[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2023 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          
          
          Title 7

Agriculture


________________________

Part 2000 to End

                         Revised as of January 1, 2023

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2023
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



                                                                    Page
  Explanation.................................................      vi

  Title 7:
    SUBTITLE B--Regulations of the Department of Agriculture 
      (Continued)
          Chapter XVIII--Rural Housing Service, Rural 
          Business-Cooperative Service, Rural Utilities 
          Service, and Farm Service Agency, Department of 
          Agriculture (Continued)                                    5
          Chapter XX [Reserved]
          Chapter XXV--Office of Advocacy and Outreach, 
          Department of Agriculture                                 23
          Chapter XXVI--Office of Inspector General, 
          Department of Agriculture                                 43
          Chapter XXVII--Office of Information Resources 
          Management, Department of Agriculture                     51
          Chapter XXVIII--Office of Operations, Department of 
          Agriculture                                               57
          Chapter XXIX--Office of Energy Policy and New Uses, 
          Department of Agriculture                                 65
          Chapter XXX--Office of the Chief Financial Officer, 
          Department of Agriculture                                 79
          Chapter XXXI--Office of Environmental Quality, 
          Department of Agriculture                                 83
          Chapter XXXII--Office of Procurement and Property 
          Management, Department of Agriculture                     91
          Chapter XXXIII--Office of Transportation, Department 
          of Agriculture                                           173

[[Page iv]]

          Chapter XXXIV--National Institute of Food and 
          Agriculture                                              187
          Chapter XXXV--Rural Housing Service, Department of 
          Agriculture                                              369
          Chapter XXXVI--National Agricultural Statistics 
          Service, Department of Agriculture                       631
          Chapter XXXVII--Economic Research Service, 
          Department of Agriculture                                639
          Chapter XXXVIII--World Agricultural Outlook Board, 
          Department of Agriculture                                645
          Chapter XLI [Reserved]
          Chapter XLII--Rural Business-Cooperative Service and 
          Rural Utilities Service, Department of Agriculture       649
          Chapter L--Rural Business-Cooperative Service, Rural 
          Housing Service, and Rural Utilities Service, 
          Department of Agriculture                               1019
  Finding Aids:
      Table of CFR Titles and Chapters........................    1133
      Alphabetical List of Agencies Appearing in the CFR......    1153
      List of CFR Sections Affected...........................    1163

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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 7 CFR 2003.1 refers 
                       to title 7, part 2003, 
                       section 1.

                     ----------------------------

[[Page vi]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
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    To determine whether a Code volume has been amended since its 
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Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
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EFFECTIVE AND EXPIRATION DATES

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OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vii]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
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PAST PROVISIONS OF THE CODE

    Provisions of the Code that are no longer in force and effect as of 
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Code users may find the text of provisions in effect on any given date 
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``[RESERVED]'' TERMINOLOGY

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INCORPORATION BY REFERENCE

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if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed as 
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    An index to the text of ``Title 3--The President'' is carried within 
that volume.

[[Page viii]]

    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

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INQUIRIES

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the Federal Register and the Government Publishing Office. It is 
available at www.ecfr.gov.

    Oliver A. Potts,
    Director,
    Office of the Federal Register
    January 1, 2023.







[[Page ix]]



                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: Parts 1-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1759, 1760-1939, 1940-1949, 1950-1999, and part 2000 to end. 
The contents of these volumes represent all current regulations codified 
under this title of the CFR as of January 1, 2023.

    The Food and Nutrition Service current regulations in the volume 
containing parts 210-299 include the Child Nutrition Programs and the 
Food Stamp Program. The regulations of the Federal Crop Insurance 
Corporation are found in the volume containing parts 400-699.

    All marketing agreements and orders for fruits, vegetables and nuts 
appear in the one volume containing parts 900-999. All marketing 
agreements and orders for milk appear in the volume containing parts 
1000-1199.

    For this volume, Susannah C. Hurley was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of John 
Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                          TITLE 7--AGRICULTURE




                  (This book contains part 2000 to end)

  --------------------------------------------------------------------

  SUBTITLE B--Regulations of the Department of Agriculture (Continued)

                                                                    Part

chapter xviii--Rural Housing Service, Rural Business-
  Cooperative Service, Rural Utilities Service, and Farm 
  Service Agency, Department of Agriculture (Continued).....        2003
chapter xx [Reserved]

chapter xxv--Office of Advocacy and Outreach, Department of 
  Agriculture...............................................        2500

chapter xxvi--Office of Inspector General, Department of 
  Agriculture...............................................        2610

chapter xxvii--Office of Information Resources Management, 
  Department of Agriculture.................................        2700

chapter xxviii--Office of Operations, Department of 
  Agriculture...............................................        2810

chapter xxix--Office of Energy Policy and New Uses, 
  Department of Agriculture.................................        2900

chapter xxx--Office of the Chief Financial Officer, 
  Department of Agriculture.................................        3010

chapter xxxi--Office of Environmental Quality, Department of 
  Agriculture...............................................        3100

chapter xxxii--Office of Procurement and Property 
  Management, Department of Agriculture.....................        3200

chapter xxxiii--Office of Transportation, Department of 
  Agriculture...............................................        3300

chapter xxxiv--National Institute of Food and Agriculture...        3400

chapter xxxv--Rural Housing Service, Department of 
  Agriculture...............................................        3550

[[Page 2]]


chapter xxxvi--National Agricultural Statistics Service, 
  Department of Agriculture.................................        3600

chapter xxxvii--Economic Research Service, Department of 
  Agriculture...............................................        3700

chapter xxxviii--World Agricultural Outlook Board, 
  Department of Agriculture.................................        3800
chapter xli [Reserved]

chapter xlii--Rural Business-Cooperative Service and Rural 
  Utilities Service, Department of Agriculture..............        4274

chapter l--Rural Business-Cooperative Service, Rural Housing 
  Service, and Rural Utilities Service, Department of 
  Agriculture...............................................        5001

[[Page 3]]

  Subtitle B--Regulations of the Department of Agriculture (Continued)

[[Page 5]]



    CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF 
                         AGRICULTURE (CONTINUED)




  --------------------------------------------------------------------


  Editorial Note: Nomenclature changes to chapter XVIII appear at 61 FR 
1109, Jan. 16, 1996, and 61 FR 2899, Jan. 30, 1996.

                SUBCHAPTER I--ADMINISTRATIVE REGULATIONS
Part                                                                Page
2000-2002

 [Reserved]

2003            Organization................................           7
2018            General.....................................          17
2045            General.....................................          19
2046-2099

 [Reserved]

[[Page 7]]



                 SUBCHAPTER I_ADMINISTRATIVE REGULATIONS



                       PARTS 2000	2002 [RESERVED]



PART 2003_ORGANIZATION--Table of Contents



 Subpart A_Functional Organization of the Rural Development Mission Area

Sec.
2003.1 Definitions.
2003.2 General.
2003.3-2003.4 [Reserved]
2003.5 Headquarters organization.
2003.6 Office of the Under Secretary.
2003.7-2003.9 [Reserved]
2003.10 Rural Development State Offices.
2003.11-2003.13 [Reserved]
2003.14 Field Offices.
2003.15-2003.16 [Reserved]
2003.17 Availability of information.
2003.18 Functional organization of RHS.
2003.19-2003.21 [Reserved]
2003.22 Functional organization of RUS.
2003.23-2003.25 [Reserved]
2003.26 Functional organization of RBS.
2003.27-2003.50 [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 6941; and 7 CFR 2.17.

    Source: 62 FR 67259, Dec. 24, 1997, unless otherwise noted.



 Subpart A_Functional Organization of the Rural Development Mission Area



Sec. 2003.1  Definitions.

    EEO--the Equal Employment Opportunity Act of 1972, 42 U.S.C. Sec. 
2000e et seq.
    O&M--Operations and Management.
    P&P--Policy and Planning.
    RBS--Rural Business-Cooperative Development Service, USDA, or any 
successor agency.
    RHS--Rural Housing Service, USDA, or any successor agency.
    Rural Development--Rural Development mission area of USDA.
    RUS--Rural Utilities Service, USDA, or any successor agency.
    Secretary--the Secretary of USDA.
    USDA--the United States Department of Agriculture.

[62 FR 67259, Dec. 24, 1997, as amended at 84 FR 59923, Nov. 7, 2019]



Sec. 2003.2  General.

    The Rural Development mission area of the Department of Agriculture 
was established as a result of the Department of Agriculture 
Reorganization Act of 1994, Title II of Pub.L. 103-354. Rural 
Development's basic organization consists of Headquarters in Washington, 
D.C. and 47 State Offices. Headquarters maintains overall planning, 
coordination, and control of Rural Development agency programs. 
Administrators head RHS, RBS, and RUS under the direction of the Under 
Secretary for Rural Development. State Directors head the State Offices 
and are directly responsible to the Under Secretary for the execution of 
all Rural Development agency programs within the boundaries of their 
states.



Sec. Sec. 2003.3-2003.4  [Reserved]



Sec. 2003.5  Headquarters organization.

    (a) The Rural Development Headquarters is comprised of:
    (1) The Office of the Under Secretary;
    (2) Two Deputy Under Secretaries; and,
    (3) Three Administrators and their staffs.
    (b) The Rural Development Headquarters is located at 1400 
Independence Avenue, SW., Washington, DC. 20250-0700



Sec. 2003.6  Office of the Under Secretary.

    In accordance with 7 CFR Sec. 2.17 the Secretary has delegated to 
the Under Secretary, Rural Development, authority to manage and 
administer programs and support functions of the Rural Development 
mission area.
    (a) Office of the Deputy Under Secretary for P&P. This office is 
headed by the Deputy Under Secretary for P&P. The Under Secretary, Rural 
Development, has delegated to the Deputy Under Secretary for P&P, 
responsibility for formulation and development of short-and long-range 
rural development policies of the Department in accordance with 7 CFR 
Sec. 2.45. The Deputy Under Secretary for P&P reports directly to the 
Under Secretary, Rural

[[Page 8]]

Development, and provides guidance and supervision for research, policy 
analysis and development, strategic planning, partnerships and special 
initiatives. For budget and accounting purposes, all of the staff 
offices under the Deputy Under Secretary for P&P are housed in RBS.
    (1) The Budget Analysis Division assesses potential impacts of 
alternative policies on the mission area's programs and operations and 
develops recommendations for change. The units are headed by the Chief 
Budget Officer, who individually serves as the top policy advisor to the 
Under Secretary and Deputy Under Secretary on all matters relating to 
mission area budget policy.
    (2) The Research, Analysis and Information Division analyzes 
information on rural conditions and the strategies and techniques for 
promoting rural development. The division performs, or arranges to have 
conducted, short-term and major research studies needed to formulate 
policy.
    (3) The Reinvention and Capacity Building Division coordinates the 
mission area's strategic planning initiatives, both at the National 
level and in the State Offices. The division assists the Rural 
Development agencies in their implementation of the Government 
Performance and Results Act (GPRA) and special initiatives of the 
Administration, USDA, and the Office of the Under Secretary.
    (4) The Rural Initiatives and Partnership Division manages the 
mission area's involvement and coordination with other Federal and state 
departments and agencies to assess rural issues and develop model 
partnerships and initiatives to achieve shared rural development goals. 
The division is responsible for managing the National Rural Development 
Partnership and providing support and oversight of 37 State Rural 
Development Councils.
    (b) Office of the Deputy Under Secretary for O&M. In accordance with 
7 CFR 2.45, the Under Secretary, Rural Development, has delegated to the 
Deputy Under Secretary for O&M responsibility for providing leadership 
in planning, developing, and administering overall administrative 
management program policies and operational activities of the Rural 
Development mission area. The Deputy Under Secretary for O&M reports 
directly to the Under Secretary, Rural Development.
    (1) Office of the Deputy Administrator for O&M. Headed by the Deputy 
Administrator for O&M, this office reports directly to the Deputy Under 
Secretary for O&M, and is responsible for directing and coordinating the 
consolidated administrative and financial management functions for Rural 
Development. This office provides overall guidance and supervision for 
budget and financial management, human resources management and 
personnel services, administrative and procurement services, information 
resources management and automated data systems. For budget and 
accounting purposes, all of the staff offices under the Deputy 
Administrator for O&M are housed in RHS.
    (i) Office of the Controller. Headed by the Chief Financial Officer, 
this office supports the Deputy Administrator for O&M in executing Rural 
Development requirements related to compliance with the Chief Financial 
Officers Act of 1990 and provides leadership, coordination, and 
oversight of all financial management matters and financial execution of 
the budget for the Rural Development agencies. This office also has full 
responsibility for Rural Development agencies' accounting, financial, 
reporting, and internal controls. The office provides direct oversight 
to the Headquarters Budget Division, Financial Management Division, and 
the Office of the Assistant Controller, located in St. Louis, Missouri.
    (ii) Office of Assistant Administrator for Procurement and 
Administrative Services. Headed by the Assistant Administrator for 
Procurement and Administrative Services, this office is responsible to 
the Deputy Administrator for O&M for overseeing the Procurement 
Management Division, the Property and Supply Management Division, and 
the Support Services Division:
    (A) The Procurement Management Division is responsible for 
developing, implementing, and interpreting procurement and contracting 
policies for the Rural Development mission area. Major functions include 
planning outreach efforts and goals for small and disadvantaged 
businesses, providing

[[Page 9]]

staff assistance reviews in State and Local Offices, administering the 
Contracting Officer Professionalism Warrant program for Rural 
Development agencies, and coordinating the development of Rural 
Development's acquisition plans.
    (B) The Property and Supply Management Division is responsible for 
developing office space acquisition and utilization policies, providing 
training to field office leasing officers, administering the Leasing 
Officer Warrant program, assuring accessibility compliance in Rural 
Development's work sites, administering Rural Development's Physical 
Security program, and establishing and providing oversight to the 
worksite Energy Conservation program. This office operates a nationwide 
supply warehousing and distribution program, and oversees a nationwide 
Personal Property Management and Utilization Program, manages the U.S. 
Department of Agriculture (USDA) Excess Personal Property Program for 
field level activities, and provides direct support services to Rural 
Development's St. Louis facilities.
    (C) The Support Services Division has responsibility for designing, 
developing, administering, and controlling Rural Development's 
directives management and issuance system, coordinating Rural 
Development's Regulatory Agenda and Regulatory Program submissions to 
USDA and OMB, serving as Federal Register liaison, and analyzing and 
coordinating regulatory work plans for the Under Secretary. This office 
submits Paperwork Reduction Act public burden clearances to OMB, 
administers all printing programs, manages Rural Development travel 
policies and programs, and manages Freedom of Information Act, Privacy 
Act and Tort Claims programs.
    (iii) Office of Information Resources Management (IRM). Headed by 
the Chief Information Officer, this office is responsible to the Deputy 
Administrator for O&M for developing Rural Development's IRM policies, 
regulations, standards and guidelines. This office provides overall 
leadership and direction to activities assigned to the following four 
major divisions:
    (A) The Customer Services Division is responsible for direct 
customer and technical support (hardware and software).
    (B) The Management Services Division coordinates all IRM 
acquisition, budget, and policy and planning activities in support of 
Rural Development automation.
    (C) The Information Technology Division provides support technical 
services in the areas of data administration, system integrity 
management, research and development, and telecommunications.
    (D) The Systems Services Division is responsible for planning, 
directing, and controlling activities related to Rural Development's 
Automated Information Systems.
    (iv) Office of the Assistant Administrator for Human Resources. 
Headed by the Assistant Administrator for Human Resources, this office 
is responsible to the Deputy Administrator for O&M for the overall 
development, implementation, and management, of personnel and human 
resources support services for Rural Development. The office provides 
direction to the Headquarters Personnel Services, Human Resources 
Training and Mission Area Personnel Services Division, and Labor 
Relations Staff offices. The office is also responsible for the 
establishment of recruitment, retention, and development policies and 
programs supporting workforce diversity and affirmative action.
    (2) Office of Civil Rights Staff. Headed by a staff director, this 
staff has primary responsibility for providing leadership and 
administration of the Civil Rights Program for the Rural Development 
mission area. The staff conducts on-site reviews of borrowers and 
beneficiaries of Federal financial assistance to ensure compliance with 
Titles VI and VII of the Civil Rights Act of 1964, as amended, Title 
VIII of the Civil Rights Act of 1968, as amended, Section 504 of the 
Rehabilitation Act, the Americans with Disabilities Act, and prepares 
compliance reports. The staff conducts and evaluates Title VII 
compliance visits to insure that EEO programs are adequately 
implemented. In addition, the office develops, monitors, and evaluates 
Affirmative Employment programs for minorities, women and

[[Page 10]]

persons with disabilities, and coordinates and conducts community 
outreach activities at historically black colleges and universities. It 
also has oversight of special emphasis programs such as the Federal 
Women's Program, Hispanic Emphasis Program, and Black Emphasis Program. 
The staff director reports directly to the Deputy Under Secretary for 
O&M.
    (3) Office of Communications. Headed by a director who reports 
directly to the Deputy Under Secretary for O&M, this office has primary 
responsibility for tracking legislation and development and institution 
of policies to provide public communication and information services 
related to the Rural Development. The office maintains a constituent 
data base and conducts minority outreach efforts and administers a 
public information and media center responsible for media inquiries, 
news releases, program announcements, media advisories, and information 
retrieval. This office also serves as a liaison with Office of 
Congressional Relations (OCR), Office of the General Counsel (OGC), and 
other Departmental units involved in Congressional relations and public 
information. This office drafts testimony, prepares witnesses, and 
provides staff for hearings and markups. In addition, the office briefs 
Congressional members and staff on the Rural Development matters, 
coordinates Rural Development's legislative activities with other USDA 
agencies and OMB and develops and implements legislative strategy. The 
staff also coordinates development and production of brochures, press 
releases, and other public information materials.



Sec. Sec. 2003.7-2003.9  [Reserved]



Sec. 2003.10  Rural Development State Offices.

