LIQUIDATION OF LOANS AND SECURITY

122.23 Liquidation policy.

122.24

122.25

Foreclosure of collateral.

Sale of acquired collateral.

AUTHORITY: The provisions of this Part 122 issued under secs. 5, 7, 72 Stat. 385, 387, as amended; 15 U.S.C. 634, 636.

SOURCE: The provisions of this Part 122 contained in Revision 3, 32 F.R. 11699, Aug. 12, 1967, unless otherwise noted.

§ 122.1 Statutory provisions.

SEC. 7. (a) The Administration is empowered to make loans to enable small business concerns to finance plant construction, conversion, or expansion, including the acquisition of land; or to finance the acquisition of equipment, facilities, machinery, supplies, or materials; or to supply such concerns with working capital to be used in the manufacture of articles, equipment, supplies, or materials for war, defense, or civilian production or as may be necessary to insure a wellbalanced national economy; and such loans may be made or effected either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred basis. The foregoing powers shall be subject, however, to the following restrictions and limitations:

(1) No financial assistance shall be extended pursuant to this subsection unless the financial assistance applied for is not otherwise available on reasonable terms.

(2) No immediate participation may be purchased unless it is shown that a deferred participation is not available; and no loan may be made unless it is shown that a participation is not available.

(3) In agreements to participate in loans on a deferred basis under this subsection, such participation by the Administration shall not be in excess of 90 per centum of the balance of the loan outstanding at the time of disbursement.

(4) Except as provided in paragraph (5) (A), no loan under this subsection shall be made if the total amount outstanding and committed (by participation or otherwise) to the borrower from the revolving fund established by this Act would exceed $350,000; (B) the rate of interest for the Administration's share of any such loan shall be no more than 52 per centum per annum; and (C) no such loan, including renewals or extensions thereof, may be made for a period or periods exceeding 10 years except that a loan made for the purpose of constructing facili

ties may have a maturity of 10 years plus such additional period as is estimated may be required to complete such construction.

(5) In the case of any loan made under this subsection to a corporation formed and capitalized by a group of small business concerns with resources provided by them for the purpose of obtaining for the use of such concerns raw materials, equipment, inventories, supplies or the benefits of research and development, or for establishing facilities for such purpose, (A) the limitation of $350,000 prescribed in paragraph (4) shall not apply, but the limit of such loan shall be $250,000 multiplied by the number of separate small businesses which formed and capitalized such corporation; (B) the rate of interest for the Administration's share of such loan shall be no less than 3 nor more than 5 per centum per annum; and (C) such loan. including renewals and extensions thereof, may not be made for a period or periods exceeding 10 years except that if such loan is made for the purpose of constructing facilities it may have a maturity of 20 years plus such additional time as is required to complete such construction.

(6) The Administrator is authorized to consult with representatives of small business concerns with a view to encouraging the formation by such concerns of the corporation referred to in paragraph (5). No act or omission to act, if requested by the Administrator pursuant to this paragraph, and if found and approved by the Administration as contributing to the needs of small business, shall be construed to be within the prohibitions of the antitrust laws or the Federal Trade Commission Act of the United States. A copy of the statement of any such finding and approval intended to be within the coverage of this section, and any modification or withdrawal thereof, shall be furnished to the Attorney General and the Chairman of the Federal Trade Commission when made, and it shall be published in the FEDERAL REGISTER. The Authority granted in this paragraph shall be exercised only (A) by the Administrator, (B) upon the condition that the Administrator consult with the Attorney General and with the Chairman of the Federal Trade Commission, and (C) upon the condition that the Administrator obtain the approval of the Attorney General before exercising such authority. Upon withdrawal of any request or finding hereunder or upon withdrawal by the Attorney General of his approval granted under the preceding sentence, the provisions of this paragraph shall not apply to any subsequent act or omission to act by reason of such finding or request.

(7) All loans made under this subsection shall be of such sound value or so secured as reasonably to assure repayment.

(a) It is the intent of Congress that Government assistance should be extended only after all other possible avenues for solving a small firm's financial problems have been explored. Frequently firms do not need financial assistance but are in need most of counseling on financial management problems. In such cases SBA provides assistance through its Financial Counseling Program.

