliation between and among
furnishing or will furnish the new con- them. A joint venture: Must be in writ-
cern with contracts, financial or tech- ing; must do business under its own
nical assistance, indemnification on name and be identified as a joint ven-
bid or performance bonds, and/or other ture in the System for Award Manage-
facilities, whether for a fee or other- ment (SAM) for the award of a prime
wise. A concern may rebut such an af- contract; may be in the form of a for-
filiation determination by dem- mal or informal partnership or exist as
onstrating a clear line of fracture be- a separate limited liability company or
tween the two concerns. A ‘‘key em- other separate legal entity; and, if it
ployee’’ is an employee who, because of exists as a formal separate legal entity,
his/her position in the concern, has a may not be populated with individuals
critical influence in or substantive intended to perform contracts awarded
control over the operations or manage- to the joint venture (i.e., the joint ven-
ment of the concern. ture may have its own separate em-
(h) Receipts/employees attributable to
ployees to perform administrative
joint venture partners. For size purposes,
functions, including one or more Facil-
a concern must include in its receipts
ity Security Officer(s), but may not
its proportionate share of joint venture
have its own separate employees to
receipts (whether that joint venture is
perform contracts awarded to the joint
populated or unpopulated), unless the
proportionate share already is ac- venture). SBA may also determine that
counted for in receipts reflecting trans- the relationship between a prime con-
actions between the concern and its tractor and its subcontractor is a joint
joint ventures (e.g., subcontracts from venture pursuant to paragraph (h)(2).
a joint venture entity to joint venture For purposes of this paragraph (h), con-
partners). In determining the number tract refers to prime contracts, nova-
of employees, a concern must include tions of prime contracts, and any sub-
in its total number of employees its contract in which the joint venture is
proportionate share of joint venture treated as a similarly situated entity
employees (whether the joint venture as the term is defined in part 125 of this
is populated or unpopulated). Once a chapter.
joint venture receives a contract, it Example 1 to paragraph (h) introductory text.
may submit additional offers for a pe- Joint Venture AB receives a contract on
riod of two years from the date of that April 2, year 1. Joint Venture AB may re-
first award. An individual joint venture ceive additional contracts through April 2,
may be awarded one or more contracts year 3. On June 6, year 2, Joint Venture AB
after that two-year period as long as it submits an offer for Solicitation 1. On July
submitted an offer including price 13, year 2, Joint Venture AB submits an offer
prior to the end of that two-year pe- for Solicitation 2. On May 27, year 3, Joint
riod. SBA will find joint venture part- Venture AB is found to be the apparent suc-
cessful offeror for Solicitation 1. On July 22,
ners to be affiliated, and thus will ag- year 3, Joint Venture AB is found to be the
gregate their receipts and/or employees apparent successful offeror for Solicitation 2.
in determining the size of the joint Even though the award of the two contracts
venture for all small business pro- emanating from Solicitations 1 and 2 would
grams, where the joint venture submits occur after April 2, year 3, Joint Venture AB
an offer after two years from the date may receive those awards without causing
of the first award. The same two (or general affiliation between its joint venture
more) entities may create additional partners because the offers occurred prior to
joint ventures, and each new joint ven- the expiration of the two-year period.
ture entity may submit offers for a pe- Example 2 to paragraph (h) introductory text.
riod of two years from the date of the Joint Venture XY receives a contract on Au-
gust 10, year 1. It may receive two additional
first contract to the joint venture contracts through August 10, year 3. On
without the partners to the joint ven- March 19, year 2, XY receives a second con-
ture being deemed affiliates. At some tract. It receives no other contract awards
point, however, such a longstanding through August 10, year 3 and has submitted
inter-relationship or contractual de- no additional offers prior to August 10, year
pendence between the same joint ven- 3. Because two years have passed since the
377
§ 121.103 13 CFR Ch. I (1–1–23 Edition)
date of the first contract award, after Au- sitions and final bid for sealed bidding.
gust 10, year 3, XY cannot receive an addi- For a sole source 8(a) award, the joint
tional contract award. The individual parties venture must demonstrate that it
to XY must form a new joint venture if they
meets the requirements of § 124.513(c)
want to seek and be awarded additional con-
tracts as a joint venture. and (d) prior to the award of the con-
Example 3 to paragraph (h) introductory text. tract.
Joint Venture XY receives a contract on De- (2) Ostensible subcontractors. A con-
cember 15, year 1. On May 22, year 3 XY sub- tractor and its ostensible subcon-
mits an offer for Solicitation S. On Decem- tractor are treated as joint venturers
ber 8, year 3, XY submits a novation package for size determination purposes. An os-
for contracting officer approval for Contract tensible subcontractor is a subcon-
C. In January, year 4 XY is found to be the
apparent successful offeror for Solicitation S
tractor that is not a similarly situated
and the relevant contracting officer seeks to entity, as that term is defined in § 125.1
novate Contract C to XY. Because both the of this chapter, and performs primary
offer for Solicitation S and the novation and vital requirements of a contract,
package for Contract C were submitted prior or of an order, or is a subcontractor
to December 15 year 3, both contract award upon which the prime contractor is un-
relating to Solicitation S and novation of usually reliant. All aspects of the rela-
Contract C may occur without a finding of tionship between the prime and sub-
general affiliation.
contractor are considered, including,
(1) Size of joint ventures. (i) A joint but not limited to, the terms of the
venture of two or more business con- proposal (such as contract manage-
cerns may submit an offer as a small ment, technical responsibilities, and
business for a Federal procurement, the percentage of subcontracted work),
subcontract or sale so long as each con- agreements between the prime and sub-
cern is small under the size standard contractor (such as bonding assistance
corresponding to the NAICS code as- or the teaming agreement), and wheth-
signed to the contract. For a competi- er the subcontractor is the incumbent
tive 8(a) procurement, a joint venture contractor and is ineligible to submit a
between an 8(a) Participant and one or proposal because it exceeds the appli-
more other small business concerns (in- cable size standard for that solicita-
cluding two firms approved by SBA to tion.
be a mentor and protégé under § 125.9 of (3) Receipts/employees attributable to
this chapter) must also meet the re- joint venture partners. For size purposes,
quirements of § 124.513(c) and (d) of this a concern must include in its receipts
chapter as of the date of the final pro- its proportionate share of joint venture
posal revision for negotiated acquisi- receipts, unless the proportionate
tions and final bid for sealed bidding in share already is accounted for in re-
order to be eligible for award. ceipts reflecting transactions between
(ii) Two firms approved by SBA to be the concern and its joint ventures (e.g.,
a mentor and protégé under § 125.9 of subcontracts from a joint venture enti-
this chapter may joint venture as a ty to joint venture partners). In deter-
small business for any Federal govern- mining the number of employees, a
ment prime contract or subcontract, concern must include in its total num-
provided the protégé qualifies as small ber of employees its proportionate
for the size standard corresponding to share of joint venture employees. For
the NAICS code assigned to the pro- the calculation of receipts, the appro-
curement, and the joint venture meets priate proportionate share is the same
the requirements of § 124.513 (c) and (d), percentage of receipts or employees as
§ 125.8(b) and (c), § 128.402(c) and (d), the joint venture partner’s percentage
§ 126.616(c) and (d), or § 127.506(c) and (d) share of the work performed by the
of this chapter, as appropriate. Except joint venture. For the calculation of
for sole source 8(a) awards, the joint employees, the appropriate share is the
venture must meet the requirements of same percentage of employees as the
§ 124.513(c) and (d), § 125.8(b) and (c), joint venture partner’s percentage
§ 125.18(b)(2) and (3), § 126.616(c) and (d), ownership share in the joint venture,
or § 127.506(c) and (d) of this chapter, as after first subtracting any joint ven-
appropriate, as of the date of the final ture employee already accounted for in
proposal revision for negotiated acqui- one of the partner’s employee count.
378
Example 1 to paragraph (h)(3). Joint Ven- porations; Form 1120S for S corpora-
ture AB is awarded a contract for $10M. The tions; Form 1120, Form 1065 or Form
joint venture will perform 50% of the work, 1040 for LLCs; Form 1065 for partner-
with A performing $2M (40% of the 50%, or
ships; Form 1040, Schedule F for farms;
20% of the total value of the contract) and B
performing $3M (60% of the 50% or 30% of the Form 1040, Schedule C for other sole
total value of the contract). Since A will per- proprietorships). Receipts do not in-
form 40% of the work done by the joint ven- clude net capital gains or losses; taxes
ture, its share of the revenues for the entire collected for and remitted to a taxing
contract is 40%, which means that the re- authority if included in gross or total
ceipts from the contract awarded to Joint income, such as sales or other taxes
Venture AB that must be included in A’s re- collected from customers and exclud-
ceipts for size purposes are $4M. A must add
ing taxes levied on the concern or its
$4M to its receipts for size purposes, unless
its receipts already account for the $4M in employees; proceeds from transactions
transactions between A and Joint Venture between a concern and its domestic or
AB. foreign affiliates; and amounts col-
lected for another by a travel agent,
(4) Facility security clearances. A joint real estate agent, advertising agent,
venture may be awarded a contract re- conference management service pro-
quiring a facility security clearance vider, freight forwarder or customs
where either the joint venture itself or broker. For size determination pur-
the individual partner(s) to the joint poses, the only exclusions from re-
venture that will perform the nec- ceipts are those specifically provided
essary security work has (have) a facil- for in this paragraph. All other items,
ity security clearance. such as subcontractor costs, reimburse-
(i) Where a facility security clear- ments for purchases a contractor
ance is required to perform primary makes at a customer’s request, invest-
and vital requirements of a contract, ment income, and employee-based
the lead small business partner to the costs such as payroll taxes, may not be
joint venture must possess the required excluded from receipts.
facility security clearance. (1) The Federal income tax return
(ii) Where the security portion of the and any amendments filed with the
contract requiring a facility security IRS on or before the date of self-certifi-
clearance is ancillary to the principal cation must be used to determine the
purpose of the procurement, the part- size status of a concern. SBA will not
ner to the joint venture that will per- use tax returns or amendments filed
form that work must possess the re- with the IRS after the initiation of a
quired facility security clearance. size determination.
[61 FR 3286, Jan. 31, 1996] (2) When a concern has not filed a
EDITORIAL NOTE: For FEDERAL REGISTER ci-
Federal income tax return with the
tations affecting § 121.103, see the List of CFR IRS for a fiscal year which must be in-
Sections Affected, which appears in the cluded in the period of measurement,
Finding Aids section of the printed volume SBA will calculate the concern’s an-
and at www.govinfo.gov. nual receipts for that year using any
other available information, such as
§ 121.104 How does SBA calculate an- the concern’s regular books of account,
nual receipts? audited financial statements, or infor-
(a) Receipts means all revenue in mation contained in an affidavit by a
whatever form received or accrued person with personal knowledge of the
from whatever source, including from facts.
the sales of products or services, inter- (b) Completed fiscal year means a tax-
est, dividends, rents, royalties, fees, or able year including any short year.
commissions, reduced by returns and ‘‘Taxable year’’ and ‘‘short year’’ have
allowances. Generally, receipts are the meanings attributed to them by
considered ‘‘total income’’ (or in the the IRS.
case of a sole proprietorship ‘‘gross in- (c) Period of measurement. (1) Except
come’’) plus ‘‘cost of goods sold’’ as for the Business Loan, Disaster Loan,
these terms are defined and reported on Surety Bond Guarantee, and Small
Internal Revenue Service (IRS) tax re- Business Investment Company (SBIC)
turn forms (such as Form 1120 for cor- Programs, annual receipts of a concern
379
§ 121.104 13 CFR Ch. I (1–1–23 Edition)
that has been in business for 5 or more consist of Economic Injury Disaster
completed fiscal years means the total Loans, Military Reservist Economic In-
receipts of the concern over its most jury Disaster Loans, and Immediate
recently completed 5 fiscal years di- Disaster Assistance Program loans.
vided by 5. (d) Annual receipts of affiliates. (1) The
(2) Except for the Business Loan, Dis- average annual receipts size of a busi-
aster Loan Programs, Surety Bond ness concern with affiliates is cal-
Guarantee, and SBIC Programs, annual culated by adding the average annual
receipts of a concern which has been in receipts of the business concern with
business for less than 5 complete fiscal the average annual receipts of each af-
years means the total receipts for the filiate.
period the concern has been in business (2) If a concern has acquired an affil-
divided by the number of weeks in busi- iate or been acquired as an affiliate
ness, multiplied by 52. during the applicable period of meas-
(3) Except for the Business Loan, Dis- urement or before the date on which it
aster Loan, Surety Bond Guarantee, self-certified as small, the annual re-
and SBIC Programs, where a concern ceipts used in determining size status
has been in business 5 or more com- includes the receipts of the acquired or
plete fiscal years but has a short year acquiring concern. This aggregation
as one of the years within its period of applies for the entire period of meas-
measurement, annual receipts means urement, not just the period after the
the total receipts for the short year affiliation arose. However, if a concern
and the 4 full fiscal years divided by
has acquired a segregable division of
the total number of weeks in the short
another business concern during the
year and the 4 full fiscal years, multi-
applicable period of measurement or
plied by 52.
before the date on which it self-cer-
(4) For the Business Loan, Disaster
tified as small, the annual receipts
Loan, Surety Bond Guarantee, and
used in determining size status do not
SBIC Programs, a concern that has
include the receipts of the acquired di-
been in business for three or more com-
vision prior to the acquisition.
pleted fiscal years may elect to cal-
culate annual receipts using either the (3) Except for the Business Loan and
total receipts of the concern over its Disaster Loan Programs, if the busi-
most recently completed 5 fiscal years ness concern or an affiliate has been in
divided by 5, or the total receipts of the business for a period of less than 5
concern over its most recently com- years, the receipts for the fiscal year
pleted 3 fiscal years divided by 3. An- with less than a 12-month period are
nual receipts of a concern which has annualized in accordance with para-
been in business for less than three graph (c)(2) of this section. Receipts
complete fiscal years means the total are determined for the concern and its
receipts for the period the concern has affiliates in accordance with paragraph
been in business divided by the number (c) of this section even though this
of weeks in business, multiplied by 52. may result in using a different period
Where a concern has been in business of measurement to calculate an affili-
three or more complete fiscal years but ate’s annual receipts.
has a short year as one of the years (4) The annual receipts of a former
within its period of measurement, an- affiliate are not included if affiliation
nual receipts means the total receipts ceased before the date used for deter-
for the short year and the two full fis- mining size. This exclusion of annual
cal years divided by the total number receipts of such former affiliate applies
of weeks in the short year and the two during the entire period of measure-
full fiscal years, multiplied by 52. For ment, rather than only for the period
the purposes of this subsection, the after which affiliation ceased. How-
Business Loan Programs consist of the ever, if a concern has sold a segregable
7(a) Loan Program, the Microloan Pro- division to another business concern
gram, the Intermediary Lending Pilot during the applicable period of meas-
Program, and the Development Com- urement or before the date on which it
pany Loan Program (‘‘504 Loan Pro- self-certified as small, the annual re-
gram’’). The Disaster Loan Programs ceipts used in determining size status
380
will continue to include the receipts of § 121.106 How does SBA calculate
the division that was sold. number of employees?
(e) Unless otherwise defined in this (a) In determining a concern’s num-
section, all terms shall have the mean- ber of employees, SBA counts all indi-
ing attributed to them by the IRS. viduals employed on a full-time, part-
[61 FR 3286, Jan. 31, 1996, as amended at 65 time, or other basis. This includes em-
FR 48604, Aug. 9, 2000; 69 FR 29203, May 21, ployees obtained from a temporary em-
2004; 81 FR 34258, May 31, 2016; 84 FR 66578, ployee agency, professional employee
Dec. 5, 2019; 87 FR 34120, June 6, 2022] organization or leasing concern. SBA
will consider the totality of the cir-
§ 121.105 How does SBA define ‘‘busi- cumstances, including criteria used by
ness concern or concern’’? the IRS for Federal income tax pur-
(a)(1) Except for small agricultural poses, in determining whether individ-
cooperatives, a business concern eligi- uals are employees of a concern. Volun-
ble for assistance from SBA as a small teers (i.e., individuals who receive no
business is a business entity organized compensation, including no in-kind
for profit, with a place of business lo- compensation, for work performed) are
cated in the United States, and which not considered employees.
operates primarily within the United (b) Where the size standard is number
States or which makes a significant of employees, the method for deter-
contribution to the U.S. economy mining a concern’s size includes the
through payment of taxes or use of following principles:
American products, materials or labor. (1) The average number of employees
(2) A small agricultural cooperative of the concern is used (including the
is an association (corporate or other- employees of its domestic and foreign
wise) acting pursuant to the provisions affiliates) based upon numbers of em-
of the Agricultural Marketing Act (12 ployees for each of the pay periods for
U.S.C.A. 1141j) whose size does not ex- the preceding completed 24 calendar
ceed the size standard established by months.
SBA for other similar agricultural (2) Part-time and temporary employ-
small business concerns. A small agri- ees are counted the same as full-time
cultural cooperative’s member share- employees.
holders are not considered to be affili- (3) If a concern has not been in busi-
ates of the cooperative by virtue of ness for 24 months, the average number
their membership in the cooperative. of employees is used for each of the pay
However, a business concern or cooper- periods during which it has been in
ative that does not qualify as small business.
(4)(i) The average number of employ-
under this part may not be a member
ees of a business concern with affiliates
of a small agricultural cooperative.
is calculated by adding the average
(b) A business concern may be in the
number of employees of the business
legal form of an individual proprietor-
concern with the average number of
ship, partnership, limited liability
employees of each affiliate. If a con-
company, corporation, joint venture,
cern has acquired an affiliate or been
association, trust or cooperative, ex-
acquired as an affiliate during the ap-
cept that where the form is a joint ven-
plicable period of measurement or be-
ture there can be no more than 49 per-
fore the date on which it self-certified
cent participation by foreign business
as small, the employees counted in de-
entities in the joint venture.
termining size status include the em-
(c) A firm will not be treated as a ployees of the acquired or acquiring
separate business concern if a substan- concern. Furthermore, this aggrega-
tial portion of its assets and/or liabil- tion applies for the entire period of
ities are the same as those of a prede- measurement, not just the period after
cessor entity. In such a case, the an- the affiliation arose.
nual receipts and employees of the (ii) The employees of a former affil-
predecessor will be taken into account iate are not counted if affiliation
in determining size. ceased before the date used for deter-

[61 FR 3286, Jan. 31, 1996, as amended at 70 mining size. This exclusion of employ-
FR 51248, Aug. 30, 2005] ees of a former affiliate applies during
381
§ 121.107 13 CFR Ch. I (1–1–23 Edition)
the entire period of measurement, tended for award to small business con-
rather than only for the period after cerns.
which affiliation ceased. However, if a (2) Submission of a bid, proposal, ap-
concern has sold a segregable division plication or offer for a Federal grant,
to another business concern during the contract, subcontract, cooperative
applicable period of measurement or agreement or cooperative research and
before the date on which it self-cer- development agreement which in any
tified as small, the employees used in way encourages a Federal agency to
determining size status will continue classify the bid or proposal, if awarded,
to include the employees of the divi- as an award to a small business con-
sion that was sold. cern.
[61 FR 3286, Jan. 31, 1996, as amended at 69 (3) Registration on any Federal elec-
FR 29203, May 21, 2004; 84 FR 66579, Dec. 5, tronic database for the purpose of
2019; 87 FR 34120, June 6, 2022] being considered for award of a Federal
grant, contract, subcontract, coopera-
§ 121.107 How does SBA determine a tive agreement, or cooperative re-
concern’s ‘‘primary industry’’? search and development agreement, as
In determining the primary industry a small business concern.
in which a concern or a concern com- (c) Signature Requirement. Each offer,
bined with its affiliates is engaged, proposal, bid, or application for a Fed-
SBA considers the distribution of re- eral contract, subcontract, or grant
ceipts, employees and costs of doing shall contain a certification con-
business among the different industries cerning the small business size and sta-
in which business operations occurred tus of a business concern seeking the
for the most recently completed fiscal Federal contract, subcontract or grant.
year. SBA may also consider other fac- An authorized official must sign the
tors, such as the distribution of pat- certification on the same page con-
ents, contract awards, and assets. taining the size status claimed by the
concern.
§ 121.108 What are the penalties for (d) Limitation of Liability. Paragraphs
misrepresentation of size status? (a) through (c) of this section may be
(a) Presumption of Loss Based on the determined not to apply in the case of
Total Amount Expended. In every con- unintentional errors, technical mal-
tract, subcontract, cooperative agree- functions, and other similar situations
ment, cooperative research and devel- that demonstrate that a misrepresen-
opment agreement, or grant which is tation of size was not affirmative, in-
set aside, reserved, or otherwise classi- tentional, willful or actionable under
fied as intended for award to small the False Claims Act, 31 U.S.C. §§ 3729,
business concerns, there shall be a pre- et seq. A prime contractor acting in
sumption of loss to the United States good faith should not be held liable for
based on the total amount expended on misrepresentations made by its sub-
the contract, subcontract, cooperative contractors regarding the subcontrac-
agreement, cooperative research and tors’ size. Relevant factors to consider
development agreement, or grant in making this determination may in-
whenever it is established that a busi- clude the firm’s internal management
ness concern other than a small busi- procedures governing size representa-
ness concern willfully sought and re- tion or certification, the clarity or am-
ceived the award by misrepresentation. biguity of the representation or certifi-
(b) Deemed Certifications. The fol- cation requirement, and the efforts
lowing actions shall be deemed affirm- made to correct an incorrect or invalid
ative, willful and intentional certifi- representation or certification in a
cations of small business size and sta- timely manner. An individual or firm
tus: may not be held liable where govern-
(1) Submission of a bid, proposal, ap- ment personnel have erroneously iden-
plication or offer for a Federal grant, tified a concern as small without any
contract, subcontract, cooperative representation or certification having
agreement, or cooperative research and been made by the concern and where
development agreement reserved, set such identification is made without the
aside, or otherwise classified as in- knowledge of the individual or firm.
382
(e) Penalties for Misrepresentation. (1) (b) Submission. An SBDC or PTAC

Suspension or debarment. The SBA sus- must submit a copy of each small busi-
pension and debarment official or the ness status advisory opinion it issues
agency suspension and debarment offi- to the following Agency official for re-
cial may suspend or debar a person or view: Associate General Counsel, Office
concern for misrepresenting a firm’s of Procurement Law, U.S. Small Busi-
size status pursuant to the procedures ness Administration, 409 Third Street
set forth in 48 CFR subpart 9.4. SW., Washington, DC 20416 or by fax to
(2) Civil Penalties. Persons or concerns (202) 205–6390 marked Attn: Small Busi-
are subject to severe penalties under ness Status Advisory Opinion. A small
the False Claims Act, 31 U.S.C. 3729– business status advisory opinion must:
3733, the Program Fraud Civil Rem- (1) Provide a written analysis ex-
edies Act, 31 U.S.C. 3801–3812 and any plaining the reasoning underlying the
other applicable laws or regulations, SBDC or PTAC’s determination that
including 13 CFR part 142. the covered concern, along with its af-
(3) Criminal Penalties. Persons or con- filiates, either does or does not exceed
cerns are subject to severe criminal the size standard(s). This analysis must
penalties for knowingly misrepre- be dated and signed by an SBDC or
senting the small business size status PTAC business counselor or similarly
of a concern in connection with pro- qualified individual.
curement programs pursuant to section
(2) Include, as an attachment, a com-
16(d) of the Small Business Act, 15
pleted copy of an SBA Form 355 for the
U.S.C. 645(d), as amended, 18 U.S.C.
covered concern and its affiliates.
1001, 18 U.S.C. 287, and any other appli-
cable laws. Persons or concerns are (3) Include, as an attachment, copies
subject to criminal penalties for know- of the evidence (such as payroll
ingly making false statements or mis- records, time sheets, federal income
representations to SBA for the purpose tax returns, etc.) provided by the cov-
of influencing any actions of SBA pur- ered concern to the SBDC or PTAC
suant to section 16(a) of the Small clearly documenting its annual re-
Business Act, 15 U.S.C. 645(a), as ceipts and/or number of employees as
amended, including failure to correct those terms are defined by §§ 121.104 and
‘‘continuing representations’’ that are 121.106.
no longer true. (c) Review. Unless a referral is made
(4) Limitation on Liability. An indi- under paragraph (e) of this section,
vidual or business concern will not be SBA will decide within 10 business days
subject to the penalties imposed under of receiving a small business status ad-
15 U.S.C. 645(a) where it acted in good visory opinion to accept or reject it
faith reliance on a small business sta- based on its consistency with part 121.
tus advisory opinion accepted by SBA SBA will provide written notification
under § 121.109. of that decision to the SBDC or PTAC
that issued the small business status
[78 FR 38816, June 28, 2013, as amended at 80
FR 7536, Feb. 11, 2015; 81 FR 31491, May 19,
advisory opinion as well as to the cov-
2016] ered concern.
(d) Reliance. A concern that receives
§ 121.109 What is a small business sta- a small business status advisory opin-
tus advisory opinion? ion holding that it does not exceed the
(a) Defined. A small business status applicable size standard(s) may rely
advisory opinion is a written opinion upon that determination for purposes
issued by either a Small Business De- of responding to Federal procurement
velopment Center (SBDC) operating opportunities from the date it is issued
under part 130 of this chapter or a Pro- unless and until that advisory opinion
curement Technical Assistance Center is rejected by SBA in accordance with
(PTAC) operating under 10 U.S.C. chap- paragraph (c) of this section or the con-
ter 142 which concludes that a firm is cern undergoes a significant change in
entitled to represent itself as a small its ownership, management, or other
business concern for purposes of federal factors bearing on its status as a small
government procurement opportuni- business concern. However, the firm’s
ties. size may be protested by interested
383
§ 121.110 13 CFR Ch. I (1–1–23 Edition)
parties in connection with a specific representations’’ that are no longer

procurement. true.
(e) Referral for size determination. [80 FR 7536, Feb. 11, 2015]
Nothing in this section precludes the
Associate General Counsel, Office of § 121.110 What must a concern do in
Procurement Law from requesting a order to be identified as a small
formal size determination for a con- business concern in any Federal
cern that is the subject of a small busi- procurement databases?
ness status advisory opinion pursuant (a) In order to be identified as a small
to § 121.1001(b)(9). business concern in the System for
(f) Penalties for misrepresentation—(1) Award Management (SAM) database
Suspension or debarment. The SBA sus- (or any successor thereto), a concern
pension and debarment official may must certify its size in connection with
suspend or debar a person or concern specific size standards at least annu-
for misrepresenting a concern’s size for ally.
purposes of obtaining a small business (b) If a firm identified as a small
size status advisory opinion pursuant business concern in SAM fails to cer-
to the procedures set forth in 48 CFR tify its size within one year of a size
subpart 9.4. certification, the firm will not be listed
(2) Civil penalties. Persons or concerns as a small business concern in SAM,
are subject to severe penalties under unless and until the firm recertifies its
the False Claims Act, 31 U.S.C. 3729– size.
3733, and under the Program Fraud
[78 FR 38817, June 28, 2013. Redesignated at 80
Civil Remedies Act, 331 U.S.C. 3801– FR 7536, Feb. 11, 2015]
3812, and any other applicable laws.
(3) Criminal Penalties. Persons or con- SIZE STANDARDS USED TO DEFINE
cerns are subject to severe criminal SMALL BUSINESS CONCERNS
penalties for knowingly misrepre-
senting the small business size status § 121.201 What size standards has SBA
of a concern in connection with pro- identified by North American In-
curement programs pursuant to section dustry Classification System codes?
16(d) of the Small Business Act, 15 The size standards described in this
U.S.C. 645(d), as amended, 18 U.S.C. section apply to all SBA programs un-
1001, 18 U.S.C. 287, and any other appli- less otherwise specified in this part.
cable laws. Persons or concerns are The size standards themselves are ex-
subject to criminal penalties for know- pressed either in number of employees
ingly making false statements or mis- or annual receipts in millions of dol-
representations for the purpose of in- lars, unless otherwise specified. The
fluencing any actions of SBA pursuant number of employees or annual re-
to section 16(a) of the Small Business ceipts indicates the maximum allowed
Act, 15 U.S.C. 645(a), as amended, infor a concern and its affiliates to be
cluding failure to correct ‘‘continuing considered small.
SMALL BUSINESS SIZE STANDARDS BY NAICS INDUSTRY
Size standards Size standards
NAICS codes NAICS U.S. industry title in millions of in number of
dollars employees
Sector 11—Agriculture, Forestry, Fishing and Hunting
Subsector 111—Crop Production
111110 .............. Soybean Farming ........................................................................................... $2.25

111120 .............. Oilseed (except Soybean) Farming ............................................................... $2.25
111130 .............. Dry Pea and Bean Farming ........................................................................... $2.75
111140 .............. Wheat Farming ............................................................................................... $2.25
111150 .............. Corn Farming ................................................................................................. $2.5
111160 .............. Rice Farming .................................................................................................. $2.5
111191 .............. Oilseed and Grain Combination Farming ...................................................... $2.25
111199 .............. All Other Grain Farming ................................................................................. $2.25

111211 .............. Potato Farming ............................................................................................... $4.25
111219 .............. Other Vegetable (except Potato) and Melon Farming ................................... $3.75
111310 .............. Orange Groves ............................................................................................... $4.0
384
SMALL BUSINESS SIZE STANDARDS BY NAICS INDUSTRY—Continued

dollars employees
111320 .............. Citrus (except Orange) Groves ...................................................................... $4.25

111331 .............. Apple Orchards .............................................................................................. $4.5
111332 .............. Grape Vineyards ............................................................................................ $4.0
111333 .............. Strawberry Farming ........................................................................................ $5.5
111334 .............. Berry (except Strawberry) Farming ................................................................ $3.75
111335 .............. Tree Nut Farming ........................................................................................... $3.75
111336 .............. Fruit and Tree Nut Combination Farming ...................................................... $5.0
111339 .............. Other Noncitrus Fruit Farming ....................................................................... $3.5
111411 .............. Mushroom Production .................................................................................... $4.5
111419 .............. Other Food Crops Grown Under Cover ......................................................... $4.5
111421 .............. Nursery and Tree Production ......................................................................... $3.25
111422 .............. Floriculture Production ................................................................................... $3.75
111910 .............. Tobacco Farming ........................................................................................... $2.5
111920 .............. Cotton Farming .............................................................................................. $3.25
111930 .............. Sugarcane Farming ........................................................................................ $5.0
111940 .............. Hay Farming ................................................................................................... $2.5
111991 .............. Sugar Beet Farming ....................................................................................... $2.5
111992 .............. Peanut Farming .............................................................................................. $2.5
111998 .............. All Other Miscellaneous Crop Farming .......................................................... $2.5
Subsector 112—Animal Production and Aquaculture
112111 .............. Beef Cattle Ranching and Farming ............................................................... $2.5

112112 .............. Cattle Feedlots ............................................................................................... $22.0
112120 .............. Dairy Cattle and Milk Production ................................................................... $3.75
112210 .............. Hog and Pig Farming ..................................................................................... $4.0
112310 .............. Chicken Egg Production ................................................................................ $19.0
112320 .............. Broilers and Other Meat Type Chicken Production ....................................... $3.5
112330 .............. Turkey Production .......................................................................................... $3.75
112340 .............. Poultry Hatcheries .......................................................................................... $4.0
112390 .............. Other Poultry Production ................................................................................ $3.75
112410 .............. Sheep Farming ............................................................................................... $3.5
112420 .............. Goat Farming ................................................................................................. $2.5
112511 .............. Finfish Farming and Fish Hatcheries ............................................................. $3.75
112512 .............. Shellfish Farming ........................................................................................... $3.75
112519 .............. Other Aquaculture .......................................................................................... $3.75
112910 .............. Apiculture ....................................................................................................... $3.25
112920 .............. Horse and Other Equine Production .............................................................. $2.75
112930 .............. Fur-Bearing Animal and Rabbit Production ................................................... $3.75
112990 .............. All Other Animal Production ........................................................................... $2.75
Subsector 113—Forestry and Logging
113110 .............. Timber Tract Operations ................................................................................ $19.0

113210 .............. Forest Nurseries and Gathering of Forest Products ..................................... $20.5
113310 .............. Logging ........................................................................................................... ........................ 500
Subsector 114—Fishing, Hunting and Trapping
114111 .............. Finfish Fishing ................................................................................................ $25.0

114112 .............. Shellfish Fishing ............................................................................................. $14.0
114119 .............. Other Marine Fishing ..................................................................................... $11.5
114210 .............. Hunting and Trapping .................................................................................... $8.5
Subsector 115—Support Activities for Agriculture and Forestry
115111 .............. Cotton Ginning ............................................................................................... $16.0

115112 .............. Soil Preparation, Planting, and Cultivating .................................................... $9.5
115113 .............. Crop Harvesting, Primarily by Machine ......................................................... $13.5
115114 .............. Postharvest Crop Activities (except Cotton Ginning) .................................... $34.0
115115 .............. Farm Labor Contractors and Crew Leaders .................................................. $19.0
115116 .............. Farm Management Services .......................................................................... $15.5
115210 .............. Support Activities for Animal Production ....................................................... $11.0
115310 .............. Support Activities for Forestry ........................................................................ $11.5
115310 (Excep- Forest Fire Suppression 1 .............................................................................. $34.0 1
tion 1).
115310 (Excep- Fuels Management Services 1 ....................................................................... $34.0 1
tion 2).
385
§ 121.201 13 CFR Ch. I (1–1–23 Edition)

dollars employees
Sector 21—Mining, Quarrying, and Oil and Gas Extraction
Subsector 211—Oil and Gas Extraction
211120 .............. Crude Petroleum Extraction ........................................................................... ........................ 1,250

211130 .............. Natural Gas Extraction ................................................................................... ........................ 1,250
Subsector 212—Mining (except Oil and Gas)
212114 .............. Surface Coal Mining ....................................................................................... ........................ 1,250

212115 .............. Underground Coal Mining .............................................................................. ........................ 1,500
212210 .............. Iron Ore Mining .............................................................................................. ........................ 750
212220 .............. Gold Ore and Silver Ore Mining .................................................................... ........................ 1,500
212230 .............. Copper, Nickel, Lead, and Zinc Mining ......................................................... ........................ 750
212290 .............. Other Metal Ore Mining ................................................................................. ........................ 750
212311 .............. Dimension Stone Mining and Quarrying ........................................................ ........................ 500
212312 .............. Crushed and Broken Limestone Mining and Quarrying ................................ ........................ 750
212313 .............. Crushed and Broken Granite Mining and Quarrying ..................................... ........................ 750
212319 .............. Other Crushed and Broken Stone Mining and Quarrying ............................. ........................ 500
212321 .............. Construction Sand and Gravel Mining ........................................................... ........................ 500
212322 .............. Industrial Sand Mining ................................................................................... ........................ 500
212323 .............. Kaolin, Clay, and Ceramic and Refractory Minerals Mining .......................... ........................ 500
212390 .............. Other Nonmetallic Mineral Mining and Quarrying ......................................... ........................ 500
Subsector 213—Support Activities for Mining
213111 .............. Drilling Oil and Gas Wells .............................................................................. ........................ 1,000
213112 .............. Support Activities for Oil and Gas Operations ............................................... $47.0
213113 .............. Support Activities for Coal Mining .................................................................. $27.5
213114 .............. Support Activities for Metal Mining ................................................................ $41.0
213115 .............. Support Activities for Nonmetallic Minerals (except Fuels) ........................... $20.5
Sector 22—Utilities
Subsector 221—Utilities
221111 .............. Hydroelectric Power Generation .................................................................... ........................ 500

221112 .............. Fossil Fuel Electric Power Generation .......................................................... ........................ 750
221113 .............. Nuclear Electric Power Generation ................................................................ ........................ 750
221114 .............. Solar Electric Power Generation .................................................................... ........................ 250
221115 .............. Wind Electric Power Generation .................................................................... ........................ 250
221116 .............. Geothermal Electric Power Generation ......................................................... ........................ 250
221117 .............. Biomass Electric Power Generation .............................................................. ........................ 250
221118 .............. Other Electric Power Generation ................................................................... ........................ 250
221121 .............. Electric Bulk Power Transmission and Control ............................................. ........................ 500
221122 .............. Electric Power Distribution ............................................................................. ........................ 1,000
221210 .............. Natural Gas Distribution ................................................................................. ........................ 1,000
221310 .............. Water Supply and Irrigation Systems ............................................................ $41.0
221320 .............. Sewage Treatment Facilities .......................................................................... $35.0
221330 .............. Steam and Air-Conditioning Supply ............................................................... $30.0
Sector 23—Construction
Subsector 236—Construction of Buildings
236115 .............. New Single-family Housing Construction (Except For-Sale Builders) ........... $45.0
236116 .............. New Multifamily Housing Construction (except For-Sale Builders) ............... $45.0
236117 .............. New Housing For-Sale Builders ..................................................................... $45.0
236118 .............. Residential Remodelers ................................................................................. $45.0
236210 .............. Industrial Building Construction ..................................................................... $45.0
236220 .............. Commercial and Institutional Building Construction ...................................... $45.0
Subsector 237—Heavy and Civil Engineering Construction
237110 .............. Water and Sewer Line and Related Structures Construction ....................... $45.0
237120 .............. Oil and Gas Pipeline and Related Structures Construction .......................... $45.0
237130 .............. Power and Communication Line and Related Structures Construction ........ $45.0
237210 .............. Land Subdivision ............................................................................................ $34.0
237310 .............. Highway, Street, and Bridge Construction ..................................................... $45.0
237990 .............. Other Heavy and Civil Engineering Construction .......................................... $45.0
386

dollars employees
237900 (Excep- Dredging and Surface Cleanup Activities 2 .................................................... $37.0 2

tion).
Subsector 238—Specialty Trade Contractors
238110 .............. Poured Concrete Foundation and Structure Contractors .............................. $19.0
238120 .............. Structural Steel and Precast Concrete Contractors ...................................... $19.0
238130 .............. Framing Contractors ...................................................................................... $19.0
238140 .............. Masonry Contractors ...................................................................................... $19.0
238150 .............. Glass and Glazing Contractors ...................................................................... $19.0
238160 .............. Roofing Contractors ....................................................................................... $19.0
238170 .............. Siding Contractors .......................................................................................... $19.0
238190 .............. Other Foundation, Structure, and Building Exterior Contractors ................... $19.0
238210 .............. Electrical Contractors and Other Wiring Installation Contractors .................. $19.0
238220 .............. Plumbing, Heating, and Air-Conditioning Contractors ................................... $19.0
238290 .............. Other Building Equipment Contractors .......................................................... $22.0
238310 .............. Drywall and Insulation Contractors ................................................................ $19.0
238320 .............. Painting and Wall Covering Contractors ........................................................ $19.0
238330 .............. Flooring Contractors ....................................................................................... $19.0
238340 .............. Tile and Terrazzo Contractors ....................................................................... $19.0
238350 .............. Finish Carpentry Contractors ......................................................................... $19.0
238390 .............. Other Building Finishing Contractors ............................................................. $19.0
238910 .............. Site Preparation Contractors .......................................................................... $19.0
238990 .............. All Other Specialty Trade Contractors ........................................................... $19.0
238990 (Excep- Building and Property Specialty Trade Services 13 ........................................ $19.0 13
tion).
Sectors 31–33—Manufacturing
Subsector 311—Food Manufacturing
311111 .............. Dog and Cat Food Manufacturing ................................................................. ........................ 1,000
311119 .............. Other Animal Food Manufacturing ................................................................. ........................ 500
311211 .............. Flour Milling .................................................................................................... ........................ 1,000
311212 .............. Rice Milling ..................................................................................................... ........................ 500
311213 .............. Malt Manufacturing ......................................................................................... ........................ 500
311221 .............. Wet Corn Milling and Starch Manufacturing .................................................. ........................ 1,250
311224 .............. Soybean and Other Oilseed Processing ....................................................... ........................ 1,000
311225 .............. Fats and Oils Refining and Blending ............................................................. ........................ 1,000
311230 .............. Breakfast Cereal Manufacturing .................................................................... ........................ 1,000
311313 .............. Beet Sugar Manufacturing ............................................................................. ........................ 750
311314 .............. Cane Sugar Manufacturing ............................................................................ ........................ 1,000
311340 .............. Nonchocolate Confectionery Manufacturing .................................................. ........................ 1,000
311351 .............. Chocolate and Confectionery Manufacturing from Cacao Beans ................. ........................ 1,250
311352 .............. Confectionery Manufacturing from Purchased Chocolate ............................. ........................ 1,000
311411 .............. Frozen Fruit, Juice, and Vegetable Manufacturing ........................................ ........................ 1,000
311412 .............. Frozen Specialty Food Manufacturing ........................................................... ........................ 1,250
311421 .............. Fruit and Vegetable Canning 3 ....................................................................... ........................ 1,000 3
311422 .............. Specialty Canning .......................................................................................... ........................ 1,250
311423 .............. Dried and Dehydrated Food Manufacturing .................................................. ........................ 750
311511 .............. Fluid Milk Manufacturing ................................................................................ ........................ 1,000
311512 .............. Creamery Butter Manufacturing ..................................................................... ........................ 750
311513 .............. Cheese Manufacturing ................................................................................... ........................ 1,250
311514 .............. Dry, Condensed, and Evaporated Dairy Product Manufacturing .................. ........................ 750
311520 .............. Ice Cream and Frozen Dessert Manufacturing ............................................. ........................ 1,000
311611 .............. Animal (except Poultry) Slaughtering ............................................................ ........................ 1,000
311612 .............. Meat Processed from Carcasses ................................................................... ........................ 1,000
311613 .............. Rendering and Meat Byproduct Processing .................................................. ........................ 750
311615 .............. Poultry Processing ......................................................................................... ........................ 1,250
311710 .............. Seafood Product Preparation and Packaging ............................................... ........................ 750
311811 .............. Retail Bakeries ............................................................................................... ........................ 500
311812 .............. Commercial Bakeries ..................................................................................... ........................ 1,000
311813 .............. Frozen Cakes, Pies, and Other Pastries Manufacturing ............................... ........................ 750
311821 .............. Cookie and Cracker Manufacturing ............................................................... ........................ 1,250
311824 .............. Dry Pasta, Dough, and Flour Mixes Manufacturing from Purchased Flour .. ........................ 750
311830 .............. Tortilla Manufacturing ..................................................................................... ........................ 1,250
311911 .............. Roasted Nuts and Peanut Butter Manufacturing ........................................... ........................ 750
311919 .............. Other Snack Food Manufacturing .................................................................. ........................ 1,250
311920 .............. Coffee and Tea Manufacturing ...................................................................... ........................ 750

311930 .............. Flavoring Syrup and Concentrate Manufacturing .......................................... ........................ 1,000
311941 .............. Mayonnaise, Dressing, and Other Prepared Sauce Manufacturing .............. ........................ 750
311942 .............. Spice and Extract Manufacturing ................................................................... ........................ 500
387
§ 121.201 13 CFR Ch. I (1–1–23 Edition)

dollars employees
311991 .............. Perishable Prepared Food Manufacturing ..................................................... ........................ 500

311999 .............. All Other Miscellaneous Food Manufacturing ................................................ ........................ 500
Subsector 312—Beverage and Tobacco Product Manufacturing
312111 .............. Soft Drink Manufacturing ............................................................................... ........................ 1,250

312112 .............. Bottled Water Manufacturing ......................................................................... ........................ 1,000
312113 .............. Ice Manufacturing ........................................................................................... ........................ 750
312120 .............. Breweries ....................................................................................................... ........................ 1,250
312130 .............. Wineries ......................................................................................................... ........................ 1,000
312140 .............. Distilleries ....................................................................................................... ........................ 1,000
312230 .............. Tobacco Manufacturing .................................................................................. ........................ 1,500
Subsector 313—Textile Mills
313110 .............. Fiber, Yarn, and Thread Mills ........................................................................ ........................ 1,250
313210 .............. Broadwoven Fabric Mills ................................................................................ ........................ 1,000
313220 .............. Narrow Fabric Mills and Schiffli Machine Embroidery ................................... ........................ 500
313230 .............. Nonwoven Fabric Mills ................................................................................... ........................ 750
313240 .............. Knit Fabric Mills .............................................................................................. ........................ 500
313310 .............. Textile and Fabric Finishing Mills .................................................................. ........................ 1,000
313320 .............. Fabric Coating Mills ....................................................................................... ........................ 1,000
Subsector 314—Textile Product Mills
314110 .............. Carpet and Rug Mills ..................................................................................... ........................ 1,500

314120 .............. Curtain and Linen Mills .................................................................................. ........................ 750
314910 .............. Textile Bag and Canvas Mills ........................................................................ ........................ 500
314994 .............. Rope, Cordage, Twine, Tire Cord, and Tire Fabric Mills .............................. ........................ 1,000
314999 .............. All Other Miscellaneous Textile Product Mills ............................................... ........................ 500
Subsector 315—Apparel Manufacturing
315120 .............. Apparel Knitting Mills ..................................................................................... ........................ 750

315210 .............. Cut and Sew Apparel Contractors ................................................................. ........................ 750
315250 .............. Cut and Sew Apparel Manufacturing (except Contractors) ........................... ........................ 750
315990 .............. Apparel Accessories and Other Apparel Manufacturing ............................... ........................ 500
Subsector 316—Leather and Allied Product Manufacturing
316110 .............. Leather and Hide Tanning and Finishing ...................................................... ........................ 500
316210 .............. Footwear Manufacturing ................................................................................ ........................ 1,000
316990 .............. Other Leather and Allied Product Manufacturing .......................................... ........................ 500
Subsector 321—Wood Product Manufacturing
321113 .............. Sawmills ......................................................................................................... ........................ 500

321114 .............. Wood Preservation ......................................................................................... ........................ 500
321211 .............. Hardwood Veneer and Plywood Manufacturing ............................................ ........................ 500
321212 .............. Softwood Veneer and Plywood Manufacturing .............................................. ........................ 1,250
321215 .............. Engineered Wood Member Manufacturing .................................................... ........................ 500
321219 .............. Reconstituted Wood Product Manufacturing ................................................. ........................ 750
321911 .............. Wood Window and Door Manufacturing ........................................................ ........................ 1,000
321912 .............. Cut Stock, Resawing Lumber, and Planing ................................................... ........................ 500
321918 .............. Other Millwork (including Flooring) ................................................................ ........................ 500
321920 .............. Wood Container and Pallet Manufacturing .................................................... ........................ 500
321991 .............. Manufactured Home (Mobile Home) Manufacturing ...................................... ........................ 1,250
321992 .............. Prefabricated Wood Building Manufacturing ................................................. ........................ 500
321999 .............. All Other Miscellaneous Wood Product Manufacturing ................................. ........................ 500
Subsector 322—Paper Manufacturing
322110 .............. Pulp Mills ........................................................................................................ ........................ 750

322120 .............. Paper Mills ..................................................................................................... ........................ 1,250
322130 .............. Paperboard Mills ............................................................................................ ........................ 1,250
322211 .............. Corrugated and Solid Fiber Box Manufacturing ............................................ ........................ 1,250
322212 .............. Folding Paperboard Box Manufacturing ........................................................ ........................ 750
322219 .............. Other Paperboard Container Manufacturing .................................................. ........................ 1,000

322220 .............. Paper Bag and Coated and Treated Paper Manufacturing ........................... ........................ 750
322230 .............. Stationery Product Manufacturing .................................................................. ........................ 750
322291 .............. Sanitary Paper Product Manufacturing .......................................................... ........................ 1,500
388

dollars employees
322299 .............. All Other Converted Paper Product Manufacturing ....................................... ........................ 500
Subsector 323—Printing and Related Support Activities
323111 .............. Commercial Printing (except Screen and Books) .......................................... ........................ 500
323113 .............. Commercial Screen Printing .......................................................................... ........................ 500
323117 .............. Books Printing ................................................................................................ ........................ 1,250
323120 .............. Support Activities for Printing ......................................................................... ........................ 500
Subsector 324—Petroleum and Coal Products Manufacturing
324110 .............. Petroleum Refineries 4 ................................................................................... ........................ 1,500 4

324121 .............. Asphalt Paving Mixture and Block Manufacturing ......................................... ........................ 500
324122 .............. Asphalt Shingle and Coating Materials Manufacturing .................................. ........................ 750
324191 .............. Petroleum Lubricating Oil and Grease Manufacturing .................................. ........................ 750
324199 .............. All Other Petroleum and Coal Products Manufacturing ................................ ........................ 500
Subsector 325—Chemical Manufacturing
325110 .............. Petrochemical Manufacturing ......................................................................... ........................ 1,000

325120 .............. Industrial Gas Manufacturing ......................................................................... ........................ 1,000
325130 .............. Synthetic Dye and Pigment Manufacturing ................................................... ........................ 1,000
325180 .............. Other Basic Inorganic Chemical Manufacturing ............................................ ........................ 1,000
325193 .............. Ethyl Alcohol Manufacturing .......................................................................... ........................ 1,000
325194 .............. Cyclic Crude, Intermediate, and Gum and Wood Chemical Manufacturing ........................ 1,250
325199 .............. All Other Basic Organic Chemical Manufacturing ......................................... ........................ 1,250
325211 .............. Plastics Material and Resin Manufacturing ................................................... ........................ 1,250
325212 .............. Synthetic Rubber Manufacturing .................................................................... ........................ 1,000
325220 .............. Artificial and Synthetic Fibers and Filaments Manufacturing ........................ ........................ 1,000
325311 .............. Nitrogenous Fertilizer Manufacturing ............................................................. ........................ 1,000
325312 .............. Phosphatic Fertilizer Manufacturing ............................................................... ........................ 750
325314 .............. Fertilizer (Mixing Only) Manufacturing ........................................................... ........................ 500
325315 .............. Compost Manufacturing ................................................................................. ........................ 500
325320 .............. Pesticide and Other Agricultural Chemical Manufacturing ............................ ........................ 1,000
325411 .............. Medicinal and Botanical Manufacturing ......................................................... ........................ 1,000
325412 .............. Pharmaceutical Preparation Manufacturing ................................................... ........................ 1,250
325413 .............. In-Vitro Diagnostic Substance Manufacturing ................................................ ........................ 1,250
325414 .............. Biological Product (except Diagnostic) Manufacturing .................................. ........................ 1,250
325510 .............. Paint and Coating Manufacturing .................................................................. ........................ 1,000
325520 .............. Adhesive Manufacturing ................................................................................. ........................ 500
325611 .............. Soap and Other Detergent Manufacturing ..................................................... ........................ 1,000
325612 .............. Polish and Other Sanitation Good Manufacturing ......................................... ........................ 750
325613 .............. Surface Active Agent Manufacturing ............................................................. ........................ 750
325620 .............. Toilet Preparation Manufacturing ................................................................... ........................ 1,250
325910 .............. Printing Ink Manufacturing ............................................................................. ........................ 500
325920 .............. Explosives Manufacturing .............................................................................. ........................ 750
325991 .............. Custom Compounding of Purchased Resins ................................................. ........................ 500
325992 .............. Photographic Film, Paper, Plate, Chemical, and Copy Toner Manufacturing ........................ 1,500
325998 .............. All Other Miscellaneous Chemical Product and Preparation Manufacturing ........................ 500
Subsector 326—Plastics and Rubber Products Manufacturing
326111 .............. Plastics Bag and Pouch Manufacturing ......................................................... ........................ 750
326112 .............. Plastics Packaging Film and Sheet (including Laminated) Manufacturing ... ........................ 1,000
326113 .............. Unlaminated Plastics Film and Sheet (except Packaging) Manufacturing .... ........................ 750
326121 .............. Unlaminated Plastics Profile Shape Manufacturing ....................................... ........................ 500
326122 .............. Plastics Pipe and Pipe Fitting Manufacturing ................................................ ........................ 750
326130 .............. Laminated Plastics Plate, Sheet (except Packaging), and Shape Manufac- ........................ 500
turing.
326140 .............. Polystyrene Foam Product Manufacturing ..................................................... ........................ 1,000
326150 .............. Urethane and Other Foam Product (except Polystyrene) Manufacturing ..... ........................ 750
326160 .............. Plastics Bottle Manufacturing ......................................................................... ........................ 1,250
326191 .............. Plastics Plumbing Fixture Manufacturing ....................................................... ........................ 750
326199 .............. All Other Plastics Product Manufacturing ...................................................... ........................ 750
326211 .............. Tire Manufacturing (except Retreading) 5 ...................................................... ........................ 1,500 5
326212 .............. Tire Retreading .............................................................................................. ........................ 500
326220 .............. Rubber and Plastics Hoses and Belting Manufacturing ................................ ........................ 750
326291 .............. Rubber Product Manufacturing for Mechanical Use ...................................... ........................ 750
326299 .............. All Other Rubber Product Manufacturing ....................................................... ........................ 500
389
§ 121.201 13 CFR Ch. I (1–1–23 Edition)

dollars employees
Subsector 327—Nonmetallic Mineral Product Manufacturing
327110 .............. Pottery, Ceramics, and Plumbing Fixture Manufacturing .............................. ........................ 1,000
327120 .............. Clay Building Material and Refractories Manufacturing ................................ ........................ 750
327211 .............. Flat Glass Manufacturing ............................................................................... ........................ 1,000
327212 .............. Other Pressed and Blown Glass and Glassware Manufacturing .................. ........................ 1,250
327213 .............. Glass Container Manufacturing ..................................................................... ........................ 1,250
327215 .............. Glass Product Manufacturing Made of Purchased Glass ............................. ........................ 1,000
327310 .............. Cement Manufacturing ................................................................................... ........................ 1,000
327320 .............. Ready-Mix Concrete Manufacturing .............................................................. ........................ 500
327331 .............. Concrete Block and Brick Manufacturing ...................................................... ........................ 500
327332 .............. Concrete Pipe Manufacturing ........................................................................ ........................ 750
327390 .............. Other Concrete Product Manufacturing ......................................................... ........................ 500
327410 .............. Lime Manufacturing ........................................................................................ ........................ 750
327420 .............. Gypsum Product Manufacturing .................................................................... ........................ 1,500
327910 .............. Abrasive Product Manufacturing .................................................................... ........................ 750
327991 .............. Cut Stone and Stone Product Manufacturing ................................................ ........................ 500
327992 .............. Ground or Treated Mineral and Earth Manufacturing ................................... ........................ 500
327993 .............. Mineral Wool Manufacturing .......................................................................... ........................ 1,500
327999 .............. All Other Miscellaneous Nonmetallic Mineral Product Manufacturing ........... ........................ 500
Subsector 331—Primary Metal Manufacturing
331110 .............. Iron and Steel Mills and Ferroalloy Manufacturing ........................................ ........................ 1,500
331210 .............. Iron and Steel Pipe and Tube Manufacturing from Purchased Steel ........... ........................ 1,000
331221 .............. Rolled Steel Shape Manufacturing ................................................................ ........................ 1,000
331222 .............. Steel Wire Drawing ........................................................................................ ........................ 1,000
331313 .............. Alumina Refining and Primary Aluminum Production .................................... ........................ 1,000
331314 .............. Secondary Smelting and Alloying of Aluminum ............................................. ........................ 750
331315 .............. Aluminum Sheet, Plate, and Foil Manufacturing ........................................... ........................ 1,250
331318 .............. Other Aluminum Rolling, Drawing, and Extruding ......................................... ........................ 750
331410 .............. Nonferrous Metal (except Aluminum) Smelting and Refining ....................... ........................ 1,000
331420 .............. Copper Rolling, Drawing, Extruding, and Alloying ......................................... ........................ 1,000
331491 .............. Nonferrous Metal (except Copper and Aluminum) Rolling, Drawing and Ex- ........................ 750
truding.
331492 .............. Secondary Smelting, Refining, and Alloying of Nonferrous Metal (except ........................ 750
Copper and Aluminum).
331511 .............. Iron Foundries ................................................................................................ ........................ 1,000
331512 .............. Steel Investment Foundries ........................................................................... ........................ 1,000
331513 .............. Steel Foundries (except Investment) ............................................................. ........................ 500
331523 .............. Nonferrous Metal Die-Casting Foundries ...................................................... ........................ 500
331524 .............. Aluminum Foundries (except Die-Casting) .................................................... ........................ 500
331529 .............. Other Nonferrous Metal Foundries (except Die-Casting) .............................. ........................ 500
Subsector 332—Fabricated Metal Product Manufacturing
332111 .............. Iron and Steel Forging ................................................................................... ........................ 750

