13 C.F.R. Subpart G—Microloan Program
Title 13 - Business Credit and Assistance
The Microloan Program assists women, low income individuals, minority entrepreneurs, and other small businesses which need small amounts of financial assistance. Under this program, SBA makes direct and guaranteed loans to Intermediaries (as defined below) who use the proceeds to make loans to eligible borrowers. SBA may also make grants under the program to Intermediaries and other qualified nonprofit entities to be used for marketing, management, and technical assistance to the program's target population. [61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001] (a) Deposit account is a demand, time, savings, passbook, or similar account maintained with an insured depository institution (not including an account evidenced by a Certificate of Deposit). (b) Economically Distressed Area is a county or equivalent division of local government of a state in which, according to the most recent available data from the United States Bureau of the Census, 40 percent or more of the residents have an annual income that is at or below the poverty level. (c) Grant is a Federal award of money, or property in lieu of money (including cooperative agreements) to an eligible grantee that must account for its use. The term does not include the provision of technical assistance, revenue sharing, loans, loan guarantees, interest subsidies, insurance, direct appropriations, or any fellowship or other lump sum award. (d) Insured depository institution has the same meaning as in section 3(c) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(c). (e) Intermediary is an entity participating in the Microloan Demonstration Program which makes and services Microloans to eligible small businesses and which provides marketing, management, and technical assistance to its borrowers. It may be: (1) A private, nonprofit community development corporation or other entity; (2) A consortium of private, nonprofit community development corporations or other entities; (3) A quasi-governmental economic development entity, other than a state, county, municipal government or any agency thereof; or (4) An agency of or a nonprofit entity established by a Native American Tribal Government. (f) Microloan is a short-term, fixed interest rate loan of not more than $35,000 made by an Intermediary to an eligible small business. (g) Non-Federal sources are sources of funds other than the Federal Government and may include indirect costs or in-kind contributions paid for under non-Federal programs. Community Block Development Grants are considered non-Federal sources. (h) Non-lending technical assistance provider (NTAP) is an entity which receives grant funds from SBA to provide technical assistance to Microloan borrowers. (i) Specialized Intermediary is an Intermediary which maintains a portfolio of Microloans averaging $10,000 or less. [61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001; 66 FR 47878, Sept. 14, 2001] (a) Prior experience requirement. To be eligible to be an Intermediary, an organization must: (1) Have made and serviced short-term fixed rate loans of not more than $35,000 to newly established or growing small businesses for at least one year: and (2) Have at least one year of experience providing technical assistance to its borrowers. (b) Limitation to one state. An Intermediary may not operate in more than one state unless the AA/FA determines that it would be in the best interests of the small business community for it to operate across state lines. [61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47878, Sept. 14, 2001] (a) Application Process. Organizations interested in becoming Intermediaries should contact SBA for information on the application process. (b) Documentation in support of application. The application must include a detailed narrative statement describing: (1) The types of businesses assisted in the past and those the applicant intends to assist with Microloans; (2) The average size of the loans made in the past and the average size of intended Microloans; (3) The extent to which the applicant will make Microloans to small businesses in rural areas; (4) The geographic area in which the applicant intends to operate, including a description of the economic and demographic conditions existing in the intended area of operations; (5) The availability and cost of obtaining credit for small businesses in the area; (6) The applicant's experience and qualifications in providing marketing, management, and technical assistance to small businesses; and (7) Any plan to use other technical assistance resources (such as counselors from the Service Corps of Retired Executives) to help Microloan borrowers. (a) Evaluation criteria. In selecting Intermediaries, SBA will attempt to insure that Microloans are available to small businesses in all industries and particularly to small businesses located in urban and rural areas. (b) Preference for organizations which make very small loans. In selecting Intermediaries, SBA will give priority to applicants which maintain a portfolio of loans averaging $10,000 or