    (a) Headed by State Directors, State Offices report directly to the 
Under Secretary, Rural Development, and are responsible to the three 
Rural Development agency Administrators for carrying out agency program 
operations at the State level, ensuring adherence to program plans 
approved for the State by the Under Secretary, and rendering staff 
advisory and manpower support to Area and Local offices. The Rural 
Development State Directors, for budget and accounting purposes, are 
housed in the RHS agency.
    (b) Program Directors within the State Office provide oversight and 
leadership on major program functions. Major program functions include: 
Single Family and Multi-Family Housing loans and grants, Community 
Facility, Water and Waste Disposal, Business and Cooperative, and the 
Empowerment Zones and Enterprise Communities (EZ/EC) programs.
    (c) The USDA Rural Development State Office locations are as 
follows:

------------------------------------------------------------------------
                   State                              Location
------------------------------------------------------------------------
Alabama...................................  Montgomery, AL
Alaska....................................  Palmer, AK
Arizona...................................  Phoenix, AZ
Arkansas..................................  Little Rock, AR
California................................  Woodland, CA
Colorado..................................  Lakewood, CO
Delaware..................................  Camden, DE
Florida...................................  Gainesville, FL
Georgia...................................  Athens, GA
Hawaii....................................  Hilo, HI
Idaho.....................................  Boise, ID
Illinois..................................  Champaign, IL
Indiana...................................  Indianapolis, IN
Iowa......................................  Des Moines, IA
Kansas....................................  Topeka, KS
Kentucky..................................  Lexington, KY
Louisiana.................................  Alexandria, LA
Maine.....................................  Bangor, ME
Massachusetts.............................  Amherst, MA
Michigan..................................  East Lansing, MI
Minnesota.................................  St. Paul, MN
Mississippi...............................  Jackson, MS
Missouri..................................  Columbia, MO
Montana...................................  Bozeman, MT
Nebraska..................................  Lincoln, NE
Nevada....................................  Carson City, NV
New Jersey................................  Mt. Holly, NJ
New Mexico................................  Albuquerque, NM
New York..................................  Syracuse, NY
North Carolina............................  Raleigh, NC
North Dakota..............................  Bismarck, ND
Ohio......................................  Columbus, OH
Oklahoma..................................  Stillwater, OK
Oregon....................................  Portland, OR
Pennsylvania..............................  Harrisburg, PA
Puerto Rico...............................  Hato Rey, PR
South Carolina............................  Columbia, SC
South Dakota..............................  Huron, SD
Tennessee.................................  Nashville, TN
Texas.....................................  Temple, TX
Utah......................................  Salt Lake City, UT
Vermont...................................  Montpelier, VT
Virginia..................................  Richmond, VA
Washington................................  Olympia, WA
West Virginia.............................  Charleston, WV
Wisconsin.................................  Stevens Point, WI
Wyoming...................................  Casper, WY
------------------------------------------------------------------------


[62 FR 67259, Dec. 24, 1997; 63 FR 3256, Jan. 22, 1998]

[[Page 11]]



Sec. Sec. 2003.11-2003.13  [Reserved]



Sec. 2003.14  Field Offices.

    Rural Development field offices report to their respective State 
Director and State Office Program Directors. State Directors may 
organizationally structure their offices based on the program workloads 
within their respective State. Field offices generally are patterned in 
a three or two tier program delivery structure. In a three tier system, 
Local offices report to an Area office, that reports to the State 
Office. In a two tier system, a ``Local'' or ``Area'' office reports to 
the State Office. Locations and telephone numbers of Area and Local 
Offices may be obtained from the appropriate Rural Development State 
Office.



Sec. Sec. 2003.15-2003.16  [Reserved]



Sec. 2003.17  Availability of information.

    Information concerning Rural Development programs and agencies may 
be obtained from the Office of Communications, Rural Development, U. S. 
Department of Agriculture, STOP 0705, 1400 Independence Avenue SW., 
Washington, DC 20250-0705.



Sec. 2003.18  Functional organization of RHS.

    (a) General. The Secretary established RHS pursuant to section 233 
of the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 
6943).
    (b) Office of the Administrator. According to 7 CFR 2.49, the 
Administrator has responsibility for implementing programs aimed at 
delivering loans and grant assistance to rural Americans and their 
communities in obtaining adequate and affordable housing and community 
facilities, in accordance with Title V of the Housing Act of 1949 (42 
U.S.C. 1471 et seq.) and the Consolidated Farm and Rural Development Act 
(7 U.S.C. 1921 et seq.).
    (1) Legislative Affairs Staff. The duties and responsibilities of 
this staff have now been aligned under the Office of Communication, 
headed by a director who reports directly to the Under Secretary for 
O&M. The Office of Communication is responsible for providing and 
carrying out legislative, public communication, and information services 
for the Rural Development mission area.
    (2) Office of Program Support Staff. The Program Support Staff is 
headed by a staff director who is responsible to the Administrator for 
monitoring managerial and technical effectiveness of RHS programs. The 
staff coordinates review and analysis of legislation, Executive Orders, 
OMB circulars, and Department regulations for their impact on Agency 
programs. The staff develops, implements, and reports on architectural 
and environmental policies, in cooperation with the Department. Staff 
responsibilities also include managing RHS's Hazardous Waste Management 
Fund, coordinating the Debarment and Suspension process for RHS, 
tracking the use of Program Loan Cost Expense funds, and maintaining the 
RHS Internet ``Home Page.''
    (3) Office of Deputy Administrator, Single Family Housing. Headed by 
the Deputy Administrator, Single Family Housing, this office is 
responsible to the Administrator for the development and implementation 
of RHS's Single Family Housing programs, which extend supervised housing 
credit to rural people of limited resources, for adequate, modest, 
decent, safe, and sanitary homes. The office is responsible for 
administering and managing sections 502 and 504 Rural Housing direct and 
guaranteed loan and grant programs, Rural Housing and Self-Help Site 
loans, the Self-Help Technical Assistance grant program, Housing 
Application Packaging and Technical and Supervisory Assistance grants, 
and Home Improvement and Repaid loans and grants. The office directs the 
following three divisions: Single Family Housing Processing Division, 
Single Family Housing Servicing and Property Management Division, and 
Single Family Housing Centralized Servicing Center in St. Louis, Mo.
    (i) Office of Single Family Housing Processing Division. Headed by a 
division director, this division is responsible for development and 
nationwide implementation of policies on processing Single Family 
Housing direct and guaranteed program loans. In addition, the division 
provides direction on the following: the Rural Housing Targeted Area 
Set-Aside program,

[[Page 12]]

debarments, payment assistance, title clearance and loan closing, site/
subdivision development, Deferred Mortgage Payment Program; construction 
defects, credit reports, appraisals, Manufactured Housing, coordinated 
assessment reviews, Home Buyer's Counseling/Education Program, and 
allocation of loan and grant program funds.
    (ii) Office of Single Family Housing Servicing and Property 
Management Division. Headed by a division director, this division is 
responsible for the development and implementation of nationwide 
policies for servicing RHS's multi-billion dollar portfolio of Single 
Family Housing loans, and managing and selling Single Family Housing 
inventory properties. The division also conducts state program 
evaluations, identifies program weaknesses, makes recommendations for 
improvements, and identifies corrective actions.
    (iii) Office of Single Family Housing Centralized Servicing Center 
(CSC)--St. Louis, Missouri. Headed by a director, CSC is responsible for 
centrally servicing RHS's multi-billion dollar portfolio of Single 
Family Housing loans. CSC provides interest credit or payment assistance 
renewals, performs escrow activities for real estate taxes and property 
hazard insurance, oversees collection of loan payments, and grants 
interest credit, payment assistance, and moratoria.
    (4) Office of the Deputy Administrator, Multi-Family Housing 
Division. Headed by the Deputy Administrator, Multi-Family Housing, this 
office is responsible for the development and nationwide implementation 
of RHS's Multi-Family Housing programs, which extend supervised housing 
credit to rural residents an opportunity to have decent, safe, and 
sanitary rental housing. The following programs are administered and 
managed by this office: Section 515 Rural Rental Housing, Rural 
Cooperative and Congregate Housing Programs, Section 521 Rental 
Assistance, Farm Labor Housing loan and grant programs, Housing 
Preservation Grants, rural housing vouchers, and Housing Application 
Packaging Grants. This office directs the following two divisions:
    (i) Multi-Family Housing Processing Division. Headed by a division 
director, this division is responsible for the development and 
nationwide implementation of policies on processing Multi-Family Housing 
program loans. The division manages the following program areas: elderly 
and family rental housing, Farm Labor Housing loans and grants, outreach 
contacts, congregate facilities, Housing Preservation Grants, 
cooperative housing, rural housing vouchers, appraisals, Congregate 
Housing Services Grants, Rental Assistance, Housing Application 
Packaging Grants, targeted area and nonprofit set asides, Multi-Family 
Housing suspensions and debarments, title clearance and loan closing, 
allocation and monitoring of loan and grant funds, adverse decisions and 
appeals, commercial credit reports, individual credit reports, and, site 
development.
    (ii) Multi-Family Housing Portfolio Management Division. Headed by a 
division director, this division is responsible for the development and 
institution of policies on the management and servicing of the 
nationwide Multi-Family Housing programs. The Division implements 
current and long range plans for servicing Rural Rental Housing loans, 
Labor Housing loans and grants, and Rental Assistance or similar tenant 
subsidies.
    (5) Office of the Deputy Administrator, Community Programs. Headed 
by the Deputy Administrator, Community Programs, this office is 
responsible for overseeing the administration and management of 
Community Facilities loans and grants to hospitals and nursing homes, 
police and fire stations, libraries, schools, adult and child care 
centers, etc. The office monitors and evaluates the administration of 
loan and grant programs on a nationwide basis and provides guidance and 
direction for community programs through two divisions, Community 
Programs Loan Processing Division and Servicing and Special Authorities 
Division.
    (i) Community Programs Loan Processing Division. Headed by a 
director, this division is responsible for the overall administration, 
policy development, fund distribution, and processing of Community 
Facilities loans and grants and other loan and grant programs assigned 
to the Division.

[[Page 13]]

    (ii) Servicing and Special Authorities Division. Headed by a 
division director, this division is responsible for the overall 
administration, policy development, and servicing of the Community 
Facilities loan and grant programs. The division conducts program 
evaluations, identifies program weaknesses, makes recommendations for 
improvements, and identifies corrective actions. The division also 
administers and services Nonprofit National Corporation loans and 
grants.

[62 FR 67259, Dec. 24, 1997, as amended at 64 FR 32388, June 17, 1999]



Sec. Sec. 2003.19-2003.21  [Reserved]



Sec. 2003.22  Functional organization of RUS.

    (a) General. The Secretary established RUS pursuant to Sec. 232 of 
the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 
6942).
    (b) Office of the Administrator. According to 7 CFR 2.47, the 
Administrator has responsibility for managing and administering the 
programs and support functions of RUS to provide financial and technical 
support for rural infrastructure to include electrification, clean 
drinking water, telecommunications, and water disposal systems, pursuant 
to the Consolidated Farm and Rural Development Act, as amended (7 U.S.C. 
1921 et. seq.), and the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et. seq.). The office develops and implements strategic plans 
concerning the Rural Electrification Act of 1936, as amended.
    (1) Borrower and Program Support Services. Borrower and Program 
Support Services consist of the three following staffs which are 
responsible to the Administrator for planning and carrying out a variety 
of program and administrative services in support of all RUS programs, 
and providing expert advice and coordination for the Administrator:
    (i) Administrative Liaison Staff. Headed by a staff director, this 
staff advises the Administrator on management issues and policies 
relating to human resources, EEO, labor-management partnership, 
administrative services, travel management, automated information 
systems, and administrative budgeting and funds control.
    (ii) Program Accounting Services Division. Headed by a division 
director, this division develops and evaluates the accounting systems 
and procedures of Electric, Telecommunications, and Water and Wastewater 
borrowers; assures that accounting policies, systems, and procedures 
meet regulatory, Departmental, General Accounting Office, OMB, and 
Treasury Department requirements; examines borrowers' records and 
operations, and reviews expenditures of loans and other funds; develops 
audit requirements; and approves Certified Public Accountants to perform 
audits of borrowers.
    (iii) Program and Financial Services Staff. Headed by a staff 
director, this staff evaluates the financial conditions of troubled 
borrowers, negotiates settlements of delinquent loans, and makes 
recommendations to program Assistant Administrators on ways to improve 
the financial health of borrowers.
    (2) Office of Assistant Administrator--Electric Program. Headed by 
the Assistant Administrator--Electric Program, this office is 
responsible to the Administrator for directing and coordinating the 
Rural Electrification program of RUS nationwide. This office develops, 
maintains, and implements regulations and program procedures on 
processing and approving loans and loan-related activities for rural 
electric borrowers. The office directs the following three divisions:
    (i) Electric Regional Divisions. Headed by division directors, these 
two divisions are responsible for administering the Rural 
Electrification program in specific geographic areas and serving as the 
single point of contact for all distribution borrowers. The divisions 
provide guidance to borrowers on RUS loan policies and procedures, 
maintain oversight of borrower rate actions, and make recommendations to 
the Administrator on borrower applications for RUS financing. The 
divisions also assure that power plant, distribution, and transmission 
systems and facilities are designed and constructed in accordance with 
the terms of the loan and proper engineering practices and 
specifications.

[[Page 14]]

    (ii) Power Supply Division. Headed by a division director, this 
division is responsible for administering the Rural Electrification 
program responsibilities with regard to power supply borrowers 
nationwide and serves as primary point of contact between RUS and all 
such borrowers. The division develops and maintains a loan processing 
program for Rural Electrification Act purposes, and develops and 
administers engineering and construction policies related to planning, 
design, construction, operation, and maintenance for power supply 
borrowers.
    (iii) Electric Staff Division. Headed by a division director, this 
division is responsible for engineering activities related to the 
design, construction, and technical operations and maintenance of power 
plants; distribution of power; and transmission systems and facilities, 
including load management and communications. The division develops 
criteria and techniques for evaluating the financing and performance of 
electric borrowers and forecasting borrowers' future power needs; and 
maintains financial expertise on the distribution and power supply loan 
program, and retail and wholesale rates.
    (3) Office of Assistant Administrator--Telecommunications Program. 
Headed by the Assistant Administrator--Telecommunications Program, this 
office is responsible to the Administrator for directing and 
coordinating the National Rural Telecommunications, Distance Learning, 
and Telemedicine programs of RUS. The Assistant Administrator, 
Telecommunications Program, is responsible for developing, maintaining, 
and implementing regulations and program procedures on the processing 
and approval of grants, loans, and loan-related activities for all rural 
telecommunications borrowers and grant recipients. The office directs 
the following three divisions:
    (i) Telecommunications Standards Division. Headed by a division 
director, this division is responsible for engineering staff activities 
related to the design, construction, and technical operation and 
maintenance of rural telecommunications systems and facilities. The 
office develops engineering practices, policies, and technical data 
related to borrowers' telecommunications systems; and evaluates the 
application of new communications network technology, including distance 
learning and telemedicine, to rural telecommunications systems.
    (ii) Advanced Telecommunications Services Staff. Headed by a staff 
director, this staff primarily serves the Assistant Administrator, 
Telecommunications Program in the role of the Assistant Governor of the 
RTB. The office performs analyses and makes recommendations to the AAT 
on issues raised by the RTB Governor, Board of Directors, or RTB 
borrowers. This staff maintains official records for the RTB Board and 
prepares minutes of RTB Board meetings. The staff director serves as the 
Assistant Secretary to the RTB. The staff performs the calculations 
necessary to determine the cost of money rate to RTB borrowers and 
recommends and develops program- wide procedures for loan and grant 
programs. The office is responsible for the Telecommunications Program's 
home page on the Internet.
    (iii) Telecommunications Area Offices. Headed by area directors, 
these four offices are responsible for administering the 
Telecommunications, Distance Learning, and Telemedicine programs for 
specific geographic areas, and serving as the single point of contact 
for all program applicants and borrowers within their respective areas. 
The offices provide guidance to applicants and borrowers on RUS loan 
policies and procedures and make recommendations to the Administrator on 
applications for loans, guarantees, and grants. The offices assure that 
borrower systems and facilities are designed and constructed in 
accordance with the terms of the loan, acceptable engineering practices 
and specifications, and acceptable loan security standards.
    (4) Office of the Assistant Administrator--Water and Environmental 
Programs. Headed by the Assistant Administrator, Water and Environmental 
Programs, this office is responsible to the Administrator for directing 
and coordinating a nationwide Water and Waste Disposal Program for RUS 
as authorized under Section 306 of the Consolidated Farm and Rural 
Development Act, as amended (7 U.S.C. 1926). The office oversees 
administration of RUS

[[Page 15]]

policies on making and servicing loans and grants for water and waste 
facilities in rural America, and the development of engineering 
policies, and practices related to the construction and operation of 
community water and waste disposal systems. This office is responsible 
for development and coordination of environmental programs with regard 
to the Water and Waste Disposal Program and directs the following two 
divisions:
    (i) Water Programs Division. Headed by the division director, this 
division is responsible for administering the Water and Waste Disposal 
loan and grant making and servicing and special authorities activities 
nationwide. This office also makes allocation of loan and grant funds to 
field offices and manages National Office reserves.
    (ii) Engineering and Environmental Staff. Headed by a staff 
director, this staff is responsible for engineering activities at all 
stages of program implementation, including: review of preliminary 
engineering plans and specifications, procurement practices, contract 
awards, construction monitoring, and system operation and maintenance. 
The staff also develops Agency engineering practices, policies, and 
technical data related to the construction and operation of community 
water and waste disposal systems. The staff is responsible for 
coordinating environmental policy and providing technical support in 
areas such as: hazardous waste, debarment and suspension, flood 
insurance, drug free workplace requirements, and computer program 
software.

[62 FR 67259, Dec. 24, 1997, as amended at 84 FR 59923, Nov. 7, 2019]



Sec. Sec. 2003.23-2003.25  [Reserved]



Sec. 2003.26  Functional organization of RBS.