332112 .............. Nonferrous Forging ........................................................................................ ........................ 750
332114 .............. Custom Roll Forming ..................................................................................... ........................ 500
332117 .............. Powder Metallurgy Part Manufacturing .......................................................... ........................ 500
332119 .............. Metal Crown, Closure, and Other Metal Stamping (except Automotive) ...... ........................ 500
332215 .............. Metal Kitchen Cookware, Utensil, Cutlery, and Flatware (except Precious) ........................ 750
Manufacturing.
332216 .............. Saw Blade and Handtool Manufacturing ....................................................... ........................ 750
332311 .............. Prefabricated Metal Building and Component Manufacturing ....................... ........................ 750
332312 .............. Fabricated Structural Metal Manufacturing .................................................... ........................ 500
332313 .............. Plate Work Manufacturing .............................................................................. ........................ 750
332321 .............. Metal Window and Door Manufacturing ........................................................ ........................ 750
332322 .............. Sheet Metal Work Manufacturing .................................................................. ........................ 500
332323 .............. Ornamental and Architectural Metal Work Manufacturing ............................. ........................ 500
332410 .............. Power Boiler and Heat Exchanger Manufacturing ........................................ ........................ 750
332420 .............. Metal Tank (Heavy Gauge) Manufacturing .................................................... ........................ 750
332431 .............. Metal Can Manufacturing ............................................................................... ........................ 1,500
332439 .............. Other Metal Container Manufacturing ............................................................ ........................ 500
332510 .............. Hardware Manufacturing ................................................................................ ........................ 750
332613 .............. Spring Manufacturing ..................................................................................... ........................ 500
332618 .............. Other Fabricated Wire Product Manufacturing .............................................. ........................ 500
332710 .............. Machine Shops .............................................................................................. ........................ 500

332721 .............. Precision Turned Product Manufacturing ...................................................... ........................ 500
332722 .............. Bolt, Nut, Screw, Rivet and Washer Manufacturing ...................................... ........................ 500
332811 .............. Metal Heat Treating ....................................................................................... ........................ 750
390

dollars employees
332812 .............. Metal Coating, Engraving (except Jewelry and Silverware), and Allied ........................ 500
Services to Manufacturers.
332813 .............. Electroplating, Plating, Polishing, Anodizing and Coloring ............................ ........................ 500
332911 .............. Industrial Valve Manufacturing ....................................................................... ........................ 750
332912 .............. Fluid Power Valve and Hose Fitting Manufacturing ...................................... ........................ 1,000
332913 .............. Plumbing Fixture Fitting and Trim Manufacturing .......................................... ........................ 1,000
332919 .............. Other Metal Valve and Pipe Fitting Manufacturing ........................................ ........................ 750
332991 .............. Ball and Roller Bearing Manufacturing .......................................................... ........................ 1,250
332992 .............. Small Arms Ammunition Manufacturing ......................................................... ........................ 1,250
332993 .............. Ammunition (except Small Arms) Manufacturing .......................................... ........................ 1,500
332994 .............. Small Arms, Ordnance, and Ordnance Accessories Manufacturing ............. ........................ 1,000
332996 .............. Fabricated Pipe and Pipe Fitting Manufacturing ........................................... ........................ 500
332999 .............. All Other Miscellaneous Fabricated Metal Product Manufacturing ............... ........................ 750
Subsector 333—Machinery Manufacturing 6
333111 .............. Farm Machinery and Equipment Manufacturing ............................................ ........................ 1,250
333112 .............. Lawn and Garden Tractor and Home Lawn and Garden Equipment Manu- ........................ 1,500
facturing.
333120 .............. Construction Machinery Manufacturing ......................................................... ........................ 1,250
333131 .............. Mining Machinery and Equipment Manufacturing ......................................... ........................ 500
333132 .............. Oil and Gas Field Machinery and Equipment Manufacturing ........................ ........................ 1,250
333241 .............. Food Product Machinery Manufacturing ........................................................ ........................ 500
333242 .............. Semiconductor Machinery Manufacturing ...................................................... ........................ 1,500
333243 .............. Sawmill, Woodworking, and Paper Machinery Manufacturing ...................... ........................ 500
333248 .............. All Other Industrial Machinery Manufacturing ................................................ ........................ 750
333310 .............. Commercial and Service Industry Machinery Manufacturing ........................ ........................ 1,000
333413 .............. Industrial and Commercial Fan and Blower and Air Purification Equipment ........................ 500
Manufacturing.
333414 .............. Heating Equipment (except Warm Air Furnaces) Manufacturing .................. ........................ 500
333415 .............. Air-Conditioning and Warm Air Heating Equipment and Commercial and ........................ 1,250
Industrial Refrigeration Equipment Manufacturing.
333511 .............. Industrial Mold Manufacturing ........................................................................ ........................ 500
333514 .............. Special Die and Tool, Die Set, Jig and Fixture Manufacturing ..................... ........................ 500
333515 .............. Cutting Tool and Machine Tool Accessory Manufacturing ............................ ........................ 500
333517 .............. Machine Tool Manufacturing .......................................................................... ........................ 500
333519 .............. Rolling Mill and Other Metalworking Machinery Manufacturing .................... ........................ 500
333611 .............. Turbine and Turbine Generator Set Units Manufacturing ............................. ........................ 1,500
333612 .............. Speed Changer, Industrial High-Speed Drive, and Gear Manufacturing ...... ........................ 750
333613 .............. Mechanical Power Transmission Equipment Manufacturing ......................... ........................ 750
333618 .............. Other Engine Equipment Manufacturing ........................................................ ........................ 1,500
333912 .............. Air and Gas Compressor Manufacturing ....................................................... ........................ 1,000
333914 .............. Measuring, Dispensing, and Other Pumping Equipment Manufacturing ...... ........................ 750
333921 .............. Elevator and Moving Stairway Manufacturing ............................................... ........................ 1,000
333922 .............. Conveyor and Conveying Equipment Manufacturing .................................... ........................ 500
333923 .............. Overhead Traveling Crane, Hoist, and Monorail System Manufacturing ...... ........................ 1,250
333924 .............. Industrial Truck, Tractor, Trailer and Stacker Machinery Manufacturing ...... ........................ 750
333991 .............. Power-Driven Hand Tool Manufacturing ........................................................ ........................ 500
333992 .............. Welding and Soldering Equipment Manufacturing ........................................ ........................ 1,250
333993 .............. Packaging Machinery Manufacturing ............................................................. ........................ 500
333994 .............. Industrial Process Furnace and Oven Manufacturing ................................... ........................ 500
333995 .............. Fluid Power Cylinder and Actuator Manufacturing ........................................ ........................ 750
333996 .............. Fluid Power Pump and Motor Manufacturing ................................................ ........................ 1,250
333998 .............. All Other Miscellaneous General Purpose Machinery Manufacturing ........... ........................ 500
Subsector 334—Computer and Electronic Product Manufacturing 6
334111 .............. Electronic Computer Manufacturing ............................................................... ........................ 1,250

334112 .............. Computer Storage Device Manufacturing ...................................................... ........................ 1,250
334118 .............. Computer Terminal and Other Computer Peripheral Equipment Manufac- ........................ 1,000
turing.
334210 .............. Telephone Apparatus Manufacturing ............................................................. ........................ 1,250
334220 .............. Radio and Television Broadcasting and Wireless Communications Equip- ........................ 1,250
ment Manufacturing.
334290 .............. Other Communications Equipment Manufacturing ........................................ ........................ 750
334310 .............. Audio and Video Equipment Manufacturing .................................................. ........................ 750
334412 .............. Bare Printed Circuit Board Manufacturing ..................................................... ........................ 750
334413 .............. Semiconductor and Related Device Manufacturing ...................................... ........................ 1,250
334416 .............. Capacitor, Resistor, Coil, Transformer, and Other Inductor Manufacturing .. ........................ 500
334417 .............. Electronic Connector Manufacturing .............................................................. ........................ 1,000
334418 .............. Printed Circuit Assembly (Electronic Assembly) Manufacturing .................... ........................ 750
391
§ 121.201 13 CFR Ch. I (1–1–23 Edition)

dollars employees
334419 .............. Other Electronic Component Manufacturing .................................................. ........................ 750

334510 .............. Electromedical and Electrotherapeutic Apparatus Manufacturing ................. ........................ 1,250
334511 .............. Search, Detection, Navigation, Guidance, Aeronautical, and Nautical Sys- ........................ 1,250
tem and Instrument Manufacturing.
334512 .............. Automatic Environmental Control Manufacturing for Residential, Commer- ........................ 500
cial and Appliance Use.
334513 .............. Instruments and Related Products Manufacturing for Measuring, Dis- ........................ 750
playing, and Controlling Industrial Process Variables.
334514 .............. Totalizing Fluid Meter and Counting Device Manufacturing .......................... ........................ 750
334515 .............. Instrument Manufacturing for Measuring and Testing Electricity and Elec- ........................ 750
trical Signals.
334516 .............. Analytical Laboratory Instrument Manufacturing ........................................... ........................ 1,000
334517 .............. Irradiation Apparatus Manufacturing .............................................................. ........................ 1,000
334519 .............. Other Measuring and Controlling Device Manufacturing ............................... ........................ 500
334610 .............. Manufacturing and Reproducing Magnetic and Optical Media ..................... ........................ 1,250
Subsector 335—Electrical Equipment, Appliance and Component Manufacturing 6
335131 .............. Residential Electric Lighting Fixture Manufacturing ....................................... ........................ 750
335132 .............. Commercial, Industrial, and Institutional Electric Lighting Fixture Manufac- ........................ 500
turing.
335139 .............. Electric Lamp Bulb and Other Lighting Equipment Manufacturing ............... ........................ 1,250
335210 .............. Small Electrical Appliance Manufacturing ...................................................... ........................ 1,500
335220 .............. Major Household Appliance Manufacturing ................................................... ........................ 1,500
335311 .............. Power, Distribution and Specialty Transformer Manufacturing ..................... ........................ 750
335312 .............. Motor and Generator Manufacturing .............................................................. ........................ 1,250
335313 .............. Switchgear and Switchboard Apparatus Manufacturing ................................ ........................ 1,250
335314 .............. Relay and Industrial Control Manufacturing .................................................. ........................ 750
335910 .............. Battery Manufacturing .................................................................................... ........................ 1,250
335921 .............. Fiber Optic Cable Manufacturing ................................................................... ........................ 1,000
335929 .............. Other Communication and Energy Wire Manufacturing ................................ ........................ 1,000
335931 .............. Current-Carrying Wiring Device Manufacturing ............................................. ........................ 500
335932 .............. Noncurrent-Carrying Wiring Device Manufacturing ....................................... ........................ 1,000
335991 .............. Carbon and Graphite Product Manufacturing ................................................ ........................ 750
335999 .............. All Other Miscellaneous Electrical Equipment and Component Manufac- ........................ 500
turing.
Subsector 336—Transportation Equipment Manufacturing 6
336110 .............. Automobile and Light Duty Motor Vehicle Manufacturing ............................. ........................ 1,500
336120 .............. Heavy Duty Truck Manufacturing .................................................................. ........................ 1,500
336211 .............. Motor Vehicle Body Manufacturing ................................................................ ........................ 1,000
336212 .............. Truck Trailer Manufacturing ........................................................................... ........................ 1,000
336213 .............. Motor Home Manufacturing ........................................................................... ........................ 1,250
336214 .............. Travel Trailer and Camper Manufacturing ..................................................... ........................ 1,000
336310 .............. Motor Vehicle Gasoline Engine and Engine Parts Manufacturing ................ ........................ 1,000
336320 .............. Motor Vehicle Electrical and Electronic Equipment Manufacturing ............... ........................ 1,000
336330 .............. Motor Vehicle Steering and Suspension Components (except Spring) Man- ........................ 1,000
ufacturing.
336340 .............. Motor Vehicle Brake System Manufacturing ................................................. ........................ 1,250
336350 .............. Motor Vehicle Transmission and Power Train Parts Manufacturing ............. ........................ 1,500
336360 .............. Motor Vehicle Seating and Interior Trim Manufacturing ................................ ........................ 1,500
336370 .............. Motor Vehicle Metal Stamping ....................................................................... ........................ 1,000
336390 .............. Other Motor Vehicle Parts Manufacturing ..................................................... ........................ 1,000
336411 .............. Aircraft Manufacturing .................................................................................... ........................ 1,500
336412 .............. Aircraft Engine and Engine Parts Manufacturing .......................................... ........................ 1,500
336413 .............. Other Aircraft Parts and Auxiliary Equipment Manufacturing 7 ...................... ........................ 1,250 7
336414 .............. Guided Missile and Space Vehicle Manufacturing ........................................ ........................ 1,250
336415 .............. Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit ........................ 1,250
Parts Manufacturing.
336419 .............. Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment ........................ 1,000
Manufacturing.
336510 .............. Railroad Rolling Stock Manufacturing ............................................................ ........................ 1,500
336611 .............. Ship Building and Repairing .......................................................................... ........................ 1,250
336612 .............. Boat Building .................................................................................................. ........................ 1,000
336991 .............. Motorcycle, Bicycle, and Parts Manufacturing ............................................... ........................ 1,000
336992 .............. Military Armored Vehicle, Tank, and Tank Component Manufacturing ......... ........................ 1,500
336999 .............. All Other Transportation Equipment Manufacturing ...................................... ........................ 1,000
392

dollars employees
Subsector 337—Furniture and Related Product Manufacturing
337110 .............. Wood Kitchen Cabinet and Countertop Manufacturing ................................. ........................ 750
337121 .............. Upholstered Household Furniture Manufacturing .......................................... ........................ 1,000
337122 .............. Nonupholstered Wood Household Furniture Manufacturing ......................... ........................ 750
337126 .............. Household Furniture (except Wood and Upholstered) Manufacturing .......... ........................ 750
337127 .............. Institutional Furniture Manufacturing .............................................................. ........................ 500
337211 .............. Wood Office Furniture Manufacturing ............................................................ ........................ 1,000
337212 .............. Custom Architectural Woodwork and Millwork Manufacturing ...................... ........................ 500
337214 .............. Office Furniture (except Wood) Manufacturing .............................................. ........................ 1,000
337215 .............. Showcase, Partition, Shelving, and Locker Manufacturing ........................... ........................ 500
337910 .............. Mattress Manufacturing .................................................................................. ........................ 1,000
337920 .............. Blind and Shade Manufacturing ..................................................................... ........................ 1,000
Subsector 339—Miscellaneous Manufacturing
339112 .............. Surgical and Medical Instrument Manufacturing ........................................... ........................ 1,000
339113 .............. Surgical Appliance and Supplies Manufacturing ........................................... ........................ 750
339114 .............. Dental Equipment and Supplies Manufacturing ............................................ ........................ 750
339115 .............. Ophthalmic Goods Manufacturing ................................................................. ........................ 1,000
339116 .............. Dental Laboratories ........................................................................................ ........................ 500
339910 .............. Jewelry and Silverware Manufacturing .......................................................... 500
339920 .............. Sporting and Athletic Goods Manufacturing .................................................. ........................ 750
339930 .............. Doll, Toy, and Game Manufacturing .............................................................. ........................ 500
339940 .............. Office Supplies (except Paper) Manufacturing .............................................. ........................ 750
339950 .............. Sign Manufacturing ........................................................................................ ........................ 500
339991 .............. Gasket, Packing, and Sealing Device Manufacturing ................................... ........................ 500
339992 .............. Musical Instrument Manufacturing ................................................................. ........................ 1,000
339993 .............. Fastener, Button, Needle, and Pin Manufacturing ........................................ ........................ 750
339994 .............. Broom, Brush and Mop Manufacturing .......................................................... ........................ 500
339995 .............. Burial Casket Manufacturing .......................................................................... ........................ 1,000
339999 .............. All Other Miscellaneous Manufacturing ......................................................... ........................ 500
Sector 42—Wholesale Trade
(These NAICS codes shall not be used to classify Government acquisitions for supplies. They also shall not be used by Federal
Government contractors when subcontracting for the acquisition for supplies. The applicable manufacturing NAICS code shall
be used to classify acquisitions for supplies. A Wholesale Trade or Retail Trade business concern submitting an offer or a
quote on a supply acquisition is categorized as a nonmanufacturer and deemed small if it has 500 or fewer employees and
meets the requirements of 13 CFR 121.406.)
Subsector 423—Merchant Wholesalers, Durable Goods
423110 .............. Automobile and Other Motor Vehicle Merchant Wholesalers ....................... ........................ 250
423120 .............. Motor Vehicle Supplies and New Parts Merchant Wholesalers .................... ........................ 200
423130 .............. Tire and Tube Merchant Wholesalers ........................................................... ........................ 200
423140 .............. Motor Vehicle Parts (Used) Merchant Wholesalers ...................................... ........................ 125
423210 .............. Furniture Merchant Wholesalers .................................................................... ........................ 100
423220 .............. Home Furnishing Merchant Wholesalers ....................................................... ........................ 100
423310 .............. Lumber, Plywood, Millwork, and Wood Panel Merchant Wholesalers .......... ........................ 150
423320 .............. Brick, Stone, and Related Construction Material Merchant Wholesalers ..... ........................ 150
423330 .............. Roofing, Siding, and Insulation Material Merchant Wholesalers ................... ........................ 225
423390 .............. Other Construction Material Merchant Wholesalers ...................................... ........................ 100
423410 .............. Photographic Equipment and Supplies Merchant Wholesalers .................... ........................ 200
423420 .............. Office Equipment Merchant Wholesalers ...................................................... ........................ 200
423430 .............. Computer and Computer Peripheral Equipment and Software Merchant ........................ 250
Wholesalers.
423440 .............. Other Commercial Equipment Merchant Wholesalers .................................. ........................ 100
423450 .............. Medical, Dental, and Hospital Equipment and Supplies Merchant Whole- ........................ 200
salers.
423460 .............. Ophthalmic Goods Merchant Wholesalers .................................................... ........................ 175
423490 .............. Other Professional Equipment and Supplies Merchant Wholesalers ............ ........................ 150
423510 .............. Metal Service Centers and Other Metal Merchant Wholesalers ................... ........................ 200
423520 .............. Coal and Other Mineral and Ore Merchant Wholesalers .............................. ........................ 200
423610 .............. Electrical Apparatus and Equipment, Wiring Supplies, and Related Equip- ........................ 200
ment Merchant Wholesalers.
423620 .............. Household Appliances, Electric Housewares, and Consumer Electronics ........................ 225
Merchant Wholesalers.
423690 .............. Other Electronic Parts and Equipment Merchant Wholesalers ..................... ........................ 250
423710 .............. Hardware Merchant Wholesalers ................................................................... ........................ 150
393
§ 121.201 13 CFR Ch. I (1–1–23 Edition)

dollars employees
423720 .............. Plumbing and Heating Equipment and Supplies (Hydronics) Merchant ........................ 200
Wholesalers.
423730 .............. Warm Air Heating and Air-Conditioning Equipment and Supplies Merchant ........................ 175
Wholesalers.
423740 .............. Refrigeration Equipment and Supplies Merchant Wholesalers ..................... ........................ 125
423810 .............. Construction and Mining (except Oil Well) Machinery and Equipment Mer- ........................ 250
chant Wholesalers.
423820 .............. Farm and Garden Machinery and Equipment Merchant Wholesalers .......... ........................ 125
423830 .............. Industrial Machinery and Equipment Merchant Wholesalers ........................ ........................ 100
423840 .............. Industrial Supplies Merchant Wholesalers ..................................................... ........................ 125
423850 .............. Service Establishment Equipment and Supplies Merchant Wholesalers ...... ........................ 125
423860 .............. Transportation Equipment and Supplies (except Motor Vehicle) Merchant ........................ 175
Wholesalers.
423910 .............. Sporting and Recreational Goods and Supplies Merchant Wholesalers ...... ........................ 100
423920 .............. Toy and Hobby Goods and Supplies Merchant Wholesalers ....................... ........................ 175
423930 .............. Recyclable Material Merchant Wholesalers ................................................... ........................ 125
423940 .............. Jewelry, Watch, Precious Stone, and Precious Metal Merchant Whole- ........................ 125
salers.
423990 .............. Other Miscellaneous Durable Goods Merchant Wholesalers ........................ ........................ 100
Subsector 424—Merchant Wholesalers, Nondurable Goods
424110 .............. Printing and Writing Paper Merchant Wholesalers ........................................ ........................ 225
424120 .............. Stationery and Office Supplies Merchant Wholesalers ................................. ........................ 150
424130 .............. Industrial and Personal Service Paper Merchant Wholesalers ..................... ........................ 150
424210 .............. Drugs and Druggists’ Sundries Merchant Wholesalers ................................. ........................ 250
424310 .............. Piece Goods, Notions, and Other Dry Goods Merchant Wholesalers .......... ........................ 100
424340 .............. Footwear Merchant Wholesalers ................................................................... ........................ 200
424350 .............. Clothing and Clothing Accessories Merchant Wholesalers ........................... ........................ 150
424410 .............. General Line Grocery Merchant Wholesalers ............................................... ........................ 250
424420 .............. Packaged Frozen Food Merchant Wholesalers ............................................ ........................ 200
424430 .............. Dairy Product (except Dried or Canned) Merchant Wholesalers .................. ........................ 200
424440 .............. Poultry and Poultry Product Merchant Wholesalers ...................................... ........................ 150
424450 .............. Confectionery Merchant Wholesalers ............................................................ ........................ 225
424460 .............. Fish and Seafood Merchant Wholesalers ...................................................... ........................ 100
424470 .............. Meat and Meat Product Merchant Wholesalers ............................................ ........................ 150
424480 .............. Fresh Fruit and Vegetable Merchant Wholesalers ........................................ ........................ 100
424490 .............. Other Grocery and Related Products Merchant Wholesalers ....................... ........................ 250
424510 .............. Grain and Field Bean Merchant Wholesalers ................................................ ........................ 200
424520 .............. Livestock Merchant Wholesalers ................................................................... ........................ 125
424590 .............. Other Farm Product Raw Material Merchant Wholesalers ............................ ........................ 175
424610 .............. Plastics Materials and Basic Forms and Shapes Merchant Wholesalers ..... ........................ 150
424690 .............. Other Chemical and Allied Products Merchant Wholesalers ........................ ........................ 175
424710 .............. Petroleum Bulk Stations and Terminals ........................................................ ........................ 225
424720 .............. Petroleum and Petroleum Products Merchant Wholesalers (except Bulk ........................ 200
Stations and Terminals).
424810 .............. Beer and Ale Merchant Wholesalers ............................................................. ........................ 200
424820 .............. Wine and Distilled Alcoholic Beverage Merchant Wholesalers ..................... ........................ 250
424910 .............. Farm Supplies Merchant Wholesalers ........................................................... ........................ 200
424920 .............. Book, Periodical, and Newspaper Merchant Wholesalers ............................ ........................ 200
424930 .............. Flower, Nursery Stock, and Florists’ Supplies Merchant Wholesalers .......... ........................ 100
424940 .............. Tobacco Product and Electronic Cigarette Merchant Wholesalers ............... ........................ 250
424950 .............. Paint, Varnish, and Supplies Merchant Wholesalers .................................... ........................ 150
424990 .............. Other Miscellaneous Nondurable Goods Merchant Wholesalers .................. ........................ 100
Subsector 425—Wholesale Trade Agents and Brokers
425120 .............. Wholesale Trade Agents and Brokers ........................................................... ........................ 125
Sector 44–45—Retail Trade
(These NAICS codes shall not be used to classify Government acquisitions for supplies. They also shall not be used by Federal
Government contractors when subcontracting for the acquisition for supplies. The applicable manufacturing NAICS code shall
be used to classify acquisitions for supplies. A Wholesale Trade or Retail Trade business concern submitting an offer or a
quote on a supply acquisition is categorized as a nonmanufacturer and deemed small if it has 500 or fewer employees and
meets the requirements of 13 CFR 121.406.)
Subsector 441—Motor Vehicle and Parts Dealers

441110 .............. New Car Dealers ............................................................................................ ........................ 200

441120 .............. Used Car Dealers .......................................................................................... $30.5
441210 .............. Recreational Vehicle Dealers ......................................................................... $40.0
394

dollars employees
441222 .............. Boat Dealers .................................................................................................. $40.0

441227 .............. Motorcycle, ATV, and All Other Motor Vehicle Dealers ................................ $40.0
441330 .............. Automotive Parts and Accessories Retailers ................................................. $28.5
441340 .............. Tire Dealers .................................................................................................... $25.5
Subsector 444—Building Material and Garden Equipment and Supplies Dealers
444110 .............. Home Centers ................................................................................................ $47.0

444120 .............. Paint and Wallpaper Retailers ....................................................................... $34.0
444140 .............. Hardware Retailers ........................................................................................ $16.5
444180 .............. Other Building Material Dealers ..................................................................... $25.0
444230 .............. Outdoor Power Equipment Retailers ............................................................. $9.5
444240 .............. Nursery, Garden Center, and Farm Supply Retailers ................................... $21.5
Subsector 445—Food and Beverage Stores
445110 .............. Supermarkets and Other Grocery Retailers (except Convenience Retailers) $40.0
445131 .............. Convenience Retailers ................................................................................... $36.5
445132 .............. Vending Machine Operators .......................................................................... $21.0
445230 .............. Fruit and Vegetable Retailers ........................................................................ $9.0
445240 .............. Meat Retailers ................................................................................................ $9.0
445250 .............. Fish and Seafood Retailers ........................................................................... $9.0
445291 .............. Baked Goods Retailers .................................................................................. $16.0
445292 .............. Confectionery and Nut Retailers .................................................................... $19.5
445298 .............. All Other Specialty Food Retailers ................................................................. $10.0
445320 .............. Beer, Wine, and Liquor Retailers ................................................................... $10.0
Subsector 449—Furniture, Home Furnishings, Electronics, and Appliance Retailers
449110 .............. Furniture Retailers .......................................................................................... $25.0

449121 .............. Floor Covering Retailers ................................................................................ $9.0
449122 .............. Window Treatment Retailers .......................................................................... $11.5
449129 .............. All Other Home Furnishings Retailers ........................................................... $33.5
449210 .............. Electronics and Appliance Retailers .............................................................. $40.0
Subsector 455—General Merchandise Retailers
455110 .............. Department Stores ......................................................................................... $40.0

455211 .............. Warehouse Clubs and Supercenters ............................................................. $47.0
455219 .............. All Other General Merchandise Retailers ...................................................... $40.0
Subsector 456—Health and Personal Care Retailers
456110 .............. Pharmacies and Drug Retailers ..................................................................... $37.5

456120 .............. Cosmetics, Beauty Supplies, and Perfume Retailers .................................... $34.0
456130 .............. Optical Goods Retailers ................................................................................. $29.5
456191 .............. Food (Health) Supplement Retailers ............................................................. $22.5
456199 .............. All Other Health and Personal Care Retailers ............................................... $9.5
Subsector 457—Gasoline Stations and Fuel Dealers
457110 .............. Gasoline Stations with Convenience Stores .................................................. $36.5

457120 .............. Other Gasoline Stations ................................................................................. $33.5
457210 .............. Fuel Dealers ................................................................................................... ........................ 100
Subsector 458—Clothing, Clothing Accessories, Shoe, and Jewelry Retailers
458110 .............. Clothing and Clothing Accessories Retailers ................................................. $47.0

458210 .............. Shoe Retailers ................................................................................................ $34.0
458310 .............. Jewelry Retailers ............................................................................................ $20.5
458320 .............. Luggage and Leather Goods Retailers .......................................................... $38.0
Subsector 459—Sporting Goods, Hobby, Musical Instrument, Book, and Miscellaneous Retailers
459110 .............. Sporting Goods Retailers ............................................................................... $26.5

459120 .............. Hobby, Toy, and Game Retailers .................................................................. $35.0
459130 .............. Sewing, Needlework, and Piece Goods Retailers ......................................... $34.0
459140 .............. Musical Instrument and Supplies Retailers ................................................... $22.5

459210 .............. Book Retailers and News Dealers ................................................................. $36.0
459310 .............. Florists ............................................................................................................ $9.0
459410 .............. Office Supplies and Stationery Retailers ....................................................... $40.0
395
§ 121.201 13 CFR Ch. I (1–1–23 Edition)

dollars employees
459420 .............. Gift, Novelty, and Souvenir Retailers ............................................................. $13.5

459510 .............. Used Merchandise Retailers .......................................................................... $14.0
459910 .............. Pet and Pet Supplies Retailers ...................................................................... $32.0
459920 .............. Art Dealers ..................................................................................................... $16.5
459930 .............. Manufactured (Mobile) Home Dealers ........................................................... $19.0
459991 .............. Tobacco, Electronic Cigarette, and Other Smoking Supplies Retailers ........ $11.5
459999 .............. All Other Miscellaneous Retailers .................................................................. $11.5
Sectors 48–49—Transportation and Warehousing
Subsector 481—Air Transportation
481111 .............. Scheduled Passenger Air Transportation ...................................................... ........................ 1,500

481112 .............. Scheduled Freight Air Transportation ............................................................ ........................ 1,500
481211 .............. Nonscheduled Chartered Passenger Air Transportation ............................... ........................ 1,500
481212 .............. Nonscheduled Chartered Freight Air Transportation ..................................... ........................ 1,500
481219 .............. Other Nonscheduled Air Transportation ........................................................ $25.0
Subsector 482—Rail Transportation
482111 .............. Line-Haul Railroads ........................................................................................ ........................ 1,500

482112 .............. Short Line Railroads ...................................................................................... ........................ 1,500
Subsector 483—Water Transportation
483111 .............. Deep Sea Freight Transportation .................................................................. ........................ 500

483112 .............. Deep Sea Passenger Transportation ............................................................ ........................ 1,500
483113 .............. Coastal and Great Lakes Freight Transportation .......................................... ........................ 750
483114 .............. Coastal and Great Lakes Passenger Transportation .................................... ........................ 500
483211 .............. Inland Water Freight Transportation .............................................................. ........................ 750
483212 .............. Inland Water Passenger Transportation ........................................................ ........................ 500
Subsector 484—Truck Transportation
484110 .............. General Freight Trucking, Local .................................................................... $34.0

484121 .............. General Freight Trucking, Long-Distance, Truckload .................................... $34.0
484122 .............. General Freight Trucking, Long-Distance, Less Than Truckload .................. $43.0
484210 .............. Used Household and Office Goods Moving .................................................. $34.0
484220 .............. Specialized Freight (except Used Goods) Trucking, Local ........................... $34.0
484230 .............. Specialized Freight (except Used Goods) Trucking, Long-Distance ............. $34.0
Subsector 485—Transit and Ground Passenger Transportation
485111 .............. Mixed Mode Transit Systems ........................................................................ $29.0

485112 .............. Commuter Rail Systems ................................................................................ $47.0
485113 .............. Bus and Other Motor Vehicle Transit Systems ............................................. $32.5
485119 .............. Other Urban Transit Systems ........................................................................ $37.5
485210 .............. Interurban and Rural Bus Transportation ...................................................... $32.0
485310 .............. Taxi and Ridesharing Services ...................................................................... $19.0
485320 .............. Limousine Service .......................................................................................... $19.0
485410 .............. School and Employee Bus Transportation .................................................... $30.0
485510 .............. Charter Bus Industry ...................................................................................... $19.0
485991 .............. Special Needs Transportation ........................................................................ $19.0
485999 .............. All Other Transit and Ground Passenger Transportation .............................. $19.0
Subsector 486—Pipeline Transportation
486110 .............. Pipeline Transportation of Crude Oil ............................................................. ........................ 1,500

486210 .............. Pipeline Transportation of Natural Gas ......................................................... $41.5
486910 .............. Pipeline Transportation of Refined Petroleum Products ............................... ........................ 1,500
486990 .............. All Other Pipeline Transportation ................................................................... $46.0
Subsector 487—Scenic and Sightseeing Transportation
487110 .............. Scenic and Sightseeing Transportation, Land ............................................... $20.5

487210 .............. Scenic and Sightseeing Transportation, Water ............................................. $14.0
487990 .............. Scenic and Sightseeing Transportation, Other .............................................. $25.0
Subsector 488—Support Activities for Transportation
488111 .............. Air Traffic Control ........................................................................................... $40.0
396

dollars employees
488119 .............. Other Airport Operations ................................................................................ $40.0

488190 .............. Other Support Activities for Air Transportation .............................................. $40.0
488210 .............. Support Activities for Rail Transportation ...................................................... $34.0
488310 .............. Port and Harbor Operations ........................................................................... $47.0
488320 .............. Marine Cargo Handling .................................................................................. $47.0
488330 .............. Navigational Services to Shipping ................................................................. $47.0
488390 .............. Other Support Activities for Water Transportation ......................................... $47.0
488410 .............. Motor Vehicle Towing .................................................................................... $9.0
488490 .............. Other Support Activities for Road Transportation .......................................... $18.0
488510 .............. Freight Transportation Arrangement 10 .......................................................... $20.0 10
488510 (Excep- Non-Vessel Owning Common Carriers and Household Goods Forwarders $34.0
tion).
488991 .............. Packing and Crating ....................................................................................... $34.0
488999 .............. All Other Support Activities for Transportation .............................................. $25.0
Subsector 491—Postal Service
491110 .............. Postal Service ................................................................................................ $9.0
Subsector 492—Couriers and Messengers
492110 .............. Couriers and Express Delivery Services ....................................................... ........................ 1,500
492210 .............. Local Messengers and Local Delivery ........................................................... $34.0
Subsector 493—Warehousing and Storage
493110 .............. General Warehousing and Storage ............................................................... $34.0

493120 .............. Refrigerated Warehousing and Storage ........................................................ $36.5
493130 .............. Farm Product Warehousing and Storage ...................................................... $34.0
493190 .............. Other Warehousing and Storage ................................................................... $36.5
Sector 51—Information
Subsector 512—Motion Picture and Sound Recording Industries
512110 .............. Motion Picture and Video Production ............................................................ $40.0

512120 .............. Motion Picture and Video Distribution ........................................................... $39.0
512131 .............. Motion Picture Theaters (except Drive-Ins) ................................................... $47.0
512132 .............. Drive-In Motion Picture Theaters ................................................................... $12.5
512191 .............. Teleproduction and Other Postproduction Services ...................................... $39.0
512199 .............. Other Motion Picture and Video Industries .................................................... $28.5
512230 .............. Music Publishers ............................................................................................ ........................ 750
512240 .............. Sound Recording Studios .............................................................................. $11.0
512250 .............. Record Production and Distribution ............................................................... ........................ 250
512290 .............. Other Sound Recording Industries ................................................................ $22.5
Subsector 513—Publishing Industries
513110 .............. Newspaper Publishers ................................................................................... ........................ 1,000

513120 .............. Periodical Publishers ...................................................................................... ........................ 1,000
513130 .............. Book Publishers ............................................................................................. ........................ 1,000
513140 .............. Directory and Mailing List Publishers ............................................................ ........................ 1,000
513191 .............. Greeting Card Publishers ............................................................................... ........................ 1,000
513199 .............. All Other Publishers ....................................................................................... ........................ 1,000
513210 .............. Software Publishers 15 .................................................................................... $47.0 15
Subsector 516—Broadcasting and Content Providers
516110 .............. Radio Broadcasting Stations .......................................................................... $47.0

516120 .............. Television Broadcasting Stations ................................................................... $47.0
516210 .............. Media Streaming Distribution Services, Social Networks, and Other Media $47.0
Networks and Content Providers.
Subsector 517—Telecommunications
517111 .............. Wired Telecommunications Carriers .............................................................. ........................ 1,500

517112 .............. Wireless Telecommunications Carriers (except Satellite) ............................. ........................ 1,500
517121 .............. Telecommunications Resellers ...................................................................... ........................ 1,500
517122 .............. Agents for Wireless Telecommunications Services ....................................... ........................ 1,500
517410 .............. Satellite Telecommunications ........................................................................ $44.0
517810 .............. All Other Telecommunications ....................................................................... $40.0
397
§ 121.201 13 CFR Ch. I (1–1–23 Edition)

dollars employees
Subsector 518—Computing Infrastructure Providers, Data Processing, Web Hosting, and Related Services
518210 .............. Computing Infrastructure Providers, Data Processing, Web Hosting, and $40.0
Related Services.
Subsector 519—Web Search Portals, Libraries, Archives, and Other Information Services
519210 .............. Libraries and Archives ................................................................................... $21.0

519290 .............. Web Search Portals and All Other Information Services .............................. ........................ 1,000
Sector 52—Finance and Insurance
Subsector 522—Credit Intermediation and Related Activities
522110 .............. Commercial Banking 8 .................................................................................... $850 million in

assets 8
522130 .............. Credit Unions 8 ............................................................................................... $850 million in
assets 8
522180 .............. Savings Institutions and Other Depository Credit Intermediation8 ................ $850 million in
assets 8
522210 .............. Credit Card Issuing 8 ...................................................................................... $850 million in
assets 8
522220 .............. Sales Financing .............................................................................................. $47.0
522291 .............. Consumer Lending ......................................................................................... $47.0
522292 .............. Real Estate Credit .......................................................................................... $47.0
522299 .............. International, Secondary Market, and All Other Nondepository Credit Inter- $47.0
mediation.
522310 .............. Mortgage and Nonmortgage Loan Brokers ................................................... $15.0
522320 .............. Financial Transactions Processing, Reserve, and Clearinghouse Activities $47.0
522390 .............. Other Activities Related to Credit Intermediation .......................................... $28.5
Subsector 523—Securities, Commodity Contracts, and Other Financial Investments and Related Activities
523150 .............. Investment Banking and Securities Intermediation ....................................... $47.0

523160 .............. Commodity Contracts Intermediation ............................................................. $41.5
523210 .............. Securities and Commodity Exchanges .......................................................... $47.0
523910 .............. Miscellaneous Intermediation ......................................................................... $47.0
523940 .............. Portfolio Management and Investment Advice .............................................. $47.0
523991 .............. Trust, Fiduciary and Custody Activities ......................................................... $47.0
523999 .............. Miscellaneous Financial Investment Activities ............................................... $47.0
Subsector 524—Insurance Carriers and Related Activities
524113 .............. Direct Life Insurance Carriers ........................................................................ $47.0

524114 .............. Direct Health and Medical Insurance Carriers ............................................... $47.0
524126 .............. Direct Property and Casualty Insurance Carriers .......................................... ........................ 1,500
524127 .............. Direct Title Insurance Carriers ....................................................................... $47.0
524128 .............. Other Direct Insurance (except Life, Health and Medical) Carriers .............. $47.0
524130 .............. Reinsurance Carriers ..................................................................................... $47.0
524210 .............. Insurance Agencies and Brokerages ............................................................. $15.0
524291 .............. Claims Adjusting ............................................................................................ $25.0
524292 .............. Pharmacy Benefit Management and Other Third Party Administration of In- $45.5
surance and Pension Funds.
524298 .............. All Other Insurance Related Activities ........................................................... $30.5
Subsector 525—Funds, Trusts and Other Financial Vehicles
525110 .............. Pension Funds ............................................................................................... $40.0

525120 .............. Health and Welfare Funds ............................................................................. $40.0
525190 .............. Other Insurance Funds .................................................................................. $40.0
525910 .............. Open-End Investment Funds ......................................................................... $40.0
525920 .............. Trusts, Estates, and Agency Accounts .......................................................... $40.0
525990 .............. Other Financial Vehicles ................................................................................ $40.0
Sector 53—Real Estate and Rental and Leasing
Subsector 531—Real Estate

531110 .............. Lessors of Residential Buildings and Dwellings 9 .......................................... $34.09

531120 .............. Lessors of Nonresidential Buildings (except Miniwarehouses) 9 .............. $34.0 9
531130 .............. Lessors of Miniwarehouses and Self-Storage Units9 .................................... $34.0 9
398

dollars employees
531190 .............. Lessors of Other Real Estate Property 9 ....................................................... $34.0 9

531210 .............. Offices of Real Estate Agents and Brokers10 ................................................ $15.0 10
531311 .............. Residential Property Managers ...................................................................... $12.5
531312 .............. Nonresidential Property Managers ................................................................ $19.5
531320 .............. Offices of Real Estate Appraisers .................................................................. $9.5
531390 .............. Other Activities Related to Real Estate ......................................................... $19.5
Subsector 532—Rental and Leasing Services
532111 .............. Passenger Car Rental .................................................................................... $47.0

532112 .............. Passenger Car Leasing ................................................................................. $47.0
532120 .............. Truck, Utility Trailer, and RV (Recreational Vehicle) Rental and Leasing .... $47.0
532210 .............. Consumer Electronics and Appliances Rental .............................................. $47.0
532281 .............. Formal Wear and Costume Rental ................................................................ $25.0
532282 .............. Video Tape and Disc Rental .......................................................................... $35.0
532283 .............. Home Health Equipment Rental .................................................................... $41.0
532284 .............. Recreational Goods Rental ............................................................................ $9.0
532289 .............. All Other Consumer Goods Rental ................................................................ $12.5
532310 .............. General Rental Centers ................................................................................. $9.0
532411 .............. Commercial Air, Rail, and Water Transportation Equipment Rental and $45.5
Leasing.
532412 .............. Construction, Mining and Forestry Machinery and Equipment Rental and $40.0
Leasing.
532420 .............. Office Machinery and Equipment Rental and Leasing .................................. $40.0
532490 .............. Other Commercial and Industrial Machinery and Equipment Rental and $40.0
Leasing.
Subsector 533—Lessors of Nonfinancial Intangible Assets (except Copyrighted Works)
533110 .............. Lessors of Nonfinancial Intangible Assets (except Copyrighted Works) ....... $47.0
Sector 54—Professional, Scientific and Technical Services
Subsector 541—Professional, Scientific and Technical Services
541110 .............. Offices of Lawyers ......................................................................................... $15.5

541191 .............. Title Abstract and Settlement Offices ............................................................ $19.5
541199 .............. All Other Legal Services ................................................................................ $20.5
541211 .............. Offices of Certified Public Accountants ......................................................... $26.5
541213 .............. Tax Preparation Services ............................................................................... $25.0
541214 .............. Payroll Services ............................................................................................. $39.0
541219 .............. Other Accounting Services ............................................................................ $25.0
541310 .............. Architectural Services .................................................................................... $12.5
541320 .............. Landscape Architectural Services .................................................................. $9.0
541330 .............. Engineering Services ..................................................................................... $25.5
541330 (Excep- Military and Aerospace Equipment and Military Weapons ............................ $47.0
tion 1).
541330 (Excep- Contracts and Subcontracts for Engineering Services Awarded Under the $47.0
tion 2). National Energy Policy Act of 1992.
541330 (Excep- Marine Engineering and Naval Architecture .................................................. $47.0
tion 3).
541340 .............. Drafting Services ............................................................................................ $9.0
541350 .............. Building Inspection Services .......................................................................... $11.5
541360 .............. Geophysical Surveying and Mapping Services ............................................. $28.5
541370 .............. Surveying and Mapping (except Geophysical) Services ............................... $19.0
541380 .............. Testing Laboratories and Services ................................................................ $19.0
541410 .............. Interior Design Services ................................................................................. $9.0
541420 .............. Industrial Design Services ............................................................................. $17.0
541430 .............. Graphic Design Services ............................................................................... $9.0
541490 .............. Other Specialized Design Services ............................................................... $13.5
541511 .............. Custom Computer Programming Services .................................................... $34.0
541512 .............. Computer Systems Design Services ............................................................. $34.0
541513 .............. Computer Facilities Management Services ................................................... $37.0
541519 .............. Other Computer Related Services ................................................................. $34.0
541519 (Excep- Information Technology Value Added Resellers 18 ........................................ ........................ 150 18
tion).
541611 .............. Administrative Management and General Management Consulting Serv- $24.5
ices.
541612 .............. Human Resources Consulting Services ........................................................ $29.0
541613 .............. Marketing Consulting Services ...................................................................... $19.0
541614 .............. Process, Physical Distribution and Logistics Consulting Services ................ $20.0
399
§ 121.201 13 CFR Ch. I (1–1–23 Edition)

dollars employees
541618 .............. Other Management Consulting Services ....................................................... $19.0

541620 .............. Environmental Consulting Services ............................................................... $19.0
541690 .............. Other Scientific and Technical Consulting Services ...................................... $19.0
541713 .............. Research and Technology in Nanotechnology 11 .......................................... ........................ 1,000 11
541714 .............. Research and Technology in Biotechnology (except Nanobiotechnology) 11 ........................ 1,000 11
541715 .............. Research and Development in the Physical, Engineering, and Life ........................ 1,000 11
Sciences (except Nanotechnology and Biotechnology) 11.
Except, .............. Aircraft, Aircraft Engine and Engine Parts 11 ................................................. ........................ 1,500 11
Except, .............. Other Aircraft Parts and Auxiliary Equipment 11 ............................................ ........................ 1,250 11
Except, .............. Guided Missiles and Space Vehicles, Their Propulsion Units and Propul- ........................ 1,250 11
sion Parts 11.
541720 .............. Research and Development in the Social Sciences and Humanities ........... $28.0
541810 .............. Advertising Agencies 10 .................................................................................. $25.5 10
541820 .............. Public Relations Agencies ............................................................................. $19.0
541830 .............. Media Buying Agencies ................................................................................. $32.5
541840 .............. Media Representatives .................................................................................. $21.0
541850 .............. Indoor and Outdoor Display Advertising ........................................................ $34.5
541860 .............. Direct Mail Advertising ................................................................................... $22.0
541870 .............. Advertising Material Distribution Services ..................................................... $28.5
541890 .............. Other Services Related to Advertising ........................................................... $19.0
541910 .............. Marketing Research and Public Opinion Polling ........................................... $22.5
541921 .............. Photography Studios, Portrait ........................................................................ $16.0
541922 .............. Commercial Photography ............................................................................... $9.0
541930 .............. Translation and Interpretation Services ......................................................... $22.5
541940 .............. Veterinary Services ........................................................................................ $10.0
541990 .............. All Other Professional, Scientific and Technical Services ............................. $19.5
Sector 55—Management of Companies and Enterprises
Subsector 551—Management of Companies and Enterprises
551111 .............. Offices of Bank Holding Companies .............................................................. $38.5

551112 .............. Offices of Other Holding Companies ............................................................. $45.5
Sector 56—Administrative and Support and Waste Management and Remediation Services
Subsector 561—Administrative and Support Services
561110 .............. Office Administrative Services ....................................................................... $12.5

561210 .............. Facilities Support Services 12 ......................................................................... $47.0 12
561311 .............. Employment Placement Agencies ................................................................. $34.0
561312 .............. Executive Search Services ............................................................................ $34.0
561320 .............. Temporary Help Services .............................................................................. $34.0
561330 .............. Professional Employer Organizations ............................................................ $41.5
561410 .............. Document Preparation Services .................................................................... $19.0
561421 .............. Telephone Answering Services ..................................................................... $19.0
561422 .............. Telemarketing Bureaus and Other Contact Centers ..................................... $25.5
561431 .............. Private Mail Centers ....................................................................................... $19.0
561439 .............. Other Business Service Centers (including Copy Shops) ............................. $26.5
561440 .............. Collection Agencies ........................................................................................ $19.5
561450 .............. Credit Bureaus ............................................................................................... $41.0
561491 .............. Repossession Services .................................................................................. $19.0
561492 .............. Court Reporting and Stenotype Services ...................................................... $19.0
561499 .............. All Other Business Support Services ............................................................. $21.5
561510 .............. Travel Agencies 10 .......................................................................................... $25.0 10
561520 .............. Tour Operators 10 ........................................................................................... $25.0 10
561591 .............. Convention and Visitors Bureaus .................................................................. $25.0
561599 .............. All Other Travel Arrangement and Reservation Services ............................. $32.5
561611 .............. Investigation and Personal Background Check Services .............................. $25.0
561612 .............. Security Guards and Patrol Services ............................................................. $29.0
561613 .............. Armored Car Services .................................................................................... $43.0
561621 .............. Security Systems Services (except Locksmiths) ........................................... $25.0
561622 .............. Locksmiths ..................................................................................................... $25.0
561710 .............. Exterminating and Pest Control Services ...................................................... $17.5
561720 .............. Janitorial Services .......................................................................................... $22.0
561730 .............. Landscaping Services .................................................................................... $9.5
561740 .............. Carpet and Upholstery Cleaning Services ..................................................... $8.5
561790 .............. Other Services to Buildings and Dwellings .................................................... $9.0
561910 .............. Packaging and Labeling Services .................................................................. $19.5

561920 .............. Convention and Trade Show Organizers10 ................................................... $20.0 10
561990 .............. All Other Support Services ............................................................................ $16.5
400

dollars employees
Subsector 562—Waste Management and Remediation Services
562111 .............. Solid Waste Collection ................................................................................... $47.0

562112 .............. Hazardous Waste Collection .......................................................................... $47.0
562119 .............. Other Waste Collection .................................................................................. $47.0
562211 .............. Hazardous Waste Treatment and Disposal ................................................... $47.0
562212 .............. Solid Waste Landfill ....................................................................................... $47.0
562213 .............. Solid Waste Combustors and Incinerators .................................................... $47.0
562219 .............. Other Nonhazardous Waste Treatment and Disposal ................................... $47.0
562910 .............. Remediation Services .................................................................................... $25.0
562910 (Excep- Environmental Remediation Services 14 ........................................................ ........................ 750 14
tion).
562920 .............. Materials Recovery Facilities ......................................................................... $25.0
562991 .............. Septic Tank and Related Services ................................................................ $9.0
562998 .............. All Other Miscellaneous Waste Management Services ................................. $16.5
Sector 61—Educational Services
Subsector 611—Educational Services
611110 .............. Elementary and Secondary Schools .............................................................. $20.0

611210 .............. Junior Colleges .............................................................................................. $32.5
611310 .............. Colleges, Universities and Professional Schools .......................................... $34.5
611410 .............. Business and Secretarial Schools ................................................................. $20.5
611420 .............. Computer Training ......................................................................................... $16.0
611430 .............. Professional and Management Development Training .................................. $15.0
611511 .............. Cosmetology and Barber Schools ................................................................. $13.0
611512 .............. Flight Training ................................................................................................ $34.0
611513 .............. Apprenticeship Training ................................................................................. $11.5
611519 .............. Other Technical and Trade Schools .............................................................. $21.0
611519 (Excep- Job Corps Centers 16 ..................................................................................... $47.0 16
tion).
611610 .............. Fine Arts Schools ........................................................................................... $9.0
611620 .............. Sports and Recreation Instruction ................................................................. $9.0
611630 .............. Language Schools ......................................................................................... $20.5
611691 .............. Exam Preparation and Tutoring ..................................................................... $12.5
611692 .............. Automobile Driving Schools ........................................................................... $10.0
611699 .............. All Other Miscellaneous Schools and Instruction .......................................... $16.5
611710 .............. Educational Support Services ........................................................................ $24.0
Sector 62—Health Care and Social Assistance

