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                                             Rules and Regulations                                                                                         Federal Register
                                                                                                                                                           Vol. 76, No. 33

                                                                                                                                                           Thursday, February 17, 2011



                                             This section of the FEDERAL REGISTER                    DC 20416, or send an e-mail to                        and in need of refinancing. In addition,
                                             contains regulatory documents having general            jobsact504refi@sba.gov. Highlight the                 credit availability for small businesses
                                             applicability and legal effect, most of which           information that you consider to be CBI               has decreased during the recent
                                             are keyed to and codified in the Code of                and explain why you believe SBA                       economic turmoil, and there may not be
                                             Federal Regulations, which is published under           should hold this information as                       sufficient conventional lending capacity
                                             50 titles pursuant to 44 U.S.C. 1510.
                                                                                                     confidential. SBA will review the                     to handle this wave of refinancing.
                                             The Code of Federal Regulations is sold by              information and make the final                        Further, real estate values have declined
                                             the Superintendent of Documents. Prices of              determination whether it will publish                 significantly in many parts of the
                                             new books are listed in the first FEDERAL               the information.                                      country in recent years, which will
                                             REGISTER issue of each week.                            FOR FURTHER INFORMATION CONTACT:                      make it more difficult for small
                                                                                                     Andrew B. McConnell, Jr. at                           businesses to refinance their maturing
                                                                                                     Andrew.McConnell@sba.gov or 202–                      mortgages in the conventional market.
                                             SMALL BUSINESS ADMINISTRATION                           205–7238.                                             By helping small businesses refinance
                                                                                                     SUPPLEMENTARY INFORMATION:                            current mortgages and lock in lower,
                                             13 CFR Part 120                                                                                               long-term interest rates, this temporary
                                             RIN 3245–AG17                                           I. Background Information                             Jobs Act program will help to provide
                                                                                                        The 504 Loan Program is a long-term                the assistance needed by small
                                             Small Business Jobs Act: 504 Loan                       financing tool for economic                           businesses to avoid liquidation or
                                             Program Debt Refinancing                                development that provides small                       foreclosure and improve their prospects
                                             AGENCY:  U.S. Small Business                            businesses with long-term, fixed-rate                 for survival. It will also help to stabilize
                                             Administration.                                         financing to help acquire major fixed                 the commercial real estate market, as
                                                                                                     assets for expansion or modernization.                well as encourage lenders to increase
                                             ACTION: Interim final rule with request
                                                                                                     A Certified Development Company                       lending by improving the health of their
                                             for comments.
                                                                                                     (CDC) is typically a private, nonprofit               portfolios.
                                             SUMMARY:   This interim final rule                      corporation set up to contribute to the                  SBA has determined that this
                                             implements section 1122 of the Small                    economic development of its                           refinancing program will initially apply
                                             Business Jobs Act of 2010 (Jobs Act),                   community. CDCs work with SBA and                     only to loans maturing on or before
                                             which authorizes projects approved for                  private sector lenders to provide                     December 31, 2012 in order to assist
                                             financing under Title V of the Small                    financing to small businesses under the               those small businesses most in need
                                             Business Investment Act to include the                  504 Loan Program. In general, a 504                   with the limited resources available.
                                             refinancing of qualified debt. This                     project includes: A loan obtained from                SBA will publish a Notice in the
                                             interim final rule revises the existing                 a private sector lender with a senior lien            Federal Register extending this date
                                             504 Loan Program rules to make them                     covering at least 50 percent of the                   based on SBA’s assessment of any
                                             consistent with section 1122 of the Jobs                project cost; a loan obtained from a CDC              change in available resources and
                                             Act.                                                    with a junior lien covering up to 40                  market conditions. In addition, SBA
                                             DATES: Effective Date: This rule is                     percent of the total cost (backed by a                will monitor the use of the program
                                             effective February 17, 2011.                            100 percent SBA-guaranteed debenture);                capacity of SBA and the CDC industry
                                                Comment Date: Comments must be                       and a contribution from the Borrower of               to handle the demand for this program
                                             received on or before May 18, 2011.                     at least 10 percent equity.                           and market conditions to determine
                                             ADDRESSES: You may submit comments,                        The Small Business Jobs Act of 2010                whether SBA should also allow a debt
                                             identified by RIN 3245–AG17, by any of                  (Jobs Act), Public Law 111–240, 124                   to be refinanced if it is not maturing
                                             the following methods:                                  Stat. 2504, enacted on September 27,                  within the set timeframe but the
                                                Federal eRulemaking Portal: http://                  2010, temporarily expands the ability of              refinancing would provide a
                                             www.regulations.gov. Follow the                         a small business to use the 504 Loan                  ‘‘substantial benefit’’ to the Borrower. If
                                             instructions for submitting comments.                   Program to refinance certain qualifying               SBA determines to allow such
                                                Mail: Andrew B. McConnell Jr., Small                 existing debt. The expanded authority is              refinancing based on the ‘‘substantial
                                             Business Administration, Office of                      available for two years only. Prior to the            benefit’’ criteria, SBA will announce
                                             Financial Assistance, 409 Third Street,                 Jobs Act, in a typical 504 project with               such determination through a Notice
                                             SW., 8th Floor, Washington, DC 20416.                   a refinancing component, the borrower                 published in the Federal Register, and
                                                Hand Delivery/Courier: Andrew B.                     was required to use a significant portion             will apply 13 CFR 120.882(e)(5) in
                                             McConnell Jr., Small Business                           of the loan proceeds for expansion of                 implementing it.
                                             Administration, Office of Financial                     the business. See 13 CFR 120.882(e).                     The interim final rule also includes a
                                             Assistance, 409 Third Street, SW., 8th                  The temporary Jobs Act program                        provision requiring the Borrower to pay
                                             Floor, Washington, DC 20416.                            authorizes the use of the 504 Loan                    a supplemental annual guarantee fee, in
                                                SBA will post all comments on                        Program for the refinancing of debt                   addition to the existing annual
                                             http://www.regulations.gov.                             where there is no expansion of the small              guarantee fee, to cover the additional
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                                                If you wish to submit confidential                   business concern.                                     cost attributable to the refinancing
                                             business information (CBI) as defined in                   SBA is aware that there is a                       program under the Jobs Act. SBA has
                                             the User Notice at http://                              substantial amount of small business                  determined that the total annual
                                             www.regulations.gov, please submit the                  commercial first mortgage debt that was               guarantee fee assessed for loans
                                             information to Andrew B. McConnell,                     incurred 3–5 years ago that is maturing,              approved for refinancing during Fiscal
                                             Jr., 409 Third Street, SW., Washington,                 typically through balloon mortgages,                  Year 2011 will be 1.043% annually on


