13 CFR Part 115 - SURETY BOND GUARANTEE

The U.S. Small Business Administration (SBA) continues to review the regulations governing the delivery and oversight of its business lending programs. SBA is proposing changes to some of these regulations for clarity and to increase participation in: The Surety Bond Guarantee (SBG) Program, the 7(a) Loan Program, the Microloan Program, and the Development Company Loan Program (504 Loan Program). In addition, the proposed changes will streamline the regulations by removing or revising any outdated regulations.

This final rule amends the regulations pertaining to the determination of size eligibility based on affiliation by creating distinctive requirements for small business applicants for assistance from the Business Loan, Disaster Loan and Surety Bond Guarantee Program (“SBG”). For purposes of this rule, the Business Loan Programs consist of the 7(a) Loan Program, the Microloan Program, the Intermediary Lending Pilot Program (“ILP”), and the Development Company Loan Program (“504 Loan Program”). Note: the Intermediary Lending Pilot Program was inadvertently left out of the proposed rule. There are currently intermediaries with revolving funds for eligible small businesses, so the program has been included in this final rule. The Disaster Loan Programs consist of Physical Disaster Business Loans, Economic Injury Disaster Loans, Military Reservist Economic Injury Disaster Loans, and Immediate Disaster Assistance Program loans. This rule redefines and establishes separate affiliation guidance applicable only to small business applicants in these Programs.

The Small Business Administration (SBA) is issuing this final rule to change the regulations for SBA's Surety Bond Guarantee Program in four areas. First, as a condition for participating in the Prior Approval and Preferred Surety Bond Programs, this rule clarifies that a Surety must directly employ underwriting and claims staffs sufficient to perform and manage these functions, and that final settlement authority for claims and recovery is vested only in salaried employees of the Surety. Second, this rule provides that all costs incurred by the Surety's salaried claims staff are ineligible for reimbursement by SBA, except the amounts actually paid for reasonable and necessary travel expenses. In addition, the Surety may seek reimbursement for amounts paid for specialized services that are provided by outside consultants in connection with the processing of a claim. Third, the rule modifies the criteria for determining when a Principal that caused a Loss to SBA is ineligible for a bond guaranteed by SBA. Fourth, the rule modifies the criteria for admitting Sureties to the Preferred Surety Bond Program by increasing the Surety's underwriting limitation, as certified by the U.S. Treasury Department on its list of acceptable sureties, from at least $2 million to at least $6.5 million.

The U.S. Small Business Administration (SBA) has determined that changing conditions in the American economy and a constantly evolving small business community compel it to seek ways to improve program efficiency for its Surety Bond Guarantee (“SBG”) Program, and the business loan programs consisting of the 7(a) Loan Program, the Business Disaster Loan Programs (collectively, the Economic Injury Disaster Loans, Reservist Injury Disaster Loans, Physical Disaster Business Loans, Immediate Disaster Assistance Program loans), the Microloan Program, and the Development Company Program (the “504 Loan Program”). As a result, SBA proposes to simplify guidelines for determining affiliation for eligibility based on size as it relates to these programs. This proposed rule would redefine affiliation for all five Programs, thereby simplifying eligibility determinations.

This rule proposes to change the regulations for SBA's Surety Bond Guarantee Program in four areas. First, as a condition for participating in the Prior Approval and Preferred Programs, the proposal would clarify that a Surety must directly employ underwriting and claims staffs sufficient to perform and manage these functions, and final settlement authority for claims and recovery is vested only in salaried employees of the Surety. Second, the proposal would provide that all costs incurred by the Surety's salaried claims staff are ineligible for reimbursement by SBA, but the Surety may seek reimbursement for amounts paid for specialized services that are provided by outside consultants in connection with the processing of a claim. Third, the rule proposes to modify the criteria for determining when a Principal that caused a Loss to SBA is ineligible for a bond guaranteed by SBA. Fourth, the rule proposes to modify the criteria for admitting Sureties to the Preferred Surety Bond Guarantee Program by increasing the Surety's underwriting limitation, as certified by the U.S. Treasury Department on its list of acceptable sureties, from at least $2 million to at least $6.5 million.

The Small Business Administration (SBA) is issuing this final rule to conform the regulations governing the Surety Bond Guarantee Program to certain provisions of the National Defense Authorization Act for Fiscal Year 2013 (NDAA), including the provisions that increase the contract amounts for which SBA is authorized to guarantee bonds, grant SBA the authority to partially deny liability under its bond guarantee, and prohibit SBA from denying liability based on material information that was provided as part of the guarantee application in the Prior Approval Program. This rule also makes changes to the Quick Bond Guarantee Application and Agreement, the timeframes for taking certain actions related to claims, and the dollar threshold for determining when a change in the Contract or bond amounts meets certain criteria or requires certain action. Finally, the final rule eliminates references to the provisions of the American Recovery and Reinvestment Act of 2009 (Recovery Act) that have expired.

This proposed rule would conform the regulations governing the Surety Bond Guarantee Program to certain provisions of the National Defense Authorization Act for Fiscal Year 2013 (NDAA), including the provisions that increase the contract amounts for which SBA is authorized to guarantee bonds, grant SBA the authority to partially deny liability under its bond guarantee, and prohibit SBA from denying liability based on material information that was provided as part of the guarantee application in the Prior Approval Program. In addition, changes are proposed with respect to the Quick Bond Guarantee Application and Agreement, the timeframes for taking certain actions related to claims, the dollar threshold for determining when a change in the Contract or bond amounts meets certain criteria or requires certain action, and the elimination of references to the provisions of the American Recovery and Reinvestment Act of 2009 (Recovery Act) that have expired.

The Small Business Administration (SBA) is issuing this final rule to amend its Surety Bond Guarantee (SBG) rules to implement a streamlined application process in the Prior Approval Program for contract amounts not exceeding $250,000. This rule also makes minor administrative changes to the SBG Program regulations to, among other things, clarify the procedures for submitting application forms and paying fees, and deletes an obsolete reference to a form.