Subsector 621—Ambulatory Health Care Services
621111 .............. Offices of Physicians (except Mental Health Specialists) ............................. $16.0
621112 .............. Offices of Physicians, Mental Health Specialists ........................................... $13.5
621210 .............. Offices of Dentists .......................................................................................... $9.0
621310 .............. Offices of Chiropractors ................................................................................. $9.0
621320 .............. Offices of Optometrists .................................................................................. $9.0
621330 .............. Offices of Mental Health Practitioners (except Physicians) ........................... $9.0
621340 .............. Offices of Physical, Occupational and Speech Therapists and Audiologists $12.5
621391 .............. Offices of Podiatrists ...................................................................................... $9.0
621399 .............. Offices of All Other Miscellaneous Health Practitioners ................................ $10.0
621410 .............. Family Planning Centers ................................................................................ $19.0
621420 .............. Outpatient Mental Health and Substance Abuse Centers ............................. $19.0
621491 .............. HMO Medical Centers .................................................................................... $44.5
621492 .............. Kidney Dialysis Centers ................................................................................. $47.0
621493 .............. Freestanding Ambulatory Surgical and Emergency Centers ........................ $19.0
621498 .............. All Other Outpatient Care Centers ................................................................. $25.5
621511 .............. Medical Laboratories ...................................................................................... $41.5
621512 .............. Diagnostic Imaging Centers ........................................................................... $19.0
621610 .............. Home Health Care Services .......................................................................... $19.0
621910 .............. Ambulance Services ...................................................................................... $22.5
621991 .............. Blood and Organ Banks ................................................................................. $40.0
621999 .............. All Other Miscellaneous Ambulatory Health Care Services .......................... $20.5
Subsector 622—Hospitals
622110 .............. General Medical and Surgical Hospitals ........................................................ $47.0

622210 .............. Psychiatric and Substance Abuse Hospitals ................................................. $47.0
622310 .............. Specialty (except Psychiatric and Substance Abuse) Hospitals ................... $47.0
401
§ 121.201 13 CFR Ch. I (1–1–23 Edition)

dollars employees
Subsector 623—Nursing and Residential Care Facilities
623110 .............. Nursing Care Facilities (Skilled Nursing Facilities) ........................................ $34.0
623210 .............. Residential Intellectual and Developmental Disability Facilities .................... $19.0
623220 .............. Residential Mental Health and Substance Abuse Facilities .......................... $19.0
623311 .............. Continuing Care Retirement Communities .................................................... $34.0
623312 .............. Assisted Living Facilities for the Elderly ........................................................ $23.5
623990 .............. Other Residential Care Facilities ................................................................... $16.0
Subsector 624—Social Assistance
624110 .............. Child and Youth Services .............................................................................. $15.5

624120 .............. Services for the Elderly and Persons with Disabilities .................................. $15.0
624190 .............. Other Individual and Family Services ............................................................ $16.0
624210 .............. Community Food Services ............................................................................. $19.5
624221 .............. Temporary Shelters ........................................................................................ $13.5
624229 .............. Other Community Housing Services .............................................................. $19.0
624230 .............. Emergency and Other Relief Services .......................................................... $41.5
624310 .............. Vocational Rehabilitation Services ................................................................. $15.0
624410 .............. Child Care Services ....................................................................................... $9.5
Sector 71—Arts, Entertainment and Recreation

Subsector 711—Performing Arts, Spectator Sports and Related Industries
711110 .............. Theater Companies and Dinner Theaters ..................................................... $25.0

711120 .............. Dance Companies .......................................................................................... $18.0
711130 .............. Musical Groups and Artists ............................................................................ $15.0
711190 .............. Other Performing Arts Companies ................................................................. $34.0
711211 .............. Sports Teams and Clubs ............................................................................... $47.0
711212 .............. Racetracks ..................................................................................................... $47.0
711219 .............. Other Spectator Sports .................................................................................. $16.5
711310 .............. Promoters of Performing Arts, Sports and Similar Events with Facilities ..... $40.0
711320 .............. Promoters of Performing Arts, Sports and Similar Events without Facilities $22.0
711410 .............. Agents and Managers for Artists, Athletes, Entertainers and Other Public $17.5
Figures.
711510 .............. Independent Artists, Writers, and Performers ............................................... $9.0
Subsector 712—Museums, Historical Sites and Similar Institutions
712110 .............. Museums ........................................................................................................ $34.0

712120 .............. Historical Sites ............................................................................................... $13.0
712130 .............. Zoos and Botanical Gardens ......................................................................... $34.0
712190 .............. Nature Parks and Other Similar Institutions .................................................. $19.5
Subsector 713—Amusement, Gambling and Recreation Industries
713110 .............. Amusement and Theme Parks ...................................................................... $47.0

713120 .............. Amusement Arcades ...................................................................................... $9.0
713210 .............. Casinos (except Casino Hotels) .................................................................... $34.0
713290 .............. Other Gambling Industries ............................................................................. $40.0
713910 .............. Golf Courses and Country Clubs ................................................................... $19.0
713920 .............. Skiing Facilities .............................................................................................. $35.0
713930 .............. Marinas ........................................................................................................... $11.0
713940 .............. Fitness and Recreational Sports Centers ...................................................... $17.5
713950 .............. Bowling Centers ............................................................................................. $12.5
713990 .............. All Other Amusement and Recreation Industries .......................................... $9.0
Sector 72—Accommodation and Food Services
Subsector 721—Accommodation
721110 .............. Hotels (except Casino Hotels) and Motels .................................................... $40.0
721120 .............. Casino Hotels ................................................................................................. $40.0
721191 .............. Bed-and-Breakfast Inns ................................................................................. $9.0
721199 .............. All Other Traveler Accommodation ................................................................ $9.0
721211 .............. RV (Recreational Vehicle) Parks and Campgrounds .................................... $10.0
721214 .............. Recreational and Vacation Camps (except Campgrounds) .......................... $9.0
721310 .............. Rooming and Boarding Houses, Dormitories, and Workers’ Camps ............ $14.0
Subsector 722—Food Services and Drinking Places
722310 .............. Food Service Contractors .............................................................................. $47.0
402

dollars employees
722320 .............. Caterers .......................................................................................................... $9.0

722330 .............. Mobile Food Services .................................................................................... $9.0
722410 .............. Drinking Places (Alcoholic Beverages) .......................................................... $9.0
722511 .............. Full-Service Restaurants ................................................................................ $11.5
722513 .............. Limited-Service Restaurants .......................................................................... $13.5
722514 .............. Cafeterias, Grill Buffets, and Buffets ............................................................. $34.0
722515 .............. Snack and Nonalcoholic Beverage Bars ....................................................... $22.5
Sector 81—Other Services (Except Public Administration)
Subsector 811—Repair and Maintenance
811111 .............. General Automotive Repair ............................................................................ $9.0

811114 .............. Specialized Automotive Repair ...................................................................... $9.0
811121 .............. Automotive Body, Paint and Interior Repair and Maintenance ..................... $9.0
811122 .............. Automotive Glass Replacement Shops ......................................................... $17.5
811191 .............. Automotive Oil Change and Lubrication Shops ............................................. $11.0
811192 .............. Car Washes ................................................................................................... $9.0
811198 .............. All Other Automotive Repair and Maintenance ............................................. $10.0
811210 .............. Electronic and Precision Equipment Repair and Maintenance ..................... $34.0
811310 .............. Commercial and Industrial Machinery and Equipment (except Automotive $12.5
and Electronic) Repair and Maintenance.
811411 .............. Home and Garden Equipment Repair and Maintenance .............................. $9.0
811412 .............. Appliance Repair and Maintenance ............................................................... $19.0
811420 .............. Reupholstery and Furniture Repair ................................................................ $9.0
811430 .............. Footwear and Leather Goods Repair ............................................................ $9.0
811490 .............. Other Personal and Household Goods Repair and Maintenance ................. $9.0
Subsector 812—Personal and Laundry Services
812111 .............. Barber Shops ................................................................................................. $9.5

812112 .............. Beauty Salons ................................................................................................ $9.5
812113 .............. Nail Salons ..................................................................................................... $9.0
812191 .............. Diet and Weight Reducing Centers ............................................................... $27.5
812199 .............. Other Personal Care Services ....................................................................... $9.0
812210 .............. Funeral Homes and Funeral Services ........................................................... $12.5
812220 .............. Cemeteries and Crematories ......................................................................... $25.0
812310 .............. Coin-Operated Laundries and Drycleaners ................................................... $13.0
812320 .............. Drycleaning and Laundry Services (except Coin-Operated) ......................... $8.0
812331 .............. Linen Supply .................................................................................................. $40.0
812332 .............. Industrial Launderers ..................................................................................... $47.0
812910 .............. Pet Care (except Veterinary) Services .......................................................... $9.0
812921 .............. Photofinishing Laboratories (except One-Hour) ............................................ $29.5
812922 .............. One-Hour Photofinishing ................................................................................ $19.0
812930 .............. Parking Lots and Garages ............................................................................. $47.0
812990 .............. All Other Personal Services ........................................................................... $15.0
Subsector 813—Religious, Grantmaking, Civic, Professional and Similar Organizations
813110 .............. Religious Organizations ................................................................................. $13.0

813211 .............. Grantmaking Foundations .............................................................................. $40.0
813212 .............. Voluntary Health Organizations ..................................................................... $34.0
813219 .............. Other Grantmaking and Giving Services ....................................................... $47.0
813311 .............. Human Rights Organizations ......................................................................... $34.0
813312 .............. Environment, Conservation and Wildlife Organizations ................................ $19.5
813319 .............. Other Social Advocacy Organizations ........................................................... $18.0
813410 .............. Civic and Social Organizations ...................................................................... $9.5
813910 .............. Business Associations ................................................................................... $15.5
813920 .............. Professional Organizations ............................................................................ $23.5
813930 .............. Labor Unions and Similar Labor Organizations ............................................. $16.5
813940 .............. Political Organizations .................................................................................... $14.0
813990 .............. Other Similar Organizations (except Business, Professional, Labor, and $13.5
Political Organizations).
Sector 92—Public Administration 17
(Small business size standards are not established for this sector. Establishments in the Public Administration sector are Fed-
eral, state, and local government agencies which administer and oversee government programs and activities that are not
performed by private establishments.)
403
§ 121.201 13 CFR Ch. I (1–1–23 Edition)
Footnotes during the preceding calendar year is less
than 10 percent of the total value of such
1. NAICS code 115310—Support Activities
products manufactured or otherwise pro-
for Forestry: Forest Fire Suppression and
duced or sold in the United States during
Fuels Management Services are two compo-
that period.
nents of Support Activities for Forestry.
Forest Fire Suppression includes establish- 6. NAICS Subsectors 333, 334, 335 and 336—
ments which provide services to fight forest For rebuilding machinery or equipment on a
fires. These firms usually have fire-fighting factory basis, or equivalent, use the NAICS
crews and equipment. Fuels Management code for a newly manufactured product. Con-
Services firms provide services to clear land cerns performing major rebuilding or over-
of hazardous materials that would fuel forest haul activities do not necessarily have to
fires. The treatments used by these firms meet the criteria for being a ‘‘manufacturer’’
may include prescribed fire, mechanical re- although the activities may be classified
moval, establishing fuel breaks, thinning, under a manufacturing NAICS code. Ordi-
pruning, and piling. nary repair services or preservation are not
2. NAICS code 237990—Dredging: To be con- considered rebuilding.
sidered small for purposes of Government 7. NAICS code 336413—Contracts for the re-
procurement, a firm or its similarly situated building or overhaul of aircraft ground sup-
subcontractors must perform at least 40 per- port equipment on a contract basis are clas-
cent of the volume dredged with their own sified under NAICS code 336413.
equipment or equipment owned by another 8. NAICS Codes 522110, 522130, 522180, and
small dredging concern. 522210—A financial institution’s assets are
3. NAICS code 311421—For purposes of Gov- determined by averaging the assets reported
ernment procurement for food canning and on its four quarterly financial statements for
preserving, the standard of 1,000 employees the preceding year. ‘‘Assets’’ for the pur-
excludes agricultural labor as defined in poses of this size standard means the assets
3306(k) of the Internal Revenue Code, 26 defined according to the Federal Financial
U.S.C. 3306(k). Institutions Examination Council 041 call re-
4. NAICS code 324110—To qualify as small port form for NAICS codes 522110, 522180, and
for purposes of Government procurement, 522210 and the National Credit Union Admin-
the petroleum refiner, including its affili- istration 5300 call report form for NAICS
ates, must be a concern that has either no code 522130.
more than 1,500 employees or no more than 9. NAICS codes 531110, 531120, 531130, and
200,000 barrels per calendar day total Oper- 531190—Leasing of Building Space to the Fed-
able Atmospheric Crude Oil Distillation ca- eral Government by Owners: For Govern-
pacity. Capacity includes all domestic and ment procurement, a size standard of $47
foreign affiliates, all owned or leased facili- million in gross receipts applies to the own-
ties, and all facilities under a processing ers of building space leased to the Federal
agreement or an arrangement such as an ex- Government. The standard does not apply to
change agreement or a throughput. To qual- an agent.
ify under the capacity size standard, the 10. NAICS codes 488510 (excluding the excep-
firm, together with its affiliates, must be tion), 531210, 541810, 561510, 561520 and 561920—
primarily engaged in refining crude petro- As measured by total revenues, but exclud-
leum into refined petroleum products. A ing funds received in trust for an unaffiliated
firm’s ‘‘primary industry’’ is determined in third party, such as bookings or sales subject
accordance with 13 CFR 121.107. to commissions. The commissions received
5. NAICS code 326211—For Government pro- are included as revenue.
curement, a firm is small for bidding on a 11. NAICS code 541713, 541714, and 541715—
contract for pneumatic tires within Census (a) ‘‘Research and Development’’ means
NAICS Product Classification codes 3262111 laboratory or other physical research and de-
and 3262113, provided that: velopment. It does not include economic,
(a) The value of tires within Census NAICS educational, engineering, operations, sys-
Product Classification codes 3262111 and tems, or other nonphysical research; or com-
3262113 that it manufactured in the United puter programming, data processing, com-
States during the previous calendar year is mercial and/or medical laboratory testing.
more than 50 percent of the value of its total (b) For research and development con-
worldwide manufacture, tracts requiring the delivery of a manufac-
(b) The value of pneumatic tires within tured product, the appropriate size standard
Census NAICS Product Classification codes is that of the manufacturing industry.
3262111 and 3262113 comprising its total (c) For purposes of the Small Business In-
worldwide manufacture during the preceding novation Research (SBIR) and Small Busi-
calendar year was less than 5 percent of the ness Transfer Technology (STTR) programs,
value of all such tires manufactured in the the term ‘‘research’’ or ‘‘research and devel-
United States during that period, and opment’’ means any activity which is (A) a
(c) The value of the principal product that systematic, intensive study directed toward
it manufactured, produced, or sold worldwide greater knowledge or understanding of the
404
subject studied; (B) a systematic study dinary assessment, site inspection, testing, re-
rected specifically toward applying new medial investigation, feasibility studies, re-
knowledge to meet a recognized need; or (C) medial design, containment, remedial ac-
a systematic application of knowledge to- tion, removal of contaminated materials,
ward the production of useful materials, de- storage of contaminated materials and secu-
vices, and systems or methods, including de- rity and site closeouts. If one of such activi-
sign, development, and improvement of pro- ties accounts for 50 percent or more of a con-
totypes and new processes to meet specific cern’s total revenues, employees, or other re-
requirements. See 15 U.S.C. 638(e)(5) and sec- lated factors, the concern’s primary industry
tion 3 of the SBIR and STTR policy direc- is that of the particular industry and not the
tives available at www.sbir.gov. For size eli- Environmental Remediation Services Indus-
gibility requirements for the SBIR and try.
STTR programs, see § 121.702 of this part. (b) For purposes of classifying a Govern-
(d) ‘‘Research and Development’’ for guided ment procurement as Environmental Reme-
missiles and space vehicles includes evalua- diation Services, the general purpose of the
tions and simulation, and other services re- procurement must be to restore or directly
quiring thorough knowledge of complete support the restoration of a contaminated
missiles and spacecraft. environment (such as, preliminary assess-
12. NAICS code 561210—Facilities Support ment, site inspection, testing, remedial in-
Services: vestigation, feasibility studies, remedial de-
(a) If one or more activities of Facilities sign, remediation services, containment, re-
Support Services as defined in paragraph (b) moval of contaminated materials, storage of
(below in this footnote) can be identified contaminated materials or security and site
with a specific industry and that industry closeouts), although the general purpose of
accounts for 50 percent or more of the value the procurement need not necessarily in-
of an entire procurement, then the proper clude remedial actions. Also, the procure-
classification of the procurement is that of ment must be composed of activities in three
the specific industry, not Facilities Support or more separate industries with separate
Services. NAICS codes or, in some instances (e.g., en-
(b) ‘‘Facilities Support Services’’ requires gineering), smaller sub-components of
the performance of three or more separate NAICS codes with separate, distinct size
activities in the areas of services or spe- standards. These activities may include, but
cialty trade contractors industries. If serv- are not limited to, separate activities in in-
ices are performed, these service activities dustries such as: Heavy Construction; Spe-
must each be in a separate NAICS industry. cialty Trade Contractors; Engineering Serv-
If the procurement requires the use of spe- ices; Architectural Services; Management
cialty trade contractors (plumbing, painting, Consulting Services; Hazardous and Other
plastering, carpentry, etc.), all such spe- Waste Collection; Remediation Services,
cialty trade contractors activities are con- Testing Laboratories; and Research and De-
sidered a single activity and classified as velopment in the Physical, Engineering and
‘‘Building and Property Specialty Trade Life Sciences. If any activity in the procure-
Services.’’ Since ‘‘Building and Property ment can be identified with a separate
Specialty Trade Services’’ is only one activ- NAICS code, or component of a code with a
ity, two additional activities of separate separate distinct size standard, and that in-
NAICS industries are required for a procure- dustry accounts for 50 percent or more of the
ment to be classified as ‘‘Facilities Support value of the entire procurement, then the
Services.’’ proper size standard is the one for that par-
13. NAICS code 238990—Building and Prop- ticular industry, and not the Environmental
erty Specialty Trade Services: If a procure- Remediation Service size standard.
ment requires the use of multiple specialty 15. NAICS code 513210—For purposes of Gov-
trade contractors (i.e., plumbing, painting, ernment procurement, the purchase of soft-
plastering, carpentry, etc.), and no specialty ware subject to potential waiver of the non-
trade accounts for 50 percent or more of the manufacturer rule pursuant to § 121.1203(d)
value of the procurement, all such specialty should be classified under this NAICS code.
trade contractors activities are considered a 16. NAICS code 611519—Job Corps Centers.
single activity and classified as Building and For classifying a Federal procurement, the
Property Specialty Trade Services. purpose of the solicitation must be for the
14. NAICS 562910—Environmental Remedi- management and operation of a U.S. Depart-
ation Services: ment of Labor Job Corps Center. The activi-
(a) For SBA assistance as a small business ties involved include admissions activities,
concern in the industry of Environmental life skills training, educational activities,
Remediation Services, other than for Gov- comprehensive career preparation activities,
ernment procurement, a concern must be en- career development activities, career transi-
gaged primarily in furnishing a range of tion activities, as well as the management
services for the remediation of a contami- and support functions and services needed to
nated environment to an acceptable condi- operate and maintain the facility. For SBA
tion including, but not limited to, prelimi- assistance as a small business concern, other
405
§ 121.301 13 CFR Ch. I (1–1–23 Edition)
than for Federal Government procurements, could not be incorporated due to inaccurate
a concern must be primarily engaged in pro- amendatory instruction.
viding the services to operate and maintain
Federal Job Corps Centers. SIZE ELIGIBILITY REQUIREMENTS FOR
17. NAICS Sector 92—Small business size SBA FINANCIAL ASSISTANCE
standards are not established for this sector.
Establishments in the Public Administration § 121.301 What size standards and af-
sector are Federal, State, and local govern- filiation principles are applicable to
ment agencies which administer and oversee financial assistance programs?
government programs and activities that are
not performed by private establishments. (a) For Business Loans (other than
Concerns performing operational services for for 7(a) Business Loans for the period
the administration of a government program beginning May 5, 2009 and ending on
are classified under the NAICS private sector September 30, 2010) and for Disaster
industry based on the activities performed. Loans (other than physical disaster
Similarly, procurements for these types of
loans), an applicant business concern
services are classified under the NAICS pri-
vate sector industry that best describes the must satisfy two criteria:
activities to be performed. For example, if a (1) The size of the applicant alone
government agency issues a procurement for (without affiliates) must not exceed
law enforcement services, the requirement the size standard designated for the in-
would be classified using one of the NAICS dustry in which the applicant is pri-
industry codes under 56161, Investigation, marily engaged; and
Guard, and Armored Car Services.
(2) The size of the applicant combined
18. NAICS code 541519—An Information
Technology Value Added Reseller (ITVAR) with its affiliates must not exceed the
provides a total solution to information size standard designated for either the
technology acquisitions by providing multi- primary industry of the applicant
vendor hardware and software along with alone or the primary industry of the
significant value added services. Significant applicant and its affiliates, which ever
value added services consist of, but are not is higher. These size standards are set
limited to, configuration consulting and de- forth in § 121.201.
sign, systems integration, installation of
multi-vendor computer equipment,
(b) For Development Company pro-
customization of hardware or software, grams and, for the period beginning
training, product technical support, mainte- May 5, 2009 and ending on September
nance, and end user support. For purposes of 30, 2010, for 7(a) Business Loans, an ap-
Government procurement, an information plicant must meet one of the following
technology procurement classified under this standards:
exception and 150-employee size standard (1) The same standards applicable
must consist of at least 15% and not more
under paragraph (a) of this section; or
than 50% of value added services, as meas-
ured by the total contract price. In addition, (2) Including its affiliates, tangible
the offeror must comply with the manufac- net worth not in excess of $8.5 million,
turing performance requirements, or comply and average net income after Federal
with the non-manufacturer rule by supplying income taxes (excluding any carry-over
the products of small business concerns, un- losses) for the preceding two completed
less SBA has issued a class or contract spe- fiscal years not in excess of $3.0 mil-
cific waiver of the non-manufacturer rule. If lion. If the applicant is not required by
the contract consists of less than 15% of
value added services, then it must be classi-
law to pay Federal income taxes at the
fied under a NAICS manufacturing industry. enterprise level, but is required to pass
If the contract consists of more than 50% of income through to its shareholders,
value added services, then it must be classi- partners, beneficiaries, or other equi-
fied under the NAICS industry that best de- table owners, the applicant’s ‘‘net in-
scribes the predominate service of the pro- come after Federal income taxes’’ will
curement. be its net income reduced by an
[65 FR 30840, May 15, 2000] amount computed as follows:
EDITORIAL NOTES: 1. For FEDERAL REGISTER
(i) If the applicant is not required by
citations affecting § 121.201, see the List of law to pay State (and local, if any) in-
CFR Sections Affected, which appears in the come taxes at the enterprise level,
Finding Aids section of the printed volume multiply its net income by the mar-
and at www.govinfo.gov. ginal State income tax rate (or by the

2. At 73 FR 12870, Mar. 11, 2008, § 121.201 was combined State and local income tax
amended; however, several amendments rates, as applicable) that would have
406
applied if it were a taxable corpora- (e) The applicable size standards for
tion. purposes of SBA’s financial assistance
(ii) Multiply the applicant’s net in- programs, excluding the Surety Bond
come, less any deduction for State and Guarantee assistance program, are in-
local income taxes calculated under creased by 25% whenever the applicant
paragraph (b)(2)(i) of this section, by agrees to use all of the financial assist-
the marginal Federal income tax rate ance within a labor surplus area. Labor
that would have applied if the appli- surplus areas are listed monthly in the
cant were a taxable corporation. Department of Labor publication
(iii) Sum the results obtained in ‘‘Area Trends in Employment and Un-
paragraphs (b)(2)(i) and (b)(2)(ii) of this employment.’’
section. (f) Concerns and entities are affili-
(c) For the Small Business Invest- ates of each other when one controls or
ment Company (SBIC) program, an ap- has the power to control the other, or
plicant must meet one of the following a third party or parties controls or has
standards: the power to control both. It does not
(1) The same standards applicable matter whether control is exercised, so
under paragraph (a) of this section; or long as the power to control exists. Af-
(2) Including its affiliates, tangible filiation under any of the cir-
net worth not in excess of $24 million, cumstances described below is suffi-
and average net income after Federal cient to establish affiliation for appli-
income taxes (excluding any carry-over cants for SBA’s Business Loan, Dis-
losses) for the preceding two completed aster Loan, and Surety Bond Pro-
fiscal years not in excess of $8 million. grams. For this rule, the Business Loan
If the applicant is not required by law Programs consist of the 7(a) Loan Pro-
to pay Federal income taxes at the en- gram, the Microloan Program, the
terprise level, but is required to pass Intermediary Lending Pilot Program,
income through to its shareholders, and the Development Company Loan
partners, beneficiaries, or other equi- Program (‘‘504 Loan Program’’). The
table owners, the applicant’s ‘‘net in- Disaster Loan Programs consist of
come after Federal income taxes’’ will Physical Disaster Business Loans, Eco-
be its net income reduced by an nomic Injury Disaster Loans, Military
amount computed as follows: Reservist Economic Injury Disaster
(i) If the applicant is not required by Loans, and Immediate Disaster Assist-
law to pay State (and local, if any) in- ance Program loans. The following
come taxes at the enterprise level, principles apply for the Business Loan,
multiply its net income by the mar- Disaster Loan, and Surety Bond Guar-
ginal State income tax rate (or by the antee Programs:
combined State and local income tax (1) Affiliation based on ownership. For
rates, as applicable) that would have determining affiliation based on equity
applied if it were a taxable corpora- ownership, a concern is an affiliate of
tion. an individual, concern, or entity that
(ii) Multiply the applicant’s net in- owns or has the power to control more
come, less any deduction for State and than 50 percent of the concern’s voting
local income taxes calculated under equity. If no individual, concern, or en-
paragraph (c)(2)(i) of this section, by tity is found to control, SBA will deem
the marginal Federal income tax rate the Board of Directors or President or
that would have applied if the appli- Chief Executive Officer (CEO) (or other
cant were a taxable corporation. officers, managing members, or part-
(iii) Add the results obtained in para- ners who control the management of
graphs (c)(2)(i) and (c)(2)(ii) of this sec- the concern) to be in control of the
tion. concern. SBA will deem a minority
(d) For Surety Bond Guarantee as- shareholder to be in control, if that in-
sistance—a business concern, combined dividual or entity has the ability,
with its affiliates, must meet the size under the concern’s charter, by-laws,
standard for the primary industry in or shareholder’s agreement, to prevent

which such business concern, combined a quorum or otherwise block action by
with its affiliates, is engaged. the board of directors or shareholders.
407
§ 121.301 13 CFR Ch. I (1–1–23 Edition)
(2) Affiliation arising under stock op- (4) Affiliation based on identity of
tions, convertible securities, and agree- interest. Affiliation arises when there is
ments to merge. (i) In determining size, an identity of interest between close
SBA considers stock options, convert- relatives, as defined in 13 CFR 120.10,
ible securities, and agreements to with identical or substantially iden-
merge (including agreements in prin- tical business or economic interests
ciple) to have a present effect on the (such as where the close relatives oper-
power to control a concern. SBA treats ate concerns in the same or similar in-
such options, convertible securities, dustry in the same geographic area).
and agreements as though the rights Where SBA determines that interests
granted have been exercised. should be aggregated, an individual or
(ii) Agreements to open or continue firm may rebut that determination
negotiations towards the possibility of with evidence showing that the inter-
a merger or a sale of stock at some ests deemed to be one are in fact sepa-
later date are not considered ‘‘agree- rate.
ments in principle’’ and are thus not (5) Affiliation based on franchise and li-
given present effect.
cense agreements. The restraints im-
(iii) Options, convertible securities, posed on a franchisee or licensee by its
and agreements that are subject to
franchise or license agreement gen-
conditions precedent which are incapa-
erally will not be considered in deter-
ble of fulfillment, speculative, conjec-
mining whether the franchisor or licen-
tural, or unenforceable under state or
sor is affiliated with an applicant
Federal law, or where the probability
franchisee or licensee provided the ap-
of the transaction (or exercise of the
plicant franchisee or licensee has the
rights) occurring is shown to be ex-
right to profit from its efforts and
tremely remote, are not given present
bears the risk of loss commensurate
effect.
with ownership. SBA will only consider
(iv) An individual, concern or other
the franchise or license agreements of
entity that controls one or more other
the applicant concern.
concerns cannot use options, convert-
ible securities, or agreements to appear (6) Determining the concern’s size. In
to terminate such control before actu- determining the concern’s size, SBA
ally doing so. SBA will not give present counts the receipts, employees
effect to individuals’, concerns’, or (§ 121.201), or the alternate size stand-
other entities’ ability to divest all or ard (if applicable) of the concern whose
part of their ownership interest in size is at issue and all of its domestic
order to avoid a finding of affiliation. and foreign affiliates, regardless of
(3) Affiliation based on management. whether the affiliates are organized for
Affiliation arises where the CEO or profit.
President of the applicant concern (or (7) Exceptions to affiliation. For excep-
other officers, managing members, or tions to affiliation, see 13 CFR
partners who control the management 121.103(b).
of the concern) also controls the man- (g) For COVID–19 Economic Injury
agement of one or more other concerns. Disaster (COVID EIDL) loans, an ‘‘af-
Affiliation also arises where a single filiated business’’ or ‘‘affiliate’’ is a
individual, concern, or entity that con- business in which an eligible entity has
trols the Board of Directors or manage- an equity interest or right to profit
ment of one concern also controls the distributions of not less than 50 per-
Board of Directors or management of cent, or in which an eligible entity has
one of more other concerns. Affiliation the contractual authority to control
also arises where a single individual, the direction of the business, provided
concern or entity controls the manage- that such affiliation shall be deter-
ment of the applicant concern through mined as of any arrangements or agree-
a management agreement. ments in existence as of January 31,
408
2020. For exceptions to affiliation, see § 121.303 What size procedures are
§ 121.103(b). used by SBA before it makes a for-
mal size determination?
FR 30648, June 7, 2001; 67 FR 3056, Jan. 23, (a) A concern that submits an appli-
2002; 69 FR 29204, May 21, 2004; 70 FR 69047, cation for financial assistance is
69052, Nov. 14, 2005; 70 FR 72594, Dec. 6, 2005; deemed to have certified that it is
71 FR 62208, Oct. 24, 2006; 73 FR 41254, July 18, small under the applicable size stand-
2008; 74 FR 20580, May 5, 2009; 74 FR 36110, ard. SBA may question the concern’s
July 22, 2009; 75 FR 48550, Aug. 11, 2010; 79 FR
status based on information supplied in
33669, June 12, 2014; 79 FR 71296, Dec. 2, 2014;
81 FR 41428, June 27, 2016; 85 FR 7651, Feb. 10, the application or from any other
2020; 85 FR 80588, Dec. 14, 2020; 86 FR 50218, source.
Sept. 8, 2021; 87 FR 69154, Nov. 17, 2022] (b) A small business investment com-
pany, a development company, a surety
§ 121.302 When does SBA determine bond company, or a preferred lender
the size status of an applicant? may accept as true the size informa-
(a) The size status of an applicant for tion provided by an applicant, unless
SBA financial assistance is determined credible evidence to the contrary is ap-
as of the date the application for finan- parent.
cial assistance is accepted for proc- (c) Size is initially considered by the
essing by SBA, except for applications individual with final financial assist-
under the Preferred Lenders Program ance authority. This is not a formal
(PLP), the Disaster Loan program, the size determination. A formal deter-
SBIC program, and the New Markets mination may be requested prior to a
Venture Capital (NMCV) program. denial of eligibility based on size.
(b) For the Preferred Lenders Pro- (d) An applicant may request a for-
gram, size is determined as of the date mal size determination when assist-
of approval of the loan by the Preferred ance has been denied for size ineligi-
Lender. bility. Except for disaster loan eligi-
(c) For disaster loan assistance bility, a request for a formal size deter-
(other than physical disaster loans), mination must be made to the Govern-
size status is determined as of the date ment Contracting Area Director serv-
the disaster commenced, as set forth in ing the area in which the headquarters
the Disaster Declaration. For pre-dis- of the applicant is located, regardless
aster mitigation loans, size status is of the location of the parent company
determined as of the date SBA accepts or affiliates. For disaster loan assist-
a complete Pre-Disaster Mitigation ance, the request for a size determina-
Small Business Loan Application for tion must be made to the Area Director
processing. Refer to § 123.408 of this for the Disaster Area Office which de-
chapter to find out what SBA considers nied the assistance.
to be a complete Pre-Disaster Mitiga- (e) There are no time limitations for
tion Small Business Loan Application. making a formal size determination for
(d) For financial assistance from an purposes of financial assistance. The
SBIC licensee or an NMVC company, official making the formal size deter-
size is determined as of the date a con- mination must provide a copy of the
cern’s application is accepted for proc- determination to the applicant, to the
essing by the SBIC or the NMVC com- requesting SBA official, and to other
pany. interested SBA program officials.
(e) Changes in size after the applica-
ble date when size is determined will § 121.304 What are the size require-
ments for refinancing an existing
not disqualify an applicant for assist- SBA loan?
ance.
(a) A concern that applies to refi-
[61 FR 3286, Jan. 31, 1996, as amended at 64 nance an existing SBA loan or guar-
FR 48276, Sept. 3, 1999; 67 FR 11880, Mar. 15,
antee will be considered small for the
2002; 67 FR 62337, Oct. 7, 2002; 69 FR 29204,
May 21, 2004; 70 FR 72594, Dec. 6, 2005; 73 FR refinancing even though its size has in-
41254, July 18, 2008; 75 FR 48550, Aug. 11, 2010; creased since the date of the original
79 FR 33669, June 12, 2014; 85 FR 7652, Feb. 10, financing to exceed its applicable size
2020; 85 FR 80589, Dec. 14, 2020] standard, provided that:
409
§ 121.305 13 CFR Ch. I (1–1–23 Edition)
(1) The increase in size is due to nat- price) are due, the contracting officer
ural growth (as distinguished from may amend the solicitation and use the
merger, acquisition or similar manage- new size standard.
ment action); and (b) The procuring agency contracting
(2) SBA determines that refinancing officer, or authorized representative,
is necessary to protect the Govern- designates the proper NAICS code and
ment’s financial interest. corresponding size standard in a solici-
(b) If a concern’s size has increased tation, selecting the single NAICS code
other than by natural growth, the con- which best describes the principal pur-
cern and its affiliates must be small at pose of the product or service being ac-
the time the application for refi- quired. Except for multiple award con-
nancing is accepted for processing by tracts as set forth in paragraph (c) of
SBA. this section, every solicitation, includ-
ing a request for quotations, must con-
§ 121.305 What size eligibility require- tain only one NAICS code and only one
ments exist for obtaining financial corresponding size standard.
assistance relating to particular (1) Primary consideration is given to
procurements?
the industry descriptions in the U.S.
A concern qualified as small for a NAICS Manual, the product or service
particular procurement, including an description in the solicitation and any
8(a) subcontract, is small for financial attachments to it, the relative value
assistance directly and primarily relat- and importance of the components of
ing to the performance of the par- the procurement making up the end
ticular procurement. item being procured, and the function
of the goods or services being pur-
SIZE ELIGIBILITY REQUIREMENTS FOR chased.
GOVERNMENT PROCUREMENT (2) A procurement is generally classi-
§ 121.401 What procurement programs fied according to the component which
are subject to size determinations? accounts for the greatest percentage of
contract value. Acquisitions for sup-
The rules set forth in §§ 121.401 plies must be classified under the ap-
through 121.413 apply to all Federal propriate manufacturing or supply
procurement programs for which status NAICS code, not under a Wholesale
as a small business is required or ad- Trade or Retail Trade NAICS code. A
vantageous, including the small busi- concern that submits an offer or quote
ness set-aside program, SBA’s Certifi- for a contract, order, or subcontract
cate of Competency program, SBA’s where the NAICS code assigned to the
8(a) Business Development program, contract, order, or subcontract is one
SBA’s HUBZone program, the Women for supplies, and furnishes a product it
Owned Small Business (WOSB) Federal did not itself manufacture or produce,
Contract Program, SBA’s Service-Dis- is categorized as a nonmanufacturer
abled Veteran-Owned Small Business and deemed small if it has 500 or fewer
program, the Small Business Subcon- employees and meets the requirements
tracting program, and the Federal of § 121.406(b).
Small Disadvantaged Business (SDB) (c) Multiple Award Contracts (see defi-
program. nition at § 125.1).
[75 FR 62280, Oct. 7, 2010] (1) For a Multiple Award Contract,
the contracting officer must:
§ 121.402 What size standards are ap- (i) Assign the solicitation a single
plicable to Federal Government NAICS code and corresponding size
Contracting programs? standard which best describes the prin-
(a) A concern must not exceed the cipal purpose of the acquisition as set
size standard for the NAICS code speci- forth in paragraph (b) of this section,
fied in the solicitation. The con- only if the NAICS code will also best
tracting officer must specify the size describe the principal purpose of each
standard in effect on the date the solic- order to be placed under the Multiple
itation is issued. If SBA amends the Award Contract; or

size standard and it becomes effective (ii) Divide the solicitation into dis-
before the date initial offers (including crete categories (such as Contract Line
410
Item Numbers (CLINs), Special Item clear, incomplete, missing, or prohib-

Numbers (SINs), Sectors, Functional ited, SBA may clarify, complete, or
Areas (FAs), or the equivalent), and as- supply a NAICS code designation or
sign each discrete category the single size standard, as appropriate, in con-
NAICS code and corresponding size nection with a formal size determina-
standard that best describes the prin- tion or size appeal.
cipal purpose of the goods or services (f) Any offeror or other interested
to be acquired under that category party adversely affected by an NAICS
(CLIN, SIN, Sector, FA or equivalent) code designation or size standard des-
as set forth in paragraph (b) of this sec- ignation may appeal the designations
tion. A concern must meet the applica- to OHA under part 134 of this chapter.
ble size standard for each category
(CLIN, SIN, Sector, FA or equivalent) [61 FR 3286, Jan. 31, 1996, as amended at 65
FR 30863, May 15, 2000; 69 FR 29205, May 21,
for which it seeks an award as a small
2004; 75 FR 61604, Oct. 6, 2010; 76 FR 5683, Feb.
business concern. 2, 2011; 76 FR 8252, Feb. 11, 2011; 78 FR 61130,
(2)(i) The contracting officer must as- Oct. 2, 2013; 81 FR 34259, May 31, 2016; 85 FR
sign a single NAICS code for each order 66180, Oct. 16, 2020]
issued against a Multiple Award Con-
tract. The NAICS code assigned to an § 121.403 Are SBA size determinations
order must be a NAICS code included and NAICS code designations bind-
in the underlying Multiple Award Con- ing on parties?
tract. When placing an order under a Formal size determinations and
Multiple Award Contract with multiple NAICS code designations made by au-
NAICS codes, the contracting officer thorized SBA officials are binding upon
must assign the NAICS code and cor- the parties. Opinions otherwise pro-
responding size standard that best de- vided by SBA officials to contracting
scribes the principal purpose of each officers or others are advisory in na-
order. In cases where an agency can ture, and are not binding or appealable.
issue an order against multiple SINs
with different NAICS codes, the con- [61 FR 3286, Jan. 31, 1996, as amended at 65
tracting officer must select the single FR 30863, May 15, 2000]
NAICS code that best represents the
§ 121.404 When is the size status of a
acquisition. If the NAICS code cor- business concern determined?
responding to the principal purpose of
the order is not contained in the under- (a) Time of size. SBA determines the
lying Multiple Award Contract, the size status of a concern, including its
contracting officer may not use the affiliates, as of the date the concern
Multiple Award Contract to issue that submits a written self-certification
order. that it is small to the procuring activ-
(ii) With respect to an order issued ity as part of its initial offer or re-
against a multiple award contract, an sponse which includes price.
agency will receive small business (1) Multiple award contracts. With re-
credit for goaling only if the business spect to Multiple Award Contracts, or-
concern awarded the order has rep- ders issued against a Multiple Award
resented its status as small for the un- Contract, and Blanket Purchase Agree-
derlying multiple award contract for ments issued against a Multiple Award
the same NAICS code as that assigned Contract:
to the order, provided recertification (i) Single NAICS. If a single NAICS
has not been required or occurred for code is assigned as set forth in
the contract or order. § 121.402(c)(1)(i), SBA determines size
(d) The NAICS code assigned to a pro- status for the underlying Multiple
curement and its corresponding size Award Contract at the time of initial
standard is final unless timely ap- offer (or other formal response to a so-
pealed to SBA’s Office of Hearings and licitation), which includes price, based
Appeals (OHA), or unless SBA assigns upon the size standard set forth in the
an NAICS code or size standard as pro- solicitation for the Multiple Award
vided in paragraph (e) of this section. Contract, unless the concern was re-
(e) When a NAICS code designation quired to recertify under paragraph
or size standard in a solicitation is un- (g)(1), (2), or (3) of this section.
411
§ 121.404 13 CFR Ch. I (1–1–23 Edition)
(A) Unrestricted Multiple Award Con- size status at the time a business con-
tracts. For an unrestricted Multiple cern submits its initial offer (or other
Award Contract, if a business concern formal response to a solicitation)
(including a joint venture) is small at which includes price for a Multiple
the time of offer and contract-level re- Award Contract based upon the size
certification for the Multiple Award standard set forth for each discrete
Contract, it is small for goaling pur- category (e.g., CLIN, SIN, Sector, FA
poses for each order issued against the or equivalent) for which the business
contract, unless a contracting officer concern submits an offer and rep-
requests a size recertification for a spe- resents that it qualifies as small for
cific order or Blanket Purchase Agree- the Multiple Award Contract, unless
ment. Except for orders and Blanket the business concern was required to
Purchase Agreements issued under any
recertify under paragraph (g)(1), (2), or
Federal Supply Schedule contract, if
(3) of this section. If the business con-
an order or a Blanket Purchase Agree-
cern (including a joint venture) sub-
ment under an unrestricted Multiple
Award Contract is set-aside exclusively mits an offer for the entire Multiple
for small business (i.e., small business Award Contract, SBA will determine
set-aside, 8(a) small business, service- whether it meets the size standard for
disabled veteran-owned small business, each discrete category (CLIN, SIN,
HUBZone small business, or women- Sector, FA or equivalent).
owned small business), a concern must (A) Unrestricted Multiple Award Con-
recertify its size status and qualify as tracts. For an unrestricted Multiple
a small business at the time it submits Award Contract, if a business concern
its initial offer, which includes price, (including a joint venture) is small at
for the particular order or Blanket the time of offer and contract-level re-
Purchase Agreement. However, where certification for discrete categories on
the underlying Multiple Award Con- the Multiple Award Contract, it is
tract has been awarded to a pool of small for goaling purposes for each
concerns for which small business sta- order issued against any of those cat-
tus is required, if an order or a Blanket egories, unless a contracting officer re-
Purchase Agreement under that Mul- quests a size recertification for a spe-
tiple Award Contract is set-aside exclu- cific order or Blanket Purchase Agree-
sively for concerns in the small busi- ment. Except for orders or Blanket
ness pool, concerns need not recertify Purchase Agreements issued under any
their status as small business concerns Federal Supply Schedule contract, if
(unless a contracting officer requests an order or Blanket Purchase Agree-
size certifications with respect to a ment for a discrete category under an
specific order or Blanket Purchase unrestricted Multiple Award Contract
Agreement). is set-aside exclusively for small busi-
(B) Set-aside Multiple Award Contracts. ness (i.e., small business set, 8(a) small
For a Multiple Award Contract that is
business, service-disabled veteran-
set aside for small business (i.e., small
owned small business, HUBZone small
business set-aside, 8(a) small business,
business, or women-owned small busi-
service-disabled veteran-owned small
business, HUBZone small business, or ness), a concern must recertify its size
women-owned small business), if a status and qualify as a small business
business concern (including a joint ven- at the time it submits its initial offer,
ture) is small at the time of offer and which includes price, for the particular
contract-level recertification for the order or Agreement. However, where
Multiple Award Contract, it is small the underlying Multiple Award Con-
for each order or Blanket Purchase tract for discrete categories has been
Agreement issued against the contract, awarded to a pool of concerns for which
unless a contracting officer requests a small business status is required, if an
size recertification for a specific order order or a Blanket Purchase Agree-
or Blanket Purchase Agreement. ment under that Multiple Award Con-
(ii) Multiple NAICS. If multiple tract is set-aside exclusively for con-

NAICS codes are assigned as set forth cerns in the small business pool, con-
in § 121.402(c)(1)(ii), SBA determines cerns need not recertify their status as
412
small business concerns (unless a con- part A, of this chapter), as a HUBZone

tracting officer requests size certifi- small business (under part 126 of this
cations with respect to a specific order chapter), or as a women-owned small
or Blanket Purchase Agreement). business concern (under part 127 of this
(B) Set-aside Multiple Award Contracts. chapter) must qualify as a small busi-
For a Multiple Award Contract that is ness for its primary industry classifica-
set aside for small business (i.e., small tion as of the date of its application
business set-aside, 8(a) small business, and, where applicable, the date the
service-disabled veteran-owned small SBA program office requests a formal
business, HUBZone small business, or size determination in connection with
women-owned small business), if a a concern that otherwise appears eligi-
business concern (including a joint ven- ble for program certification.
ture) is small at the time of offer and (c) Certificates of competency. The size
contract-level recertification for dis- status of an applicant for a Certificate
crete categories on the Multiple Award of Competency (COC) relating to an un-
Contract, it is small for each order or restricted procurement is determined
Agreement issued against any of those as of the date of the concern’s applica-
categories, unless a contracting officer tion for the COC.
requests a size recertification for a spe- (d) Nonmanufacturer rule, ostensible
cific order or Blanket Purchase. subcontractor rule, and joint venture
(iii) SBA will determine size at the agreements. Compliance with the non-
time of initial offer (or other formal re- manufacturer rule set forth in
sponse to a solicitation), which in- § 121.406(b)(1), the ostensible subcon-
cludes price, for an order or Agreement tractor rule set forth in § 121.103(h)(2),
issued against a Multiple Award Con- and the joint venture agreement re-
tract if the contracting officer requests quirements in § 124.513(c) and (d),
a new size certification for the order or § 125.8(b) and (c), § 128.402(c) and (d),
Agreement. § 126.616(c) and (d), or § 127.506(c) and (d)
(iv) For an indefinite delivery, indefi- of this chapter, as appropriate, is de-
nite quantity (IDIQ), Multiple Award termined as of the date of the final pro-
Contract, where concerns are not re- posal revision for negotiated acquisi-
quired to submit price as part of the tions and final bid for sealed bidding.
offer for the IDIQ contract, size will be (e) Subcontracting. For subcon-
determined as of the date of initial tracting purposes, a concern must
offer, which may not include price. qualify as small as of the date that it
(2) Agreements. With respect to certifies that it is small for the sub-
‘‘Agreements’’ including Blanket Pur- contract. The applicable size standard
chase Agreements (BPAs) (except for is that which is set forth in § 121.410 and
BPAs issued against a GSA Schedule which is in effect at the time the con-
Contract), Basic Agreements, Basic Or- cern self-certifies that it is small for
dering Agreements, or any other the subcontract. A prime contractor
Agreement that a contracting officer may rely on the self-certification of
sets aside or reserves awards to any subcontractor provided it does not
type of small business, a concern must have a reason to doubt the concern’s
qualify as small at the time of its ini- self-certification.
tial offer (or other formal response to a (f) Two-step procurements. For pur-
solicitation), which includes price, for poses of architect-engineering, design/
the Agreement. Because an Agreement build or two-step sealed bidding pro-
is not a contract, the concern must curements, a concern must qualify as
also qualify as small for each order small as of the date that it certifies
issued pursuant to the Agreement in that it is small as part of its initial bid
order to be considered small for the or proposal (which may or may not in-
order and for an agency to receive clude price).
small business goaling credit for the (g) Effect of size certification and recer-
order. tification. A concern that represents
(b) Eligibility for SBA programs. A con- itself as a small business and qualifies
cern applying to be certified as a Par- as small at the time it submits its ini-
ticipant in SBA’s 8(a) Business Devel- tial offer (or other formal response to a
opment program (under part 124, sub- solicitation) which includes price is
413
§ 121.404 13 CFR Ch. I (1–1–23 Edition)
generally considered to be a small busi- been acquired, is acquiring, or has

ness throughout the life of that con- merged with another business entity.
tract. Similarly, a concern that rep- (iii) If the merger, sale or acquisition
resents itself as a small business and occurs after offer but prior to award,
qualifies as small after a required re- the offeror must recertify its size to
certification under paragraph (g)(1), the contracting officer prior to award.
(2), or (3) of this section is generally If the merger, sale or acquisition (in-
considered to be a small business cluding agreements in principal) occurs
throughout the life of that contract. within 180 days of the date of an offer
Where a concern grows to be other and the offeror is unable to recertify as
than small, the procuring agency may small, it will not be eligible as a small
exercise options and still count the business to receive the award of the
award as an award to a small business, contract. If the merger, sale or acquisi-
except that a required recertification tion (including agreements in prin-
as other than small under paragraph cipal) occurs more than 180 days after
(g)(1), (2), or (3) of this section changes the date of an offer, award can be
the firm’s status for future options and made, but it will not count as an award
orders. The following exceptions apply to small business.
to this paragraph (g): (iv) Recertification is not required
(1) Within 30 days of an approved con- when the ownership of a concern that
tract novation, a contractor must re- is at least 51% owned by an entity (i.e.,
certify its small business size status to tribe, Alaska Native Corporation, or
the procuring agency, or inform the Community Development Corporation)
procuring agency that it is other than changes to or from a wholly-owned
small. If the contractor is other than business concern of the same entity, as
small, the agency can no longer count long as the ultimate owner remains
the options or orders issued pursuant that entity.
to the contract, from that point for- Example 1 to paragraph (g)(2)(iii). Indian
ward, towards its small business goals. Tribe X owns 100% of small business ABC.
(2)(i) In the case of a merger, sale, or ABC wins an award for a small business set-
acquisition, where contract novation is aside contract. In year two of contract per-
not required, the contractor must, formance, X changes the ownership of ABC
within 30 days of the transaction be- so that X owns 100% of a holding company
XYZ, Inc., which in turn owns 100% of ABC.
coming final, recertify its small busi- This restructuring does not require ABC to
ness size status to the procuring agen- recertify its status as a small business be-
cy, or inform the procuring agency cause it continues to be 100% owned (indi-
that it is other than small. If the con- rectly rather than directly) by Indian Tribe
tractor is other than small, the agency X.
can no longer count the options or or- (3) For the purposes of contracts (in-
ders issued pursuant to the contract, cluding Multiple Award Contracts)
from that point forward, towards its with durations of more than five years
small business goals. The agency and (including options), a contracting offi-
the contractor must immediately recer must request that a business con-
vise all applicable Federal contract cern recertify its small business size
databases to reflect the new size sta- status no more than 120 days prior to
tus. the end of the fifth year of the con-
(ii) Recertification is required: tract, and no more than 120 days prior
(A) When a concern, or an affiliate of to exercising any option thereafter. If
the concern, acquires or is acquired by the contractor certifies that it is other
another concern; than small, the agency can no longer
(B) From both the acquired concern count the options or orders issued pur-
and the acquiring concern if each has suant to the contract towards its small
been awarded a contract as a small business prime contracting goals. A
business; and contracting officer may also request
(C) In the context of a joint venture size recertification, as he or she deems
that has been awarded a contract or appropriate, prior to the 120-day point
order as a small business, from any in the fifth year of a long-term mul-
partner to the joint venture that has tiple award contract. The agency and
414
the contractor must immediately re- ders issued pursuant to the contract,
vise all applicable Federal contract from that point forward, towards its
databases to reflect the new size sta- small business goals. This includes set-
tus. asides, partial set-asides, and reserves
(i) A business concern that certified for 8(a) BD Participants, certified
itself as other than small, either ini- HUBZone small business concerns,
tially or prior to an option being exer- SDVO SBCs, and ED/WOSBs.
cised, may recertify itself as small for (5) If during contract performance a
a subsequent option period if it meets
subcontractor that is not a similarly
the applicable size standard.
situated entity performs primary and
(ii) Re-certification does not change
the terms and conditions of the con- vital requirements of a contract, the
tract. The limitations on subcon- contractor and its ostensible subcon-
tracting, non-manufacturer and sub- tractor will be treated as joint ven-
contracting plan requirements in effect turers. See § 121.103(h)(4).
at the time of contract award remain (h) Follow-on contracts. A follow-on or
in effect throughout the life of the con- renewal contract is a new contracting
tract. However, a contracting officer action. As such, size is determined as
may require a subcontracting plan if a of the date the concern submits a writ-
prime contractor’s size status changes ten self-certification that it is small to
from small to other than small as a re- the procuring agency as part of its ini-
sult of a size recertification. tial offer including price for the follow-
(iii) A request for a size re-certifi- on or renewal contract.
cation shall include the size standard
in effect at the time of re-certification [69 FR 29205, May 21, 2004, as amended at 71
that corresponds to the NAICS code FR 19813, Apr. 18, 2006; 71 FR 66443, Nov. 15,
that that was initially assigned to the 2006; 76 FR 5683, Feb. 2, 2011; 76 FR 8252, Feb.
contract. 11, 2011; 78 FR 42403, July 16, 2013; 78 FR 38817,
(iv) A contracting officer must assign June 28, 2013; 78 FR 61131, Oct. 2, 2013; 81 FR
34259, May 31, 2016; 81 FR 48578, July 25, 2016;
a NAICS code and size standard to each
83 FR 12851, Mar. 26, 2018; 84 FR 65239, Nov.
order under a long-term contract. The
26, 2019; 84 FR 65661, Nov. 29, 2019; 85 FR 66180,
NAICS code and size standard assigned Oct. 16, 2020; 85 FR 72917, Nov. 16, 2020; 86 FR
to an order must correspond to a 2959, Jan. 14, 2021; 86 FR 10732, Feb. 23, 2021;
NAICS code and size standard assigned 86 FR 38538, July 22, 2021; 87 FR 73412, Nov. 29,
to the underlying long-term contract 2022]
and must be assigned in accordance
with §§ 121.402(b) and (c). A concern will § 121.405 May a business concern self-
be considered small for that order only certify its small business size sta-
if it certified itself as small under the tus?
same or lower size standard. (a) A concern must self-certify it is
(v) Where the contracting officer ex-
small under the size standard specified
plicitly requires concerns to recertify
in the solicitation, or as clarified, com-
their size status in response to a solici-
tation for an order, SBA will determine pleted or supplied by SBA pursuant to
size as of the date the concern submits § 121.402(d).
its self-representation as part of its re- (b) A contracting officer may accept
sponse to the solicitation for the order. a concern’s self-certification as true
(4) The requirements in paragraphs for the particular procurement in-
(g)(1), (2), and (3) of this section apply volved in the absence of a written pro-
to Multiple Award Contracts. However, test by other offerors or other credible
if the Multiple Award Contract was information which causes the con-
set-aside for small businesses, partially tracting officer or SBA to question the
set-aside for small businesses, or re- size of the concern.
served for small business, then in the (c) Procedures for protesting the self-
case of a contract novation, or merger certification of an offeror are set forth
or acquisition where no novation is rein §§ 121.1001 through 121.1009.
quired, where the resulting contractor