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                                             9214             Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations

                                             the unpaid principal balance of the                     is an independent appraisal of the fair               mandate that all proceeds be used for
                                             debenture. If necessary, SBA will                       market value of the additional asset(s).              business purposes. The aim is a balance
                                             publish, at least sixty days before the                 Again, the Third Party Loan and the 504               between excessive controls and
                                             beginning of the new Fiscal Year, a                     loan will not exceed 90% of the fair                  ensuring that a business owner does not
                                             Notice in the Federal Register of any                   market value of all of the fixed assets               knowingly or unknowingly use the loan
                                             change in the fee for loans approved                    serving as collateral for the Refinancing             proceeds for personal purposes. With
                                             during Fiscal Year 2012. This fee will be               Project.                                              the immediate need for refinancing, the
                                             assessed and collected in the same                         In addition, the Jobs Act defines                  Agency is proceeding with this interim
                                             manner as the current annual SBA                        ‘‘qualified debt’’ to mean indebtedness               final rule to implement the refinancing
                                             guarantee fee under 13 CFR                              ‘‘the proceeds of which were used to                  component while continuing to
                                             120.971(d)(2).                                          acquire an eligible fixed asset’’. SBA                consider the most efficient and effective
                                                SBA has also determined that the loan                believes that it is consistent with this              manner in which to implement the
                                             structure for the Refinancing Project                   definition to allow a debt to be                      business expense component of this
                                             will be the same as in the 504 program                  refinanced where substantially all of the             new program. The Agency invites
                                             generally, with the Third Party Lender                  proceeds of that debt were used to                    comments from interested parties on
                                             contributing at least 50% of the fair                   acquire an eligible fixed asset. By                   how best to and whether to implement
                                             market value of the fixed assets serving                ‘‘substantially all’’, SBA means ‘‘almost             this provision.
                                             as collateral for the refinancing, the 504              all’’ or ‘‘nearly all’’ of the proceeds, and             In addition, the Jobs Act includes a
                                             loan contributing no more than 40% of                   a Borrower will satisfy this standard                 provision that states that ‘‘if the
                                             such fair market value, and the                         where it used at least 85% of the                     appraised value of the eligible fixed
                                             Borrower contributing at least 10% of                   proceeds of the existing debt to acquire              assets serving as collateral for the
                                             such fair market value. Consistent with                 an Eligible Fixed Asset. The remaining                financing is less than the amount equal
                                             current regulations, SBA will only                      15% of the proceeds must also have                    to 125 percent of the amount of the
                                             require a 10% injection by the Borrower                 been incurred for the benefit of the                  financing, the borrower may provide
                                             when the fixed asset serving as                         small business. In implementing these                 additional cash or other collateral to
                                             collateral is a limited or special purpose              requirements, SBA will require the                    eliminate any deficiency’’. The Agency
                                             building because the higher                             Borrower to certify that the existing debt            is continuing to review the scope of this
                                             contribution amounts (15% or 20%                        satisfies these requirements, and will                provision and how it should be
                                             injection) apply only when these types                  require the Third Party Lender to certify             implemented, and invites comments
                                             of buildings are being acquired,                        that it has no reason to believe that the             from interested parties on this
                                             constructed, expanded or converted. See                 existing debt does not satisfy these                  provision.
                                             13 CFR 120.910(a)(2). In this case, the                 requirements. In addition, SBA may                       Further, SBA has determined that,
                                             sole purpose of the loan is refinancing                 require, on a random basis, for a                     with the limited resources available for
                                             existing debt and, thus, no further                     borrower and/or lender to submit                      this refinancing program, it will not at
                                             contribution will be required of the                    additional documentation supporting                   this time refinance Third Party Loans
                                             Borrower.                                               the substantially all assertion. SBA is               that are already part of an existing 504
                                                SBA will permit the equity, if any, in               also amending 13 CFR 120.882(e)(1) to                 Project. These Third Party Lenders have
                                             the Eligible Fixed Asset securing the                   incorporate this criteria, and to make                already benefitted from having access to
                                             loan being refinanced to be counted                     the existing debt refinancing program                 subordinated debt provided by the
                                             toward the Borrower’s 10%                               involving expansions consistent with                  Federal government, and also have other
                                             contribution, provided it is supported                  this new debt refinancing program.                    tools to assist borrowers that are
                                             by the independent appraisal of the fair                   The Jobs Act also authorizes the                   experiencing financial difficulties, such
                                             market value of that asset. In addition,                Agency to provide financing under this                as deferments in loan payments and
                                             if the fair market value of the Eligible                debt refinancing program ‘‘to be used                 workout plans. SBA will continue to
                                             Fixed Asset exceeds the existing debt                   solely for the payment of business                    consider the option of allowing the
                                             but the Borrower does not have 10%                      expenses.’’ The statute requires that the             refinancing of existing Third Party
                                             equity in the asset, SBA will permit the                application for the financing of business             Loans, and invites comments from
                                             equity in any other fixed assets that are               expenses include a specific description               interested parties on this issue.
                                             acceptable to SBA to serve as collateral                of the expenses for which the additional                 This debt refinancing program is
                                             for the Refinancing Project and to be                   financing is requested and an                         available for the refinancing of same
                                             counted toward the Borrower’s 10%                       itemization of the amount of each                     institution debt which, similar to the
                                             contribution, provided that there is an                 expense. The statute expressly prohibits              definition for debt refinancing involving
                                             independent appraisal of the fair market                the borrower from using any part of the               expansions in 13 CFR 120.882(e)(8), is
                                             value of the additional asset(s). As                    financing under this clause for non-                  defined as any debt of the CDC or the
                                             discussed in the previous paragraph, the                business purposes. SBA will need time                 Third Party Lender that are providing
                                             Third Party Loan and the 504 loan will                  to implement this provision for the                   funds for the refinancing, or the debt of
                                             not exceed 90% of the fair market value                 financing of business expenses. New                   affiliates of either. To protect the
                                             of all of the fixed assets serving as                   controls will need to be developed to                 program from incurring unnecessary
                                             collateral for the Refinancing Project.                 ensure that these funds are used in                   losses in the refinancing of same
                                                In the event that the outstanding                    accordance with the statute, without                  institution debt, and in accordance with
                                             principal balance on the existing loan is               requiring a burdensome level of detailed              13 CFR 120.884(b), a CDC may not use
                                             more than 90% of the current fair                       justification of expenditures. As the                 504 loan proceeds to pay any creditor in
                                             market value of the Eligible Fixed                      procedures for this portion of the                    a position to sustain a loss causing a
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                                             Assets securing the loan being                          legislation will be new to the CDCs and               shift to SBA of all or part of a potential
                                             refinanced, SBA will also permit the                    require the development of additional                 loss from an existing debt. SBA will
                                             Borrower to contribute the equity in                    procedures for SBA staff, SBA is                      require the CDC and the Third Party
                                             other fixed assets acceptable to SBA as                 requesting input from interested parties              Lender to make certifications with
                                             collateral to increase the amount of the                regarding the level of detail that SBA                respect to this standard for same
                                             Refinancing Project, provided that there                should require to meet the statutory                  institution debt. Whether there is a shift


