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the interests of both the SBA and the financial institution.

(d) Guarantors of financial assistance, other than SBA, shall have no rights of contribution against SBA on a guaranteed loan. SBA shall not be deemed to be a coguarantor with any other guarantors. § 122.25 Sale of acquired collateral.

(a) Property acquired by SBA or the servicing financial institution in the liquidation of loans will be offered for sale by the SBA or by the financial institution which is servicing the loan. All sales, unless otherwise authorized, will be effected through competitive bids at either an auction sale or a sealed bid sale. In those instances where property which has been acquired cannot be sold advantageously at a sealed bid or auction sale, the SBA or the financial institution may negotiate with prospective purchasers for the sale of the property.

(b) The right, title and interest of SBA in property sold will, unless otherwise authorized, be conveyed by an appropriate bill of sale or deed, without representation or warranty.

(c) SBA does not look with favor upon renting or leasing acquired property nor the granting of options to purchase, inasmuch as it is desirous of selling such property and thereby liquidating its investment in same as soon after acquisition as possible. In those instances where the property cannot be sold advantageously as it appears to be in the interests of the Government to lease the property, proposals for a lease will be considered. Any such proposals must provide for termination by SBA upon the giving of reasonable notice so that the sale of the property may not be unduly delayed.

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Sec. 123.12 Extension of loans, including RFC loans.

123.13 Restriction against loans to certain felons.

AUTHORITY: The provisions of this Part 123 issued under 72 Stat. 385, 387, as amended; 83 Stat. 125, 742; 15 U.S.C. 636.

SOURCE: The provisions of this Part 123 contained in Revision 6, 35 F.R. 16167, Oct. 15, 1970, unless otherwise noted.

§ 123.0

Statutory Business Act.

SEC 7. (a) **

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(b) The Administration also is empowered

(1) To make such loans (either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred basis) as the Administration may determine to be necessary or appropriate because of floods, riots or civil disorders, or other catastrophes; and

(2) To make such loans (either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred basis) as the Administration may determine to be necessary or appropriate to any small business concern located in an area affected by a disaster, if the Administration determines that the concern has suffered a substantial economic injury as a result of such disaster and if such disaster constitutes—

"(A) A major disaster, as determined by the President under the Act entitled 'An Act to authorize Federal assistance to States and local governments in major disasters, and for other purposes,' approved September 30, 1950, as amended (42 U.S.C. 1855-1855g), or

"(B) A natural disaster, as determined by the Secretary of Agriculture pursuant to the Consolidated Farmers Home Administration Act of 1961 (7 J.S.C. 1961);".

(3) To make such loans (either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred basis) as the Administration may determine to be necessary or appropriate to assist any small business concern in continuing in business at its existing location, in reestablishing its business, in purchasing a business, or in establishing a new business, if the Administration determines that such concern has suffered substantial economic injury as the result of its displacement by, or location in, adjacent to, or near, a federally aided urban renewal program or a highway project or any other construction constructed by or with funds provided in whole or in part by the Federal Government; and the purpose of a loan made pursuant to such project or program may, in the discretion of the Administration, include the purchase or construction of other premises whether or not the

Administration of loans.

borrower owned the premises occupied by the business; and

(4) To make such loans (either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred basis) as the Administration may determine to be necessary or appropriate to assist any small business concern in reestablishing its business if the Administration determines that such concern has suffered substantial economic injury as a result of the inability of such concern to process or market a product for human consumption because of disease or toxicity occurring in such product through natural or undetermined causes.

(5) To make such loans (either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred basis) as the Administration may determine to be necessary or appropriate to assist any small business concern operating a coal mine in affecting additions to or alterations in the equipment, facilities, or methods of operation of such mine to requirements imposed by the Federal Coal Mine Health and Safety Act of 1969, if the Administration determines that such concern is likely to suffer substantial economic injury without assistance under this paragraph.

No loan under this subsection, including renewals and extensions thereof may be made for a period or periods exceeding 30 years: Provided, That the Administrator may consent to a suspension in the payment of principal and interest charges on, and to an extension in the maturity of, the Federal share of any loan under this subsection for a period of not to exceed 5 years, if (A) the borrower under such loan is a home owner or small business concern, (B) the loan was made to enable (i) such home owner to repair or replace his home, or (ii) such concern to repair or replace plant or equipment which was damaged or destroyed as a result of a disaster meeting the requirements of clause (A) or (B) of paragraph (2) of this subsection and (C) the Administrator determines such action is necessary to avoid severe financial hardship: Provided further, That the provisions of paragraph (1) of subsection (c) of this section shall not be applicable to any such loan having a maturity in excess of 20 years. The interest rate on the Administration's share of any loan made under this subsection shall not exceed 3 per centum per annum, except that in the case of a loan made pursuant to paragraph (3) or (5), the rate of interest on the Administration's share of such loan shall not be more than the higher of (A) 24 per centum per annum; or (B) the average annual interest rate on all interest-bearing obligations of the United States then forming a part of the public debt as computed at the end of the fiscal year next preceding the date of the loan and adjusted to the nearest one-eighth of 1 per centum, plus one-quarter of 1 per centum per annum. In agreements to par

