Small Business Administration § 120.511
(c) Copies of any report furnished to (4) Any other transaction or agree-
its stockholders (including any pro- ment that transfers control of the
spectus, letter, or other publication SBLC.
concerning the financial operations of (b) If transfer of ownership or control
the SBLC); is subject to the approval of any State
(d) A summary of any changes in the or Federal chartering, licensing, or
SBLC’s organization or financing, such other regulatory authority, copies of
as: any documents filed with such author-
(1) Any change in its name, address ity must, at the same time, be trans-
or telephone number; mitted to the AA/FA.
(2) Any change in its charter, bylaws, § 120.474 Prohibited financing.
or its officers or directors (to be ac-
companied by a statement of personal An SBLC may not make a loan to a
history on an approved SBA form); small business that has received fi-
(3) Any changes in capitalization (in- nancing (or a commitment for financ-
cluding those identified in § 120.470); ing) from an SBIC that is an Associate
of the SBLC.
(4) Any changes affecting the eligi-
bility of the SBLC to continue to par- § 120.475 Audits.
ticipate as an SBLC; and
(5) Notice of a pledge of stock within Every SBLC is subject to periodic au-
dits by SBA’s Office of Inspector Gen-
30 calendar days of the transaction if 10
eral, Auditing Division, and the cost of
percent or more of the stock is pledged
such audits will be assessed against the
by any person (or group of persons act-
SBLC, except for the first audit. Fees
ing in concert) as collateral for indebt-
are structured based on the SBLC’s as-
edness, and such pledge does not in-
sets as of the date of the latest audited
volve a transfer for which prior written financial statement submitted to SBA
approval of SBA is required under before the audit. The fee schedule is set
§ 120.473; forth in SBA’s Standard Operating Pro-
(e) Such other reports as SBA may cedures manual.
require from time to time by written
directive. § 120.476 Suspension or revocation.
§ 120.473 Change of ownership or con- SBA may revoke or suspend an SBLC
trol. for a violation of law, these regula-
tions, or any agreement with SBA. An
(a) Any change of ownership or con- appeal can be made following the pro-
trol without prior written approval of cedures set forth in part 134 of this
SBA is prohibited. An SBLC must re- chapter.
quest approval of any such change from
the AA/FA. Pending the approval, the Subpart E—Loan Administration
SBLC may not register the proposed
new owners on its transfer books nor § 120.500 General.
permit them to participate in any man-
This subpart outlines the general
ner in the conduct of the SBLC’s af-
loan administration policies applicable
fairs. Change of ownership or control
to loan servicing and liquidation.
(1) Any transfer of 10 percent or more SERVICING
of any class of the SBLC’s stock, and
any agreement providing for such § 120.510 Servicing direct and imme-
transfer; diate participation loans.
(2) Any transfer that could result in SBA services the direct loans that it
the beneficial ownership by any person makes. Generally, the Lender services
or group of persons acting in concert of immediate participation loans that it
10 percent or more of any class of its makes and in which SBA participates.
stock, and any agreement providing for
such transfer; § 120.511 Servicing guaranteed loans.
(3) Any merger, consolidation, or re- The Lender services guaranteed
organization; or loans, holds the Loan Instruments and
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§ 120.512 13 CFR Ch. I (1–1–06 Edition)
receives the Borrower’s payments of er’s right to request purchase on that
principal and interest. default lapses.
(b) Purchase by SBA of the guaran-
§ 120.512 Who services the loan after teed portion does not waive any of
SBA honors its guarantee? SBA’s rights to recover money paid on
Generally, after SBA honors its guar- the guarantee, based upon the Lender’s
antee, the Lender must continue to negligence, misconduct, or violation of
hold the Loan Instruments and service this part, including those actions listed
and liquidate the loan. The Lender in § 120.524(a), the Loan Guarantee
must execute a Certificate of Interest Agreement or the Loan Instruments.
showing SBA’s percentage of the loan,
and must submit a liquidation plan to § 120.521 What interest rate applies
SBA for each loan to be liquidated. If after SBA purchases its guaranteed
SBA elects to service or liquidate the
loan, the Lender must assign the Loan When SBA purchases the guaranteed
Instruments to SBA. portion of a fixed interest rate loan,
the rate of interest remains as stated
§ 120.513 What servicing actions re- in the note. On loans with a fluc-
quire the prior written consent of tuating interest rate, the interest rate
SBA? that the Borrower owes will be at the
Except as otherwise provided in a rate in effect at the time of the earliest
Supplemental Guarantee Agreement uncured payment default, or the rate
with the Lender, SBA must give its in effect at the time of purchase (where
prior written consent before the Lender no default has occurred).
