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Federal Register / Vol. 86, No. 143 / Thursday, July 29, 2021 / Rules and Regulations same institution debt due to the potential conflict of interest and the risk of the 504 loan proceeds being used to shift to SBA a potential loss from the existing debt.
Section 120.882g15. SBA is redesignating the current paragraph g15, Definitions, as paragraph g16, and adding a new paragraph g15 to set forth the alternate job retention standard that is reinstated by section 328a of the Economic Aid Act. Under this alternate job retention standard, the Agency may provide a 504 loan in the amount that is not more than the product obtained by multiplying the number of employees of the borrower by $75,000. The Economic Aid Act provides that the number of employees of a borrower is equal to the sum of:
1 The number of full-time employees of the borrower on the date on which the borrower applies for a loan under this subparagraph; and 2 the product obtained by multiplying:
a The number of part-time employees of the borrower on the date on which the borrower applies for a loan under this subparagraph, by b the quotient obtained by dividing the average number of hours each parttime employee of the borrower works each week by 40.
An example of how this standard is calculated is included in the text of the rule.
Section 120.882g16. As stated above, SBA is redesignating the current paragraph g15, Definitions, as paragraph g16 and is making five changes to the definition of Qualified debt. First, under the current language of paragraph i, the debt must not have been incurred less than 2 years before the date of the application for refinancing. However, section 328a of the Economic Aid Act has shortened this period to 6 months before the date of the application for refinancing.
Accordingly, SBA is revising this paragraph by replacing 2 years with 6
months.
Second, paragraph i currently allows a loan that was refinanced within the 2
years before the date of application the most recent loan to be deemed incurred not less than 2 years before the date of the application provided that the effect
of the most recent loan was to extend the maturity date without advancing any additional proceeds. With the minimum age of the qualified debt shortened from 2 years to 6 months, SBA believes that it is no longer necessary to address this situation and is, therefore, removing the second and third sentences of paragraph i.
Third, paragraph ii currently excludes debt that is subject to a guarantee by a Federal agency or department. As stated above, section 328a of the Economic Aid Act no longer includes this statutory exclusion and SBA is removing this paragraph and renumbering the remaining paragraphs accordingly. The conditions and requirements that will apply to the refinancing of a loan that is subject to a Federal guarantee will be set forth in paragraph g3.
Fourth, under the current paragraph vi, the definition of qualified debt excludes a Third Party Loan that is part of an existing 504 Project. However, under the new paragraph g3, an existing 504 loan may be refinanced when both the Third Party Loan and the 504 loan are being refinanced.
Accordingly, SBA is revising this paragraph, which will be newly designated as paragraph v, to incorporate this exception to the general prohibition against a qualified debt including a Third Party Loan.
Fifth, the current paragraph vii reflects the statutory requirement that, for the debt to qualify for refinancing, the applicant must be current on all payments due for not less than one year preceding the date of application.
Section 5027C of the Small Business Investment Act, as amended by section 328a of the Economic Aid Act, no longer includes this requirement and, accordingly, SBA is removing this paragraph from the regulations. In accordance with prudent lending standards, SBA expects CDCs to consider whether the applicant is current on all payments due, and the applicants history of delinquency, in its credit analysis.
Section 120.882g16. The phrase Same institution debt is currently used in connection with the Debt Refinancing without Expansion program only in reference to the Third Party
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Loan, see 120.882g13, and, thus, the current definition of same institution debt references only the Third Party Lender. With the requirement in 120.882g11 that PCLP CDCs cannot use their delegated authority to approve the refinancing of same institution debt in the Debt Refinancing without Expansion program, SBA is revising the definition of Same institution debt to also mean the debt of the CDC or its affiliates that is providing funds for the refinancing.
Compliance With Executive Orders 12866, 12988, 13132, and 13563, the Congressional Review Act 5 U.S.C.
801808, Paperwork Reduction Act 44
U.S.C., Ch. 35, and the Regulatory Flexibility Act 5 U.S.C. 601612
Executive Orders 12866 and 13563
The Office of Management and Budget OMB has determined that this rule constitutes a significant regulatory action for purposes of Executive Orders 12866 and 13563. SBA, however, is proceeding under the emergency provision at Executive Order 12866, section 6a3D, based on the need to move expeditiously to mitigate the current conditions arising from the COVID19 pandemic.
As shown in the table below, during the five-year period spanning FY 2016
and FY 2020, a total of 31,248 504 loans were approved for a total gross approval amount as of May 31, 2021 of $25,720,047,200. In addition, during this five-year period, SBA approved 202
debt refinance with expansion loans on average per year with an average annual dollar volume of $237,880,000, and approved 209 debt refinance without expansion loans on average per year with an average annual dollar volume of $203,339,000. Of the debt refinance with expansion loans, only 16
refinanced a debt that equaled 50
percent of the expansion costs; if these borrowers had been able to refinance 100 percent of the expansion costs instead of 50 percent, and assuming that all these borrowers did so, these borrowers would have been able to borrow $15 million more over five years, or about $3 million more annually.

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TABLE 1504 LOAN ACTIVITY FY 2016FY 2020

Total Number of 504 Loans
Total Dollar Volume of 504 Loans Approved
Number of 504 Debt Refi With Expansion
Dollar Volume of 504 Debt Refi With Expansion
Number of 504 Debt Refi Without Expansion

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FY 2016

FY 2017

FY 2018

FY 2019

FY 2020

5,938
$4,840,820,000
193
$230,987,000
45

6,218
$5,111,480,700
219
$244,499,000
266

5,874
$4,844,181,000
181
$215,311,000
181

6,099
$5,042,010,500
181
$197,484,000
166

7,119
$5,881,555,000
236
$301,159,000
386

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