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                                                              Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations                                          9215

                                             to SBA of a potential loss should be                    temporarily authorizes refinancing                       (7) Provides that the loan must be
                                             determined by assessing the potential                   without an expansion. SBA is adding a                 disbursed within 6 months after loan
                                             loss to SBA associated with the                         new paragraph (g) to § 120.882 to                     approval, unless the Director for
                                             Refinancing Project (e.g., the business is              implement this new authority for                      Financial Assistance or his designee
                                             experiencing a significant threat to its                refinancing existing eligible debt under              determines, upon request, that a longer
                                             viability or existence although the                     the 504 loan program. This new                        disbursement period is appropriate for
                                             business is current on its outstanding                  paragraph sets forth the terms and                    good cause. SBA expects disbursement
                                             debt). In addition, SBA will require a                  conditions under which non-expansion                  extensions to be rare, and includes this
                                             refinancing involving same institution                  refinancing will be permitted in the 504              time limitation on disbursements to
                                             debt to supply a full transcript of the                 program. For example, it:                             ensure that funds not used in a timely
                                             loan payment history instead of only                       (1) Provides that the financing                    manner may be made available to other
                                             one year. The Jobs Act also provides                    provided by the Third Party Loan and                  small businesses during this limited
                                             that this refinancing program is not                    the 504 loan may be no more than 90%                  two-year program;
                                             available to any loan that is subject to                of the fair market value of the fixed                    (8) Provides that, consistent with 504
                                             a guarantee by a Federal agency, which                  assets that will serve as collateral for the          Loan Program requirements, the funding
                                             includes 7(a) loans. SBA also reminds                   Refinancing Project, as established by an             for the Refinancing Project must come
                                             lenders and CDCs that the refinancing of                independent appraisal, but in no event                from three sources based on the current
                                             the existing debt must meet the ‘‘credit                may exceed the outstanding principal                  fair market value of the fixed assets
                                             elsewhere’’ criteria currently applicable               balance of the qualified debt;                        serving as collateral for the Refinancing
                                             to the 504 Program. See 13 CFR 120.101.                    (2) Provides that the Borrower pays an             Project, including not less than 50%
                                             SBA will require the Third Party Lender                 annual guarantee fee to cover the full                from the Third Party Lender, not less
                                             to certify that it would not refinance the              cost attributable to the refinancing                  than 10% from the Borrower, and not
                                             qualified debt without the assistance                   program. SBA has determined that the                  more than 40% from the 504 loan;
                                             made available under this rule. In                      amount of this guarantee fee for loans                   (9) Prohibits same institution debt
                                             addition, to avoid a conflict of interest,              approved during Fiscal Year 2011 is                   refinanced under this program from
                                             or the appearance of a conflict of                      1.043% annually on the unpaid                         being sold in the secondary market as
                                             interest, in connection with the                        principal balance of the debenture. If                part of a pool guaranteed under subpart
                                             refinancing of debts owed to investment                 SBA determines that the fee must be                   J of part 120 of 13 CFR; and
                                             companies, SBA is amending 13 CFR                       changed to cover the costs for loans                     (10) Identifies eligible project costs
                                             120.130(b) to prohibit the use of loan                  approved during Fiscal Year 2012, SBA                 which may be paid with the proceeds of
                                             proceeds for the refinancing of a debt                  will publish a Notice of the change in                the refinancing.
                                             owed to a New Markets Venture Capital                   the Federal Register;                                    Section 120.884. SBA amends
                                             Company.                                                   (3) Incorporates the definition of                 § 120.884(a) to include this new
                                               Finally, the authority provided by the                ‘‘qualified debt’’ set forth in the Jobs Act          authority as an additional exception to
                                             Jobs Act is available for loan                          and includes several new defined terms,               the general prohibition against using
                                             applications received by SBA on or after                including ‘‘Refinancing Project’’;                    proceeds of the 504 loan for debt
                                             the effective date of this rulemaking and                  (4) Incorporates the alternate job                 refinancing.
                                             approved by SBA through September                       retention goal set forth in the Jobs Act
                                                                                                     for Borrowers that do not meet the job                III. Justification for Publication as
                                             27, 2012.                                                                                                     Interim Final Rule
                                                                                                     creation and retention goals under
                                             II. Section-by-Section Analysis                         §§ 501(d) and (e) of the Small Business                  In general, before issuing a final rule,
                                                Section 120.130(b). To avoid conflicts               Investment Act. Under this alternate job              SBA publishes the rule for public
                                             of interest, or the appearance of                       retention goal, the Agency may provide                comment in accordance with the
                                             conflicts of interest, in connection with               a 504 loan in an amount that is not more              Administrative Procedure Act (APA),
                                             the refinancing of debts owed to                        than the product obtained by                          5 U.S.C. 553. The APA provides an
                                             investment companies, SBA is                            multiplying the number of employees of                exception to this standard rulemaking
                                             amending this provision to prohibit the                 the borrower by $65,000. An example of                process where the agency finds good
                                             use of loan proceeds for the refinancing                how this alternate job retention goal is              cause to adopt a rule without prior
                                             of a debt owed to a New Markets                         calculated is included in the rule;                   public participation. 5 U.S.C.
                                             Venture Capital Company.                                   (5) Provides that, in accordance with              553(c)(3)(B). The good cause
                                                Section 120.882(e)(1). SBA is                        the Jobs Act, the authority to approve                requirement is satisfied when prior
                                             amending this provision to make the                     the refinancing is not delegated to the               public participation can be shown to be
                                             existing debt refinancing program                       PCLP CDCs;                                            impracticable, unnecessary, or contrary
                                             involving expansions consistent with                       (6) Provides that refinancing will be              to the public interest. Under such
                                             the new paragraph (g). As amended, this                 initially available only for those loans              circumstances, an agency may publish
                                             provision will allow debt refinancing                   that mature on or before December 31,                 an interim final rule without soliciting
                                             involving expansions where                              2012, unless SBA publishes a Notice in                public comment.
                                             substantially all (85% or more) of the                  the Federal Register to extend the                       In enacting the good cause exception
                                             proceeds of the indebtedness had been                   timeframe. In addition, depending on                  to standard rulemaking procedures,
                                             used to acquire Eligible Fixed Assets,                  the program capacity of SBA and the                   Congress recognized that emergency
                                             and the remaining 15% of the proceeds                   CDC industry to handle the demand for                 situations arise where an agency must
                                             had been incurred for the benefit of the                this program and market conditions,                   issue a rule without public
                                             small business concern.                                 SBA may in the future also permit a                   participation. The current turmoil in the
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                                                Section 120.882(g). Under current                    debt to be refinanced if it would provide             financial markets is having a negative
                                             regulations, SBA may only provide                       a substantial benefit to the Borrower, as             impact on the availability of financing
                                             refinancing under the 504 Loan Program                  defined and in accordance with 13 CFR                 for small businesses. SBA finds that
                                             when the refinancing is provided in                     120.882(e)(5). In such case, SBA will                 good cause exists to publish this rule as
                                             conjunction with an expansion by the                    publish a Notice of this change in the                an interim final rule in light of the
                                             small business. The Jobs Act                            Federal Register;                                     urgent need to help small businesses


