or a security instrument, and the failure to cure such default or defaults or to make acceptable arrangements to cure the same is due to (i) lack of diligence; (ii) lack of managerial ability which the borrower has failed or refused to correct; (iii) other circumstances within the borrower's control; or (iv) the inability of the borrower to remedy the default;

(2) Foreclosure or other proceedings have been instituted which may jeopardize the interests of the Government;

(3) A borrower has filed a voluntary petition or an involuntary petition has been filed against the borrower pursuant to any of the provisions of the Bankruptcy Act, as amended;

(4) A receiver has been appointed or other judicial action taken for the purpose of liquidating the borrower's assets;

(5) The borrower has made an assignment for the benefit of creditors which may result in the liquidation of his assets;

(6) The borrower is in default and has discontinued or abandoned the business and has not submitted an acceptable plan of payment;

(7) The failure of the borrower to disclose in his loan application any fact deemed by SBA to be material or the making of any false statement or material misrepresentation by, on behalf of, or for the benefit of, the borrower in the loan application, in any of the loan instruments or in any affidavit or other document submitted in connection with such application.

§ 122.24 Foreclosure of collateral.

(a) Real and personal property, including contracts and claims, hypothecated as security for the payment of a loan which is in default may be sold in accordance with the provisions of the note or the security instrument whereby such property was hypothecated.

(b) Payments or recoveries under or upon a loan from the borrower or from any other source as well as all reasonable expenses (including advances for the care, preservation, and maintenance of collateral securing the loan) incurred by SBA or the financial institution shall be shared ratably by SBA and the financial institution in accordance with their respective interests in the loan.

(c) Any and all security or guaranty of any nature (excluding SBA's guaranty), including but not limited to set-off and counterclaim, which the financial institution holds or may receive further to

secure the financial institution with respect to a loan, or which SBA may require in connection with a loan, shall secure 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. PART 123-DISASTER LOANS

(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 Disaster Relief Act of 1970, or

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

(C) A disaster as determined by the Administrator of SBA;

(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 borrower owned the premises occupied by the business;

(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, and

(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.

(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 Administrator may determine to be necessary or appropriate to assist any small business concern in effecting additions to or alterations in its plant, facilities, or methods of operation to meet requirements imposed by the Egg Products Inspection Act, the Wholesome Meat Act of 1967 or State laws enacted in conformity therewith, if the Administration determines that such concern is likely to suffer substantial economic injury without assistance under this paragraph.

(6) 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 effecting additions to or alterations in the equipment, facilities, or methods of operation of such business in order to comply with the applicable standards promulgated pursuant to section 6 of the Occupational Safety and Health Act of 1970 or standards adopted by a State pursuant to a plan approved under section 18 of the Occupational Safety and Health Act of 1970, 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 con

sent 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 homeowner or small business concern, (B) the loan was made to enable (1) such homeowner 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), (5), or (6), the rate of interest on the Administration's share of such loan shall not be more than the higher of (A) 23⁄4 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 participate 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 (i) 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.

(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 102(1) of the Disaster Relief Act of 1970, 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 Relevant Statutory Provi

sions-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 (i) 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 1 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. 15. (a) As used in this Act the term "major disaster" means a major disaster as determined by the President pursuant to the Disaster Relief Act of 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. § 123.02 Relevant Statutory Provisions-Disaster Relief Act of 1970. SEC. 102. As used in this Act

(1) "Major disaster" means any hurricane, tornado, storm, flood, high water, winddriven water, tidal wave, earthquake, drought, fire, or other catastrophe in any part of the United States, which, in the determination of the President, is or threatens to be of sufficient severity and magnitude to warrant disaster assistance by the Federal Government to supplement the efforts and available resources of States, local governments, and relief organizations in alleviating the damage, loss, hardship, or suffering caused thereby, and with respect to which the Governor of any State in which such catastrophe occurs or threatens to occur certifies the need for Federal disaster assistance under this Act and gives assurance of the expenditure of a reasonable amount of the funds of such State, its local governments, or other agencies for alleviating the damage, loss, hardship, or suffering resulting from such catastrophe;

SEC. 231. In the administration of the disaster loan program under section 7(b) (1), (2), and (4) of the Small Business Act, as amended (15 U.S.C. 636 (b)), in the case of property loss or damage or injury resulting from a major disaster as determined by the President or a disaster as determined by the Administrator, the Small Business Administration

(1) To the extent such loss or damage or injury is not compensated for by insurance or otherwise, (A) shall, on that part of any loan in excess of $500, cancel the principal of the loan, except that the total amount so canceled shall not exceed $2,500, except that this clause (A) shall apply only to loans made to cover losses and damage and injury resulting from major disasters as determined by the President, and (B) may defer interest payments or principal payments, or both, in whole or in part, on any loan made under this section during the first 3 years of the term of the loan except that any such deferred payments shall bear interest at the rate determined under section 234 of this Act.