ticipate in loans on a deferred basis under this subsection, such participation by the Administration shall not be in excess of 90 per centum of the balance of the loan outstanding at the time of disbursement.

(c) (1) The Administration may further extend the maturity of or renew any loan made pursuant to this section, or any loan transferred to the Administration pursuant to Reorganization Plan No. 2 of 1954, or Reorganization Plan No. 1 of 1957, for additional periods not to exceed 10 years beyond the period stated therein, if such extension or renewal will aid in the orderly liquidation of such loan.

(2) During any period in which principal and interest charges are suspended on the Federal share of any loan as provided in subsection (b), the Administrator shall, upon the request of any person, firm, or corporation having a participation in such loan, purchase such participation, or assume the obligation of the borrower, for the balance of such period to make principal and interest payments on the non-Federal share of such loan: Provided, That no such payments shall be made by the Administrator in behalf of any borrower unless (1) the Administrator determines that such action is necessary in order to avoid a default, and (ii) the borrower agrees to make payments to the Administration in an aggregate amount equal to the amount paid in its behalf by the Administrator, in such manner and at such times (during or after the term of the loan) as the Administrator shall determine having due regard to the purposes sought to be achieved by this paragraph.

(d)

(e) * **

(f) In the administration of the disaster loan program under subsection (b)(1) of this section, in the case of property loss or damage as a result of a disaster which is a "major disaster" as defined in section 2(a) of the Act of September 30, 1950 (42 U.S.C. 1855a (a)), the Small Business Administration, to the extent such loss or damage is not compensated for by insurance or otherwise, may lend to a privately owned college or university without regard to whether the required financial assistance is otherwise available from private sources, and may waive interest payments and defer principal payments on such a loan for the first 3 years of the term of the loan.

§ 123.01 Statutory Provisions-Disaster Relief Act of 1969.

SEC. 6. In the administration of the disaster loan program under section 7(b) (1) of the Small Business Act, as amended (15 U.S.C. 636 (b)), in the case of property loss or damage in any affected State resulting from a major disaster the Small Business Administration

(1) To the extent such loss or damage is not compensated for by insurance or otherwise, (A) shall at the borrower's option on

that part of any loan in excess of $500 cancel (1) the interest due on the loan, or (ii) the principal of the loan, or (iii) any combination of such interest or principal except that the total amount so canceled shall not exceed $1,800, and (B) may defer interest payments or principal payments, or both, in whole or in part, on such loan during the first 3 years of the term of the loan without regard to the ability of the borrower to make such payments.

(2) May grant any loan for the repair, rehabilitation, or replacement of property damaged or destroyed, without regard to whether the required financial assistance is otherwise available from private sources, except that (A) any loan made under authority of this paragraph shall bear interest at a rate equal to the average annual interest rate on all interest-bearing obligations of the United States having maturities of 20 years or more and forming a part of the public debt as computed at the end of the fiscal year next preceding the date of the loan, adjusted to the nearest one-eighth of one per centum, and (B) no part of any loan made under authority of this paragraph shall be eligible for cancellation or deferral as authorized in paragraph (1) of this section.

(3) may in the case of the total destruction or substantial property damage of a home or business concern refinance any mortgage or other liens outstanding against the destroyed or damaged property if such financing is for the repair, rehabilitation, or replacement of property damaged or destroyed as a result of such disaster and any such refinancing shall be subject to the provisions of paragraphs (1) and (2) of this section.

SEC. 7. * SEC. 8. *

SEC. 9. *

SEC. 10. *

SEC. 11. *

SEC. 12. *

SEC. 13. *

SEC. 14. *

SEC. 15. (a) As used in this Act the term "major disaster” means a major disaster as determined by the President pursuant to the Act entitled "An Act to authorize Federal assistance to States and local governments in major disasters, and for other purposes", approved September 30, 1950, as amended (42 U.S.C. 1855-1855g), which disaster occurred after June 30, 1967, and on or before December 31, 1970.

