Subpart ELoan Administration by jolinmilioncherie

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									                                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.
                                includes:
                                  (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
                                                                                              portion?
                                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
                                    payment default’’?
                                                                                          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.
                                anteed loan;
                                  (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-
                                loan; or
                                                                                           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).
                                                                                           bulk sale.
                                  (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
                                poses).
                                                                                            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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