less. (c) Consideration of quasi-governmental organizations. Generally, SBA will consider applications by quasi-governmental organizations only when it determines that program services for a particular geographic area would be best provided by such organization. [61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47878, Sept. 14, 2001] At the end of an Intermediary's first year of participation in the program, SBA will determine whether it qualifies as a Specialized Intermediary. An Intermediary qualifies as a Specialized Intermediary if it maintains a portfolio of Microloans averaging $10,000 or less. Specialized Intermediaries qualify for more favorable interest rates on SBA loans. If, after the first year, an Intermediary qualifies as a Specialized Intermediary, the special interest rate is applied retroactively to SBA loans made to the Intermediary. After the first year SBA will determine an Intermediary's qualifications as a Specialized Intermediary annually, based on its lending practices during the term of its participation in the program. Specialized Intermediaries also qualify for a greater amount of technical assistance grant funding. [61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47878, Sept. 14, 2001] (a) Loan Amount. An Intermediary may not borrow more than $750,000 in the first year of participation in the program. In later years, the Intermediary's obligation to SBA may not exceed an aggregate of $3.5 million, subject to statutory limitations on the total amount of funds available per state. (b) Repayment terms. During the first year of the loan, an Intermediary is not required to make any payments, but interest accrues from the date that SBA disburses the loan proceeds to the Intermediary. After that, SBA will determine the periodic payments. The loan must be repaid within 10 years. (c) Interest rate. The interest rate is equal to the rate applicable to five-year obligations of the United States Treasury, adjusted to the nearest one-eighth percent, less 1.25 percent. However, the interest rate for Specialized Intermediaries is equal to the rate applicable to five-year obligations of the United States Treasury, adjusted to the nearest one-eighth percent, less two percent. (d) Collateral. As security for repayment of the SBA loan, an Intermediary must pledge to SBA a first lien position in the MRF (described below), LLRF (described below), and all notes receivable from Microloans. (e) Default. If for any reason an Intermediary is unable to make payment to SBA when due, SBA may accelerate maturity of the loan and demand payment in full. In this event, or if an Intermediary violates this part or the terms of its loan agreement, it must surrender possession of all collateral described in paragraph (d) of this section to SBA. The Intermediary is not obligated to pay SBA any loss or deficiency which may remain after liquidation of the collateral unless the loss was caused by fraud, negligence, violation of any of the ethical requirements of §120.140, or violation of any other provision of this part. (f) Fees. SBA does not charge Intermediaries any fees for loans under this Program. An Intermediary may, however, pay minimal closing costs to third parties, such as filing and recording fees. [61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001] (a) General. An intermediary may make Microloans to any small business eligible to receive financial assistance under this part. A borrower may also use Microloan proceeds to establish a nonprofit child care business. Proceeds from Microloans may be used only for working capital and acquisition of materials, supplies, furniture, fixtures, and equipment. SBA does not review Microloans for creditworthiness. (b) Amount and maturity. Generally, Intermediaries should not make a Microloan of more than $10,000 to any borrower. An Intermediary may not make a Microloan of more than $20,000 unless the borrower demonstrates that it is unable to obtain credit elsewhere at comparable interest rates and that it has good prospects for success. An Intermediary may not make a Microloan of more than $35,000, and no borrower may owe an Intermediary more than $35,000 at any one time. Each Microloan must be repaid within six years. (c) Interest rate. The maximum interest rate that can be charged a Microloan borrower is: (1) On loans of more than $10,000, the interest rate charged on the SBA loan to the Intermediary, plus 7.75 percentage points; and (2) On loans of $10,000 or less, the interest rate charged on the SBA loan to the Intermediary, plus 8.5 percentage points. [61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001; 66 FR 47878, Sept. 14, 2001] The Intermediary must contribute from non-Federal sources an amount equal to 15 percent of any loan that it receives from SBA. The contribution may not be borrowed. For purposes of this program, Community Development Block Grants are considered non-Federal sources. The Microloan Revolving Fund (“MRF”) is an interest-bearing Deposit Account into which an Intermediary must deposit the proceeds from SBA loans, its contributions from non-Federal sources, and payments