    (a) General. The Secretary established RBS pursuant to section 234 
of the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 
6944).
    (b) Office of the Administrator. According to 7 CFR 2.48, the 
Administrator is responsible for managing and administering the programs 
and support functions of RBS to provide assistance to disadvantaged 
communities through grants and loans and technical assistance to 
businesses and communities for rural citizens and cooperatives, pursuant 
to the following authorities: the Rural Electrification Act of 1936, as 
amended (7 U.S.C. 940c and 950aa et seq.), the Consolidated Farm and 
Rural Development Act (7 U.S.C. 1921 et seq.), the Cooperative Marketing 
Act of 1926 (7 U.S.C. 451-457), the Agricultural Marketing Act of 1946 
(7 U.S.C. 1621-1627), and the Food Security Act of 1985 (7 U.S.C. 1932). 
These grants, loans, and technical assistance improve community welfare 
by enhancing organizational and management skills, developing effective 
economic strategies, and expanding markets for a wide range of rural 
products and services.
    (1) Resources Coordination Staff. Headed by the staff director, this 
staff is responsible to the Administrator for preparing legislative 
initiatives and modifications for program enhancement. The staff 
monitors legislative and regulatory proposals that potentially impact 
RBS functions. The staff serves as liaison on budgetary and financial 
management matters between RBS staff and the Office of the Controller, 
and assists the Administrator in presenting and supporting RBS's budget 
and program plans. The staff also advises the Administrator and RBS 
officials on management issues and policies related to: human resources, 
labor relations, civil rights, EEO, space, equipment, travel, Senior 
Executive Service and Schedule C activities, contracting, automated 
information systems, and accounting. The staff provides analysis and 
recommendations on the effectiveness of administrative and management 
activities, and performs liaison functions between RBS and the Office of 
the Deputy Under Secretary for O&M on a wide variety of administrative 
functions.
    (2) Office of the Deputy Administrator, Business Programs. Headed by 
the Deputy Administrator, Business Programs, this office is responsible 
to the Administrator for overseeing and coordinating the Business and 
Industry Guaranteed and Direct Loan programs, Intermediary Relending 
Program loans, Rural Business Enterprise grants, Rural Business 
Opportunity grants, Rural Economic Development

[[Page 16]]

loan and grant programs, and the Rural Venture Capital Demonstration 
Program. The office participates in policy planning, and program 
development and evaluation. It also directs the following three 
divisions:
    (i) Processing Division. Headed by the division director, this 
division is responsible for developing and maintaining loan processing 
regulations, and directs the processing and approval of guaranteed and 
direct business and industry loans, and the Rural Venture Capital 
Demonstration Program. It provides technical assistance to field 
employees and borrowers on loan processing and develops approval 
criteria and performance standards for loans. The division recommends 
plans, programs, and activities related to business loan programs and 
provides environmental guidance and support.
    (ii) Servicing Division. Headed by the division director, this 
office is responsible for developing and maintaining servicing 
regulations. It directs and provides technical assistance to field 
employees and borrowers on servicing business loans and grants. The 
division reviews large, complex, or potentially controversial loan and 
grant dockets related to loan servicing and recommends servicing plans, 
programs, and activities related to business loan and grant programs.
    (iii) Specialty Lenders Division. Headed by the division director, 
this office is responsible for directing and developing and maintaining 
regulations concerning the processing and approval of Intermediary 
Relending loans, Rural Business Enterprise grants, Rural Business 
Opportunity grants, and Rural Economic Development loan and grant 
programs. The division provides technical assistance to field employees 
and borrowers on loan and grant processing and other activities. It also 
develops approval criteria and performance standards and recommends 
plans, programs, and activities related to business loan and grant 
programs.
    (3) Office of the Deputy Administrator, Cooperative Services 
Programs. Headed by the Deputy Administrator, Cooperative Services 
Programs, this office is responsible to the Administrator for providing 
service to cooperative associations by administering a program of 
research and analysis of economic, social, legal, financial, and other 
related issues concerning cooperatives. The office administers programs 
to assist cooperatives in the organization and management of their 
associations and a program for economic research and analysis of the 
marketing aspects of cooperatives. The division administers and monitors 
activities of the National Sheep Industry Improvement Center and the 
Appropriate Technology Transfer to Rural Areas Program, and the Rural 
Cooperative Development Grant Program. The office directs the following 
three divisions:
    (i) Cooperative Marketing Division. Headed by the division director, 
this division is responsible for participating in the formulation of 
National policies and procedures on cooperative marketing. The division 
conducts research and analysis and gives technical assistance to farmer 
cooperatives on cooperative marketing of certain crops, livestock, 
aquaculture, forestry, poultry, semen, milk, and dairy products to 
improve their market performance and economic position.
    (ii) Cooperative Development Division. Headed by the division 
director, this division is responsible for participating in the 
formulation of National policies and procedures on cooperative 
development. The office conducts evaluations and analysis of proposed 
new cooperatives to develop plans for implementing feasible operations, 
and advises and assists rural resident groups and developing 
cooperatives in implementing sound business plans for new cooperatives. 
It provides research, analysis, and technical assistance to rural 
residents on cooperative development initiatives and strategies to 
improve economic conditions through cooperative efforts.
    (iii) Cooperative Resource Management Division. Headed by the 
division director, this division is responsible for participating in the 
formulating of National policies and procedures on cooperative resource 
management. The division conducts research and analysis and gives 
technical assistance to cooperatives on their overall structure,

[[Page 17]]

strategic management and planning, financial issues, and operational 
characteristics to improve their use of resources, financial policies, 
and ability to adapt to market conditions. The division conducts 
research and analysis of policy, taxation, Federal laws, State statutes, 
and common laws that apply to cooperative incorporation, structure, and 
operation to assist cooperatives in meeting legal requirements.
    (4) Office of the Deputy Administrator, Community Development. 
Headed by the Deputy Administrator, Community Development, this office 
is responsible to the Under Secretary, Rural Development, for 
coordinating and overseeing all functions in the Community Outreach and 
Empowerment Program areas. The office assists in providing leadership 
and coordination to National and local rural economic and community 
development efforts. For appropriation and accounting purposes, this 
office is located under RBS. The office directs the following two 
divisions:
    (i) Empowerment Program Division. Headed by the division director, 
this division is responsible for formulating policies and developing 
plans, standards, procedures, and schedules for accomplishing RBS 
activities related to ``community empowerment programs'', including EZ/
EC, AmeriCorps, and other initiatives. The office develops informational 
materials and provides technical advice and services to support States 
on community empowerment programs. It also generates information about 
rural conditions and strategies and techniques for promoting rural 
economic development for community empowerment programs.
    (ii) Community Outreach Division. Headed by the division director, 
this division is responsible for designing and overseeing overall 
systems and developing resources to support State and community level 
implementation activities for RBS programs. The office designs program 
delivery systems and tools, removes impediments to effective community-
level action, supports field offices with specialized skills, and 
establishes partnerships with National organizations with grass-roots 
membership to assure that programs and initiatives are designed and 
implemented in a way that empowers communities. It develops methods for 
working with rural business intermediaries to assist them in providing 
technical assistance to new, small business, and provides Internet-based 
services to 1890 Land-grant universities, EZ/EC, and AmeriCorps 
volunteers, linking RBS information support to communities with high 
levels of need.
    (5) Alternative Agricultural Research and Commercialization 
Corporation. Headed by a director, this Corporation is responsible for 
providing and monitoring financial assistance for the development and 
commercialization of new nonfood and nonfeed products from agricultural 
and forestry commodities in accordance with 7 U.S.C. 5901 et seq. The 
Corporation acts as a catalyst in forming private and public 
partnerships and promotes new uses of agricultural materials. It expands 
market opportunities for U.S. farmers through development of value-added 
industrial products and promotes environmentally friendly products. For 
budget and accounting purposes, this office is assigned to RBS. The 
director of the Corporation is responsible to the Office of the 
Secretary.



Sec. Sec. 2003.27-2003.50  [Reserved]



PART 2018_GENERAL--Table of Contents



Subparts A-E [Reserved]

                  Subpart F_Availability of Information

Sec.
2018.251 General statement.
2018.252 Public inspection and copying.
2018.253 Indexes.
2018.254 Requests for records.
2018.255 Appeals.
2018.256-2018.300 [Reserved]

    Authority: 5 U.S.C. 552.

Subparts A-E [Reserved]



                  Subpart F_Availability of Information

    Source: 61 FR 32645, June 25, 1996, unless otherwise noted.

[[Page 18]]



Sec. 2018.251  General statement.

    In keeping with the spirit of the Freedom of Information Act (FOIA), 
the policy of Rural Development and its component agencies, Rural 
Housing Service (RHS), Rural Utilities Service (RUS), and Rural 
Business-Cooperative Service (RBS), governing access to information is 
one of nearly total availability, limited only by the countervailing 
policies recognized by the FOIA.



Sec. 2018.252  Public inspection and copying.

    Facilities for inspection and copying are provided by the Freedom of 
Information Officer (FOIO) in the National Office, by the State Director 
in each State Office, by the Rural Development Manager (formerly, 
District Director) in each District Office, and by the Community 
Development Manager (formerly, County Supervisor) in each County Office. 
A person requesting information may inspect such materials and, upon 
payment of applicable fees, obtain copies. Material may be reviewed 
during regular business hours. If any of the Rural Development materials 
requested are not located at the office to which the request was made, 
the request will be referred to the office where such materials are 
available.



Sec. 2018.253  Indexes.

    Since Rural Development does not maintain any materials to which 5 
U.S.C. 552(a)(2) applies, it maintains no indexes.



Sec. 2018.254  Requests for records.

    Requests for records are to be submitted in accordance with 7 CFR 
1.3 and may be made to the appropriate Community Development Manager, 
Rural Development Manager, State Administrative Management Program 
Director (formerly, State Administrative Officer), State Director, 
Freedom of Information/Privacy Act Specialist, or Freedom of Information 
Officer. The last two positions are located in the Rural Development 
Support Services Division, Washington, DC 20250. The phrase ``FOIA 
REQUEST'' should appear on the outside of the envelope in capital 
letters. The FOIA requests under the Farm Credit Programs (formally FmHA 
Farmer Programs) should be forwarded to the Farm Service Agency (FSA), 
Freedom of Information Officer, Room 3624, South Agriculture Building, 
14th & Independence Avenue, SW., Washington, DC 20250-0506. Requests 
should be as specific as possible in describing the records being 
requested. The FOIO, Freedom of Information/Privacy Act Specialist, each 
State Administrative Management Program Director, each State Director, 
each Rural Development Manager, and each Community Development Manager 
are delegated authority to act respectively at the national, state, 
district, or county level on behalf of Rural Development to:
    (a) Deny requests for records determined to be exempt under one or 
more provisions of 5 U.S.C. 552(b);
    (b) Make discretionary releases (unless prohibited by other 
authority) of such records when it is determined that the public 
interests in disclosure outweigh the public and/or private ones in 
withholding; and
    (c) Reduce or waive fees to be charged where determined to be 
appropriate.



Sec. 2018.255  Appeals.

    If all or any part of an initial request is denied, it may be 
appealed in accordance with 7 CFR 1.7 to that particular Agency 
possessing the documents. Please select the appropriate Agency to 
forward your FOIA appeal from the following addresses: Administrator, 
Rural Housing Service, Room 5014, AG Box 0701, 14th & Independence 
Avenue, SW.--South Building, Washington, DC 20250-0701; Administrator, 
Rural Business-Cooperative Service, Room 5045, AG Box 3201, 14th & 
Independence Avenue, SW.--South Building, Washington, DC 20250-3201 and 
Administrator, Rural Utilities Service, Room 4501, AG Box 1510, 14th & 
Independence Avenue, SW.--South Building, Washington, DC 20250-1510. The 
phrase ``FOIA APPEAL'' should appear on the front of the envelope in 
capital letters.

[[Page 19]]



Sec. Sec. 2018.256-2018.300  [Reserved]



PART 2045_GENERAL--Table of Contents



Subparts A-II [Reserved]

     Subpart JJ_Rural Development_Utilization of Gratuitous Services

Sec.
2045.1751 General.
2045.1752 Policy.
2045.1753 Authority to accept gratuitous services.
2045.1754 Scope of gratuitous services performed.
2045.1755 Preparation and disposition of agreement forms.
2045.1756 Records and reports.

Exhibit A to Subpart JJ of Part 2045--Agreement Form

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480.

    Source: 43 FR 3694, Jan. 27, 1978, unless otherwise noted.

Subparts A-II [Reserved]



     Subpart JJ_Rural Development_Utilization of Gratuitous Services



Sec. 2045.1751  General.

    Section 331(b) of the Consolidated Farm and Rural Development Act 
(Pub. L. 92-419), and section 506(a) of the Housing Act of 1949, empower 
the Secretary of Agriculture to accept and utilize voluntary and 
uncompensated services in carrying out the provisions of the above cited 
Acts. The Secretary has delegated those authorities to the Administrator 
of the Farmers Home Administration (FmHA) or its successor agency under 
Public Law 103-354 in 7 CFR 2.70(a) (1) and (2).



Sec. 2045.1752  Policy.

    Voluntary and uncompensated (gratuitous) services may be accepted 
with the consent of the agency concerned, from the following sources 
under the conditions set forth in Exhibit A, ``Agreement for Utilization 
of Employee of (Enter Official Title of Governing Body or Other 
Authorized Organization) By the Farmers Home Administration or its 
successor agency under Public Law 103-354'' (Agreement Form).
    (a) Any agency of State government or of any territory or political 
subdivision.
    (b) Non-profit, educational, and charitable organizations, provided 
that no partisan, political, or profit motive is involved either 
explicitly or implicitly.



Sec. 2045.1753  Authority to accept gratuitous services.

    (a) State Directors, Director, Personnel Division, and Director, 
Finance Office, are hereby authorized to accept and utilize gratuitous 
services offered by the governmental agencies listed in Sec. 
2045.1752(a).
    (b) An offer received by an FmHA or its successor agency under 
Public Law 103-354 State or County Office from a source listed in Sec. 
2045.1752(b) shall be transmitted to the National Office, Attention: 
Director, Personnel Division, for decision. The offer will be 
accompanied by copies of the Articles of Incorporation and By-laws (if 
the organization is incorporated), a statement that the organization 
accepts the conditions set forth in the Agreement Form, and evidence 
that the organization is financially able to meet the required fiscal 
obligations of the agreement.



Sec. 2045.1754  Scope of gratuitous services performed.

    (a) Gratuitous services accepted in accordance with this subpart may 
be utilized to perform any function performed by regular FmHA or its 
successor agency under Public Law 103-354 employees (excluding Committee 
members). Such services must not result in the displacement of 
employees. Most of the gratuitous services should be performed at the 
County Office level and conform to a standard FmHA or its successor 
agency under Public Law 103-354 position description. A nonstandard 
position description may be developed and used, depending on current 
agency needs in a particular office and gratuitous skills available.
    (b) Orientation and other training will be provided by FmHA or its 
successor agency under Public Law 103-354 so that gratuitous services 
may be performed in accordance with current FmHA or its successor agency 
under Public Law 103-354 procedure.

[[Page 20]]

    (c) Persons performing authorized gratuitous services will be held 
to the same standard as regular FmHA or its successor agency under 
Public Law 103-354 employees performing similar duties. The issuance of, 
and accountability for, identification cards and clearance of employee 
accountability will be as prescribed in FmHA or its successor agency 
under Public Law 103-354 Instruction 2024-B which is available in all 
FmHA or its successor agency under Public Law 103-354 Offices. Such 
persons, except Construction Inspectors may, when under direct 
supervision of County Supervisors, act as Collection Officers and be 
allowed to use receipt books.

[43 FR 3694, Jan. 27, 1978, as amended at 68 FR 61333, Oct. 28, 2003]



Sec. 2045.1755  Preparation and disposition of agreement forms.

    (a) Agreements to accept and utilize gratuitous services must be 
identical to the attached Exhibit A (Agreement Form) with such 
exceptions as may be authorized by the Office of the General Counsel, 
Department of Agriculture.
    (b) Two copies of each signed Agreement Form will be forwarded to 
the Personnel Division. One copy will be retained in the State or 
Finance Office.



Sec. 2045.1756  Records and reports.

    The FmHA or its successor agency under Public Law 103-354 official 
signing the Agreement Form will maintain records to show the names, duty 
assignments, time worked and work locations of all persons performing 
gratuitous services. Copies of time reports submitted to the persons' 
employers should suffice. These records will be necessary to respond to 
occasional requests for reports on the acceptance and utilization of 
gratuitous services in the FmHA or its successor agency under Public Law 
103-354.



        Sec. Exhibit A to Subpart JJ of Part 2045--Agreement Form

  for utilization of employees of (official title of governing body or 
  other authorized organization, i.e., pickens county, ala., board of 
                             commissioners)

by the Farmers Home Administration or its successor agency under Public 
                               Law 103-354

    1. This Agreement, date ______ between, ____________________, a 
(political subdivision), (educational), (charitable), (or nonprofit) an 
organization of the State of____________(hereinafter called the Agency) 
and the United States of America acting through Farmers Home 
Administration or its successor agency under Public Law 103-354, U.S. 
Department of Agriculture (hereinafter called the Administration) is 
entered into for the purpose of permitting certain employees of the 
Agency (hereinafter called the Agency employees) to assist in the 
Administration's effort to provide agricultural, housing and other 
assistance for rural people of the State of____________in accordance 
with Section 331(b) of the Consolidated Farm and Rural Development Act 
and Section 506(a), Title V of the Housing Act of 1949.
    2. The Administration certifies that it is empowered by the current 
Federal laws cited above, and related rules and regulations, to accept 
personnel assistance from the Agency as provided in paragraphs 4 and 5 
below; and that the work assigned to Agency employees will be useful, in 
the public interest, could not otherwise be provided, and will not 
result in the displacement of employed workers.
    3. The Agency certifies that it has the authority under the laws of 
the State of____________to enter into this Agreement and to provide the 
services agreed upon in the manner provided for.
    4. The Administration hereby supplies the Agency with a narrative 
description which is made a part of this Agreement as Attachment ``A,'' 
explicitly setting forth the duties, knowledge, skills, and abilities to 
be required of Agency employees.
    5. The Administration agrees to:
    (a) Provide training for and responsible supervision of qualified 
and acceptable Agency employees in accordance with Attachment ``A.''
    (b) Provide work within the State of____________for qualified and 
acceptable Agency employees for periods not to exceed eight hours per 
day and 40 hours per week.
    (c) Provide the office space, tools, equipment, and supplies to be 
used by Agency employees in performing work for the Administration.
    (d) Report in the Agency, as required, the time worked by and work 
accomplishments of Agency employees.

