PART 109—INTERMEDIARY LENDING PILOT PROGRAM Authority: 15 U.S.C. 634(b)(6), (b)(7), and 636(l). Source: 76 FR 18015, Apr. 1, 2011, unless otherwise noted. Subpart A—Introduction § 109.10 Description of the Intermediary Lending Pilot program. The Small Business Intermediary Lending Pilot program (ILP program) provides direct loans to ILP Intermediaries to make loans of up to $200,000 to startup, newly established, or growing small businesses. ILP Intermediaries continue to relend a portion of the payments received on small business loans made under the program until they have fully repaid their loans to SBA. § 109.15 Severability. Any provision of this part held to be invalid or unenforceable as applied to any person, entity, or circumstance shall be construed so as to continue to give the maximum effect to such provision as permitted by law, including as applied to persons or entities not similarly situated or to dissimilar circumstances, unless such holding is that the provision of this part is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of this part and shall not affect the remainder thereof. [89 FR 34101, Apr. 30, 2024] § 109.20 Definitions. Affiliate Associate. (i) An officer, director, key employee, or holder of 20 percent or more of the value of the ILP Intermediary or its debt instruments, or an agent involved in the loan process; (ii) Any entity in which one or more individuals referred to in paragraph (1)(i) of this definition or a Close Relative of any such individual owns or controls at least 20 percent; (2) An Associate of an Eligible Small Business Concern is: (i) An officer director, owner of more than 20 percent of the equity, or key employee of the Eligible Small Business Concern; (ii) Any entity in which one or more individuals referred to in paragraphs (2)(i) of this definition owns or controls at least 20 percent; and (iii) Any individual or entity in control of or controlled by the small business (except a Small Business Investment Company (SBIC) licensed by SBA). (3) For the purposes of this definition, the time during which an Associate relationship exists commences six months before the following dates and continues as long as the ILP Note or the loan to the Eligible Small Business Concern is outstanding: (i) For an ILP Intermediary, the date of the ILP Note; (ii) For an Eligible Small Business Concern, the date of the loan application to the ILP Intermediary. Close Relative Eligible Small Business Concern ILP Intermediary ILP Loan ILP Note ILP Program Activities Report ILP Program Requirements ILP Relending Fund Intermediary Lending Program Electronic Reporting System (ILPERS) Native American Tribal Government et seq. Portfolio Identification Report Portfolio Status Report [76 FR 18015, Apr. 1, 2011, as amended at 81 FR 41428, June 27, 2016; 85 FR 75834, Nov. 27, 2020] Subpart B—ILP Intermediary Application and Selection Process § 109.100 ILP Intermediary eligibility and continuing participation requirements. (a) Organization type: (1) Private, nonprofit community development corporations; (2) Consortiums of private, nonprofit organizations or nonprofit community development corporations; and (3) Agencies of or nonprofit entities established by Native American tribal governments. (b) Prior experience: (c) Management and operations. (2) An ILP Intermediary must have a continuing ability to evaluate, process, close, disburse, service and liquidate small business loans including, but not limited to: (i) Holding sufficient permanent capital (as determined by SBA) to support lending activities under this program; and (ii) Maintaining satisfactory SBA performance, as determined by SBA in its discretion. (3) An ILP Intermediary must meet and maintain the ethical requirements of 13 CFR 120.140. (4) An ILP Intermediary (and any Affiliates) that participates in other SBA programs must be in compliance with those program requirements. (5) An ILP Intermediary must be in good standing with its Federal and/or State regulator, as applicable. (6) An ILP Intermediary must have the ability to comply with the ILP Program Requirements, including reporting requirements, as such requirements are revised from time to time, and maintain compliance with ILP Program Requirements for as long as the ILP Intermediary participates in the ILP program. §§ 109.200-109.220 [Reserved] Subpart C—ILP Program Requirements § 109.300 General. An ILP Intermediary must maintain compliance with all ILP Program Requirements until the ILP Intermediary has repaid its ILP Loan to SBA. With respect to its activities in the ILP program, the ILP Intermediary is subject to the requirements of §§ 120.140 (What ethical requirements apply to participants?), 120.197 (Notifying SBA's Office of Inspector General of suspected fraud), 120.412 (Other services Lenders may provide Borrowers), and 120.413 (Advertisement of relationship with SBA) of this chapter, in addition to the regulations specifically set forth in this Part. The ILP Intermediary and any contractor(s) it may have are independent contractors that are responsible for their own actions with respect to small business loans made under this program. SBA has no responsibility or liability for any claim by an Eligible Small Business Concern or other party for any injury as a result of any