CFR Regulations

§ 120.825

13 CFR Ch. I (1–1–13 Edition)

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 entity 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 connection with loan liquidation or litigation.)
(c) Contracts must clearly identify
terms and conditions satisfactory to
SBA that permit the CDC to terminate
the contract prior to its expiration
date on a reasonable basis.
(d) The CDC must provide copies of
these contracts to SBA for review annually.
(e) If a CDC’s Board believes that it is
in the best interest of the CDC to contract for a management, marketing,
packaging, processing, closing, servicing or liquidation function, the CDC’s
Board must explain its reasoning to
SBA. The CDC’s Board must demonstrate to SBA that:
(1) The compensation under the contract is only from the CDC, reasonable
and customary for similar services in
the Area of Operations, and is only for
actual services performed;
(2) The full term of the contract (including options) is reasonable; and

(3) The contract does not evidence
any actual or apparent conflict of interest or self-dealing on the part of any
of the CDC’s officers, management, and
staff, including members of the Board
and any Loan Committee.
(f) No contractor (under this section)
or Associate of a contractor may be a
voting or non-voting member of the
CDC’s Board.
[65 FR 42632, July 11, 2000, as amended at 68
FR 57981, Oct. 7, 2003]

§ 120.825

Financial ability to operate.

A CDC 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 CDC remaining after
payment of staff and overhead expenses
must be retained by the CDC as a reserve for future operations or for investment in other local economic development activity in its Area of Operations. If a CDC is operating as a
Multi-State CDC, 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 CDC 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 CDC.
A CDC must operate in accordance
with the following requirements:
(a) In general. CDCs must meet all 504
Loan Program Requirements. In its
Area of Operations, a CDC 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 all reports required by SBA.
(b) Operations and internal controls.
Each CDC’s board of directors must
adopt an internal control policy which

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