[[Page 21]]

    (e) Consult with the Agency, as necessary, on situations involving 
delinquency, misconduct, neglect of work, and apparent conflicts of 
interest of Agency employees.
    (f) Reimburse Agency employees for proper and reasonable travel and 
per diem expenses incurred in performing official duties for the 
Administration, in accordance with Administration travel regulations.
    (g) Consider Agency employees to be Federal employees for the 
purposes of the Federal Employees Compensation Act (5 U.S.C. 8101) and 
of the Federal Tort Claims Act (28 U.S.C. 2671-2680).
    6. The Agency agrees to:
    (a) Not discriminate against any employee or applicant for 
employment because of race, color, religion, sex, age, marital status, 
physical handicap, or national origin. The Agency will take affirmative 
action to ensure that applicants are employed, and that employees are 
treated during employment, without regard to their race, color, 
religion, sex, age, marital status, physical handicap, or national 
origin. Such action shall include, but not be limited to, the following 
Employment, upgrading, demotion or transfer; recruitment or recruitment 
advertising; layoff or termination; rates of pay or other forms of 
compensation; and selection for training including apprenticeship. The 
Agency will post in conspicuous places, available to employees and 
appliants for employment, notices setting forth the provisions of this 
nondiscriminating clause.
    (b) Obtain fingerprints, police records, and work qualifications 
checks on potential assignees, and divulge the results to the 
Administration or permit the Administration to obtain this information.
    (c) Assign only Agency employees who are acceptable to the 
Administration in terms of meeting the same ability and suitability 
standards which are applied to Federal employment.
    (d) Pay all salaries and other expenses of Agency employees and 
comply with Federal, State, and local minimum wage statutes. No monies 
will be paid by the Administration under this agreement, either to the 
Agency or its employees.
    (e) Consider any Tort claims by third parties under applicable laws 
and regulations.
    (f) Reassign or terminate the assignment of Agency employees upon 
request of the Administration.
    7. The Agency and the Administration mutually understand and agree 
that the reasons for determining that an Agency employee is unacceptable 
or unsuitable for initial or continued assignment to Administration work 
may include but shall not be limited to the following:
    (a) Practicing or appearing to practice discrimination for reasons 
of race, color, religion, sex, age, marital status, physical handicap, 
or national origin.
    (b) Being or becoming involved in real or apparent conflicts of 
interest, such as, engaging directly or indirectly in business 
transactions with Administration applicants or borrowers, or using or 
appearing to use the Administration work assignment for private gain.
    (c) Engaging in or having engaged in criminal, dishonest, or immoral 
conduct, or conducting himself in a manner which might embarrass or 
cause criticism of the Administration.
    (d) Being absent from duty without authorization.
    (e) Engaging in partisan political activity prohibited to Federal 
employees doing similar work.
    (f) Lack of work.
    (g) Inability of the employee to perform the duties of the 
assignment.
    8. The term of this Agreement shall commence on the date thereof. It 
shall end on________________, unless extended by mutual agreement, or 
unless terminated earlier by at least (30) days advanced written notice 
by either party to the other.
    9. The Agency and the Administration respectively certify, each for 
itself, that its officer signing this Agreement is duly authorized 
thereto.

  (Enter Official Title of Agency, i.e., City Council, Modesto, Calif.)

                                    BY

                         Chairman, City Council,

                             Modesto, Calif.

                               FARMERS HOME

     ADMINISTRATION or its successor agency under Public Law 103-354

                                    BY

  FmHA or its successor agency under Public Law 103-354 State Director 
                                 for ( )

USDA

                       PARTS 2046	2099 [RESERVED]



                          CHAPTER XX [RESERVED]



[[Page 23]]



 CHAPTER XXV--OFFICE OF ADVOCACY AND OUTREACH, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
2500            OAO Federal financial assistance programs--
                    general award administrative procedures.          25
2502            Agricultural Career and Employment (ACE) 
                    Grants Program..........................          38
2503-2599

 [Reserved]

[[Page 25]]



PART 2500_OAO FEDERAL FINANCIAL ASSISTANCE PROGRAMS_GENERAL AWARD 
ADMINISTRATIVE PROCEDURES--Table of Contents



                      Subpart A_General Information

Sec.
2500.001 Applicability of regulations.
2500.002 Definitions.
2500.003 Other applicable statutes and regulations.

             Subpart B_Pre-Award: Solicitation and Proposals

2500.011 Competition.
2500.012 Requests for proposals.
2500.013 Types of proposals.
2500.014 Eligibility requirements.
2500.015 Content of a proposal.
2500.016 Submission of a proposal.
2500.017 Confidentiality of proposals and awards.
2500.018 Electronic submission.

           Subpart C_Pre-Award: Proposal Review and Evaluation

2500.021 Guiding principles.
2500.022 Preliminary proposal review.
2500.023 Selection of reviewers.
2500.024 Evaluation criteria.
2500.025 Procedures to minimize or eliminate duplication of effort.
2500.026 Applicant feedback.

                             Subpart D_Award

2500.031 Administration.

                    Subpart E_Post-Award and Closeout

2500.041 Payment.
2500.042 Cost sharing and matching.
2500.043 Program income.
2500.044 Indirect costs.
2500.045 Technical reporting.
2500.046 Financial reporting.
2500.047 Project meetings.
2500.048 Review of disallowed costs.
2500.049 Prior approvals.
2500.050 Suspension, termination, and withholding of support.
2500.051 Debt collection.
2500.052 Award appeals procedures.
2500.053 Expiring appropriations.
2500.055 Audit.
2500.056 Civil rights.

Subpart F_Outreach and Assistance for Socially Disadvantaged Farmers and 
                            Ranchers Program

2500.101 Applicability of regulations.
2500.102 Purpose.
2500.103 Definitions.
2500.104 Eligibility requirements.
2500.105 Project types and priorities.
2500.106 Funding restrictions.
2500.107 Matching.
2500.108 Term of award.
2500.109 Program requirements.

    Authority: 7 U.S.C. 6934, 7 U.S.C. 2279.

    Source: 76 FR 66170, Oct. 26, 2011, unless otherwise noted.



                      Subpart A_General Information



Sec. 2500.001  Applicability of regulations.

    The regulations in subparts A through E of this part apply to the 
programs authorized under section 14013 of the FCEA to be administered 
within the Office of Advocacy and Outreach (OAO). The purpose of this 
part is to set forth regulations for competitive and noncompetitive 
grants, cooperative agreements, and other assistance agreements awarded 
through OAO.



Sec. 2500.002  Definitions.

    Applicant means the entity that has submitted a proposal in response 
to an OAO Request For Proposal (RFP).
    Authorized Departmental Officer (ADO) means the Secretary or any 
employee of the Department with delegated authority to issue or modify 
award instruments on behalf of the Secretary.
    Authorized Organizational Representative (AOR) means the President 
or Chief Executive Officer of the applicant organization or the 
official, designated by the President or Chief Executive Officer of the 
applicant organization, who has the authority to commit the resources of 
the organization to the project.
    Award means financial assistance that provides support to accomplish 
a public purpose. Awards may be grants, cooperative agreements, or other 
assistance agreements.
    Award agreement means the agreement between OAO and the awardee 
which sets forth the terms and conditions under which the OAO funds will 
be made available. Award agreement is used as a general term to describe 
grant agreements, cooperative agreements, and other assistance 
agreements.
    Award closeout means the process by which the award operation is 
concluded

[[Page 26]]

at the expiration of the award period or following a decision to 
terminate the award.
    Award period means the timeframe of the award from the beginning 
date to the ending date as defined in the award agreement.
    Awardee means the entity designated in the grant agreement, 
cooperative agreement, or other assistance agreement as the legal entity 
to which the award is given.
    Baseline monitoring is the minimum, basic monitoring that will take 
place on an ongoing basis throughout the lifetime of every award.
    Beginning date means the date the award agreement is executed by the 
awardee and OAO and from which costs can be incurred.
    Community-based organization means a nongovernmental organization 
with a well-defined constituency that includes all or part of a 
particular community.
    Cooperative agreement means the award of funds to an eligible 
awardee to assist in meeting the costs of conducting a project which is 
intended and designed to accomplish the purpose of the program as 
identified in the RFP, and where substantial involvement is expected 
between OAO and the awardee when carrying out the activities included in 
the agreement. This agreement may also be referred to more generally as 
an award.
    Department means the U.S. Department of Agriculture.
    Disallowed costs means the use of Federal financial assistance funds 
for unauthorized activities or items as stipulated in the applicable 
Federal cost principles (2 CFR part 220, 2 CFR part 225, and 2 CFR part 
230).
    Ending date means the date the award agreement is scheduled to be 
completed. It is also the latest date award funds will be provided under 
the award agreement, without an approved time extension.
    Participant means an individual or entity that participates in 
awardee-led activities funded under the award agreement. Furthermore, a 
participant is any individual or entity who has applied for, otherwise 
participated in, or received a payment, or other benefit as a result of 
participating in an activity funded by an OAO award.
    Partnering means a joint effort among two or more eligible entities 
with the capacity to conduct projects intended and designed to 
accomplish the purpose of the program.
    Program leader means the program supervisor within OAO.
    Project means activities supported under an OAO award.
    Project Director (PD) means the individual designated by the awardee 
in the proposal and award documentation, and approved by the ADO who is 
responsible for the direction and management of the award.
    Project Officer (PO) means an individual within OAO who is 
responsible for the programmatic oversight of the award on behalf of the 
Department.
    Request for Proposals (RFP) means an official USDA funding 
opportunity. At OAO discretion, funding opportunities may be referred to 
as request for proposals, request for applications, notice of funding 
availability, or funding opportunity.
    Review panel means an evaluation process involving qualified 
individuals within the relevant field to give advice on the merit of 
proposals submitted to OAO.
    Secretary means the Secretary of Agriculture and any other officer 
or employee of the Department of Agriculture to whom authority may be 
delegated.
    Terminate funding means the cancellation of Federal assistance, in 
whole or in part, at any time before the ending date.



Sec. 2500.003  Other applicable statutes and regulations.

    Several Federal statutes and regulations apply to proposals for 
Federal assistance considered for review and to grants and cooperative 
agreements awarded by OAO. These include, but are not limited to:
    (a) 7 CFR Part 1, Subpart A--USDA implementation of the Freedom of 
Information Act;
    (b) 7 CFR Part 3--USDA implementation of OMB Circular No. A-129, 
regarding debt management;
    (c) Title VI of the Civil Rights Act of 1964 (Pub. L. 88-352), as 
amended, which prohibits discrimination on the basis of race, color, or 
national origin, and 7

[[Page 27]]

CFR part 15, subpart A (USDA implementation);
    (d) 2 CFR part 415, General Program Administrative Regulations.
    (e) 2 CFR part 416, General Program Administrative Regulations for 
Grants and Cooperative Agreements to State and Local Governments.
    (f) 2 CFR part 417, Nonprocurement Debarment and Suspension.
    (g) 2 CFR part 418, New Restrictions on Lobbying. Imposes 
prohibitions and requirements for disclosure and certification related 
to lobbying on awardees of Federal contracts, grants, cooperative 
agreements, and loans.
    (h) 2 CFR part 200, subparts B--General Provisions, C--Pre-Federal 
Award Requirements and Contents of Federal Awards, and D--Post-Federal 
Award Requirements, as adopted by USDA through 2 CFR part 400.
    (i) 2 CFR part 421, Requirements for Drug-Free Workplace (Financial 
Assistance).
    (j) 2 CFR part 200, subpart F--Audit Requirements, as adopted by 
USDA through 2 CFR part 400.
    (k) 7 U.S.C. 3318--conferring upon the Secretary general authority 
to enter into contracts, grants, and cooperative agreements to further 
the research, extension, or teaching programs in the food and 
agricultural sciences of the Department of Agriculture.
    (l) 29 U.S.C. 794 (Section 504, Rehabilitation Act of 1973) and 7 
CFR part 15b (USDA implementation of statute)--prohibiting 
discrimination based upon physical or mental handicap in Federally 
assisted programs.
    (m) 35 U.S.C. 200 et seq.--Bayh-Dole Act, promoting the utilization 
of inventions arising from federally supported research or development; 
encouraging maximum participation of small business firms in federally 
supported research and development efforts; and promoting collaboration 
between commercial concerns and nonprofit organizations, including 
universities, while ensuring that the Government obtains sufficient 
rights in federally supported inventions to meet the needs of the 
Government and protect the public against nonuse or unreasonable use of 
inventions (implementing regulations are contained in 37 CFR part 401)
    (n) Title IX of the Education Amendment of 1972 (20 U.S.C. 1681-1683 
and 1685-1686), as amended, which prohibits discrimination on the basis 
of sex;
    (o) Age Discrimination Act of 1975 (42 U.S.C. 6101-6107), as 
amended, which prohibits discrimination on the basis of age;
    (p) Drug Abuse Office and Treatment Act of 1972 (Pub. L. 92-255), as 
amended, relating to nondiscrimination on the basis of drug abuse;
    (q) Comprehensive Alcohol Abuse and Alcoholism Prevention, Treatment 
and Rehabilitation Act of 1970 (Pub. L. 91-616), as amended, relating to 
nondiscrimination on the basis of alcohol abuse or alcoholism;
    (r) Sections 523 and 527 of the Public Health Service Act of 1912 
(42 U.S.C. 290dd-3 and 290ee-3), as amended, relating to confidentiality 
of alcohol and drug abuse patient records;
    (s) Title VIII of the Civil Rights Act of 1968 (42 U.S.C. 3601 et 
seq.), as amended, relating to nondiscrimination in the sale, rental or 
financing of housing;
    (t) Any other nondiscrimination provisions in the specific 
statute(s) under which proposals for Federal assistance are made, and 
the requirements of any other nondiscrimination statute(s) which may 
apply to the proposal.

[76 FR 66170, Oct. 26, 2011, as amended at 85 FR 31938, May 28, 2020]



             Subpart B_Pre-Award: Solicitation and Proposals



Sec. 2500.011  Competition.

    (a) Standards for competition. Except as provided in paragraph (b) 
of this section, OAO will enter into discretionary grants or cooperative 
agreement only after competition, unless restricted by statute.
    (b) Exception. The OAO ADO may make a determination in writing that 
competition is not deemed appropriate for a particular transaction. Such 
determination shall be limited to transactions where it can be 
adequately justified that a noncompetitive award is in the best interest 
of the Federal Government and necessary to the goals of the program. 
Non-competitive determinations will comply with regulations established 
in 7 CFR 3015.158(d).

[[Page 28]]



Sec. 2500.012  Requests for proposals.

    (a) General. For each competitive grant or cooperative agreement, 
OAO will prepare a program solicitation (also called a request for 
proposals (RFP)). The RFP may include all or a portion of the following 
items:
    (1) Contact information.
    (2) Catalog of Federal Domestic Assistance (CFDA) number.
    (3) Legislative authority and background information.
    (4) Purpose, priorities, and fund availability.
    (5) Program-specific eligibility requirements.
    (6) Program-specific restrictions on the use of funds, if 
applicable.
    (7) Matching requirements, if applicable.
    (8) Acceptable types of proposals.
    (9) Types of projects to be given priority consideration, including 
maximum anticipated awards and maximum project lengths, if applicable.
    (10) Program areas, if applicable.
    (11) Funding restrictions, if applicable.
    (12) Directions for obtaining additional requests for proposals and 
proposal forms.
    (13) Information about how to obtain proposal forms and the 
instructions for completing such forms.
    (14) Instructions and requirements for submitting proposals, 
including submission deadline(s).
    (15) Explanation of the proposal evaluation process.
    (16) Specific evaluation criteria used in the review process.
    (17) Type of Federal assistance awards (i.e., grants or cooperative 
agreements).
    (b) RFP variations. Where program-specific requirements differ from 
the requirements established in this part, program solicitations will 
also address any such variation(s). Variations may occur in the 
following:
    (1) Award management guidelines.
    (2) Restrictions on the delegation of fiscal responsibility.
    (3) Required approval for changes to project plans.
    (4) Expected program outputs and reporting requirements, if 
applicable.
    (5) Applicable Federal statutes and regulations.
    (6) Confidential aspects of proposals and awards, if applicable.
    (7) Regulatory information.
    (8) Definitions.
    (9) Minimum and maximum budget requests and whether proposals 
outside of these limits will be returned without further review.
    (c) Program announcements. Occasionally, OAO will issue a program 
announcement (PA) to alert potential applicants and the public about new 
and ongoing funding opportunities. These PAs may provide tentative due 
dates and are released without associated proposal packages. No 
proposals are solicited under a PA. PAs will be announced in the Federal 
Register or on the OAO Web site.



Sec. 2500.013  Types of proposals.

    The type of proposal acceptable may vary by funding opportunity. The 
RFP will stipulate what will be required for submission to OAO in 
response to the funding opportunity.



Sec. 2500.014  Eligibility requirements.

    Program-specific eligibility requirements appear in the subpart 
applicable to each program and in the corresponding RFPs.



Sec. 2500.015  Content of a proposal.

    The RFP provides instructions on how to access a funding 
opportunity. The funding opportunity contains the proposal package, 
which includes the forms necessary for completion of a proposal in 
response to the RFP. The RFP will be posted on http://www.Grants.gov. 
OAO may also publish the RFP in the Federal Register.



Sec. 2500.016  Submission of a proposal.