(b) In response to requests for financial assistance, consideration is given to (1) possible assistance available from local and State development corporations; (2) possible means of obtaining credit on reasonable terms from banks, other private financing sources, or from utilization of the personal credit or resources of the applicant's owners or management; (3) adequacy of accounting methods and other aspects of financial management; (4) means of increasing equity capital; (5) eligibility for V loan financing of defense contracts; (6) feasibility of obtaining advance or partial payments on contracts.

(c) All loans shall be of such sound value, or so secured as reasonably to assure repayment. Security may include, but shall not be limited to, mortgage on real or personal property, monies due on contracts, assignment of warehouse receipts, guarantees, and under certain circumstances assignment of receivables or pledge of inventories.

(d) It is the policy of the U.S. Government and of the Small Business Administration to encourage by affirmative action the elimination of discrimination because of race, creed, color, or national origin in employment opportunities created by construction contracts involving Federal financial assistance.

(1) "Construction contract" means any contract or subcontract for the alteration, rehabilitation, construction, conversion, extension, or repairing of buildings, highways, or other improvements to real property,

(2) Applicants for financial assistance are required to execute the Small Business Administration's "Applicant's Agreement of Compliance," SBA Form 601 and, as therein provided, shall cooperate with the Small Business Administration in fostering nondiscrimination in employment opportunities.

(3) All complaints alleging discrimination in construction contracts performed by or with financial assistance shall be investigated by the Small Business Administration. Complaints alleging discrimination must be filed with the Small Business Administration within 90 days of the alleged discrimination. The Small Business Administration may hold informal hearings and make findings regarding the allegation of discrimination in accord with the rules of the President's Committee on Equal Opportunity. In the event that the Small Business Administration finds discrimination to have occurred, it may cancel loans approved but not disbursed to an applicant, it may refuse to make further disbursements on account of the loan, it may accelerate the maturity of the Note between Borrower and SBA, or it may take any action of a lesser nature. Failure of the Small Business Administration to invoke or assert any of the aforesaid sanctions, or any other sanctions, shall not be construed to be a waiver of SBA's right to assert any of such sanctions.

(e) It is also the policy, as set forth in Parts 112 and 113 of this chapter, to require nondiscrimination in employment and services to the public by SBA borrowers.

(f) (1) Financial assistance as used in this part shall include direct loans made by SBA, immediate participation loans, and guaranteed loans.

(2) Financial institution as used in this part shall include, but not be limited to, banks and other concerns whose regular course of business entails the making of commercial and industrial loans. The eligibility qualifications for financial institutions set forth in Part 120, 120.3(c) are incorporated herein. [Revision 3, 32 F.R. 11699, Aug. 12, 1967, as amended by Amdt. 4, 37 F.R. 26709, Dec. 15, 1972]

LIQUIDATION OF LOANS AND SECURITY

122.23 Liquidation policy.

122.24

122.25

Foreclosure of collateral.

Sale of acquired collateral.

AUTHORITY: The provisions of this Part 122 issued under secs. 5, 7, 72 Stat. 385, 387, as amended; 15 U.S.C. 634, 636.

SOURCE: The provisions of this Part 122 contained in Revision 3, 32 F.R. 11699, Aug. 12, 1967, unless otherwise noted.

§ 122.1 Statutory provisions.

SEC. 7. (a) The Administration is empowered to make loans to enable small business concerns to finance plant construction, conversion, or expansion, including the acquisition of land; or to finance the acquisition of equipment, facilities, machinery, supplies, or materials; or to supply such concerns with working capital to be used in the manufacture of articles, equipment, supplies, or materials for war, defense, or civilian production or as may be necessary to insure a wellbalanced national economy; and such loans may be made or effected either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred basis. The foregoing powers shall be subject, however, to the following restrictions and limitations:

(1) No financial assistance shall be extended pursuant to this subsection unless the financial assistance applied for is not otherwise available on reasonable terms.

(2) No immediate participation may be purchased unless it is shown that a deferred participation is not available; and no loan may be made unless it is shown that a participation is not available.

(3) In agreements to participate in loans on a deferred basis under this subsection, such participation by the Administration shall not be in excess of 90 per centum of the balance of the loan outstanding at the time of disbursement.