is now other than small, the agency
cannot count any new or pending or-
415
§ 121.406 13 CFR Ch. I (1–1–23 Edition)
§ 121.406 How does a small business parts and components, into the end
concern qualify to provide manu- item being acquired. The end item
factured products or other supply must possess characteristics which, as
items under a small business set- a result of mechanical, chemical or
aside, service-disabled veteran- human action, it did not possess before
owned small business, HUBZone,
WOSB or EDWOSB, or 8(a) con- the original substances, parts or com-
tract? ponents were assembled or trans-
formed. The end item may be finished
(a) General. In order to qualify as a
and ready for utilization or consump-
small business concern for a small
tion, or it may be semifinished as a raw
business set-aside, service-disabled vet-
eran-owned small business set-aside or material to be used in further manufac-
sole source contract, HUBZone set- turing. Firms which perform only
aside or sole source contract, WOSB or minimal operations upon the item
EDWOSB set-aside or sole source con- being procured do not qualify as manu-
tract, 8(a) set-aside or sole source con- facturers of the end item. Firms that
tract, partial set-aside, or set aside of add substances, parts, or components
an order against a multiple award con- to an existing end item to modify its
tract to provide manufactured products performance will not be considered the
or other supply items, an offeror must end item manufacturer where those
either: identical modifications can be per-
(1) Be the manufacturer or producer formed by and are available from the
of the end item being procured (and the manufacturer of the existing end item:
end item must be manufactured or pro- (i) SBA will evaluate the following
duced in the United States); or factors in determining whether a con-
(2) Comply with the requirements of cern is the manufacturer of the end
paragraph (b), (c) or (d) of this section item:
as a nonmanufacturer, a kit assembler (A) The proportion of total value in
or a supplier under Simplified Acquisi- the end item added by the efforts of the
tion Procedures. concern, excluding costs of overhead,
(b) Nonmanufacturers. (1) A firm may testing, quality control, and profit;
qualify as a small business concern for (B) The importance of the elements
a requirement to provide manufactured added by the concern to the function of
products or other supply items as a the end item, regardless of their rel-
nonmanufacturer if it: ative value; and
(i) Does not exceed 500 employees (or
(C) The concern’s technical capabili-
150 employees for the Information
ties; plant, facilities and equipment;
Technology Value Added Reseller ex-
production or assembly line processes;
ception to NAICS Code 541519, which is
packaging and boxing operations; la-
found at § 121.201, footnote 18);
(ii) Is primarily engaged in the retail beling of products; and product warran-
or wholesale trade and normally sells ties.
the type of item being supplied; (ii) Firms that provide computer and
(iii) Takes ownership or possession of other information technology equip-
the item(s) with its personnel, equipment primarily consisting of compo-
ment or facilities in a manner con- nent parts (such as motherboards,
sistent with industry practice; and video cards, network cards, memory,
(iv) Will supply the end item of a power supplies, storage devices, and
small business manufacturer, processor similar items) who install components
or producer made in the United States, totaling less than 50% of the value of
or obtains a waiver of such require- the end item are generally not consid-
ment pursuant to paragraph (b)(5) of ered the manufacturer of the end item.
this section. (3) The nonmanufacturer rule applies
(2) For size purposes, there can be only to procurements that have been
only one manufacturer of the end item assigned a manufacturing or supply
being acquired. The manufacturer is NAICS code, or the Information Tech-
the concern which, with its own facili- nology Value Added Resellers (ITVAR)
ties, performs the primary activities in exception to NAICS code 541519. The
transforming inorganic or organic sub- nonmanufacturer rule does not apply
stances, including the assembly of to contracts that have been assigned a
416
service (except for the ITVAR excep- licitation and SBA reviews and accepts
tion to NAICS code 541519), construc- that determination; or
tion, or specialty trade construction (ii) SBA determines that no small
NAICS code. business manufacturer or processor of
(4) The nonmanufacturer rule applies the product or class of products is
only to the supply component of a re- available to participate in the Federal
quirement classified as a manufac- procurement market.
turing, supply, or ITVAR contract. If a (6) The two waiver possibilities iden-
requirement is classified as a service tified in paragraph (b)(5) of this section
contract, but also has a supply compo- are called ‘‘individual’’ and ‘‘class’’
nent, the nonmanufacturer rule does waivers respectively, and the proce-
not apply to the supply component of dures for requesting and granting them
the requirement. The rental of an are contained in § 121.1204.
item(s) is a service and should be treat- (7) SBA’s waiver of the nonmanufac-
ed as such in the application of the turer rule means that the firm can sup-
nonmanufacturer rule and the limita- ply the product of any size business
tion on subcontracting. without regard to the place of manu-
Example 1 to paragraph (b)(4). A procuring facture. However, SBA’s waiver of the
agency seeks to acquire computer integra- nonmanufacturer rule has no effect on
tion and maintenance services. Included requirements external to the Small
within that requirement, the agency also Business Act which involve domestic
seeks to acquire some computer hardware. If sources of supply, such as the Buy
the procuring agency determines that the American Act or the Trade Agreements
principal nature of the procurement is serv- Act.
ices and classifies the procurement as a serv-
ices procurement, the nonmanufacturer rule
(c) The performance requirements
does not apply to the computer hardware (limitations on subcontracting) and the
portion of the requirement. This means that nonmanufacturer rule do not apply to
while a contractor must meet the applicable small business set-aside acquisitions
performance of work requirement set forth with an estimated value between the
in § 125.6 for the services portion of the con- micro-purchase threshold and the sim-
tract, the contractor does not have to supply plified acquisition threshold (as both
the computer hardware of a small business terms are defined in the FAR at 48 CFR
manufacturer.
2.101).
Example 2 to paragraph (b)(4). A procuring
agency seeks to acquire computer hardware, (d) Multiple item acquisitions. (1) If at
as well as computer integration and mainte- least 50% of the estimated contract
nance services. If the procuring agency de- value is composed of items that are
termines that the principal nature of the manufactured by small business con-
procurement is for supplies and classifies the cerns, then a waiver of the nonmanu-
procurement as a supply procurement, the facturer rule is not required. There is
nonmanufacturer rule applies to the com-
puter hardware portion of the requirement.
no requirement that each and every
A firm seeking to qualify as a small business item acquired in a multiple-item pro-
nonmanufacturer must supply the computer curement be manufactured by a small
hardware manufactured by a small business. business.
Because the requirement is classified as a (2) If more than 50% of the estimated
supply contract, the contractor does not contract value is composed of items
have to meet the performance of work re- manufactured by other than small con-
quirement set forth in § 125.6 for the services
cerns, then a waiver is required. SBA
portion of the contract.
may grant a contract specific waiver
(5) The Administrator or designee for one or more items in order to en-
may waive the requirement set forth in sure that at least 50% of the value of
paragraph (b)(1)(iv) of this section the products to be supplied by the non-
under the following two circumstances: manufacturer comes from domestic
(i) The contracting officer has deter- small business manufacturers or are
mined that no small business manufac- subject to a waiver.
turer or processor reasonably can be (3) If a small business is both a manu-
expected to offer a product meeting the facturer of item(s) and a nonmanufac-

specifications (including period for per- turer of other item(s), the manufac-
formance) required by a particular so- turer size standard should be applied.
417
§ 121.407 13 CFR Ch. I (1–1–23 Edition)
(e) These requirements do not apply § 121.409 What size standard applies in
to small business concern subcontrac- an unrestricted procurement for
tors. Certificate of Competency pur-
poses?
[61 FR 3286, Jan. 31, 1996; 61 FR 7986, Mar. 1,
For the purpose of receiving a Cer-
1996, as amended at 65 FR 30863, May 15, 2000;
tificate of Competency in an unre-
69 FR 29205, May 21, 2004; 76 FR 8252, Feb. 11,
2011; 78 FR 61132, Oct. 2, 2013; 81 FR 4469, Jan.
stricted procurement, the applicable
26, 2016; 81 FR 34259, May 31, 2016; 81 FR 48579, size standard is that corresponding to
July 25, 2016; 83 FR 12851, Mar. 26, 2018; 84 FR the NAICS code set forth in the solici-
65661, Nov. 29, 2019; 85 FR 66182, Oct. 16, 2020] tation. The offeror need not be the
manufacturer of any of the items ac-
§ 121.407 What are the size procedures quired.
for multiple item procurements? [61 FR 3286, Jan. 31, 1996, as amended at 65
If a procurement calls for two or FR 30863, May 15, 2000; 81 FR 34259, May 31,
more specific end items or types of 2016]
services with different size standards § 121.410 What are the size standards
and the offeror may submit an offer on for SBA’s Section 8(d) Subcon-
any or all end items or types of serv- tracting Program?
ices, the offeror must meet the size For subcontracting purposes pursu-
standard for each end item or service ant to sections 8(d) of the Small Busi-
item for which it submits an offer. If ness Act, a concern is small for sub-
the procurement calls for more than contracts which relate to Government
one specific end item or type of service procurements if it does not exceed the
and an offeror is required to submit an size standard for the NAICS code that
offer on all items, the offeror may the prime contractor believes best de-
qualify as a small business for the pro- scribes the product or service being ac-
curement if it meets the size standard quired by the subcontract. However,
of the item which accounts for the subcontracts for engineering services
greatest percentage of the total con- awarded under the National Energy
tract value. Policy Act of 1992 have the same size
standard as Military and Aerospace
§ 121.408 What are the size procedures Equipment and Military Weapons
for SBA’s Certificate of Competency under NAICS code 541330.
Program?
(a) A firm which applies for a COC FR 30863, May 15, 2000; 69 FR 29205, May 21,
must file an ‘‘Application for Small 2004; 74 FR 46313, Sept. 9, 2009]
Business Size Determination’’ (SBA
§ 121.411 What are the size procedures
Form 355). If the initial review of SBA for SBA’s Section 8(d) Subcon-
Form 355 indicates the applicant, in- tracting Program?
cluding its affiliates, is small for pur-
(a) Prime contractors may rely on
poses of the COC program, SBA will the information contained in the Sys-
process the application for COC. If the tem for Award Management (SAM) (or
review indicates the applicant, includ- any successor system or equivalent
ing its affiliates is other than small database maintained or sanctioned by
SBA will initiate a formal size deter- SBA) as an accurate representation of
mination as set forth in a concern’s size and ownership charac-
§ 121.1001(b)(3)(ii). In such a case, SBA teristics for purposes of maintaining a
will not further process the COC appli- small business source list.
cation until a formal size determina- (b) Even if a concern is on a small
tion is made. business source list, it must still qual-
(b) A concern is ineligible for a COC ify and self-certify as a small business
if a formal SBA size determination at the time it submits its offer as a sec-
finds the concern other than small. tion 8(d) subcontractor. Prime contrac-
tors (or subcontractors) may accept
[61 FR 3286, Jan. 31, 1996, as amended at 81 paper self-certifications as to size and
FR 34259, May 31, 2016] socioeconomic status or a subcontrac-
tor’s electronic self-certification as to
418
size or socioeconomic status, if the so- contract, subcontract, cooperative

licitation for the subcontract contains agreement, or cooperative research and
a clause which provides that the sub- development agreement reserved, set
contractor verifies by submission of aside, or otherwise classified as in-
the offer that the size or socioeconomic tended for award to small business con-
representations and certifications are cerns.
accurate and complete. Electronic sub- (2) Submission of a bid, proposal, ap-
mission may include any method ac- plication or offer for a Federal grant,
ceptable to the prime contractor (or contract, subcontract, cooperative
subcontractor) including, but not lim- agreement or cooperative research and
ited to, size representations and certifi- development agreement which in any
cations made in SAM (or any successor way encourages a Federal agency to
system) and electronic conveyance of classify the bid or proposal, if awarded,
subcontractor certifications in prime as an award to a small business con-
contractor systems in connection with cern.
an offer for a subcontract. Prime con- (3) Registration on any Federal elec-
tractors or subcontractors may not re- tronic database for the purpose of
quire the use of SAM (or any successor being considered for award of a Federal
system) for purposes of representing grant, contract, subcontract, coopera-
size or socioeconomic status in connec- tive agreement, or cooperative re-
tion with a subcontract. search and development agreement, as
(c) Upon determination of the suc- a small business concern.
cessful subcontract offeror for a com- (g) Signature Requirement. Each offer,
petitive subcontract, but prior to proposal, bid, or application for a Fed-
award, the prime contractor must in- eral contract, subcontract, or grant
form each unsuccessful subcontract of- shall contain a certification con-
feror in writing of the name and loca- cerning the small business size and sta-
tion of the apparent successful offeror. tus of a business concern seeking the
(d) The self-certification of a concern Federal contract, subcontract or grant.
subcontracting or proposing to sub- An authorized official must sign the
contract under section 8(d) of the certification on the same page con-
Small Business Act may be protested taining the size status claimed by the
by the contracting officer, the prime concern.
contractor, the appropriate SBA offi- (h) Limitation of Liability. Paragraphs
cial or any other interested party. (d) through (f) of this section may be
(e) Presumption of Loss Based on the determined not to apply in the case of
Total Amount Expended. In every con- unintentional errors, technical mal-
tract, subcontract, cooperative agree- functions, and other similar situations
ment, cooperative research and devel- that demonstrate that a misrepresen-
opment agreement, or grant which is tation of size was not affirmative, in-
set aside, reserved, or otherwise classi- tentional, willful or actionable under
fied as intended for award to small the False Claims Act, 31 U.S.C. §§ 3729,
business concerns, there shall be a pre- et seq. A prime contractor acting in
sumption of loss to the United States good faith should not be held liable for
based on the total amount expended on misrepresentations made by its sub-
the contract, subcontract, cooperative contractors regarding the subcontrac-
agreement, cooperative research and tors’ size. Relevant factors to consider
development agreement, or grant in making this determination may in-
whenever it is established that a busi- clude the firm’s internal management
ness concern other than a small busi- procedures governing size representa-
ness concern willfully sought and re- tion or certification, the clarity or am-
ceived the award by misrepresentation. biguity of the representation or certifi-
(f) Deemed Certifications. The fol- cation requirement, and the efforts
lowing actions shall be deemed affirm- made to correct an incorrect or invalid
ative, willful and intentional certifi- representation or certification in a
cations of small business size and sta- timely manner. An individual or firm
tus: may not be held liable where govern-

(1) Submission of a bid, proposal, ap- ment personnel have erroneously iden-
plication or offer for a Federal grant, tified a concern as small without any
419
§ 121.412 13 CFR Ch. I (1–1–23 Edition)
representation or certification having § 121.413 [Reserved]

been made by the concern and where
such identification is made without the SIZE ELIGIBILITY REQUIREMENTS FOR
knowledge of the individual or firm. SALES OR LEASE OF GOVERNMENT
(i) Penalties for Misrepresentation. (1) PROPERTY
Suspension or debarment. The SBA sus- § 121.501 What programs for sales or
pension and debarment official or the leases of Government property are
agency suspension and debarment offi- subject to size determinations?
cial may suspend or debar a person or Sections 121.501 through 121.512 apply
concern for misrepresenting a firm’s to small business size determinations
size status pursuant to the procedures for the purpose of the sale or lease of
set forth in 48 CFR subpart 9.4. Government property, including the
(2) Civil Penalties. Persons or concerns Timber Sales Program, the Special
are subject to severe penalties under Salvage Timber Sales Program, and
the False Claims Act, 31 U.S.C. 3729– the sale of Government petroleum, coal
3733, the Program Fraud Civil Rem- and uranium.
edies Act, 31 U.S.C. 3801–3812 and any
§ 121.502 What size standards are ap-
other applicable laws or regulations, plicable to programs for sales or
including 13 CFR part 142. leases of Government property?
(3) Criminal Penalties. Persons or con- (a) Unless otherwise specified in this
cerns are subject to severe criminal part—
penalties for knowingly misrepre- (1) A concern primarily engaged in
senting the small business size status manufacturing is small for sales or
of a concern in connection with pro- leases of Government property if it
curement programs pursuant to section does not exceed 500 employees;
16(d) of the Small Business Act, 15 (2) A concern not primarily engaged
U.S.C. 645(d), as amended, 18 U.S.C. in manufacturing is small for sales or
1001, 18 U.S.C. 287, and any other appli- leases of Government property if it has
cable laws. Persons or concerns are annual receipts not exceeding $9 mil-
subject to criminal penalties for know- lion.
ingly making false statements or mis- (b) Size status for such sales and
representations to SBA for the purpose leases is determined by the primary in-
of influencing any actions of SBA pur- dustry of the applicant business con-
suant to section 16(a) of the Small cern.
Business Act, 15 U.S.C. 645(a), as [61 FR 3286, Jan. 31, 1996, as amended at 67
amended, including failure to correct FR 3056, Jan. 23, 2002; 70 FR 72594, Dec. 6,
‘‘continuing representations’’ that are 2005; 73 FR 41254, July 18, 2008; 79 FR 33669,
June 12, 2014; 84 FR 34281, July 18, 2019; 87 FR
no longer true. 69154, Nov. 17, 2022]
FR 29205, May 21, 2004; 78 FR 42403, July 16, § 121.503 Are SBA size determinations
2013; 78 FR 38817, June 28, 2013; 79 FR 29661, binding on parties?
May 23, 2014; 81 FR 31491, May 19, 2016; 81 FR Formal size determinations based
94250, Dec. 23, 2016] upon a specific Government sale or
lease, or made in response to a request
§ 121.412 What are the size procedures from another Government agency
for partial small business set- under § 121.901, are binding upon the
asides? parties. Other SBA opinions provided
A firm is required to meet size stand- to contracting officers or others are
ard requirements only for the small only advisory, and are not binding or
business set-aside portion of a procure- appealable.
ment, and is not required to qualify as
§ 121.504 When does SBA determine
a small business for the unrestricted the size status of a business con-
portion. cern?
SBA determines the size status of a

concern (including its affiliates) as of
the date the concern submits a written
420
self-certification that it is small to the § 121.507 What are the size standards
Government as part of its initial offer and other requirements for the pur-
including price where there is a spe- chase of Government-owned timber
cific sale or lease at issue, or as set (other than Special Salvage Tim-
ber)?
forth in § 121.903 if made in response to
a request of another Government agen- (a) To be small for purposes of the
cy. sale of Government-owned timber
(other than Special Salvage Timber) a
§ 121.505 What is the effect of a self- concern must:
certification? (1) Be primarily engaged in the log-
(a) A contracting officer may accept ging or forest products industry;
a concern’s self-certification as true (2) Not exceed 500 employees, taking
for the particular sale or lease in- into account its affiliates; and
volved, in the absence of a written pro- (3) If it does not intend at the time of
test by other offerors or other credible the offer to resell the timber—
information which would cause the (i) Agree that it will manufacture the
contracting officer or SBA to question logs with its own facilities or those of
the size of the concern. another business which meets the re-
(b) Procedures for protesting the self- quirements of paragraphs (a)(1) and
certification of an offeror are set forth (a)(2) of this section;
in §§ 121.1001 through 121.1009. (ii) Agree that if it eventually resells
the timber, it will resell no more than
§ 121.506 What definitions are impor- 30% of the sawtimber volume to other
tant for sales or leases of Govern- businesses which do not meet the re-
ment-owned timber? quirements of paragraphs (a)(1) and
(a)(2) of this section; and
(a) Forest product industry means log-
(iii) Agree that if it becomes acquired
ging, wood preserving, and the manu-
or controlled by a business which does
facture of lumber and wood related
not meet the requirements of para-
products such as veneer, plywood,
graphs (a)(1) and (a)(2) of this section,
hardboard, particle board, or wood it will require as a condition of the ac-
pulp, and of products of which lumber quisition or change of control that the
or wood related products are the prin- acquiring or controlling business resell
cipal raw materials. at least 70% of the sawtimber volume
(b) Logging of timber means felling to businesses which do meet the re-
and bucking, yarding, and/or loading. quirements of paragraphs (a)(1) and
It does not mean hauling. (a)(2) of this section; or
(c) Manufacture of logs means, at a (4) If it intends at the time of offer to
minimum, breaking down logs into resell the timber—
rough cuts of the finished product. (i) Agree that it will not sell more
(d) Sell means, in addition to its than 30% of such timber (50% of such
usual and customary meaning, the ex- timber if the concern is an Alaskan
change of sawlogs for sawlogs on a business) to a business which does not
product-for-product basis with or with- meet the requirements of paragraphs
out monetary adjustment, and an indi- (a)(1) and (a)(2) of this section; and
rect transfer, such as the sale of the as- (ii) Agree that if it becomes acquired
sets of a concern after it has been or controlled by a business which does
awarded one or more set-aside sales of not meet the requirements of para-
timber. graphs (a)(1) and (a)(2) of this section,
(e) Significant logging of timber means it will require as a condition of the ac-
that a concern uses its own employees quisition or change of control that the
to perform at least two of the fol- acquiring or controlling business resell
at least 70% of the sawtimber volume
lowing: felling and bucking, yarding,
(or at least 50% of the sawtimber vol-
and loading.
ume, if it is an Alaskan business) to
businesses which meet the require-

ments of paragraphs (a)(1) and (a)(2) of
this section.
421
§ 121.508 13 CFR Ch. I (1–1–23 Edition)
(b) For a period of three years fol- (a) Together with its affiliates, does
lowing the date upon which a concern not have more than 250 employees;
purchases timber under a small busi- (b) Maintains management and con-
ness set-aside (other than through the trol of the actual mining operations of
Special Salvage Timber Sale program), the tract; and
it must maintain a record of: (c) Agrees that if it subleases the
(1) The name, address and size status Government land, it will be to another
of every concern to which it sells the small business, and that it will require
timber or sawlogs; and its sublessors to agree to the same.
(2) The species, grades and volumes of
sawlogs sold. § 121.510 What is the size standard for
(c) For a period of three years fol- leasing of Government land for ura-
lowing the date upon which a concern nium mining?
purchases timber, it must by contract A concern is small for this purpose if
require all small business repurchasers it, together with its affiliates, does not
of the sawlogs or timber it purchased have more than 100 employees.
under the small business set-aside to
maintain the records described in para- § 121.511 What is the size standard for
graph (b) of this section. buying Government-owned petro-
leum?
§ 121.508 What are the size standards A concern is small for this purpose if
and other requirements for the pur- it is primarily engaged in petroleum
chase of Government-owned Special
Salvage Timber? refining and meets the size standard
for a petroleum refining business.
(a) In order to purchase Government-
owned Special Salvage Timber from § 121.512 What is the size standard for
the United States Forest Service or the stockpile purchases?
Bureau of Land Management as a small A concern is small for this purpose if:
business, a concern must: (a) It is primarily engaged in the pur-
(1) Be primarily engaged in the log- chase of materials which are not do-
ging or forest product industry; mestic products; and
(2) Have, together with its affiliates,
(b) Its annual receipts, together with
no more than twenty-five employees
its affiliates, do not exceed $76.5 mil-
during any pay period for the last
lion.
twelve months; and
(3) If it does not intend at the time of [61 FR 3286, Jan. 31, 1996, as amended at 67
offer to resell the timber— FR 3056, Jan. 23, 2002; 70 FR 72594, Dec. 6,
(i) Agree that it will manufacture a 2005; 73 FR 41254, July 18, 2008; 79 FR 33669,
June 12, 2014; 84 FR 34281, July 18, 2019; 87 FR
significant portion of the logs with its
69154, Nov. 17, 2022]
own employees; and
(ii) Agree that it will log the timber SIZE ELIGIBILITY REQUIREMENTS FOR
only with its own employees or with THE 8(a) BUSINESS DEVELOPMENT PRO-
employees of another business which is GRAM
eligible for award of a Special Salvage
Timber sales contract; or § 121.601 What is a small business for
(4) If it intends at the time of offer to purposes of admission to SBA’s 8(a)
resell the timber, agree that it will per- Business Development program?
form a significant portion of timber An applicant must not exceed the
logging with its own employees and size standard corresponding to its pri-
that it will subcontract the remainder mary industry classification in order
of the timber logging to a concern to qualify for admission to SBA’s 8(a)
which is eligible for award of a Special Business Development Program.
Salvage Timber sales contract.
[69 FR 29205, May 21, 2004]
§ 121.509 What is the size standard for
leasing of Government land for coal § 121.602 At what point in time must a
mining? 8(a) BD applicant be small?

A concern is small for this purpose if A 8(a) BD applicant must be small for
it: its primary industry at the time SBA
422
certifies it for admission into the pro- Community Development Corporation)

gram. changes to or from a wholly-owned
[61 FR 3286, Jan. 31, 1996, as amended at 69 business concern of the same entity, as
FR 29206, May 21, 2004] long as the ultimate owner remains
that entity.
§ 121.603 How does SBA determine (d) Finding Participant to be other than
whether a Participant is small for a small. (1) A Participant may request a
particular 8(a) BD subcontract? formal size determination (pursuant to
(a) Self certification by Participant. A §§ 121.1001 through 121.1009) with the
8(a) BD Participant must certify that SBA Government Contracting Area Of-
it qualifies as a small business under fice serving the geographic area in
the NAICS code assigned to a par- which the principal office of the Par-
ticular 8(a) BD subcontract as part of ticipant is located within 5 working
its initial offer including price to the days of its receipt of notice from the
procuring agency. The Participant also SBA district office that it is not small
must submit a copy of its offer, includ- for a particular 8(a) BD subcontract.
ing its self-certification as to size, to (2) Where the Participant does not
the appropriate SBA district office at timely request a formal size deter-
the same time it submits the offer to mination, SBA may accept the pro-
the procuring agency. See § 121.404 for curement in support of another Partic-
the time at which size is determined ipant, or may rescind its acceptance of
for, and § 121.406 for the applicability of the offer for the 8(a) BD program, as
the nonmanufacturer rule to, 8(a) BD appropriate.
procurements.
(b) Verification of size by SBA. Within [61 FR 3286, Jan. 31, 1996, as amended at 65
30 days of its receipt of a Participant’s FR 30863, May 15, 2000; 69 FR 29206, May 21,
2004; 85 FR 66182, Oct. 16, 2020]
size self-certification for a particular
8(a) BD subcontract, the SBA district § 121.604 Are 8(a) BD Participants con-
office serving the geographic area in sidered small for purposes of other
which the Participant’s principal office SBA assistance?
is located will review the Participant’s
self-certification and determine if it is A concern which SBA determines to
small for purposes of that subcontract. be a small business for the award of a
The SBA district office will review the 8(a) BD subcontract will be considered
Participant’s most recent financial to have met applicable size eligibility
statements and other relevant data and requirements of other SBA programs
then notify the Participant of its deci- where that assistance directly and pri-
sion. marily relates to the performance of
(c) Changes in size between date of self- the 8(a) BD subcontract in question.
certification and date of award. (1) Where [61 FR 3286, Jan. 31, 1996, as amended at 69
SBA verifies that the selected Partici- FR 29206, May 21, 2004]
pant is small for a particular procure-
ment, subsequent changes in size up to SIZE AND ELIGIBILITY REQUIREMENTS
the date of award, except those due to FOR THE SMALL BUSINESS INNOVATION
merger with or acquisition by another RESEARCH (SBIR) AND SMALL BUSI-
business concern, will not affect the NESS TECHNOLOGY TRANSFER (STTR)
firm’s size status for that procurement. PROGRAMS
(2) Where a Participant has merged
with or been acquired by another busi- § 121.701 What SBIR and STTR pro-
ness concern between the date of its grams are subject to size and eligi-
self-certification and the date of bility determinations and what defi-
nitions are important?
award, the concern must recertify its
size status, and SBA must verify the (a) These sections apply to SBA’s
new certification before award can SBIR and STTR programs, 15 U.S.C.
occur. 638.
(3) Recertification is not required (b) Definitions—(1) Funding agreement
when the ownership of a concern that officer means a contracting officer, a

is at least 51% owned by an entity (i.e., grants officer, or a cooperative agree-
tribe, Alaska Native Corporation, or ment officer.
423
§ 121.702 13 CFR Ch. I (1–1–23 Edition)
(2) Funding agreement means any con- (or a wholly owned business entity of
tract, grant or cooperative agreement such tribe, ANC or NHO), or any com-
entered into between any Federal agen- bination of these;
cy and any small business for the pur- (ii) Be a concern which is more than
poses of the SBIR or STTR program. 50% owned by multiple venture capital
(3) Hedge fund has the meaning given operating companies, hedge funds, pri-
that term in section 13(h)(2) of the vate equity firms, or any combination
Bank Holding Company Act of 1956 (12 of these (for agencies electing to use
U.S.C. 1851(h)(2)). The hedge fund must the authority in 15 U.S.C. 638(dd)(1)); or
have a place of business located in the (iii) Be a joint venture in which each
United States and be created or orga- entity to the joint venture must meet
nized in the United States, or under the requirements set forth in para-
the law of the United States or of any graph (a)(1)(i) or (a)(1)(ii) of this sec-
State.
tion. A joint venture that includes one
(4) Portfolio company means any com-
or more concerns that meet the re-
pany that is owned in whole or part by
quirements of paragraph (a)(1)(ii) of
a venture capital operating company,
this section must comply with
hedge fund, or private equity firm.
§ 121.705(b) concerning registration and
(5) Private equity firm has the meaning
proposal requirements.
given the term ‘‘private equity fund’’
in section 13(h)(2) of the Bank Holding (2) No single venture capital oper-
Company Act of 1956 (12 U.S.C. ating company, hedge fund, or private
1851(h)(2)). The private equity firm equity firm may own more than 50% of
must have a place of business located the concern unless that single venture
in the United States and be created or capital operating company, hedge fund,
organized in the United States, or or private equity firm qualifies as a
under the law of the United States or small business concern that is more
of any State. than 50% directly owned and controlled
(6) Venture capital operating company by individuals who are citizens or per-
means an entity described in manent resident aliens of the United
§ 121.103(b)(5)(i), (v), or (vi). The venture States.
capital operating company must have a (3) If an Employee Stock Ownership
place of business located in the United Plan owns all or part of the concern,
States and be created or organized in each stock trustee and plan member is
the United States, or under the law of considered an owner.
the United States or of any State. (4) If a trust owns all or part of the
concern, each trustee and trust bene-
[77 FR 76225, Dec. 27, 2012]
ficiary is considered an owner.
§ 121.702 What size and eligibility (b) Ownership and control for the STTR
standards are applicable to the program. (1) An STTR awardee must:
SBIR and STTR programs? (i) Be a concern which is more than
To be eligible for award of funding 50% directly owned and controlled by
agreements in SBA’s SBIR and STTR one or more individuals (who are citi-
programs, a business concern must zens or permanent resident aliens of
meet the requirements below at the the United States), other small busi-
time of award of an SBIR or STTR ness concerns (each of which is more
Phase I or Phase II funding agreement: than 50% directly owned and controlled
(a) Ownership and control for the SBIR by individuals who are citizens or per-
program. (1) An SBIR awardee must: manent resident aliens of the United
(i) Be a concern which is more than States), an Indian tribe, ANC or NHO
50% directly owned and controlled by (or a wholly owned business entity of
one or more individuals (who are citi- such tribe, ANC or NHO), or any com-
zens or permanent resident aliens of bination of these; or
the United States), other small busi- (ii) Be a joint venture in which each
ness concerns (each of which is more entity to the joint venture must meet
than 50% directly owned and controlled the requirements set forth in para-
by individuals who are citizens or per- graph (b)(1)(i) of this section.

manent resident aliens of the United (2) If an Employee Stock Ownership
States), an Indian tribe, ANC or NHO Plan owns all or part of the concern,
424
each stock trustee and plan member is tremely remote, are not given present
considered an owner. effect.
(3) If a trust owns all or part of the (iii) An individual, concern or other
concern, each trustee and trust bene- entity that controls one or more other
ficiary is considered an owner. concerns cannot use options, convert-
(c) Size and affiliation. An SBIR or ible securities, or agreements to appear
STTR awardee, together with its affili- to terminate such control before actu-
ates, must not have more than 500 em- ally doing so. SBA will not give present
ployees. Concerns and entities are af- effect to individuals’, concerns’ or
filiates of each other when one controls other entities’ ability to divest all or
or has the power to control the other, part of their ownership interest in
or a third party or parties controls or order to avoid a finding of affiliation.
has the power to control both. It does (3) Affiliation based on common man-
not matter whether control is exer- agement. Affiliation arises where the
cised, so long as the power to control CEO or President of a concern (or other
exists. For the purposes of the SBIR officers, managing members, or part-
and STTR programs, the following ners who control the management of
bases of affiliation apply: the concern) also controls the manage-
(1) Affiliation based on ownership. For ment of one or more other concerns.
determining affiliation based on equity Affiliation also arises where a single
individual, concern, or entity that con-
ownership, a concern is an affiliate of
trols the board of directors of one con-
an individual, concern, or entity that
cern also controls the board of direc-
owns or has the power to control more
tors or management of one or more
than 50 percent of the concern’s voting
other concerns.
equity. However, SBA may find a con-
(4) Affiliation based on identity of inter-
cern an affiliate of an individual, con-
est. Affiliation may arise among two or
cern, or entity that owns or has the
more persons (including any indi-
power to control 40% or more of the
vidual, concern or other entity) with
voting equity based upon the totality
an identity of interest. An individual,
of circumstances. If no individual, con-
concern or entity may rebut a deter-
cern, or entity is found to control, SBA mination of identity of interest with
will deem the Board of Directors to be evidence showing that the interests
in control of the concern. deemed to be one are in fact separate.
(2) Affiliation arising under stock op- (i) SBA may presume an identity of
tions, convertible securities, and agree- interest between family members with
ments to merge. In determining size, identical or substantially identical
SBA considers stock options, convert- business or economic interests (such as
ible securities, and agreements to where the family members operate con-
merge (including agreements in prin- cerns in the same or similar industry
ciple) to have a present effect on the in the same geographic area).
power to control a concern. SBA treats (ii) SBA may presume an identity of
such options, convertible securities, interest based upon economic depend-
and agreements as though the rights ence if the SBIR/STTR awardee relies
granted have been exercised. upon another concern or entity for 70%
(i) Agreements to open or continue or more of its receipts.
negotiations towards the possibility of (iii) An SBIR or STTR awardee is not
a merger or a sale of stock at some affiliated with a portfolio company of a
later date are not considered ‘‘agree- venture capital operating company,
ments in principle’’ and are thus not hedge fund, or private equity firm,
given present effect. solely on the basis of one or more
(ii) Options, convertible securities, shared investors, though affiliation
and agreements that are subject to may be found for other reasons.
conditions precedent which are incapa- (5) Affiliation based on the newly orga-
ble of fulfillment, speculative, conjec- nized concern rule. Affiliation may arise
tural, or unenforceable under state or where former or current officers, direc-
Federal law, or where the probability tors, principal stockholders, managing

of the transaction (or exercise of the members, general partners, or key em-
rights) occurring is shown to be ex- ployees of one concern organize a new
425
§ 121.702 13 CFR Ch. I (1–1–23 Edition)
concern in the same or related industry mary and vital requirements of a fund-
or field of operation, and serve as the ing agreement, SBA will consider
new concern’s officers, directors, prin- whether the concern’s proposal com-
cipal stockholders, managing members, plies with the performance require-
general partners, or key employees, ments of the SBIR or STTR program.
and the one concern is furnishing or (8) Affiliation based on license agree-
will furnish the new concern with con- ments. SBA will consider whether there
tracts, financial or technical assist- is a license agreement concerning a
ance, indemnification on bid or per- product or trademark which is critical
formance bonds, and/or other facilities, to operation of the licensee. The li-
whether for a fee or otherwise. A con- cense agreement will not cause the li-
cern may rebut such an affiliation de- censor to be affiliated with the licensee
termination by demonstrating a clear if the licensee has the right to profit
line of fracture between the two con- from its efforts and bears the risk of
cerns. A ‘‘key employee’’ is an em- loss. Affiliation may arise, however,
ployee who, because of his/her position through other means, such as common
in the concern, has a critical influence ownership or common management.
in or substantive control over the oper- (9) Exception to affiliation for portfolio
ations or management of the concern. companies. If a venture capital oper-
A concern will be considered ‘‘new’’ for ating company, hedge fund, or private
the purpose of this rule if it has been equity firm that is determined to be af-
actively operating continuously for filiated with an awardee is a minority
less than one year. investor in the awardee, the awardee is
(6) Size requirement for joint ventures. not affiliated with a portfolio company
Two or more small business concerns of the venture capital operating com-
may submit an application as a joint pany, hedge fund, or private equity
venture. The joint venture will qualify firm, unless:
as small as long as each concern is (i) The venture capital operating
small under the size standard for the company, hedge fund, or private equity
SBIR program, found at § 121.702(c), or firm owns a majority of the portfolio
the joint venture meets the exception company; or
at § 121.103(h)(3)(ii) for two firms ap- (ii) The venture capital operating
proved to be a mentor and protégé company, hedge fund, or private equity
under SBA’s All Small Mentor-Protégé firms holds a majority of the seats of
Program. the board of directors of the portfolio
(7) Affiliation based on the ostensible company.
subcontractor rule. A concern and its os- (10) Totality of the circumstances. In
tensible subcontractor are treated as determining whether affiliation exists,
joint venturers, and therefore affili- SBA may consider the totality of the
ates, for size determination purposes. circumstances, and may find affiliation
An ostensible subcontractor is a sub- even though no single factor is suffi-
contractor or subgrantee that performs cient to constitute affiliation.
primary and vital requirements of a (d) Calculating ownership and control.
funding agreement (i.e., those require- SBA will review the small business’ eq-
ments associated with the principal uity ownership on a fully diluted basis
purpose of the funding agreement), or a for purposes of determining ownership,
subcontractor or subgrantee upon control and affiliation in the SBIR and
which the concern is unusually reliant. STTR programs. This means that SBA
All aspects of the relationship between will consider the total number of
the concern and subcontractor are con- shares or equity that would be out-
sidered, including, but not limited to, standing if all possible sources of con-
the terms of the proposal (such as man- version were exercised, including, but
agement, technical responsibilities, not limited to: Outstanding common
and the percentage of subcontracted stock or equity, outstanding preferred
work) and agreements between the con- stock (on a converted to common basis)
cern and subcontractor or subgrantee or equity, outstanding warrants (on an
(such as bonding assistance or the as exercised and converted to common

teaming agreement). To determine basis), outstanding options and options
whether a subcontractor performs pri- reserved for future grants, and any
426
other convertible securities on an as than a merger or acquisition do not

converted to common basis. necessarily require re-certification.
[77 FR 76225, Dec. 27, 2012; 78 FR 11745, Feb.
The funding agreement agency and the
20, 2013, as amended at 81 FR 34259, May 31, awardee must immediately revise all
2016; 81 FR 48579, July 25, 2016; 81 FR 71983, applicable Federal contract and grant
Oct. 19, 2016; 85 FR 66182, Oct. 16, 2020] databases to reflect the new size status
from that point forward.
§ 121.703 Are formal size determina- (2) For the purposes of SBIR and
tions binding on parties? STTR funding agreements with dura-
Size determinations by authorized tions of more than five years, a funding
SBA officials are formal actions based agreement officer must request that a
upon a specific funding agreement, and business concern re-certify its small
are binding upon the parties. Other business size status no more than 120
SBA opinions provided to funding days prior to the end of the fifth year
agreement officers or others, are only of the funding agreement, and no more
advisory, and are not binding or ap- than 120 days prior to exercising any
pealable. option or issuing any continuation. If
the awardee certifies that it is other
§ 121.704 When does SBA determine than small, the funding agreement
the size and eligibility status of a agency can no longer fund the options
business concern?
or issue a continuation pursuant to the
(a) The size and eligibility status of a funding agreement with SBIR or STTR
concern for the purpose of a funding funds. The funding agreement agency
agreement award under the SBIR and and the awardee must immediately re-
STTR programs is determined at the vise all applicable Federal contract and
time of award for both Phase I and grant databases to reflect the new size
Phase II SBIR and STTR awards, or on status from that point forward.
the date of the request for a size deter- (c) Re-certification does not change
mination, if an award is pending. the terms and conditions of the funding
(b) A concern that qualified as a agreement. The requirements in effect
small business at the time it receives at the time of award remain in effect
an SBIR or STTR funding agreement is throughout the life of the funding
considered a small business throughout agreement.
the life of that specific funding agree- (d) A request for a size re-certifi-
ment. Where a concern grows to be cation shall include the size standard
other than small, the funding agree- in effect at the time of re-certification.
ment agency may exercise the options
on the award that is a contract, grant [77 FR 76226, Dec. 27, 2012]
or cooperative agreement or issue a
continuation on a grant or cooperative § 121.705 Must a business concern self-
agreement and still count the award as certify its size and eligibility sta-
tus?
an award to a small business under the
SBIR or STTR program. However, the (a) A business concern must self-cer-
following exceptions apply: tify that it meets the eligibility re-
(1) In the case of a merger or acquisi- quirements set forth in § 121.702 for a
tion, the awardee must, within 30 days Phase I or Phase II SBIR or STTR
of the transaction becoming final (or funding agreement.
the approved funding agreement nova- (b) A business concern that is more
tion if a novation is required), recertify than 50% owned by multiple venture
its small business size status to the capital operating companies, hedge
funding agreement agency or inform funds, or private equity firms and a
the funding agreement agency that it joint venture where one or more par-
is other than small. If the awardee is ties to the joint venture is more than
other than small, the agency can no 50% owned by multiple venture capital
longer fund the options or issue a con- operating companies, hedge funds, or
tinuation pursuant to the funding private equity firms must be registered
agreement, from that point forward, with SBA as of the date it submits its
with SBIR or STTR funds. Funding initial proposal (or other formal re-
agreement novations for reasons other sponse) to a Phase I or Phase II SBIR
427
§ 121.801 13 CFR Ch. I (1–1–23 Edition)
announcement or solicitation. The con- ent fees authorized by Pub. L. 97–247, 96

cern must indicate in any SBIR pro- Stat. 317. The eligibility requirements
posal or application that it is reg- for independent inventors and non-
istered with SBA as majority-owned by profit organizations for the purpose of
multiple venture capital operating paying reduced patent fees are set
companies, hedge funds, or private eq- forth in regulations of the Patent and
uity firms. Trademark Office of the Department of
(c) A small business concern that did Commerce, 37 CFR 1.9, 1.27, 1.28.
not meet the requirements of para-
graph (b) of this section at the time of § 121.802 What size standards are ap-
its SBIR proposal or application must plicable to reduced patent fees pro-
notify the funding agreement officer if, grams?
on the date of award, the concern is A concern eligible for reduced patent
more than 50% owned by multiple ven-
fees is one:
ture capital operating companies,
(a) Whose number of employees, in-
hedge funds, or private equity firms.
(1) The concern is still eligible to re- cluding affiliates, does not exceed 500
ceive the award if it becomes majority- persons; and
owned by multiple venture capital op- (b) Which has not assigned, granted,
erating companies, hedge funds, or pri- conveyed, or licensed (and is under no
vate equity firms after the time it sub- obligation to do so) any rights in the
mitted its initial proposal (or other invention to any person who made it
formal response) to a Phase I or Phase and could not be classified as an inde-
II SBIR announcement or solicitation pendent inventor, or to any concern
if the agency makes the award on or which would not qualify as a non-profit
after the date that is 9 months from organization or a small business con-
the end of the period for submitting ap- cern under this section.
plications under the SBIR solicitation.
(2) This small business, known as a § 121.803 Are formal size determina-
covered small business concern, would tions binding on parties?
have to certify that it meets the re- Size determinations by authorized
quirements of the SBIR program set SBA officials are formal actions, based
forth in §§ 121.702(a)(1)(ii) or upon a specific patent application pur-
121.702(a)(1)(iii), and 121.702(a)(2) and suant to the rules of the Patent and
121.702(c) at the time of award of the Trademark Office, Department of Com-
funding agreement. merce, and are binding upon the par-
(d) A funding agreement officer may ties. Other SBA opinions provided to
accept a concern’s self-certification as
patent applicants or others are only
true for the particular funding agree-
advisory, and are not binding or ap-
ment involved in the absence of a writ-
pealable.
ten protest or other credible informa-
tion which would cause the funding § 121.804 When does SBA determine
agreement officer or SBA to question the size status of a business con-
the size or eligibility of the concern. cern?
(e) Procedures for protesting an
awardee’s self-certification are set Size status is determined as of the
forth in §§ 121.1001 through 121.1009. In date of the patent applicant’s written
adjudicating a protest, SBA may ad- verification of size.
dress both the size status and eligi-
bility of the SBIR or STTR awardee. § 121.805 May a business concern self-
certify its size status?
[77 FR 76227, Dec. 27, 2012]
(a) A concern verifies its size status
SIZE ELIGIBILITY REQUIREMENTS FOR with its submission of its patent appli-
PAYING REDUCED PATENT FEES cation.
(b) Any attempt to establish small
§ 121.801 May patent fees be reduced if size status improperly (fraudulently,
a concern is small? through gross negligence, or otherwise)

These sections apply to size status may result in remedial action by the
for the purpose of paying reduced pat- Patent and Trademark Office.
428
(c) In the absence of credible infor- (ii) The size of a services concern by
mation indicating otherwise, the Pat- its average annual receipts over a pe-
ent and Trademark Office may accept riod of at least 5 years, determined ac-
the verification by the concern as a cording to § 121.104;
small business as true. (iii) The size of other concerns on
(d) Questions concerning the size data over a period of at least 5 years,
verification are resolved initially by determined according to § 121.104; or,
the Patent and Trademark Office. If (iv) Other factors approved by SBA;
not verified as small, the applicant (2) The agency has consulted in writ-
may request a formal SBA size deter- ing with SBA’s Division Chief, office of
mination. Size Standards at least fourteen (14)
calendar days before publishing the
SIZE ELIGIBILITY REQUIREMENTS FOR proposed rule which is part of the rule-
COMPLIANCE WITH PROGRAMS OF making process. The written consulta-
OTHER AGENCIES tion will include:
(i) What size standard the agency
§ 121.901 Can other Government agen- contemplates using;
cies obtain SBA size determina- (ii) To what agency program it will
tions? apply;
Upon request by another Government (iii) How the agency arrived at this
agency, SBA will provide a size deter- particular size standard for this pro-
mination, under SBA rules, standards gram; and,
and procedures, for its use in deter- (iv) Why SBA’s existing size stand-
mining compliance with small business ards do not satisfy the program re-
requirements of its statutes, regula- quirements;
tions or programs. (3) The agency proposes the size
standard for public comment pursuant
§ 121.902 What size standards are ap- to the Administrative Procedure Act, 5
plicable to programs of other agen- U.S.C. 553;
cies? (4) The agency provides a copy of the
SBA size standards. The size standards proposed rule, when it publishes it for
for compliance with programs of other public comment as part of the rule-
agencies are those for SBA programs making process, to SBA’s Division
which are most comparable to the pro- Chief, Office of Size Standards; and
grams of such other agencies, unless (5) SBA’s Administrator approves the
the agency and SBA agree otherwise. size standard before the agency adopts
a final rule or otherwise prescribes the
[67 FR 13716, Mar. 26, 2002] size standard for its use. The agency’s
request for the SBA Administrator’s
§ 121.903 How may an agency use size approval must include:
standards for its programs that are (i) Copies of all comments on the pro-
different than those established by
SBA? posed size standard received in re-
sponse to the proposed rule;
(a) Federal agencies or departments (ii) A separate written justification
promulgating regulations relating to for the intended size standard;
small businesses usually use SBA size (iii) A copy of the intended final rule
criteria. In limited circumstances, if if available at that time, or a copy of
they decide the SBA size standard is the intended final rule and preamble
not suitable for their programs, then prior to its publication; and
agency heads may establish a more ap- (iv) Other information SBA may re-
propriate small business definition for quest in connection with the request.
the exclusive use in such programs, but (b) When approving any size standard
only when: established pursuant to this section,
(1) The size standard will determine: SBA’s Administrator will ensure that
(i) The size of a manufacturing con- the size standard varies from industry
cern by its average number of employ- to industry to the extent necessary to
ees based on the preceding 24 calendar reflect the differing characteristics of

months, determined according to the various industries, and consider
§ 121.106; other relevant factors.
429
§ 121.904 13 CFR Ch. I (1–1–23 Edition)
(c) Where the agency head is devel- (iv) Other interested parties. Other
oping a size standard for the sole pur- interested parties include large busi-
pose of performing a Regulatory Flexi- nesses where only one concern sub-
bility Analysis pursuant to section mitted an offer for the specific procure-
601(3) of the Regulatory Flexibility ment in question. A concern found to
Act, the department or agency may, be other than small in connection with
after consultation with the SBA Office the procurement is not an interested
of Advocacy, establish a size standard party unless there is only one remain-
different from SBA’s which is more ap- ing offeror after the concern is found to
propriate for such analysis. be other than small.
(2) For competitive 8(a) contracts,
[67 FR 13716, Mar. 26, 2002, as amended at 84
FR 66579, Dec. 5, 2019; 87 FR 34120, June 6,
the following entities may protest:
2022] (i) Any offeror that the contracting
officer has not eliminated from consid-
§ 121.904 When does SBA determine eration for any procurement related
the size status of a business con- reason, such as non-responsiveness,
cern? technical unacceptability or outside of
For compliance with programs of the competitive range;
other agencies, SBA will base its size (ii) The contracting officer; or
determination on the size of the con- (iii) The SBA District Director, or
cern as of the date set forth in the re- designee, in either the district office
quest of the other agency. serving the geographical area in which
the procuring activity is located or the
[67 FR 13716, Mar. 26, 2002] district office that services the appar-
ent successful offeror, the Associate
PROCEDURES FOR SIZE PROTESTS AND Administrator for Business Develop-
REQUESTS FOR FORMAL SIZE DETER- ment, or the Associate General Counsel
MINATIONS for Procurement Law.
(3) For SBA’s Subcontracting Pro-
§ 121.1001 Who may initiate a size program, the following entities may pro-
test or request a formal size deter-
mination? test:
(i) The prime contractor;
(a) Size Status Protests. (1) For SBA’s (ii) The contracting officer;
Small Business Set-Aside Program, in- (iii) Other potential subcontractors;
cluding the Property Sales Program, or (iv) The responsible SBA Government
any instance in which a procurement Contracting Area Director or the Di-
or order has been restricted to or re- rector, Office of Government Con-
served for small businesses or a par- tracting, or the SBA’s Associate Gen-
ticular group of small businesses (in- eral Counsel for Procurement Law; and
cluding a partial set-aside), the fol- (v) Other interested parties.
lowing entities may file a size protest (4) For SBA’s Small Business Innova-
in connection with a particular pro- tion Research (SBIR) program and
curement, sale or order: Small Business Technology Transfer
(i) Any offeror that the contracting (STTR) program, the following entities
officer has not eliminated from consid- may protest:
eration for any procurement-related (i) An offeror or applicant for that so-
reason, such as non-responsiveness, licitation;
technical unacceptability or outside of (ii) The funding agreement officer;
the competitive range; and
(ii) The contracting officer; (iii) The responsible SBA Govern-
(iii) The SBA Government Con- ment Contracting Area Director; the
tracting Area Director having responsi- Director, Office of Government Con-
bility for the area in which the head- tracting; the Associate Administrator,
quarters of the protested offeror is lo- Investment Division, or the Associate
cated, regardless of the location of a General Counsel for Procurement Law.
parent company or affiliates, the Di- (5) For the Department of Defense’s
rector, Office of Government Con- Small Disadvantaged Business (SDB)

tracting, or the Associate General Program, and any other similar pro-
Counsel for Procurement Law; and gram of another Federal agency, the
430
following entities may file a protest in (iii) The SBA Government Con-
connection with a particular SDB pro- tracting Area Director; and
curement: (iv) The Director, Office of Govern-
(i) Any offeror for the specific SDB ment Contracting, or designee, or the
requirement whom the contracting of- Associate General Counsel for Procure-
ficer has not eliminated for reasons un- ment Law.
related to size; (9) For SBA’s WOSB Federal Con-
(ii) The contracting officer; and tracting Program, the following enti-
(iii) The responsible SBA Area Direc- ties may protest:
tor for Government Contracting, the (i) Any concern that submits an offer
SBA Director, Office of Government for a specific requirement set aside for
Contracting, or the SBA Associate Ad- WOSBs or WOSBs owned by one or
ministrator for Business Development; more women who are economically dis-
(6) For SBA’s HUBZone program, the advantaged (EDWOSB) pursuant to
following entities may protest in con- part 127 of this chapter;
nection with a particular HUBZone (ii) The contracting officer;
procurement: (iii) The SBA Government Con-
(i) Any concern that submits an offer tracting Area Director; and
for a specific HUBZone set-aside pro-
(iv) The Director, Office of Govern-
curement that the contracting officer
ment Contracting, or designee, or the
has not eliminated for reasons unre-
Associate General Counsel for Procure-
lated to size;
ment Law.
(ii) Any concern that submitted an
(b) Request for Size Determinations. (1)
offer in full and open competition and
For SBA’s Financial Assistance Pro-
its opportunity for award will be af-
grams, the following entities may re-
fected by a price evaluation preference
quest a formal size determination:
given acertified HUBZone small busi-
ness concern; (i) The applicant for assistance; and
(iii) The contracting officer; and (ii) The SBA official with authority
(iv) The SBA Director, Office of to take final action on the assistance
HUBZone, or designee, or the SBA As- requested. That official may also re-
sociate General Counsel for Procure- quest the appropriate Government Con-
ment Law. tracting Area Office to determine
(7) For any unrestricted Government whether affiliation exists between an
procurement in which a business con- applicant for financial assistance and
cern has represented itself as a small one or more other entities for purposes
business concern, the following entities of determining whether the applicant
may protest in connection with a par- would exceed the loan limit amount
ticular procurement: imposed by § 120.151 of this chapter.
(i) Any offeror; (iii) The SBA Associate Adminis-
(ii) The contracting officer; and trator for Investment or designee may
(iii) The responsible SBA Govern- request a formal size determination for
ment Contracting Area Director, the any purpose relating to the SBIC pro-
Director, Office of Government Con- gram (see part 107 of this chapter) or
tracting, the Associate Administrator the NMVC program (see part 108 of this
for Business Development, or the Asso- chapter). A formal size determination
ciate General Counsel for Procurement includes a request to determine wheth-
Law. er or not affiliation exists between two
(8) For SBA’s Service Disabled Vet- or more entities for any purpose relat-
eran-Owned Small Business Concern ing to the SBIC program.
program, the following entities may (2) For SBA’s 8(a) BD program:
protest in connection with a particular (i) Concerning initial or continued
service-disabled veteran-owned pro- 8(a) BD eligibility, the following enti-
curement: ties may request a formal size deter-
(i) Any concern that submits an offer mination:
for a specific service-disabled veteran- (A) The 8(a) BD applicant concern or
owned small business set-aside con- Participant; or

tract; (B) The Director of the Division of
(ii) The contracting officer; Program Certification and Eligibility
431
§ 121.1001 13 CFR Ch. I (1–1–23 Edition)
or the Associate Administrator for (i) The applicant or WOSB/EDWOSB;