    The RFP will provide deadlines for the submission of proposals. OAO 
may issue separate RFPs and/or establish separate deadlines for 
different types of proposals, different award instruments, or different 
topics or phases of the assistance programs. If proposals are not 
received by applicable deadlines, they will not be considered for 
funding. Exceptions will be considered only when extenuating 
circumstances exist, as determined by OAO, and justification and 
supporting documentation are provided by the applicant.

[[Page 29]]

Conformance with preparation and submission instructions is required and 
will be strictly enforced unless a deviation has been approved. OAO may 
establish additional requirements. OAO may return without review 
proposals that are not consistent with the RFP instructions.



Sec. 2500.017  Confidentiality of proposals and awards.

    (a) General. Names of entities submitting proposals, as well as 
proposal contents and evaluations, except to those involved in the 
review process, will be kept confidential to the extent permissible by 
law.
    (b) Identifying confidential and proprietary information in a 
proposal. If a proposal contains proprietary information that 
constitutes a trade secret, proprietary commercial or financial 
information, confidential personal information, or data affecting the 
national security, it will be treated in confidence to the extent 
permitted by law, provided that the information is clearly marked by the 
applicant with the term ``confidential and proprietary information.'' In 
addition, the following statement must be included at the bottom of the 
project narrative or any other attachment included in the proposal that 
contains such information: ``The following pages (specify) contain 
proprietary information which (name of proposing organization) requests 
not to be released to persons outside the Government, except for 
purposes of evaluation.''
    (c) Disposition of proposals. By law, OAO is required to make the 
final decisions as to whether the information is required to be kept in 
confidence. Information contained in unsuccessful proposals will remain 
the property of the applicant. However, the Department will retain for 
three years one file copy of each proposal received; extra copies will 
be destroyed. Public release of information from any proposal submitted 
will be subject to existing legal requirements. Any proposal that is 
funded will be considered an integral part of the award and normally 
will be made available to the public upon request, except for 
information designated proprietary by OAO.
    (d) Submission of proprietary information. The inclusion of 
proprietary information is discouraged unless it is necessary for the 
proper evaluation of the proposal. If proprietary information is to be 
included, it should be limited, set apart from other text on a separate 
page, and keyed to the text by numbers. It should be confined to a few 
critical technical items that, if disclosed, could jeopardize the 
obtaining of foreign or domestic patents. Trade secrets, salaries, or 
other information that could jeopardize commercial competitiveness 
should be similarly keyed and presented on a separate page. Proposals or 
reports that attempt to restrict dissemination of large amounts of 
information may be found unacceptable by OAO and constitute grounds for 
return of the proposal without further consideration. Without assuming 
any liability for inadvertent disclosure, OAO will limit dissemination 
of such information to its employees and, where necessary for the 
evaluation of the proposal, to outside reviewers on a confidential 
basis.



Sec. 2500.018  Electronic submission.

    Applicants and awardees are encouraged, but not required, to submit 
proposals and reports in electronic form as prescribed in the RFP issued 
by OAO and in the applicable award agreement.



           Subpart C_Pre-Award: Proposal Review and Evaluation



Sec. 2500.021  Guiding principles.

    The guiding principle for Federal assistance proposal review and 
evaluation is to ensure that each proposal is treated in a consistent 
and fair manner. After the evaluation process by the review panel, OAO 
will provide an opportunity for applicant feedback in as timely a manner 
as possible.



Sec. 2500.022  Preliminary proposal review.

    Prior to technical examination, a preliminary review will be made of 
all proposals for responsiveness to the administrative requirements set 
forth in the RFP. Proposals that do not meet the administrative 
requirements may be eliminated from program competition. However, OAO 
retains the right

[[Page 30]]

to conduct discussions with applicants to resolve technical and/or 
budget issues, as deemed necessary by OAO.



Sec. 2500.023  Selection of reviewers.

    (a) Requirement. OAO is responsible for performing a review of 
proposals submitted to OAO competitive award programs. The RFP will 
identify the criteria that OAO will use for the selection of the 
proposal review panel.
    (b) Confidentiality. The identities of reviewers will remain 
confidential to the maximum extent possible. Therefore, the names of 
reviewers will not be released to applicants. Names of applicants, as 
well as proposal content and evaluation comments will be kept 
confidential to the extent permitted by law, except to those involved in 
the review process. Reviewers will comply with the above-mentioned 
confidentiality guidelines.
    (c) Conflicts of interest. During the evaluation process, extreme 
care will be taken to prevent any actual or perceived conflicts of 
interest that may impact review or evaluation. Reviewers are expected to 
be in compliance with the Conflict-of-Interest process made a part of 
the RFP.



Sec. 2500.024  Evaluation criteria.

    (a) General. To ensure any project receiving funds from OAO is 
consistent with the broad goals of the funding program, the content of 
each proposal submitted to OAO will be evaluated based on a pre-
determined set of review criteria as indicated in the RFP.
    (b) Guidance for reviewers. In order that all potential applicants 
for a program have similar opportunities to compete for funds, all 
reviewers will receive an orientation from the Program Leader of the 
review criteria. Reviewers are instructed to use those same evaluation 
criteria, and only those criteria, to judge the merit of the proposals 
they review.



Sec. 2500.025  Procedures to minimize or eliminate duplication of effort.

    OAO may implement appropriate business processes to minimize or 
eliminate the awarding of Federal assistance to projects that 
unnecessarily duplicate activities already being sponsored under other 
awards, including awards made by other Federal agencies.



Sec. 2500.026  Applicant feedback.

    Unsuccessful applicants may submit a request for applicant feedback 
in writing to OAO within 10 days after receiving written notice of not 
being selected for further processing. Applicant feedback requests are 
to be mailed to the Program Leader at the address below, unless 
otherwise stated in the ``Notice of Non-Selection'' or in the RFP. At 
OAO's discretion, either written or oral feedback will be provided to 
unsuccessful applicants.
    U.S. Department of Agriculture, Departmental Management, Office of 
Advocacy and Outreach, Attn: Program Leader (Applicant Feedback), 
Whitten Building, Rm. 520-A, stop 9821, 1400 Independence Avenue, SW., 
Washington, DC 20250-9821.



                             Subpart D_Award



Sec. 2500.031  Administration.

    (a) General. Within the limit of funds available for such purpose, 
the OAO ADO shall make Federal assistance awards to those responsible, 
eligible applicants whose proposals are judged most meritorious under 
the procedures set forth in the RFP. The date specified by the OAO ADO 
as the effective date of the award shall be no later than September 30th 
of the Federal fiscal year in which the project is approved for support 
and funds are appropriated for such purpose, unless otherwise permitted 
by law. It should be noted that the project need not be initiated on the 
award effective date, but as soon thereafter as practical so that 
project goals may be attained within the funded project period. All 
funds awarded by OAO shall be expended solely for the purpose for which 
the funds are awarded in accordance with the approved statement of work 
and budget, the regulations, the terms and conditions of the OAO award 
agreement, the applicable Federal cost principles, and the Department's 
assistance regulations (e.g., 7 CFR parts 3015, 3016, and 3019).
    (b) Award agreement. The award agreement and accompanying terms and 
conditions will provide pertinent

[[Page 31]]

instructions and information including, at a minimum, the following:
    (1) Legal name and address of performing organization or institution 
to which OAO has awarded a grant or cooperative agreement.
    (2) Title of project.
    (3) Name(s) of Project Director(s).
    (4) Identifying award number assigned by OAO.
    (5) Project period.
    (6) Total amount of OAO financial assistance approved.
    (7) Legal authority under which the grant or cooperative agreement 
is awarded.
    (8) Appropriate CFDA number.
    (9) Approved budget plan (that may be referenced).
    (10) Terms and Conditions



                    Subpart E_Post-Award and Closeout



Sec. 2500.041  Payment.

    (a) General. All payments will be made in advance unless a deviation 
is accepted or as specified in paragraph (b) of this section. All 
payments to the awardee shall be made via the approved electronic funds 
transfer (EFT) method. Awardees are expected to request funds via the 
federally-approved electronic payment system for reimbursement in a 
timely manner. Exact payment method will be described in the terms and 
conditions of the award agreement.
    (b) Reimbursement method. OAO shall use the reimbursement method if 
it determines that advance payment is not feasible or that the awardee 
does not maintain or demonstrate the willingness to maintain written 
procedures that minimize the elapse of time between the transfer of 
funds and disbursement by the awardee, and financial management systems 
that meet the standards for fund control and accountability.



Sec. 2500.042  Cost sharing and matching.

    (a) General. Awardees may be required to match the Federal funds 
received under an OAO award. The required percentage of matching, type 
of matching (e.g., cash and/or in-kind contributions), sources of match 
(e.g., non-Federal), and whether OAO has any authority to waive the 
match will be specified in the subpart applicable to the specific 
Federal assistance program, as well as in the RFP.
    (b) Indirect costs as in-kind matching contributions. Indirect costs 
may be claimed under the Federal portion of the award budget. However, 
unless explicitly authorized in the RFP, indirect costs may not be 
claimed on both the Federal and nonfederal portion of the award budget.



Sec. 2500.043  Program income.

    (a) General. OAO shall apply the standards set forth in this subpart 
in requiring awardee organizations to account for program income related 
to projects financed in whole or in part with Federal funds.
    (b) Addition method. Unless otherwise provided in the authorizing 
statute, in accordance with the terms and conditions of the award, 
program income earned during the project period shall be retained by the 
awardee and shall be added to funds committed to the project by OAO and 
the awardee and used to further eligible project or program objectives. 
Any specific program deviations will be identified in the individual 
subparts.
    (c) Award terms and conditions. Unless the program regulations 
identified in the individual subpart provide otherwise, awardees shall 
follow the terms and conditions of the OAO award. Such terms and 
conditions will be made a part of the OAO award agreement.



Sec. 2500.044  Indirect costs.

    Indirect cost rates for grants and cooperative agreements shall be 
determined in accordance with the applicable assistance regulations and 
cost principles, unless superseded by another authority.



Sec. 2500.045  Technical reporting.

    All projects supported with Federal funds under this part must be 
documented according to the terms and conditions of the OAO award 
agreement.



Sec. 2500.046  Financial reporting.

    (a) SF-425, Federal Financial Report. As stated in the award terms 
and conditions of the OAO award agreement, a

[[Page 32]]

final SF-425, Federal Financial Report, is due 90 days after the 
expiration of the award and should be submitted to OAO electronically. 
The awardee shall report program outlays and program income on the same 
accounting basis (i.e., cash or accrual) that it uses in its normal 
accounting system. When submitting a final SF-425, Federal Financial 
Report, the total matching contribution, if required, should be shown in 
the report. The final SF-425 must not show any unliquidated obligations. 
If the awardee still has valid obligations that remain unpaid when the 
report is due, it shall request an extension of time for submitting the 
report pursuant to paragraph (c) of this section; submit a provisional 
report (showing the unliquidated obligations) by the due date; and 
submit a final report when all obligations have been liquidated, but no 
later than the approved extension date. SF-425, Federal Financial 
Reports, must be submitted by all awardees, including Federal agencies 
and national laboratories.
    (b) Awards with required matching. For awards requiring a matching 
contribution, an annual SF-425, Federal Financial Report, is required 
and this requirement will be indicated in the terms and conditions of 
the OAO award agreement, in which case it must be submitted no later 
than 45 days following the end of the budget or reporting period.
    (c) After the due date. Requests are considered late when they are 
submitted after the 90-day period following the award expiration date. 
Requests to submit a late final SF-425, Federal Financial Report, will 
only be considered, up to 30 days after the due date, in extenuating 
circumstances. This request should include a provisional report pursuant 
to paragraph (a) of this section, as well as an anticipated submission 
date, a justification for the late submission, and a justification for 
the extenuating circumstances. If an awardee needs to request additional 
funds, procedures in paragraph (d) of this section apply.
    (d) Overdue SF-425, Federal Financial Reports. Awardees with overdue 
SF-425, Federal Financial Reports, or other required financial reports 
(as identified in the award terms and conditions), will have their 
applicable balances in the approved federal electronic funds transfer 
system restricted or placed on ``manual review,'' which restricts the 
awardee's ability to draw funds, thus requiring prior approval from OAO. 
If any remaining available balances are needed by the awardee (beyond 
the 90-day period following the award expiration date) and the awardee 
has not requested an extension to submit a final SF-425, Financial 
Status Report, the awardee will be required to contact OAO to request 
permission to draw any additional funds and will be required to provide 
justification and documentation to support the draw. Awardees also will 
need to comply with procedures in paragraph (c) of this section. OAO 
will approve these draw requests only in extenuating circumstances.
    (e) Additional reporting requirements. OAO may require forecasts of 
Federal cash requirements in the ``Remarks'' section of the report; and 
when practical and deemed necessary, OAO may require awardees to report 
in the ``Remarks'' section the amount of cash advances received in 
excess of three days (i.e., short narrative with explanations of actions 
taken to reduce the excess balances). When OAO needs additional 
information or more frequent reports, a special provision will be added 
to the award terms and conditions and identified in the OAO award 
agreement. Should OAO determine that an awardee's accounting system is 
inadequate, additional pertinent information to further monitor awards 
may be requested from the awardee until such time as the system is 
brought up to standard, as determined by OAO. This additional reporting 
requirement will be required via a special provision to the award terms 
and conditions of the OAO award agreement.



Sec. 2500.047  Project meetings.

    In addition to reviewing and monitoring the status of progress and 
final technical reports and financial reports, OAO Project Officers may 
use regular and periodic conference calls to monitor the awardee's 
performance as well as conferences, workshops, meetings, and symposia to 
not only monitor the awards, but to facilitate communication and the 
sharing of project results.

[[Page 33]]

These opportunities also serve to eliminate or minimize OAO funding of 
unneeded duplicative project activities. Required attendance at these 
conference calls, conferences, workshops, meetings, and symposia will be 
identified in the RFP or award document.



Sec. 2500.048  Review of disallowed costs.

    (a) Notice. If the OAO Project Officer (PO) determines that there is 
a basis for disallowing a cost, OAO shall provide the awardee written 
notice of its intent to disallow the cost. The written notice shall 
state the amount of the cost and the factual and legal basis for 
disallowing it.
    (b) Awardee response. Within 60 days of receiving written notice of 
the PO's intent to disallow the cost, the awardee may respond with 
written evidence and arguments to show the cost is allowable, or that, 
for equitable, practical, or other reasons, shall not recover all or 
part of the amount, or that the recovery should be made in installments. 
An extension of time will be granted only in extenuating circumstances.
    (c) Decision. Within 60 days of receiving the awardee's written 
response to the notice of intent to disallow the cost, the PO shall 
issue a management decision stating whether or not the cost has been 
disallowed, the reasons for the decision, and the method of appeal that 
has been provided under this section. If the awardee does not respond to 
the written notice under paragraph (a) of this section within the time 
frame specified in paragraph (b) of this section, the PO shall issue a 
management decision on the basis of the information available to it. The 
management decision shall constitute the final action with respect to 
whether the cost is allowed or disallowed. In the case of a questioned 
cost identified in the context of an audit subject to 7 CFR part 3052, 
the management decision will constitute the management decision under 7 
CFR 3052.405(a).
    (d) Demand for payment. If the management decision under paragraph 
(c) of this section constitutes a finding that the cost is disallowed 
and, therefore, that a debt is owed to the Government, the PO shall 
provide the required demand and notice pursuant to 7 CFR 3.11.
    (e) Review process. Within 60 days of receiving the demand and 
notice referred to in paragraph (d) of this section, the awardee may 
submit a written request to the OAO Director for a review of the final 
management decision that the debt exists and the amount of the debt. 
Within 60 days of receiving the written request for a review, the OAO 
Director will issue a final decision regarding the debt. A review by the 
OAO Director or designee constitutes an administrative review for debts 
under 7 CFR part 3, subpart F.



Sec. 2500.049  Prior approvals.

    (a) Subcontracts. No more than 50 percent of the award may be 
subcontracted to other parties without prior written approval of the 
ADO. Any subcontract awarded to a Federal agency under an award must 
have prior written approval of the ADO. To request approval, a 
justification for the proposed subcontractual arrangements, a 
performance statement, and a detailed budget for the subcontract must be 
submitted to the ADO.
    (b) No-cost extensions of time--(1) General. Awardees may initiate a 
one-time no-cost extension of the expiration date of the award of up to 
12 months unless one or more of the following conditions apply: the 
terms and conditions of the award prohibit the extension; the extension 
requires additional Federal funds; and the extension involves any change 
in the approved objectives or scope of the project. For the first no-
cost extension, the awardee must notify OAO in writing with the 
supporting reasons and revised expiration date at least 10 days before 
the expiration date specified in the award.
    (2) Additional requests for no-cost extensions of time before 
expiration date. When more than one no-cost extension of time or an 
extension of more than 12 months is required, the extension(s) must be 
approved in writing by the PO. The awardee must submit a written 
request, which must be received no later than 10 days prior to the 
expiration date of the award, to the PO. The request must contain, at a 
minimum, the following information: The length of

[[Page 34]]

the additional time required to complete the project objectives and a 
justification for the extension; a summary of the progress to date; an 
estimate of the funds expected to remain unobligated on the scheduled 
expiration date; a projected timetable to complete the portion(s) of the 
project for which the extension is being requested; and signature of the 
AOR and the PD.
    (3) Requests for no-cost extensions of time after expiration date. 
OAO may consider and approve requests for no-cost extensions of time up 
to 120 days following the expiration of the award. These will be 
approved only for extenuating circumstances, as determined by OAO. The 
awardee's AOR must submit the requirements identified under paragraph 
(b)(2) of this section as well as an ``extenuating circumstance'' 
justification and a description of the actions taken by the awardee to 
minimize these requests in the future.
    (4) Other requirements. No-cost extensions of time may not be 
exercised merely for the purpose of using unobligated balances.



Sec. 2500.050  Suspension, termination, and withholding of support.