wrongful action taken by the ILP Intermediary or an employee, agent or contractor of an ILP Intermediary. § 109.310 Terms of loans to ILP Intermediaries. (a) Disbursement. (b) Term. (c) Interest rate. (d) Repayment. (e) Collateral. (f) Fees. § 109.320 ILP Loan purposes. (a) ILP Loan funds must only be used to provide direct loans to Eligible Small Business Concerns for working capital, real estate, or the acquisition of materials, supplies, furniture, fixtures, or equipment. (b) ILP Loan funds must not be used for any other purpose, including maintenance of loan loss reserves or payment of administrative costs or expenses of the ILP Intermediary. § 109.330 ILP Relending Fund. (a) General. (b) Contents of the ILP Relending Fund. (c) Interest earned. (d) Allowable uses of the ILP Relending Fund. § 109.340 Lending requirements. (a) Initial lending requirement. (b) Ongoing relending requirement. § 109.350 Maintenance of loan loss reserve. The ILP Intermediary must maintain a reasonable loan loss reserve appropriate for the quality of the ILP Intermediary's portfolio in a federally insured depository account established by the ILP Intermediary at a well-capitalized financial institution. The loan loss reserve must be in an account separate and distinct from the ILP Intermediary's other assets and financial activities. This reserve must be maintained at not less than 5% of the principal balance of all outstanding loans to Eligible Small Business Concerns made from the ILP Relending Fund. The AA/CA or designee may require the ILP Intermediary to maintain a larger loss reserve if the AA/CA determines that the ILP Intermediary's loss reserve level is potentially inadequate to protect SBA from loss. ILP Relending Fund proceeds must not be used to establish or maintain the loan loss reserve. § 109.360 Recordkeeping and reporting requirements. (a) Maintenance of records. (b) ILP Intermediary reporting. (1) Portfolio Identification Reports. (2) Quarterly reports. (3) Audited financial statements. (4) Reports of changes. (i) Any change in its name, address or telephone number; (ii) Any change in its charter, bylaws, or its officers or directors (to be accompanied by a statement of personal history on the form approved by SBA); (iii) Any material change in capitalization or financial condition; and (iv) Any change affecting the ILP Intermediary's eligibility to continue to participate in the ILP program. (5) Other reports. Subpart D—Requirements for ILP Intermediary Loans to Small Businesses § 109.400 Eligible Small Business Concerns. (a) To be eligible to receive loans from an ILP Intermediary under this program, a small business must: (1) Be organized for profit; (2) Be located in the U.S.; (3) Be small under the size requirements applicable to 7(a) business loans (including Affiliates); (4) Be a startup, newly established, or growing small business; (5) Together with Affiliates and principal owners, not have credit elsewhere; and (6) Be creditworthy and demonstrate reasonable assurance of repayment of the loan. (b) The following types of businesses are not eligible to receive a loan from an ILP Intermediary under this program: (1) Nonprofit businesses (for-profit subsidiaries are eligible); (2) Financial businesses primarily engaged in the business of lending; (3) Passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds; (4) Life insurance companies; (5) Businesses located in a foreign country; (6) Pyramid sale distribution plans; (7) Businesses deriving more than one-third of gross annual revenue from legal gambling activities; (8) Businesses engaged in any illegal activity; (9) Private clubs and businesses which limit the number of memberships for reasons other than capacity; (10) Government-owned entities (except for businesses owned or controlled by a Native American tribe); (11) Businesses principally engaged in teaching, instructing, counseling or indoctrinating religion or religious beliefs, whether in a religious or secular setting; (12) [Reserved] (13) Loan packagers earning more than one third of their gross annual revenue from packaging SBA loans; (14) Businesses in which the ILP Intermediary or any of its Associates owns an equity interest; (15) Businesses with an Associate who is currently incarcerated, serving a sentence of imprisonment imposed upon adjudication of guilty, or is under indictment for a felony or a crime of moral turpitude; (16) Businesses which: (i) Present live performances of a prurient sexual nature; or (ii) Derive directly or indirectly more than de minimis gross revenue through the sale of products or services, or the presentation of any depictions or displays, of a prurient sexual nature; (17) Businesses that have previously defaulted on a Federal loan or Federally assisted financing, resulting in the Federal government or any of its agencies or Departments sustaining a loss in any of its programs, and businesses owned or controlled by an applicant or any of its Associates which previously owned, operated, or controlled a business which defaulted on a Federal loan (or guaranteed a loan which was defaulted) and caused the Federal government or any of its agencies or Departments to sustain a loss in any of its programs. For purposes of this section, a compromise agreement shall also be considered