SBA proposes new regulations

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Published: October 30,2009

Tags: federal agency, lending, small businesses

WASHINGTON — The U.S. Small Business Administration (SBA) announced proposals aimed at strengthening opportunities for disadvantaged small businesses to benefit from its 8(a) Business Development program.

The proposed 8(a) regulation changes are the result of the first comprehensive review of the 8(a) program in a number of years and were published in the “Federal Register.” The rules cover a variety of areas of the program, ranging from providing further clarification on determining economic disadvantage to requirements on Joint Ventures and the Mentor-Protégé program. The public comment period on the proposed changes is open for 60 days.

The 8(a) program is a nine-year business development program for small businesses that fit the SBA’s criteria of being socially and economically disadvantaged.

In a separate item, regulations published by the SBA will create a secondary market guarantee program to provide greater liquidity for lenders and expand access to capital for small businesses.

Funded through the American Recovery and Reinvestment Act, the new program would encourage sales into the secondary market of the “first mortgage” portion of small business financing made possible through the SBA’s 504 Certified Development Company (CDC) program. As a result of the economic recession and the disruption in the credit markets, there has been a significant decline in secondary market activity for 504 first mortgage loans.

Under the new program, portions of eligible 504 first mortgages pooled by originators or broker dealers could be sold with an SBA guarantee to third-party investors in the secondary market. Lenders will retain at least 15 percent of each individual loan, pool originators will assume 5 percent of the risk, and the SBA will guarantee the remaining 80 percent. To be eligible to be included in a pool, the first mortgage must be associated with a 504 loan disbursed on or after Feb. 17, 2009. The program will be in place until Feb. 16, 2011, or until $3 billion in new pools are created, whichever occurs first.

SBA will begin accepting applications to become a pool originator from banks and broker dealers immediately, and expects to be operational for the settlement of pools in about 60 days.

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