CFR Subpart F

CFR Subpart F
in effect

13 C.F.R. § 120.660 Suspension or revocation.

(a) Temporary suspension or revocation of Lender, broker, dealer, or Registered Holder for violation of Secondary Market rules and regulations or other risks to SBA. The D/FA together with the Director, Office of Credit Risk Management (D/OCRM) may suspend for a period of no more than 120 calendar days or revoke for a period of no more than two (2) years, the privilege of a Lender, broker, dealer, or Registered Holder to sell, purchase, broker, or deal in loans or Certificates for: (1) Committing a serious violation, in SBA's discretion, of: (i) The regulations governing the Secondary Market; or (ii) Any provisions in the contracts entered into by the parties, including SBA Forms 1086, 1088 and 1454; (2) Knowingly submitting false or fraudulent information to the SBA or FTA; or (3) A Lender's receipt, from its primary Federal or state regulator (including SBA), of a cease and desist order, a consent agreement affecting capital or commercial lending issues, a supervisory action citing unsafe or unsound banking practices, or any other supervisory action a primary regulator establishes hereafter that addresses unsafe or unsound lending practices; or a going concern opinion issued by the Lender's auditor. A Lender subject to a public action or going concern opinion must notify the D/FA and the D/OCRM within five (5) business days (or as soon as practicable thereafter) of the public issuance of any such action or the issuance of a going concern opinion. The Lender notice shall include copies of all relevant documents for SBA review. (b) Additional rules for suspension or revocation of broker or dealer. In addition to acting under paragraph (a) of this section, the D/FA may suspend or revoke the privilege of any broker or dealer to sell or otherwise deal in Certificates in the Secondary Market if: (1) Its supervisory agency has revoked or suspended the broker or dealer from engaging in the securities business, or is investigating the firm or broker for a practice which SBA considers, in its sole discretion, to be relevant to the broker's or dealer's fitness to participate in the Secondary Market; (2) The broker or dealer has been indicted or otherwise formally charged with a misdemeanor or felony which bears on its fitness to participate in the Secondary Market; or (3) A civil judgment is entered holding that the broker or dealer has committed a breach of trust or a violation of any law or regulation protecting the integrity of business transactions or relationships. (c) Notice to suspend or revoke. The D/FA and the D/OCRM shall notify the affected party in writing, providing the reasons therefore, at least 10 business days prior to the effective date of the suspension or revocation. The affected party may appeal the suspension or revocation made under this section pursuant to the procedures set forth in part 134 of this chapter. The action taken by the D/FA and the D/OCRM will remain in effect pending resolution of the appeal. (d) Early termination of suspension or revocation. SBA may, by written notice, terminate a Secondary Market suspension or revocation under this section, if the D/FA and the D/OCRM, in their sole discretion, determine that such termination is warranted for good cause.

13 C.F.R. § 120.640 Administration of the Pool and Individual Certificates.

(a) FTA responsibility. The FTA has the responsibility to administer each Pool or Individual Certificate. It shall maintain a registry of Registered Holders and other information as SBA requires. (b) Self-liquidating. Each Pool or individual guaranteed portion of a loan in the Secondary Market is self-liquidating because of Borrower payments or prepayments, redemption by SBA, and/or payments by SBA or the Lender after default by the Borrower. Substitution of the guaranteed portions of existing loans for defaulted loans is not permitted. (c) SBA's right to subrogation. If SBA pays a claim under a guarantee with respect to a Certificate issued under this subpart, it must be subrogated fully to the rights satisfied by such payment. (d) SBA ownership rights not limited. No Federal, State or local law can preclude or limit the exercise by SBA of its ownership rights in the portions of loans constituting the Pool against which the Certificates are issued.