    (a) General. If an awardee has failed to materially comply with the 
terms and conditions of the award, OAO may take certain enforcement 
actions, including, but not limited to, suspending the award pending 
corrective action and terminating the award for cause.
    (b) Suspension. OAO generally will suspend (rather than immediately 
terminate) an award to allow the awardee an opportunity to take 
appropriate corrective action before OAO makes a termination decision. 
OAO may decide to terminate the award if the awardee does not take 
appropriate corrective action during the period of suspension. OAO may 
terminate, without first suspending, the award if the deficiency is so 
serious as to warrant immediate termination. Termination for cause may 
be appealed under the terms and conditions identified in the OAO award 
agreement.
    (c) Termination. An award also may be terminated, partially or 
wholly, by the awardee or by OAO with the consent of the awardee. If the 
awardee decides to terminate a portion of the award, OAO may determine 
that the remaining portion of the award will not accomplish the purposes 
for which the award was originally made. In any such case, OAO will 
advise the awardee of the possibility of termination of the entire award 
and allow the awardee to withdraw its termination request. If the 
awardee does not withdraw its request for partial termination, OAO may 
initiate procedures to terminate the entire award for cause.



Sec. 2500.051  Debt collection.

    The collection of debts owed to OAO by awardees, including those 
resulting from cost disallowances, recovery of funds, unobligated 
balances, or other circumstances, are subject to the Department's debt 
collection procedures as set forth in 7 CFR part 3, and, with respect to 
cost disallowances, Sec. 2500.048.



Sec. 2500.052  Award appeals procedures.

    (a) General. OAO permits awardees to appeal certain adverse post-
award administrative decisions made by OAO. Such adverse decisions 
include: Termination, in whole or in part, and determination that an 
award is void. An award may be terminated for failure of the awardee to 
carry out its approved project in accordance with the applicable law and 
the terms and conditions of award; or for failure of the awardee 
otherwise to comply with any law, regulation, assurance, term, or 
condition applicable to the award. Additionally, an award may be 
determined to be void if, for example, it was not authorized by statute 
or regulation or because it was fraudulently obtained. Appeals of 
determinations regarding the allowability of costs are subject to the 
procedures in Sec. 2500.048.
    (b) Appeal Procedures. The formal notification of an adverse 
determination will contain a statement of the awardee's appeal rights. 
To appeal an adverse determination, the awardee must submit a request 
for review to the OAO official specified in the notification, detailing 
the nature of the disagreement with the adverse determination and 
providing supporting documents in accordance with the procedures 
contained in the notification. The awardee's request to OAO for review 
must be received within 60 days after receipt of

[[Page 35]]

the written notification of the adverse determination; however, an 
extension may be granted if the awardee can show good cause why an 
extension is warranted. OAO will carefully consider the merits of all 
requests for appeals and further reviews. However, at the conclusion of 
the OAO appeal review process, the OAO decision rendered on the appeal 
is considered final. The awardee will be notified in writing by OAO of 
final appeal review determinations.



Sec. 2500.053  Expiring appropriations.

    (a) OAO awards supported with office appropriations. Most OAO awards 
are supported with annual appropriations. On September 30th of the 5th 
fiscal year after the period of availability for obligation ends, the 
funds for these appropriations accounts expire per 31 U.S.C. 1552 and 
the account is closed, unless otherwise specified by law. Funds that 
have not been drawn through the approved electronic funds transfer 
system, by the awardee or disbursed through any other system or method 
by August 31st of that fiscal year are subject to be returned to the 
U.S. Department of the Treasury after that date. The August 31st 
requirement also applies to awards with a 90-day period concluding on a 
date after August 31st of that fifth year. Appropriations cannot be 
restored after expiration of the accounts. More specific instructions 
are provided in the OAO award terms and conditions.
    (b) OAO awards supported with funds from other Federal agencies 
(reimbursable funds). OAO may require that all draws and reimbursements 
for awards supported with reimbursable funds (from other Federal 
agencies) be completed prior to June 30th of the 5th fiscal year after 
the period of availability for obligation ends to allow for the proper 
billing, collection, and close-out of the associated interagency 
agreement before the appropriations expire. The June 30th requirement 
also applies to awards with a 90-day period concluding on a date after 
June 30th of that fifth year. Appropriations cannot be restored after 
expiration of the accounts. More specific instructions are provided in 
the terms and conditions of the OAO award agreement.



Sec. 2500.055  Audit.

    Awardees must comply with the audit requirements of 7 CFR part 3052. 
The audit requirements apply to the years in which Federal financial 
assistance funds are received and years in which work is accomplished 
using these funds.



Sec. 2500.056  Civil rights.

    Awardees must comply with the civil rights requirements of 7 CFR 
part 15, subpart A--USDA implementation of Title VI of the Civil Rights 
Act of 1964, as amended. In accordance, no person in the United States 
shall, on the ground of race, color, or national origin, be excluded 
from participation in, be denied the benefits of, or be otherwise 
subjected to discrimination under any program or activity for which the 
recipient receives Federal financial assistance and will immediately 
take any measures necessary to effectuate this agreement.



Subpart F_Outreach and Assistance For Socially Disadvantaged Farmers and 
                            Ranchers Program



Sec. 2500.101  Applicability of regulations.

    The regulations in this subpart apply to the Outreach and Assistance 
for Socially Disadvantaged Farmers and Ranchers (OASDFR) Program 
authorized under section 2501 of the Food, Agriculture, Conservation and 
Trade Act of 1990 (7 U.S.C. 2279), as amended. Unless otherwise 
specified in this subpart, the requirements of 7 CFR part 2500 subparts 
A through E will apply in addition to the requirements discussed in this 
subpart.



Sec. 2500.102  Purpose.

    (a) The purpose of the OASDFR Program is to make competitive awards 
to provide outreach and technical assistance to encourage and assist 
socially disadvantaged farmers and ranchers in:
    (1) Owning and operating farms, ranches and non-industrial forest 
lands; and
    (2) In participating equitably in the full range of agricultural 
programs offered by the Department.

[[Page 36]]

    (b) The OASDFR Program awards shall be used exclusively to:
    (1) Enhance coordination of the outreach, technical assistance, and 
education efforts authorized under agriculture programs;
    (2) Assist in reaching current and prospective socially 
disadvantaged farmers, ranchers or forest landowners in a linguistically 
appropriate manner; and
    (3) Improve the participation of those farmers and ranchers in 
agricultural programs.



Sec. 2500.103  Definitions.

    The definitions provided in subpart A apply to this subpart. In 
addition, the definitions that apply specifically to the OASDFR Program 
under this subpart include:
    Agriculture programs means those programs administered within the 
Department, by agencies including but not limited to: Forest Service 
(FS), Natural Resources Conservation Service (NRCS), Farm Service Agency 
(FSA), Risk Management Agency (RMA), Rural Development (RD), Rural 
Business Cooperative Service (RBCS), National Institute of Food and 
Agriculture (NIFA), and Agricultural Marketing Service (AMS), and other 
such programs as determined by the Department on a case-by-case basis 
either at the OAO Director's initiative or in response to a written 
request with supporting explanation for inclusion of a program. (For 
further details on specific programs included under this subpart see 7 
U.S.C. 2279(e)(3) or the RFP).
    Alaska Native means a citizen of the United States who is a person 
of one-fourth or more Alaska Indian, Eskimo, or Aleut blood, or 
combination thereof. (For further specification, see 43 U.S.C 1602(b) or 
the RFP).
    Alaska Native cooperative colleges means an eligible post-secondary 
educational institution that has an enrollment of undergraduate full-
time equivalent students that is at least 20 percent Alaska Native 
students at the time of submission of a proposal.
    Assistance means providing educational and technical assistance to 
socially disadvantaged farmers, ranchers, and forest landowners in (1) 
owning and operating farms, ranches, and non-industrial forest lands; 
and (2) in participating equitably in the full range of agricultural 
programs offered by the Department through workshops, site visits and 
other means of contact in a linguistically appropriate manner.
    Farmer, rancher, or forest landowner means the person who primarily 
cultivates, operates, or manages a farm, ranch, or forest for profit, 
either as owner or tenant. A farm includes livestock, dairy, poultry, 
fish, fruit, and truck farms. It also includes plantations, ranches, 
ranges, and orchards.
    Hispanic-serving institution means an eligible institution of higher 
education that has an enrollment of undergraduate full-time equivalent 
students that is at least 25 percent Hispanic students at the end of the 
award year immediately preceding the date of submission of a proposal 
(see 20 U.S.C. 1101a(5)).
    Indian tribe means any Indian tribe, band, nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation as defined in or established pursuant to 
the Alaska Native Claims Settlement Act (85 Stat. 688) (43 U.S.C. 1601 
et seq.), which is recognized as eligible for the special programs and 
services provided by the United States to Indians because of their 
status as Indians. (For further specification, see 25 U.S.C. 450b).
    Indian tribal community college means a post-secondary education 
institution which is formally controlled, or has been officially 
sanctioned, or chartered, by the governing body of an Indian tribe or 
tribes. (See 25 U.S.C. 1801(a)(4)).
    Institution of higher education means an educational institution in 
any State that is a public or other nonprofit institution that is 
legally authorized and accredited by a nationally recognized accrediting 
agency or association to provide a program of education beyond secondary 
education for which the institution awards a bachelor's degree. (For 
further specification, see 20 U.S.C. 1001(a)).
    Outreach means the use of formal and informal educational materials 
and activities in a linguistically appropriate

[[Page 37]]

manner that serve to encourage and assist socially disadvantaged farmers 
and ranchers in:
    (1) Owning and operating farms and ranches; and in
    (2) Participating equitably in the full range of agricultural 
programs offered by the Department.
    Socially disadvantaged farmer, rancher or forest landowner means a 
farmer, rancher, or forest landowner who is a member of a socially 
disadvantaged group. (See 7 U.S.C. 2279(e)(2)).
    Socially disadvantaged group means a group whose members have been 
subjected to racial or ethnic prejudice because of their identity as 
members of a group without regard to their individual qualities. (See 7 
U.S.C. 2279(e)(1)).
    State means any of the 50 States of the United States, the District 
of Columbia, the Commonwealth of Puerto Rico, Guam, the Virgin Islands 
of the United States, American Samoa, the Commonwealth of the Northern 
Mariana Islands, and federally recognized Indian tribes.
    Supplemental funding means funding to an existing awardee in 
addition to the amount of the original award contained in the grant or 
cooperative agreement. Such additional funding is intended to continue 
or expand work that is within the scope of the original agreement and 
statement of work.
    Tribal organization means the recognized governing body of any 
Indian tribe. A tribal organization is any legally established 
organization of Indians which is controlled, sanctioned, or chartered by 
such governing body or which is democratically elected by the adult 
members of the Indian community. In any case where an award is made to 
an organization to perform services benefiting more than one Indian 
tribe, the approval of each participating Indian tribe shall be a 
prerequisite to the making of such an award. (See 25 U.S.C. 1603(25).



Sec. 2500.104  Eligibility requirements.

    Proposals may be submitted by any of the following:
    (a) Any community-based organization, network, or coalition of 
community-based organizations that:
    (1) Has demonstrated experience in providing agricultural education 
or other agriculturally related services to socially disadvantaged 
farmers, ranchers, and forest landowners;
    (2) Has provided to the Secretary documentary evidence of work with, 
and on behalf of socially disadvantaged farmers, ranchers, or forest 
landowners during the three-year period preceding the submission of a 
proposal for assistance under this program; and
    (3) Does not engage in activities prohibited under Section 501(c)(3) 
of the Internal Revenue Code of 1986.
    (b) An 1890 institution or 1994 institution (as defined in 7 U.S.C. 
7601), including West Virginia State University.
    (c) An Indian tribal community college or an Alaska Native 
cooperative college.
    (d) A Hispanic-serving institution (as defined in 7 U.S.C. 3103).
    (e) Any other institution of higher education (as defined in 20 
U.S.C. 1001) that has demonstrated experience in providing agriculture 
education or other agriculturally related services to socially 
disadvantaged farmers, ranchers, and forest landowners in a region.
    (f) An Indian tribe (as defined in 25 U.S.C. 450b) or a national 
tribal organization that has demonstrated experience in providing 
agriculture education or other agriculturally-related services to 
socially disadvantaged farmers, ranchers, and forest landowners in a 
region.
    (g) Other organizations or institutions that received funding under 
this program before January 1, 1996, but only with respect to projects 
that the Secretary considers are similar to projects previously carried 
out by the entity under this program.



Sec. 2500.105  Project types and priorities.

    For each RFP, OAO may develop and include the appropriate project 
types and focus areas based on the critical needs of the socially 
disadvantaged farmer and rancher community. For standard OASDFR 
projects, competitive grants or cooperative agreements will be awarded 
to support programs and services, as appropriate, to encourage and 
assist socially disadvantaged

[[Page 38]]

farmers and ranchers in the following focus areas:
    (a) Owning and operating farms and ranches;
    (b) Participating equitably in the full range of agricultural 
programs offered by the Department; and
    (c) Other areas as specified by the Secretary in the RFP.



Sec. 2500.106  Funding restrictions.

    Funds made available under this subpart shall not be used for the 
construction of a new building or facility or the acquisition, 
expansion, remodeling, or alteration of an existing facility (including 
site grading and improvement, and architect fees).



Sec. 2500.107  Matching.

    Matching funds are not required as a condition of receiving awards 
under this subpart.



Sec. 2500.108  Term of award.

    The award term will be defined in the OAO award agreement, and can 
be later amended upon approval of OAO.



Sec. 2500.109  Program requirements.

    Grants and cooperative agreements under this subpart shall address 
the priorities in the Department that involve providing outreach and 
technical assistance to socially disadvantaged farmers, ranchers, and 
forest landowners to own and operate farms and participate equitably in 
agricultural programs; and other priorities as determined by the 
Secretary.



PART 2502_AGRICULTURAL CAREER AND EMPLOYMENT (ACE) GRANTS PROGRAM--Table of Contents



                      Subpart A_General Information

Sec.
2502.1 Applicability of regulations.
2502.2 Definitions.
2502.3 Deviations.

          Subpart B_Program Eligibility, Services and Delivery

2502.4 Program eligibility.
2502.5 Program benefits and services.
2502.6 Recipients of program benefits or services.
2502.7 Responsibilities of grantees.

             Subpart C_Grant Applications and Administration

2502.8 Pre-award, award, and post-award procedures and administration of 
          grants.

    Authority: 7 U.S.C. 2008q-1

    Source: 76 FR 69117, Nov. 8, 2011, unless otherwise noted.



                      Subpart A_General Information



Sec. 2502.1  Applicability of regulations.

    (a) This part contains program-specific definitions for the ACE 
Grants Program.
    (b) Subpart B establishes the criteria to be used in determining 
eligibility for an ACE grant award and the requirements for the delivery 
of program benefits and services, including who is considered eligible 
to receive such benefits and services and what the responsibilities are 
of ACE grantees.
    (c) Subpart C establishes that, unless otherwise provided herein, 
the procedures for applying for ACE grants, the processes to be followed 
by OAO in evaluating grant proposals and awarding program funds, and the 
procedures for post-award administration of ACE grants are those set 
forth in a rule proposed ON DATE to codify provisions at 7 CFR part 
2500, subparts A, B, C, D, and E.



Sec. 2502.2  Definitions.

    As used in this part (unless otherwise indicated):
    Agency means the Office of Advocacy and Outreach (OAO), an agency of 
the United States Department of Agriculture (USDA) or a successor 
agency.
    Agricultural Employer means any person or entity which employs, as 
defined in the Migrant and Seasonal Agricultural Worker Protection Act, 
29 U.S.C. 1802, individuals engaged in agricultural employment and may 
include farmers, ranchers, dairy operators, agricultural cooperatives, 
and farm labor contractors.
    Agricultural Employment means any service or activity as defined in 
the Migrant and Seasonal Agricultural Worker Protection Act, 29 U.S.C. 
1802, including any activity defined as ``agriculture'' in Section 3(f) 
or the Fair Labor Standards Act of 1938, 29 U.S.C.

[[Page 39]]

203(f), any activity defined as ``agricultural labor'' in 26 U.S.C. 
3121(g) (the Internal Revenue Code); as well as the handling, planting, 
drying, packing, packaging, processing, freezing, or grading prior to 
delivery for storage of any agricultural or horticultural commodity in 
its unmanufactured state. Authorized Departmental Officer (ADO) means 
the individual, acting within the scope of delegated authority, who is 
responsible for executing and administering awards on behalf of the U.S. 
Department of Agriculture.
    Community-based organization means a non-governmental organization 
with a well-defined constituency that includes all or part of a 
particular community.
    Consortium means a group formed by entities with similar goals and 
objectives for the purpose of pooling resources to undertake a project 
that would otherwise be reasonably beyond the capabilities of any one 
member.
    Eligible entity, as described in section 379C(a) of the Consolidated 
Farm and Rural Development Act (7 U.S.C. 2008q(a)), means a non-profit 
organization, or a consortium of nonprofit organizations, 
agribusinesses, State and local governments, agricultural labor 
organizations, farmer or rancher cooperatives, and community-based 
organizations with the capacity to train farm workers.
    Farmworker means an individual hired to perform agricultural 
employment, including migrant, seasonal, and hired family farm workers. 
The term farmworker includes individuals who are not currently employed 
as a farmworker but who are actively seeking work as such. The term does 
not include agricultural employers or individuals who are self-employed.
    Grantee means the organization designated in the grant award 
document as the responsible legal entity to which a grant is awarded.
    Legally present in the United States shall have the same meaning as 
the term ``lawfully present'' in the United States as defined at 8 CFR 
103.12(a) (addressing eligibility for Title II Social Security benefits 
under Pub. L. 104-193).
    Notice of Funding Availability (NOFA) means a notice published in 
the Federal Register announcing the availability of money for the grants 
program which lists the application deadlines, eligibility requirements 
and locations where interested parties can get help in applying.
    Office of Advocacy and Outreach (OAO) means the Office of Advocacy 
and Outreach, an office within the USDA's Departmental Management.
    Request for Proposal (RFP) refers to a grant competition and is used 
interchangeably with the phrase grant application notice and 
solicitation for grant applications (SFA).
    Retaining an agricultural job means continuing agricultural 
employment, including upgraded employment.
    Returning from an agricultural job means returning to a home area 
from a position in agricultural employment.
    Secretary means the Secretary of Agriculture and any other officer 
or employee of the United States Department of Agriculture to whom the 
authority involved is delegated.
    Securing an agricultural job means obtaining agricultural 
employment.
    State means any of the States of the United States, the District of 
Columbia, the Virgin Islands, the Commonwealth of Puerto Rico, and Guam.
    United States worker (U.S. worker) shall have the same meaning as 
the term U.S. worker defined by the Department of Labor at 20 CFR 655.4.
    Upgrading an agricultural job means advancement to a position in 
agricultural employment which offers more hours of work and/or better 
terms and conditions of employment and/or an increase in wages.



