Regulations

Small Business Administration

§ 120.954

the entire Debenture Pool must be proportionately reduced. If the entire Debenture Pool is paid off, SBA may call
all Certificates backed by the Pool for
redemption.
§ 120.941

Certificates.

(a) The face value of a Certificate
must be at least $25,000. Certificates
are issued in registered form and transferred only by entry on the central registry maintained by the Trustee. SBA
guarantees the timely payment of principal and interest on the Certificates.
(b) Before the sale of a Certificate,
the seller, or the broker or dealer acting as the seller’s agent, must disclose
to the purchaser the terms, conditions,
yield, and premium and other characteristics not guaranteed by SBA.
DEBENTURE SALES AND SERVICE AGENTS
§ 120.950 SBA and CDC must appoint
agents.
SBA and the CDC must appoint the
following agents to facilitate the sale
and service of the Certificates and disbursement of the proceeds.
§ 120.951

Selling agent.

The CDC, with SBA approval, shall
appoint a Selling Agent to select underwriters, negotiate the terms and
conditions of Debenture offerings with
the underwriters, and direct and coordinate Debenture sales.
§ 120.952

Fiscal agent.

SBA shall appoint a Fiscal Agent to
assess the financial markets, minimize
the cost of sales, arrange for the production of the Offering Circular, Debenture Certificates, and other required documents, and monitor the
performance of the Trustee and the underwriters.
§ 120.953

Trustee.

SBA must appoint a Trustee to:
(a) Issue Certificates;
(b) Transfer the Certificates upon resale in the secondary market;
(c) Maintain physical possession of
the Debentures for SBA and the Certificate holders;
(d) Establish and maintain a central
registry of:

(1) Debenture Pools, including the
CDC obligors and the interest rate payable on the Debentures in each Pool;
(2) Certificates issued or transferred,
including the Debenture Pool backing
the Certificate, name and address of
the purchaser, price paid, the interest
rate on the Certificate, and fees or
charges assessed by the transferror;
and
(3) Brokers and dealers in Certificates, and the commissions, fees or discounts granted to the brokers and dealers;
(e) Receive semi-annual Debenture
payments and prepayments;
(f) Make regularly scheduled and prepayment payments to Investors; and
(g) Assure before any resale of a Debenture or Certificate is recorded in
the registry that the seller has provided the purchaser a written disclosure statement approved by SBA.
§ 120.954 Central Servicing Agent.
(a) SBA has entered into a Master
Servicing Agreement designating a
Central Servicing Agent (CSA) to support the orderly flow of funds among
Borrowers, CDCs, and SBA. The CDC
and Borrower must enter into an individual Servicing Agent Agreement
with the CSA for each 504 loan, constituting acceptance by the CDC and the
Borrower of the terms of the Master
Servicing Agreement.
(b) The CSA has established a master
reserve account. All funds related to
the 504 loans and Debentures flow
through the master reserve account
under the provisions of the Master
Servicing Agreement. The master reserve account will be funded by a guarantee fee, a funding fee to be published
from time to time in the FEDERAL REGISTER, and by principal and interest
payments of 504 loans. At SBA’s direction, the CSA may use funds in the
master reserve account to defray program expenses. In the event a Borrower
defaults and its 504 note is accelerated,
SBA shall add funds under its guarantee to ensure the full and timely
payment of the Debenture which funded the 504 loan. At SBA’s direction, the
CSA must pay to the CDC servicing
each loan the interest accruing in the
master reserve account on loan payments made by each Borrower between

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§ 120.955

13 CFR Ch. I (1–1–15 Edition)

the date of receipt of each monthly
payment and the date of disbursement
to investors. The CSA may disburse
such interest periodically to CDCs on a
pro rata basis. SBA may use interest
accruals in the master reserve account
earned prior to October 1991 (not previously distributed to the CDCs) for the
costs of 504 program administration.
§ 120.955

Agent bonds and records.

(a) Each agent (in §§ 120.951 through
120.954) must provide a fidelity bond or
insurance in such amount as necessary
to fully protect the interest of the government.
(b) SBA must have access at the
agent’s place of business to all books,
records and other documents relating
to Debenture activities.
§ 120.956 Suspension or revocation of
brokers and dealers.
The appropriate Office of Capital Access official in accordance with Delegations of Authority may suspend or revoke the privilege of any broker or
dealer to participate in the sale or
marketing of Debentures and Certificates for actions or conduct bearing
negatively on the broker’s fitness to
participate in the securities market.
SBA must give the broker or dealer
written notice, stating the reasons, at
least 10 business days prior to the effective date of the suspension or revocation. A broker or dealer may appeal
the suspension or revocation made
under this section pursuant to the procedures set forth in part 134 of this
chapter. The action of this official will
remain in effect pending resolution of
the appeal.
[73 FR 75519, Dec. 11, 2008]

CLOSINGS
§ 120.960

Responsibility for closing.

(a) The CDC is responsible for the 504
loan closing.
(b) The Debenture closing is the joint
responsibility of the CDC and SBA.
(c) SBA may, within its sole discretion, decline to close the Debenture; direct the transfer of the 504 loan to another CDC; or cancel its guarantee of
the Debenture, prior to sale, if any of
the following occur:

(1) The CDC has failed to comply materially with any requirement imposed
by statute, regulation, SOP, policy and
procedural notice, any agreement the
CDC has executed with SBA, or the
terms of a Debenture or loan authorization;
(2) The CDC has failed to make or
close the 504 loan or prepare the Debenture closing in a prudent or commercially reasonable manner;
(3) The CDC’s improper action or inaction places SBA at risk;
(4) The CDC has failed to use required
SBA forms or electronic versions of
those forms;
(5) The CDC, Third Party Lender or
Borrower has failed to timely disclose
to SBA a material fact regarding the
Project or 504 loan;
(6) The CDC, Third Party Lender or
Borrower has misrepresented a material fact to SBA regarding the Project
or 504 loan; or
(7) SBA determines that there has
been an unremedied material adverse
change, such as deterioration in the
Borrower’s financial condition, since
the 504 loan was approved, or that approving the closing of the Debenture
will put SBA at unacceptable financial
risk.
[68 FR 57988, Oct. 7, 2003]

§ 120.961 Construction
escrow
accounts.
The CSA, title company, CDC attorney, or bank may hold Debenture proceeds in escrow to complete Project
components such as landscaping and
parking lots, and acquire machinery
and equipment if the component or acquisition is a minor portion of the
total Project and has been contracted
for completion or delivery at a specified price and specific future date. The
escrow agent must disburse funds upon
approval by the CDC and the SBA, supported by invoices and payable jointly
to the small business and the designated contractor.
SERVICING
§ 120.970 Servicing of 504 loans and
Debentures.
(a) In servicing 504 loans, CDCs must
comply with Loan Program Requirements and in accordance with prudent

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