13 C.F.R. § 120.641 Disclosure to purchasers.

(a) Information to purchaser. Prior to any sale, the Pool Assembler, Registered Holder of an Individual Certificate, or any subsequent seller must disclose to the purchaser, verbally or in writing, information on the terms, conditions, and yield as described in the SBA Secondary Market Program Guide. (b) Information on transfer document. The seller must provide the same information described in paragraph (a) of this section in writing on the transfer document when the seller submits it to the FTA. After the sale of an Individual Certificate, the FTA will provide the disclosure information in writing to the purchaser. (c) Information in prospectus. If the Registered Holder is a trust, investment Pool, mutual fund or other security, it must disclose the information in paragraph (a) of this section to investors through a prospectus and other promotional material if an Individual Certificate or Pool Certificate is placed into or used as the backing for the investment vehicle.

13 C.F.R. § 120.642 Requirements before the FTA issues Pool Certificates.

Before the FTA issues any Pool Certificate, the Pool Assembler must deliver to it the following documents: (a) A properly completed Pool application form; (b) Either: (1) Individual Certificates evidencing the guaranteed portions comprising the Pool; or (2) An executed SPGA and related documentation for the loans whose guaranteed portions are to be part of the Pool; and (c) Any other documentation which SBA may require.

13 C.F.R. § 120.643 Requirements before the FTA issues Individual Certificates.

(a) FTA issuance of initial Certificate. Before the FTA can issue the Individual Certificate for a guaranteed portion of a loan, the original seller must provide the following documents to the FTA: (1) An executed SPGA; (2) A copy of the note representing the guaranteed loan; and (3) Any other documentation which SBA may require. (b) Review of documentation. SBA may review or require the FTA to review any documentation before the FTA issues a Certificate.

13 C.F.R. § 120.644 Transfers of Certificates.

(a) General rule. Certificates are transferable. Transfers in the Secondary Market must comply with Article 8 of the Uniform Commercial Code of the State of New York. The seller must use the detached form of assignment (SBA Form 1088), unless the seller and purchaser choose to use another form which the SBA approves. The FTA may refuse to issue a Certificate until it is satisfied that the documents of transfer are complete. (b) Transfer on FTA records. In order for the transfer of a Certificate to be effective the FTA must reflect it on its records. (c) Contents of letter of transmittal accompanying the transfer of Certificates. (1) A letter of transmittal must accompany each Certificate which a Registered Holder submits to the FTA for transfer. The Registered Holder must supply the following information in the letter: (i) Pool number, if applicable; (ii) Certificate number; (iii) Name of purchaser of Certificate; (iv) Address and tax identification number of the purchaser; (v) Name and telephone number of the person handling or facilitating the transfer; (vi) Instructions for the delivery of the new Certificate. (2) The Registered Holder must also send the fee which the FTA charges for this service. The FTA will supply fee information to the Registered Holder. (d) Lender cannot purchase guaranteed portion of loan it made. The Lender (or its Associate) that made a 7(a) guaranteed loan cannot purchase the guaranteed portion of that loan in the Secondary Market. If a Lender does purchase the guaranteed portion of one of its own loans, it shall not have the unconditional guarantee of SBA.

13 C.F.R. § 120.645 Redemption of Certificates.

(a) Redemption of Individual Certificate. The prepayment of the underlying loan or a default on such loan will trigger the redemption of the Certificate by FTA/SBA in accordance with the procedures prescribed in the SPGA. (b) Redemption of Pool Certificate. The FTA and SBA may redeem a Pool Certificate because of prepayment or default of all loans in a Pool.

13 C.F.R. § 120.650 Registration duties of FTA in Secondary Market.

The FTA registers all Certificates. This means it issues, transfers title to, and redeems them. All financial transactions relating to a guaranteed portion of a loan flow through the FTA. In fulfilling its obligation to keep the central registry current, the FTA may, with SBA's approval, obtain any necessary information from the parties involved in the Secondary Market.