Sec. 2502.3  Deviations.

    Any request by the applicant or grantee for a waiver or deviation 
from any provision of this part shall be submitted to the ADO identified 
in the agency specific requirements. OAO shall review the request and 
notify the applicant/grantee whether the request to deviate has been 
approved within 30 calendar days from the date of receipt of the 
deviation request. If the deviation request is still under consideration 
at the end of 30 calendar days, OAO shall inform the applicant/grantee 
in writing of the date when the applicant/grantee may expect the 
decision.

[[Page 40]]



          Subpart B_Program Eligibility, Services and Delivery



Sec. 2502.4  Program eligibility.

    (a) Entities eligible to apply for and receive a grant under this 
part include:
    (1) A non-profit organization;
    (2) A consortium of nonprofit organizations; or
    (3) A consortium which includes a non-profit organization(s) and one 
or more of the following: agribusinesses, State and local governments, 
agricultural labor organizations, farmer or rancher cooperatives, and 
community-based organizations with the capacity to train farm workers.
    (b) Additional information about eligible entities may be included 
in the RFP. In addition, the RFP will specify the criteria by which an 
entity's capacity to train farm workers will be evaluated, but at a 
minimum, the entity shall be required to demonstrate that it has:
    (1) An understanding of the issues facing hired farmworkers and 
conditions under which they work;
    (2) Familiarity with the agricultural industry in the geographic 
area to be served, including agricultural labor needs and existing 
services for farmworkers; and
    (3) The capacity to effectively administer a program of services and 
benefits authorized by the ACE program.
    (c) An applicant will be required to submit information to OAO, as 
specified in the RFP and/or FOA as part of the grant application.



Sec. 2502.5  Program benefits and services.

    (a) The ACE grants program will be centrally administered by the 
USDA in a manner consistent with these regulations, as well as the 
pertinent requirements of 7 CFR part 3015, 7 CFR part 3016, 7 CFR part 
3018, 7 CFR part 3019 and 7 CFR 3052.
    (b) The Office of Advocacy and Outreach (OAO) has been designated as 
the organizational unit responsible for administering the ACE program, 
including, among other things, determining the number and amount of 
grants to be awarded, the purposes for the grants to be awarded, as well 
as the criteria for the evaluation and award of grants.
    (c) Services and benefits provided under the ACE grants program are 
limited to those which will assist eligible farmworkers in securing, 
retaining, upgrading or returning from agricultural jobs.
    (d) Such services will include the following:
    (1) Agricultural labor skills development
    (2) Provision of agricultural labor market information:
    (3) Transportation:
    (4) Short-term housing while in transit to an agricultural worksite;
    (5) Workplace literacy and assistance with English as a second 
language;
    (6) Health and safety instruction, including ways of safeguarding 
the food supply of the United States;
    (7) Such other services as the Secretary deems appropriate.
    (e) Grant funds shall not be used to deliver or replace any services 
or benefits which an agricultural employer, association, contractor, or 
any other entity is legally obliged to provide.



Sec. 2502.6  Recipients of program benefits or services.

    (a) Those eligible to receive program services or benefits under the 
ACE program are farmworkers who meet the definition of ``United States 
Workers'' as set forth in Sec. 2502.2 of this part.
    (b) Grantees shall be responsible for verifying the employment of 
farmworkers who are actively employed and are seeking to participate in 
program services or benefits. Unemployed farmworkers seeking to 
participate shall be required to certify to grantees that they are 
eligible for program services and benefits as provided herein. 
Additional eligibility requirements may be included in the RFP.



Sec. 2502.7  Responsibilities of grantees.

    Each grantee is responsible for providing services and/or benefits 
authorized by this program in accord with a service delivery strategy 
described in its approved grant plan. The services must reflect the 
needs of the relevant farmworker population in the area to be served and 
be consistent with the

[[Page 41]]

goals of assisting farmworkers in securing, retaining, upgrading, or 
returning from agricultural jobs. The necessary components of a service 
delivery strategy and grant plan will be fully set forth in an RFP but 
the plan shall include, at a minimum, the following:
    (a) The employment and education needs of the farmworker population 
to be served;
    (b) The manner in which the proposed services to be delivered will 
assist agricultural employers and farmworkers in securing, retaining, 
upgrading or returning from agricultural jobs;
    (c) The manner in which the proposed services will be coordinated 
with other available services;
    (d) The number of participants the grantee expects to serve for each 
service provided, the results expected and the anticipated expenditures 
for each category of service.



             Subpart C_Grant Applications and Administration



Sec. 2502.8  Pre-award, award, and post-award procedures and 
administration of grants.

    (a) Unless otherwise provided in this rule, the requirements 
governing pre-award solicitation and submission of proposals and/or 
applications, the review and evaluation of such, the award of grant 
funds, and post-award and close-out procedures are those set forth at 7 
CFR part 2500, subparts A, B, C, D, and E.
    (b) For purposes of the ACE Grants Program, the provisions of 
Subpart E, at 7 CFR 2500.49, ``Prior Approvals,'' shall not apply. In 
lieu of that provision, the following requirements shall apply: Awardees 
may not subcontract more than 20 percent of the award to other parties 
without prior written approval of the ADO. To request approval, a 
justification for the proposed subcontract, a performance statement, and 
a detailed budget for the subcontract must be submitted in writing to 
the ADO.

                       PARTS 2503	2599 [RESERVED]

[[Page 43]]



  CHAPTER XXVI--OFFICE OF INSPECTOR GENERAL, DEPARTMENT OF AGRICULTURE




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                       PARTS 2600	2609 [RESERVED]



PART 2610_ORGANIZATION, FUNCTIONS, AND DELEGATIONS OF AUTHORITY--Table of Contents



Sec.
2610.1 General statement.
2610.2 Headquarters organization.
2610.3 Regional organization.
2610.4 Requests for service.
2610.5 Delegations of authority.

    Authority: 5 U.S.C. 301, 552; Inspector General Act of 1978, as 
amended, 5 U.S.C. app.; 7 U.S.C. 2270.

    Source: 81 FR 93574, Dec. 21, 2016, unless otherwise noted.



Sec. 2610.1  General statement.

    (a) The Inspector General Act of 1978, as amended, 5 U.S.C. app. (IG 
Act), established an Office of Inspector General (OIG) in the U.S. 
Department of Agriculture (USDA) and transferred to it the functions, 
powers, and duties of offices referred to in the Department as the 
``Office of Investigation'' and the ``Office of Audit,'' previously 
assigned to the OIG created by the Secretary's Memoranda 1915 and 1727, 
dated March 23, 1977, and October 5, 1977, respectively. Under the IG 
Act, OIG was established as an independent and objective unit, headed by 
the Inspector General (IG), who is appointed by the President and 
reports to and is under the general supervision of the Secretary.
    (b) OIG conducts and supervises audits and investigations relating 
to Department programs and operations; provides leadership and 
coordination and recommends policies for activities designed to promote 
economy, efficiency, and effectiveness in the administration of, and to 
prevent and detect fraud and abuse in, such programs and operations; and 
provides a means for keeping the Secretary of Agriculture and the 
Congress fully and currently informed about problems and deficiencies 
relating to the administration of such programs and operations and the 
necessity for and progress of corrective action.
    (c) The IG has specific duties, responsibilities, and authorities 
pursuant to the IG Act, including to:
    (1) Provide policy direction for, and conduct, supervise, and 
coordinate audits and investigations relating to USDA programs and 
operations.
    (2) Review existing and proposed legislation and regulations related 
to USDA programs and operations and make recommendations to the 
Secretary and the Congress on the impact such laws or regulations will 
have on the economy and efficiency of program administration or in the 
prevention and detection of fraud and abuse in USDA programs and 
operations.
    (3) Recommend policies for, and conduct, supervise, or coordinate 
other activities carried out or financed by USDA for the purpose of 
promoting economy and efficiency in the administration of, or preventing 
and detecting fraud and abuse, in USDA programs and operations.
    (4) Recommend policies for, and conduct, supervise, or coordinate 
relationships between, USDA and other Federal, State, and local 
governmental agencies and nongovernmental entities regarding the 
promotion of economy and efficiency, prevention of fraud and abuse, or 
the identification and prosecution of participants in fraud and abuse.
    (5) Keep the Secretary and the Congress fully and currently informed 
about problems, abuses, and deficiencies, and the necessity for and 
progress of corrective actions in the administration of USDA programs 
and operations.
    (6) Report expeditiously to the Attorney General any matter where 
there are reasonable grounds to believe there has been a violation of 
Federal criminal law.
    (7) Have access to all records, reports, audits, reviews, documents, 
papers, recommendations, or other material available to the Department 
which relate to programs and operations for which the IG has 
responsibility.
    (8) Make such investigations and reports relating to the 
administration of USDA programs and operations as are, in the judgment 
of the IG, necessary or desirable.
    (9) Request such information or assistance as may be necessary for 
carrying out the duties and responsibilities of the IG Act from any 
Federal,

[[Page 46]]

State, or local governmental agency or unit thereof.
    (10) Issue subpoenas for the production of information, documents, 
reports, answers, records, accounts, papers, and other data in any 
medium (including electronically stored information, as well as any 
tangible thing) and documentary evidence necessary in the performance of 
functions assigned by the IG Act, except that procedures other than 
subpoenas shall be used to obtain documents and information from Federal 
agencies.
    (11) Whenever necessary in the performance of functions assigned by 
the IG Act, administer to or take from any person an oath, affirmation, 
or affidavit, which shall have the same force and effect as if 
administered or taken by or before an officer having a seal.
    (12) Have direct and prompt access to the Secretary when necessary 
for any purpose pertaining to the performance of functions and 
responsibilities under the IG Act.
    (13) Select, appoint, and employ necessary officers and employees in 
OIG in accordance with laws and regulations governing the civil service, 
including an Assistant Inspector General for Audit (AIG/A) and an 
Assistant Inspector General for Investigations (AIG/I).
    (14) Obtain services as authorized by 5 U.S.C. 3109.
    (15) Enter into contracts and other arrangements for audits, 
inspections, studies, analyses, and other services with public agencies 
and private persons, and make such payments as may be necessary to carry 
out the provisions of the IG Act, to the extent and in such amounts as 
may be provided in advance by an appropriation act.
    (16) Receive and investigate complaints or information from any 
Department employee concerning the possible existence of an activity 
constituting a violation of law, rules, or regulations, or 
mismanagement, gross waste of funds, abuse of authority, or a 
substantial and specific danger to the public health and safety.
    (17) Designate a Whistleblower Protection Ombudsman, who will 
educate Department employees about prohibitions on retaliation for 
protected disclosures; and who have made or are contemplating making a 
protected disclosure about the rights and remedies against retaliation 
for protected disclosures.
    (d) Pursuant to Sec. 2.33 of this title, the Secretary has made the 
following delegations of authority to the IG:
    (1) Advise the Secretary and General officers in the planning, 
development, and execution of Department policies and programs.
    (2) At the request of the Secretary's security office, determine the 
availability of OIG law enforcement personnel to assist the security 
office in providing for the personal security of the Secretary and 
Deputy Secretary.
    (3) Serve as liaison official for the Department for all audits of 
USDA performed by the Government Accountability Office.
    (e) The IG, under section 1337 of the Agriculture and Food Act of 
1981, Public Law 97-98, 7 U.S.C. 2270, and pursuant to rules issued by 
the Secretary in part 1a of this title, has the authority to:
    (1) Designate OIG employees who investigate alleged or suspected 
felony criminal violations of statutes administered by the Secretary of 
Agriculture or any agency of USDA, when engaged in the performance of 
official duties to:
    (i) Make an arrest without a warrant for any such criminal felony 
violation if such violation is committed, or if the employee has 
probable cause to believe that such violation is being committed, in 
his/her presence;
    (ii) Execute and serve a warrant for an arrest, for the search of 
premises, or the seizure of evidence when issued under authority of the 
United States upon probable cause to believe that such a violation has 
been committed; and
    (iii) Carry a firearm.
    (2) Issue directives and take the actions prescribed by the 
Secretary's rules.



Sec. 2610.2  Headquarters organization.

    (a) OIG has a headquarters office in Washington, DC, and regional 
offices throughout the United States. The headquarters office consists 
of the immediate office of the IG, which includes three component 
offices, and four operational units.

[[Page 47]]

    (b) Immediate Office Components. (1) The Director of the Office of 
Compliance and Integrity (OCI) performs independent quality assurance 
and internal control reviews of OIG operations. OCI also investigates 
allegations of criminal and/or serious administrative misconduct by OIG 
employees.
    (2) Section 3(g) of the IG Act mandates that each IG shall obtain 
legal advice from a counsel either reporting directly to the IG or to 
another IG. Within USDA-OIG, such legal advice is provided by the 
Counsel to the Inspector General. The Office of Counsel (OC) provides 
legal advice and representation on issues arising during the course of 
audit, investigative, and Office of Data Sciences (ODS) activities or on 
internal administrative and management issues. OC also manages OIG's 
congressional, media relations, ethics, Freedom of Information Act, and 
Privacy Act programs; and reviews proposed legislation, regulations, and 
procedures.
    (3) The Director of the Office of Diversity and Conflict Resolution 
advises OIG leadership on applying the principles of civil rights, equal 
employment opportunity, dispute resolution, diversity, and inclusion, on 
matters affecting the OIG workforce, program activities, and development 
of policy. This office also guides all OIG personnel through the use of 
the Federal sector employment discrimination complaints and dispute 
resolution processes, as needed.
    (c) Operational units. (1) The AIG/A carries out the OIG's domestic 
and foreign audit operations through a headquarters office and three 
regional offices shown in Sec. 2610.3(a). The staff provides for audit 
review of information technology (IT) security throughout USDA. Auditing 
officials conduct operational liaison on audit matters; schedule and 
conduct audits; release audit reports to management; monitor agency 
action to assure that audit reports have been properly acted upon 
through review of Department management follow up systems; monitor the 
quality of OIG audit reports; and coordinate activities with the AIG/I. 
The staff also provides an integrated approach to fraud prevention and 
detection and management improvement in USDA programs and operations; 
coordinates analyses and reports on vulnerability assessments; and 
recommends policies and provides technical assistance for audit 
operations. The Auditing headquarters office consists of the immediate 
office of the AIG/A and five staff divisions.
    (2) The Assistant Inspector General for Data Sciences carries out 
OIG's data sciences operations through a headquarters office. OIG 
officials within ODS perform predictive data analysis, statistical 
sampling, modeling, computer matching, data mining, and data warehousing 
of USDA programs and operations in support of OIG audits, 
investigations, and other activities.
    (3) The AIG/I carries out OIG's domestic and foreign investigative 
operations through a headquarters office and the five regional offices 
shown in Sec. 2610.3(b). Investigations officials conduct operational 
and intelligence liaison on investigative matters with the Federal 
Bureau of Investigation, Secret Service, Internal Revenue Service, 
Interpol, and other Federal, State, and local law enforcement 
organizations; determine the need for investigative action; conduct 
investigations; prepare factual reports of investigative findings; refer 
reports for appropriate administrative or legal action; follow up on 
agency actions to assure that OIG investigative reports have been 
properly acted upon; monitor the quality of investigative reports; and 
coordinate activities with the AIG/A. The staff also conducts special 
investigations of major programs, operations, and high level officials; 
can assist the Secretary's security office in providing for the 
protection of the Secretary and Deputy Secretary; and receives and 
processes employee complaints concerning possible violations of laws, 
rules, regulations or mismanagement. The OIG Whistleblower Protection 
Ombudsman described in Sec. 2610.1(c)(17) is located within the Office 
of Investigations.
    (4) The Assistant Inspector General for Management (AIG/M) manages 
formulation of OIG policies and procedures; develops, administers and 
directs comprehensive programs for the

[[Page 48]]

management, budget, financial, personnel, systems improvement, and 
information activities and operations of OIG; and is responsible for OIG 
IT and information management systems. The staff maintains OIG's 
directives system, and Departmental Regulations and Federal Register 
issuances. The immediate office of the AIG/M and four divisions carry 
out these functions.



Sec. 2610.3  Regional organization.

    (a) Each regional Audit Director is responsible to the IG and to the 
AIG/A for supervising the performance of all OIG auditing activities 
relating to the Department's domestic and foreign programs and 
operations within an assigned geographic area. The addresses and 
telephone numbers of the three Audit regional offices and the 
territories served are as follows:

         Audit Region, Address, Telephone Number, and Territory

Eastern Region, 5601 Sunnyside Avenue, Suite 2-2230 (Mail Stop 5300), 
Beltsville, Maryland 20705-5300, (301) 504-2100; Alabama, Arkansas, 
Connecticut, Delaware, District of Columbia, Florida, Georgia, Illinois, 
Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, 
Mississippi, New Hampshire, New Jersey, New Mexico, New York, North 
Carolina, Ohio, Oklahoma, Pennsylvania, Puerto Rico, Rhode Island, South 
Carolina, Tennessee, Texas, Vermont, Virgin Islands, Virginia, West 
Virginia, and Wisconsin.
Midwestern Region, 8930 Ward Parkway, Suite 3016, Kansas City, Missouri 
64114, (816) 926-7667; Colorado, Iowa, Kansas, Missouri, Montana, 
Minnesota, Nebraska, North Dakota, South Dakota, Utah, and Wyoming.
Western Region, 1333 Broadway, Suite 400, Oakland, California 94612, 
(510) 208-6800; Alaska, Arizona, California, Hawaii, Idaho, Nevada, 
Oregon, Territory of Guam, Trust Territories of the Pacific, and 
Washington.