(4) Except as provided in paragraph (5) (A), no loan under this subsection shall be made if the total amount outstanding and committed (by participation or otherwise) to the borrower from the revolving fund established by this Act would exceed $350,000; (B) the rate of interest for the Administration's share of any such loan shall be no more than 52 per centum per annum; and (C) no such loan, including renewals or extensions thereof, may be made for a period or periods exceeding 10 years except that a loan made for the purpose of constructing facili

ties may have a maturity of 10 years plus such additional period as is estimated may be required to complete such construction.

(5) In the case of any loan made under this subsection to a corporation formed and capitalized by a group of small business concerns with resources provided by them for the purpose of obtaining for the use of such concerns raw materials, equipment, inventories, supplies or the benefits of research and development, or for establishing facilities for such purpose. (A) the limitation of $350,000 prescribed in paragraph (4) shall not apply, but the limit of such loan shall be $250,000 multiplied by the number of separate small businesses which formed and capitalized such corporation; (B) the rate of interest for the Administration's share of such loan shall be no less than 3 nor more than 5 per centum per annum; and (C) such loan. including renewals and extensions thereof, may not be made for a period or periods exceeding 10 years except that if such loan is made for the purpose of constructing facilities it may have a maturity of 20 years plus such additional time as is required to complete such construction.

(6) The Administrator is authorized to consult with representatives of small business concerns with a view to encouraging the formation by such concerns of the corporation referred to in paragraph (5). No act or omission to act, if requested by the Administrator pursuant to this paragraph, and if found and approved by the Administration as contributing to the needs of small business, shall be construed to be within the prohibitions of the antitrust laws or the Federal Trade Commission Act of the United States. A copy of the statement of any such finding and approval intended to be within the coverage of this section, and any modification or withdrawal thereof, shall be furnished to the Attorney General and the Chairman of the Federal Trade Commission when made, and it shall be published in the FEDERAL REGISTER. The Authority granted in this paragraph shall be exercised only (A) by the Administrator, (B) upon the condition that the Administrator consult with the Attorney General and with the Chairman of the Federal Trade Commission, and (C) upon the condition that the Administrator obtain the approval of the Attorney General before exercising such authority. Upon withdrawal of any request or finding hereunder or upon withdrawal by the Attorney General of his approval granted under the preceding sentence, the provisions of this paragraph shall not apply to any subsequent act or omission to act by reason of such finding or request.

(7) All loans made under this subsection shall be of such sound value or so secured as reasonably to assure repayment.

(a) It is the intent of Congress that Government assistance should be extended only after all other possible avenues for solving a small firm's financial problems have been explored. Frequently firms do not need financial assistance but are in need most of counseling on financial management problems. In such cases SBA provides assistance through its Financial Counseling Program.

(b) In response to requests for financial assistance, consideration is given to (1) possible assistance available from local and State development corporations; (2) possible means of obtaining credit on reasonable terms from banks, other private financing sources, or from utilization of the personal credit or resources of the applicant's owners or management; (3) adequacy of accounting methods and other aspects of financial management; (4) means of increasing equity capital; (5) eligibility for V loan financing of defense contracts; (6) feasibility of obtaining advance or partial payments on contracts.

(c) All loans shall be of such sound value, or so secured as reasonably to assure repayment. Security may include, but shall not be limited to, mortgage on real or personal property, monies due on contracts, assignment of warehouse receipts, guarantees, and under certain circumstances assignment of receivables or pledge of inventories.

(d) It is the policy of the U.S. Government and of the Small Business Administration to encourage by affirmative action the elimination of discrimination because of race, creed, color, or national origin in employment opportunities created by construction contracts involving Federal financial assistance.

(2) Applicants for financial assistance are required to execute the Small Business Administration's "Applicant's Agreement of Compliance," SBA Form 601 and, as therein provided, shall cooperate with the Small Business Administration in fostering nondiscrimination in employment opportunities.

(3) All complaints alleging discrimination in construction contracts performed by or with financial assistance shall be investigated by the Small Business Administration. Complaints alleging discrimination must be filed with the Small Business Administration within 90 days of the alleged discrimination. The Small Business Administration may hold informal hearings and make findings regarding the allegation of discrimination in accord with the rules of the President's Committee on Equal Opportunity. In the event that the Small Business Administration finds discrimination to have occurred, it may cancel loans approved but not disbursed to an applicant, it may refuse to make further disbursements on account of the loan, it may accelerate the maturity of the Note between Borrower and SBA, or it may take any action of a lesser nature. Failure of the Small Business Administration to invoke or assert any of the aforesaid sanctions, or any other sanctions, shall not be construed to be a waiver of SBA's right to assert any of such sanctions.