13 C.F.R. § 120.651 Claim to FTA by Registered Holder to replace Certificate.

(a) To replace a Certificate because of loss, theft, destruction, mutilation, or defacement, the Registered Holder must: (1) Give the FTA information about the Certificate and the facts relating to the claim; (2) File an indemnity bond acceptable to SBA and the FTA with a surety to protect the interests of SBA and the FTA; (3) Pay the FTA its fee to replace a Certificate; and (4) Use an affidavit of loss (form available from the FTA) to report: (i) The name and address of the Registered Holder (and the name and capacity of any representative actually filing the claim); (ii) The Certificate by Pool number, if applicable; (iii) The Certificate number; (iv) The original principal amount; (v) The name in which the Certificate was registered; (vi) Any assignment, endorsement or other writing on the Certificate; and (vii) A statement of the circumstances of the theft or loss. (b) When the FTA receives notice of the theft or loss, it will stop any transfer of the Certificate. The Registered Holder must send to the FTA all available portions of a mutilated or defaced Certificate. When the Registered Holder completes these steps, the FTA will replace the Certificate.

13 C.F.R. § 120.652 FTA fees.

The FTA may charge reasonable servicing fees, transfer fees, and other fees as the SBA and FTA may negotiate under contract.

13 C.F.R. § 120.600 Definitions.

(a) Certificate is the document the FTA issues representing either a beneficial fractional undivided interest in a Pool (Pool Certificate), or a fractional undivided interest in some or all of the guaranteed portion of an individual 7(a) guaranteed loan (Individual Certificate). (b) Current means that no repayment from a Borrower to a Lender is over 29 days late measured from the due date of the payment on the records of the FTA's central registry (Pools) or the entity servicing the loan (individual guaranteed portion). (c) Dollar-Weighted Average Net Rate of a Pool is calculated by multiplying the interest rate of each loan in the Pool by the ratio of that loan's current outstanding guaranteed principal to the current outstanding guaranteed principal of all loans in the Pool, and adding the sum of the resulting products. The Dollar-Weighted Average Net Rate of a Pool will fluctuate over the life of the Pool as loan defaults, prepayments and normal loan repayments occur. (d) FTA is the SBA's fiscal and transfer agent. (e) Note Rate is the interest rate on the Borrower's note. (f) Net Rate is the interest rate on an individual guaranteed portion of a loan in a Pool. (g) Pool is an aggregation of SBA guaranteed portions of loans made by Lenders. (h) Pool Assembler is a financial institution that: (1) Organizes and packages a Pool by acquiring the SBA guaranteed portions of loans from Lenders; (2) Resells fractional interests in the Pool to Registered Holders; and (3) Directs the FTA to issue Certificates. (i) Pool Rate is the interest rate on a Pool Certificate. (j) Registered Holder is the Certificate owner listed in FTA's records. (k) SBA's Secondary Market Program Guide is an issuance from SBA which describes the characteristics of Secondary Market transactions. (l) Weighted Average Coupon (WAC) Pool is a Pool where the interest rate payable to the investor is equal to the Dollar-Weighted Average Net Rate of the Pool.

13 C.F.R. § 120.601 SBA Secondary Market.

The SBA secondary market (“Secondary Market”) consists of the sale of Certificates, representing either a fractional undivided interest in some or all of the guaranteed portion of an individual 7(a) guaranteed loan or a fractional undivided interest in a Pool consisting of the SBA guaranteed portions of a number of 7(a) guaranteed loans. Transactions involving interests in Pools or the sale of individual guaranteed portions of loans are governed by the contracts entered into by the parties, SBA's Secondary Market Program Guide, and this subpart. See sections 5(f), (g), and (h) of the Small Business Act (15 U.S.C. 634(f), (g), and (h)).