Business Development. or
(ii) Concerning individual sole source (ii) The Director of Government Con-
8(a) contract awards, the following en- tracting or the Deputy Director, Pro-
tities may request a formal size deter- gram and Resource Management, for
mination: the Office of Government Contracting.
(A) The Participant nominated for (8) In connection with initial or con-
award of the particular sole source continued eligibility for the HUBZone pro-
tract; gram, the following may request a for-
(B) The SBA program official with mal size determination:
authority to execute the 8(a) contract (i) The applicant or certified
or, where applicable, the procuring ac- HUBZone small business concern; or
tivity contracting officer who has been (ii) The Director, Office of HUBZone,
delegated SBA’s 8(a) contract execu- or designee.
tion functions; or (9) For other purposes related to pro-
(C) The SBA District Director in the tecting the integrity of the Federal
district office that services the Partici- procurement process, including vali-
pant, or the Associate Administrator dating that firms listed in the System
for Business Development. for Award Management database are
(3) For SBA’s Certificate of Com- small, the Government Contracting
petency Program, the following enti- Area Director or the Director, Office of
ties may request a formal size deter- Government Contracting may initiate
mination: a formal size determination when suffi-
(i) The offeror who has applied for a cient information exists that calls into
COC; and question a firm’s small business status.
(ii) The responsible SBA Government The current date will be used to deter-
Contracting Area Director or the Di- mine size, and SBA will initiate the
rector, Office of Government Con- process to remove from the database
tracting. the small business designation of any
(4) For SBA’s sale or lease of govern- firm found to be other than small.
ment property, the following entities (10) For purposes of the small busi-
may request a formal size determina- ness mentor-protégé program author-
tion: ized pursuant to § 125.9 of this chapter
(i) The responsible SBA Government (based on its status as a small business
Contracting Area Director or the Di- for its primary or identified secondary
rector, Office of Government Con- NAICS code), the business concern
tracting; and seeking to be a protégé or SBA may re-
(ii) Authorized officials of other Fed- quest a formal size determination.
eral agencies administering a property (11) For purposes of determining com-
sales program. pliance with small business require-
(5) For eligibility to pay reduced pat- ments for firms relying upon small
ent fees, the following entities may re- business status advisory opinions, the
quest a formal size determination: Associate General Counsel, Office of
(i) The applicant for the reduced pat- Procurement Law may request a for-
ent fees; and mal size determination. Additionally,
(ii) The Patent and Trademark Of- any firm that is the subject of a small
fice. business status advisory opinion hold-
(6) For purposes of determining coming that it is other than small may re-
pliance with small business require- quest a formal size determination.
ments of another Government agency (12) In connection with eligibility for
program not otherwise specified in this the SDVO program, the following may
section, an official with authority to request a formal size determination:
administer the program involved may (i) The SDVO business concern; or
request a formal size determination. (ii) The Director of Government Con-
(7) In connection with initial or contracting or designee.
tinued eligibility for the WOSB pro- (13) The SBA Inspector General may
gram, the following may request a for- request a formal size determination
mal size determination: with respect to any of the programs
432
identified in paragraph (b) of this sec- (2) Negotiated procurement (including

tion. protests on partial set-asides and reserves
of Multiple Award Contracts and set-
FR 31907, June 11, 1998; 63 FR 35739, June 30,
asides of orders against Multiple Award
1998; 69 FR 25266, May 5, 2004; 69 FR 29206, Contracts). A protest must be received
May 21, 2004; 69 FR 29420, May 24, 2004; 69 FR by the contracting officer prior to the
44461, July 26, 2004; 73 FR 56947, Oct. 1, 2008; close of business on the 5th day, exclu-
74 FR 45753, Sept. 4, 2009; 75 FR 62280, Oct. 7, sive of Saturdays, Sundays, and legal
2010; 76 FR 8253, Feb. 11, 2011; 77 FR 76227, holidays, after the contracting officer
Dec. 27, 2012; 78 FR 61132, Oct. 2, 2013; 80 FR has notified the protestor of the iden-
7536, Feb. 11, 2015; 81 FR 34259, May 31, 2016; tity of the prospective awardee for
81 FR 48579, July 25, 2016; 84 FR 65239, Nov. 26,
2019; 85 FR 66182, Oct. 16, 2020]
(i) The contract; or
(ii) An order issued against a Mul-
§ 121.1002 Who makes a formal size de- tiple Award Contract if the contracting
termination? officer requested a size recertification
in connection with that order; or
The responsible Government Con- (iii) Except for orders or Blanket
tracting Area Director or designee Purchase Agreements issued under any
makes all formal size determinations Federal Supply Schedule contract, an
in response to either a size protest or a order or Blanket Purchase Agreement
request for a formal size determina- set-aside for small business (i.e., small
tion, with the exception of size deter- business set-aside, 8(a) small business,
minations for purposes of the Disaster service-disabled veteran-owned small
Loan Program, which will be made by business, HUBZone small business, or
the Disaster Area Office Director or women-owned small business) where
designee responsible for the area in the underlying Multiple Award Con-
which the disaster occurred. tract was awarded on an unrestricted
§ 121.1003 Where should a size protest basis.
be filed? (3) Long-Term Contracts. For con-
tracts with durations greater than five
A protest involving a government years (including options), including all
procurement or sale must be filed with existing long-term contracts, Multi-
the contracting officer for the procure- agency contracts, Governmentwide Ac-
ment or sale, who must forward the quisition Contracts and Multiple
protest to the SBA Government Con- Award Contracts:
tracting Area Office serving the area in (i) Protests regarding size certifi-
which the headquarters of the pro- cations made for contracts must be re-
tested concern is located, regardless of ceived by the contracting officer prior
the location of any parent company or to the close of business on the 5th day,
affiliates. exclusive of Saturdays, Sundays, and
legal holidays, after receipt of notice
§ 121.1004 What time limits apply to (including notice received in writing,
size protests?
orally, or via electronic posting) of the
(a) Protests by entities other than con- identity of the prospective awardee or
tracting officers or SBA—(1) Sealed bids award.
or sales (including protests on partial set- (ii) Protests regarding size certifi-
asides and reserves of Multiple Award cations made for an option period must
Contracts and set-asides of orders against be received by the contracting officer
Multiple Award Contracts). A protest prior to the close of business on the 5th
must be received by the contracting of- day, exclusive of Saturdays, Sundays,
ficer prior to the close of business on and legal holidays, after receipt of no-
the 5th day, exclusive of Saturdays, tice (including notice received in writ-
Sundays, and legal holidays, after bid ing, orally, or via electronic posting) of
opening for the size certification made by the pro-
(i) The contract; or tested concern.
(ii) An order issued against a Mul- (A) A contracting officer is not re-
tiple Award Contract if the contracting quired to terminate a contract where a

officer requested a new size certifi- concern is found to be other than small
cation in connection with that order. pursuant to a size protest concerning a
433
§ 121.1005 13 CFR Ch. I (1–1–23 Edition)
size certification made for an option must still be forwarded to SBA. SBA
period. will dismiss untimely protests.
(B) [Reserved] (e) Premature protests. A protest filed
(iii) Protests relating to size certifi- by any party, including the con-
cations made in response to a contracting officer, before bid opening or
tracting officer’s request for size cer- notification to offerors of the selection
tifications in connection with an indi- of the apparent successful offer will be
vidual order must be received by the dismissed as premature.
contracting officer prior to the close of
business on the 5th day, exclusive of [61 FR 3286, Jan. 31, 1996, as amended at 69
FR 29206, May 21, 2004; 71 FR 66444, Nov. 15,
Saturdays, Sundays, and legal holi-
2006; 77 FR 76227, Dec. 27, 2012; 78 FR 61132,
days, after receipt of notice (including Oct. 2, 2013; 85 FR 66182, Oct. 16, 2020]
notice received in writing, orally, or
via electronic posting) of the identity § 121.1005 How must a protest be filed
of the prospective awardee or award. with the contracting officer?
(4) Electronic notification of award.
A protest must be delivered to the
Where notification of award is made
contracting officer by hand, telegram,
electronically, such as posting on the
Internet under Simplified Acquisition mail, facsimile, Federal Express or
Procedures, a protest must be received other overnight delivery service, e-
by the contracting officer before close mail, or telephone. If a protest is made
of business on the fifth day, exclusive by telephone, the contracting officer
of Saturdays, Sundays, and legal holi- must later receive a confirming letter
days, after the electronic posting. either within the 5-day period in
(5) No notice of award. Where there is § 121.1004(a)(1) or postmarked no later
no requirement for written pre-award than one day after the date of the tele-
notice or notice of award, or where the phone protest.
contracting officer has failed to pro- [61 FR 3286, Jan. 31, 1996, as amended at 69
vide written notification of award, the FR 29206, May 21, 2004]
5-day protest period will commence
upon oral notification by the con- § 121.1006 When will a size protest be
tracting officer or authorized rep- referred to an SBA Government
resentative or another means (such as Contracting Area Office?
public announcements or other oral (a) A contracting officer who receives
communications) of the identity of the a protest (other than from SBA) must
apparent successful offeror. forward the protest promptly to the
(b) Protests by contracting officers, SBA Government Contracting Area Of-
funding agreement officers or SBA. The fice serving the area in which the head-
time limitations in paragraph (a) of quarters of the offeror is located.
this section do not apply to con-
(b) A contracting officer’s referral
tracting officers, funding agreement of-
must contain the following informa-
ficers or SBA, and they may file pro-
tion:
tests before or after awards, except to
the extent set forth in paragraph (e) of (1) The protest and any accom-
this section, including for purposes of panying materials;
the SBIR and STTR programs. Not- (2) A copy of the self-certification as
withstanding paragraph (e), for pur- to size;
poses of the SBIR and STTR programs (3) Identification of the applicable
the funding agreement officer or SBA size standard;
may file a protest in anticipation of an (4) A copy of the solicitation;
award. (5) Identification of the date of bid
(c) Effect of contract award. A timely opening or notification provided to un-
filed protest applies to the procure- successful offerors;
ment in question even though a con- (6) The date on which the protest was
tracting officer awarded the contract received; and
prior to receipt of the protest. (7) A complete address and point of

(d) Untimely protests. A protest re- contact for the protested concern.
ceived after the allotted time limits
434
§ 121.1007 Must a protest of size status § 121.1008 What occurs after SBA re-
relate to a particular procurement ceives a size protest or request for a
and be specific? formal size determination?
(a) Particular procurement. A protest (a) When SBA receives a size protest,
challenging the size of a concern which the SBA Area Director for Government
does not pertain to a particular pro- Contracting, or designee, will notify
curement or sale will not be acted on the contracting officer, the protested
by SBA. concern, and the protestor that the
protest has been received. If the pro-
(b) A protest must include specific facts.
test pertains to a requirement involv-
A protest must be sufficiently specific
ing SBA’s HUBZone program, the Area
to provide reasonable notice as to the Director will also notify the D/HUB of
grounds upon which the protested con- the protest. If the protest pertains to a
cern’s size is questioned. Some basis requirement set aside for WOSBs or
for the belief or allegation stated in EDWOSBs, the Area Director will also
the protest must be given. A protest notify SBA’s Director for Government
merely alleging that the protested con- Contracting of the protest. If the pro-
cern is not small or is affiliated with test pertains to a requirement involv-
unnamed other concerns does not ing SBA’s SBIR or STTR programs, the
specify adequate grounds for the pro- Area Director will also notify the Asso-
test. No particular form is prescribed ciate Administrator, Investment Divi-
for a protest. Where materials sup- sion. If the protest involves the size
porting the protest are available, they status of an SDB concern (see part 124,
should be submitted with the protest. subpart B of this chapter) the Area Di-
(c) Non-specific protests will be dis- rector will notify SBA’s Associate Ad-
missed. Protests which do not contain ministrator for Business Development.
sufficient specificity will be dismissed If the protest pertains to a requirement
by SBA. The following are examples of that has been reserved for competition
allegation specificity: among eligible 8(a) BD program par-
ticipants, the Area Director will notify
Example 1: An allegation that concern X is the SBA district office servicing the
large because it employs more than 500 em- 8(a) concern whose size status has been
ployees (where 500 employees is the applica-
protested. SBA will provide a copy of
ble size standard) without setting forth a
basis for the allegation is non-specific.
the protest to the protested concern to-
Example 2: An allegation that concern X is
gether with SBA Form 355, Application
large because it exceeds the 500 employee for Small Business Size Determination,
size standard (where 500 employees is the ap- by certified mail, return receipt re-
plicable size standard) because a higher em- quested, or by any overnight delivery
ployment figure was published in publication service that provides proof of receipt.
Y is sufficiently specific. SBA will ask the protested concern to
Example 3: An allegation that concern X is complete the form and respond to the
affiliated with concern Y without setting allegations in the protest.
forth any basis for the allegation is non-spe- (b) When SBA receives a request for a
cific. formal size determination in accord
Example 4: An allegation that concern X is with § 121.1001(b), SBA will provide a
affiliated with concern Y because Mr. A is
blank copy of SBA Form 355 to the con-
the majority shareholder in both concerns is
sufficiently specific.
cern whose size is at issue.
Example 5: An allegation that concern X
(c) The protested concern or concern
has revenues in excess of $5 million (where $5 whose size is at issue must return the
million is the applicable size standard) with- completed SBA Form 355 and all other
out setting forth a basis for the allegation is requested information to SBA within 3
non-specific. working days from the date of receipt
Example 6: An allegation that concern X of the blank form from SBA. SBA has
exceeds the size standard (where the applica- discretion to grant an extension of
ble size standard is $5 million) because it re- time to file the form. The firm must
ceived Government contracts in excess of $5 attach to the completed SBA Form 355
million last year is sufficiently specific. its answers to the allegations con-
[61 FR 3286, Jan. 31, 1996, as amended at 69 tained in the protest, where applicable,
FR 29206, May 21, 2004] together with any supporting material.
435
§ 121.1009 13 CFR Ch. I (1–1–23 Edition)
(d) If a concern whose size status is size determination and that provided
at issue fails to submit a completed by the concern whose size status is at
SBA Form 355, responses to the allega- issue. The determination, however,
tions of the protest, or other requested may also be based on grounds not
information within the time allowed by raised in the protest or request for size
SBA, or if it submits incomplete infor- determination. SBA may use other in-
mation, SBA may presume that disclo- formation and may make requests for
sure of the information required by the additional information to the
form or other missing information protestor, the concern whose size sta-
would demonstrate that the concern is tus is at issue and any alleged affili-
other than a small business. A concern ates, or other parties.
whose size status is at issue must fur- (c) Burden of persuasion. The concern
nish information about its alleged af- whose size is under consideration has
filiates to SBA, despite any third party the burden of establishing its small
claims of privacy or confidentiality, business size.
because SBA will not disclose informa- (d) Weight of evidence. SBA will give
tion obtained in the course of a size de- greater weight to specific, signed, fac-
termination except as permitted by tual evidence than to general, unsup-
Federal law. ported allegations or opinions. In the
[61 FR 3286, Jan. 31, 1996, as amended at 63 case of refusal or failure to furnish re-
FR 31908, June 11, 1998; 69 FR 29207, May 21, quested information within a required
2004; 73 FR 56948, Oct. 1, 2008; 74 FR 45753, time period, SBA may assume that dis-
Sept. 4, 2009; 75 FR 62280, Oct. 7, 2010; 77 FR closure would be contrary to the inter-
76227, Dec. 27, 2012]
ests of the party failing to make disclo-
§ 121.1009 What are the procedures for sure.
making the size determination? (e) Formal size determination. The SBA
will base its formal size determination
(a) Time frame for making size deter-
upon the record, including reasonable
mination. (1) After receipt of a protest
inferences from the record, and will
or a request for a formal size deter-
state in writing the basis for its find-
mination, the SBA Area Office will
issue a formal size determination with- ings and conclusions.
in 15 business days, if possible. (f) Notification of determination. SBA
(2) The contracting officer may will promptly notify the contracting
award a contract after receipt of a pro- officer, the protester, and the protested
test if the contracting officer deter- concern. SBA will send the notification
mines in writing that an award must by verifiable means, which may include
be made to protect the public interest. facsimile, electronic mail, or overnight
Notwithstanding such a determination, delivery service.
the provisions of paragraph (g) of this (g) Results of an SBA Size Determina-
section apply to the procurement in tion. (1) A contracting officer may
question. award a contract to a protested con-
(3) If SBA does not issue its deter- cern after the SBA Area Office has de-
mination within 15 business days (or termined either that the protested con-
request an extension that is granted), cern is an eligible small business or has
the contracting officer may award the dismissed all protests against it. If
contract if he or she determines in OHA subsequently overturns the Area
writing that there is an immediate Office’s determination or dismissal, the
need to award the contract and that contracting officer may apply the OHA
waiting until SBA makes its deter- decision to the procurement in ques-
mination will be disadvantageous to tion.
the Government. Notwithstanding such (2) A contracting officer shall not
a determination, the provisions of award a contract to a protested con-
paragraph (g) of this section apply to cern that the Area Office has deter-
the procurement in question. mined is not an eligible small business
(b) Basis for determination. The size for the procurement in question.
determination will be based primarily (i) If a contracting officer receives

on the information supplied by the such a determination after contract
protestor or the entity requesting the award, and no OHA appeal has been
436
filed, the contracting officer shall ter- decision), SBA cannot re-open the size
minate the award. determination.
(ii) If a timely OHA appeal is filed
after contract award, the contracting
FR 47245, July 18, 2002; 69 FR 29207, May 21,
officer must consider whether perform- 2004; 76 FR 5683, Feb. 2, 2011; 78 FR 38818,
ance can be suspended until an appel- June 28, 2013]
late decision is rendered.
(iii) If OHA affirms the size deter- § 121.1010 How does a concern become
mination finding the protested concern recertified as a small business?
ineligible, the contracting officer shall
either terminate the contract or not (a) A concern may request SBA to re-
exercise the next option. certify it as small at any time by filing
(3) The contracting officer must up- an application for recertification with
date the Federal Procurement Data the Government Contracting Area Of-
System and other procurement report- fice responsible for the area in which
ing databases to reflect the final agen- the headquarters of the applicant is lo-
cy size decision (the formal size deter- cated, regardless of the location of par-
mination if no appeal is filed or the ap- ent companies or affiliates. No par-
pellate decision). ticular form is prescribed for the appli-
(4) Once SBA has determined that a cation; however, the request for recer-
concern is other than small for pur- tification must be accompanied by a
poses of a particular procurement, the current completed SBA Form 355 and
concern cannot later become eligible any other information sufficient to
for the procurement by reducing its show a significant change in its owner-
size. ship, management, or other factors
(5) A concern determined to be other bearing on its status as a small con-
than small under a particular size cern.
standard is ineligible for any procure- (b) Recertification will not be re-
ment or any assistance authorized by
quired nor will the prohibition against
the Small Business Act or the Small
future self-certification apply if the ad-
Business Investment Act of 1958 which
verse SBA size determination is based
requires the same or a lower size stand-
ard, unless SBA recertifies the concern solely on a finding of affiliation due to
to be small pursuant to § 121.1010 or a joint venture (e.g., ostensible subcon-
OHA reverses the adverse size deter- tracting) limited to a particular Gov-
mination. After an adverse size deter- ernment procurement or property sale,
mination, a concern cannot self-certify or is based on an ineligible manufac-
as small under the same or lower size turer where the eligible small business
standard unless it is first recertified as bidder or offeror is a nonmanufacturer
small by SBA. If a concern does so, it on a particular Government procure-
may be in violation of criminal laws, ment.
including section 16(d) of the Small (c) A denial of an application for re-
Business Act, 15 U.S.C. 645(d). If the certification is a formal size deter-
concern has already certified itself as mination and may be reviewed by OHA
small on a pending procurement or on at the discretion of that office.
an application for SBA assistance, the (d) The granting of an application for
concern must immediately inform the recertification has future effect only.
officials responsible for the pending While it is a formal size determination,
procurement or requested assistance of notice of recertification is required to
the adverse size determination. be given only to the applicant.
(h) Limited reopening of size determina-
tions. SBA may, in its sole discretion, APPEALS OF SIZE DETERMINATIONS AND
reopen a formal size determination to NAICS CODE DESIGNATIONS
correct an error or mistake, provided it
is within the appeal period and no ap- § 121.1101 Are formal size determina-
peal has been filed with OHA. Once the tions subject to appeal?
agency has issued a final decision (ei-

(a) Appeals from formal size deter-
ther a formal size determination that
is not timely appealed or an appellate minations may be made to OHA. Unless
437
§ 121.1102 13 CFR Ch. I (1–1–23 Edition)
an appeal is made to OHA, the size de- (b) The contracting officer’s deter-
termination made by a SBA Govern- mination of the applicable NAICS code
ment Contracting Area Office or Dis- is final unless appealed as follows:
aster Area Office is the final decision (1) An appeal from a contracting offi-
of the agency. The procedures for ap- cer’s NAICS code or size standard des-
pealing a formal size determination to ignation must be served and filed with-
OHA are set forth in part 134 of this in 10 calendar days after the issuance
chapter. The OHA appeal is an adminis- of the solicitation or amendment af-
trative remedy that must be exhausted fecting the NAICS code or size stand-
before judicial review of a formal size ard. However, SBA may file a NAICS
determination may be sought in a code appeal at any time before offers
court. are due. OHA will summarily dismiss
(b) OHA will review all timely ap- an untimely NAICS code appeal.
peals of size determinations. (2)(i) The appeal petition must be in
[69 FR 29207, May 21, 2004, as amended at 76 writing and must be sent to the Office
FR 5683, Feb. 2, 2011] of Hearings & Appeals, U.S. Small
Business Administration, 409 3rd
§ 121.1102 Are NAICS code designa- Street, SW., Suite 5900, Washington,
tions subject to appeal? DC 20416.
A NAICS code designation made by a (ii) There is no required format for a
procuring activity contracting officer NAICS code appeal, but an appeal must
may be appealed to OHA. The proce- include the following information: the
dures governing OHA appeals are set solicitation or contract number; the
forth in part 134 of this chapter. The name, address, and telephone number
OHA appeal is an administrative rem- of the contracting officer; a full and
edy that must be exhausted before judi- specific statement as to why the
cial review of a NAICS code designa- NAICS code designation is erroneous,
tion may be sought in a court. and argument in support thereof; and
the name, address and telephone num-
[67 FR 47245, July 18, 2002] ber of the appellant or its attorney.
§ 121.1103 What are the procedures for (3) The appellant must serve the ap-
appealing a NAICS code or size peal petition upon the contracting offi-
standard designation? cer who assigned the NAICS code to
the acquisition and SBA’s Office of
(a)(1) Any interested party adversely
General Counsel, Associate General
affected by a NAICS code designation
Counsel for Procurement Law, 409 3rd
may appeal the designation to OHA. An
Street, SW., Washington, DC 20416.
interested party would include a busi-
ness concern seeking to change the (c) Procedure after a NAICS code ap-
NAICS code designation in order to be peal is filed and served. (1) Upon receipt
considered a small business for the of the service copy of a NAICS code ap-
challenged procurement, regardless of peal, the contracting officer shall:
whether the procurement is reserved (i) Stay the date for the closing of re-
for small businesses or unrestricted. ceipt of offers;
The only exception is that, for a sole (ii) Advise the public, by amendment
source contract reserved under SBA’s to the solicitation or other method, of
8(a) Business Development program the existence of the NAICS code appeal
(see part 124 of this chapter), only and the procedures and deadline for in-
SBA’s Associate Administrator for terested parties to file and serve argu-
Business Development may appeal the ments concerning the appeal;
NAICS code designation. (iii) Send a copy of (or an electronic
(2) A NAICS code appeal may include link to) the entire solicitation, includ-
an appeal involving the applicable size ing amendments, to OHA;
standard, such as where more than one (iv) File and serve any response to
size standard corresponds to the se- the appeal prior to the close of the
lected NAICS code, or a question relat- record; and
ing to the size standard in effect at the (v) Inform OHA of any amendments,
time the solicitation was issued or actions or developments concerning
amended. the procurement in question.
438
(2) Upon receipt of a NAICS code ap- tions dependent on airline radius, po-
peal, OHA shall: litical, or SBA regional boundaries.
(i) Notify the appellant, the con- Market areas typically follow estab-
tracting officer, the SBA and any other lished transportation routes rather
known party of the date OHA received than jurisdictional borders. SBA exam-
the appeal and the date the record will ines the following factors, among oth-
close; and ers, in cases where geographic seg-
(ii) Conduct the appeal in accordance mentation for a class of products is
with part 134 of this chapter. urged:
(3) Any interested party may file and (i) Whether perishability affects the
serve its response to the NAICS code area in which the product can prac-
appeal. tically be sold;
[69 FR 29207, May 21, 2004; 74 FR 45753, Sept. (ii) Whether transportation costs are
4, 2009, as amended at 76 FR 5683, Feb. 2, 2011; high as a proportion of the total value
78 FR 61132, Oct. 2, 2013; 85 FR 66183, Oct. 16, of the product so as to limit the eco-
2020] nomic distribution of the product;
(iii) Whether there are legal barriers
Subpart B—Other Applicable to transportation of the item;
Provisions (iv) Whether a fixed, well-delineated
boundary exists for the purported mar-
WAIVERS OF THE NONMANUFACTURER ket area and whether this boundary
RULE FOR CLASSES OF PRODUCTS AND has been stable over time; and
INDIVIDUAL CONTRACTS (v) Whether a small business, not
currently selling in the defined market
§ 121.1201 What is the Nonmanufac-
turer Rule? area, could potentially enter the mar-
ket from another area and supply the
The Nonmanufacturer Rule is set market at a reasonable price.
forth in § 121.406(b). (c) Available to participate in the con-
text of the Federal market means that
§ 121.1202 When will a waiver of the
Nonmanufacturer Rule be granted contractors exist that have been
for a class of products? awarded or have performed a contract
to supply a specific class of products to
(a) A waiver for a class of products the Federal Government within 24
(class waiver) will be granted when months from the date of the request for
there are no small business manufac- waiver, either directly or through a
turers or processors available to par- dealer, or who have submitted an offer
ticipate in the Federal market for that on a solicitation for that class of prod-
class of products. ucts within that time frame.
(b) Federal market means acquisitions
(d) Class of products is an individual
by the Federal Government from
subdivision within an NAICS Industry
offerors located in the United States,
Number as established by the Office of
or such smaller area as SBA designates
Management and Budget in the NAICS
if it concludes that the class of prod-
Manual.
ucts is not supplied on a national basis.
(1) When considering the appropriate [61 FR 3286, Jan. 31, 1996, as amended at 65
market area for a product, SBA pre- FR 30863, May 15, 2000]
sumes that the entire United States is
the relevant Federal market, unless it § 121.1203 When will a waiver of the
is clearly demonstrated that a class of Nonmanufacturer Rule be granted
for an individual contract?
products cannot be procured on a na-
tional basis. This presumption may be (a) Where appropriate, SBA will gen-
particularly difficult to overcome in erally grant waivers for an individual
the case of manufactured products, contract or order prior to the issuance
since such items typically have a mar- of a solicitation, or, where a solicita-
ket area encompassing the entire tion has been issued, when the con-
United States. tracting officer provides all potential
(2) When considering geographic seg- offerors additional time to respond.

mentation of a Federal market, SBA (b) SBA may grant a waiver after
will not necessarily use market defini- contract award, where the contracting
439
§ 121.1204 13 CFR Ch. I (1–1–23 Edition)
officer has determined that the modi- curement should be identified as a

fication is within the scope of the con- service procurement, even if the serv-
tract and the agency followed the regu- ices are provided as part of the same li-
lations prior to issuance of the solicita- cense, lease, or sale terms. If a con-
tion and properly and timely requested tracting officer cannot make a deter-
a waiver for any other items under the mination of the value of services being
contract, where required. provided, SBA will assume that the
value of the services is greater than
Example to paragraph (b): The Government
the value of items or supplies, and will
seeks to buy spare parts to fix Item A. After
conducting market research, the government not grant a waiver.
determines that Items B, C, and D that are (3) Subscription services, remote
being procured may be eligible for waivers hosting of software, data, or other ap-
and requests and receives waivers from SBA plications on servers or networks of a
for those items prior to issuing the solicita- party other than the U.S. Government
tion. After the contract is awarded, the Gov- are considered by SBA to be services
ernment determines that it will need addi- and not the procurement of a supply
tional spare parts to fix Item A. The Govern- item. Therefore SBA will not grant
ment determines that adding the additional
waivers of the nonmanufacturer rule
parts as a modification to the original con-
tract is within scope. The contracting officer for these types of services.
believes that one of the additional parts is [81 FR 34260, May 31, 2016]
also eligible for a waiver from SBA, and re-
quests the waiver at the time of the modi- § 121.1204 What are the procedures for
fication. If all other criteria are met, SBA requesting and granting waivers?
would grant the waiver, even though the
contract has already been awarded. (a) Waivers for classes of products. (1)
SBA may, at its own initiative, exam-
(c) An individual waiver for an item ine a class of products for possible
in a solicitation will be approved when waiver of the Nonmanufacturer Rule.
the SBA Director, Office of Govern- (2) Any interested person, business,
ment Contracting, reviews and accepts association, or Federal agency may
a contracting officer’s determination submit a request for a waiver for a par-
that no small business manufacturer or ticular class of products. Requests
processor can reasonably be expected should be addressed or hand-carried to
to offer a product meeting the speci- the Director, Office of Government
fications of a solicitation, including Contracting, Small Business Adminis-
the period of performance. tration, 409 3rd Street SW., Wash-
(d) Waivers for the purchase of soft- ington, DC 20416.
ware. (1) SBA may grant an individual (3) Requests for a waiver of a class of
waiver for the procurement of software products need not be in any particular
provided that the software being form, but should include a statement of
sought is an item that is of a type cus- the class of products to be waived, the
tomarily used by the general public or applicable NAICS code, and detailed in-
by non-governmental entities for pur- formation on the efforts made to iden-
poses other than governmental pur- tify small business manufacturers or
poses, and the item: processors for the class.
(i) Has been sold, leased, or licensed (4) If SBA decides that there are
to the general public, or has been of- small business manufacturers or proc-
fered for sale, lease, or license to the essors in the Federal procurement mar-
general public; ket, it will deny the request for waiver,
(ii) Is sold in substantial quantities issue notice of the denial, and provide
in the commercial marketplace; and the names, addresses, and telephone
(iii) Is offered to the Government, numbers of the sources found. If SBA
without modification, in the same form does not initially confirm the existence
in which it is sold in the commercial of small business manufacturers or
marketplace. processors in the Federal market, it
(2) If the value of services provided will:
related to the purchase of a supply (i) Publish notices in the Commerce
item that meets the requirements of Business Daily and the FEDERAL REG-
paragraph (d)(1) of this section exceeds ISTER seeking information on small
the value of the item itself, the pro- business manufacturers or processors,
440
announcing a notice of intent to waive ucts through the publication of a no-

the Nonmanufacturer Rule for that tice in the FEDERAL REGISTER, asking
class of products and affording the pub- for comments regarding the proposed
lic a 15-day comment period; and termination.
(ii) If no small business sources are (iii) Unless public comment reveals
identified, publish a notice in the FED- that no small business manufacturer or
ERAL REGISTER stating that no small processor in fact exists for the class of
business sources were found and that a products in question, SBA will publish
waiver of the Nonmanufacturer Rule a final Notice of Termination in the
for that class of products has been FEDERAL REGISTER.
granted.
(b) Individual waivers for specific solici-
(5) An expedited procedure for issuing
a class waiver may be used for emer- tations. (1) A contracting officer’s re-
gency situations, but only if the con- quest for a waiver of the Nonmanufac-
tracting officer provides a determina- turer Rule for specific solicitations
tion to the Director, Office of Govern- need not be in any particular form, but
ment Contracting that the procure- must, at a minimum, include:
ment is proceeding under the authority (i) A definitive statement of the spe-
of FAR § 6.302–2 (48 CFR 6.302–2) for cific item to be waived and justifica-
‘‘unusual and compelling urgency,’’ or tion as to why the specific item is re-
provides a determination materially quired;
the same as one of unusual and compel- (ii) The proposed solicitation num-
ling urgency. Under the expedited pro- ber, NAICS code, dollar amount of the
cedure, if a small business manufac- procurement, and a brief statement of
turer or processor is not identified by a the procurement history;
PASS search, the SBA will grant the (iii) A determination by the con-
waiver for the class of products and tracting officer that no small business
then publish a notice in the FEDERAL manufacturer or processor reasonably
REGISTER. The notice will state that a can be expected to offer a product or
waiver has been granted, and solicit
products meeting the specifications
public comment for future procure-
(including period of performance) re-
ments.
(6) The decision by the Director, Of- quired by a particular solicitation. In-
fice of Government Contracting to clude a narrative describing market re-
grant or deny a waiver is the final deci- search and supporting documentation;
sion by the Agency. and
(7) A waiver of the Nonmanufacturer (iv) For contracts or orders expected
Rule for classes of products has no spe- to exceed $500,000, a copy of the State-
cific time limitation. SBA will, how- ment of Work.
ever, periodically review existing class (2) Requests should be addressed to
waivers to the Nonmanufacturer Rule the Director, Office of Government
to determine if small business manu- Contracting, Small Business Adminis-
facturers or processors have become tration, 409 3rd Street, SW., Wash-
available to participate in the Federal ington, DC 20416.
market for the waived classes of prod- (3) SBA will examine the contracting
ucts and the waiver should be termi- officer’s determination and any other
nated. information it deems necessary to
(i) Upon SBA’s receipt of evidence make an informed decision on the indi-
that a small business manufacturer or vidual waiver request. If SBA’s re-
processor exists in the Federal market search verifies that no small business
for a waived class of products, the
manufacturers or processors exist for
waiver will be terminated by the Direc-
the item, the Director, Office of Gov-
tor, Office of Government Contracting.
This evidence may be discovered by ernment Contracting will grant an in-
SBA during a periodic review of exist- dividual, one-time waiver. If a small
ing waivers or may be brought to business manufacturer or processor is
SBA’s attention by other sources. found for the product in question, the
(ii) SBA will announce its intent to Associate Administrator will deny the
terminate a waiver for a class of prod-
441
§ 121.1205 13 CFR Ch. I (1–1–23 Edition)
request. Either decision represents a under 13 CFR 121.103(b)(10), which says that
final decision by SBA. ‘‘[t]he relationship of a faith-based organiza-
tion to another organization is not consid-
[61 FR 3286, Jan. 31, 1996, as amended at 65 ered an affiliation with the other organiza-
FR 30863, May 15, 2000; 78 FR 61132, Oct. 2, tion . . . if the relationship is based on a re-
2013; 81 FR 34260, May 31, 2016] ligious teaching or belief or otherwise con-
stitutes a part of the exercise of religion.’’
§ 121.1205 How is a list of previously
granted class waivers obtained? [85 FR 20821, Apr. 15, 2020]
A list of classes of products for which
waivers for the Nonmanufacturer Rule PART 123—DISASTER LOAN
have been granted is maintained in PROGRAM
SBA Web site at: http://www.sba.gov/
aboutsba/sbaprograms/gc/programs/ Subpart A—Overview
gc_waivers_nonmanufacturer.html. A list
Sec.
of such waivers may also be obtained
123.1 What do these rules cover?
by contacting the Office of Government
123.2 What are disaster loans and disaster
Contracting, U.S. Small Business Ad- declarations?
ministration, 409 3rd Street, SW., 123.3 How are disaster declarations made?
Washington, DC 20416, or the nearest 123.4 What is a disaster area and why is it
SBA Government Contracting Area Of- important?
fice. 123.5 What kinds of loans are available?
123.6 What does SBA look for when consid-
FR 46313, Sept. 9, 2009] ering a disaster loan applicant?
123.7 Are there restrictions on how dis-
§ 121.1206 How will potential offerors aster loans can be used?
be notified of applicable waivers? 123.8 Does SBA charge any fees for obtain-
ing a disaster loan?
(a) Contracting officers must provide 123.9 What happens if I don’t use loan pro-
written notification to potential ceeds for the intended purpose?
offerors of any waivers being applied to 123.10 What happens if I cannot use my in-
a specific acquisition, whether it is a surance proceeds to make repairs?
class waiver or a contract specific 123.11 Does SBA require collateral for any
waiver. This notification must be proof its disaster loans?
vided at the time a solicitation is 123.12 Are books and records required?
issued. If the notification is provided 123.13 What happens if my loan application
after a solicitation is issued, the con- is denied?
123.14 How does the Federal Debt Collection
tracting officer must provide potential
Procedures Act of 1990 apply?
offerors a reasonable amount of addi- 123.15 What if I change my mind?
tional time to respond to the solicita- 123.16 How are loans administered and serv-
tion. iced?
(b) If a contracting officer does not 123.17 Do other Federal requirements apply?
provide notice, and additional reason- 123.18 Can I request an increase in the
able time for responses when required, amount of a physical disaster loan?
then the waiver cannot be applied to 123.19 May I request an increase in the
the solicitation. This applies to both amount of an economic injury loan?
class waivers and individual waivers. 123.20 How long do I have to request an in-
crease in the amount of a physical dis-
[81 FR 34260, May 31, 2016] aster loan or an economic injury loan?
123.21 What is a mitigation measure?
APPENDIX A TO PART 121—PAYCHECK
PROTECTION PROGRAM SAMPLE AD- Subpart B—Home Disaster Loans
DENDUM A
123.100 Am I eligible to apply for a home
[Sample] disaster loan?
123.101 When am I not eligible for a home
ADDENDUM A disaster loan?
✓ The Applicant claims an exemption from 123.102 What circumstances would justify
all SBA affiliation rules applicable to Pay- my relocating?
check Protection Program loan eligibility 123.103 What happens if I am forced to move
because the Applicant has made a reason- from my home?

able, good faith determination that the Ap- 123.104 What interest rate will I pay on my
plicant qualifies for a religious exemption home disaster loan?
442
123.105 How much can I borrow with a home 123.507 Under what circumstances will SBA
disaster loan and what limits apply on consider waiving the $2 million loan
use of funds and repayment terms? limit?
123.106 What is eligible refinancing? 123.508 How can you use Military Reservist
123.107 How much can I borrow for post-dis- EIDL funds?
aster mitigation for my home? 123.509 What can’t you use Military Reserv-
123.108 How do the SBA disaster loan pro- ist EIDL funds for?
gram and the FEMA grant programs 123.510 What if you don’t use your Military
interact? Reservist EIDL funds as authorized?
123.511 How will SBA disburse Military Re-
Subpart C—Physical Disaster Business servist EIDL funds?
123.512 What is the interest rate on a Mili-
Loans
tary Reservist EIDL?
123.200 Am I eligible to apply for a physical 123.513 Does SBA require collateral on its
disaster business loan? Military Reservist EIDL?
123.201 When am I not eligible to apply for
a physical disaster business loan? Subpart G [Reserved]
123.202 How much can my business borrow
with a physical disaster business loan?
Subpart H—Immediate Disaster Assistance
123.203 What interest rate will my business Program
pay on a physical disaster business loan 123.700 What is the Immediate Disaster As-
and what are the repayment terms? sistance Program?
123.204 How much can your business borrow 123.701 What is the application procedure
for post-disaster mitigation? for an IDAP loan?
123.702 What are the eligibility require-
Subpart D—Economic Injury Disaster Loans ments for an IDAP loan?
123.703 What are the terms of an IDAP loan?
123.300 Is my business eligible to apply for 123.704 Are there restrictions on how IDAP
an economic injury disaster loan? loan funds may be used?
123.301 When would my business not be eli- 123.705 Are there any fees associated with
gible to apply for an economic injury dis- IDAP loans?
aster loan? 123.706 What are the requirements for IDAP
123.302 What is the interest rate on an eco- lenders?
nomic injury disaster loan?
123.303 How can my business spend my eco- AUTHORITY: 15 U.S.C. 632, 634(b)(6), 636(b),
nomic injury disaster loan? 636(d), and 657n; Section 1110, Pub. L. 116–136,
134 Stat. 281; and Section 331, Pub. L. 116–260,
123.304 Is there a limit on the maximum
134 Stat. 1182.
loan amount to a single corporate group
for COVID EIDL Loans? SOURCE: 61 FR 3304, Jan. 31, 1996, unless
otherwise noted.
Subpart E [Reserved]
Subpart F—Military Reservist Economic

Subpart A—Overview
Injury Disaster Loans § 123.1 What do these rules cover?
123.500 Definitions. This part covers the disaster loan
123.501 Under what circumstances is your programs authorized under the Small
business eligible to be considered for a Business Act, 15 U.S.C. 636(b), (d), and
Military Reservist Economic Injury Dis- (f); and 15 U.S.C. 657n. Since SBA can-
aster Loan? not predict the occurrence or mag-
123.502 Under what circumstances is your nitude of disasters, it reserves the
business ineligible to be considered for a
Military Reservist Economic Injury Dis-
right to change the rules in this part,
aster Loan? without advance notice, by publishing
123.503 When can you apply for a Military interim emergency regulations in the
Reservist EIDL? FEDERAL REGISTER.
123.504 How do you apply for a Military Re- [61 FR 3304, Jan. 31, 1996, as amended at 75
servist EIDL? FR 60597, Oct. 1, 2010]
123.505 What if you are both an essential
employee and the owner of the small § 123.2 What are disaster loans and
business and you started active duty be- disaster declarations?
fore applying for a Military Reservist
EIDL? SBA offers low interest, fixed rate

123.506 How much can you borrow under the loans to disaster victims, enabling
Military Reservist EIDL Program? them to repair or replace property
443
§ 123.3 13 CFR Ch. I (1–1–23 Edition)
damaged or destroyed in declared dis- before it could seek grant assistance

asters. It also offers such loans to af- from FEMA.
fected small businesses to help them (3) SBA makes a physical disaster
recover from economic injury caused declaration, based on the occurrence of
by such disasters. SBA also offers in- at least a minimum amount of physical
terim guaranteed disaster loans, in damage to buildings, machinery, equip-
participation with financial institu- ment, inventory, homes and other
tions, to affected small businesses property. Such damage usually must
(‘‘IDAP loans’’). Disaster declarations meet the following tests:
are official notices recognizing that (i) In any county or other smaller po-
specific geographic areas have been litical subdivision of a State or U.S.
damaged by floods and other acts of na- possession, at least 25 homes or 25 busi-
ture, riots, civil disorders, or industrial nesses, or a combination of at least 25
accidents such as oil spills. These dis- homes, businesses, or other eligible in-
asters are sudden events which cause stitutions, each sustain uninsured
severe physical damage, and do not in- losses of 40 percent or more of the esti-
clude slower physical occurrences such mated fair replacement value or pre-
as shoreline erosion or gradual land disaster fair market value of the dam-
settling. However, for purposes of eco- aged property, whichever is lower; or
nomic injury disaster loans only, they do (ii) In any such political subdivision,
include droughts and below average at least three businesses each sustain
water levels in the Great Lakes or on uninsured losses of 40 percent or more
any body of water in the United States of the estimated fair replacement value
that supports commerce by small busi- or pre-disaster fair market value of the
nesses. Sudden events that cause sub- damaged property, whichever is lower,
stantial economic injury may be disas- and, as a direct result of such physical
ters even if they do not cause physical damage, 25 percent or more of the work
damage to a victim’s property. Past ex- force in their community would be un-
amples include ocean conditions caus- employed for at least 90 days; and
ing significant displacement (major (iii) The Governor of the State in
ocean currents) or closure (toxic algae which the disaster occurred submits a
blooms) of customary fishing waters, written request to SBA for a physical
as well as contamination of food or disaster declaration by SBA (OMB Ap-
other products for human consumption proval No. 3245–0121). This request
from unforeseeable and unintended should be delivered to the Disaster As-
events beyond the control of the vic- sistance Field Operations Center serv-
tims. ing the jurisdiction within 60 days of
[61 FR 3304, Jan. 31, 1996, as amended at 71 the date of the disaster. The addresses,
FR 75409, Dec. 15, 2007; 75 FR 60597, Oct. 1, phone numbers, and jurisdictions
2010; 81 FR 67903, Oct. 3, 2016] served by the field operations centers
are published in the FEDERAL REG-
§ 123.3 How are disaster declarations ISTER.
made? (4) SBA makes an economic injury
(a) There are five ways in which dis- disaster declaration in response to a
aster declarations are issued which determination of a natural disaster by
make SBA disaster loans possible: the Secretary of Agriculture.
(1) The President declares a Major (5) SBA makes an economic injury
Disaster and authorizes Federal Assist- declaration in reliance on a state cer-
ance, including individual assistance tification that at least five small busi-
(Assistance to Individuals and House- ness concerns in a disaster area have
holds Program). suffered substantial economic injury as
(2) If the President declares a Major a result of the disaster and are in need
Disaster limited to public assistance of financial assistance not otherwise
only, a private nonprofit facility which available on reasonable terms. The
provides non-critical services under state certification must be signed by
guidelines of the Federal Emergency the Governor, must specify the county
Management Agency (FEMA) must or counties or other political subdivi-

first apply to SBA for disaster loan as- sion in which the disaster occurred,
sistance for such non-critical services and must be delivered (with supporting
444
documentation) to the Disaster Assist- major disasters, economic injury dis-

ance Field Operations Center serving aster loans and IDAP loans may be
the jurisdiction within 120 days of the made for victims in contiguous coun-
disaster occurrence. When a Governor ties or other political subdivisions, pro-
certifies with respect to a drought or vided, however that with respect to
to below average water levels, the sup- major disasters which authorize public
porting documentation must include assistance only, SBA shall not make
findings which show that conditions economic injury disaster or IDAP loans
during the incident period meet or ex- in counties contiguous to the disaster
ceed the U.S. Drought Monitor (USDM) area. Disaster declarations issued by
standard of ‘‘severe’’ (Intensity level the Administrator of SBA include con-
D–2 to D–4). The USDM may be found tiguous counties for both physical, eco-
at http://drought.unl.edu/dm/monitor. nomic injury and, in some cases, IDAP
With respect to below average water assistance. Contiguous counties or
levels, the supplementary information other political subdivisions are those
accompanying the certification must land areas which abut the land area of
include findings which establish long- the declared disaster area without geo-
term average water levels based on re- graphic separation other than by a
corded historical data, show that cur- minor body of water, not to exceed one
rent water levels are below long-term mile between the land areas of such
average levels, and demonstrate that counties.
economic injury has occurred as a di- [61 FR 3304, Jan. 31, 1996, as amended at 67
rect result of the low water levels. Not FR 64519, Oct. 21, 2002; 75 FR 60597, Oct. 1,
later than 30 days after SBA receives a 2010]
certification by a Governor, it shall re-
spond in writing with its decision and § 123.5 What kinds of loans are avail-
its reasons. able?
(b) SBA publishes notice of any dis- (a) Disaster loans authorized under Sec-
aster declaration in the FEDERAL REG- tion 7(b). SBA offers four kinds of dis-
ISTER. The published notice will iden- aster loans as authorized by Section
tify the kinds of assistance available, 7(b) of the Small Business Act: Phys-
the date and nature of the disaster, and ical disaster home loans, physical dis-
the deadline and location for filing aster business loans, economic injury
loan applications. Additionally, SBA disaster business loans, and Military
will use the local media to inform po- Reservist EIDL loans. SBA makes
tential loan applicants where to obtain these loans directly or in participation
loan applications and otherwise to as- with a financial institution. If a dis-
sist victims in applying for disaster aster loan authorized under Section
loans. SBA will accept applications 7(b) is made in participation with a fi-
after the announced deadline only nancial institution, SBA’s share in
when SBA determines that the late fil- that loan may not exceed 90 percent.
ing resulted from substantial causes (b) IDAP loans. SBA also offers IDAP
beyond the control of the applicant. loans as authorized by Section 42 of the
Small Business Act. SBA makes these
[61 FR 3304, Jan. 31, 1996, as amended at 64 interim guaranteed disaster loans to
FR 13667, Mar. 22, 1999; 67 FR 64518, Oct. 21,
small businesses only in participation
2002; 71 FR 63676, Oct. 31, 2006; 71 FR 75409,
Dec. 15, 2006; 73 FR 54675, Sept. 23, 2008; 81 FR with a financial institution. SBA’s
67903, Oct. 3, 2016] share in an IDAP loan is equal to 85
percent.
§ 123.4 What is a disaster area and [75 FR 60597, Oct. 1, 2010]
why is it important?
Each disaster declaration defines the § 123.6 What does SBA look for when
geographical areas affected by the dis- considering a disaster loan appli-
aster. Only those victims located in the cant?
declared disaster area are eligible to There must be reasonable assurance
apply for SBA disaster loans. When the that you can repay your loan based on
President declares a major disaster, SBA’s analysis of your credit or your