takes any of the following actions:
(a) Alters substantially the terms or § 120.522 How much accrued interest
conditions of any Loan Instrument (for does SBA pay to the Lender or Reg-
example, any increase in the principal istered Holder when SBA purchases
the guaranteed portion?
amount or change in the interest rate,
or action conferring a Preference on (a) Rate of interest. If SBA purchases
the Lender); the guaranteed portion from a Lender
(b) Releases collateral having a cu- or from a Registered Holder (if sold in
mulative value in excess of 20 percent the Secondary Market), it will pay ac-
of the original loan amount; crued interest at:
(c) Accelerates the maturity of the (1) The rate in the note if it is a fixed
note; rate loan; or
(d) Sues upon any Loan Instrument; (2) The rate in effect on the date of
(e) Compromises or waives any claim the earliest uncured payment default,
against any Borrower, guarantor, obli- or of SBA’s purchase (if there has been
gor or standby creditor arising out of no default).
any Loan Instrument; or (b) Payment to Lender. If the Lender
(f) Increases the amount of any prior submits a complete purchase request to
lien held by the Lender on the collat- SBA within 120 days of the earliest
eral securing the loan. uncured payment default, SBA will pay
accrued interest to the Lender from
SBA’S PURCHASE OF A GUARANTEED the last interest paid-to-date up to the
PORTION date of payment. If the Lender requests
SBA to purchase after 120 days from
§ 120.520 When does SBA honor its the date of the earliest uncured pay-
guarantee? ment default date, SBA will pay only
(a) SBA, in its sole discretion, may 120 days of interest. For LowDoc loans,
purchase a guaranteed portion of a the interest paid to the Lender will be
loan at any time. A Lender may de- governed by the Supplemental Guar-
mand in writing that SBA honor its antee Agreement.
guarantee if the Borrower is in default (c) Payment to Registered Holder. SBA
on any installment for more than 60 will pay a Registered Holder all ac-
calendar days (or less if SBA agrees) crued interest up to the date of pay-
and the default has not been cured. If a ment.
Borrower cures a default before a Lend- (d) Extension of the 120 day period. Be-
er requests purchase by SBA, the Lend- fore the 120 days expire, the SBA field
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Small Business Administration § 120.531
office may extend the period if the (8) The Lender has failed to request
Lender and SBA agree that the Bor- that SBA purchase a guarantee within
rower can cure the default within a 120 days after maturity of the loan;
reasonable and definite period of time (9) The Lender has failed to use re-
or that the benefits from doing so oth- quired SBA forms or exact electronic
erwise will exceed the costs of SBA copies; or
paying additional interest. If the 120 (10) The Borrower has paid the loan
days have passed, only the AA/FA or in full.
designee can extend the period. (b) If SBA determines, after pur-
chasing its guaranteed portion of a
§ 120.523 What is the ‘‘earliest uncured loan, that any of the events set forth in
paragraph (a) of this section occurred
The earliest uncured payment default in connection with that loan, SBA is
is the date of the earliest failure by a entitled to recover any money paid on
Borrower to pay a regular installment the guarantee plus interest from the
of principal and/or interest when due. Lender responsible for those events.
Payments made by the Borrower before (c) If the Lender’s loan documenta-
a Lender makes its request to SBA to tion indicates that one or more of the
purchase are applied to the earliest events in paragraph (a) of this section
uncured payment default. If the in- may have occurred, SBA may under-
stallment is paid in full, the earliest take such investigation as it deems
uncured payment default date will ad- necessary to determine whether to
vance to the next unpaid installment honor or deny the guarantee, and may
date. If a Borrower makes any payment withhold a decision on whether to
after the Lender makes its request to honor the guarantee until the comple-
SBA to purchase, the earliest uncured tion of such investigation.
payment default date does not change (d) Any information provided to SBA
because the Lender has already exer- prior to Lender’s request for SBA to
cised its right to request purchase. honor its guarantee shall not prejudice
SBA’s right to deny liability for a
§ 120.524 When is SBA released from li- guarantee if one or more of the events
ability on its guarantee?
listed in paragraph (a) of this section
(a) SBA is released from liability on occur.