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                                             9216             Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations

                                             sustain and survive during this                         publication and effective date.                       C. Potential Benefits and Costs of the
                                             economic downturn and the short-term                    Compliance With Executive Orders                      Interim Final Rule
                                             nature of this new authority. This new                  12866, 12988, and 13132, the Paperwork                (a) Potential Benefits and Costs to
                                             refinancing authority will offer a                      Reduction Act (44 U.S.C., Ch. 35), and                Lenders
                                             significant opportunity for businesses,                 the Regulatory Flexibility Act (5 U.S.C.
                                             allowing them to restructure existing                                                                            The interim final rule would improve
                                                                                                     601–612).
                                             debt into new 504 financings that will                                                                        access to capital for businesses with the
                                             help secure the financial stability of                  Executive Order 12866                                 need to refinance but that will not be
                                             their businesses which will, in turn,                                                                         expanding their business. The cost
                                             help them to survive and save jobs. It                     The Office of Management and Budget                differential between an application for
                                             also has the potential to quickly free up               has determined that this rule constitutes             the regular 504 program and the Jobs
                                             critical capital for small business                     a ‘‘significant regulatory action’’ under             Act 504 debt refinance program
                                             owners across the country, allowing                     Executive Order 12866 thus requiring                  application and checklist are negligible.
                                             them to continue to operate and                         Regulatory Impact Analysis as set forth                  The ability to refinance debt will
                                             potentially expand and add jobs. This                   below.                                                improve the small businesses cash flow,
                                             new authority is only available until                                                                         improve their financial ability to
                                                                                                     A. Regulatory Objective of the Interim                operate, improve the long-term viability
                                             September 27, 2012 and would have
                                                                                                     Final Rule                                            of the small business, and facilitate job
                                             less impact if delayed until notice and
                                             comment rulemaking could be                                                                                   retention. Another potential benefit is
                                                                                                       The objective of the debt refinance
                                             completed. Advance solicitation of                                                                            the reduction in the number of loan
                                                                                                     program authorized by the Jobs Act
                                             comments for this rulemaking would be                                                                         servicing actions due to deferments or
                                                                                                     interim final rule is to expand the 504
                                             contrary to the public interest because it                                                                    catch-up plans and reducing the
                                                                                                     loan program to include a refinancing                 likelihood that the business might be
                                             would harm those small businesses that                  component that does not involve small
                                             need immediate access to capital.                                                                             overcome by its indebtedness burden
                                                                                                     business expansion. This is a two-year                which could result in liquidation. Fewer
                                             However, SBA did hold a public forum
                                                                                                     program that is authorized through                    servicing actions would potentially
                                             in Boston, Massachusetts on November
                                             17, 2010, in which more than 120                        September 27, 2012. The interim final                 reduce the cost to CDCs and reduce the
                                             persons participated in person or by                    rule will promote better understanding                number of delinquent, deferments,
                                             phone offering their suggestions on how                 of Agency requirements by CDCs,                       default and liquidation cases. These
                                             the Agency should implement section                     lenders, and small business borrowers.                changes would reduce the costs of loan
                                             1122 of the Jobs Act.                                   B. Baseline Costs                                     servicing and liquidation processes for
                                                Although this rule is being published                                                                      lenders as well.
                                             as an interim final rule, comments are                    As this is an addition to the existing                 SBA does not know of any specific
                                             solicited from interested members of the                504 program, there is no historical cost              additional costs that would be imposed
                                             public. These comments must be                          data for this new program component                   on CDCs or lenders as a result of this
                                             submitted on or before the deadline for                 for comparison or projections. Similar                interim final rule. SBA is requesting
                                             comments stated in this rule. The SBA                   costs may be assumed based on the                     comments from the public on any
                                             will consider these comments and the                                                                          monetized, quantitative or qualitative
                                                                                                     historical costs for the 504 loan
                                             need for making any amendments as a                                                                           costs of CDC and Lender compliance
                                                                                                     program, as the application for the Jobs
                                             result of these comments.                                                                                     with this rule. Please send comments to
                                                                                                     Act 504 refinance program is expected
                                                                                                                                                           the SBA official referenced in the
                                             IV. Justification for Immediate Effective               to be almost identical to the existing                Addresses section of the preamble.
                                             Date                                                    application and eligibility checklist for
                                                The APA requires that ‘‘publication or               the existing 504 loan program. The costs              (b) Potential Benefits and Costs to CDCs
                                             service of a substantive rule shall be                  to CDCs will vary between ASM                         and Borrowers
                                             made not less than 30 days before its                   (Abridged Submission Method) CDCs                        As provided by the Jobs Act, the
                                             effective date, except * * * as                         and non-ASM (non Abridged                             interim final rule contains a provision
                                             otherwise provided by the agency for                    Submission method) CDCs, as loan                      that temporarily expands the ability of
                                             good cause found and published with                     packages from ASM CDCs have an                        a small business to use the Section 504
                                             the rule.’’ 5 U.S.C. 553(d)(3). The                     abridged list of required documents to                Certified Development Company Loan
                                             purpose of this provision is to provide                 submit. Based on historical ASM and                   program to refinance certain qualifying
                                             interested and affected members of the                  non-ASM submissions, SBA anticipates                  existing debt. To implement this new
                                             public sufficient time to adjust their                  that 68% of 504 debt refinance loan                   program, CDCs will package 504 debt
                                             behavior before the rule takes effect. As               volume will be ASM loan packages and                  refinance loan applications and service
                                             this rule is implementing new authority                 32% will be non-ASM loan packages.                    these loans for small business
                                             that expands the 504 Program’s current                                                                        borrowers. For Borrowers, the cost
                                             authority to refinance debt and does not                  SBA anticipates that 21,300 refinance               benefit of lower interest rates and
                                             restrict current behavior, there is no                  loans will be processed, of which                     improved financial terms would
                                             need for the public to adjust its behavior              14,484, or 68%, are estimated to be                   significantly outweigh the costs of
                                             before the rule takes effect. Furthermore,              submitted by ASM CDCs and 6,816, or                   preparing the Jobs Act 504 debt
                                             any delay in the effective date would                   32%, are estimated to be submitted by                 refinance application and checklist in
                                             deny small businesses immediate access                  non-ASM CDCs.                                         order to apply for the assistance
                                             to credit, and an immediate effective                     Based on the length of time SBA takes               provided by the program.
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                                             date will maximize the rule’s value to                  to review and process 504 applications,                  CDCs would benefit from increased
                                             small businesses and its effect on the                  SBA is estimated to take an average of                loan volume due to the Jobs Act 504
                                             economy. SBA therefore finds that there                 8.4 hours to review and respond to ASM                debt refinance project. This new
                                             is good cause for making this rule                      applications and 8.7 hours to review                  program will meet a new market
                                             effective immediately instead of                        and respond to non-ASM applications.                  demand for 504 debt refinancing for
                                             observing the 30-day period between                                                                           projects that do not involve expansion.