from its Microloan borrowers. An Intermediary may only withdraw from this account the money needed to establish the Loan Loss Reserve Fund (§120.710), proceeds for each Microloan it makes, and any payments to be made to SBA. (a) General. The Loan Loss Reserve Fund (“LLRF”) is an interest-bearing Deposit Account which an Intermediary must establish to pay any shortage in the MRF caused by delinquencies or losses on Microloans. An Intermediary must maintain the LLRF until it has repaid all obligations it owes SBA. (b) Level of Loan Loss Reserve Fund. Until it is in the Microloan program for at least five years, an Intermediary must maintain a balance on deposit in its LLRF equal to 15 percent of the outstanding balance of the notes receivable owed to it by its Microloan borrowers (“Portfolio”). (c) SBA review of Loan Loss Reserve Fund. After an Intermediary has been in the Microloan program for five years, it may request SBA's Associate Administrator for Financial Assistance (“AA/FA”) to reduce the percentage of its Portfolio which it must maintain in its LLRF to an amount equal to the actual average loan loss rate during the preceding five-year period. Upon receipt of such request, the AA/FA will review the Intermediary's annual loss rate for the most recent five-year period preceding the request. (d) Reduction of Loan Loss Reserve Fund. The AA/FA has the authority to reduce the percentage of an Intermediary's Portfolio that it must maintain in its LLRF to an amount equal to the actual average loan loss rate during the preceding five-year period. The AA/FA can not reduce the LLRF to less than ten percent of the Portfolio. (e) What must an intermediary demonstrate to get a reduction in Loan Loss Reserve Fund? To get a reduction in its LLRF, an Intermediary must demonstrate to the satisfaction of the AA/FA that: (1) Its average annual loss rate during the preceding five years is less than fifteen percent, and (2) No other factors exist that may impair the Intermediary's ability to repay all obligations which it owes to the SBA under the Microloan program. [61 FR 3235, Jan. 31, 1996, as amended at 65 FR 17439, Apr. 3, 2000] Intermediaries must operate in accordance with applicable statutes, regulations, policy notices, SBA's Standard Operating Procedures (SOPs), and the information in the application. (a) General. An Intermediary is eligible to receive grant funding from SBA of not more than 25 percent of the outstanding balance of all SBA loans to the Intermediary. The Intermediary must contribute, solely from non-Federal sources, an amount equal to 25 percent of the grant. Contributions may be made in cash or in kind. (b) Limitations on grant funds. An Intermediary may not borrow its contribution. It may only use grant funds to provide Microloan borrowers with marketing, management, and technical assistance, except that: (1) Up to 25 percent of the grant funds may be used to provide information and technical assistance to prospective Microloan borrowers; and (2) Grant monies may be used to attend training required by SBA. Intermediaries may not enter into third party contracts for the provision of technical assistance to program clients. (c) Exception to contribution requirement. Intermediaries which make at least 50 percent of their loans to small businesses located in or owned by residents of Economically Distressed Areas are not subject to the contribution requirement in paragraph (a) of this section. (d) Intermediaries eligible to receive additional grant monies. An Intermediary may receive an additional SBA grant equal to five percent of the outstanding balance of all loans received from SBA (with no obligation to contribute additional matching funds) if: (1) The Intermediary makes at least 25 percent of its loans to small businesses located in or owned by residents of an Economically Distressed Area; or (2) The Intermediary is a Specialized Intermediary. (e) Third party contracts for technical assistance. An Intermediary may use no more than 25 percent of the grant funds it receives from SBA for contracts with third parties for the latter to provide technical assistance to Microloan borrowers. [61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001] SBA may procure technical assistance for an Intermediary to improve its knowledge, skill, and understanding of microlending by awarding a grant to a more experienced Intermediary. SBA may also obtain such assistance for prospective Intermediaries in areas of the country that are either not served or underserved by an existing Intermediary. SBA selects non-lending technical assistance providers (NTAP) to receive grant funds for technical assistance to Microloan borrowers. (a) Grant procedure for non-Intermediaries. Any nonprofit entity that is not an Intermediary may apply to SBA for a grant to provide marketing, management and technical assistance to low-income individuals for the purpose of assisting them in obtaining private sector financing in amounts of $35,000 or less. To qualify, it must submit information regarding its ability to provide this assistance. If approved, the grant agreement will establish the terms