E8-21995. Military Reservist Economic Injury Disaster Loans

AGENCY:

U.S. Small Business Administration.

ACTION:

Direct final rule.

SUMMARY:

SBA makes economic injury disaster loans to small businesses that have been adversely affected by specific events. If a small business has an essential employee or owner who is a member of a reserve component of the Armed Forces, the Small Business Act authorizes SBA to provide Military Reservist Economic Injury Disaster Loan (MREIDL) assistance in the event that the essential employee or owner is called to active duty during a period of military conflict. Recent legislation authorized changes to make the program more accessible to affected small businesses by extending the application period, increasing the unsecured loan threshold, increasing the maximum loan limit and expediting processing of the application. This Direct Final Rule will implement these legislative changes.

DATES:

This rule is effective on October 28, 2008 without further action, unless SBA receives a significant adverse comment by October 23, 2008. If SBA receives any significant adverse comments, the Agency will publish a timely withdrawal of the subject portion of this rule in the Federal Register.

ADDRESSES:

You may submit comments, identified by RIN 3245-AF78, by any of the following methods: (1) Federal Rulemaking Portal: http://www.regulations.gov,, following the specific instructions for submitting comments; (2) Fax [phone]; or e-mail: [e-mail]; or (3) Mail/Hand Delivery/Courier: Herbert L. Mitchell, Associate Administrator for Disaster Assistance, 409 3rd Street, SW., Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT:

Roger B. Garland, Office of Disaster Assistance, 202-205-6734 or [e-mail].

SUPPLEMENTARY INFORMATION:

SBA is amending Part 123 of Title 13 of the CFR to reflect the recent changes to the Small Business Act (Act) contained in Public Law 110-186, enacted on February 14, 2008 (Legislation), which broaden SBA's authority to make MREIDL assistance to otherwise eligible small businesses, and also Public Law 110-234, enacted on May 22, 2008, which increases the maximum MREIDL limit from $1.5 million to $2.0 million.

SBA's MREIDL financing is available to small businesses that have suffered substantial economic injury as a result of a declared disaster, or the call-up to active duty of an essential employee as a result of military conflict. A business incurs substantial economic injury if it is unable to meet its obligations as they mature or it is unable to pay its ordinary and necessary operating expenses. Neither loss of anticipated profits nor a drop in sales is considered to be substantial economic injury for MREIDL purposes.

To reflect changes made by the Legislation, SBA is adding a new second sentence in the introductory text of section 123.11 to reflect that for purposes of MREIDL, as described in section 123.513, SBA will generally not require that the business pledge collateral to secure a loan of $50,000 or less.

To reflect changes made by the Legislation, SBA is changing section 123.503 to reflect that a small business can apply for a MREIDL before the essential employee receives call-up orders. The business may apply from the date the essential employee receives a notice of expected call-up and ending one year (an increase from 90 days) after the employee is discharged or released from active duty. In addition, the section is amended to show that the Associate Administrator for Disaster Assistance (or designee) (AA/DA) may extend the one year limit for no more then one additional year after finding extraordinary or unforeseeable circumstances.

To reflect changes made by the Legislation, section 123.504(a) is amended to reflect that a MREIDL application shall include the essential employee's notice of expected call-up or official call-up orders.

To reflect changes made by the Legislation, section 123.511 is amended to add a sentence stating that funds will only be disbursed after the essential employee has been called to active duty.

SBA is adding a new section 123.513 to reflect the statutory change which provides that SBA will not generally require the business to pledge collateral to secure a MREIDL of $50,000 or less. For loans larger than $50,000, the business will be required to provide available collateral. The new section makes clear that SBA will not decline a loan if the business lacks a particular amount of collateral so long as SBA is reasonably sure that the business can repay the loan.

In addition, Public Law 110-234, effective May 22, 2008, increased the SBA MREIDL limit from $1.5 million to $2 million. SBA is amending sections 123.506 and 123.507 to reflect this statutory change.

SBA is also making a technical correction in section 123.3. There are five ways in which disaster declarations are made, and these are described in section 123.3. However, the first sentence of that section refers to four ways. SBA is correcting the first sentence in section 123.3 to state that there are five ways in which disaster declarations are made.

Consideration of Comments

This is a direct final rule and SBA will review all comments. SBA believes that this rule is routine and non-controversial since it implements changes required by statute, and SBA anticipates no significant adverse comments to this rulemaking. If SBA receives any significant adverse comments, it will publish a timely withdrawal of this direct final rule.

Compliance With Executive Orders 12866, 12988, 13132 and the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork Reduction Act (44 U.S.C. Ch. 35)

The Office of Management and Budget (OMB) has determined that this rule does not constitute a significant regulatory action under Executive Order 12866.

This action meets applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or preemptive effect.

The final rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government. Therefore, for the purposes of Executive Order 13132, Federalism, SBA determines that this final rule has no federalism implications warranting preparation of a federalism assessment.

SBA has determined that this final rule does not impose additional reporting or recordkeeping requirements under the Paperwork Reduction Act, 44 U.S.C., Chapter 35.