the Federal Emergency Management personal or business cash flow, and you
Agency defines the disaster area. In must also have satisfactory character.
445
§ 123.7 13 CFR Ch. I (1–1–23 Edition)
SBA will not make a loan to you if re- Wrongful misapplication means the
payment depends upon the sale of col- willful use of any loan proceeds with-
lateral through foreclosure or any out SBA approval contrary to the loan
other disposition of assets owned by authorization. If you fail to use loan
you. SBA is prohibited by statute from proceeds for authorized purposes for 60
making a loan to you if you are en- days or more after receiving a loan dis-
gaged in the production or distribution bursement check, such non-use also is
of any product or service that has been considered a wrongful misapplication
determined to be obscene by a court. of the proceeds.
[61 FR 3304, Jan. 31, 1996, as amended at 79 (b) If SBA learns that you may have
FR 22862, Apr. 25, 2014] misapplied your loan proceeds from a
disaster loan authorized under Section
§ 123.7 Are there restrictions on how 7(b), SBA will notify you at your last
disaster loans can be used? known address, by certified mail, re-
You must use disaster loans to return receipt requested. You will be
store or replace your primary home given at least 30 days to submit to SBA
(including a mobile home used as a pri- evidence that you have not misapplied
mary residence) and your personal or the loan proceeds or that you have cor-
business property as nearly as possible rected any such misapplication. Any
to their condition before the disaster failure to respond in time will be con-
occurred, and within certain limits, to sidered an admission that you mis-
protect damaged or destroyed real applied the proceeds. If SBA finds a
property from possible future similar wrongful misapplication, it will cancel
disasters. any undisbursed loan proceeds, call the
loan, and begin collection measures to
§ 123.8 Does SBA charge any fees for collect your outstanding loan balance
obtaining a disaster loan? and the civil penalty.
SBA does not charge points, closing, (c) If you misapply loan proceeds of
or servicing fees on any disaster loan any disaster loan under this Part, in-
authorized under Section 7(b). You will cluding an IDAP loan, you may face
be responsible for payment of any clos- criminal prosecution or civil or admin-
ing costs owed to third parties on these istrative action.
loans, such as recording fees and title
insurance premiums. If your loan is [61 FR 3304, Jan. 31, 1996, as amended at 75
made under Section 7(b) in participa- FR 60598, Oct. 1, 2010]
tion with a financial institution, SBA
will charge a guarantee fee to the fi- § 123.10 What happens if I cannot use
my insurance proceeds to make re-
nancial institution, which then may repairs?
cover the guarantee fee from you. SBA
does not charge a guarantee fee for an If you must pay insurance proceeds
IDAP loan made under Section 42. to the holder of a recorded lien or en-
cumbrance against your damaged prop-
[75 FR 60598, Oct. 1, 2010]
erty instead of using them to make re-
§ 123.9 What happens if I don’t use pairs, you may apply to SBA for the
loan proceeds for the intended pur- full amount needed to make such re-
pose? pairs. If you voluntarily pay insurance
(a) For disaster loans authorized proceeds to a recorded lienholder, your
under Section 7(b), when SBA approves loan eligibility is reduced by the
each application, it issues a loan au- amount of the voluntary payment.
thorization which specifies the amount
§ 123.11 Does SBA require collateral
of the loan, repayment terms, any col- for any of its disaster loans?
lateral requirements, and the per-
mitted use of loan proceeds. If you (a) When collateral is not required:
wrongfully misapply the proceeds of a (1) Economic injury disaster loans. Gen-
disaster loan authorized under Section erally, SBA will not require that you
7(b), you will be liable to SBA for one pledge collateral to secure an economic
and one-half times the proceeds dis- injury disaster loan of $25,000 or less.
bursed to you as of the date SBA learns (2) Physical disaster home and physical
of your wrongful misapplication. disaster business loans. Generally, SBA
446
will not require that you pledge collat- cable books and records for 3 years
eral to secure a physical disaster home after your loan matures including any
or physical disaster business loan of extensions, or from the date when your
$25,000 or less. This authority expires loan is paid in full, whichever occurs
on November 25, 2018, unless extended first. You must make available to SBA
by statute. or other authorized government per-
(3) IDAP loans. Collateral require- sonnel upon request all such books and
ments for IDAP loans are set forth in records for inspection, audit, and re-
Subpart H of this part. production during normal business
(4) Military Reservist EIDL. For the hours and you must also permit SBA
purposes of the Military Reservist and any participating financial institu-
EIDL only, as described in section tion to inspect and appraise your as-
123.513, SBA will not generally require sets. (OMB Approval No. 3245–0110.)
that you pledge collateral to secure a
loan of $50,000 or less. § 123.13 What happens if my loan ap-
(b) For loans larger than the plication is denied?
amounts outlined in paragraph (a) of (a) If SBA denies your loan applica-
this section, you will be required to tion, SBA will notify you in writing
provide available collateral such as a and set forth the specific reasons for
lien on the damaged or replacement the denial. Any applicant whose re-
property, a security interest in per- quest for a loan is declined for reasons
sonal/business property, or both. other than size (not being a small busi-
(c) Sometimes a borrower, including ness) has the right to present informa-
affiliates as defined in part 121 of this tion to overcome the reason or reasons
title, will have more than one loan for the decline and to request reconsid-
after a single disaster. In deciding eration in writing.
whether collateral is required, SBA (b) Any decline due to size can only
will add up all physical disaster loans be appealed as set forth in part 121 of
to see if they exceed the applicable un- this chapter.
secured threshold outlined in para- (c) Any request for reconsideration
graph (a)(2) of this section and all eco- must be received by SBA’s Disaster As-
nomic injury disaster loans to see if sistance Processing and Disbursement
they exceed $25,000. Center (DAPDC) within six months of
(d) SBA will not decline a loan if you the date of the decline notice. After six
lack a particular amount of collateral months, a new loan application is re-
as long as it is reasonably sure that quired.
you can repay your loan. If you refuse (d) A request for reconsideration
to pledge available collateral when re- must contain all significant new infor-
quested by SBA, however, SBA may de- mation that you rely on to overcome
cline or cancel your loan. SBA’s denial of your original loan ap-
[61 FR 3304, Jan. 31, 1996, as amended at 73 plication. Your request for reconsider-
FR 54675, Sept. 23, 2008; 75 FR 14332, Mar. 25, ation of a business loan application
2010; 75 FR 60598, Oct. 1, 2010; 79 FR 22862, must also be accompanied by current
Apr. 25, 2014; 81 FR 67903, Oct. 3, 2016] business financial statements.
(e) If SBA declines your application a
§ 123.12 Are books and records re- second time, you have the right to ap-
quired? peal in writing to the Director, Dis-
You must retain complete records of aster Assistance Processing and Dis-
all transactions financed with your bursement Center (DAPDC) or the Di-
SBA loan proceeds, including copies of rector’s designee(s). All appeals must
all contracts and receipts, for a period be received by the processing center
of 3 years after you receive your final within 30 days of the decline action.
disbursement of loan proceeds. If you Your request must state that you are
have a physical disaster business or appealing, and must give specific rea-
economic injury loan, you must also sons why the decline action should be
maintain current and accurate books reversed.
of account, including financial and op- (f) The decision of the Director,
erating statements, insurance policies, DAPDC or the Director’s designee(s), is
and tax returns. You must retain appli- final unless:
447
§ 123.14 13 CFR Ch. I (1–1–23 Edition)
(1) The Director, DAPDC or the Di- ment lien when the disaster occurred;
rector’s designee(s), does not have the or
authority to approve the requested (3) Other circumstances exist which
loan; would justify a waiver.
(2) The Director, DAPDC or the Di- (b) The waiver determination by the
rector’s designee(s), refers the matter Associate Administrator for Disaster
to the SBA Associate Administrator Assistance, or designee, is a final, non-
for Disaster Assistance (AA/DA); appealable decision. The granting of a
(3) The AA/DA, upon a showing of waiver does not include loan approval;
special circumstances, requests that a waiver recipient must then follow
the Director, DAPDC or the Director’s normal loan application procedures.
designee(s), forward the matter to him [61 FR 3304, Jan. 31, 1996, as amended at 75
or her for final consideration; or FR 60598, Oct. 1, 2010]
(4) The SBA Administrator, solely
within the Administrator’s discretion, § 123.15 What if I change my mind?
chooses to review the matter and make If SBA required you to pledge collat-
the final decision. Such discretionary eral for your loan, you may change
authority of the Administrator does your mind and rescind your loan pursu-
not create additional rights of appeal ant to the Consumer Credit Protection
on the part of an applicant not other- Act, 15 U.S.C. 1601, and Regulation Z of
wise specified in SBA regulations. the Federal Reserve Board, 12 CFR part
(g) This section does not apply to 226. Your note and any collateral docu-
IDAP loans. ments signed by you will be canceled
[61 FR 3304, Jan. 31, 1996, as amended at 71 upon your return of all loan proceeds
FR 63676, Oct. 31, 2006; 75 FR 60598, Oct. 1, and your payment of any interest ac-
2010; 81 FR 67903, Oct. 3, 2016; 86 FR 50219, crued. This provision does not apply to
Sept. 8, 2021] IDAP loans.
§ 123.14 How does the Federal Debt [61 FR 3304, Jan. 31, 1996, as amended at 75
Collection Procedures Act of 1990 FR 60598, Oct. 1, 2010]
apply?
§ 123.16 How are loans administered
(a) Under the Federal Debt Collection and serviced?
Procedures Act of 1990 (28 U.S.C.
3201(e)), a debtor who owns property (a) If you obtained your disaster loan
which is subject to an outstanding from a participating lender, that lender
judgment lien for a debt owed to the is responsible for closing and servicing
United States generally is not eligible your loan. If you obtained your loan di-
to receive a disaster loan. The SBA As- rectly from SBA, your loan will be
sociate Administrator for Disaster As- closed and serviced by SBA. The SBA
sistance, or designee, may waive this rules on servicing are found in Subpart
restriction as to disaster loans (except H of this part and part 120 of this chap-
IDAP loans) upon a demonstration of ter.
good cause. Good cause means a writ- (b) If you are unable to pay your SBA
ten representation by you under oath loan installments in a timely manner
which convinces SBA that: for reasons substantially beyond your
(1) The declared disaster was a major control, you may request that SBA sus-
contributing factor to the delinquency pend your loan payments, extend your
which led to the judgment lien, regard- maturity, or both.
less of when the original debt was in- [61 FR 3304, Jan. 31, 1996, as amended at 75
curred; or FR 60598, Oct. 1, 2010]
(2) The disaster directly prevented
you from fulfilling the terms of an § 123.17 Do other Federal require-
agreement with SBA or any other Fed- ments apply?
eral Government entity to satisfy its As a condition of disbursement, you
pre-disaster judgment lien; in this situ- must be in compliance with certain re-
ation, the judgment creditor must cer- quirements relating to flood insurance,
tify to SBA that you were complying earthquake hazards, coastal barrier is-
with the agreement to satisfy the judg- lands, and child support obligations, as
448
set forth in §§ 120.170 through 120.172, control which prevent you from resum-
120.174 and 120.175 of this chapter. ing your normal business activity in a
reasonable time frame. Your request
FR 38910, June 30, 2022] for an increase in the loan amount
must be related to the disaster for
§ 123.18 Can I request an increase in which the SBA economic injury dis-
the amount of a physical disaster aster loan was originally made.
loan?
[63 FR 15072, Mar. 30, 1998]
(a) Generally, SBA will consider your
request for an increase in your loan if § 123.20 How long do I have to request
you can show that the eligible cost of an increase in the amount of a
repair or replacement of damages in- physical disaster loan or an eco-
creased because of events occurring nomic injury loan?
after the loan approval that were be- (a) You should request a loan in-
yond your control. An eligible cost is crease as soon as possible after you dis-
one which is related to the disaster for cover the need for the increase, but not
which SBA issued the original loan. later than two years after SBA ap-
For example, if you discover hidden proved your physical disaster or eco-
damage within a reasonable time after nomic injury loan. After two years, the
SBA approved your original disaster SBA Associate Administrator for Dis-
loan and before repair, renovation, or aster Assistance (AA/DA) may waive
reconstruction is complete, you may this limitation after finding extraor-
request an increase. Or, if applicable dinary and unforeseeable cir-
building code requirements were cumstances.
changed since SBA approved your
(b) For physical disaster loan in-
original loan, you may request an in-
creases requested under § 123.18(b) as a
crease in your loan amount.
result of malfeasance, the request must
(b) For all disasters occurring on or
be received not later than two years
after November 25, 2015, you may also
after the date of final disbursement.
request an increase in your loan if you
suffered substantial economic damage [63 FR 15073, Mar. 30, 1998, as amended at 81
or substantial risks to health or safety FR 67903, Oct. 3, 2016]
as a result of malfeasance in connec-
tion with the repair or replacement of § 123.21 What is a mitigation measure?
real property or business machinery A mitigation measure is something
and equipment for which SBA made a done for the purpose of protecting
disaster loan. See § 123.105 for limits on property and occupants against dis-
home loan amounts and § 123.202 for aster related damage. You may imple-
limits on business loan amounts. Mal- ment mitigation measures after a dis-
feasance may include, but is not lim- aster occurs (post-disaster) to protect
ited to, nonperformance of all or any against recurring disaster related dam-
portion of the work for which a con- age, or before a disaster occurs (pre-
tractor was paid, work that does not disaster) to protect against future dis-
meet acceptable standards, or use of aster related damage. Examples of
substandard materials. mitigation measures include building
[63 FR 15072, Mar. 30, 1998, as amended at 81 retaining walls, sea walls, grading and
FR 67903, Oct. 3, 2016] contouring land, elevating flood prone
structures, relocating utilities, con-
§ 123.19 May I request an increase in structing a safe room or similar storm
the amount of an economic injury shelter (if such safe room or similar
loan? storm shelter is constructed in accord-
SBA will consider your request for an ance with applicable standards issued
increase in the loan amount if you can by the Federal Emergency Manage-
show that the increase is essential for ment Agency), or retrofitting struc-
your business to continue and is based tures to protect against high winds,
on events occurring after SBA ap- earthquakes, flood, wildfires, or other
proved your original loan which were physical disasters. Section 123.107 spe-
beyond your control. For example, cifically addresses post-disaster miti-
delays may have occurred beyond your gation for home disaster loans, and
449
§ 123.100 13 CFR Ch. I (1–1–23 Edition)
§ 123.204 specifically addresses post-dis- processing of an SBA loan. In such an

aster mitigation for businesses. event, you must repay the financial as-
sistance with SBA loan proceeds if it
67903, Oct. 3, 2016; 85 FR 12864, Mar. 5, 2020] was used for purposes also eligible for
an SBA loan;
Subpart B—Home Disaster Loans (d) SBA determines that you assumed
the risk (for example, by not maintain-
§ 123.100 Am I eligible to apply for a ing flood insurance as required by an
home disaster loan? earlier SBA disaster loan when the cur-
(a) You are eligible to apply for a rent loss is also due to flood);
home disaster loan if you: (e) Your damaged property is a sec-
(1) Own and occupy your primary res- ondary home (although if you rented
idence and have suffered a physical loss the property out before the disaster
to your primary residence, personal and the property would not constitute
property, or both; or a ‘‘residence’’ under the provisions of
(2) Do not own your primary resi- Section 280A of the Internal Revenue
dence, but have suffered a physical loss Code (26 U.S.C. 280A), you may be eligi-
to your personal property. Family ble for a physical disaster business
members sharing a residence are eligi- loan);
ble if they are not dependents of the (f) Your damaged property is the type
owners of the residence. of vehicle normally used for rec-
(b) Losses may be claimed only by reational purposes, such as
the owners of the property at the time motorhomes, aircraft, and boats;
of the disaster, and all such losses will (g) Your damaged property consists
be verified by SBA. SBA will consider of cash or securities;
beneficial ownership as well as legal (h) The replacement value of your
title (for real or personal property) in damaged personal property is extraor-
determining who suffered the loss. dinarily high and not easily verified,
such as the value of antiques,
§ 123.101 When am I not eligible for a artworks, or hobby collections;
home disaster loan?
(i) You or other principal owners of
You are not eligible for a home dis- the damaged property are presently in-
aster loan if: carcerated, or on probation or parole
(a) You have been convicted, during following conviction for a serious
the past year, of a felony during and in criminal offense;
connection with a riot or civil disorder (j) Your only interest in the damaged
or other declared disaster; property is in the form of a security in-
(b) You acquired voluntarily more terest, mortgage, or deed of trust;
than a 50 percent ownership interest in
(k) The damaged building, including
the damaged property after the dis-
contents, was newly constructed or
aster, and no contract of sale existed at
substantially improved on or after Feb-
the time of the disaster;
ruary 9, 1989, and (without a significant
(c) Your damaged property can be re-
business justification) is located sea-
paired or replaced with the proceeds of
ward of mean high tide or entirely in
insurance, gifts or other compensation,
or over water; or
including condemnation awards (with
one exception), these amounts must ei- (l) You voluntarily decide to relocate
ther be deducted from the amount of outside the business area in which the
the claimed losses or, if received after disaster has occurred, and there are no
SBA has approved and disbursed a loan, special or unusual circumstances lead-
must be paid to SBA as principal paying to your decision (business area
ments on your loan. You must notify means the municipality which provides
SBA of any such recoveries collected general governmental services to your
after receiving an SBA disaster loan. damaged home or, if not located in a
The one exception applies to amounts municipality, the county or equivalent
received under the Individuals and political entity in which your damaged
Household Program of the Federal home is located).

Emergency Management Agency solely [61 FR 3304, Jan. 31, 1996, as amended at 67
to meet an emergency need pending FR 64519, Oct. 21, 2002]
450
§ 123.102 What circumstances would § 123.105 How much can I borrow with
justify my relocating? a home disaster loan and what lim-
its apply on use of funds and repay-
SBA may approve a loan if you in- ment terms?
tend to relocate outside the business
area in which the disaster has occurred (a) There are limits on how much
money you can borrow for particular
if your relocation is caused by such
purposes:
special or unusual circumstances as:
(1) $40,000 for repair or replacement of
(a) Demonstrable risk that the busi- household and personal effects;
ness area will suffer future disasters; (2) $200,000 for repair or replacement
(b) A change in employment status of a primary residence (including up-
(such as loss of job, transfer, lack of grading in order to meet minimum
adequate job opportunities within the standards of safety and decency or cur-
business area or scheduled retirement rent building code requirements). Re-
within 18 months after the disaster oc- pair or replacement of landscaping and/
curs); or recreational facilities cannot exceed
(c) Medical reasons; or $5,000;
(d) Special family considerations (3) $200,000 for eligible refinancing
which necessitate a move outside of purposes;
the business area. (4) 20 percent of the verified loss (not
including refinancing or malfeasance),
§ 123.103 What happens if I am forced before deduction of compensation from
to move from my home? other sources, up to a maximum of
$200,000 for post-disaster mitigation
If you must relocate inside or outside
(see § 123.107); and
the business area because local au-
(5) $200,000 for eligible malfeasance,
thorities will not allow you to repair
pursuant to § 123.18.
your damaged property, SBA considers (b) You may not use loan proceeds to
this to be a total loss and a mandatory repay any debts on personal property,
relocation. In this case, your loan secured or unsecured, unless you in-
would be an amount that SBA con- curred those debts as a direct result of
siders sufficient to replace your resi- the disaster.
dence at your new location, plus funds (c) SBA determines the loan matu-
to cover losses of personal property and rity and repayment terms based on
eligible refinancing. your needs and your ability to pay.
Generally, you will pay equal monthly
§ 123.104 What interest rate will I pay installments of principal and interest,
on my home disaster loan?
beginning five months from the date of
If you can obtain credit elsewhere, the loan, as shown on the Note secur-
your interest rate is set by a statutory ing the loan. SBA will consider other
formula, but will not exceed 8 percent payment terms if you have seasonal or
per annum. If you cannot obtain credit fluctuating income, and SBA may
elsewhere, your interest rate is one- allow installment payments of varying
half the statutory rate, but will not ex- amounts over the first two years of the
ceed 4 percent per annum. Credit else- loan. The maximum maturity for a
where means that, with your cash flow home disaster loan is 30 years. There is
and disposable assets, SBA believes you no penalty for prepayment of home dis-
could obtain financing from non-fed- aster loans.
eral sources on reasonable terms. If [61 FR 3304, Jan. 31, 1996, as amended at 75
you cannot obtain credit elsewhere, FR 14332, Mar. 25, 2010; 81 FR 67903, Oct. 3,
you also may be able to borrow from 2016]
SBA to refinance existing recorded
liens against your damaged real prop- § 123.106 What is eligible refinancing?
erty. Under prior legislation, some (a) If your home (primary residence)
SBA disaster loans had split interest is totally destroyed or substantially
rates. On any such loan, repayments of damaged, and you do not have credit
principal are applied first to that por- elsewhere, SBA may allow you to bor-
tion of the loan with the lowest inter- row money to refinance recorded liens
est rate. or encumbrances on your home. Your
451
§ 123.107 13 CFR Ch. I (1–1–23 Edition)
home is totally destroyed or substan- disaster. If SBA is unable to approve

tially damaged if it has suffered unin- your loan application, or if you have
sured or otherwise uncompensated damage in excess of the SBA loan
damage which, at the time of the dis- amount, SBA may refer you, on a time-
aster, is either: ly basis, to FEMA for IHP grant con-
(1) 40 percent or more of the home’s sideration to assist with your unmet
market value or replacement cost at personal property and transportation
the time of the disaster, including land needs. If you are approved for the SBA
value, whichever is less; or disaster loan and you have received
(2) 50 percent or more of its market
grant assistance that duplicates the
value or replacement cost at the time
damage covered by the SBA loan, such
of the disaster, not including land
value, whichever is less. grant assistance must be deducted
(b) Your home disaster loan for refi- from your loan eligibility as described
nancing existing liens or encumbrances in section 123.101(c) of the regulations.
cannot exceed an amount equal to the All grant decisions are made by FEMA.
lesser of $200,000, or the physical dam- Additionally, if additional disaster as-
age to your primary residence after resistance is available from state, local
ductions for any insurance or other re- or other agencies, SBA may refer you
covery. to the appropriate agency for consider-
ation.
§ 123.107 How much can I borrow for
post-disaster mitigation for my [75 FR 7546, Feb. 22, 2010]
home?
For mitigation measures imple- Subpart C—Physical Disaster
mented after a disaster has occurred, Business Loans
you can request that the approved
home disaster loan amount be in- § 123.200 Am I eligible to apply for a
creased by the lesser of the cost of the physical disaster business loan?
mitigation measure, or up to 20 percent (a) Almost any business concern or
of the verified loss (before deducting charitable or other non-profit entity
compensation from other sources), to a whose real or tangible personal prop-
maximum of $200,000.
erty is damaged in a declared disaster
[75 FR 14332, Mar. 25, 2010] area is eligible to apply for a physical
disaster business loan. Your business
§ 123.108 How do the SBA disaster loan may be a sole proprietorship, partner-
program and the FEMA grant pro-
grams interact? ship, corporation, limited liability
company, or other legal entity recog-
After a Presidential disaster declara-
nized under State law. Your business’
tion is made, you may be eligible for
size (average annual receipts or num-
disaster assistance, including grant as-
ber of employees) is not taken into
sistance, from the Federal Emergency
Management Agency’s (FEMA) Federal consideration in determining your eli-
Assistance to Individuals and House- gibility for a physical disaster business
holds Program (IHP). After you reg- loan. If your damaged business occu-
ister with FEMA for disaster assist- pied rented space at the time of the
ance, FEMA will consider you for IHP disaster, and the terms of your busi-
assistance, which includes housing as- ness’ lease require you to make repairs
sistance grants to repair or replace to your business’ building, you may
your damaged primary residence and have suffered a physical loss and can
temporary housing assistance (includ- apply for a physical business disaster
ing rental assistance) to assist you loan to repair the property. In all other
temporarily with a place to live, and cases, the owner of the building is the
assistance with personal property, eligible loan applicant.
medical, dental and funeral expenses. (b) Damaged vehicles, of the type
FEMA may also refer you to SBA to normally used for recreational pur-
apply for loan assistance to help repair poses, such as motorhomes, aircraft,
or rebuild your home and/or to replace and boats, may be repaired or replaced
personal property destroyed during the
452
with SBA loan proceeds if you can sub- the disaster, which makes it uneco-
mit evidence that the damaged vehi- nomical to continue operations in your
cles were used in your business at the business area;
time of the disaster. (3) A substantial change in your cost
of doing business, as a result of the dis-
§ 123.201 When am I not eligible to aster, which makes the continuation of
apply for a physical disaster busi- your business in the business area not
ness loan?
economically viable;
(a) You are not eligible for a physical (4) Location of your business in a
disaster business loan if your business hazardous area such as a special flood
is an agricultural enterprise or if you hazard area or an earthquake-prone
(or any principal of the business) fit area;
into any of the categories in § 123.101. (5) A change in the public infrastruc-
Agricultural enterprise means a busi- ture in your business area which oc-
ness primarily engaged in the produc- curred within 18 months or as a result
tion of food and fiber, ranching and of the disaster that would result in
raising of livestock, aquaculture and substantially increased expenses for
all other farming and agriculture-re- your business in the business area;
lated industries. (6) Your implementation of decisions
(b) Sometimes a damaged business adopted and at least partially imple-
entity (whether in the form of a cor- mented within 18 months prior to the
poration, limited liability company, disaster to move your business out of
partnership, or sole proprietorship) is the business area; and
engaged in both agricultural enterprise
(7) Other factors which undermine
and a non-agricultural business ven-
the economic viability of your business
ture. If the agricultural enterprise part
area.
of your business entity has suffered a
(d) You are not eligible if your busi-
physical disaster, that enterprise is not
ness is engaged in any illegal activity.
eligible for SBA physical disaster as-
sistance. If the non-agricultural busi- (e) You are not eligible if you are a
ness venture of your entity has suf- government owned entity (except for a
fered physical disaster damage, that business owned or controlled by a Na-
part of your business operation would tive American tribe).
be eligible for SBA physical disaster (f) You are not eligible if your busi-
assistance. If both the agricultural en- ness presents live performances of a
terprise part and the non-agricultural prurient sexual nature or derives di-
business venture have incurred phys- rectly or indirectly more than de mini-
ical disaster damage, only the non-ag- mis gross revenue through the sale of
ricultural business venture of your products or services, or the presen-
business entity would be eligible for tation of any depictions or displays, of
SBA physical disaster assistance. a prurient sexual nature.
(c) If your business is going to relo- [61 FR 3304, Jan. 31, 1996, as amended at 62
cate voluntarily outside the business FR 35337, July 1, 1997; 63 FR 46644, Sept. 2,
area in which the disaster occurred, 1998]
you are not eligible for a physical dis-
aster business loan. If, however, the re- § 123.202 How much can my business
location is due to uncontrollable or borrow with a physical disaster
compelling circumstances, SBA will business loan?
consider the relocation to be involun- (a) Disaster business loans, including
tary and eligible for a loan. Such cir- both physical disaster and economic in-
cumstances may include, but are not jury loans to the same borrower, to-
limited to: gether with its affiliates, cannot ex-
(1) The elimination or substantial de- ceed the lesser of the uncompensated
crease in the market for your products physical loss and economic injury or $2
or services, as a consequence of the dis- million. Physical disaster loans may
aster; include amounts to meet current build-
(2) A change in the demographics of ing code requirements. If your business

your business area within 18 months is a major source of employment, SBA
prior to the disaster, or as a result of may waive the $2 million limitation. A
453
§ 123.203 13 CFR Ch. I (1–1–23 Edition)
major source of employment is a busi- (d) Loan funds allocated for repair or
ness concern that has one or more loca- replacement of landscaping or rec-
tions in the disaster area, on or after reational facilities may not exceed
the date of the disaster, which: $5,000 unless the landscaping or rec-
(1) Employed 10 percent or more of reational facilities fulfilled a func-
the entire work force within the com- tional need or contributed to the gen-
muting area of a geographically identi- eration of business.
fiable community (no larger than a (e) The SBA Administrator may in-
county), provided that the commuting crease the $2 million loan limit for dis-
area does not extend more than 50 aster business physical and economic
miles from such community; or injury loans under an individual dis-
(2) Employed 5 percent of the work aster declaration based on appropriate
force in an industry within the disaster economic indicators for the region(s) in
area and, if the concern is a non-manu- which the disaster occurred. SBA will
facturing concern, employed no less publish the increased loan amount in
than 50 employees in the disaster area, the FEDERAL REGISTER.
or if the concern is a manufacturing [61 FR 3304, Jan. 31, 1996, as amended at 63
concern, employed no less than 150 em- FR 46644, Sept. 2, 1998; 75 FR 14332, Mar. 25,
ployees in the disaster area; or 2010]
(3) Employed no less than 250 employ-
ees within the disaster area. § 123.203 What interest rate will my
(b) SBA will consider waiving the $2 business pay on a physical disaster
million loan limit for a major source of business loan and what are the re-
payment terms?
employment only if:
(1) Your damaged location or loca- (a) SBA will announce interest rates
tions are out of business or in immi- with each disaster declaration. If your
nent danger of going out of business as business, together with its affiliates
a result of the disaster, and a loan in and principal owners, has credit else-
excess of $2 million is necessary to re- where, your interest rate is set by a
open or keep open the damaged loca- statutory formula, but will not exceed
tions in order to avoid substantial un- 8 percent per annum. If you do not
employment in the disaster area; and have credit elsewhere, your interest
(2) You have used all reasonably rate will not exceed 4 percent per
available funds from your business, its annum. The maturity of your loan de-
affiliates and its principal owners (20% pends upon your repayment ability,
or greater ownership interest) and all but cannot exceed seven years if you
available credit elsewhere (as described have credit elsewhere.
in § 123.104) to alleviate your physical (b) Generally, you must pay equal
damage and economic injury. monthly installments, of principal and
(c) Physical disaster business bor- interest, beginning five months from
rowers may request refinancing of liens the date of the loan as shown on the
on both damaged real property and ma- Note. SBA will consider other payment
chinery and equipment, but for an terms if you have seasonal or fluc-
amount reduced by insurance or other tuating income, and SBA may allow in-
compensation. To do so, your business stallment payments of varying
property must be totally destroyed or amounts over the first two years of the
substantially damaged, which means: loan. There is no penalty for prepay-
(1) 40 percent or more of the aggre- ment for disaster loans.
gate value (lesser of market value or (c) For certain disaster business
replacement cost at the time of the physical and economic injury loans, an
disaster) of the damaged real property additional payment, based on a per-
(including land) and damaged machin- centage of net earnings, will be re-
ery and equipment; or quired to reduce the balance of the
(2) 50 percent or more of the aggre- loan. This additional payment will not
gate value (lesser of market value or be required until 5 years after repay-
replacement cost at the time of the ment begins.
disaster) of the damaged real property [61 FR 3304, Jan. 31, 1996, as amended at 75
(excluding land) and damaged machin- FR 14333, Mar. 25, 2010; 77 FR 12157, Feb. 29,
ery and equipment. 2012]
454
§ 123.204 How much can your business (3) Producer cooperatives; and
borrow for post-disaster mitigation? (4) Small aquaculture enterprises.
For mitigation measures imple- (d) An eligible private non-profit or-
mented after a disaster has occurred, ganization is a non-governmental agen-
you can request an increase in the ap- cy or entity that currently has:
proved physical disaster business loan (1) An effective ruling letter from the
by the lesser of the cost of the mitiga- U.S. Internal Revenue Service, grant-
tion measure, or up to 20 percent of the ing tax exemption under sections
verified loss, before deducting com- 510(c), (d), or (e) of the Internal Rev-
pensation from other sources, to repair enue Code of 1954, or
or replace your damaged business. (2) Satisfactory evidence from the
[75 FR 14333, Mar. 25, 2010] State that the non-revenue producing
organization or entity is a non-profit
Subpart D—Economic Injury one organized or doing business under
Disaster Loans State law.
(e) COVID–19 Economic Injury Dis-
§ 123.300 Is my business eligible to aster (COVID EIDL) loans are available
apply for an economic injury dis- if, as of the date of application, you:
aster loan?
(1) Are a business, including an agri-
(a) If your business is located in a de- cultural cooperative, aquaculture en-
clared disaster area, and suffered sub- terprise, nursery, or producer coopera-
stantial economic injury as a direct re-
tive (but excluding all other agricul-
sult of a declared disaster, you are eli-
tural enterprises), that is small under
gible to apply for an economic injury
disaster loan. SBA Size Standards (as defined in part
(1) Substantial economic injury is 121 of this chapter);
such that a business concern is unable (2) Are an individual who operates
to meet its obligations as they mature under a sole proprietorship, with or
or to pay its ordinary and necessary without employees, or as an inde-
operating expenses. pendent contractor;
(2) Loss of anticipated profits or a (3) Are a private non-profit organiza-
drop in sales is not considered substan- tion that is a non-governmental agency
tial economic injury for this purpose. or entity that currently has an effec-
(b) Economic injury disaster loans tive ruling letter from the Internal
are available only if you were a small Revenue Service (IRS) granting tax ex-
business (as defined in part 121 of this emption under sections 501(c), (d), or
chapter) or a private non-profit organi- (e) of the Internal Revenue Code of
zation when the declared disaster com- 1954, or satisfactory evidence from the
menced, you and your affiliates and
State that the non-revenue-producing
principal owners (20% or more owner-
organization or entity is a non-profit
ship interest) have used all reasonably
available funds, and you are unable to one organized or doing business under
obtain credit elsewhere (see § 123.104). State law, or a faith-based organiza-
(c) Eligible businesses do not include tion;
agricultural enterprises, but do in- (4) Are a business, cooperative, agri-
clude— cultural enterprise, Employee Stock
(1) Small nurseries affected by a Ownership Plan (as defined in 15 U.S.C.
drought disaster designated by the Sec- 632), or tribal small business concern
retary of Agriculture (nurseries are (as described in 15 U.S.C. 657a(b)(2)(C)),
commercial establishments deriving 50 with not more than 500 employees; or
percent or more of their annual re- (5) Are a business that is assigned a
ceipts from the production and sale of North American Industry Classifica-
ornamental plants and other nursery tion System (NAICS) code beginning
products, including, but not limited to, with 61, 71, 72, 213, 3121, 315, 448, 451, 481,
bulbs, florist greens, foliage, flowers, 485, 487, 511, 512, 515, 532, or 812, employs
flower and vegetable seeds, shrubbery,

and sod);
(2) Small agricultural cooperatives;
455
§ 123.301 13 CFR Ch. I (1–1–23 Edition)
not more than 500 employees per phys- which the business could have provided
ical location, and together with affili- had the injury not occurred. COVID
ates has no more than 20 locations. EIDL loan proceeds also may be used
[61 FR 3304, Jan. 31, 1996, as amended at 67 to make debt payments including
FR 11880, Mar. 15, 2002; 70 FR 72595, Dec. 6, monthly payments, payment of de-
2005; 73 FR 41254, July 18, 2008; 75 FR 14333, ferred interest, and pre-payments on
Mar. 25, 2010; 76 FR 63547, Oct. 12, 2011; 86 FR any business debts, except pre-pay-
50219, Sept. 8, 2021] ments are not permitted on any loans
§ 123.301 When would my business not owned by a Federal agency (including
be eligible to apply for an economic SBA) or a Small Business Investment
injury disaster loan? Company licensed under the Small
Your business is not eligible for an Business Investment Act.
economic disaster loan if you (or any (b) Loan proceeds may not be used to:
principal of the business) fit into any (1) Refinance indebtedness which you
of the categories in §§ 123.101 and incurred prior to the disaster event;
123.201, or if your business is: (2) Except for COVID EIDL loan pro-
(a) Engaged in lending, multi-level ceeds, make payments on loans owned
sales distribution, speculation, or in- by a Federal agency (including SBA) or
vestment (except for real estate invest- a Small Business Investment Company
ment with property held for rental licensed under the Small Business In-
when the disaster occurred); vestment Act;
(b) A non-profit or charitable con- (3) Pay, directly or indirectly, any
cern, other than a private non-profit obligations resulting from a federal,
organization; state or local tax penalty as a result of
(c) A consumer or marketing cooper- negligence or fraud, or any non-tax
ative;
criminal fine, civil fine, or penalty for
(d) Not a small business concern; or
non-compliance with a law, regulation,
(e) Deriving more than one-third of
gross annual revenue from legal gam- or order of a federal, state, regional, or
bling activities; local agency or similar matter;
(f) A loan packager which earns more (4) Repair physical damage; or
than one-third of its gross annual rev- (5) Pay dividends or other disburse-
enue from packaging SBA loans; ments to owners, partners, officers or
(g) Principally engaged in teaching, stockholders, except for reasonable re-
instructing, counseling, or indoctri- muneration directly related to their
nating religion or religious beliefs, performance of services for the busi-
whether in a religious or secular set- ness.
ting; or
(h) Primarily engaged in political or
FR 50219, Sept. 8, 2021]
lobbying activities.
[61 FR 3304, Jan. 31, 1996, as amended at 63 § 123.304 Is there a limit on the max-
FR 46644, Sept. 2, 1998; 75 FR 14333, Mar. 25, imum loan amount to a single cor-
2010] porate group for COVID EIDL
Loans?
§ 123.302 What is the interest rate on
an economic injury disaster loan? Entities that are part of a single cor-
porate group shall in no event receive
Your economic injury loan will have
more than $10,000,000 of COVID EIDL
an interest rate of 4 percent per annum
loans in the aggregate. For purposes of
or less.
this limit, entities are part of a single
§ 123.303 How can my business spend corporate group if they are majority
my economic injury disaster loan? owned, directly or indirectly, by a com-
(a) You can only use the loan pro- mon parent.
ceeds for working capital necessary to [86 FR 50219, Sept. 8, 2021]
carry your concern until resumption of
normal operations and for expenditures

necessary to alleviate the specific eco-
Subpart E—[Reserved]
nomic injury, but not to exceed that
456
Subpart F—Military Reservist tary reservist who is an essential em-

Economic Injury Disaster Loans ployee,
(c) The essential employee has been
called-up to active military duty dur-
SOURCE: 66 FR 38530, July 25, 2001, unless
ing a period of military conflict exist-
otherwise noted.
ing on or after March 24, 1999,
§ 123.500 Definitions. (d) The business has suffered or is
likely to suffer substantial economic
The following terms have the same injury as a result of the absence of the
meaning wherever they are used in this essential employee, and
subpart: (e) You and your affiliates and prin-
(a) Essential employee is an individual cipal owners (20% or more ownership
(whether or not an owner of a small interest) have used all reasonably
business) whose managerial or tech- available funds, and you are unable to
nical expertise is critical to the suc- obtain credit elsewhere (see § 123.104).
cessful day-to-day operations of a
small business. [66 FR 38530, July 25, 2001, as amended at 67
FR 64519, Oct. 21, 2002]
(b) Military reservist is a member of a
reserve component of the Armed § 123.502 Under what circumstances is
Forces ordered to active duty during a your business ineligible to be con-
period of military conflict. sidered for a Military Reservist
(c) Period of military conflict means: Economic Injury Disaster Loan?
(1) A period of war declared by the Your business is ineligible for a Mili-
Congress, tary Reservist EIDL if it, together
(2) A period of national emergency with its affiliates, is subject to any of
declared by the Congress or by the the following conditions:
President, or (a) Any of your business’ principal
(3) A period of contingency operation, owners has been convicted, during the
as defined in 10 U.S.C. 101(a). past year, of a felony during and in
(d) Principal owner is a person or enti- connection with a riot or civil disorder;
ty which owns 20 percent or more of (b) You have assumed the risk associ-
the small business. ated with employing the military re-
(e) Substantial economic injury means servist, as determined by SBA (for ex-
an economic harm to the small busi- ample, hiring the ‘‘essential employee’’
ness such that it cannot: after the employee has received call-up
(1) Meet its obligations as they ma- orders or been notified that they are
ture, imminent);
(2) Pay its ordinary and necessary op- (c) Any of your business’ principal
erating expenses, or owners is presently incarcerated, or on
(3) Market, produce or provide a probation or parole following convic-
product or service ordinarily mar- tion of a serious criminal offense;
keted, produced or provided by the (d) Your business is an agricultural
business. Loss of anticipated profits or enterprise. Agricultural enterprise
a drop in sales is not considered sub- means a business primarily engaged in
stantial economic injury for this pur- the production of food and fiber, ranch-
pose. ing and raising of livestock, aqua-
culture and all other farming and agri-
§ 123.501 Under what circumstances is culture-related industries. (See 13 CFR
your business eligible to be consid- 121.107, ‘‘How does SBA determine a
ered for a Military Reservist Eco- concern’s primary industry?’’) Some-
nomic Injury Disaster Loan? times a business is engaged in both ag-
Your business is eligible to apply for ricultural and non-agricultural busi-
a Military Reservist EIDL if: ness activities. If the primary business
(a) It is a small business as defined in activity of the business is not an agri-
13 CFR part 121 when the essential em- cultural enterprise, it may apply for a
ployee was called to active duty, Military Reservist EIDL, but loan pro-
(b) The owner of the business is a ceeds may not be used, directly or indi-
military reservist and an essential em- rectly, for the benefit of the agricul-
ployee or the business employs a mili- tural enterprises;
457
§ 123.503 13 CFR Ch. I (1–1–23 Edition)
(e) Your business is engaged in any § 123.504 How do you apply for a Mili-
illegal activity; tary Reservist EIDL?
(f) Your business is a government To apply for a Military Reservist
owned entity (except for a business EIDL you must complete a SBA Mili-
owned or controlled by a Native Amer- tary Reservist EIDL application pack-
ican tribe); age (SBA Form 5R and supporting doc-
(g) Your business presents live per- umentation can be obtained through
formances of a prurient sexual nature SBA’s Disaster Area Office) including:
or derives directly or indirectly more (a) A copy of the essential employee’s
than an insignificant gross revenue official call-up orders for active duty
through the sale of products or serv- showing the date of call-up, and, if
ices, or through the presentation of known, the date of release from active
any depictions or displays, of a pru- duty. For an essential employee who
rient sexual nature; expects to be called up and who has not
(h) Your business is engaged in lend- received official call-up orders, the ap-
ing, multi-level sales distribution, plication shall include the notice of the
speculation, or investment (except for expected call-up including, if known,
real estate investment with property the expected date of call-up and ex-
held for commercial rental); pected date of release from active duty;
(i) Your business is a non-profit or (b) A statement from the business
charitable concern; owner that the reservist is essential to
(j) Your business is a consumer or the successful day-to-day operations of
marketing cooperative; the business (detailing the employee’s
(k) Your business is not a small busi- duties and responsibilities and explain-
ness concern; ing why these duties and responsibil-
(l) Your business derives more than ities can’t be completed in the essen-
one-third of its gross annual revenue tial employee’s absence);
from legal gambling activities; (c) A certification by the essential
(m) Your business is a loan packager employee supporting that he or she
which earns more than one-third of its concurs with the business owner’s
gross annual revenue from packaging statement as described in paragraph (b)
SBA loans; of this section;
(n) Your business’ principal activity (d) A written explanation and finan-
is teaching, instructing, counseling, or cial estimate of how the call-up of the
indoctrinating religion or religious be- essential employee has or will result in
liefs, whether in a religious or secular economic injury to your business;
setting; or (e) The steps your business is taking
(o) Your business’ principal activity to alleviate the economic injury; and
is political or lobbying activities. (f) The business owners’ certification
that the essential employee will be of-
§ 123.503 When can you apply for a fered the same or a similar job upon
Military Reservist EIDL? the employee’s return from active
duty.
Your small business can apply for a
Military Reservist EIDL any time be- [61 FR 3304, Jan. 31, 1996, as amended at 73
ginning on the date your essential em- FR 54675, Sept. 23, 2008]
ployee receives notice of expected call-
up and ending one year after the date § 123.505 What if you are both an es-
the essential employee is discharged or sential employee and the owner of
the small business and you started
released from active duty. The Asso- active duty before applying for a
ciate Administrator for Disaster As- Military Reservist EIDL?
sistance (AA/DA) or designee may ex-
tend the one year limit by no more If you are both an essential employee
and the owner of the small business
then one additional year after finding
and you started active duty before ap-
extraordinary or unforeseeable cir-
plying for an Military Reservist EIDL,

cumstances.
a person who has a power of attorney
[73 FR 54675, Sept. 23, 2008] with the authority to borrow and make
458
other related commitments on your be- (c) Your small business has used all
half, may complete and submit the reasonably available funds from the
EIDL loan application package for you. small business, its affiliates, its prin-
cipal owners and all available credit
§ 123.506 How much can you borrow elsewhere to alleviate the small busi-
under the Military Reservist EIDL ness’ economic injury. Credit elsewhere
Program?
means financing from non-Federal
You can borrow an amount equal to sources on reasonable terms given your
the substantial economic injury you available cash flow and disposable as-
have suffered or are likely to suffer sets which SBA believes your small
until normal operations resume as a re- business, its affiliates and principal
sult of the absence of one or more es- owners could obtain.
sential employees called to active
duty, up to a maximum of $2 million. [61 FR 3304, Jan. 31, 1996, as amended at 73
FR 54675, Sept. 23, 2008; 75 FR 14333, Mar. 25,
[73 FR 54675, Sept. 23, 2008] 2010]
§ 123.507 Under what circumstances § 123.508 How can you use Military Re-
will SBA consider waiving the $2 servist EIDL funds?
million loan limit?
Your small business can use Military
SBA will consider waiving the $2 mil- Reservist EIDL to:
lion limit if you can certify to the fol- (a) Meet obligations as they mature,
lowing conditions and SBA approves of (b) Pay ordinary and necessary oper-
such certification based on the infor- ating expenses, or
mation supplied in your application:
(c) Enable the business to market,
(a) Your small business is a major produce or provide products or services
source of employment. A major source
ordinarily marketed, produced, or pro-
of employment is a business concern
vided by the business, which cannot be
that, on or after the date of the dis-
done as a result of the essential em-
aster:
ployee’s military call-up.
(1) Employs 10 percent or more of the
work force within the commuting area § 123.509 What can’t you use Military
of the geographically identifiable com- Reservist EIDL funds for?
munity (no larger than a county) in
which the business employing the es- Your small business can not use Mili-
sential employee is located, provided tary Reservist EIDL funds for purposes
that the commuting area does not ex- described in § 123.303(b) (See § 123.303, ‘‘
tend more than 50 miles from such How can my business spend my eco-
community; or nomic injury disaster loan?’’).
(2) Employs 5 percent of the work
§ 123.510 What if you don’t use your
force in an industry within such com- Military Reservist EIDL funds as
muting area and, if the small business authorized?
is a non-manufacturing small business,
employs no less than 50 employees in If your small business does not use
the same commuting area, or if the Military Reservist EIDL funds as au-
small business is a manufacturing thorized by § 123.508, then § 123.9 applies
small business, employs no less than (See § 123.9, ‘‘What happens if I don’t
150 employees in the commuting area; use loan proceeds for the intended pur-
or pose?’’).
(3) Employs no less than 250 employ-
ees within such commuting area; § 123.511 How will SBA disburse Mili-
tary Reservist EIDL funds?
(b) Your small business is in immi-
nent danger of going out of business as Funds will be disbursed only after
a result of one or more essential em- the essential employee has been called
ployees being called up to active duty to active duty, and you have provided a
during a period of military conflict, copy of the essential employee’s offi-
and a loan in excess of $2 million is cial call-up orders for active duty
necessary to reopen or keep open the showing the date of the call-up. SBA
small business; and will disburse your funds in quarterly
459
§ 123.512 13 CFR Ch. I (1–1–23 Edition)
installments (unless otherwise speci- age or economic injury due to a De-

fied in your loan authorization agree- clared Disaster. An IDAP loan is an in-
ment) based on a continued need as terim loan in an amount not to exceed
demonstrated by comparative financial $25,000 made by an IDAP Lender to
information. On or about 30 days before meet the immediate business needs of
your scheduled fund disbursement, an IDAP Borrower while approval of
SBA will request ordinary and usual fi- long-term financing from a Disaster
nancial statements (including balance Loan is pending with SBA.
sheets and profit and loss statements). (b) Definitions. As used in this sub-
Based on this information, SBA will as- part, the terms below are defined as
sess your continued need for disburse- follows:
ments under this program. Upon mak- Contiguous Counties means the coun-
ing such assessment, SBA will notify ties or other political subdivisions
you of the status of future disburse- identified in the IDAP-Eligible Dis-
ments. aster Declaration as abutting the Pri-
[73 FR 54675, Sept. 23, 2008] mary Counties.
Credit Elsewhere means that the IDAP
§ 123.512 What is the interest rate on a Borrower is able to address disaster
Military Reservist EIDL? losses using available personal or busi-
The interest rate on a Military Re- ness resources or access to nonfederal
servist EIDL will be 4 percent per lending sources at reasonable rates and
annum or less. SBA will publish the in- terms.
terest rate quarterly in the FEDERAL Declared Disaster is a disaster event
REGISTER. for which an IDAP-Eligible Disaster
Declaration has been issued.
§ 123.513 Does SBA require collateral Declared Disaster Area means the Pri-
on its Military Reservist EIDL? mary Counties and the Contiguous
SBA will not generally require you to Counties identified for a particular De-
pledge collateral to secure a Military clared Disaster.
Reservist EIDL of $50,000 or less. For Disaster Loan means a disaster loan
loans larger than $50,000, you will be authorized by Section 7(b) of the Small
required to provide available collateral Business Act.
such as a lien on business property, a IDAP Borrower is the obligor of an
security interest in personal property, IDAP loan.
or both. SBA will not decline a loan if IDAP Lender is a financial institution
you do not have a particular amount of participating in the IDAP loan pro-
collateral so long as SBA is reasonably gram, subject to the requirements of
sure that you can repay the loan. If this subpart.
you refuse to pledge the available col- IDAP Loan Program Requirements are
lateral when requested by SBA, how- requirements imposed upon an IDAP
ever, SBA may decline or cancel your Lender by statute, SBA regulations,
loan. any agreement the IDAP Lender has
[73 FR 54675, Sept. 23, 2008]
executed with SBA, SBA SOPs, SBA
procedural guidance, official SBA no-
tices and forms applicable to the IDAP
Subpart G—[Reserved] loan program, and loan authorizations,
as such requirements are issued and re-
Subpart H—Immediate Disaster vised by SBA from time to time.
Assistance Program IDAP-Eligible Disaster Declaration
means a Major Disaster Declaration,
SOURCE: 75 FR 60598, Oct. 1, 2010, unless SBA Administrative Disaster Declara-
otherwise noted. tion or SBA EIDL-Only Disaster Dec-
laration in which SBA has indicated
§ 123.700 What is the Immediate Dis- that IDAP loans are available.
aster Assistance Program? Initial Period is the IDAP loan repay-
(a) The Immediate Disaster Assist- ment period that begins upon the ini-
ance Program (IDAP) is a guaranteed tial disbursement of an IDAP loan and

disaster loan program for small busi- ends upon (i) full repayment of the
nesses that have suffered physical dam- IDAP loan from the proceeds of the
460
IDAP Borrower’s Disaster Loan; (ii) (iii) Final disbursement of the IDAP
SBA notice to the IDAP Lender of de- loan, whichever is later, and ends when
cline of the IDAP Borrower’s Disaster the IDAP loan is repaid in full.
Loan Application; or (iii) receipt by
the IDAP Lender of partial repayment § 123.701 What is the application pro-
of the IDAP loan from the proceeds of cedure for an IDAP loan?
the Disaster Loan; provided that if the A prospective IDAP Borrower must
IDAP loan has not been fully disbursed apply to an IDAP Lender for an IDAP
at such time, the Initial Period shall loan by the application deadline for
not end until the IDAP loan is fully prospective IDAP Borrowers estab-
disbursed. lished by SBA in the IDAP-Eligible
Major Disaster Declaration means a Disaster Declaration. If the IDAP
disaster declaration issued under Lender approves the application, it
§ 123.3(a)(1) of this part. must submit a request for IDAP loan
Other Recoveries are other compensa- approval to SBA by the application
tion for disaster losses and include, but deadline for IDAP Lenders established
are not limited to: Proceeds of policies by SBA in the IDAP-Eligible Disaster
of insurance or other indemnifications; Declaration. SBA will issue an ap-
grants or other reimbursement (includ- proval or a decline of the IDAP Lend-
ing loans) from government agencies or er’s request within 36 hours of receipt
private organizations; claims for civil by SBA. A prospective IDAP Borrower
liability against other individuals, or- will receive notice of approval or de-
ganizations or governmental entities; cline of its loan application from the
gifts; condemnation awards; and sal- IDAP Lender. Notice of decline will in-
clude the reasons. If an IDAP loan is
vage (including any sale or re-use) of
approved, a loan authorization will be
items of disaster-damaged property. If
issued.
an IDAP Borrower has voluntarily paid
insurance recoveries to a recorded § 123.702 What are the eligibility re-
lienholder, the amount paid is consid- quirements for an IDAP loan?
ered to be Other Recoveries.
(a) Eligible IDAP applicants. To be eli-
Primary Counties means the counties
gible for an IDAP loan, an applicant
or other political subdivisions identi-
business must meet all of the require-
fied in the IDAP-Eligible Disaster Dec-
ments set forth below. The applicant
laration as having been adversely af-
business must:
fected by the disaster.
(1) Be located within a Declared Dis-
SBA Administrative Disaster Declara- aster Area;
tion means a disaster declaration
(2) Have eligible disaster losses as
issued under § 123.3(a)(3) of this part.
follows:
SBA EIDL-Only Disaster Declaration
(i) For a Major Disaster Declaration,
means a disaster declaration issued
if located in a Primary County, have
under § 123.3(a)(5) of this part. sustained damage to real or business
Substantial Economic Injury exists personal property in the Declared Dis-
when a business concern is unable to aster or, if located in a Primary or
meet its obligations as they mature or Contiguous County, have sustained
to pay its ordinary and necessary oper- Substantial Economic Injury as a di-
ating expenses. Loss of anticipated rect result of the Declared Disaster; or
profits or a drop in sales is not consid- (ii) For an SBA Administrative Dis-
ered substantial economic injury. aster Declaration, have sustained dam-
Term Period is the repayment period age to real or business personal prop-
that begins following: erty in the Declared Disaster or sus-
(i) SBA notice to the IDAP Lender of tained Substantial Economic Injury as
decline of the IDAP Borrower’s Dis- a direct result of the Declared Disaster;
aster Loan application; or
(ii) Receipt by the IDAP Lender of (iii) For an SBA EIDL-Only Disaster
partial repayment of the IDAP loan Declaration, have sustained Substan-

