1253 Regulations

§ 120.824

Small BusinessAdministration
When the Board votes on SBA loan approval or servicing actions, at least one
Board Member with commercial loan
experience acceptable to SBA, other
than the CDC manager,
must be
present and vote. There must be no actual or apparent conflict of interest
with respect to any actions of the
Board.
(a) The Board may establish a Loan
Committee of non-Board Members that
reports to the Board. Loan Committee
members must include at least one
member with commercial lending experience acceptable to SBA. All members
of the Loan Committee must live or
work in the Area of Operations of the
State where the 504 project they are
voting on is located unless the project
falls under one of the exceptions listed
in Sec. 120.839,Case-by-case extensions.
No CDC staff may serve on a Loan
Committee. A quorum must have at
least five committee members authorized to vote. The CDC's Board must
ratify the actions of any Loan Committee. There must be no actual or apparent conflict of interest with respect
to any actions of the Loan Committee.
(b) If a CDC is incorporated in one
State and is approved as a Multi-State
CDC to operate in another State, the
CDC must have a Loan Committee for
each State.

employed directly (not a contractor or
an Associate of a contractor) full-time
to manage the CDC. The CDC manager
must be hired by the CDC's board of directors and subject to termination only
by the board. A CDC may petition SBA
to waive the requirement of the manager being employed directly if:
(1) Another non-profit entity that
has the economic development of the
CDC's Area of Operations as one of its
principal activities will contribute the
management of the CDC, and the management contributed by the other e:ltity also may work on and operate that
entity's
economic development
programs, but must be available to small
businesses interested in the 504 program and to 504 loan borrowers during
regular business hours; or
(2) The CDC petitioning SBA for such
waiver is rural; has insufficient loan
volume to justify having management
employed directly by the CDC; and has
contracted with another CDC located
in the same general area to provide the
management.
(b) SBA must pre-approve contracts
the CDC makes for managing, marketing, packaging, processing, closing,
servicing,
or liquidation
functions.
(CDCs may contract for legal and accounting
services without
SBA approval, except for legal services in con[65FR 42632,July 11, 2000,as amended at 68 nection with loan liquidation or litigation.)
FR 57981,Oct. 7, 2003]
(c) Contracts must clearly identify
§ 120.824 Professional
management
terms and conditions satisfactory
to
and staff.
SBA that permit the CDC to terminate
the contract prior to its expiration
A CDC must have full-time
profesdate on a reasonable basis.
sional management,
including
an Exec(d) The CDC must provide copies of
utive Director
(or the equivalent)
manthese contracts to SBA for review anaging daily operations.
It must also
nually.
have
a full-time
professional
staff
(e) If a CDC's Board believes that it is
qualified by training
and experience
to
in the best interest of the CDC to conmarket
the 504 Program,
package
and
tract for a management,
marketing,
process loan applications,
close loans,
packaging,
processing, closing, servservice, and, if authorized
by SBA, liqicing or liquidation function, the CDC's
uidate the loan portfolio,
and sustain a
Board must explain its reasoning to'
sufficient
level of service and activity
SBA. The CDC's Board must demin the Area of Operations.
CDCs may
onstrate to SBA that:
obtain,
under written
contract,
man(1) The compensation under the conagement,
marketing,
packaging,
proctract is only from the CDC, reasonable
essing, closing, servicing or liquidation
and customary for similar services in
services provided by qualified
individthe Area of Operations, and is only for
uals and entities
under the following
circumstances:
actual services performed;
(2) The full term of the contract (in(a) The CDC must have at least one
cluding options) is reasonable; and
salaried
professional
employee
that is
265

13 CFRCh. I (1-1-06 Edition)

§ 120.825

(3) The contract does not evidence
any actual or apparent conflict of interest or self-dealing on the part of any
of the ODO's officers, management, and
staff, including members of the Board
and any Loan Oommittee.
(D No contractor (under this section)
or Associate of a contractor may be a
voting or non-voting member of the
ODO's Board.
[65FR 42632,July 11, 2000,as amended at 68
FR

57981, Oct.

7, 2003]

§ 120.825 Financial ability to operate.
A ODO must be able to sustain its operations
continuously,
with reliable
sources of funds (such as income from
services rendered
and contributions
from government or other sponsors).
Any funds generated from 503 and 504
loan activity by a ODO remaining after
payment of staff and overhead expenses
must be retained by the ODO as a reserve for future operations or for investment in other local economic development activity in its Area of Operations. If a ODO is operating as a
Multi-State
ODO, it must maintain a
separate accounting for each State of
all 504 fee income and expenses and
provide, upon SBA's request, evidence
that the funds resulting from its MultiState ODO operations are being invested in economic development activities in each State in which they were
generated.
[65 FR 42633, July

11, 2000]

§ 120.826 Basic requirements for operating a eDe.
A ODO must operate in accordance
with all 504 program requirements imposed by statute,
regulation,
SOPs,
SBA policy and procedural
notices,
loan authorizations,
Debentures, and
agreements between the ODO and SBA.
In its Area of Operations, a ODO must
market the 504 program, package and
process 504 loan applications, close and
service 504 loans, and if authorized by
SBA, liquidate and litigate 504 loans. It
must supply to SBA current and accurate information about all certification
and operational
requirements,
and
maintain the records and submit the
reports required by SBA.
[68 FR 57981,Oct. 7, 2003]

§ 120.827 Other services a eDe may
provide to small businesses.
A ODO may provide a small business
with assistance unrelated to the 504
loan program as long as the ODO does
not make such assistance a condition
of the ODO accepting from that small
business an application for a 504 loan.
An example of other services a ODO
may provide is assisting a small business in applying for a 7(a) loan (as described in §120.2). A ODO is subject to
part 103 of this chapter when providing
such assistance.
[68 FR

57981, Oct.