(e) It is also the policy, as set forth in Parts 112 and 113 of this chapter, to require nondiscrimination in employment and services to the public by SBA borrowers.

(f) (1) Financial assistance as used in this part shall include direct loans made by SBA, immediate participation loans, and guaranteed loans.

(2) Financial institution as used in this part shall include, but not be limited to, banks and other concerns whose regular course of business entails the making of commercial and industrial loans. The eligibility qualifications for financial institutions set forth in Part 120, 120.3(c) are incorporated herein. [Revision 3, 32 F.R. 11699, Aug. 12, 1967, as amended by Amdt. 4, 37 F.R. 26709, Dec. 15, 1972]

SBA's exposure of financial assistance to a borrower, including all affiliates, may not exceed $350,000 outstanding at any one time. In assistance to Group Corporations, SBA's exposure may not exceed $250,000 for each small business concern which formed and capitalized the Group Corporation.

§ 122.6 Deferred participation loans.

(a) From and after July 1, 1963, no applications for a deferred participation loan will be accepted by this Administration. The existing provisions concerning deferred participation loans are retained in the regulations in this part so as to govern deferred participation loans made prior to July 1, 1963.

(b) Deferred participation loans are those in which a bank or other financial institution advances the capital needed, and SBA agrees to purchase, upon demand by the lending institution, an agreed portion of the unpaid balance then outstanding. SBA's participation in a deferred participation loan shall not exceed 90 percent of the principal balance of the loan outstanding at the time SBA disburses its funds.

(c) In deferred participation loans a participation charge shall be payable by the bank or other lending institution to SBA for such agreement. The participation charges shall be on a sliding scale, depending upon the percentage of the loan which SBA is obligated to purchase. Such participation charges, which shall not be charged to borrower by the participating institution, shall be as follows:

(1) For an amount not in excess of 50 percent of the loan, one-half of 1 percent per annum on the portion of the loan which SBA is obligated to purchase;

(2) For an amount in excess of 50 percent of the loan but not in excess of 75 percent of the loan, three-fourths of 1 percent per annum on the portion of the loan which SBA is obligated to purchase; and

(3) For an amount in excess of 75 percent of the loan but not in excess of 90 percent of the loan, 1 percent per annum

on the portion of the loan which SBA is obligated to purchase.

(d) In deferred participation loans the interest rate on the bank's share applies to the entire loan until SBA purchases its share of such loan.

§ 122.7 Immediate participation loans.

Immediate participation loans are those where either SBA or a financial institution agrees to purchase from the other, immediately upon disbursement, and agreed percentage of each disbursement, SBA's participation shall not exceed 75 percent of the amount of the loan. Exceptions may be made in cases where the participant's legal lending limit precludes a 25-percent participation. In such cases the participant will be required to share in the loan to the extent of its legal lending limit but in no event less than 10 percent. An immediate participation loan may not be made if a guaranteed loan is available. [Rev. 3, Amdt. 2, 33 F.R. 11652, Aug. 16, 1968] § 122.8 Direct loans.

Direct loans are those made by SBA to a borrower when no participation or guaranteed loan is available.

§ 122.9 Group corporations.

(a) Limitation of financial assistance. In the case of a corporation formed and capitalized by a group of small-business concerns with resources provided by them to obtain for their own use raw materials, equipment, inventories, supplies or benefits of research and development or to establish facilities for such purposes, (1) the limitation on SBA's share of such assistance is $250,000 multiplied by the number of separate small businesses participating in the Group Corporation; and (2) such assistance, including renewals and extensions thereof, may not be made for a period or periods exceeding ten years except that, if the assistance is made for the purpose of constructing facilities, it may have a maturity of 20 years plus such additional time as is required to complete the construction.

(b) Use of proceeds. Under the provisions of paragraph (a) of this section, the raw materials, equipment, inventories or supplies, or the benefits of research and development must be primarily for the use of the concerns organizing the Group Corporation.

(c) Eligibility. The applicant corporation shall be owned by a group of