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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: June 14, 2000

FROM: Barry McVay, CPCM

SUBJECT: Small Business Administration; Pre-Disaster Mitigation Loans

SOURCE: Federal Register, June 14, 2000, Vol. 65, No. 115, page 37308

AGENCIES: Small Business Administration (SBA)

ACTION: Proposed Rule

SYNOPSIS: SBA is proposing to amend its regulations to clarify the application and loan approval processes for the Pre-Disaster Mitigation Loan Program, which is a pilot program that allows SBA to make low interest, fixed rate loans to small businesses to implement mitigation measures to protect their property from disaster related damage.

EDITOR'S NOTE: The SBA's regulations being amended are in Title 13 of the Code of Federal Regulations (CFR), Business and Credit Administration; Chapter 1, Small Business Administration; Part 123, Disaster Loan Program.

DATES: Submit comments on or before July 14, 2000.

ADDRESSES: Send comments to Bernard Kulik, Associate Administrator, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW, Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Bernard Kulik, Associate Administrator, Office of Disaster Assistance, 202-205-6734.

SUPPLEMENTAL INFORMATION: The Pre-Disaster Mitigation Loan Program is a pilot program authorized by Congress for five fiscal years, from Fiscal Years 2000 through 2004, at $15 million a year. The program allows SBA to make low interest (4% or less) fixed rate loans of no more than $50,000 per year to small businesses to implement mitigation measures (such as retaining walls, sea walls, grading, and relocating utilities) that will protect the small business from disaster related damage. The program was developed in support of Project Impact, a formal mitigation program established by the Federal Emergency Management Agency (FEMA).

The SBA originally implemented this program by publishing rules on September 3, 1999, effective October 1, 1999 (the beginning of FY 2000). The regulations were under 13 CFR Part 123 as Sections 123.400 through 123.407.

The regulations explained the program well enough, but the application process was unclear. This proposed rule seeks to clarify the application process and consolidate the program's regulations. Among the major changes proposed to SBA's regulations are the following:

• Section 123.107, What is mitigation?, would be taken out of the Home Disaster Loans portion of Part 123 and moved to the Overview portion as Section 123.21, What is a mitigation measure? It would be revised to be applicable to homes and businesses.
  
  
• Also added to the Overview would be Section 123.22, How much can your business borrow for mitigation? (it merely refers to Section 123.405, which is the redesignated Section 123.404, How much can your business borrow with a pre-disaster mitigation loan?) and Section 123.23, Can you request a loan increase to use for mitigation measures? (yes, under certain conditions).
  
  
• Section 123.402, Can your business include its relocation as a mitigation measure in an application for a pre-disaster mitigation loan?, would be added. It would state "yes," and then include the portion of Section 123.401, What types of mitigating measures can your business include in an application for a pre-disaster mitigation loan?, that states "if your commercial real property (building) is located in a SFHA (Special Flood Hazard Area), and your business relocates outside the SFHA but remains in the same Project Impact community." (Current Sections 123.402 through 123.405 would be redesignated as 123.403 through 123.406, respectively).
  
  
• Redesignated Section 123.404, When is your business ineligible to apply for a pre-disaster mitigation loan? (current Section 123.403), would delete references to other sections of SBA's regulations and list the disqualifying criteria. Among the disqualifying criteria are:
  
  
  • Any of your business' principal owners is presently incarcerated, or on probation or parole following conviction of a serious criminal offense, or has been indicted for a felony or a crime of moral turpitude;
    
    
  • The business is an agricultural enterprise.
    
    
  • The business is engaged in any illegal activity.
    
    
  • The business engages in lending, multi-level sales distribution, speculation, or investment (except for real estate investment with property held for commercial rental).
    
    
  • The business is a non-profit or charitable concern.
    
    
  • The business principally engages in teaching, instructing, counseling, or indoctrinating religion or religious beliefs, whether in a religious or secular setting.
    
    
  • The business is primarily engaged in political or lobbying activities.
  
  
• Current Section 123.406, How do I apply for a pre-disaster mitigation loan and which loans will be funded?, would be divided into two parts: Section 123.407, When does your business apply for a pre-disaster mitigation loan and where does your business get the application?; and Section 123.408, How does your business apply for a pre-disaster mitigation loan?
  
  
• The following sections would be added:
  
  
  • Section 123.409, Which pre-disaster mitigation loan requests will SBA consider for funding?, would state that the business must meet the eligibility criteria, not be ineligible for any of the reasons listed in proposed Section 123.404, be credit worthy, and have submitted a reasonable estimate for the proposed mitigation measure. Also, there must be "a reasonable assurance of loan repayment in accordance with the terms of a loan agreement."
    
    
  • Section 123.410, When will SBA make funding decisions?, would state that it will not make funding decisions "until sixty calendar days after the announced opening of the application filing period (as published in the Federal Register)."
    
    
  • Section 123.411, Which loan requests will SBA fund?, would state that "SBA will date and time stamp each application (loan request) when we determine that it is complete. SBA will fund loan requests meeting the selection criteria...on a first come, first served basis using this date and time stamp. SBA will fund loan requests in this order until it allocates all program funds."
    
    
  • Section 123.412, What if SBA determines that your business loan request meets the selection criteria of Sec. 123.409 but SBA is unable to fund it because SBA has already allocated all program funds?, states that the request "will be given priority status, based on the original filing date, once more program funds become available. However, if more than 6 months pass since SBA determined to fund your request, SBA may request updated or additional financial information."
    
    
  • Proposed Section 123.413, What happens if SBA declines your business' pre-disaster loan request?, would consist of current Section 123.407 except that paragraph (b) would be deleted because proposed Section 123.411 would govern. Paragraph (b) states, "If SBA withdraws your loan application and you later submit the missing information, and SBA approves the loan, SBA will use the date it reaccepts the application to determine the order of funding."

EDITOR'S NOTE: This program is so typical of Congress: it authorizes a program so it looks like Congress is really concerned and really trying to do something, but the program actually accomplishes little! Even the SBA admits that this entire program is "much ado about nothing"! SBA says in the introduction to the rule, "with a maximum loan amount of $50,000, the number of small businesses affected under this program would be 300. Even if the loan amounts did not reach the maximum level, and amounted to only $25,000 per loan, the number of small businesses affected would only be 600. This is not substantial, in view of the fact that there are some 13-16 million small businesses across the country."

And how many small businesses in need of this program peruse the Federal Register? Both the current Section 123.406 and the proposed Section 123.407 state that "SBA will publish a notice in the Federal Register announcing the availability of pre-disaster mitigation loans. The notice will designate a 30-day application filing period with a specific opening date and filing deadline, as well as the locations for obtaining and filing loan applications." Oh, sure, SBA says it will "use FEMA and the local media to inform potential loan applicants", but how effective will that be? Who do you think is going to find out about the application period and get the loans?

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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