from the proceeds of the Disaster Loan; tial Economic Injury as a direct result
or of the Declared Disaster;
461
§ 123.702 13 CFR Ch. I (1–1–23 Edition)
(3) Have been a small business con- (11) Engaged in any illegal activity;
cern under the size requirements appli- (12) A government owned entity (ex-
cable to disaster loan assistance under cept for a business owned or controlled
part 121 of this chapter (including af- by a Native American tribe);
filiates) when the Declared Disaster (13) A business in which the IDAP
commenced; Lender or any of its Associates (as de-
(4) Together with affiliates and prin- fined in § 120.10) owns an equity inter-
cipal owners, not have Credit Else- est;
where; (14) Primarily engaged in subdividing
(5) Apply to SBA for a Disaster Loan real property into lots and developing
within the applicable deadline and be- it for resale on its own account;
fore any disbursement of the IDAP (15) Engaged in lending, multi-level
loan; and sales distribution, speculation, or in-
(6) Be creditworthy and demonstrate vestment (except for real estate invest-
reasonable assurance of repayment of ment with property held for rental
the IDAP loan. when the Declared Disaster occurred);
(b) Ineligible IDAP applicants. An ap- (16) Delinquent on any Federal obli-
plicant business is not eligible for an gation, including but not limited to
IDAP loan if it is: any Federal loans, contracts, grants,
(1) A non-profit or charitable con- student loans or taxes, or has a judg-
cern; ment lien for a Federal debt against its
(2) A business that was not a small property;
business concern under the size re-
(17) Located in a Special Flood Haz-
quirements of part 121 of this chapter
ard Area (SFHA), as designated by the
(including affiliates) when the Declared
Federal Emergency Management Agen-
Disaster commenced;
cy, and has not maintained required
(3) A consumer or marketing cooper-
flood insurance on its business prop-
ative;
erty (regardless of the type of disaster);
(4) Deriving more than one-third of
(18) Located in a SFHA within a non-
gross annual revenue from legal gam-
participating community or a commu-
bling activities or a business whose
nity under sanction;
purpose for being is gambling regard-
less of its ability to meet the one-third (19) Located in a building that was
criteria established for otherwise eligi- newly constructed or substantially im-
ble concerns; proved on or after February 9, 1989, and
(5) A loan packager which earns more is currently located seaward of mean
than one-third of its gross annual rev- high tide or entirely in or over water;
enue from packaging SBA loans; (20) Located in a Coastal Barrier Re-
(6) Principally engaged in teaching, source Area (COBRA);
instructing, counseling, or indoctri- (21) A business that had a substantial
nating religion or religious beliefs, change of ownership (more than 50 per-
whether in a religious or secular set- cent) after the Declared Disaster and
ting; no contract of sale existed prior to that
(7) Primarily engaged in political or time;
lobbying activities; (22) A business that was established
(8) A private club or business that after the Declared Disaster;
limits the number of memberships for (23) Relocating out of the Declared
reasons other than capacity; Disaster Area;
(9) Presents live performances of a (24) Primarily engaged in the produc-
prurient sexual nature or derives dition of food and fiber, ranching and
rectly or indirectly more than de mini- raising of livestock, aquaculture and
mis gross revenue through the sale of all other farming and agriculture-re-
products or services, or the presen- lated industries (except for a nursery
tation of any depictions or displays, of deriving less than 50 percent of annual
a prurient sexual nature; receipts from the production and sale
(10) Engaged in the production or dis- of ornamental plants and other nursery
tribution of any product or service that products, a small agricultural coopera-

has been determined to be obscene by a tive or a small producer cooperative);
court; or
462
(25) A sole proprietorship, unincor- rower has received Other Recoveries,

porated association, partnership or the IDAP Lender must decrease the ap-
limited liability company in which a proved amount of the IDAP loan by the
Member of Congress (or a household amount of the Other Recoveries. If the
member) has an ownership interest. IDAP Borrower’s Disaster Loan is ap-
(c) Character requirements. An appli- proved, SBA will contact the IDAP
cant business is not eligible for an Lender when SBA is ready to disburse
IDAP loan if any Associate (as defined the Disaster Loan. Upon receipt of such
in § 120.10) of the applicant business: notification by SBA, the IDAP Lender
(1) Is presently under indictment, on must cancel any remaining
parole or probation; undisbursed amount of the IDAP loan.
(2) Has ever been charged with, ar- (d) Repayment—(1) Initial Period. Dur-
rested for, convicted, placed on pretrial ing the Initial Period, an IDAP Bor-
diversion, and/or placed on any form of rower will pay interest only on the dis-
probation (including adjudication with- bursed principal balance of the IDAP
held pending probation) for any crimi- loan. If SBA approves the IDAP Bor-
nal offense other than a minor motor rower’s Disaster Loan application, SBA
vehicle violation (including offenses will require that the IDAP loan be re-
which have been dismissed, discharged, paid first from the proceeds of the Dis-
or not prosecuted); aster Loan. If the IDAP Borrower re-
(3) Is at least a 50 percent or more ceives Other Recoveries during the Ini-
owner of applicant business, and is tial Period, the IDAP Borrower must,
more than 60 days delinquent on any in accordance with § 123.703(h), remit
obligation to pay child support arising the Other Recoveries to the IDAP
under an administrative order, court Lender, and the IDAP Lender will
order, repayment agreement between apply the Other Recoveries to the
the holder and a custodial parent, or IDAP loan. If the IDAP Borrower’s Dis-
repayment agreement between the aster Loan application is declined or if
holder and a state agency providing the amount of the approved Disaster
child support enforcement services; Loan is insufficient to repay the IDAP
(4) Is an undocumented (illegal) loan in full, the remaining balance of
alien; or the IDAP loan will be repaid during the
(5) Is delinquent on any Federal obli- Term Period as described in paragraph
gation, including but not limited to (2). The Initial Period ends upon (i) full
any Federal loans, contracts, grants, repayment of the IDAP loan from the
student loans or taxes. proceeds of the IDAP Borrower’s Dis-
aster Loan; (ii) SBA notice to the IDAP
§ 123.703 What are the terms of an Lender of decline of the IDAP Bor-
IDAP loan? rower’s Disaster Loan Application; or
(a) Guaranty percentage. The SBA (iii) receipt by the IDAP Lender of par-
guaranteed share of an IDAP loan is tial repayment of the IDAP loan from
85%. the proceeds of the Disaster Loan; pro-
(b) Maximum loan size. (1) If the vided that if the IDAP loan has not
amount of an IDAP Borrower’s disaster been fully disbursed at such time, the
losses is $25,000 or less, the principal Initial Period shall not end until the
amount of an IDAP loan must not ex- IDAP loan is fully disbursed. If an
ceed the amount of disaster losses IDAP Borrower withdraws an applica-
minus Other Recoveries. tion for a Disaster Loan, fails to close
(2) If the amount of an IDAP Bor- on an approved Disaster Loan or if the
rower’s disaster losses is more than approved Disaster Loan is cancelled,
$25,000, the principal amount of an the IDAP loan is immediately due and
IDAP loan must not exceed $25,000 payable by the IDAP Borrower.
minus Other Recoveries. (2) Term Period. If SBA declines the
(c) Disbursement. The disbursement IDAP Borrower’s Disaster Loan appli-
period for an IDAP loan is generally up cation or the approved amount of the
to 30 days from the date of SBA ap- Disaster Loan is insufficient to repay
proval of the IDAP loan. If the IDAP the IDAP loan in full, the IDAP Bor-
Lender is notified before disbursement rower must pay principal and interest
of the IDAP loan that the IDAP Bor- on the IDAP loan, with the IDAP loan
463
§ 123.704 13 CFR Ch. I (1–1–23 Edition)
balance to be fully amortized over a pe- § 123.704 Are there restrictions on how
riod that is at least 10 years from the IDAP loan funds may be used?
date of final disbursement of the IDAP (a) IDAP loan proceeds may only be
loan, but no more than 25 years from used for the following purposes:
the date of final disbursement. The (1) For a Major Disaster Declaration:
Term Period begins in the first month (i) If the IDAP Borrower is located in
following SBA notice to the IDAP a Primary County, to restore or re-
Lender of decline of the IDAP Bor- place the IDAP Borrower’s real or busi-
rower’s Disaster Loan application, re- ness personal property to its condition
ceipt by the IDAP Lender of partial re- before the Declared Disaster occurred
payment of the IDAP loan from the and/or for working capital necessary to
proceeds of the Disaster Loan, or final carry the IDAP Borrower until resump-
disbursement of the IDAP loan, which- tion of normal operations and for ex-
ever is later. Balloon payments are not penditures necessary to alleviate the
permitted. The IDAP Borrower may specific economic injury, but not to ex-
prepay all or a portion of the principal ceed that which the IDAP Borrower
during the life of the loan without pen- could have provided had the injury not
alty. If the IDAP Borrower receives occurred; or
Other Recoveries during the Term Pe- (ii) If the IDAP Borrower is located
riod, the IDAP Borrower must, in ac- in a Contiguous County, for working
cordance with § 123.703(h), remit the capital necessary to carry the IDAP
Other Recoveries to the IDAP Lender, Borrower until resumption of normal
and the IDAP Lender will apply the operations and for expenditures nec-
Other Recoveries to the IDAP loan. essary to alleviate the specific eco-
(e) Interest rate—(1) Initial Period. The nomic injury, but not to exceed that
maximum interest rate an IDAP Lend- which the IDAP Borrower could have
er may charge an IDAP Borrower dur- provided had the injury not occurred.
ing the Initial Period will be published (2) For an SBA Administrative Dis-
by SBA in the FEDERAL REGISTER from aster Declaration, if the IDAP Bor-
time to time. This rate must be a fixed rower is located in either a Primary
rate. County or a Contiguous County, to re-
(2) Term Period. The maximum inter- store or replace the IDAP Borrower’s
real or business personal property to
est rate an IDAP Lender may charge
its condition before the Declared Dis-
an IDAP Borrower during the Term Pe-
aster occurred and/or for working cap-
riod will be published in the FEDERAL
ital necessary to carry the IDAP Bor-
REGISTER from time to time. The IDAP
rower until resumption of normal oper-
Lender may charge either a fixed or a
ations and for expenditures necessary
variable rate during the Term Period.
to alleviate the specific economic in-
(f) Number of IDAP loans per small jury, but not to exceed that which the
business. No small business (including IDAP Borrower could have provided
affiliates) may obtain more than one had the injury not occurred.
IDAP loan per Declared Disaster. The (3) For an SBA EIDL-Only Disaster
provisions of § 120.151 do not apply to Declaration, if the IDAP Borrower is
IDAP loans. located in either a Primary County or
(g) Personal guarantees. Holders of at a Contiguous County, for working cap-
least a 20 percent ownership interest in ital necessary to carry the IDAP Bor-
the IDAP Borrower must guarantee the rower until resumption of normal oper-
IDAP loan. ations and for expenditures necessary
(h) Agreement to remit Other Recov- to alleviate the specific economic in-
eries. IDAP Borrowers must promptly jury, but not to exceed that which the
notify the IDAP Lender of the receipt IDAP Borrower could have provided
of Other Recoveries, and must prompt- had the injury not occurred.
ly remit the proceeds of Other Recov- (b) IDAP loan proceeds may not be
eries to the IDAP Lender. The IDAP used to:
Lender must apply the Other Recov- (1) Refinance or repay indebtedness
eries to the IDAP loan balance. SBA incurred prior to the Declared Disaster
does not require any additional collat- (other than regularly due install-
eral for IDAP loans. ments);
464
(2) Make payments on loans owned by § 123.705 Are there any fees associated
another federal agency (including SBA) with IDAP loans?
or a Small Business Investment Com- (a) IDAP Lender Fees. An IDAP Lend-
pany licensed under the Small Business er must not impose any fees or direct
Investment Act; costs on an IDAP Borrower, except for
(3) Pay, directly or indirectly, any the following allowed fees or direct
obligations resulting from a federal, costs:
state or local tax penalty as a result of (1) The reasonable direct costs of liq-
negligence or fraud, or any non-tax uidation;
criminal fine, civil fine, or penalty for (2) A late payment fee not to exceed
non-compliance with a law, regulation, 5 percent of the scheduled IDAP loan
or order of a federal, state, regional, or payment; and
local agency or similar matter; (3) An application fee not to exceed
$250. Notwithstanding the provisions of
(4) Pay dividends, bonuses or other
13 CFR 103.5, no compensation agree-
disbursements to owners, partners, of- ment is required for the application
ficers or stockholders, except for rea- fee. If an undisbursed IDAP loan is can-
sonable remuneration directly related celled pursuant to § 123.703(c), the IDAP
to their performance of services for the Lender may retain the application fee.
business; (b) SBA Fees. SBA will not impose
(5) Make repairs on a building rented any guarantee fees on an IDAP Lender
by the IDAP Borrower if the IDAP Bor- making an IDAP loan.
rower’s lease does not require the IDAP (c) Prohibition on paid loan packagers,
Borrower to make such repairs; referral agents or brokers. Other than the
(6) Make repairs to a condominium application fee set forth in (a)(3) of this
unit owned by the IDAP Borrower; section, no IDAP Lender or third party
(7) Replace landscaping in excess of may charge an IDAP Borrower a fee to
$5,000 unless the disaster damaged assist in the preparation of an IDAP
landscaping fulfilled a functional need loan application or application mate-
or contributed toward the generation rials. No third party may charge an
IDAP Borrower or an IDAP Lender a
of business;
referral fee or broker’s fee in connec-
(8) Repair or replace property not lo- tion with an IDAP loan.
cated within the Declared Disaster
Area at the time of the Declared Dis- § 123.706 What are the requirements
aster; for IDAP Lenders?
(9) Repay stockholder/Associate (a) IDAP Lenders. An IDAP Lender
loans, except where the funds were in- must be a 7(a) Lender (as defined in
jected on an interim basis as a result of § 120.10). Notwithstanding the provi-
the Declared Disaster and non-repay- sions of § 120.470(a), a Small Business
ment would cause undue hardship to Lending Company (SBLC) that is a 7(a)
the stockholder/Associate; Lender may make IDAP loans. An
(10) Expand facilities or acquire fixed IDAP Lender must sign a supplemental
assets, except for replacement of dis- Loan Guarantee Agreement for the
aster-damaged fixed assets; IDAP loan program. An IDAP Lender
(11) Pay for contractor malfeasance; must comply and maintain familiarity
(12) Replace damaged property that with the IDAP Loan Program Require-
ments, as such requirements are re-
consists of cash or securities;
vised from time to time. IDAP Loan
(13) Replace damaged property if the
Program Requirements in effect at the
replacement value is extraordinarily time that an IDAP Lender takes an ac-
high and not easily verified, such as tion in connection with a particular
the value of antiques, artworks or IDAP loan govern that specific action.
hobby collections; or With respect to their activities in the
(14) Repair or replace damaged prop- IDAP loan program, IDAP Lenders are
erty where the IDAP Borrower’s only subject to the requirements of §§ 120.140
interest is in the form of a security in- (What ethical requirements apply to

terest, mortgage or deed of trust. participants?), 120.197 (Notifying SBA’s
Office of Inspector General of suspected
465
§ 123.706 13 CFR Ch. I (1–1–23 Edition)
fraud), 120.400 (Loan Guarantee Agree- for its non-SBA guaranteed commer-
ments), 120.410 (Requirements for all cial loans. In all circumstances, such
participating Lenders), 120.411 (Pref- practices and procedures must be com-
erences), 120.412 (Other services Lend- mercially reasonable and consistent
ers may provide Borrowers), and 120.413 with prudent lending standards and in
(Advertisement of relationship with accordance with IDAP Loan Program
SBA) of this chapter. An IDAP Lender Requirements. SBA’s prior written
and its contractor(s) are independent consent is required for servicing ac-
contractors that are responsible for tions that may have significant expo-
their own actions with respect to an sure implications for SBA. SBA may
IDAP loan. SBA has no responsibility require written notice of other serv-
or liability for any claim by an IDAP icing actions it considers necessary for
Borrower, guarantor or other party al- portfolio management purposes.
leging injury as a result of any alleg- (e) Liquidations. Each IDAP Lender
edly wrongful action taken by an IDAP must be responsible for liquidating its
Lender or an employee, agent or con- defaulted IDAP loans. IDAP loans will
tractor of an IDAP Lender. be liquidated in accordance with the
(b) Delegated authority. An IDAP loan existing practices and procedures that
must be processed, serviced and liq- the IDAP Lender uses for its non-SBA
uidated under an IDAP Lender’s dele- guaranteed commercial loans. In all
gated authority provided by the supple- circumstances, such practices and pro-
mental Loan Guarantee Agreement for cedures must be commercially reason-
the IDAP loan program. Non-delegated able and consistent with prudent lend-
processing is not available for the ing standards and in accordance with
IDAP loan program. An IDAP Lender is IDAP Loan Program Requirements.
responsible for all IDAP loan decisions IDAP loans with de minimis value may,
regarding eligibility (including size) at the IDAP Lender’s request and with
and creditworthiness. In determining SBA’s approval, be liquidated by SBA
creditworthiness, an IDAP Lender or its agent(s). Significant liquidation
must use the existing practices and actions taken on IDAP loans must be
procedures that the IDAP Lender uses documented. The reimbursement of
for its non-SBA guaranteed commer- IDAP Lender liquidation expenses is
cial loans of a similar size. The IDAP limited to the amount of the recovery
Lender’s existing practices and proce- on the IDAP loan.
dures must be appropriate and gen- (f) Purchase requests. An IDAP Lender
erally accepted, proven and prudent may request SBA to purchase the guar-
credit evaluation processes and proce- anteed portion of an IDAP loan when
dures, which may include credit scor- there has been an uncured payment de-
ing, and must ensure that there is rea- fault exceeding 60 days or when the
sonable assurance of repayment. In dis- IDAP Borrower has declared bank-
bursing the IDAP loan, the IDAP Lend- ruptcy. IDAP loans are subject to the
er must use the same disbursement 7(a) loan program requirements of
procedures and documentation as it §§ 120.520 (Purchase of 7(a) loan guaran-
uses for its similarly sized non-SBA tees), 120.521 (What interest rate ap-
guaranteed commercial loans. An IDAP plies after SBA purchases its guaran-
Lender is also responsible for con- teed portion?), 120.522 (Payment of ac-
firming that all IDAP loan processing, crued interest to the Lender or Reg-
closing, servicing and liquidation deci- istered Holder when SBA purchases the
sions are correct and that all IDAP guaranteed portion), 120.523 (What is
Loan Program Requirements have been the ‘‘earliest uncured payment de-
followed. fault’’?), 120.524 (When is SBA released
(c) IDAP Lender reporting. An IDAP from liability on its guarantee?),
Lender must report on its IDAP loans 120.542 (Payment by SBA of legal fees
in accordance with requirements estab- and other expenses) and 120.546 (Loan
lished by SBA from time to time. asset sales) of this chapter.
(d) Servicing. Each IDAP Lender must (g) Prohibition on secondary market
service all of its IDAP loans in accord- sales, securitizations, loan participations
ance with the existing practices and and loan sales. An IDAP Lender may
procedures that the IDAP Lender uses not sell the guaranteed portion of an
466
IDAP loan in the secondary market, 124.110 Do Native Hawaiian Organizations

securitize the unguaranteed portion of (NHOs) have any special rules for apply-
an IDAP loan, participate any portion ing to and remaining eligible for the 8(a)
BD program?
of an IDAP loan with another lender, 124.111 Do Community Development Cor-
or sell all of its interest in an IDAP porations (CDCs) have any special rules
loan. for applying to and remaining eligible for
(h) Loan pledges. An IDAP Lender the 8(a) BD program?
may pledge an IDAP loan subject to 124.112 What criteria must a business meet
the 7(a) loan program requirements of to remain eligible to participate in the
§§ 120.434 and 120.435 of this chapter. 8(a) BD program?
(i) Oversight. All IDAP Lenders are APPLYING TO THE 8(a) BD PROGRAM
subject to the supervision and enforce-
124.201 May any business submit an applica-
ment provisions applicable to 7(a) tion?
Lenders in part 120, subpart I of this 124.202 How must an application be filed?
chapter (§§ 120.1000 through 120.1600). In 124.203 What must a concern submit to
addition, an IDAP Lender that is an apply to the 8(a) BD program?
SBA Supervised Lender (as defined in 124.204 How does SBA process applications
§ 120.10) is subject to the requirements for 8(a) BD program admission?
of §§ 120.460 through 120.490, as applica- 124.205 Can an applicant ask SBA to recon-
sider SBA’s initial decision to decline its
ble. application?
124.206 What appeal rights are available to
PART 124—8(a) BUSINESS DEVEL- an applicant that has been denied admis-
OPMENT/SMALL DISADVAN- sion?
124.207 Can an applicant reapply for admis-
TAGED BUSINESS STATUS DETER- sion to the 8(a) BD program?
MINATIONS
EXITING THE 8(a) BD PROGRAM
Subpart A—8(a) Business Development 124.300 What are the ways a business may
leave the 8(a) BD program?
PROVISIONS OF GENERAL APPLICABILITY 124.302 What is graduation and what is early
Sec. graduation?
124.303 What is termination?
124.1 What is the purpose of the 8(a) Busi-
124.304 What are the procedures for early
ness Development program?
graduation and termination?
124.2 What length of time may a business
124.305 What is suspension and how is a Par-
participate in the 8(a) BD program?
ticipant suspended from the 8(a) BD pro-
124.3 What definitions are important in the gram?
8(a) BD program?
124.4 What restrictions apply to fees for ap- BUSINESS DEVELOPMENT
plicant and Participant representatives?
124.401 Which SBA field office services a
ELIGIBILITY REQUIREMENTS FOR PARTICIPA- Participant?
TION IN THE 8(a) BUSINESS DEVELOPMENT 124.402 How does a Participant develop a
PROGRAM business plan?
124.403 How is a business plan updated and
124.101 What are the basic requirements a modified?
concern must meet for the 8(a) BD pro- 124.404 What business development assist-
gram? ance is available to Participants during
124.102 What size business is eligible to par- the two stages of participation in the 8(a)
ticipate in the 8(a) BD program? BD program?
124.103 Who is socially disadvantaged? 124.405 How does a Participant obtain Fed-
124.104 Who is economically disadvantaged? eral Government surplus property?
124.105 What does it mean to be uncondi-
tionally owned by one or more disadvan- CONTRACTUAL ASSISTANCE
taged individuals? 124.501 What general provisions apply to the
124.106 When do disadvantaged individuals award of 8(a) contracts?
control an applicant or Participant? 124.502 How does an agency offer a procure-
124.107 What is potential for success? ment to SBA for award through the 8(a)
124.108 What other eligibility requirements BD program?
apply for individuals or businesses? 124.503 How does SBA accept a procurement
124.109 Do Indian tribes and Alaska Native for award through the 8(a) BD program?
Corporations have any special rules for 124.504 What circumstances limit SBA’s
applying to and remaining eligible for ability to accept a procurement for
the 8(a) BD program? award as an 8(a) contract, and when can
467
§ 124.1 13 CFR Ch. I (1–1–23 Edition)
a requirement be released from the 8(a) 124.704 What additional management and
BD program? technical assistance is reserved exclu-
124.505 When will SBA appeal the terms or sively for concerns eligible to receive 8(a)
conditions of a particular 8(a) contract contracts?
or a procuring activity decision not to
use the 8(a) BD program? Subpart B—Eligibility, Certification, and
124.506 At what dollar threshold must an Protests Relating to Federal Small Dis-
8(a) procurement be competed among eli- advantaged Business Programs
gible Participants?
124.507 What procedures apply to competi- 124.1001 What is a Small Disadvantaged
tive 8(a) procurements? Business?
124.508 How is an 8(a) contract executed?
124.509 What are non-8(a) business activity AUTHORITY: 15 U.S.C. 634(b)(6), 636(j), 637(a),
targets? 637(d), 644, 42 U.S.C. 9815; and Pub. L. 99–661,
124.510 What limitations on subcontracting 100 Stat. 3816; Sec. 1207, Pub. L. 100–656, 102
apply to an 8(a) contract? Stat. 3853; Pub. L. 101–37, 103 Stat. 70; Pub. L.
124.511 How is fair market price determined 101–574, 104 Stat. 2814; Sec. 8021, Pub. L. 108–
for an 8(a) contract? 87, 117 Stat. 1054; and Sec. 330, Pub. L. 116–
124.512 Delegation of contract administra- 260.
tion to procuring agencies.
124.513 Under what circumstances can a SOURCE: 63 FR 35739, June 30, 1998, unless
joint venture be awarded an 8(a) con- otherwise noted.
tract? EDITORIAL NOTE: Nomenclature changes to
124.514 Exercise of 8(a) options and modi- part 124 appear at 72 FR 50040, Aug. 30, 2007,
fications. and 76 FR 8253, Feb. 11, 2011.
124.515 Can a Participant change its owner-
ship or control and continue to perform
an 8(a) contract, and can it transfer per- Subpart A—8(a) Business
formance to another firm? Development
124.516 [Reserved]
124.517 Can the eligibility or size of a Par- PROVISIONS OF GENERAL APPLICABILITY
ticipant for award of an 8(a) contract be
questioned? § 124.1 What is the purpose of the 8(a)
124.518 How can an 8(a) contract be termi- Business Development program?
nated before performance is completed?
124.519 Are there any dollar limits on the Sections 8(a) and 7(j) of the Small
amount of 8(a) contracts that a Partici- Business Act authorize a Minority
pant may receive? Small Business and Capital Ownership
124.520 Can 8(a) BD Program Participants Development program (designated the
participate in SBA’s Mentor-Protégé pro-
gram?
8(a) Business Development or ‘‘8(a)
124.521 What are the requirements for rep- BD’’ program for purposes of the regu-
resenting 8(a) status, and what are the lations in this part). The purpose of the
penalties for misrepresentation? 8(a) BD program is to assist eligible
small disadvantaged business concerns
MISCELLANEOUS REPORTING REQUIREMENTS compete in the American economy
124.601 What reports does SBA require con- through business development.
cerning parties who assist Participants
in obtaining federal contracts? § 124.2 What length of time may a busi-
124.602 What kind of annual financial state- ness participate in the 8(a) BD pro-
ment must a Participant submit to SBA? gram?
124.603 What reports regarding the contin-
ued business operations of former Par- (a) Except as set forth in paragraph
ticipants does SBA require? (b) of this section, a Participant re-
124.604 Report of benefits for firms owned ceives a program term of nine years
by Tribes, NNCs, NHOs and CDCs. from the date of SBA’s approval letter
certifying the concern’s admission to
MANAGEMENT AND TECHNICAL ASSISTANCE
PROGRAM the program. The Participant must
maintain its program eligibility during
124.701 What is the purpose of the 7(j) man- its tenure in the program and must in-
agement and technical assistance pro-
form SBA of any changes that would
gram?
124.702 What types of assistance are avail- adversely affect its program eligibility.
able through the 7(j) program? The nine-year program term may be
124.703 Who is eligible to receive 7(j) assist- shortened only by termination, early
ance? graduation (including voluntary early
468
graduation) or voluntary withdrawal as (ii) As part of a concern’s notifica-

provided for in this subpart. tion to SBA of its intent to be re-
(b) Pursuant to section 330 of the admitted to the 8(a) BD program, the
Consolidated Appropriations Act, 2021, concern must certify that it continues
and section 869 of the National Defense to meet the applicable 8(a) BD program
Authorization Act for Fiscal Year 2021, eligibility requirements as set forth in
a small business concern participating §§ 124.101 through 124.111. SBA may, in
the 8(a) BD program on March 13, 2020, its discretion, request information or
may elect to extend such participation documentation to assess whether the
by a period of one year from the end of concern meets the eligibility criteria
its program term, regardless of wheth- for readmittance.
er it previously elected to suspend par- (iii) Business concerns that were Par-
ticipation in the program under the ticipants in the 8(a) BD program on
procedures set forth in March 13, 2020, but were terminated or
§ 124.305(h)(1)(iii). early graduated by SBA or elected to
(1) Unless expressly declined in writ- voluntarily withdraw or early graduate
ing, SBA will extend a Participant’s in lieu of termination are not eligible
program term by one year if the con- to extend their program terms.
cern was a Participant in the 8(a) BD (iv) The readmittance of a business
program on March 13, 2020, and contin- concern owned and controlled by a
ued its participation through January tribe, ANC, NHO, or CDC to the 8(a) BD
13, 2021. Declines of such extension program under this paragraph (b)(2)
must be submitted to: Deputy Asso- will be disregarded for purposes of the
ciate Administrator, Office of Business ownership restrictions applicable to
Participants owned by a tribe, ANC,
Development, Small Business Adminis-
NHO, or CDC as set forth in
tration, 409 Third Street SW, Wash-
§§ 124.109(c)(3)(ii), 124.110(e), and
ington, DC 20416, or email to
124.111(d). The date to commence the
8aQuestions@sba.gov.
two-year waiting period for the tribe,
(2) Except as set forth in paragraph ANC, NHO, or CDC to own another
(b)(2)(iii) of this section any concern business concern in the 8(a) BD pro-
that was a Participant in the 8(a) BD gram with the same primary NAICS
program on March 13, 2020, but grad- code as the readmitted concern will not
uated or otherwise left the program be- be readjusted with the firm’s readmit-
fore January 13, 2021 may elect to be tance.
readmitted to the 8(a) BD program for
the period of time equal to one year [86 FR 2532, Jan. 13, 2021]
from the date of the original expiration
of the concern’s program term. A con- § 124.3 What definitions are important
in the 8(a) BD program?
cern seeking to be readmitted to the
8(a) BD program must notify SBA of its Alaska Native, as defined by the Alas-
intent to be readmitted no later than ka Native Claims Settlement Act (43
March 15, 2021. U.S.C. 1602), means a citizen of the
United States who is a person of one-
Example 1 to paragraph (b)(2) introductory
fourth degree or more Alaskan Indian
text. Business Concern A was a Participant in
the 8(a) BD program on September 9, 2020,
(including Tsimshian Indians not en-
and its program term expired on November rolled in the Metlaktla Indian Commu-
25, 2020. On January 28, 2021, Business Con- nity), Eskimo, or Aleut blood, or a
cern A notified SBA of its election to be re- combination of those bloodlines. The
admitted to the 8(a) BD program under the term includes, in the absence of proof
process outlined in this paragraph (b)(2). of a minimum blood quantum, any cit-
Business Concern A would be eligible to par- izen whom a Native village or Native
ticipate in the 8(a) BD program until Novem- group regards as an Alaska Native if
ber 25, 2021.
their father or mother is regarded as
(i) All requests for readmittance must be
an Alaska Native.
submitted to: Associate Administrator, Of-
fice of Business Development, Small Busi- Alaska Native Corporation or ANC
ness Administration, 409 Third Street SW, means any Regional Corporation, Vil-
Washington, DC 20416, or email to lage Corporation, Urban Corporation,
8aQuestions@sba.gov. or Group Corporation organized under
469
§ 124.3 13 CFR Ch. I (1–1–23 Edition)
the laws of the State of Alaska in ac- ices provided by the United States to
cordance with the Alaska Native Indians because of their status as Indi-
Claims Settlement Act, as amended (43 ans, or is recognized as such by the
U.S.C. 1601, et seq.) State in which the tribe, band, nation,
Bona fide place of business, for pur- group, or community resides. See defi-
poses of 8(a) construction procure- nition of ‘‘tribally-owned concern.’’
ments, means a location where a Par- NAICS code means North American
ticipant regularly maintains an office Industry Classification System code.
which employs at least one full-time Native Hawaiian means any indi-
individual within the appropriate geo- vidual whose ancestors were natives,
graphical boundary. The term does not prior to 1778, of the area which now
include construction trailers or other comprises the State of Hawaii.
temporary construction sites. Native Hawaiian Organization means
Community Development Corporation or any community service organization
CDC means a nonprofit organization serving Native Hawaiians in the State
responsible to residents of the area it of Hawaii which is a not-for-profit or-
serves which has received financial as- ganization chartered by the State of
sistance under 42 U.S.C. 9805, et seq. Hawaii, is controlled by Native Hawai-
Concern is defined in part 121 of this ians, and whose business activities will
title. principally benefit such Native Hawai-
Days means calendar days unless oth- ians.
erwise specified. Negative control is defined in part 121
Day-to-day operations of a firm means of this title.
the marketing, production, sales, and Non-disadvantaged individual means
administrative functions of the firm. any individual who does not claim dis-
Follow-on requirement or contract. The advantaged status, does not qualify as
determination of whether a particular disadvantaged, or upon whose dis-
requirement or contract is a follow-on advantaged status an applicant or Par-
includes consideration of whether the ticipant does not rely in qualifying for
scope has changed significantly, requir- 8(a) BD program participation.
ing meaningful different types of work Participant means a small business
or different capabilities; whether the concern admitted to participate in the
magnitude or value of the requirement 8(a) BD program.
has changed by at least 25 percent for Primary industry classification means
equivalent periods of performance; and the six digit North American Industry
whether the end user of the require- Classification System (NAICS) code
ment has changed. As a general guide, designation which best describes the
if the procurement satisfies at least primary business activity of the 8(a)
one of these three conditions, it may be BD applicant or Participant. The
considered a new requirement. How- NAICS code designations are described
ever, meeting any one of these condi- in the North American Industry Classi-
tions is not dispositive that a require- fication System book published by the
ment is new. In particular, the 25 per- U.S. Office of Management and Budget.
cent rule cannot be applied rigidly in SBA utilizes § 121.107 of this chapter in
all cases. Conversely, if the require- determining a firm’s primary industry
ment satisfies none of these conditions, classification. A Participant may
it is considered a follow-on procure- change its primary industry classifica-
ment. tion where it can demonstrate to SBA
Immediate family member means fa- by clear evidence that the majority of
ther, mother, husband, wife, son, its total revenues during a three-year
daughter, brother, sister, grandfather, period have evolved from one NAICS
grandmother, grandson, grand- code to another.
daughter, father-in-law, and mother-in- Principal place of business means the
law. business location where the individuals
Indian tribe means any Indian tribe, who manage the concern’s day-to-day
band, nation, or other organized group operations spend most working hours
or community of Indians, including and where top management’s business

any ANC, which is recognized as eligi- records are kept. If the offices from
ble for the special programs and serv- which management is directed and
470
where the business records are kept are Participant has not ‘‘self-marketed’’
in different locations, SBA will deter- the requirement within the meaning of
mine the principal place of business for this part.
program purposes. Tribally-owned concern means any
Program year means a 12-month pe- concern at least 51 percent owned by an
riod of an 8(a) BD Participant’s pro- Indian tribe as defined in this section.
gram participation. The first program Unconditional ownership means own-
year begins on the date that the con- ership that is not subject to conditions
cern is certified to participate in the precedent, conditions subsequent, exec-
8(a) BD program and ends one year utory agreements, voting trusts, re-
later. Each subsequent program year strictions on or assignments of voting
begins on the Participant’s anniversary rights, or other arrangements causing
of program certification and runs for or potentially causing ownership bene-
one 12-month period. fits to go to another (other than after
Regularly maintains an office means death or incapacity). The pledge or en-
conducting business activities as an cumbrance of stock or other ownership
on-going business concern from a fixed interest as collateral, including seller-
location on a daily basis. The best evi- financed transactions, does not affect
dence of the regular maintenance of an the unconditional nature of ownership
office is documentation that shows if the terms follow normal commercial
that third parties routinely transact practices and the owner retains control
business with a Participant at a loca- absent violations of the terms.
tion within a particular geographical
area. Such evidence includes lease [63 FR 35739, June 30, 1998, as amended at 76
agreements, payroll records, advertise- FR 8253, Feb. 11, 2011; 77 FR 28237, May 14,
ments, bills, correspondence, and evi- 2012; 85 FR 66183, Oct. 16, 2020]
dence that the Participant has com-
§ 124.4 What restrictions apply to fees
plied with all local requirements con- for applicant and Participant rep-
cerning registering, licensing, or filing resentatives?
with the State or County where the
place of business is located. Although a (a) The compensation received by any
firm would generally be required to packager, agent or representative of an
have a license to do business in a par- 8(a) applicant or Participant for assist-
ticular location in order to ‘‘regularly ing the applicant in obtaining 8(a) cer-
maintain an office’’ there, the firm tification or for assisting the Partici-
would not be required to have an addi- pant in obtaining 8(a) contracts, or any
tional construction license or other other assistance to support program
specific type of license in order to reg- participation, must be reasonable in
ularly maintain an office. light of the service(s) performed by the
Same or similar line of business means packager, agent or representative.
business activities within the same (b) In assisting a Participant obtain
four-digit ‘‘Industry Group’’ of the one or more 8(a) contracts, a packager,
NAICS Manual as the primary industry agent or representative cannot receive
classification of the applicant or Par- a fee that is a percentage of the gross
ticipant. The phrase ‘‘same business contract value.
area’’ is synonymous with this defini- (c) For good cause, the AA/BD may
tion. initiate proceedings to suspend or re-
Self-marketing of a requirement oc- voke a packager’s, agent’s or rep-
curs when a Participant identifies a re- resentative’s privilege to assist appli-
quirement that has not been com- cants obtain 8(a) certification, assist
mitted to the 8(a) BD program and, Participants obtain 8(a) contracts, or
through its marketing efforts, causes any other assistance to support pro-
the procuring activity to offer that gram participation. Good cause is de-
specific requirement to the 8(a) BD pro- fined in § 103.4 of these regulations.
gram on the Participant’s behalf. A (1) The AA/BD may send a show cause
firm which identifies and markets a re- letter requesting the agent or rep-
quirement which is subsequently of- resentative to demonstrate why the

fered to the 8(a) BD program as an open agent or representative should not be
requirement or on behalf of another suspended or proposed for revocation,
471
§ 124.101 13 CFR Ch. I (1–1–23 Edition)
or may immediately send a written no- § 124.102 What size business is eligible
tice suspending or proposing revoca- to participate in the 8(a) BD pro-
tion, depending upon the evidence in gram?
the administrative record. The notice (a)(1) An applicant concern must
will include a discussion of the rel- qualify as a small business concern as
evant facts and the reason(s) why the defined in part 121 of this title. The ap-
AA/BD believes that good cause exists. plicable size standard is the one for its
(2) Unless the AA/BD specifies a dif- primary industry classification. The
ferent time in the notice, the agent or rules for calculating the size of a trib-
representative must respond to the no- ally-owned concern, a concern owned
tice within 30 days of the date of the by an Alaska Native Corporation, a
notice with any facts or arguments concern owned by a Native Hawaiian
showing why good cause does not exist. Organization, or a concern owned by a
The agent or representative may re- Community Development Corporation
quest additional time to respond, are additionally affected by §§ 124.109,
which the AA/BD may grant in his or 124.110, and 124.111, respectively.
her discretion. (2) In order to remain eligible to par-
ticipate in the 8(a) BD program after
(3) After considering the agent’s or
certification, a firm must generally re-
representative’s response, the AA/BD
main small for its primary industry
will issue a final determination, set- classification, as adjusted during the
ting forth the reasons for this decision program. SBA may graduate a Partici-
and, if a suspension continues to be ef- pant prior to the expiration of its pro-
fective or a revocation is implemented, gram term where the firm exceeds the
the term of the suspension or revoca- size standard corresponding to its pri-
tion. mary NAICS code, as adjusted, for
(d) The AA/BD may refer a packager, three successive program years, unless
agent, or other representative to SBA’s the firm demonstrates that through its
Suspension and Debarment Official for growth and development its primary
possible Government-wide suspension industry is changing, pursuant to the
or debarment where appropriate, in- criteria described in 13 CFR 121.107, to
cluding where it appears that the pack- a related secondary NAICS code that is
ager, agent or representative assisted contained in its most recently ap-
an applicant to or Participant in the proved business plan. The firm’s busi-
8(a) BD program submit information to ness plan must contain specific targets,
SBA that the packager, agent or rep- objectives, and goals for its continued
resentative knew was false or materi- growth and development under its new
ally misleading. primary industry.
(b) If 8(a) BD program officials deter-
[76 FR 8253, Feb. 11, 2011] mine that a concern may not qualify as
small, they may deny an application
ELIGIBILITY REQUIREMENTS FOR PAR-
for 8(a) BD program admission or may
TICIPATION IN THE 8(a) BUSINESS DE-
request a formal size determination
VELOPMENT PROGRAM
under part 121 of this title.
§ 124.101 What are the basic require- (c) A concern whose application is de-
ments a concern must meet for the nied due to size by 8(a) BD program of-
8(a) BD program? ficials may request a formal size deter-
mination under part 121 of this title. A
Generally, a concern meets the basic favorable determination will enable
requirements for admission to the 8(a) the firm to immediately submit a new
BD program if it is a small business 8(a) BD application without waiting
which is unconditionally owned and one year.
controlled by one or more socially and
economically disadvantaged individ- [63 FR 35739, June 30, 1998, as amended at 76
uals who are of good character and citi- FR 8254, Feb. 11, 2011]
zens of and residing in the United § 124.103 Who is socially disadvan-
States, and which demonstrates poten-
taged?
tial for success.
(a) General. Socially disadvantaged
[76 FR 8254, Feb. 11, 2011] individuals are those who have been
472
subjected to racial or ethnic prejudice tage by a preponderance of the evi-

or cultural bias within American soci- dence. Such individual should present
ety because of their identities as mem- corroborating evidence to support his
bers of groups and without regard to or her claim(s) of social disadvantage
their individual qualities. The social where readily available.
disadvantage must stem from cir- (2) Evidence of individual social dis-
cumstances beyond their control. advantage must include the following
(b) Members of designated groups. (1) elements:
There is a rebuttable presumption that (i) At least one objective distin-
the following individuals are socially guishing feature that has contributed
disadvantaged: Black Americans; His- to social disadvantage, such as race,
panic Americans; Native Americans ethnic origin, gender, physical handi-
(Alaska Natives, Native Hawaiians, or cap, long-term residence in an environ-
enrolled members of a Federally or ment isolated from the mainstream of
State recognized Indian Tribe); Asian American society, or other similar
Pacific Americans (persons with ori- causes not common to individuals who
gins from Burma, Thailand, Malaysia, are not socially disadvantaged;
Indonesia, Singapore, Brunei, Japan, (ii) The individual’s social disadvan-
China (including Hong Kong), Taiwan, tage must be rooted in treatment
Laos, Cambodia (Kampuchea), Viet- which he or she has experienced in
nam, Korea, The Philippines, U.S.
American society, not in other coun-
Trust Territory of the Pacific Islands
tries;
(Republic of Palau), Republic of the
(iii) The individual’s social disadvan-
Marshall Islands, Federated States of
Micronesia, the Commonwealth of the tage must be chronic and substantial,
Northern Mariana Islands, Guam, not fleeting or insignificant; and
Samoa, Macao, Fiji, Tonga, Kiribati, (iv) The individual’s social disadvan-
Tuvalu, or Nauru); Subcontinent Asian tage must have negatively impacted on
Americans (persons with origins from his or her entry into or advancement in
India, Pakistan, Bangladesh, Sri the business world. SBA will consider
Lanka, Bhutan, the Maldives Islands or any relevant evidence in assessing this
Nepal); and members of other groups element, including experiences relating
designated from time to time by SBA to education, employment and business
according to procedures set forth at history (including experiences relating
paragraph (d) of this section. Being to both the applicant firm and any
born in a country does not, by itself, other previous firm owned and/or con-
suffice to make the birth country an trolled by the individual), where appli-
individual’s country of origin for pur- cable.
poses of being included within a des- (A) Education. SBA considers such
ignated group. factors as denial of equal access to in-
(2) An individual must demonstrate stitutions of higher education, exclu-
that he or she has held himself or her- sion from social and professional asso-
self out, and is currently identified by ciation with students or teachers, de-
others, as a member of a designated nial of educational honors rightfully
group if SBA requires it. earned, and social patterns or pressures
(3) The presumption of social dis- which discouraged the individual from
advantage may be overcome with cred- pursuing a professional or business
ible evidence to the contrary. Individ- education.
uals possessing or knowing of such evi- (B) Employment. SBA considers such
dence should submit the information in factors as unequal treatment in hiring,
writing to the Associate Administrator promotions and other aspects of profes-
for Business Development (AA/BD) for sional advancement, pay and fringe
consideration. benefits, and other terms and condi-
(c) Individuals not members of des- tions of employment; retaliatory or
ignated groups. (1) An individual who is discriminatory behavior by an em-
not a member of one of the groups pre- ployer; and social patterns or pressures
sumed to be socially disadvantaged in which have channeled the individual

paragraph (b)(1) of this section must into nonprofessional or non-business
establish individual social disadvan- fields.
473
§ 124.103 13 CFR Ch. I (1–1–23 Edition)
(C) Business history. SBA considers facts, that claim is insufficient to establish
such factors as unequal access to credit an incident of gender bias that could lead to
or capital, acquisition of credit or cap- a finding of social disadvantage. It is no
more likely that she was not permitted to
ital under commercially unfavorable
attend the conference based on gender bias
circumstances, unequal treatment in than based on non-discriminatory reasons.
opportunities for government contracts She must identify that she was in the same
or other work, unequal treatment by professional position and level as the male
potential customers and business asso- employees who were permitted to attend
ciates, and exclusion from business or similar conferences in the past, and she must
professional organizations. identify that funding for training or profes-
(3) An individual claiming social dis- sional development was available at the time
advantage must present facts and evi- she requested to attend the conference.
dence that by themselves establish (iii) SBA may disregard a claim of so-
that the individual has suffered social cial disadvantage where an individual
disadvantage that has negatively im- presents evidence of discriminatory
pacted his or her entry into or ad- conduct, but fails to connect the dis-
vancement in the business world. criminatory conduct to consequences
(i) Each instance of alleged discrimi- that negatively impact his or her entry
natory conduct must be accompanied into or advancement in the business
by a negative impact on the individ- world.
ual’s entry into or advancement in the
business world in order for it to con- Example to paragraph (c)(3)(iii). A woman
stitute an instance of social disadvan- who is not a member of a designated group
attempts to establish her individual social
tage. disadvantage based on gender. She provides
(ii) SBA may disregard a claim of so- instances where one or more male business
cial disadvantage where a legitimate clients utter derogatory statements about
alternative ground for an adverse em- her because she is a woman. After each in-
ployment action or other perceived ad- stance, however, she acknowledges that the
verse action exists and the individual clients gave her contracts or otherwise con-
has not presented evidence that would tinued to do business with her. Despite suf-
render his/her claim any more likely fering discriminatory conduct, this indi-
vidual has not established social disadvan-
than the alternative ground.
tage because the discriminatory conduct did
Example 1 to paragraph (c)(3)(ii). A woman not have an adverse effect on her business.
who is not a member of a designated group
attempts to establish her individual social (4) SBA may request an applicant to
disadvantage based on gender. She certifies provide additional facts to support his
that while working for company X, she re- or her claim of social disadvantage to
ceived less compensation than her male substantiate that a negative outcome
counterpart. Without additional facts, that was based on discriminatory conduct
claim is insufficient to establish an incident instead of one or more legitimate non-
of gender bias that could lead to a finding of discriminatory reasons.
social disadvantage. Without additional
facts, it is no more likely that the individual (5) SBA will discount or disbelieve
claiming disadvantage was paid less than her statements made by an individual
male counterpart because he had superior seeking to establish his or her indi-
qualifications or because he had greater re- vidual social disadvantage where such
sponsibilities in his employment position. statements are inconsistent with other
She must identify her qualifications (edu- evidence contained in the record.
cation, experience, years of employment, su- (6) In determining whether an indi-
pervisory functions) as being equal or supe-
rior to that of her male counterpart in order
vidual claiming social disadvantage
for SBA to consider that particular incident meets the requirements set forth in
may be the result of discriminatory conduct. this paragraph (c), SBA will determine
Example 2 to paragraph (c)(3)(ii). A woman whether:
who is not a member of a designated group (i) Each specific claim establishes an
attempts to establish her individual social incident of bias or discriminatory con-
disadvantage based on gender. She certifies duct;
that while working for company Y, she was
not permitted to attend a professional devel- (ii) Each incident of bias or discrimi-
opment conference, even though male em- natory conduct negatively impacted
ployees were allowed to attend similar con- the individual’s entry into or advance-
ferences in the past. Without additional ment in the business world; and
474
(iii) In the totality, the incidents of paragraph (d)(2) of this section based
bias or discriminatory conduct that on SBA’s consideration of the group pe-
negatively impacted the individual’s tition, the comments from the public,
entry into or advancement in the busi- and any independent research it per-
ness world establish chronic and sub- forms. SBA will advise the petitioners
stantial social disadvantage. of its final decision in writing, and pub-
(d) Socially disadvantaged group inclu- lish its conclusion as a notice in the
sion—(1) General. Representatives of an FEDERAL REGISTER. If appropriate, SBA
identifiable group whose members be- will amend paragraph (b)(1) of this sec-
lieve that the group has suffered chron- tion to include a new group.
ic racial or ethnic prejudice or cultural [63 FR 35739, June 30, 1998, as amended at 74
bias may petition SBA to be included FR 45753, Sept. 4, 2009; 76 FR 8254, Feb. 11,
as a presumptively socially disadvan- 2011; 81 FR 48579, July 25, 2016]
taged group under paragraph (b)(1) of
this section. Upon presentation of sub- § 124.104 Who is economically dis-
stantial evidence that members of the advantaged?
group have been subjected to racial or (a) General. Economically disadvan-
ethnic prejudice or cultural bias be- taged individuals are socially disadvan-
cause of their identity as group mem- taged individuals whose ability to com-
bers and without regard to their indi- pete in the free enterprise system has
vidual qualities, SBA will publish a no- been impaired due to diminished cap-
tice in the FEDERAL REGISTER that it ital and credit opportunities as com-
has received and is considering such a pared to others in the same or similar
request, and that it will consider public line of business who are not socially
comments. disadvantaged.
(2) Standards to be applied. In deter- (b) Submission of narrative and finan-
mining whether a group has made an cial information. (1) Each individual
adequate showing that it has suffered claiming economic disadvantage must
chronic racial or ethnic prejudice or submit personal financial information.
cultural bias for the purposes of this (2) When married, an individual
section, SBA must determine that: claiming economic disadvantage must
(i) The group has suffered prejudice, submit separate financial information
bias, or discriminatory practices; for his or her spouse, unless the indi-
(ii) Those conditions have resulted in vidual and the spouse are legally sepa-
economic deprivation for the group of rated. SBA will consider a spouse’s fi-
the type which Congress has found ex- nancial situation in determining an in-
ists for the groups named in the Small dividual’s access to credit and capital
Business Act; and where the spouse has a role in the busi-
(iii) Those conditions have produced ness (e.g., an officer, employee or direc-
impediments in the business world for tor) or has lent money to, provided
members of the group over which they credit support to, or guaranteed a loan
have no control and which are not com- of the business. SBA does not take into
mon to small business owners gen- consideration community property
erally. laws when determining economic dis-
(3) Procedure. The notice published advantage.
under paragraph (d)(1) of this section (c) Factors to be considered. In consid-
will authorize a specified period for the ering diminished capital and credit op-
receipt of public comments supporting portunities, SBA will examine factors
or opposing the petition for socially relating to the personal financial con-
disadvantaged group status. If appro- dition of any individual claiming dis-
priate, SBA may hold hearings. SBA advantaged status, including income
may also conduct its own research rel- for the past three years (including bo-
ative to the group’s petition. nuses and the value of company stock
(4) Decision. In making a final deci- received in lieu of cash), personal net
sion that a group should be considered worth, and the fair market value of all
presumptively disadvantaged, SBA assets, whether encumbered or not. An
must find that a preponderance of the individual who exceeds any one of the
evidence demonstrates that the group thresholds set forth in this paragraph
has met the standards set forth in for personal income, net worth or total
475
§ 124.104 13 CFR Ch. I (1–1–23 Edition)
assets will generally be deemed to have sess whether funds invested in a retire-
access to credit and capital and not ment account may be excluded from an
economically disadvantaged. individual’s net worth, the individual
(1) Transfers within two years. (i) Ex- must provide information about the
cept as set forth in paragraph (c)(1)(ii) terms and restrictions of the account
of this section, SBA will attribute to to SBA and certify that the retirement
an individual claiming disadvantaged account is legitimate.
status any assets which that individual (iii) Income received from an appli-
has transferred to an immediate family cant or Participant that is an S cor-
member, or to a trust a beneficiary of poration, limited liability company
which is an immediate family member, (LLC) or partnership will be excluded
for less than fair market value, within from an individual’s net worth where
two years prior to a concern’s applica- the applicant or Participant provides
tion for participation in the 8(a) BD documentary evidence demonstrating
program or within two years of a Par- that the income was reinvested in the
ticipant’s annual program review, un- firm or used to pay taxes arising in the
less the individual claiming disadvan- normal course of operations of the
taged status can demonstrate that the firm. Losses from the S corporation,
transfer is to or on behalf of an imme- LLC or partnership, however, are losses
diate family member for that individ- to the company only, not losses to the
ual’s education, medical expenses, or individual, and cannot be used to re-
some other form of essential support. duce an individual’s net worth.
(ii) SBA will not attribute to an indi- (iv) The personal net worth of an in-
vidual claiming disadvantaged status dividual claiming to be an Alaska Na-
any assets transferred by that indi- tive will include assets and income
vidual to an immediate family member from sources other than an Alaska Na-
that are consistent with the customary tive Corporation and exclude any of the
recognition of special occasions, such following which the individual receives
as birthdays, graduations, anniver- from any Alaska Native Corporation:
saries, and retirements. cash (including cash dividends on stock
(iii) In determining an individual’s received from an ANC) to the extent
access to capital and credit, SBA may that it does not, in the aggregate, ex-
consider any assets that the individual ceed $2,000 per individual per annum;
transferred within such two-year pe- stock (including stock issued or dis-
riod described by paragraph (c)(1)(i) of tributed by an ANC as a dividend or
this section that SBA does not consider distribution on stock); a partnership
in evaluating the individual’s assets interest; land or an interest in land (in-
and net worth (e.g., transfers to char- cluding land or an interest in land re-
ities). ceived from an ANC as a dividend or
(2) Net worth. The net worth of an in- distribution on stock); and an interest
dividual claiming disadvantage must in a settlement trust.
be less than $850,000. In determining (3) Personal income for the past three
such net worth, SBA will exclude the years. (i) SBA will presume that an in-
ownership interest in the applicant or dividual is not economically disadvan-
Participant and the equity in the pri- taged if his or her adjusted gross in-
mary personal residence (except any come averaged over the three pre-
portion of such equity which is attrib- ceding years exceeds $400,000. The pre-
utable to excessive withdrawals from sumption may be rebutted by a show-
the applicant or Participant). Exclu- ing that this income level was unusual
sions for net worth purposes are not ex- and not likely to occur in the future,
clusions for asset valuation or access that losses commensurate with and di-
to capital and credit purposes. rectly related to the earnings were suf-
(i) A contingent liability does not re- fered, or by evidence that the income is
duce an individual’s net worth. not indicative of lack of economic dis-
(ii) Funds invested in an Individual advantage.
Retirement Account (IRA) or other of- (ii) Income received from an appli-
ficial retirement account will not be cant or Participant that is an S cor-