a loan guarantee (in whole or in part, (e) Unless SBA provides written no-
within SBA’s exclusive discretion), if tice to the contrary, the Lender re-
any of the events below occur: mains responsible for all loan servicing
(1) The Lender has failed to comply ad liquidation actions until SBA hon-
materially with any of the provisions ors its guarantee in full.
of these regulations, the Loan Guar-
antee Agreement, or the Authoriza- DEFERMENT, EXTENSION OF MATURITY
tion; AND LOAN MORATORIUM
(2) The Lender has failed to make,
close, service, or liquidate a loan in a § 120.530 Deferment of payment.
prudent manner; SBA may agree to defer payments on
(3) The Lender’s improper action or a business loan for a stated period of
inaction has placed SBA at risk; time, and use such other methods as it
(4) The Lender has failed to disclose a considers necessary and appropriate to
material fact to SBA regarding a guar- help in the successful operation of the
anteed loan in a timely manner; Borrower. This policy applies to all
(5) The Lender has misrepresented a business loan programs, including 504
material fact to SBA regarding a guar- loans.
(6) SBA has received a written re- § 120.531 Extension of maturity.
quest from the Lender to terminate the SBA may agree to extend the matu-
guarantee; rity of a loan for up to 10 years beyond
(7) The Lender has not paid the guar- its original maturity if the extension
antee fee within the period required will aid in the orderly repayment of
under SBA rules and regulations; the loan.
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§ 120.532 13 CFR Ch. I (1–1–06 Edition)
§ 120.532 What is a loan Moratorium? or sealed bid sales. The Lender may use
SBA may assume a Borrower’s obli- negotiated sales if consistent with its
gation to repay principal and interest usual practice for similar non-SBA as-
on a loan by agreeing to make the pay- sets.
ments to the Lender on behalf of the (2) Lease of acquired property. Nor-
Borrower under terms and conditions mally, neither SBA nor a Lender will
set by SBA. This relief is called a rent or lease acquired property or
‘‘Moratorium.’’ Complete information grant options to purchase. SBA and the
concerning this program may be ob- Lender will consider proposals for a
tained from local SBA offices. lease if it appears a property cannot be
sold advantageously and the lease may
LIQUIDATION OF COLLATERAL be terminated on reasonable notice
upon receipt of a favorable purchase
§ 120.540 What are SBA’s policies con-
cerning the liquidation of collateral offer.
and the sale of business loans and (d) Recoveries and security interests
physical disaster assistance loans, shared. SBA and the Lender will share
physical disaster business loans pro rata (in accordance with their re-
and economic injury disaster loans? spective interests in a loan) all loan
(a) Liquidation policy. SBA or the payments or recoveries, including pro-
Lender may liquidate collateral secur- ceeds from asset sales, all reasonable
ing a loan if the loan is in default or expenses (including advances for the
there is no reasonable prospect that care, preservation, and maintenance of
the loan can be repaid within a reason- collateral securing the loan and the
able period. payment of senior lienholders), and any
(b) Sale and conversion of loans. With- security interest or guarantee (exclud-
out the consent of the Borrower, SBA ing SBA’s guarantee) which the Lender
may: or SBA may hold or receive in connec-
(1) Sell a direct loan; tion with a loan.
(2) Convert a guaranteed or imme-
(e) Guarantors. Guarantors of finan-
diate participation loan to a direct
cial assistance have no rights of con-
tribution against SBA on an SBA guar-
(3) Convert an immediate participa-
tion loan to a guaranteed loan or a anteed or direct loan. SBA is not
loan owned solely by the Lender. deemed to be a co-guarantor with any
(4) Sell direct and purchased 7(a) and other guarantors.
501, 502, 503 and 504 loans and physical (f) Notice. If upon default in repay-
disaster home loans, physical disaster ment, SBA acquires a Premier Cer-
business loans and economic injury dis- tified Lenders Program (PCLP) loan
aster loans in asset sales. SBA will and identifies such loan for inclusion in
offer these loans for sale to qualified a bulk asset sale of defaulted or repur-
bidders by means of competitive proce- chased loans or other financings, SBA
dures at publicly advertised sales. Bid- must give prior notice to any Premier
der qualifications will be set for each Certified Lenders (‘‘Premier CDC’’)
sale in accordance with the terms and which has a contingent liability with
conditions of each sale. respect to the PCLP loan. SBA must
(c) Disposal of collateral and assets ac- give the notice to the Premier CDC as
quired through foreclosure or conveyance. soon as possible after the loan is iden-
SBA or the Lender may sell real and tified for inclusion in such sale, but not
personal property (including contracts less than 90 days before the date SBA
and claims) pledged to secure a loan first makes any records on such loan
that is in default in accordance with available for examination by prospec-
the provisions of the related security tive purchasers prior to such loan
instrument (see § 120.550 for Homestead
being offered in a package of loans for
Protection for Farmers).