a loss unless the agreement provides otherwise; (18) Businesses primarily engaged in political or lobbying activities; and (19) Speculative businesses (such as oil wildcatting); (20) Businesses located in a Coastal Barrier Resource Area (as defined in the Coastal Barriers Resource Act); (21) Businesses owned or controlled by an applicant or any of its Associates who are more than 60 days delinquent in child support under the terms of any administrative order, court order, or repayment agreement; (22) Businesses in which any Associate is an undocumented (illegal) alien; or (23) Businesses owned or controlled by an applicant or any of its Associates who are presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from participation by any Federal department or agency. [76 FR 18015, Apr. 1, 2011, as amended at 82 FR 39501, Aug. 21, 2017; 89 FR 34101, Apr. 30, 2024] § 109.410 Loan limits—loans to Eligible Small Business Concerns. No small business (including Affiliates) may have more than $200,000 outstanding under this program at one time. The provisions of § 120.151 do not apply to loans under this program. § 109.420 Terms of loans from ILP Intermediaries to Eligible Small Business Concerns. (a) General. (b) Maximum loan size. (c) Maturity. (d) Interest rate. Federal Register. Federal Register. (e) Fees. (1) Necessary out-of-pocket expenses, such as filing or recording fees; (2) The reasonable direct costs of any liquidation; (3) A late payment fee not to exceed 5 percent of the scheduled loan payment; and (4) Reasonable application and origination fees, subject to a maximum total fee cap of 1 percent of the amount of the loan to the Eligible Small Business Concern. SBA may adjust the maximum total fee cap from time to time; SBA will publish any such change by Notice in the Federal Register. § 109.430 Loan purposes. (a) An Eligible Small Business Concern may only use the proceeds of a loan under this program for the following purposes: (1) Working capital; (2) Real estate (except for real estate acquired and held primarily for sale, lease, or investment); and (3) The acquisition of materials, supplies, furniture, fixtures, or equipment. (b) Revolving lines of credit are permitted. However, if, at any time, SBA determines that the ILP Intermediary's operation of revolving lines of credit is causing excessive risk of loss for the intermediary or the Government, the AA/CA or designee may terminate the ILP Intermediary's authority to use the ILP Relending Fund proceeds for revolving lines of credit. Such termination will be by written notice and will prevent the ILP Intermediary from approving any new lines of credit or extending any existing revolving lines of credit beyond the effective date of termination contained in the notice. § 109.440 Requirements imposed under other laws and orders. Loans made by the ILP Intermediary under this program must comply with all applicable laws, including §§ 120.170 (Flood insurance), 120.172 (Flood-plain and wetlands management), 120.173 (Earthquake hazards), and the civil rights laws (see parts 112, 113, 117, and 136 of this chapter) prohibiting discrimination on the grounds of race, color, national origin, religion, sex, marital status, disability or age. [76 FR 18015, Apr. 1, 2011, as amended at 85 FR 75834, Nov. 27, 2020] § 109.450 SBA review of ILP Intermediary loans to Eligible Small Business Concerns. (a) Review restrictions. (b) Subsequent review. § 109.460 Prohibition on sales of ILP Intermediary Loans to Eligible Small Business Concerns. An ILP Intermediary may not sell all or any portion of a loan made to an Eligible Small Business Concern without prior written consent from the AA/CA or designee. Subpart E—Oversight § 109.500 SBA access to ILP Intermediary files. The ILP Intermediary must allow SBA's authorized representatives, including other officers of any other Federal agency and representatives authorized by the SBA Inspector General, during normal business hours, timely access to its facility and files to review, inspect, and copy all records and documents, including electronic and hard copy, relating to the operations of the ILP Intermediary, the ILP Loan, and the loans made from the ILP Relending Fund and other records and documents as requested for oversight of the ILP Intermediary. § 109.510 Reviews. (a) General. (b) Corrective actions. (c) Confidentiality of reports. [82 FR 39501, Aug. 21, 2017] § 109.520 Events of default and revocation of authority to participate in the ILP program. (a) Automatic events of default. (1) Insolvency. (2) Voluntary assignment. (3) Bankruptcy. (b) Events of default with notice and possible opportunity to cure. (1) Fraud. (2) Violation of SBA's ethical requirements. (3) Non-notification of events of default. (4) Non-notification of defaults to others. (5) Failure to make timely payment. (6) Failure to take adequate corrective actions. (7) Violation of ILP Program Requirements. (8) Actions that increase risk. (c) Opportunity to Cure. (d) Appeals. § 109.530 Debarment and Suspension. In accordance with 2 CFR Parts 180 and 2700, SBA may take any necessary action to debar or suspend an ILP Intermediary or any officer, director, general partner, manager, employee, agent or other participant in the affairs of an ILP Intermediary's SBA operations.