(2) To the extent such injury, loss, or damage is not compensated for by insurance or otherwise, may grant any loan for repair, rehabilitation, or replacement of property damaged, or destroyed, without regard

to whether the required financial assistance is otherwise available from private sources.

(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 property is to be repaired, rehabilitated, or replaced, except that the amount refinanced shall not exceed the amount of the physical loss sustained. Any such refinancing shall be subject to the provisions of clauses (1) and (2) of this section.

SEC. 234. Any loan made under sections 231 and 232 of this Act shall not exceed the current cost of repairing or replacing the disaster injury, loss, or damage in conformity with current codes and specifications. Any loan made under sections 231, 232, 236(b) and 237 of this Act shall bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity of 10 to 12 years reduced by not to exceed 2 per centum per annum. In no event shall any loan made under this section bear interest at a rate in excess of 6 per centum per annum.

SEC. 237. (a) The Small Business Administration in the case of a nonagricultural enterprise, and the Farmers Home Administration in the case of an agricultural enterprise, are authorized to provide any industrial, commercial, agricultural, or other enterprise, which has constituted a major source of employment in an area suffering a major disaster and which is no longer in substantial operation as a result of such disaster, a loan in such amount as may be necessary to enable such enterprise to resume operations in order to assist in restoring the economic viability of the disaster area. Loans authorized by this section shall be made without regard to limitations on the size of loans which may otherwise be imposed by any other provision of law or regulation promulgated pursuant thereto.

(b) Assistance under this section shall be in addition to any other Federal disaster assistance, except that such other assistance may be adjusted or modified to the extent deemed appropriate by the Director under the authority of section 208 of this Act. Any loan made under this section shall be subject to the interest requirements of section 234 of this Act, but the President, if he deems it necessary, may defer payments of principal and interest for a period not to exceed 3 years after the date of the loan. Any such deferred payments shall bear interest at the rate determined under section 234 of this Act.

SEC. 302. The following Acts are hereby repealed:

(1) The Act of September 30, 1950 (64 Stat. 1109);

(2) The Disaster Relief Act of 1966, except section 7 (80 Stat. 1316); and

(3) The Disaster Relief Act of 1969 (83 Stat. 125).

SEC. 304. This Act shall take effect immediately upon its enactment, except that sections 226(b), 237, 241, 252(a), and 254 shall take effect as of August 1, 1969, and sections 231, 232, and 233 shall take effect as of April 1, 1970.

§ 123.1 General

(a) SBA is authorized to make or guarantee loans to victims of floods, riots and civil disorders, and other catastrophes to rehabilitate or replace damaged or lost physical property (Physicalloss 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, or a physical disaster declaration by SBA effective after April 1, 1970, 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 (Displaced Business Disaster Assistance);

(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);

(4) Which operates a coal mine, to make additions to or alterations in its equipment or facilities or methods of operation, in order to meet requirements of the Federal Coal Mine Health and Safety Act of 1969, if the SBA determines that the concern is likely to suffer substantial economic injury without SBA assistance (Coal Mine Health and Safety Assistance);

(5) To make additions to or alterations in its plant, facilities, or operating meth

ods, in order to meet requirements of the Eggs Products Inspection Act, the Wholesome Poultry Products Act, the Wholesome Meat Act of 1967, or State laws enacted by its provisions, if SBA determines that the concern is likely to suffer substantial economic injury without SBA assistance (Consumer Protection Assistance); and

(6) To make additions to or alterations in the equipment, facilities, or operating methods, in order to comply with standards issued pursuant to the Occupational Safety and Health Act of 1970, or State laws enacted by its provisions, if SBA determines that the concern is likely to suffer substantial economic injury without SBA assistance (Occupational Safety and Health 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 to the general public. The eligibility qualifications for financial institutions are set forth in Part 120, § 120.3(c) are incorporated herein.

[Rev. 7, 37 F.R. 2946, Feb. 10, 1972, as amended by Amdt. 2, 37 F.R. 26709, Dec. 15, 1972]

§ 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) In 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. Default as used in this subsection means nonpayment of principal or interest when

due.