(1) Competitive bids or negotiated sales.
Generally, SBA will offer loan collat- [61 FR 3235, Jan. 31, 1996, as amended at 64
eral and acquired assets for public sale FR 44110, Aug. 13, 1999; 65 FR 17133, Mar. 31,
through competitive bids at auctions 2000; 68 FR 51680, Aug. 28, 2003]
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Small Business Administration § 120.600
HOMESTEAD PROTECTION FOR FARMERS peal, the Borrower may retain posses-
sion of the homestead property.
§ 120.550 What is homestead protec-
tion for farmers? § 120.554 Conflict of laws.
SBA may lease to a farmer-Borrower In the event of a conflict between the
the farm residence occupied by the homestead provisions at §§ 120.550
Borrower and a reasonable amount of through 120.553 of this part, and any
adjoining property (no more than 10 state law relating to the right of a Bor-
acres and seven farm buildings), if they rower to designate for separate sale or
were acquired by SBA as a result of a to redeem part or all of the real prop-
defaulted farm loan made or guaran- erty securing a loan foreclosed by the
teed by SBA (see the Consolidated Lender, state law shall prevail.
Farm and Rural Development Act, 7
U.S.C. 1921, for qualifying loan pur- Subpart F—Secondary Market
FISCAL AND TRANSFER AGENT (FTA)
§ 120.551 Who is eligible for homestead
protection? § 120.600 Definitions.
SBA must notify the Borrower in (a) Certificate is the document the
possession of the availability of these FTA issues representing a beneficial
homestead protection rights within 30 fractional interest in a Pool (Pool Cer-
days after SBA acquires the property. tificate), or an undivided interest in
A farmer-Borrower must: the entire guaranteed portion of an in-
(a) Apply for the homestead occu- dividual 7(a) guaranteed loan (Indi-
pancy to the SBA field office which vidual Certificate).
serviced the loan within 90 days after (b) Current means that no repayment
SBA acquires the property; from a Borrower to a Lender is over 29
(b) Provide evidence that the farm days late measured from the due date
produces farm income reasonable for of the payment on the records of the
the area and economic conditions; FTA’s central registry (Pools) or the
(c) Show that at least 60 percent of entity servicing the loan (individual
the Borrower and spouse’s gross annual guaranteed portion).
income came from farm or ranch oper- (c) FTA is the SBA’s fiscal and trans-
ations in at least any two out of the fer agent.
last six calendar years; (d) Note Rate is the interest rate on
(d) Have resided on the property dur- the Borrower’s note.
ing the previous six years; and (e) Net Rate is the interest rate on an
(e) Be personally liable for the debt. individual guaranteed portion of a loan
in a Pool.
§ 120.552 Lease.
(f) Pool is an aggregation of SBA
If approved, the applicant must per- guaranteed portions of loans made by
sonally occupy the residence during Lenders.
the term of the lease and pay a reason- (g) Pool Assembler is a financial insti-
able rent to SBA. The lease will be for tution that:
a period of at least 3 years, but no (1) Organizes and packages a Pool by
more than 5 years. A lease of less than acquiring the SBA guaranteed portions
5 years may be renewed, but not be- of loans from Lenders;
yond 5 years from the original lease (2) Resells fractional interests in the
date. During or at the end of the lease Pool to Registered Holders; and
period, the lessee has a right of first re- (3) Directs the FTA to issue Certifi-
fusal to reacquire the homestead prop- cates.
erty under terms and conditions no less (h) Pool Rate is the interest rate on a
favorable than those offered to any Pool Certificate.
other purchaser. (i) Registered Holder is the Certificate
owner listed in FTA’s records.
§ 120.553 Appeal. (j) SBA’s Secondary Market Program
If the application is denied, the Bor- Guide is an issuance from SBA which
rower may appeal the decision to the describes the characteristics of Sec-
AA/FA. Until the conclusion of any ap- ondary Market transactions.
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