(b) This Act, other than sections 5, 8, 9, and 13, shall not be in effect after December 31, 1970, except as it applies to major disasters occurring before such date. § 123.1 General.

(a) SBA is authorized to make or guarantee loans to victims of floods and other catastrophes to rehabilitate or replace damaged or lost physical property (Physical-loss Disaster Assistance).

(b) SBA is also authorized to make or guarantee loans to a small business concern:

(1) Located in an area declared to be a major disaster area by the President or declared to be a natural disaster area by the Secretary of Agriculture, if SBA determines that the concern has suffered substantial economic injury as a result of such disaster (Substantial Economic Injury Assistance);

(2) To assist in reestablishing its business, continuing in business at its existing location, in purchasing a business, or in establishing a new business, if SBA determines that the concern has suffered substantial economic injury as a result of its displacement by, or location in, adjacent to, or near, a federally aided urban renewal program or a highway project or any other construction constructed by or with funds provided in whole or in part by the Federal Government (Displacement Business Disaster Assistance); and

(3) To continue or reestablish its business if SBA determines that the concern has suffered substantial economic injury as a result of the inability of such concern to process or market a product for human consumption because of disease or toxicity occurring in such product through natural or undetermined causes (Product Disaster Assistance).

(c) Eligibility standards for Disaster Assistance programs are set forth in § 120.4 of this chapter.

(d) (1) "Financial Assistance" as used in this part shall include direct loans made by SBA, immediate participation loans, and guaranteed loans.

(2) "Financial Institution" as used in this part shall include, but not be limited to, banks and other concerns whose regular course of business entails the making of commercial and industrial loans.

(e) This revision incorporates the statutory amendment adding subsection (5) of section 7(b) of the Small Business Act as enacted by the Federal Coal Mine Health and Safety Act of 1969, Public Law 91-173. The adoption of regulations for section 7(b) (5) will be published subsequently. This revision also incorporates the provisions of the Disaster Relief Act of 1969, Public Law 91-79, which apply to physical-loss disaster assistance for any disaster occurring after June 30, 1967, and on or before December 31, 1970, where such a disaster is determined by the President to be a "major disaster." The reference hereinafter for regulations

pursuant to Public Law 91-79 are usually designated by the words "certain major disasters."

§ 123.2 Types of disaster loans.

Disaster loans may be made by SBA and financial institutions upon an immediate participation basis, upon a guaranteed loan basis, or may be made directly by SBA alone.

(a) Ir an immediate participation loan either SBA or the financial institution makes the loan and the other party purchases an agreed percentage of the loan. SBA's participation shall not exceed 90 percent of the outstanding amount of the loan.

(b) In guaranteed loans the financial institution makes the entire loan and SBA is obligated to purchase pursuant to its Disaster Loan Guaranty Agreement not more than 90 percent of the outstanding loan and accrued interest in the event the borrower has defaulted for 90 days. Default as used in this subsection means nonpayment of principal or interest when due.

(c) Ordinarily SBA will not purchase its guaranteed percentage of any loan until after such purchase has been requested or demanded by the lending institution. However, when any loan guaranteed hereunder shall be in default in payment of principal or interest for more than 90 days after the due date, or when the small business concern has been determined not to be in compliance under Part 113 of this chapter, SBA has the option to purchase its guaranteed percentage, or the loan in its entirety, whenever SBA determines in its discretion that such purchase is in the best interest of the Government. The lending institution shall receive written notice of such election to purchase by SBA, and the effective date of such purchase shall be the 10th day after receipt of such notice; as of such date the note and all related loan instruments shall be assigned, transferred and delivered to SBA. § 123.3 Purposes of loans.

(a) Physical-loss disaster assistance. (1) The purpose of these loans is to restore a victim's home or business property as nearly as posible to predisaster condition. A loan to an individual may be used to repair or replace damaged furniture and other household belongings or personal effects. Funds may be used to repair or replace destroyed or damaged inventory, machinery, or equip

ment. If it is necessary or desirable (as determined by SBA) to construct a new home or new business facilities on a different site, the loan may be used for such purpose. However, the SBA's share or guaranteed percentage of any such loan shall not exceed the estimated cost of restoring or replacing the damaged or destroyed property, plus, for certain major disasters, amounts eligible for refinancing of existing liens or mortgages. Personal and/or business assets must be reviewed to determine the ability of the applicant to provide his own resources, without undue hardship, to restore disaster damaged or lost property. Also, it must be shown that private credit is not obtainable on reasonable rates and terms, in order to be eligible to obtain disaster loan assistance from SBA at a 3 percent interest rate. For certain major disasters, the borrower has the option to cancel, on that part of the loan in excess of $500 the interest, the principal, or a combination of interest and principal, but in no event shall such forgiveness for any individual borrower exceed $1,800.