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                                                              Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations                                         9217

                                             This will increase CDC income from                      submission. Based on historical cost                  analysis and oversight. The total
                                             packaging, processing, servicing and                    information for the 504 program, the                  estimate cost of oversight of the 504
                                             closing income as a result of the                       copying and shipping costs using ASM                  debt refinance program for the two-year
                                             program, which would far outweigh any                   ranges from $15–$50 per loan package                  period of the Jobs Act is estimated at
                                             burdens associated with the preparation                 and for non-ASM $25–$60 per loan                      $750,000.
                                             and submission to SBA of 504 debt                       package. This variance in costs depends
                                             refinance loan applications. As CDCs                    on the complexity of the loan                         D. Alternatives to Interim Final Rule
                                             are delivering the 504 program, the                     application and whether the application                  This interim final rule is SBA’s best
                                             increased cost to provide the SBA 504                   is submitted through the ASM or non-                  available means for achieving its
                                             debt refinance program will be                          ASM Method.                                           regulatory objective of implementing the
                                             negligible when compared to the                            SBA is requesting comments from the                Jobs Act debt refinance program
                                             substantial increase in CDC revenue.                    public on any monetized, quantitative                 authorized by Public Law 111–240, 124
                                                SBA expects that CDCs and Borrowers                  or qualitative costs of CDCs compliance               Stat. 2504, enacted on September 27,
                                             would incur some additional costs as a                  with this rule. Please send comments to               2010. SBA is requesting comments from
                                             result of this interim final rule. Due to               the SBA official referenced in the                    the public on any potentially effective
                                             the increased risk of 504 debt refinance                ADDRESSES section of the preamble.                    and reasonably feasible alternative to
                                             applications as compared to the current                                                                       this rule as it applies to CDCs and
                                                                                                     (c) Potential Benefits and Costs for SBA
                                             504 program, and in accordance with                                                                           Lenders and the costs and benefits of
                                                                                                     and the Federal Government
                                             the Jobs Act, a supplemental subsidy fee                                                                      those alternatives. Please send
                                             of 29.4 basis points, or .294%, will be                    The interim final rule would benefit               comments to the SBA official in the
                                             imposed on Borrowers to cover the                       SBA because it would enable the                       ADDRESSES section of the preamble.
                                             additional cost attributable to the                     Agency to increase access to capital to                  SBA has not identified any reasonable
                                             refinancing of qualified debt.                          small business borrowers to refinance                 alternative to this interim final rule to
                                                The costs to CDCs will vary between                  debt without expansion during the                     implement this new debt refinancing
                                             ASM (Abridged Submission Method)                        temporary period of this debt                         authority.
                                             CDCs and non-ASM (non Abridged                          refinancing program. This would result
                                             Submission method) CDCs, as loan                        in the submission of an estimated                     Executive Order 12988
                                             packages from ASM CDCs have an                          21,300 504 debt refinance applications.                  This action meets applicable
                                             abridged list of required documents to                     In order to carry out this new                     standards set forth in sections 3(a) and
                                             submit. Based on historical ASM and                     program, SBA will hire 50 additional                  3(b)(2) of Executive Order 12988, Civil
                                             non-ASM submissions, SBA anticipates                    staff for the Sacramento Loan Processing              Justice Reform, to minimize litigation,
                                             that 68% of 504 debt refinance loan                     Center at an average cost of $92,000 per              eliminate ambiguity, and reduce
                                             volume will be ASM loan packages and                    staff member per year, or an annual                   burden. The action does not have
                                             32% will be non-ASM loan packages.                      estimated salary total of $4,600,000 or a             preemptive effect or retroactive effect.