and conditions for the grant. (b) Number and amount of grants. In each year of the Microloan Program, SBA may make no more than 55 grants to non-Intermediaries for terms of up to five years. A grant may not exceed $200,000. (c) Contribution by nonprofit entity. The nonprofit entity must contribute an amount equal to 20 percent of the grant. The contribution from the nonprofit entity must come solely from non-Federal sources, and may include direct costs or in-kind contributions paid for under non-Federal programs. [61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001; 66 FR 47878, Sept. 14, 2001] (a) SBA may guarantee not less than 90 percent of loans made by for-profit or nonprofit entities (or an alliance of such entities) to no more than 10 Intermediaries in urban areas and 10 Intermediaries in Rural Areas (as defined in §120.10). (b) Any loan guaranteed by SBA under this section will have a term of 10 years. If an Intermediary receives such a loan, it will not need to repay any principal or interest during the first year, although the interest will accrue. During the second through fifth years, the Intermediary will pay interest only. During the sixth through tenth years, it will pay interest and fully amortize the principal. (c) The interest rate on any loan under this section shall be calculated as described in §120.706. [61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001] (a) The AA/FA may suspend or revoke the participation status of an Intermediary or NTAP from the Microloan Program, or may impose other sanctions in the best interests of the program, if it fails to comply with the laws, regulations, and policies governing the program or if it fails to meet any one of the following minimum performance standards. (1) For Intermediaries only: An Intermediary must (i) Close and fund a minimum of four microloans per year, and (ii) Satisfactorily provide in-house technical assistance to microloan clients and prospective microloan clients. (2) For NTAPs only: An NTAP must show that, for every thirty clients for which it provided technical assistance, one client received a loan from the private sector. (3) For Intermediaries and NTAPs: An Intermediary and an NTAP must (i) Cover the service territory assigned by SBA, including honoring the SBA determined boundaries of neighboring Intermediaries and NTAPs, (ii) Fulfill reporting requirements, (iii) Manage program funds and matching funds in a satisfactory and financially sound manner, (iv) Communicate and file reports via the internet within six months after beginning participation in the program, (v) Maintain a currency rate of 85% or more (that is loans that are no more than 30 days late in scheduled payments), (vi) Maintain a default rate of 15% or less of the cumulative dollars loaned under the program, and (vii) Attend Microloan Program training conferences offered by SBA, or such substitute training as may be approved by SBA on a case by case basis. (b) The AA/FA, on a case by case basis, may impose pre-suspension or revocation sanctions which may include, but are not limited to, the following: (1) Accelerated reporting requirements; (2) Accelerated loan repayment requirements for outstanding program debt to SBA; and (3) Imposition of a temporary lending and/or training moratorium. (c) Revocation from the Microloan Program will include: (1) Removal from the program; (2) Liquidation of MRF and LLRF accounts, by SBA, and application of liquidated funds to any outstanding balance owed to SBA; (3) Payment of outstanding debt to SBA by the Intermediary; (4) Forfeiture or repayment of any unused grant funds by the Intermediary or NTAP; (5) Debarment of the organization from receipt of federal funds until loan and grant repayment requirements are met. (d) An Intermediary or NTAP may appeal a suspension or revocation under procedures found in part 134 of this chapter. The action of the AA/FA remains in effect pending resolution of the appeal. [66 FR 47073, Sept. 11, 2001]
Title 13: Business Credit and Assistance
PART 120—BUSINESS LOANS
Subpart G—Microloan Program
§ 120.700 What is the Microloan Program?
§ 120.701 Definitions.
§ 120.702 Are there limitations on who can be an Intermediary or on where an Intermediary may operate?
§ 120.703 How does an organization apply to become an Intermediary?
§ 120.704 How are applications evaluated?
§ 120.705 What is a Specialized Intermediary?
§ 120.706 What are the terms and conditions of an SBA loan to an Intermediary?
§ 120.707 What conditions apply to loans by Intermediaries to Microloan borrowers?
§ 120.708 What is the Intermediary's financial contribution?
§ 120.709 What is the Microloan Revolving Fund?
§ 120.710 What is the Loan Loss Reserve Fund?
§ 120.711 What rules govern Intermediaries?
§ 120.712 How does an Intermediary get a grant to assist Microloan borrowers?
§ 120.713 Does SBA provide technical assistance to Intermediaries?
§ 120.714 How are grants made to non-lending technical assistance providers (NTAP)?
§ 120.715 Does SBA guarantee any loans an Intermediary obtains from another source?
§ 120.716 Suspension or revocation of an Intermediary or NTAP.