(2) Refinancing: For certain major disasters, where property is completely destroyed or suffers damage in excess of 50 percent of the fair value at the time of the disaster, a part or all of existing liens as they apply to the specific property lost or damaged, may be refinanced by a part of the SBA loan. Such refinancing on home loans shall be limited to an amount which is no greater than the disaster caused damage or loss. Refinancing is also permitted for loans where only SBA has declared the area eligible for the repayment of a temporary loan determined by SBA to have been used solely to alleviate the disaster caused injury.

(3) Any disaster victim located in a flood disaster-prone area that suffers real property damage, to the extent it is determined by SBA to be more feasible to move outside of the disaster area than to repair or rebuild the property at the disaster location, may obtain funds for such purposes as are prescribed in subparagraph (1) of this paragraph and such other funds as may be determined necessary by SBA to reestablish the borrower's real property at the new location. In any situation where physical-loss disaster assistance is provided to relocate real property outside of a flood disasterprone area, and title to the damaged site is retained by the borrower, no future

flood disaster assistance will be provided by SBA for any future physical-loss disaster damage to the property located at the site from which the disaster victim was relocated. SBA shall require the borrower to execute and record in the local office where records of property ownership are recorded a document which shall give notice of this qualification to all subsequent purchasers and encumbrancers of real property located at the disaster site. The recorded notice of disaster qualification may be canceled (released or terminated) by the recording of a determination issued by SBA that adequate flood control measures have been effected to protect the property from future flood damage.

(b) Substantial economic injury assistance. The purpose of these loans is solely to provide relief to small business concerns for substantial economic injury sustained as a result of a major or natural disaster declared by the President or Secretary of Agriculture. Personal and/or business assets must be used by the applicant to the greatest extent feasible, without undue hardship, to alleviate the injury incurred. In addition, private credit to the extent obtainable on reasonable rates and terms must be used prior to obtaining disaster loan assistance from SBA. Loans may be used for working capital and to pay financial obligations which the borrower would have been able to pay had it not been for the loss of revenue resulting from the disaster. Unrealized profits or past sales may not be considered in arriving at the amount of injury incurred. No funds may be authorized which would provide for the payment of any stock dividends, bonuses, or for disbursements to owners, partners, officers, or stockholders not directly related to the performance of services.

(c) Displaced business assistance. (1) The purpose of these loans is to assist any small business concern in continuing in business at its existing location, in reestablishing its business, in purchasing a business, or in establishing a new business, if the Administration determines that such concern has suffered substantial economic injury as the result of its displacement by, or location in, adjacent to, or near, a federally aided urban renewal program or a highway project or any other construction constructed by or with funds provided in whole or in part by the Federal Government.

(2) These loans may be used to provide:

(i) Working capital necessary to carry the concern until resumption of normal operations;

(ii) Replacement costs to owners of realty less net amounts received for indemnification of property from which displaced;

(iii) Funds for nonowners of the premises from which displaced to purchase or construct premises if no suitable rental property is available;

(iv) Purchase of machinery and equipment necessary to carry on business at the new location less any funds received from disposal of equipment owned at location from which displaced;

(v) Increases in the cost of fixed charges such as rents, insurance, and utility bills for a reasonable period of time;

(vi) Moving expenses not compensated for from some other source where the distance moved is less than 100 miles;

(vii) Purchase of equipment to upgrade the business in a new location where such upgrading is necessary.

(3) Where realty is needed, no loan shall provide funds which would increase the square footage of:

(i) Land space to more than one-half greater than that owned or occupied prior to displacement: Provided, however, That additional space to meet the minimum requirement of a local building code for parking space may be approved;

(ii) Building space to more than onethird greater than that owned or occupied prior to displacement.

(d) Product disaster assistance. The purpose of these loans is to assist small business concerns to reestablish or continue their business when they have suffered substantial economic injury as the result of inability of such concerns to market or process a product because of disease or toxicity occurring in such products through natural or undetermined causes. Personal and/or business assets must be used by the applicant to the greatest extent feasible, without undue hardship, to alleviate injury incurred. In addition, private credit to the extent obtainable on reasonable rates and terms must be used prior to obtaining disaster loan assistance from SBA. Loans may be used to provide working capital to support the business until such time as it is reestablished and to pay financial obligations which the borrower

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