                                                SBA anticipates that CDCs would                      2 year total of $9,200,000.
                                             likely submit to the Agency for approval                   As indicated above, SBA anticipates                Executive Order 13132
                                             an estimated 21,300 504 debt refinance                  that 21,300 refinance loans will be                     This rule does not have federalism
                                             applications over the two-year period of                processed, of which 14,484, or 68%, are               implications as defined in Executive
                                             the program. This is a significant                      estimated to be submitted by ASM CDCs                 Order 13132. It will not have substantial
                                             increase of the SBA program current                     and 6,816, or 32%, are estimated to be                direct effects on the States, on the
                                             8,500 annual 504 loan application                       submitted by non-ASM CDCs.                            relationship between the national
                                             volume.                                                    Based on the length of time SBA takes              government and the States, or on the
                                                For ASM CDCs, SBA estimates that                     to review and process 504 applications,               distribution of power and
                                             the average time for completion of each                 SBA is estimated to take an average of                responsibilities among the various
                                             application would consist of 8.4 hours                  8.4 hours to review and respond to ASM                levels of government, as specified in the
                                             at an average cost of $45 per hour.                     applications and 8.7 hours to review                  Executive Order. As such it does not
                                             Therefore, the annual costs of                          and respond to non-ASM applications.                  warrant the preparation of a Federalism
                                             submitting 504 debt refinance                           For ASM applications, this equates to                 Assessment.
                                             applications under the interim final rule               8.4 hours at $45 hour × 14,484
                                                                                                                                                           Executive Order 13563
                                             would be 14,484 loan applications × 8.4                 applications for an estimated cost of
                                             hours for an estimated cost of $45/hour                 $5,474,952 for ASM refinance loan                        To the extent practicable given the
                                             for a two-year total of $5,474,952.                     application for the two-year program                  need to make this temporary, 2-year
                                                For Non-ASM CDCs, SBA estimates                      period. For non-ASM applications, this                refinance program operational
                                             that the average time for completion of                 equates to 8.7 hours at $45 hour for an               expeditiously in order to assist as many
                                             each application would consist of 8.7                   estimated cost × 6,816 for a total annual             small businesses as possible, this rule
                                             hours at an average cost of $35 per hour.               estimated cost of $2,668,464 for non-                 was developed in keeping with the
                                             Therefore, the annual costs of                          ASM refinance loan application. SBA                   intent of this Executive Order. SBA
                                             submitting 504 debt refinance                           estimates the combined cost of                        solicited suggestions and comments on
                                             applications under the interim final rule               reviewing ASM and non-ASM                             how best to implement the Jobs Act
                                             would be 6,816 loan applications × 8.7                  applications to be $8,143,416 for the                 from the affected stakeholders and the
                                             hours for an estimated cost of $45/hour                 two year period of the Jobs Act.                      public as a whole. SBA provided notice
                                             for a two-year for non-ASM debt                            Furthermore, the Agency must hire                  of a public forum in the Federal
                                             refinance applications of $2,668,464.                   two full-time staff for lender oversight at           Register, which was held in Boston,
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                                             The total estimated annual costs for                    an average cost of $135,000 per year or               Massachusetts on November 17, 2010.
                                             ASM and non-ASM applications                            a total of $540,000 for the two-year                  More than 100 persons attended in
                                             combined would be $8,143,416 for the                    period of the Jobs Act. In addition,                  person or by phone and 23 individuals
                                             two-year period of the Jobs Act.                        contract dollars of $105,000 per year, or             provided testimony. In addition, SBA
                                                For the CDCs, there are duplication                  $210,000 for the two-year period of the               announced a Web site and solicited
                                             and shipping costs associated with loan                 Jobs Act, will be utilized to assist with             comments for a 30 day period. The final


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                                             9218             Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations

                                             structure of the program was                            comment rulemaking is required. As                    its assessment of available resources and
                                             significantly shaped by those comments,                 discussed above, SBA has determined                   market conditions, in a Notice
                                             especially the decision to keep the same                that there is good cause to publish this              published in the Federal Register.
                                             basic 504 financing structure for same                  rule without soliciting public comment.               Based on available resources and market
                                             institution debt refinancing as for a new               This rule is, therefore, exempt from the              conditions, SBA may allow other debt to
                                             institution refinancing another lender’s                RFA requirements.                                     be refinanced if the refinancing would
                                             debt.                                                                                                         provide a substantial benefit to the
                                                By adhering as closely as possible to                List of Subjects in 13 CFR Part 120                   Borrower in accordance with
                                             the procedures and conditions of SBA’s                    Loan programs—business, Small                       § 120.882(e)(5). If SBA determines to
                                             existing permanent 504 refinancing                      businesses.                                           allow such refinancing based on the
                                             program, any burden that this rule may                    For the reasons stated in the                       substantial benefit criteria, SBA will
                                             have imposed on the affected                            preamble, SBA amends 13 CFR part 120                  publish a Notice in the Federal Register
                                             stakeholders is lessened. In addition,                  as follows:                                           of this determination;
                                             SBA adopted a new procedure with this                                                                            (4) In addition to the annual guarantee
                                             rule that specifically addresses concerns               PART 120—BUSINESS LOANS                               fee assessed under § 120.971(d)(2),
                                             that were raised in public comments                                                                           Borrower must pay SBA a supplemental
                                             regarding the burden that has been                      ■  1. The authority for 13 CFR part 120               annual guarantee fee to cover the
                                             imposed in the permanent 504                            is revised to read as follows:                        additional cost attributable to the
                                             refinancing program by requiring                          Authority: 15 U.S.C. 634(b)(6), (b)(7),             refinancing. For loans approved during
                                             lenders and borrowers to document that                  (b)(14), (h), and note, 636(a), (h) and (m), 650,     Fiscal Year 2011, this supplemental
                                             all of the proceeds of the debt being                   687(f), 696(3), and 697(a) and (e); Public Law        annual guarantee fee will be 0.294%.
                                             refinanced was used for eligible                        111–5, 123 Stat. 115, Public Law 111–240,             For loans approved during Fiscal Year
                                             collateral. As indicated by the                         124 Stat. 2504.                                       2011, the annual guarantee fee assessed
                                             stakeholders, this requirement is                                                                             under § 120.971(d)(2) and the
                                                                                                     ■ 2. Amend § 120.130 by revising
                                             especially difficult if a property has                                                                        supplemental annual guarantee fee will
                                                                                                     paragraph (b) to read as follows:
                                             been refinanced more than once or if the                                                                      total 1.043% on the unpaid principal
                                             initial lender had been acquired by                     § 120.130 Restrictions on uses of                     balance of the debenture. If the total
                                             another lender. In practice, the process                proceeds.                                             amount of the guarantee fee changes for
                                             was costly and time consuming for the                   *      *     *    *    *                              loans approved during Fiscal Year 2012,
                                             borrower, lender and SBA personnel                         (b) Refinancing a debt owed to a                   SBA will publish a Notice of the change
                                             and, upon review, it rarely led to                      Small Business Investment Company                     in the Federal Register;
                                             significant amounts being excluded                      (‘‘SBIC’’) or a New Markets Venture                      (5) The funding for the Refinancing
                                             from the refinancing. In this rule, SBA                 Capital Company (‘‘NMVCC’’);                          Project must come from three sources
                                             has adopted a more practical, less costly                                                                     based on the current fair market value
                                                                                                     *      *     *    *    *
                                             approach that relies on borrower and                                                                          of the fixed assets serving as collateral
                                             lender certifications, subject to random                ■ 3. Amend § 120.882 by revising                      for the Refinancing Project, including
                                             sampling to verify the amounts being                    paragraph (e)(1) and adding new                       not less than 50% from the Third Party
                                             refinanced. In addition, the rule allows                paragraph (g) to read as follows:                     Lender, not less than 10% from the
                                             the refinancing if substantially all of the             § 120.882    Eligible Project costs for 504           Borrower (excluding administrative
                                             proceeds of the debt being refinanced                   loans.                                                costs), and not more than 40% from the
                                             was used for eligible collateral. This                  *      *    *     *      *                            504 loan. In addition to a cash
                                             rule will make that change to the                          (e) * * *                                          contribution, the Borrower’s 10%
                                             permanent refinance program as well as                     (1) Substantially all (85% or more) of             contribution may be satisfied as set forth
                                             this temporary one.                                     the proceeds of the indebtedness were                 in § 120.910 or by the equity in any
                                                                                                     used to acquire land, including a                     other fixed assets that are acceptable to
                                             Paperwork Reduction Act
                                                                                                     building situated thereon, to construct a             SBA as collateral for the Refinancing
                                               The SBA has determined that this rule                                                                       Project, provided that there is an
                                             imposes no additional reporting and                     building thereon, or to purchase
                                                                                                     equipment. The assets acquired must be                independent appraisal of the fair market
                                             recordkeeping requirements under the                                                                          value of the asset;
                                             Paperwork Reduction Act, 44 U.S.C.                      eligible for financing under the 504 loan
                                                                                                                                                              (6) The portion of the Refinancing
                                             Chapter 35.                                             program;
                                                                                                                                                           Project provided by the 504 loan and the
                                                                                                     *      *    *     *      *                            Third Party Loan may be no more than
                                             Regulatory Flexibility Act                                 (g) For applications received on or                90% of the fair market value of the fixed
                                                Because this rule is an interim final                after February 17, 2011 and approved by               assets that will serve as collateral, but in
                                             rule, there is no requirement for SBA to                SBA no later than September 27, 2012,                 no event may it exceed the outstanding
                                             prepare a Regulatory Flexibility Act                    SBA may approve a Refinancing Project                 principal balance of the qualified debt;
                                             (RFA) analysis. The RFA requires                        of a qualified debt subject to the                       (7) If the qualified debt is not fully
                                             administrative agencies to consider the                 following conditions and requirements:                satisfied by the funding provided by the
                                             effect of their actions on small entities,                 (1) The Refinancing Project does not               Refinancing Project, the lender of the
                                             including small non-profit businesses,                  involve the expansion of a small                      qualified debt must take one of the
                                             and small local governments. Pursuant                   business;                                             following actions, or some combination
                                             to the RFA, when an agency issues a                        (2) The applicant for the refinancing              thereof, to address the deficiency:
                                             rule, the agency must prepare an                        available under this paragraph (g) has                   (i) Forgiveness of all or part of the
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                                             analysis that describes whether the                     been in operation for all of the 2 year               deficiency;
                                             impact of the rule will have a significant              period ending on the date of                             (ii) Acceptance of payment by the
                                             economic impact on a substantial                        application;                                          Borrower, or
                                             number of these small entities.                            (3) The qualified debt will mature on                 (iii) Acceptance of a Note executed by
                                             However, the RFA requires such                          or before December 31, 2012, unless                   the Borrower for the balance, or any
                                             analysis only where notice and                          such date is extended by SBA, based on                portion of the balance. Such Note must


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                                                              Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations                                              9219