7, 2003]

§ 120.828 Minimum level of 504 loan activity and restrictions
on portfolio
concentrations.
(a) A ODO is required to receive SBA
approval
of at least four 504 loan approvals
during two consecutive
fiscal
years.
(b) A ODO's 504 loan portfolio must be
diversified
by business sector.
[68 FR 57981,Oct. 7, 2003]
§ 120.829 Job Opportunity
eDe must maintain.

average

a

(a) A ODO's portfolio
must maintain
a minimum
average of one Job Opportunity per an amount
of 504 loan funding that will be specified by SBA from
time to time in a FEDERAL REGISTER
notice.
Such Job Opportunity
average
remains in effect until changed by subsequent
FEDERAL REGISTER publication. A ODO is permitted
two years
from its certification
date to meet this
average.
(b) A ODO must indicate in its annual
report
the Job Opportunities
actually
or estimated
to be provided
by each
Project.
(c) If a ODO does not maintain
the required average,
it may retain
its certification
if it justifies
to SBA's satisfaction its failure to do so in its annual
report and shows how it intends to attain the required average.
[61 FR 3235, Jan. 31, 1996, as amended at 68
FR 57981,Oct. 7, 2003]

§120.830 Reports a eDe must submit.
A ODO must submit the following reports to SBA:
(a) An annual report within 180 days
after the end of the ODO's fiscal year

266

Small Business Administration
(to include financial statements of the
ODO and any affiliates or subsidiaries
of the ODO), and such interim reports
as SBA may require;
(b) For each new associate and staff,
a Statement of Personal History (for
use by non-bank lenders and ODOs) and
other information required by SBA;
(c) Reports of involvement
in any
legal proceeding;
(d) Ohanges in organizational status;
(e) Ohanges in any condition that affects its eligibility to continue to participate in the 504program; and
(f) Quarterly service reports on each
loan in its portfolio which is 60 days or
more past due (and interim reports
upon request by SBA).
(g) Other reports as required by SBA.

§ 120.839
(3) The ODO has a loan committee
meeting the requirements of §120.823.
[68 FR 57981,Oct. 7, 2003]

§120.837 SBA decision on application
for a new CDC or for an existing
CDC to expand Area of Operations.
The processing DistriCt Office must
solicit the comments of any other District Office in which the ODO operates
or proposes to operate. The processing
District Office must determine that the
ODO is in compliance with SBA's regulations,
policies,
and performance
benchmarks,
including
pre-approval
and annual review by SBA of any management or staff contracts,
and the
timely submission of all annual reports. In making its recommendation
on the application, the District Office
[61 FR 3235, Jan. 31, 1996, as amended at 68 may consider
any information
preFR 57981,Oct. 7, 2003]
sented to it regarding the requesting
ODO, the existing ODO, or ODOs that
EXTENDING A ODO'S AREA OF
may be affected by the application, and
OPERATIONS
the proposed Area of Operations.
(a) The SBA District office will sub§120.835 Application
to expand aD mit the application, recommendation,
Area of Operations.
and supporting
materials
within 60
(a) General. A ODO that has been cerdays of the receipt of a complete applitified to participate in the 504 program
cation from the ODO to the AAJF A,
may apply to expand its Area of Operwho will make the final decision. The
ations if it meets all requirements to
AAJFA may consider any information
be an Accredited
Lender Program
submitted or available related to the
(ALP) ODO, as set forth in §120.840(c), applicant and the application.
and demonstrates
that it can com(b) SBA will notify the ODO of its depetently fulfill its 504 program responcision in writing, and if the application
sibilities in the proposed area.
is denied, the reasons for its decision.
(b) Local Economic Area Expansion. A
(c) If a ODO is approved to operate as
ODO, the ODO's ALP,
ODO seeking to expand its Area of Op- a Multi-State
erations into a Local Economic Area
POLP, or Priority ODO authority will
into every additional State
must apply in writing to the Lead SBA carryover
Office.
in which it is approved to operate as a
(c) Multi-State CDC Expansion. A ODO Multi-State ODO.
seeking to become a Multi-State
ODO [65 FR 42633,July 11, 2000,as amended at 68
must apply to the SBA District Office FR 57981,Oct. 7, 2003]
that services the area within each
State where the ODO intends to locate
§120.839 Case-by-case application
to
make a 504 loan outside of a CDC's
its principal office for that State. A
Area of Operations.
ODO may apply to be a Multi-State
ODO only if:
A ODO may apply to make a 504 loan
(1) The State the ODO seeks to ex- for a Project outside its Area of Operpand into is contig].lous to the State of ations to the District Office serving the
the ODO's incorporation;
area in which the Project will be lo(2) The ODO demonstrates
that its
cated. The applicant ODO must demonstrate that it can adequately fulfill
membership meets the requirements in
its 504 program responsibilities for the
§120.822 separately for its State of incorporation
and for each additional
504 loan, including proper servicing.
State in which it seeks to operate as a The District Office may approve the
application if:
Multi-State ODO; and
267

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