13 C.F.R. § 120.630 Qualifications to be a Pool Assembler.

(a) Application to become Pool Assembler. The application to become a Pool Assembler is available from the D/FA. In order to qualify as a Pool Assembler, an entity must send the application to the D/FA, with an application fee, and certify that it: (1) Is regulated by the appropriate agency as defined in section 3(a)(34)(G) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(34)(G)); (2) Meets all financial and other applicable requirements of its regulatory authority and the Government Securities Act of 1986, as amended (Pub. L. 99-571, 100 Stat. 3208); (3) Has the financial capability to assemble acceptable and eligible guaranteed loan portions in sufficient quantity to support the issuance of Pool Certificates; and (4) Is in good standing with SBA (as the D/FA determines in his or her discretion), and is Satisfactory with the Office of the Comptroller of the Currency (“OCC”) if it is a national bank, the Federal Deposit Insurance Corporation if it is a bank not regulated by the OCC, or the Financial Industry Regulatory Authority (“FINRA”) if it is a member as determined by SBA. (5) For any pool assembler that is an SBA Lender, that the SBA Lender has satisfactory SBA performance, as determined by SBA in its discretion. The Lender's Risk Rating, among other factors, will be considered in determining satisfactory SBA performance. Other factors may include, but are not limited to, review/examination assessments, historical performance measures (like default rate, purchase rate and loss rate), loan volume to the extent that it impacts performance measures, and other performance related measurements and information (such as contribution toward SBA mission). (b) Approval by SBA. An entity may not submit Pool applications to the FTA until SBA has approved the application to become a Pool Assembler. (c) Conduct of business by Pool Assembler. An entity continues to qualify as a Pool Assembler so long as it: (1) Meets the eligibility standards in paragraph (a) of this section; (2) Conducts its business in accordance with SBA regulations and accepted securities or banking industry practices, ethics, and standards; and (3) Maintains its books and records in accordance with generally accepted accounting principles or in accordance with the guidelines of the regulatory body governing its activities.

13 C.F.R. § 120.631 Suspension or termination of Pool Assembler.

(a) Suspension or termination. The D/FA may suspend a Pool Assembler from operating in the Secondary Market for up to 18 months or terminate its status as a Pool Assembler, if the Pool Assembler (and/or its Associates): (1) Does not comply with any of the requirements in § 120.630 (a) and (c); (2) Has been indicted or otherwise formally charged with, or convicted of, a misdemeanor or felony; (3) Has received an adverse civil judgment that it has committed a breach of trust or a violation of a law or regulation protecting the integrity of business transactions or relationships; (4) Has not formed a Pool for at least three years; or (5) Is under investigation by its regulating authority for activities which may affect its fitness to participate in the Secondary Market. (b) Suspension procedures. The D/FA shall notify a Pool Assembler by certified mail, return receipt requested, of the decision to suspend and the reasons therefore at least 10 business days prior to the effective date of the suspension. The Pool Assembler may appeal the suspension made under this section pursuant to the procedures set forth in part 134 of this chapter. The action of the D/FA shall remain in effect pending resolution of the appeal. (c) Notice of termination. In order to terminate a Pool Assembler, the D/FA must issue an order to show cause why the SBA should not terminate the Pool Assembler's participation in the Secondary Market. The Pool Assembler may appeal the termination made under this section pursuant to procedures set forth in part 134 of this chapter. The action of the D/FA shall remain in effect pending resolution of the appeal.

13 C.F.R. § 120.620 SBA guarantee of a Pool Certificate.

(a) Extent of Guarantee. SBA guarantees to a Registered Holder the timely payment of principal and interest installments and any prepayment or other recovery of principal to which the Registered Holder is entitled. If the Borrower of a loan in a Pool backing the Certificates does not make a required installment payment, SBA, through the FTA, will make advances to maintain the schedule of interest and principal payments to the Registered Holders. (b) SBA guarantee backed by full faith and credit. SBA's guarantee of the Pool Certificate is backed by the full faith and credit of the United States.

13 C.F.R. § 120.621 SBA guarantee of an Individual Certificate.

(a) Extent of SBA guarantee. With respect to Individual Certificates, SBA guarantees to purchase from the Registered Holder the guaranteed portion of the loan for an amount equal to the unpaid principal and accrued interest due as of the date of SBA's purchase, less deductions for applicable fees. Unlike the SBA guarantee with respect to pooled loans, SBA does not guarantee timely payment on Individual Certificates. (b) What triggers the SBA guarantee. SBA's guarantee to the Registered Holder may be called upon when: (1) The Borrower remains in uncured default for 60 days on payments of principal or interest due on the note; (2) The Lender fails to send to the FTA on a timely basis payments it received from the Borrower; or (3) The FTA fails to send to the Registered Holder on a timely basis any payments it has received from the Lender. (c) Full faith and credit. SBA's guarantee to the Registered Holder is backed by the full faith and credit of the United States.