                                             be subordinate to the 504 loan if the                      (14) The Third Party Lender must                     (a) Debt refinancing (other than
                                             Note and the 504 loan are secured by                    certify that it would not refinance the               interim financing), except as provided
                                             any of the same collateral. The Note is                 qualified debt except for the assistance              in § 120.882(e) and (g).
                                             subject to any other restrictions that                  provided under this paragraph (g);                    *     *     *    *     *
                                             SBA may establish to protect its creditor                  (15) Definitions. For the purposes of                Dated: February 10, 2011.
                                             position, including standby                             this paragraph (g), the terms below are
                                             requirements;                                                                                                 Karen G. Mills,
                                                                                                     defined as follows:
                                                (8) The Third Party Lender must have                                                                       Administrator.
                                                                                                        Date of application refers to the date
                                             a first lien position, and the 504 loan                                                                       [FR Doc. 2011–3470 Filed 2–16–11; 8:45 am]
                                                                                                     the 504 loan application is received by
                                             must have a second lien position, on all                SBA.                                                  BILLING CODE 8025–01–P
                                             Eligible Fixed Assets securing the                         Eligible Fixed Assets are one or more
                                             Refinancing Project. Any other lien                     long-term fixed assets, such as land,
                                             must be junior in priority to these lien                buildings, machinery, and equipment,                  DEPARTMENT OF TRANSPORTATION
                                             positions. For other fixed assets serving               acquired, constructed or improved by a
                                             as collateral for the Refinancing Project,                                                                    Federal Aviation Administration
                                                                                                     small business for use in its business
                                             the lien positions of the Third Party                   operations.
                                             Lender and the 504 loan may be junior                                                                         14 CFR Part 71
                                             to any existing liens acceptable to SBA;                   Fair market value refers to the current
                                                                                                     appraised value of an asset that is                   [Docket No. FAA–2010–1032; Airspace
                                                (9) Eligible Project costs which may                                                                       Docket No. 10–AGL–20]
                                             be paid with the proceeds of the 504                    established by an independent appraiser
                                             loan are the amount used to refinance                   in accordance with the standards
                                                                                                     established by SBA in its SOPs.                       Amendment of Class E Airspace;
                                             the qualified debt and other costs under                                                                      Muncie, IN
                                             § 120.882(c) and (d) and eligible                          Qualified debt is a commercial loan:
                                             administrative costs under § 120.883;                      (i) That was incurred not less than 2              AGENCY:  Federal Aviation
                                                (10) Notwithstanding § 120.860, a                    years before the date of the application              Administration (FAA), DOT.
                                             debt may be refinanced under this                       for the refinancing available under this              ACTION: Final rule.
                                             paragraph (g) if it does not meet the job               paragraph (g);
                                             creation or other economic development                     (ii) That is not subject to a guarantee            SUMMARY:   This action amends Class E
                                             objectives set forth in § 120.861 or                    by a Federal agency or department;                    airspace at Muncie, IN, to accommodate
                                             § 120.862. In such case, the 504 loan                                                                         new Area Navigation (RNAV) Standard
                                                                                                        (iii) Substantially all (85% or more) of
                                             may not exceed the product obtained by                                                                        Instrument Approach Procedures (SIAP)
                                                                                                     which was for the acquisition of Eligible
                                             multiplying the number of employees of                                                                        at Ball Memorial Hospital Heliport,
                                                                                                     Fixed Assets;
                                             the Borrower by $65,000. The number of                                                                        Muncie, IN. The FAA is taking this
                                                                                                        (iv) That was for the benefit of the               action to enhance the safety and
                                             employees of the Borrower is equal to                   small business concern;
                                             the sum of:                                                                                                   management of Instrument Flight Rule
                                                                                                        (v) That is collateralized by Eligible             (IFR) operations at the heliport.
                                                (i) The number of full-time employees
                                                                                                     Fixed Assets;                                         DATES: Effective date: 0901 UTC, May 5,
                                             of Borrower on the date of application,
                                             and                                                        (vi) That is not a Third Party Loan                2011. The Director of the Federal
                                                (ii) The product obtained by                         that is part of an existing 504 Project;              Register approves this incorporation by
                                             multiplying:                                            and                                                   reference action under 1 CFR part 51,
                                                (A) The number of part-time                             (vii) For which the applicant for the              subject to the annual revision of FAA
                                             employees of the Borrower on the date                   refinancing available under this                      Order 7400.9 and publication of
                                             of application; by                                      paragraph (g) has been current on all                 conforming amendments.
                                                (B) The quotient obtained by dividing                payments due for not less than 1 year                 FOR FURTHER INFORMATION CONTACT:
                                             the average number of hours each part                   preceding the date of application. For                Scott Enander, Central Service Center,
                                             time employee of the Borrower works                     the purposes of this subparagraph (vi),               Operations Support Group, Federal
                                             each week by 40.                                        ‘‘current on all payments due’’ means                 Aviation Administration, Southwest
                                                                                                     that no payment scheduled to be made                  Region, 2601 Meacham Blvd., Fort
                                               Example: 30 full-time employees and 35
                                             part-time employees working 20 hours per
                                                                                                     during the one year period was either                 Worth, TX 76137; telephone (817) 321–
                                             week is calculated as follows: 30 + (35 × (20/          deferred or more than 30 days past due.               7716.
                                             40)) = 47.5. The maximum amount of the 504              Any delinquency in payment of the loan
                                                                                                                                                           SUPPLEMENTARY INFORMATION:
                                             loan would be 47.5 multiplied by $65,000, or            to be refinanced after approval and
                                             $3,087,500.                                             before debenture funding must be                      History
                                               (11) The authority to approve the                     reported to SBA as an adverse change.                   On November 8, 2010, the FAA
                                             refinancing under this paragraph (g) is                    Refinancing Project means the fair                 published in the Federal Register a
                                             not delegated to PCLP CDCs;                             market value of the Eligible Fixed                    notice of proposed rulemaking to amend
                                               (12) The 504 loans approved under                     Asset(s) securing the qualified debt and              Class E airspace for Muncie, IN, creating
                                             this paragraph (g) must be disbursed                    any other fixed assets acceptable to                  controlled airspace at Ball Memorial
                                             within 6 months after loan approval.                    SBA.                                                  Hospital Heliport (75 FR 68552) Docket
                                             The Director, Office of Financial                          Same institution debt means any debt               No. FAA–2010–1032. Interested parties
                                             Assistance, or his or her designee may                  of the Third Party Lender that is                     were invited to participate in this
                                             approve any request for extension of the                providing funds for the refinancing, or               rulemaking effort by submitting written
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                                             disbursement period for good cause;                     of its affiliates.                                    comments on the proposal to the FAA.
                                               (13) The Third Party Loan may not be                  ■ 4. Amend § 120.884 by revising                      No comments were received.
                                             sold on the secondary market as a part                  paragraph (a) to read as follows:                     Subsequent to publication, an error was
                                             of a pool guaranteed under subpart J of                                                                       found in the regulatory text noting the
                                             this part 120 when the debt being                       § 120.884    Ineligible costs for 504 loans.          wrong airport name. This rule will make
                                             refinanced is same institution debt;                    *      *      *      *       *                        the correction.


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