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Mar 10 -- The Secretary of the Treasury is issuing an interim final rule to institute the reporting requirements related to demographics of those who own or control small businesses that receive a loan, investment, other credit or equity support, or technical assistance under the State Small Business Credit Initiative under the American Rescue Plan Act of 2021. This interim final rule is effective March 9, 2022. Comments must be received on or before April 11, 2022.

The American Rescue Plan Act of 2021 (ARPA) reauthorized and amended the Small Business Jobs Act of 2010 (SBJA) to provide $10 billion to fund the State Small Business Credit Initiative (SSBCI) as a response to the economic effects of the COVID-19 pandemic.

SSBCI is a federal program administered by the U.S. Department of the Treasury (Treasury) that was created to strengthen the programs of eligible jurisdictions that support private financing for small businesses. Eligible jurisdictions include states, territories, Tribal governments, and eligible municipalities. SSBCI is expected to, in conjunction with new small business financing, create billions of dollars in lending to, and investments in, small businesses.
 
Treasury has authority under the SSBCI statute to issue a rule on collecting demographics-related data of those who own or control small businesses that participate in SSBCI for purposes of implementation, compliance and reporting, and understanding program outcomes.

First, issuing this interim final rule is important for the implementation of and compliance with the program requirements regarding allocations related to business enterprises that are owned and controlled by socially and economically disadvantaged individuals (SEDI-owned and controlled businesses). ARPA provides $1.5 billion of capital funding to be allocated based on the needs of SEDI-owned and controlled businesses (SEDI allocation), $1.0 billion of capital funding for an incentive program for jurisdictions that demonstrate robust support for SEDI-owned and controlled businesses in the deployment of previously allocated SSBCI capital funding (SEDI incentive allocation), and $500 million for technical assistance to, in part, SEDI-owned and controlled businesses. ARPA also states that the $1.5 billion SEDI allocation must be expended for SEDI-owned and controlled businesses. The $1.5 billion SEDI allocation and $1.0 billion SEDI incentive allocation are intended to address the widespread challenges that these businesses have faced in light of the COVID-19 pandemic. The technical assistance funding is to help, in part, SEDI-owned and controlled businesses that are applying to receive a loan, investment, or other credit or equity support under the SSBCI. The information reported under this interim final rule will help Treasury determine the extent to which SSBCI funds have been provided to SEDI-owned and controlled businesses.

Second, this interim final rule is being issued to ensure compliance with legal requirements related to nondiscrimination and nondiscriminatory uses of federal funds, where such laws are applicable to a participating jurisdiction and any contracted entity operating SSBCI programs on the jurisdiction's behalf because all SSBCI funds are considered federal financial assistance for purposes of such requirements.

Third, issuing this interim final rule is important for SSBCI implementation and compliance because some participating jurisdictions will partner with lenders or other financial entities that are subject to laws that prohibit these entities from inquiring about the race, color, religion, national origin, or sex of an applicant or any other person in connection with a credit transaction, unless such information is required by a regulation, order, or agreement issued by, or entered into with, an enforcement agency or a court to monitor or enforce compliance with federal or state statutes or regulations.

This interim final rule will facilitate the collection of information that might not otherwise be collected by creditors who will be SSBCI lenders. Treasury expects that, in accordance with this interim final rule, participating jurisdictions will contract with lenders and other financial entities to implement SSBCI programs and collect this information. Lenders and other financial entities participating in SSBCI must request the demographic information described in this interim final rule, and collect and report such information certified by authorized representatives of participating small businesses. Although such lenders and other financial entities must collect and report such information, participating small businesses have the option to choose “prefer not to respond” or to not respond by leaving the request blank. This interim final rule does not require verification of responses provided by participating small businesses. Treasury believes that requiring verification of small business-provided responses would greatly increase the operational burden of the interim final rule.

Finally, this interim final rule is important for understanding SSBCI program outcomes. Such information will allow Treasury to analyze and report on the populations that SSBCI funding is benefiting.

Under this interim final rule, each jurisdiction that participates in SSBCI must submit an annual report to Treasury that includes the following data: Self-certified SEDI demographics-related business status; minority-owned or controlled business status; women-owned or controlled business status; veteran-owned or controlled business status; and the race, ethnicity, gender, sexual orientation, Middle Eastern or North African ancestry, and veteran status with which principal owners identify. For each business that receives a loan, investment, or other credit or equity support under the SSBCI, the reported data must be based on the ownership and control of the business immediately before the consummation of such loan, investment, or other credit or equity support-related transaction. For each business that receives technical assistance under the SSBCI, the reported data must be based on the ownership and control of the business at the time it receives such technical assistance. The self-certified SEDI demographics-related business status variable reflects one group of SEDI-owned and controlled businesses on which jurisdictions may expend their portion of the $1.5 billion SEDI allocation and their portion of technical assistance funding.

Loan, investment, or other credit or equity support-related transactions conducted with self-certified SEDI demographics-related businesses may also count toward earning a participating jurisdiction's portion of the $1.0 billion SEDI incentive allocation. The definition of “owned and controlled,” which is used in the definition of SEDI demographics-related business, is based on the statutory definition of “business enterprise owned and controlled by socially and economically disadvantaged individuals,” which includes prongs for three types of organizations: Private businesses, public businesses, and mutual institutions. For example, 51 percent ownership of a private institution is a sufficient condition to fulfill the ownership-and-control requirement for a business to be a self-certified SEDI demographics-related business.

We welcome comment on any aspect of this interim final rule.

FR notice inviting comment: https://www.federalregister.gov/d/2022-04843

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