13 C.F.R. § 120.610 Form and terms of Certificates.

(a) General form and content. Each Certificate must be registered with the FTA. SBA must approve the terms of the Certificate. (b) Face amount of Pool Certificate. The face amount of a Pool Certificate cannot be less than a minimum amount as specified in the Program Guide, and the dollar amount of Certificates must be in increments which SBA will specify in the Program Guide (except for one Certificate in each Pool). SBA may change these requirements based upon an analysis of market conditions and program experience, and will publish any such change in the Federal Register. (c) Basis of payment for Pool Certificates. Principal installments and interest payments are based on the unpaid principal balance of the portion of the Pool represented by a Pool Certificate. All prepayments on loans in the Pool must be passed through to the appropriate Registered Holders with the regularly scheduled payments to such Holders. (d) Basis of payment for Individual Certificates. Principal installments and interest payments are based on the unpaid principal balance of the SBA guaranteed portion of the loan supporting an Individual Certificate. The Certificate must provide for a pass through to the Registered Holder of payments which the FTA receives from a Lender or any entity servicing the loan, less applicable fees. (e) Interest rate on Pool Certificate. The interest rate on a Pool Certificate will be either the lowest Net Rate of any individual guaranteed portion of a loan in the Pool or the Dollar-Weighted Average Net Rate of the Pool.

13 C.F.R. § 120.611 Pools backing Pool Certificates.

(a) Pool characteristics. As set forth in the Program Guide, each Pool must have: (1) A minimum number of guaranteed portions of loans; (2) A minimum aggregate principal balance of the guaranteed portions; (3) A maximum percentage of the Pool which an individual guaranteed portion may constitute; (4) A maximum allowable difference between the highest and lowest note interest rates; (5) A maximum allowable difference between the remaining terms to maturity of the loans in the Pool; (6) A minimum weighted average maturity at Pool formation; and (7) A maximum allowable difference between the highest and lowest Net Rate on the guaranteed portions that are placed in a WAC Pool. (b) Adjustment of Pool characteristics. SBA may adjust the Pool characteristics periodically based upon program experience and market conditions. (c) Increments of guaranteed portion. If the amount of the guaranteed portion of an individual 7(a) guaranteed loan is more than $500,000, a Pool Assembler may elect to divide the guaranteed portion into increments of $500,000 and one increment of any remaining amount less than $500,000, in order to permit the maximum amount of any guaranteed portion in a Pool to be not more than $500,000. Only one increment from a loan to a specific borrower may be included in a Pool.

13 C.F.R. § 120.612 Loans eligible to back Certificates.

(a) Pool Certificates are backed by the SBA guaranteed portions of loans comprising the Pool. An Individual Certificate is backed by the SBA guaranteed portion of a single loan. Any such loan must: (1) Be current as of the date the Pool is formed or the individual guaranteed portion of a loan is initially sold in the Secondary Market; (2) Be guaranteed under the Act; and (3) Meet such other standards as SBA may determine to be necessary for the successful operation of the Secondary Market program. (b) The loans that back a Pool must meet the SBA requirements in effect at the time the Pool is formed.

13 C.F.R. § 120.613 Secondary Participation Guarantee Agreement.

When a Lender wants to sell the guaranteed portion of a loan, it enters into a Secondary Participation Guarantee Agreement (“SPGA”) with SBA and the prospective purchaser. The terms of sale between the Lender and the purchaser cannot require the Lender or SBA to repurchase the guaranteed portion of the loan except in accordance with the terms of the SPGA. Before execution of the SPGA, the Lender must: (a) Submit to FTA a copy of the proposed SPGA, the note, and such other documents as SBA may require; (b) Except for export working capital loans, disburse to the Borrower the full amount of the loan; and (c) Pay SBA all guarantee fees relevant to the loan in full.

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