considered in determining an individ- poration, LLC or partnership will be
ual’s net worth. In order to properly as- excluded from an individual’s income
476
where the applicant or Participant proof ownership by a disadvantaged indi-

vides documentary evidence dem- vidual where the trust is revocable, and
onstrating that the income was rein- the disadvantaged individual is the
vested in the firm or used to pay taxes grantor, a trustee, and the sole current
arising in the normal course of oper- beneficiary of the trust.
ations of the firm. Losses from the S (b) Ownership of a partnership. In the
corporation, LLC or partnership, how- case of a concern which is a partner-
ever, are losses to the company only, ship, at least 51 percent of every class
not losses to the individual, and cannot of partnership interest must be uncon-
be used to reduce an individual’s per- ditionally owned by one or more indi-
sonal income. viduals determined by SBA to be so-
(4) Fair market value of all assets. An cially and economically disadvantaged.
individual will generally not be consid- The ownership must be reflected in the
ered economically disadvantaged if the concern’s partnership agreement.
fair market value of all his or her as- (c) Ownership of a limited liability com-
sets (including his or her primary resi- pany. In the case of a concern which is
dence and the value of the applicant/ a limited liability company, at least 51
Participant firm) exceeds $6.5 million. percent of each class of member inter-
The only assets excluded from this de- est must be unconditionally owned by
termination are funds excluded under one or more individuals determined by
paragraph (c)(2)(ii) of this section as SBA to be socially and economically
being invested in a qualified IRA ac- disadvantaged.
count.
(d) Ownership of a corporation. In the
[63 FR 35739, June 30, 1998, as amended at 76 case of a concern which is a corpora-
FR 8254, Feb. 11, 2011; 81 FR 48580, July 25, tion, at least 51 percent of each class of
2016; 85 FR 27660, May 11, 2020; 87 FR 69154, voting stock outstanding and 51 per-
Nov. 17, 2022]
cent of the aggregate of all stock out-
§ 124.105 What does it mean to be un- standing must be unconditionally
conditionally owned by one or more owned by one or more individuals de-
disadvantaged individuals? termined by SBA to be socially and
economically disadvantaged.
An applicant or Participant must be
at least 51 percent unconditionally and (e) Stock options’ effect on ownership.
directly owned by one or more socially In determining unconditional owner-
and economically disadvantaged indi- ship, SBA will disregard any
viduals who are citizens of the United unexercised stock options or similar
States, except for concerns owned by agreements held by disadvantaged indi-
Indian tribes, Alaska Native Corpora- viduals. However, any unexercised
tions, Native Hawaiian Organizations, stock options or similar agreements
or Community Development Corpora- (including rights to convert non-voting
tions (CDCs). See § 124.3 for definition of stock or debentures into voting stock)
unconditional ownership; and §§ 124.109, held by non-disadvantaged individuals
124.110, and 124.111, respectively, for will be treated as exercised, except for
special ownership requirements for any ownership interests which are held
concerns owned by Indian tribes, ANCs, by investment companies licensed
Native Hawaiian Organizations, and under the Small Business Investment
CDCs. Act of 1958.
(a) Ownership must be direct. Owner- (f) Dividends and distributions. One or
ship by one or more disadvantaged in- more disadvantaged individuals must
dividuals must be direct ownership. An be entitled to receive:
applicant or Participant owned prin- (1) At least 51 percent of the annual
cipally by another business entity or distribution of dividends paid on the
by a trust (including employee stock stock of a corporate applicant concern;
ownership trusts) that is in turn owned (2) 100 percent of the value of each
and controlled by one or more dis- share of stock owned by them in the
advantaged individuals does not meet event that the stock is sold; and
this requirement. However, ownership (3) At least 51 percent of the retained

by a trust, such as a living trust, may earnings of the concern and 100 percent
be treated as the functional equivalent of the unencumbered value of each
477
§ 124.105 13 CFR Ch. I (1–1–23 Edition)
share of stock owned in the event of firms that were not disclosed to the
dissolution of the corporation. AA/BD at the time of application or
(g) Ownership of another current or that came into existence after program
former Participant by an immediate fam- admittance.
ily member. (1) An individual may not (h) Ownership restrictions for non-dis-
use his or her disadvantaged status to advantaged individuals and concerns. (1)
qualify a concern if that individual has A non-disadvantaged individual (in the
an immediate family member who is aggregate with all immediate family
using or has used his or her disadvan- members) or a non-Participant concern
taged status to qualify another concern that is a general partner or stock-
for the 8(a) BD program and any of the holder with at least a 10 percent owner-
following circumstances exist: ship interest in one Participant may
(i) The concerns are connected by
not own more than a 10 percent inter-
any common ownership or manage-
est in another Participant that is in
ment, regardless of amount or position;
(ii) The concerns have a contractual the developmental stage or more than
relationship that was not conducted at a 20 percent interest in another Partic-
arm’s length; ipant in the transitional stage of the
(iii) The concerns share common fa- program. This restriction does not
cilities; or apply to financial institutions licensed
(iv) The concerns operate in the same or chartered by Federal, state or local
primary NAICS code and the individual government, including investment
seeking to qualify the applicant con- companies which are licensed under the
cern does not have management or Small Business Investment Act of 1958.
technical experience in that primary (2) A non-Participant concern in the
NAICS code. same or similar line of business or a
principal of such concern may not own
Example 1 to paragraph (g)(1). X applies to
more than a 10 percent interest in a
the 8(a) BD program. X is 95% owned by A
and 5% by B, A’s father and the majority Participant that is in the develop-
owner in a former 8(a) Participant. Even mental stage or more than a 20 percent
though B has no involvement in X, X would interest in a Participant in the transi-
be ineligible for the program. tional stage of the program, except
Example 2 to paragraph (g)(1). Y applies to that a former Participant in the same
the 8(a) BD program. C owns 100% of Y. How- or similar line of business or a prin-
ever, D, C’s sister and the majority owner in cipal of such a former Participant (ex-
a former 8(a) Participant, is acting as a Vice
President in Y. Y would be ineligible for the cept those that have been terminated
program. from 8(a) BD program participation
Example 3 to paragraph (g)(1). X seeks to pursuant to §§ 124.303 and 124.304) may
apply to the 8(a) BD program with a primary have an equity ownership interest of up
NAICS code in plumbing. X is 100% owned by to 20 percent in a current Participant
A. Z, a former 8(a) participant with a pri- in the developmental stage of the pro-
mary industry in general construction, is gram or up to 30 percent in a transi-
owned 100% by B, A’s brother. For general
construction jobs, Z has subcontracted
tional stage Participant.
plumbing work to X in the past at normal (i) Change of ownership. A Participant
commercial rates. Subcontracting work at may change its ownership or business
normal commercial rates would not preclude structure so long as one or more dis-
X from being admitted to the 8(a) BD pro- advantaged individuals own and con-
gram. X would be eligible for the program. trol it after the change and SBA ap-
(2) If the AA/BD approves an applica- proves the transaction in writing prior
tion under paragraph (g)(1) of this sec- to the change. The decision to approve
tion, SBA will, as part of its annual re- or deny a Participant’s request for a
view, assess whether the firm con- change in ownership or business struc-
tinues to operate independently of the ture will be made and communicated
other current or former 8(a) concern of to the firm by the AA/BD. The decision
an immediate family member. SBA of the AA/BD is the final decision of
may initiate proceedings to terminate the Agency. The AA/BD will issue a de-
a firm from further participation in the cision within 60 days from receipt of a
8(a) BD program if it is apparent that request containing all necessary docu-
there are connections between the two mentation, or as soon thereafter as
478
possible. If 60 days lapse without a de- than 20% of X prior to the transaction, prior
cision from SBA, the Participant can- approval is needed because B would own
not presume that it can complete the more than 20% after the transaction.
change without written approval from Example 4 to paragraph (i)(2). ANC A owns
SBA. A decision to deny a request for 60% of 8(a) Participant X; non-disadvantaged
individual B owns 40% of X. B seeks to trans-
change of ownership or business struc- fer 15% to A. Prior SBA approval is not need-
ture may be grounds for program tered. Although a non-disadvantaged individual
mination where the change is made who is involved in the transaction, B, owns
nevertheless. more than 20% of X both before and after the
(1) Any Participant that was awarded transaction, SBA approval is not needed be-
one or more 8(a) contracts may sub- cause the change only increases the percent-
stitute one disadvantaged individual age of A’s ownership interest in X.
for another disadvantaged individual (3) Continued participation of the
without requiring the termination of Participant with new ownership and
those contracts or a request for waiver
the award of any new 8(a) contracts re-
under § 124.515, as long as it receives
quires SBA’s determination that all
SBA’s approval prior to the change.
eligibility requirements are met by the
(2) Prior approval by the AA/BD is
concern and the new owners.
not needed where all non-disadvan-
taged individual (or entity) owners in- (4) Where a Participant requests a
volved in the change of ownership own change of ownership or business struc-
no more than a 20 percent interest in ture, and proceeds with the change
the concern both before and after the prior to receiving SBA approval (or
transaction, the transfer results from where a change of ownership results
the death or incapacity due to a seri- from the death or incapacity of a dis-
ous, long-term illness or injury of a advantaged individual for which a re-
disadvantaged principal, or the dis- quest prior to the change in ownership
advantaged individual or entity in con- could not occur), SBA may suspend the
trol of the Participant will increase the Participant from program benefits
percentage of its ownership interest. pending resolution of the request. If
The concern must notify SBA within 60 the change is approved, the length of
days of such a change in ownership. the suspension will be restored to the
Participant’s program term in the case
Example 1 to paragraph (i)(2). Disadvantaged of death or incapacity, or if the firm
individual A owns 90% of 8(a) Participant X;
non-disadvantaged individual B owns 10% of
requested prior approval and waited 60
X. In order to raise additional capital, X days for SBA approval.
seeks to change its ownership structure such (5) A change in ownership does not
that A would own 80%, B would own 10% and provide the new owner(s) with a new
C would own 10%. X can accomplish this 8(a) BD program term. For example, if
change in ownership without prior SBA ap- a concern has been in the 8(a) BD pro-
proval. Non-disadvantaged owner B is not in- gram for five years when a change in
volved in the transaction and non-disadvan-
taged individual C owns less than 20% of X
ownership occurs, the new owner will
both before and after the transaction. have four years remaining until pro-
Example 2 to paragraph (i)(2). Disadvantaged gram graduation.
individual C owns 60% of 8(a) Participant Y; (j) Public offering. A Participant’s re-
non-disadvantaged individual D owns 30% of quest for SBA’s approval for the
Y; and non-disadvantaged individual E owns issuance of a public offering will be
10% of Y. C seeks to transfer 5% of Y to E.
treated as a request for a change of
Prior SBA approval is not needed. Although
non-disadvantaged individual D owns more ownership. Such request will cause
than 20% of Y, D is not involved in the trans- SBA to examine the concern’s contin-
fer. Because the only non-disadvantaged in- ued need for access to the business de-
dividual involved in the transfer, E, owns velopment resources of the 8(a) BD pro-
less than 20% of Y both before and after the gram.
transaction, prior approval is not needed. (k) Community property laws given ef-
Example 3 to paragraph (i)(2). Disadvantaged
fect. In determining ownership inter-
individual A owns 85% of 8(a) Participant X;
non-disadvantaged individual B owns 15% of ests when an owner resides in any of
X. A seeks to transfer 15% of X to B. Prior the community property states or ter-

SBA approval is needed. Although B, the ritories of the United States (Arizona,
non-disadvantaged owner of X, owns less California, Idaho, Louisiana, Nevada,
479
§ 124.106 13 CFR Ch. I (1–1–23 Edition)
New Mexico, Puerto Rico, Texas, Wash- advantaged individual may be found to
ington and Wisconsin), SBA considers control the firm.
applicable state community property (a)(1) An applicant or Participant
laws. If only one spouse claims dis- must be managed on a full-time basis
advantaged status, that spouse’s own- by one or more disadvantaged individ-
ership interest will be considered un- uals who possess requisite management
conditionally held only to the extent it capabilities.
is vested by the community property (2) A disadvantaged full-time man-
laws. A transfer or relinquishment of ager must hold the highest officer posi-
interest by the non-disadvantaged tion (usually President or Chief Execu-
spouse may be necessary in some cases tive Officer) in the applicant or Partic-
to establish eligibility. ipant and be physically located in the
[63 FR 35739, June 30, 1998, as amended at 74 United States.
FR 45753, Sept. 4, 2009; 76 FR 8255, Feb. 11, (3) One or more disadvantaged indi-
2011; 81 FR 48580, July 25, 2016; 85 FR 66183, viduals who manage the applicant or
Oct. 16, 2020] Participant must devote full-time to
the business during the normal work-
§ 124.106 When do disadvantaged indi-
viduals control an applicant or Par- ing hours of firms in the same or simi-
ticipant? lar line of business. Work in a wholly-
owned subsidiary of the applicant or
Control is not the same as ownership,
participant may be considered to meet
although both may reside in the same
the requirement of full-time devotion.
person. SBA regards control as includ-
This applies only to a subsidiary owned
ing both the strategic policy setting
by the 8(a) firm, and not to firms in
exercised by boards of directors and the
which the disadvantaged individual has
day-to-day management and adminis-
an ownership interest.
tration of business operations. An ap-
plicant or Participant’s management (4) Any disadvantaged manager who
and daily business operations must be wishes to engage in outside employ-
conducted by one or more disadvan- ment must notify SBA of the nature
taged individuals, except for concerns and anticipated duration of the outside
owned by Indian tribes, ANCs, Native employment and obtain the prior writ-
Hawaiian Organizations, or Commu- ten approval of SBA. SBA will deny a
nity Development Corporations (CDCs). request for outside employment which
(See §§ 124.109, 124.110, and 124.111, re- could conflict with the management of
spectively, for the requirements for the firm or could hinder it in achieving
concerns owned by Indian tribes or the objectives of its business develop-
ANCs, for concerns owned by Native ment plan.
Hawaiian Organizations, and for CDC- (5) Except as provided in paragraph
owned concerns.) Management experi- (d)(1) of this section, a disadvantaged
ence need not be related to the same or owner’s unexercised right to cause a
similar industry as the primary indus- change in the control or management
try classification of the applicant or of the applicant concern does not in
Participant. Disadvantaged individuals itself constitute disadvantaged control
managing the concern must have man- and management, regardless of how
agerial experience of the extent and quickly or easily the right could be ex-
complexity needed to run the concern. ercised.
A disadvantaged individual need not (b) In the case of a partnership, one
have the technical expertise or possess or more disadvantaged individuals
a required license to be found to con- must serve as general partners, with
trol an applicant or Participant if he or control over all partnership decisions.
she can demonstrate that he or she has A partnership in which no disadvan-
ultimate managerial and supervisory taged individual is a general partner
control over those who possess the re- will be ineligible for participation.
quired licenses or technical expertise. (c) In the case of a limited liability
However, where a critical license is company, one or more disadvantaged
held by a non-disadvantaged individual individuals must serve as management

having an equity interest in the appli- members, with control over all deci-
cant or Participant firm, the non-dis- sions of the limited liability company.
480
(d) One or more disadvantaged indi- (i) Provisions for the establishment
viduals must control the Board of Di- of a quorum cannot permit non-dis-
rectors of a corporate applicant or Par- advantaged Directors to control the
ticipant. Board of Directors, directly or indi-
(1) SBA will deem disadvantaged in- rectly;
dividuals to control the Board of Direc- (ii) Any Executive Committee of Di-
tors where: rectors must be controlled by disadvan-
(i) A single disadvantaged individual taged directors unless the Executive
owns 100% of all voting stock of an ap- Committee can only make rec-
plicant or Participant concern; ommendations to and cannot independ-
(ii) A single disadvantaged individual ently exercise the authority of the
owns at least 51% of all voting stock of Board of Directors.
an applicant or Participant concern, (3) An applicant must inform SBA of
the individual is on the Board of Direc- any super majority voting require-
tors and no super majority voting re- ments provided for in its articles of in-
quirements exist for shareholders to corporation, its by-laws, by state law,
approve corporation actions. Where or otherwise. Similarly, after being ad-
super majority voting requirements are mitted to the program, a Participant
provided for in the concern’s articles of must inform SBA of changes regarding
incorporation, its by-laws, or by state super majority voting requirements.
law, the disadvantaged individual must (4) Non-voting, advisory, or honorary
own at least the percent of the voting Directors may be appointed without af-
stock needed to overcome any such fecting disadvantaged individuals’ con-
super majority voting requirements; or trol of the Board of Directors.
(iii) More than one disadvantaged (5) Arrangements regarding the
shareholder seeks to qualify the con- structure and voting rights of the
cern (i.e., no one individual owns 51%), Board of Directors must comply with
each such individual is on the Board of applicable state law.
Directors, together they own at least (e) Non-disadvantaged individuals
51% of all voting stock of the concern, may be involved in the management of
no super majority voting requirements an applicant or Participant, and may
exist, and the disadvantaged share- be stockholders, partners, limited li-
holders can demonstrate that they ability members, officers, and/or direc-
have made enforceable arrangements tors of the applicant or Participant.
to permit one of them to vote the stock However, no non-disadvantaged indi-
of all as a block without a shareholder vidual or immediate family member
meeting. Where the concern has super may:
majority voting requirements, the dis- (1) Exercise actual control or have
advantaged shareholders must own at the power to control the applicant or
least that percentage of voting stock Participant;
needed to overcome any such super ma- (2) Be a former employer or a prin-
jority ownership requirements. cipal of a former employer of any dis-
(2) Where an applicant or Participant advantaged owner of the applicant or
does not meet the requirements set Participant, unless it is determined by
forth in paragraph (d)(1) of this section, the AA/BD that the relationship be-
the disadvantaged individual(s) upon tween the former employer or principal
whom eligibility is based must control and the disadvantaged individual or ap-
the Board of Directors through actual plicant concern does not give the
numbers of voting directors or, where former employer actual control or the
permitted by state law, through potential to control the applicant or
weighted voting (e.g., in a concern hav- Participant and such relationship is in
ing a two-person Board of Directors the best interests of the 8(a) BD firm;
where one individual on the Board is or
disadvantaged and one is not, the dis- (3) Receive compensation from the
advantaged vote must be weighted— applicant or Participant in any form as
worth more than one vote—in order for directors, officers or employees, includ-
the concern to be eligible for 8(a) par- ing dividends, that exceeds the com-
ticipation). Where a concern seeks to pensation to be received by the highest
comply with this paragraph: officer (usually CEO or President). The
481
§ 124.107 13 CFR Ch. I (1–1–23 Edition)
highest ranking officer may elect to (4) Business relationships exist with
take a lower salary than a non-dis- non-disadvantaged individuals or enti-
advantaged individual only upon dem- ties which cause such dependence that
onstrating that it helps the applicant the applicant or Participant cannot ex-
or Participant. In the case of a Partici- ercise independent business judgment
pant, the Participant must also obtain without great economic risk.
the prior written consent of the AA/BD (h) Notwithstanding the provisions of
or designee before changing the com- this section requiring a disadvantaged
pensation paid to the highest ranking owner to control the daily business op-
officer to be below that paid to a non- erations and long-term strategic plan-
disadvantaged individual. ning of an 8(a) BD Participant, where a
(f) Non-disadvantaged individuals disadvantaged individual upon whom
who transfer majority stock ownership eligibility is based is a reserve compo-
or control of the firm to an immediate nent member in the United States mili-
family member within two years prior tary who has been called to active
to the application and remain involved duty, the Participant may elect to des-
in the firm as a stockholder, officer, di- ignate one or more individuals to con-
rector, or key employee of the firm are trol the Participant on behalf of the
presumed to control the firm. The pre- disadvantaged individual during the
sumption may be rebutted by showing active duty call-up period. If such an
that the transferee has independent election is made, the Participant will
management experience necessary to continue to be treated as an eligible
control the operation of the firm. 8(a) Participant and no additional time
(g) Non-disadvantaged individuals or will be added to its program term. Al-
entities may be found to control or ternatively, the Participant may elect
have the power to control in any of the to suspend its 8(a) BD participation
following circumstances, which are il- during the active duty call-up period
lustrative only and not all inclusive: pursuant to §§ 124.305(h)(1)(ii) and
(1) In circumstances where an appli- 124.305(h)(4).
cant or Participant seeks to establish
disadvantaged control of the Board of [63 FR 35739, June 30, 1998, as amended at 74
FR 45753, Sept. 4, 2009; 76 FR 8255, Feb. 11,
Directors through paragraph (d)(2) of 2011; 81 FR 48580, July 25, 2016]
this section, non-disadvantaged indi-
viduals control the Board of Directors § 124.107 What is potential for success?
of the applicant or Participant, either
directly through majority voting mem- The applicant concern must possess
bership, or indirectly, where the by- reasonable prospects for success in
laws allow non-disadvantaged individ- competing in the private sector if ad-
uals effectively to prevent a quorum or mitted to the 8(a) BD program. To do
block actions proposed by the dis- so, it must be in business in its pri-
advantaged individuals. mary industry classification for at
(2) A non-disadvantaged individual or least two full years immediately prior
entity, having an equity interest in the to the date of its 8(a) BD application,
applicant or participant, provides crit- unless a waiver for this requirement is
ical financial or bonding support or a granted pursuant to paragraph (b) of
critical license to the applicant or Par- this section.
ticipant which directly or indirectly (a) Income tax returns for each of the
allows the non-disadvantaged indi- two previous tax years must show oper-
vidual significantly to influence busi- ating revenues in the primary industry
ness decisions of the Participant. in which the applicant is seeking 8(a)
(3) A non-disadvantaged individual or BD certification.
entity controls the applicant or Partic- (b)(1) SBA may waive the two years
ipant or an individual disadvantaged in business requirement if each of the
owner through loan arrangements. Pro- following five conditions are met:
viding a loan guaranty on commer- (i) The individual or individuals upon
cially reasonable terms does not, by whom eligibility is based have substan-
itself, give a non-disadvantaged indi- tial business management experience;

vidual or entity the power to control a (ii) The applicant has demonstrated
firm. technical experience to carry out its
482
business plan with a substantial likeli- (e) The Participant or individuals

hood for success if admitted to the 8(a) employed by the Participant must hold
BD program; all requisite licenses if the concern is
(iii) The applicant has adequate cap- engaged in an industry requiring pro-
ital to sustain its operations and carry fessional licensing (e.g., public ac-
out its business plan as a Participant; countancy, law, professional engineer-
(iv) The applicant has a record of suc- ing).
cessful performance on contracts from (f) An applicant will not be denied ad-
governmental or nongovernmental mission into the 8(a) BD program due
sources in its primary industry cat- solely to a determination that poten-
egory; and tial 8(a) contract opportunities are un-
(v) The applicant has, or can dem- available to assist in the development
onstrate its ability to timely obtain, of the concern unless:
the personnel, facilities, equipment, (1) The Government has not pre-
and any other requirements needed to viously procured and is unlikely to pro-
perform contracts as a Participant. cure the types of products or services
(2) The concern seeking a waiver offered by the concern; or
under paragraph (b) must provide infor- (2) The purchase of such products or
mation on governmental and non- services by the Federal Government
governmental contracts in progress will not be in quantities sufficient to
and completed (including letters of ref- support the developmental needs of the
erence) in order to establish successful applicant and other Participants pro-
contract performance, and must dem- viding the same or similar items or
onstrate how it otherwise meets the services.
five conditions for waiver. SBA con-
siders an applicant’s performance on § 124.108 What other eligibility re-
both government and private sector quirements apply for individuals or
contracts in determining whether the businesses?
firm has an overall successful perform- (a) Good character. The applicant or
ance record. If, however, the applicant Participant and all its principals must
has performed only government con- have good character.
tracts or only private sector contracts, (1) If during the processing of an ap-
SBA will review its performance on plication, SBA receives adverse infor-
those contracts alone to determine mation from the applicant or a credible
whether the applicant possesses a source regarding possible criminal con-
record of successful performance. duct by the applicant or any of its
(c) In assessing potential for success, principals, SBA may suspend further
SBA considers the concern’s access to processing of the application and refer
credit and capital, including, but not it to SBA’s Office of Inspector General
limited to, access to long-term financ- (OIG) for review. If the SBA suspends
ing, access to working capital financ- the application, but does not hear back
ing, equipment trade credit, access to from OIG within 45 days, SBA may pro-
raw materials and supplier trade cred- ceed with application processing. The
it, and bonding capability. AA/BD will consider any findings of the
(d) In assessing potential for success, OIG when evaluating the application.
SBA will also consider the technical (2) Violations of any of SBA’s regula-
and managerial experience of the appli- tions may result in denial of participa-
cant concern’s managers, the operating tion in the 8(a) BD program. The AA/
history of the concern, the concern’s BD will consider the nature and sever-
record of performance on previous Fed- ity of the violation in making an eligi-
eral and private sector contracts in the bility determination.
primary industry in which the concern (3) Debarred or suspended concerns or
is seeking 8(a) BD certification, and its concerns owned by debarred or sus-
financial capacity. The applicant con- pended persons are ineligible for admis-
cern as a whole must demonstrate both sion to the 8(a) BD program.
technical knowledge in its primary in- (4) An applicant is ineligible for ad-
dustry category and management expe- mission to the 8(a) BD program if the
rience sufficient to run its day-to-day applicant concern or a proprietor, part-
operations. ner, limited liability member, director,
483
§ 124.109 13 CFR Ch. I (1–1–23 Edition)
officer, or holder of at least 20 percent former Participant, the concern will

of its stock, or another person (includ- not be eligible for entry into the pro-
ing key employees) with significant au- gram.
thority over the concern: (5) Participants which change their
(i) Lacks business integrity as dem- form of business organization and
onstrated by information related to an transfer their assets and liabilities to
indictment or guilty plea, conviction, the new organization may do so with-
civil judgment, or settlement; or out affecting the eligibility of the new
(ii) Is currently incarcerated, or on organization provided the previous
parole or probation pursuant to a pre- business is dissolved and all other eli-
trial diversion or following conviction gibility criteria are met. In such a
for a felony or any crime involving case, the new organization may com-
business integrity. plete the remaining program term of
(5) If, during the processing of an ap- the previous organization. A request
plication, SBA determines that an ap- for a change in business form will be
plicant has knowingly submitted false treated as a change of ownership under
information, regardless of whether cor- § 124.105(i).
rect information would cause SBA to (c) Wholesalers. An applicant concern
deny the application, and regardless of seeking admission to the 8(a) BD pro-
whether correct information was given gram as a wholesaler need not dem-
to SBA in accompanying documents, onstrate that it is capable of meeting
SBA will deny the application. If, after the requirements of the nonmanufac-
admission to the program, SBA dis- turer rule for its primary industry
covers that false information has been classification.
knowingly submitted by a firm, SBA (d) Brokers. Brokers are ineligible to
will initiate termination proceedings participate in the 8(a) BD program. A
and suspend the firm under §§ 124.304 broker is a concern that adds no mate-
and 124.305. Whenever SBA determines rial value to an item being supplied to
that the applicant submitted false in- a procuring activity or which does not
formation, the matter will be referred take ownership or possession of or han-
to SBA’s Office of Inspector General for dle the item being procured with its
review. own equipment or facilities.
(b) One-time eligibility. Once a concern (e) Federal financial obligations. Nei-
or disadvantaged individual upon ther a firm nor any of its principals
whom eligibility was based has partici- that fails to pay significant financial
pated in the 8(a) BD program, neither obligations owed to the Federal Gov-
the concern nor that individual will be ernment, including unresolved tax
eligible again. liens and defaults on Federal loans or
(1) An individual who claims dis- other Federally assisted financing, is
advantage and completes the appro- eligible for admission to or participa-
priate SBA forms to qualify an appli- tion in the 8(a) BD program.
cant has participated in the 8(a) BD
[63 FR 35739, 35772, June 30, 1998, as amended
program if SBA approves the applica- at 74 FR 45753, Sept. 4, 2009; 76 FR 8255, Feb.
tion. 11, 2011; 81 FR 48580, July 25, 2016]
(2) Use of eligibility will take effect
on the date of the concern’s approval § 124.109 Do Indian tribes and Alaska
for admission into the program. Native Corporations have any spe-
(3) An individual who uses his or her cial rules for applying to and re-
one-time eligibility to qualify a con- maining eligible for the 8(a) BD
cern for the 8(a) BD program will be program?
considered a non-disadvantaged indi- (a) Special rules for ANCs. Small busi-
vidual for ownership or control pur- ness concerns owned and controlled by
poses of another applicant or Partici- ANCs are eligible for participation in
pant. The criteria restricting partici- the 8(a) program and must meet the
pation by non-disadvantaged individ- eligibility criteria set forth in § 124.112
uals will apply to such an individual. to the extent the criteria are not in-
See §§ 124.105 and 124.106. consistent with this section. ANC-

(4) When at least 50% of the assets of owned concerns are subject to the same
a concern are the same as those of a conditions that apply to tribally-owned
484
concerns, as described in paragraphs (b) ticipant need not request a change of

and (c) of this section, except that the ownership from SBA. The Participant
following provisions and exceptions must, however, notify SBA of the
apply only to ANC-owned concerns: change within 60 days of the transfer.
(1) Alaska Natives and descendants of (b) Tribal eligibility. In order to qual-
Natives must own a majority of both ify a concern which it owns and con-
the total equity of the ANC and the trols for participation in the 8(a) BD
total voting powers to elect directors program, an Indian Tribe must estab-
of the ANC through their holdings of lish its own economic disadvantaged
settlement common stock. Settlement status under paragraph (b)(2) of this
common stock means stock of an ANC section. Once an Indian Tribe estab-
issued pursuant to 43 U.S.C. 1606(g)(1), lishes that it is economically disadvan-
which is subject to the rights and re- taged in connection with the applica-
strictions listed in 43 U.S.C. 1606(h)(1). tion for one Tribally-owned firm, it
(2) An ANC that meets the require- need not reestablish such status in
ments set forth in paragraph (a)(1) of order to have other businesses that it
this section is deemed economically owns certified for 8(a) BD program par-
disadvantaged under 43 U.S.C. 1626(e), ticipation, unless specifically re-
and need not establish economic dis- quested to do so by the AA/BD. An In-
advantage as required by paragraph dian Tribe may request to meet with
(b)(2) of this section. SBA prior to submitting an application
(3) Even though an ANC can be either for 8(a) BD participation for its first
for profit or non-profit, a small busi- applicant firm to better understand
ness concern owned and controlled by what SBA requires for it to establish
an ANC must be for profit to be eligible economic disadvantage. Each Tribally-
for the 8(a) program. The concern will owned concern seeking to be certified
be deemed owned and controlled by the for 8(a) BD participation must comply
ANC where both the majority of stock with the provisions of paragraph (c) of
or other ownership interest and total this section.
voting power are held by the ANC and (1) Social disadvantage. An Indian
holders of its settlement common tribe as defined in § 124.3 is considered
stock. to be socially disadvantaged.
(4) The Alaska Native Claims Settle- (2) Economic disadvantage. In order to
ment Act provides that a concern be eligible to participate in the 8(a) BD
which is majority owned by an ANC program, the Indian tribe must dem-
shall be deemed to be both owned and onstrate to SBA that the tribe itself is
controlled by Alaska Natives and an economically disadvantaged. This must
economically disadvantaged business. involve the consideration of available
Therefore, an individual responsible for data showing the tribe’s economic con-
control and management of an ANC- dition, including but not limited to,
owned applicant or Participant need the following information:
not establish personal social and eco- (i) The number of tribal members.
nomic disadvantage. (ii) The present tribal unemployment
(5) Paragraphs (b)(3)(i), (ii) and (iv) of rate.
this section are not applicable to an (iii) The per capita income of tribal
ANC, provided its status as an ANC is members, excluding judgment awards.
clearly shown in its articles of incorpo- (iv) The percentage of the local In-
ration. dian population below the poverty
(6) Paragraph (c)(1) of this section is level.
not applicable to an ANC-owned con- (v) The tribe’s access to capital.
cern to the extent it requires an ex- (vi) The tribal assets as disclosed in a
press waiver of sovereign immunity or current tribal financial statement. The
a ‘‘sue and be sued’’ clause. statement must list all assets includ-
(7) Notwithstanding § 124.105(i), where ing those which are encumbered or held
an ANC merely reorganizes its owner- in trust, but the status of those encum-
ship of a Participant in the 8(a) BD bered or in trust must be clearly delin-
program by inserting or removing a eated.

wholly-owned business entity between (vii) A list of all wholly or partially
the ANC and the Participant, the Par- owned tribal enterprises or affiliates
485
§ 124.109 13 CFR Ch. I (1–1–23 Edition)
and the primary industry classification (2) Size. (i) A tribally-owned applicant
of each. The list must also specify the concern must qualify as a small busi-
members of the tribe who manage or ness concern as defined for purposes of
control such enterprises by serving as Federal Government procurement in
officers or directors. part 121 of this title. The particular
(3) Forms and documents required to be size standard to be applied is based on
submitted. Except as otherwise provided the primary industry classification of
in this section, the Indian tribe gen- the applicant concern.
erally must submit the forms and docu- (ii) A tribally-owned Participant
ments required of 8(a) BD applicants as must certify to SBA that it is a small
well as the following material: business pursuant to the provisions of
(i) A copy of all governing documents part 121 of this title for the purpose of
such as the tribe’s constitution or busi- performing each individual contract
ness charter. which it is awarded.
(ii) Evidence of its recognition as a (iii) In determining the size of a
tribe eligible for the special programs small business concern owned by a so-
and services provided by the United cially and economically disadvantaged
States or by its state of residence. Indian tribe (or a wholly owned busi-
(iii) Copies of its articles of incorpo- ness entity of such tribe) for either 8(a)
ration and bylaws as filed with the or- BD program entry or contract award,
ganizing or chartering authority, or the firm’s size shall be determined
similar documents needed to establish independently without regard to its af-
and govern a non-corporate legal enti- filiation with the tribe, any entity of
ty. the tribal government, or any other
(iv) Documents or materials needed business enterprise owned by the tribe,
to show the tribe’s economically dis- unless the Administrator determines
advantaged status as described in para- that one or more such tribally-owned
graph (b)(2) of this section. business concerns have obtained, or are
(c) Business eligibility. In order to be likely to obtain, a substantial unfair
eligible to participate in the 8(a) BD competitive advantage within an in-
program, a concern which is owned by dustry category.
an eligible Indian tribe (or wholly (iv) In determining whether a trib-
owned business entities of such tribe) ally-owned concern has obtained, or is
must meet the conditions set forth in likely to obtain, a substantial unfair
paragraphs (c)(1) through (c)(7) of this
competitive advantage within an in-
section.
dustry category, SBA will examine the
(1) Legal business entity organized for firm’s participation in the relevant six
profit and susceptible to suit. The appli- digit NAICS code nationally as com-
cant or participating concern must be pared to the overall small business
a separate and distinct legal entity or-
share of that industry.
ganized or chartered by the tribe, or
(A) SBA will consider the firm’s per-
Federal or state authorities. The con-
centage share of the national market
cern’s articles of incorporation, part-
nership agreement or limited liability and other relevant factors to determine
company articles of organization must whether the firm is dominant in a spe-
contain express sovereign immunity cific six-digit NAICS code with a par-
waiver language, or a ‘‘sue and be ticular size standard.
sued’’ clause which designates United (B) SBA does not contemplate a find-
States Federal Courts to be among the ing of affiliation where a tribally-
courts of competent jurisdiction for all owned concern appears to have ob-
matters relating to SBA’s programs in- tained an unfair competitive advantage
cluding, but not limited to, 8(a) BD in a local market, but remains com-
program participation, loans, and con- petitive, but not dominant, on a na-
tract performance. Also, the concern tional basis.
must be organized for profit, and the (3) Ownership. (i) For corporate enti-
tribe must possess economic develop- ties, a Tribe must unconditionally own
ment powers in the tribe’s governing at least 51 percent of the voting stock
documents. and at least 51 percent of the aggregate
486
of all classes of stock. For non-cor- (iii) The restrictions of § 124.105(h) do

porate entities, a Tribe must uncondi- not apply to tribes; they do, however,
tionally own at least a 51 percent inter- apply to non disadvantaged individuals
est. or other business concerns that are
(ii) A Tribe may not own 51% or more partial owners of a tribally-owned con-
of another firm which, either at the cern.
time of application or within the pre- (iv) Notwithstanding § 124.105(i),
vious two years, has been operating in where a Tribe merely reorganizes its
the 8(a) program under the same pri- ownership of a Participant in the 8(a)
mary NAICS code as the applicant. For BD program by inserting or removing a
purposes of this paragraph, the same wholly-owned business entity between
primary NAICS code means the six- the Tribe and the Participant, the Par-
digit NAICS code having the same cor- ticipant need not request a change of
responding size standard. A Tribe may, ownership from SBA. The Participant
however, own a Participant or other must, however, notify SBA of the
applicant that conducts or will conduct change within 30 days of the transfer.
secondary business in the 8(a) BD pro- (4) Control and management. (i) The
gram under the NAICS code which is management and daily business oper-
the primary NAICS code of the appli- ations of a Tribally-owned concern
cant concern. must be controlled by the Tribe. The
(A) Once an applicant is admitted to Tribally-owned concern may be con-
the 8(a) BD program, it may not re- trolled by the Tribe through one or
ceive an 8(a) sole source contract that more individuals who possess sufficient
is a follow-on contract to an 8(a) con- management experience of an extent
tract that was performed immediately and complexity needed to run the con-
previously by another Participant (or cern, or through management as fol-
former Participant) owned by the same lows:
Tribe. However, a tribally-owned con- (A) Management may be provided by
cern may receive a follow-on sole committees, teams, or Boards of Direc-
source 8(a) contract to a requirement tors which are controlled by one or
that it performed through the 8(a) pro- more members of an economically dis-
gram (either as a competitive or sole advantaged tribe, or
source contract). (B) Management may be provided by
(B) If the primary NAICS code of a non-Tribal members if the concern can
tribally-owned Participant is changed demonstrate that the Tribe can hire
pursuant to § 124.112(e), the tribe can and fire those individuals, that it will
submit an application and qualify an- retain control of all management deci-
other firm owned by the tribe for par- sions common to boards of directors,
ticipation in the 8(a) BD program including strategic planning, budget
under the NAICS code that was the approval, and the employment and
previous primary NAICS code of the compensation of officers, and that a
Participant whose primary NAICS code written management development plan
was changed. exists which shows how Tribal mem-
bers will develop managerial skills suf-
Example 1 to paragraph (c)(3)(ii)(B). Tribe X ficient to manage the concern or simi-
owns 100% of 8(a) Participant A. A entered lar Tribally-owned concerns in the fu-
the 8(a) BD program with a primary NAICS
ture.
code of 236115, New Single-Family Housing
Construction (except For-Sale Builders). (ii) Members of the management
After four years in the program, SBA noticed team, business committee members, of-
that the vast majority of A’s revenues were ficers, and directors are precluded from
in NAICS Code 237310, Highway, Street, and engaging in any outside employment or
Bridge Construction, and notified A that other business interests which conflict
SBA intended to change its primary NAICS with the management of the concern or
code pursuant to § 124.112(e). A agreed to prevent the concern from achieving the
change its primary NAICS Code to 237310.
objectives set forth in its business de-
Once the change is finalized, Tribe X can im-
mediately submit a new application to qual- velopment plan. This is not intended to
ify another firm that it owns for participa- preclude participation in tribal or
tion in the 8(a) BD program with a primary other activities which do not interfere
NAICS Code of 236115. with such individual’s responsibilities
487
§ 124.110 13 CFR Ch. I (1–1–23 Edition)
in the operation of the applicant con- technical and management experience,

cern. the applicant has a record of successful
(iii) The individuals responsible for performance on contracts from govern-
the management and daily operations mental or nongovernmental sources in
of a tribally-owned concern cannot its primary industry category, and the
manage more than two Program Par- applicant has adequate capital to sus-
ticipants at the same time. tain its operations and carry out its
(A) An individual’s officer position, business plan as a Participant; or
membership on the board of directors (iii) The Tribe, a tribally-owned eco-
or position as a tribal leader does not nomic development corporation, or
necessarily imply that the individual is other relevant tribally-owned holding
responsible for the management and company vested with the authority to
daily operations of a given concern. oversee tribal economic development
SBA looks beyond these corporate for- or business ventures has made a firm
malities and examines the totality of written commitment to support the op-
the information submitted by the ap- erations of the applicant concern and it
plicant to determine which indi- has the financial ability to do so.
vidual(s) manage the actual day-to-day (7) Other eligibility criteria. (i) As with
operations of the applicant concern. other 8(a) applicants, a tribally-owned
(B) Officers, board members, and/or applicant concern shall not be denied
tribal leaders may control a holding admission into the 8(a) program due
company overseeing several tribally- solely to a determination that specific
owned or ANC-owned companies, pro- contract opportunities are unavailable
vided they do not actually control the to assist the development of the con-
day-to-day management of more than cern unless:
two current 8(a) BD Program Partici- (A) The Government has not pre-
pant firms. viously procured and is unlikely to pro-
(C) Because an individual may be re- cure the types of products or services
sponsible for the management and offered by the concern; or
daily business operations of two trib- (B) The purchase of such products or
ally-owned concerns, the full-time de- services by the Federal Government
votion requirement does not apply to will not be in quantities sufficient to
tribally-owned applicants and Partici- support the developmental needs of the
pants. applicant and other program partici-
(5) Individual eligibility limitation. SBA pants providing the same or similar
does not deem an individual involved items or services.
in the management or daily business (ii) The officers, directors, and all
operations of a tribally-owned concern shareholders owning an interest of 20%
to have used his or her individual eligi- or more (other than the tribe itself) of
bility within the meaning of a tribally-owned applicant or Partici-
§ 124.108(b). pant must demonstrate good character
(6) Potential for success. A Tribally- (see § 124.108(a)) and cannot fail to pay
owned applicant concern must possess significant Federal obligations owed to
reasonable prospects for success in the Federal Government (see
competing in the private sector if ad- § 124.108(e)).
mitted to the 8(a) BD program. A Trib-
ally-owned applicant may establish po- FR 45753, Sept. 4, 2009; 76 FR 8255, Feb. 11,
tential for success by demonstrating 2011; 81 FR 48580, July 25, 2016; 85 FR 66184,
that: Oct. 16, 2020]
(i) It has been in business for at least
two years, as evidenced by income tax § 124.110 Do Native Hawaiian Organi-
returns (individual or consolidated) for zations (NHOs) have any special
each of the two previous tax years rules for applying to and remaining
showing operating revenues in the pri- eligible for the 8(a) BD program?
mary industry in which the applicant (a) Concerns owned by economically
is seeking 8(a) BD certification; or disadvantaged Native Hawaiian Organi-
(ii) The individual(s) who will man- zations, as defined in § 124.3, are eligible
age and control the daily business op- for participation in the 8(a) program
erations of the firm have substantial and other federal programs requiring
488
SBA to determine social and economic established its economic disadvantage

disadvantage as a condition of eligi- status, that NHO need not establish its
bility. Such concerns must meet all economic disadvantage status in con-
eligibility criteria set forth in §§ 124.101 nection with an 8(a) BD application of
through 124.108 and § 124.112 to the ex- a business concern that it owns, unless
tent that they are not inconsistent specifically requested to do so by the
with this section. AA/BD.
(b) A concern owned by a Native Ha- (1) In order to establish that an NHO
waiian Organization must qualify as a is economically disadvantaged, it must
small business concern as defined in demonstrate that it will principally
part 121 of this title. The size standard benefit economically disadvantaged
corresponding to the primary industry Native Hawaiians. To do this, the NHO
classification of the applicant concern must provide data showing the eco-
applies for determining size. SBA will nomic condition of the Native Hawai-
determine the concern’s size independ- ian community that it intends to
ently, without regard to its affiliation serve, including:
with the Native Hawaiian Organization (i) The number of Native Hawaiians
or any other business enterprise owned in the community that the NHO in-
by the Native Hawaiian Organization, tends to serve;
unless the Administrator determines (ii) The present Native Hawaiian un-
that one or more such concerns owned
employment rate of those individuals;
by the Native Hawaiian Organization
(iii) The per capita income of those
have obtained, or are likely to obtain,
Native Hawaiians, excluding judgment
a substantial unfair competitive ad-
awards;
vantage within an industry category.
In determining whether an NHO-owned (iv) The percentage of those Native
concern has obtained, or is likely to Hawaiians below the poverty level; and
obtain, a substantial unfair competi- (v) The access to capital of those Na-
tive advantage within an industry cat- tive Hawaiians.
egory, SBA will examine the firm’s (2) An NHO should describe any ac-
participation in the relevant six digit tivities that it has done to benefit Na-
NAICS code nationally. tive Hawaiians at the time its NHO-
(1) SBA will consider the firm’s per- owned firm applies to the 8(a) BD pro-
centage share of the national market gram. In addition, the NHO must in-
and other relevant factors to determine clude statements in its bylaws or oper-
whether the firm is dominant in a spe- ating agreements identifying the bene-
cific six-digit NAICS code with a par- fits Native Hawaiians will receive from
ticular size standard. the NHO. The NHO must have a de-
(2) SBA does not contemplate a find- tailed plan that shows how revenue
ing of affiliation where an NHO-owned earned by the NHO will principally
concern appears to have obtained an benefit Native Hawaiians. As part of an
unfair competitive advantage in a local annual review conducted for an NHO-
market, but remains competitive, but owned Participant, SBA will review
not dominant, on a national basis. how the NHO is fulfilling its obligation
(c) An NHO must establish that it is to principally benefit Native Hawai-
economically disadvantaged and that ians.
its business activities will principally (d) An NHO must control the appli-
benefit Native Hawaiians. Once an NHO cant or Participant firm. To establish
establishes that it is economically dis- that it is controlled by an NHO, an ap-
advantaged in connection with the applicant or Participant must dem-
plication of one NHO-owned firm, it onstrate that the NHO controls its
need not reestablish such status in board of directors, managing members,
order to have other businesses that it managers or managing partners.
owns certified for 8(a) BD program par- (1) The NHO need not possess the
ticipation, unless specifically re- technical expertise necessary to run
quested to do so by the AA/BD. If a dif- the NHO-owned applicant or Partici-
ferent NHO identifies that it will serve pant firm. The NHO must have mana-
and benefit the same Native Hawaiian gerial experience of the extent and
community as an NHO that has already complexity needed to run the concern.
489
§ 124.111 13 CFR Ch. I (1–1–23 Edition)
Management experience need not be re- or managers. The eligibility of an NHO-

lated to the same or similar industry owned concern is not affected by the
as the primary industry classification former 8(a) BD participation of one or
of the applicant or Participant. more of the NHO’s individual members.
(2) An individual responsible for the (h) An applicant concern owned by a
day-to-day management of an NHO- NHO must possess reasonable prospects
owned firm need not establish personal for success in competing in the private
social and economic disadvantage. sector if admitted to the 8(a) BD pro-
(e) An NHO cannot own 51% or more gram. An applicant concern owned by a
of another firm which, either at the NHO may establish potential for suc-
time of application or within the pre- cess by demonstrating that:
vious two years, has been operating in (1) It has been in business for at least
the 8(a) program under the same pri- two years, as evidenced by income tax
mary NAICS code as the applicant. For returns (individual or consolidated) for
purposes of this paragraph, the same each of the two previous tax years
primary NAICS code means the six- showing operating revenues in the pri-
digit NAICS code having the same cor- mary industry in with the applicant is
responding size standard. An NHO may, seeking 8(a) BD certification; or
however, own a Participant or an appli- (2) The individual(s) who will manage
cant that conducts or will conduct sec- and control the daily business oper-
ondary business in the 8(a) BD program ations of the firm have substantial
under the same NAICS code that a cur- technical and management experience,
rent Participant owned by the NHO op- the applicant has a record of successful
erates in the 8(a) BD program as its performance on contracts from govern-
primary NAICS code. mental or nongovernmental sources in
(1) Once an applicant is admitted to its primary industry category, and the
the 8(a) BD program, it may not re- applicant has adequate capital to sus-
ceive an 8(a) sole source contract that tain its operations and carry out its
is a follow-on contract to an 8(a) con- business plan as a Participant; or
tract that was performed immediately (3) The NHO has made a firm written
previously by another Participant (or commitment to support the operations
former Participant) owned by the same of the applicant concern and it has the
NHO. However, an NHO-owned concern financial ability to do so.
may receive a follow-on sole source 8(a)
contract to a requirement that it per-
FR 8256, Feb. 11, 2011; 77 FR 28237, May 14,
formed through the 8(a) program (ei- 2012; 81 FR 48580, July 25, 2016; 81 FR 71983,
ther as a competitive or sole source Oct. 19, 2016; 85 FR 66184, Oct. 16, 2020]
contract).
(2) If the primary NAICS code of a § 124.111 Do Community Development
Participant owned by an NHO is Corporations (CDCs) have any spe-
changed pursuant to § 124.112(e), the cial rules for applying to and re-
NHO can submit an application and maining eligible for the 8(a) BD
qualify another firm owned by the NHO program?
for participation in the 8(a) BD pro- (a) Concerns owned at least 51 per-
gram under the NAICS code that was cent by CDCs (or a wholly owned busi-
the previous primary NAICS code of ness entity of a CDC) are eligible for
the Participant whose primary NAICS participation in the 8(a) BD program
code was changed. and other federal programs requiring
(f) SBA does not deem an individual SBA to determine social and economic
involved in the management or daily disadvantage as a condition of eligi-
business operations of a Participant bility. These concerns must meet all
owned by a Native Hawaiian Organiza- eligibility criteria set forth in § 124.101
tion to have used his or her individual through § 124.108 and § 124.112 to the ex-
eligibility within the meaning of tent that they are not inconsistent
§ 124.108(b). with this section.
(g) An NHO-owned firm’s eligibility (b) A concern that is at least 51 per-
for 8(a) BD participation is separate cent owned by a CDC (or a wholly

and distinct from the individual eligi- owned business entity of a CDC) is con-
bility of the NHO’s members, directors, sidered to be controlled by such CDC
490
Small Business Administration

CFR 2023 Title13 Vol1

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Title 13

Business Credit and Assistance

Revised as of January 1, 2023

Containing a codification of documents

Published by the Office of the Federal Register

Legal Status and Use of Seals and Logos

Use of ISBN Prefix

U.S. GOVERNMENT PUBLISHING OFFICE

U.S. Superintendent of Documents • Washington, DC 20402–0001

Chapter I—Small Business Administration ..................................... 3

Chapter III—Economic Development Administration, Department

Chapter IV—Emergency Steel Guarantee Loan Board .................... 841

Table of CFR Titles and Chapters ....................................................... 891

Alphabetical List of Agencies Appearing in the CFR ......................... 911

List of CFR Sections Affected ............................................................. 921

To cite the regulations in

Title 13—BUSINESS CREDIT AND ASSISTANCE is composed of one volume. This

CHAPTER I—Small Business Administration .......................... 101

ABBREVIATIONS USED IN THIS CHAPTER:

127 Women-owned small business Federal contract

sponsibilities in interstate situations? (b) A Deputy Administrator, ap-

Subpart B—Employment of Private § 101.301 Who should receive informa-

of private counsel’s employment? ports, answers, records, accounts, pa-

(c) Administer oaths and affirma- Subpart D—Intergovernmental

entities may submit comments to SBA.

ciations, industry members, and energy tion of records.

maintained by each component, please 205–7059 or email to foia@sba.gov. Re-

https://foiaonline.regulations.gov/foia/ac- adequately describe the records sought,

assistance in describing the records. If, are responsive to a request, a compo-

best position to respond regarding the ance. Whenever a request involves a

for classification by another compo- ed to process the request. Among the

that distinguish between simple and ably be expected to pose an imminent

(e) Adverse determinations of requests. § 102.7 Confidential commercial infor-

records or portions of records con- (f) Analysis of objections. A component

creating such a program and must

TABLE 1 TO § 102.8—SUMMARY OF FEES

to process a new request or continues mines, based on all available informa-

(2) Components shall furnish records cial interest, a determination will be

f. Portions of: Certificate of Competency

§ 102.20 General provisions. (7) Statistical record means a record in

identifying number, symbol, or other (PASM) is the designated SBA em-

be adopted to prevent accidental access (ix) The categories of sources of

permits statements to be made under only those records in its possession as

the request in writing. In determining request is made for access to a record

classification by another office or under § 102.31 and shall disclose records

as possible, including the identity of quester a written acknowledgment of

(e) Notification of amendment/correction (b) Where accountings are not required.

court of competent jurisdiction, the of- (b) Each Program/Support Office

thorized persons or under unauthorized (2) Any statutory or regulatory au-

is maintained, or is pertinent to and follow-up on investigations conducted

emptions in paragraphs (a) through (c) tigative techniques; or

§ 102.40 Computer matching. security of the records matched and

ing program; ance with the agreement.

(i) Matching programs in which SBA Committee on Government Operations

ing of such an appeal shall be provided ever, transmit such information to a

embezzlement, theft, forgery, bribery, from the Applicant an amount in ex-

ADMINISTRATIVE PROVISIONS other aid, including size determina-

may consist of separation from service, hold member of such individual) is a

sponsor at any Cosponsored Activity. planned, conducted, controlled and

charged for a Non-Fee Based SBA- Agreement signed by the Adminis-

Cosponsored Activities: each Cosponsor that they will abide by

forth in a Non-Fee Based Record? (whether cash or in-kind) in a manner

(b) There must be written docu- PART 107—SMALL BUSINESS