The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires administrative agencies to consider the effect of their actions on small entities, including small businesses. Pursuant to the RFA, when an agency issues a rule, the agency must prepare an analysis to determine whether the impact of the rule will have a significant economic impact on a substantial number of small entities. However, the RFA requires analysis of a rule only where notice and comment rulemaking are required. Rules are exempt from Administrative Procedure Act (APA) notice and comment requirements and therefore from the RFA requirements when the agency for good cause finds (and incorporates the finding and brief statement of reasons in the rules issued) that notice and public procedure thereon is impracticable, unnecessary, or contrary to the public interest. In this case it would be impracticable given the emergency nature of the recent legislation authorizing the new requirements.

List of Subjects in 13 CFR Part 123

• Disaster assistance
• Loan programs—business
• Reporting and recordkeeping requirements
• Small businesses

For the reasons set forth in the preamble, the Small Business Administration amends 13 CFR part 123 as follows:

PART 123—DISASTER LOAN PROGRAM

1. The authority citation for part 123 is revised to read as follows:

Authority: 15 U.S.C. 634(b)(6), 636(b), 636 (c); Pub. L. 102-395, 106 Stat. 1828, 1864; and Pub. L. 103-75, 107 Stat. 739; and Pub. L. 106-50, 113 Stat. 245; and Pub. L. 110-186.

2. Amend § 123.3(a) by revising the first sentence to read as follows:

§ 123.3

How are disaster declarations made?

(a) There are five ways in which disaster declarations are issued which make SBA disaster loans possible:

* * * * *

3. Revise § 123.11, introductory text, to read as follows:

§ 123.11

Does SBA require collateral for any of its disaster loans?

Generally, SBA will not require that you pledge collateral to secure a disaster home loan or a physical disaster business loan of $10,000 or less, or an economic injury disaster loan of $5,000 or less. However, for the purposes of the Military Reservist EIDL only, as described in section 123.513, SBA will not generally require that you pledge collateral to secure a loan of $50,000 or less. For loans larger than these amounts, you will be required to provide available collateral such as a lien on the damaged or replacement property, a security interest in personal property, or both.

* * * * *

4. Revise the heading of § 123.501 to read as follows:

§ 123.501

Under what circumstances is your business eligible to be considered for a Military Reservist Economic Injury Disaster Loan?

* * * * *

5. Revise the heading of § 123.502 to read as follows:

§ 123.502

Under what circumstances is your business ineligible to be considered for a Military Reservist Economic Injury Disaster Loan?

* * * * *

6. Revise § 123.503 to read as follows:

§ 123.503

When can you apply for a Military Reservist EIDL?

Your small business can apply for a Military Reservist EIDL any time beginning on the date your essential employee receives notice of expected call-up and ending one year after the date the essential employee is discharged or released from active duty. The Associate Administrator for Disaster Assistance (AA/DA) or designee may extend the one year limit by no more then one additional year after finding extraordinary or unforeseeable circumstances.

* * * * *

7. Revise § 123.504(a) to read as follows:

§ 123.504

How do you apply for a Military Reservist EIDL?

* * * * *

(a) A copy of the essential employee's official call-up orders for active duty showing the date of call-up, and, if known, the date of release from active duty. For an essential employee who expects to be called up and who has not received official call-up orders, the application shall include the notice of the expected call-up including, if known, the expected date of call-up and expected date of release from active duty;

* * * * *

8. Revise § 123.506 to read as follows:

§ 123.506

How much can you borrow under the Military Reservist EIDL Program?

You can borrow an amount equal to the substantial economic injury you have suffered or are likely to suffer until normal operations resume as a result of the absence of one or more essential employees called to active duty, up to a maximum of $2 million.

9. Revise the heading of § 123.507, the introductory text and paragraph (b) to read as follows:

§ 123.507

Under what circumstances will SBA consider waiving the $2 million loan limit?

SBA will consider waiving the $2 million dollar limit if you can certify to the following conditions and SBA approves of such certification based on the information supplied in your application:

* * * * *

(b) Your small business is in imminent danger of going out of business as a result of one or more essential employees being called up to active duty during a period of military conflict, and a loan in excess of $2 million is necessary to reopen or keep open the small business; and

* * * * *

10. Revise § 123.511 to read as follows:

§ 123.511

How will SBA disburse Military Reservist EIDL funds?

Funds will be disbursed only after the essential employee has been called to active duty, and you have provided a copy of the essential employee's official call-up orders for active duty showing the date of the call-up. SBA will disburse your funds in quarterly installments (unless otherwise specified in your loan authorization agreement) based on a continued need as demonstrated by comparative financial information. On or about 30 days before your scheduled fund disbursement, SBA will request ordinary and usual financial statements (including balance sheets and profit and loss statements). Based on this information, SBA will assess your continued need for disbursements under this program. Upon making such assessment, SBA will notify you of the status of future disbursements.

11. Add § 123.513 to read as follows:

§ 123.513

Does SBA require collateral on its Military Reservist EIDL?

SBA will not generally require you to pledge collateral to secure a Military Reservist EIDL of $50,000 or less. For loans larger than $50,000, you will be required to provide available collateral such as a lien on business property, a security interest in personal property, or both. SBA will not decline a loan if you do not have a particular amount of collateral so long as SBA is reasonably sure that you can repay the loan. If you refuse to pledge the available collateral when requested by SBA, however, SBA may decline or cancel your loan.

Sandy K. Baruah,

Acting Administrator.