13 CFR Regulation 120.630

§ 120.613

13 CFR Ch. I (1–1–98 Edition)

portion of a loan is initially sold in the
Secondary Market;
(2) Be guaranteed under the Act; and
(3) Meet such other standards as SBA
may determine to be necessary for the
successful operation of the Secondary
Market program.
(b) The loans that back a Pool must
meet the SBA requirements in effect at
the time the Pool is formed.
§ 120.613 Secondary
Participation
Guarantee Agreement.
When a Lender wants to sell the
guaranteed portion of a loan, it enters
into a Secondary Participation Guarantee Agreement (‘‘SPGA’’) with SBA
and the prospective purchaser. The
terms of sale between the Lender and
the purchaser cannot require the Lender or SBA to repurchase the guaranteed portion of the loan except in accordance with the terms of the SPGA.
Before execution of the SPGA, the
Lender must:
(a) Submit to FTA a copy of the proposed SPGA, the note, and such other
documents as SBA may require;
(b) Disburse to the Borrower the full
amount of the loan; and
(c) Pay SBA all guarantee fees relevant to the loan in full.
THE SBA GUARANTEE OF A CERTIFICATE
§ 120.620 SBA guarantee of a Pool Certificate.
(a) Extent of Guarantee. SBA guarantees to a Registered Holder the timely
payment of principal and interest installments and any prepayment or
other recovery of principal to which
the Registered Holder is entitled. If the
Borrower of a loan in a Pool backing
the Certificates does not make a required installment payment, SBA,
through the FTA, will make advances
to maintain the schedule of interest
and principal payments to the Registered Holders.
(b) SBA guarantee backed by full faith
and credit. SBA’s guarantee of the Pool
Certificate is backed by the full faith
and credit of the United States.
§ 120.621 SBA guarantee of an Individual Certificate.
(a) Extent of SBA guarantee. With respect to Individual Certificates, SBA

guarantees to purchase from the Registered Holder the guaranteed portion
of the loan for an amount equal to the
unpaid principal and accrued interest
due as of the date of SBA’s purchase,
less deductions for applicable fees. Unlike the SBA guarantee with respect to
pooled loans, SBA does not guarantee
timely payment on Individual Certificates.
(b) What triggers the SBA guarantee.
SBA’s guarantee to the Registered
Holder may be called upon when:
(1) The Borrower remains in uncured
default for 60 days on payments of principal or interest due on the note;
(2) The Lender fails to send to the
FTA on a timely basis payments it received from the Borrower; or
(3) The FTA fails to send to the Registered Holder on a timely basis any
payments it has received from the
Lender.
(c) Full faith and credit. SBA’s guarantee to the Registered Holder is
backed by the full faith and credit of
the United States.
POOL ASSEMBLERS
§ 120.630 Qualifications to be a Pool
Assembler.
(a) Application to become Pool Assembler. The application to become a Pool
Assembler is available from the AA/FA.
In order to qualify as a Pool Assembler, an entity must send the application to the AA/FA, with an application
fee, and certify that it:
(1) Is regulated by the appropriate
agency as defined in section 3(a)(34)(G)
of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(34)(G));
(2) Meets all financial and other applicable requirements of its regulatory
authority and the Government Securities Act of 1986, as amended (Pub. L. 99–
571, 100 Stat. 3208);
(3) Has the financial capability to assemble acceptable and eligible guaranteed loan portions in sufficient quantity to support the issuance of Pool
Certificates; and
(4) Is in good standing with SBA (as
the AA/FA determines), the Office of
the Comptroller of the Currency
(‘‘OCC’’) if it is a national bank, the
Federal Deposit Insurance Corporation
if it is a bank not regulated by the

170

Small Business Administration

§ 120.641

OCC, or the National Association of Securities Dealers if it is a member.
(b) Approval by SBA. An entity may
not submit Pool applications to the
FTA until SBA has approved the application to become a Pool Assembler.
(c) Conduct of business by Pool Assembler. An entity continues to qualify as
a Pool Assembler so long as it:
(1) Meets the eligibility standards in
paragraph (a) of this section;
(2) Conducts its business in accordance with SBA regulations and accepted securities or banking industry practices, ethics, and standards; and
(3) Maintains its books and records in
accordance with generally accepted accounting principles or in accordance
with the guidelines of the regulatory
body governing its activities.
§ 120.631 Suspension or termination of
Pool Assembler.
(a) Suspension or termination. The AA/
FA may suspend a Pool Assembler
from operating in the Secondary Market for up to 18 months or terminate
its status as a Pool Assembler, if the
Pool Assembler (and/or its Associates):
(1) Does not comply with any of the
requirements in § 120.630 (a) and (c);
(2) Has been indicted or otherwise
formally charged with, or convicted of,
a misdemeanor or felony;
(3) Has received an adverse civil judgment that it has committed a breach of
trust or a violation of a law or regulation protecting the integrity of business transactions or relationships;
(4) Has not formed a Pool for at least
three years; or
(5) Is under investigation by its regulating authority for activities which
may affect its fitness to participate in
the Secondary Market.
(b) Suspension procedures. The AA/FA
shall notify a Pool Assembler by certified mail, return receipt requested, of
the decision to suspend and the reasons
therefore at least 10 business days prior
to the effective date of the suspension.
The Pool Assembler may appeal the
suspension made under this section
pursuant to the procedures set forth in
part 134 of this chapter. The action of
the AA/FA shall remain in effect pending resolution of the appeal.
(c) Notice of termination. In order to
terminate a Pool Assembler, the AA/

FA must issue an order to show cause
why the SBA should not terminate the
Pool Assembler’s participation in the
Secondary Market. The Pool Assembler
may appeal the termination made
under this section pursuant to procedures set forth in part 134 of this chapter. The action of the AA/FA shall remain in effect pending resolution of
the appeal.
MISCELLANEOUS PROVISIONS
§ 120.640 Administration of the Pool
and Individual Certificates.
(a) FTA responsibility. The FTA has
the responsibility to administer each
Pool or Individual Certificate. It shall
maintain a registry of Registered Holders and other information as SBA requires.
(b) Self-liquidating. Each Pool or individual guaranteed portion of a loan in
the Secondary Market is self-liquidating because of Borrower payments or
prepayments, redemption by SBA, and/
or payments by SBA or the Lender
after default by the Borrower. Substitution of the guaranteed portions of existing loans for defaulted loans is not
permitted.
(c) SBA’s right to subrogation. If SBA
pays a claim under a guarantee with
respect to a Certificate issued under
this subpart, it must be subrogated
fully to the rights satisfied by such
payment.
(d) SBA ownership rights not limited.
No Federal, State or local law can preclude or limit the exercise by SBA of
its ownership rights in the portions of
loans constituting the Pool against
which the Certificates are issued.
§ 120.641

Disclosure to purchasers.

(a) Information to purchaser. Prior to
any sale, the Pool Assembler, Registered Holder of an Individual Certificate, or any subsequent seller must disclose to the purchaser, verbally or in
writing, information on the terms, conditions, and yield as described in the
SBA
Secondary
Market
Program
Guide.
(b) Information on transfer document.
The seller must provide the same information described in paragraph (a) of
this section in writing on the transfer
document when the seller submits it to

171