    (b) Each regional Special Agent-in-Charge (SAC) is responsible to 
the IG and to the AIG/I for supervising the performance of all OIG 
investigative activities relating to the Department's domestic and 
foreign programs and operations within an assigned geographic area. The 
addresses and telephone numbers of the five Investigations regional 
offices and the territories served are as follows:

     Investigations Region, Address, Telephone Number, and Territory

Midwest Region, 111 N. Canal Street, Suite 325, Chicago, Illinois 60606-
7296, (312) 353-1358; Illinois, Indiana, Iowa, Michigan, Minnesota, 
North Dakota, Ohio, South Dakota, and Wisconsin.
Northeast Region, 26 Federal Plaza, Room 1409, New York, New York 10278-
0004, (212) 264-8400; Connecticut, Delaware, District of Columbia, 
Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, 
Pennsylvania, Rhode Island, Vermont, Virginia, and West Virginia.
Southeast Region, 401 W. Peachtree Street NW., Room 2329, Atlanta, 
Georgia 30308, (404) 730-3274; Alabama, Florida, Georgia, Kentucky, 
North Carolina, Puerto Rico, South Carolina, Tennessee, and the Virgin 
Islands.
Southwest Region, 101 South Main, Room 311, Temple, Texas 76501, (254) 
743-6535; Arkansas, Kansas, Louisiana, Mississippi, Missouri, Nebraska, 
New Mexico, Oklahoma, and Texas.
Western Region, 1333 Broadway, Suite 400, Oakland, California 94612, 
(510) 208-6860; Alaska, Arizona, California, Colorado, Hawaii, Idaho, 
Montana, Nevada, Oregon, Territory of Guam, Trust Territories of the 
Pacific, Utah, Washington, and Wyoming.



Sec. 2610.4  Requests for service.

    (a) Heads of USDA agencies will direct requests for audit or 
investigative service to the AIG/A, AIG/I, Audit Director, SAC, or to 
other OIG audit or investigation officials responsible for providing 
service of the type desired in the geographical area where service is 
desired.
    (b) Agency officials or other employees may, at any time, direct to 
the personal attention of the IG any audit or investigation matter that 
warrants such attention.
    (c) Other persons (i.e., non-USDA personnel) may address their 
communications regarding audit or investigative matters to: The 
Inspector General, U.S. Department of Agriculture, USDA Stop 2301, 
Washington, DC 20250.
    (d) OIG has established several channels for USDA employees and the 
general public to report fraud, waste, abuse, and mismanagement in USDA 
programs, or misconduct by a USDA employee. These include a general OIG 
Hotline, a Bribery/Assault Line, and (for USDA employees) a 
Whistleblower Ombudsman.

[[Page 49]]

    (1) General fraud, waste, and abuse hotline:
    (i) File complaint online: http://www.usda.gov/oig/hotline.htm 
(click on ``Submit a Complaint'' button);
    (ii) Telephone: (800) 424-9121, (202) 690-1622, or (202) 690-1202 
(Telecommunication Device for the Deaf);
    (iii) Facsimile: (202) 690-2474; or
    (iv) Write a letter to United States Department of Agriculture, 
Office of Inspector General, P.O. Box 23399, Washington, DC 20026.
    (2) Bribery/Assault Line: (202) 720-7257 (24 hours a day).
    (3) Whistleblower Protection Ombudsman. USDA employees may contact 
the Ombudsman via email at: [email protected]. Additional 
information about the Ombudsman is available online at https://
www.usda.gov/oig/ombudsman.htm.



Sec. 2610.5  Delegations of authority.

    (a) AIGs, Directors, and Counsel listed in Sec. 2610.2, and Audit 
Directors and SACs listed in Sec. 2610.3, are authorized to take 
whatever actions are necessary to carry out their assigned functions. 
This authority may be re-delegated.
    (b) The IG reserves the right to establish audit and investigation 
policies, program, procedures, and standards; to allocate appropriated 
funds; to determine audit and investigative jurisdiction; and to 
exercise any of the powers or functions or perform any of the duties 
referenced in the above delegation.



PART 2620_AVAILABILITY OF INFORMATION TO THE PUBLIC--Table of Contents



Sec.
2620.1 General statement.
2620.2 Public inspection.
2620.3 Requests.
2620.4 Denials.
2620.5 Appeals.

    Authority: 5 U.S.C. 301, 552; Inspector General Act of 1978, as 
amended, 5 U.S.C. app. 3.

    Source: 81 FR 94230, Dec. 23, 2016, unless otherwise noted.



Sec. 2620.1  General statement.

    This part supplements the regulations of the Secretary of 
Agriculture implementing the Freedom of Information Act, 5 U.S.C. 552 
(FOIA) (subpart A of part 1 of this title, including the appendix), and 
governs the availability of records of the Office of Inspector General 
(OIG) to the public upon request.



Sec. 2620.2  Public inspection.

    The FOIA requires that certain materials be made available for 
public inspection in an electronic format. OIG records are available for 
public inspection on OIG's public Web site, https://www.usda.gov/oig/
foia.htm.



Sec. 2620.3  Requests.

    Requests for OIG records shall be submitted to OIG's Office of 
Counsel and will be processed in accordance with subpart A of part 1 of 
this title. Specific guidance on how to submit requests (including 
current contact methods) is available through OIG's Web site, https://
www.usda.gov/oig/foiareq.htm, and USDA's public FOIA Web site.



Sec. 2620.4  Denials.

    If it is determined that a requested record is exempt from mandatory 
disclosure and that discretionary release would be improper, the Counsel 
to the Inspector General or the Counsel's designee shall give written 
notice of denial in accordance with subpart A of part 1 of this title.



Sec. 2620.5  Appeals.

    The denial of a requested record may be appealed in accordance with 
subpart A of part 1 of this title. Appeals shall be addressed to the 
Inspector General, U.S. Department of Agriculture, 1400 Independence 
Avenue SW., Whitten Building, Suite 441-E, Washington, DC 20250-2308. 
The Inspector General will give notice of the determination concerning 
an appeal in accordance with subpart A of part 1 of this title.

                       PARTS 2621	2699 [RESERVED]

[[Page 51]]



CHAPTER XXVII--OFFICE OF INFORMATION RESOURCES MANAGEMENT, DEPARTMENT OF 
                               AGRICULTURE




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PART 2700_ORGANIZATION AND FUNCTIONS--Table of Contents



Sec.
2700.1 General statement.
2700.2 Organization.
2700.3 Functions.

    Authority: 5 U.S.C. 301, 552; 7 CFR 2.81.

    Source: 47 FR 39128, Sept. 7, 1982, unless otherwise noted.



Sec. 2700.1  General statement.

    This part is issued in accordance with 5 U.S.C. 552(a) to provide 
guidance for the general public as to the organization and functions of 
the Office of Information Resources Management.



Sec. 2700.2  Organization.

    The Office of Information Resources Management (OIRM) was 
established on January 12, 1982. Delegations of authority to the 
Director, OIRM appear at 7 CFR 2.81. The organization is comprised of 
five headquarters divisions, an administrative staff and three computer 
centers to serve the Department. The organization is headed by the 
Director or, in the Director's absence, by the Deputy Director or, in 
the absence of both, by the Director's desginee.



Sec. 2700.3  Functions.

    (a) Director. Provides executive direction for OIRM. Develops and 
recommends Departmental information resources management principles, 
policies, and objectives; develops and disseminates Departmental 
information resources management standards, guidelines, rules, and 
regulations necessary to implement approved principles, policies, and 
programs; designs, develops, implements, and revises systems, processes, 
work methods, and techniques to improve the management of information 
resources and the operational effectiveness of the Department; provides 
telecommunications and automated data processing services to the 
Department's agencies and staff offices.
    (b) Deputy Director. Assists the Director and, in the absence of the 
Director, serves as the Acting Director.
    (c) Administrative Management Staff. Provides support for agency 
management regarding budget, accounting, personnel, and other 
administrative matters.
    (d) Planning Division. Defines, develops, guides, and administers 
the Department's long-range planning process for information resources.
    (e) Information Management Division. Develops policy, standards and 
guidelines for collection, protection, access, use and management of 
information.
    (f) Review and Evaluation Division. Reviews and evaluates 
information resources programs and activities of Department agencies and 
staff offices for conformance with plans, policies, and standards.
    (g) Agency Technical Services Division. Advises and consults with 
and assists Department agencies and staff offices on activities related 
to the development and implementation of automated information systems.
    (h) Operations and Telecommunications Division. Coordinates the 
development and implementation of programs for ADP and 
telecommunications resource planning within Departmental computer 
centers and the National Finance Center, and for the acquisition and use 
of Department-wide telecommunications facilities and services.
    (i) Departmental Computer Centers. The following centers provide ADP 
facilities and services to agencies and staff offices of the Department.
    (1) Washington Computer Center, 14th and Independence Ave., SW., Rm. 
S-107-South, Washington, DC 20250.
    (2) Fort Collins Computer Center, 3825 E. Mulberry Street (P.O. Box 
1206), Fort Collins, CO 80524.
    (3) Kansas City Computer Center, 8930 Ward Parkway (P.O. Box 205), 
Kansas City, MO 64141.



PART 2710_AVAILABILITY OF INFORMATION TO THE PUBLIC--Table of Contents



Sec.
2710.1 General statement.
2710.2 Public inspection and copying.
2710.3 Indexes.
2710.4 Initial request for records.
2710.5 Appeals.

Appendix A to Part 2710--List of Addresses

    Authority: 5 U.S.C. 301, 552; 7 CFR 1.1-1.16.

    Source: 47 FR 39129, Sept. 7, 1982, unless otherwise noted.

[[Page 54]]



Sec. 2710.1  General statement.

    This part is issued in accordance with 7 CFR 1.4 of the U.S. 
Department of Agriculture regulations governing the availability of 
records (7 CFR 1.1-1.16 and Appendix A) under the Freedom of Information 
Act (5 U.S.C. 552). The Department's regulations, as supplemented by the 
regulations in this part, provide guidance for any person wishing to 
request records from the Office of Information Resources Management 
(OIRM).



Sec. 2710.2  Public inspection and copying.

    (a) Background. 5 U.S.C. 552(a)(2) required that each agency make 
certain kinds of records available for public inspection and copying.
    (b) Procedure. Persons wishing to gain access to OIRM records should 
contact the Information Access & Disclosure Officer by writing to the 
address shown in 2710.4(b)(2).



Sec. 2710.3  Indexes.

    (a) Background. 5 U.S.C. 552(a)(2) also required that each agency 
maintain and make available for public inspection and copying current 
indexes providing identifying information for the public with regard to 
any records which are made available for public inspection and copying.
    (b) Procedure. Persons wishing to get an index may contact the 
division or center that maintains the records. Publication of these 
indexes as a separate document is unnecessary and impractical.



Sec. 2710.4  Initial request for records.

    (a) Background. The Information Access and Disclosure Officer is 
authorized to:
    (1) Grant or deny requests for OIRM records.
    (2) Make discretionary releases of OIRM records when it is 
determined that the public interests in disclosure outweigh the public 
and/or private ones in withholding.
    (3) Reduce or waive fees to be charged where determined to be 
appropriate.
    (b) Procedure. Persons wishing to request records from the Office of 
Information Resources Management may do so as follows:
    (1) How. Submit each initial request for OIRM records as prescribed 
in 7 CFR 1.3(a).
    (2) Where. Submit each initial request to the Information Access and 
Disclosure Officer, Office of Information Resources Management, USDA, 
14th and Independence Ave., SW., Room 407-W, Washington, DC 20250.



Sec. 2710.5  Appeals.

    Procedure. Any person whose initial request is denied in whole or in 
part may appeal that denial, in accordance with 7 CFR 1.3(e) and 1.7, to 
the Director, Office of Information Resources Management, by sending the 
appeal to the Information Access and Disclosure Officer, Office of 
Information Resources Management, USDA, 14th and Independence Ave., SW., 
Room 407-W, Washington, DC 20250. The Director, Office of Information 
Resources Management, will make the determination on the appeal.



             Sec. Appendix A to Part 2710--List of Addresses

                           Section 1. General

    This list provides the titles and mailing addresses of officials who 
have custody of OIRM records. This list also identifies the normal 
working hours, Monday through Friday, excluding holidays, during which 
public inspection and copying of certain kinds of records, and indexes 
to those records, is permitted.

                      Section 2. List of Addresses

Director, Office of Information Resources Management, 14th and 
Independence Ave., SW., Rm. 113-W, Washington, DC 20250; Hours: 8:30 
a.m.-5:00 p.m.
Chief, Planning Division, OIRM, 14th and Independence Ave., SW., Rm. 
446-W, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.
Chief, Review and Evaluation Division, OIRM, 14th and Independence Ave., 
SW., Rm. 442-W, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.
Chief, Agency Technical Services Division, OIRM, 14th and Independence 
Ave., SW., Rm. 416-W, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.
Chief, Operations and Telecommunications Division, OIRM, 14th and 
Independence Ave., SW., Rm. 419-W, Washington, DC 20250; Hours: 8:30 
a.m.-5:00 p.m.
Chief, Information Management Division, OIRM, 14th and Independence 
Ave., SW., Rm. 404-W, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.

[[Page 55]]

Chief, St. Louis Computer Center, OIRM, 1520 Market Street, Rm. 3441, 
St. Louis, MO 63101; Hours: 8:00 a.m.-4:40 p.m.
Director, Kansas City Computer Center, OIRM, 8930 Ward Parkway, (P.O. 
Box 205), Kansas City, MO 64141; Hours: 8:00 a.m.-4:45 p.m.
Director, Fort Collins Computer Center, OIRM, 3825 E. Mulberry Street, 
(P.O. Box 1206), Fort Collins, CO 80521; Hours: 8:00 a.m.-4:30 p.m.
Director, Washington Computer Center, OIRM, 14th and Independence Ave., 
SW., Rm. S-107-S, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.
Information Access and Disclosure Officer, OIRM, 14th and Independence 
Ave., SW., Rm. 407-W, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.

                       PARTS 2711	2799 [RESERVED]

[[Page 57]]



     CHAPTER XXVIII--OFFICE OF OPERATIONS, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
2800-2809

 [Reserved]

2810            Organization and functions--Office of 
                    Operations..............................          59
2811            Availability of information to the public...          59
2812            Department of Agriculture guidelines for the 
                    donation of excess research equipment 
                    under 15 U.S.C. 3710(i).................          61
2813-2899

 [Reserved]

[[Page 59]]

                       PARTS 2800	2809 [RESERVED]



PART 2810_ORGANIZATION AND FUNCTIONS_OFFICE OF OPERATIONS--Table of Contents



Sec.
2810.1 General statement.
2810.2 Organization.
2810.3 Functions.

    Authority: 5 U.S.C. 301 and 552; 7 CFR 2.76.

    Source: 54 FR 52013, Dec. 20, 1989, unless otherwise noted.



Sec. 2810.1  General statement.

    This part is issued in accordance with 5 U.S.C. 552(a) to provide 
guidance for the general public as to Office of Operations (OO) 
organization and functions.



Sec. 2810.2  Organization.

    The Office of Operations (OO) was established January 12, 1982. 
Delegations of authority to the Director, OO, appear at 7 CFR 2.76. The 
organization is comprised of six divisions and one staff located at 
Department headquarters. Description of the functions of these 
organizational units are in the following section. The organization is 
headed by a Director.



Sec. 2810.3  Functions.

    (a) Director. Provides executive direction for OO. Develops and 
promulgates overall policies and provides general direction, leadership, 
oversight, and coordination of USDA management of procurement, real and 
personal property activities, mail and copier management. Provides 
executive services to the Office of the Secretary and operates 
activities providing consolidated USDA administrative functions and 
services.
    (b) Deputy Director. Assists the Director, and in the absence of the 
Director, serves as Acting Director.
    (c) Administrative Unit. Provides support for agency management 
regarding budget, accounting, personnel, and other administrative 
matters.
    (d) Executive Services Division. Provides executive services to the 
Office of the Secretary in travel arrangements, supplies, furnishings, 
communications, equipment, and records. Operates the central USDA DC 
imprest fund.
    (e) Facilities Management Division. Operates and maintains the USDA 
DC headquarters building complex, including headquarters parking. 
Oversees management and operation of USDA buildings nationwide, and 
provides DC area labor services.
    (f) Mail and Reproduction Management Division. Oversees USDA mail, 
copier, and duplicating programs. Operates DC area central activities in 
these areas.
    (g) Personal Property Management Division. Oversees USDA supply, 
motor vehicle, and personal property programs. Operates centralized 
warehouse and property rehabilitation facilities.
    (h) Procurement Division. Oversees USDA procurement programs. 
Operates centralized purchasing operations for ADP and Washington area 
activities.
    (i) Real Property Management Division. Oversees USDA real property 
management programs.



PART 2811_AVAILABILITY OF INFORMATION TO THE PUBLIC--Table of Contents



Sec.
2811.1 General statement.
2811.2 Public inspection and copying.
2811.3 Indexes.
2811.4 Initial requests for records.
2811.5 Appeals.
2811.6 Fee schedule.

Appendix A to Part 2811--List of Addresses

    Authority: 5 U.S.C. 301 and 552 (as amended); 7 CFR 1.3.

    Source: 54 FR 52014, Dec. 20, 1989, unless otherwise noted.



Sec. 2811.1  General statement.

    This part is issued in accordance with 7 CFR 1.3 of the Department 
of Agriculture regulations governing the availability of records (7 CFR 
1.1-1.23 and Appendix A) under the Freedom of Information Act (FOIA), 5 
U.S.C. 552. The Department's regulations, as supplemented by the 
regulations in this part, provide guidance for any person wishing to 
request records from Office of Operations.



Sec. 2811.2  Public inspection and copying.

    (a) Background. 5 U.S.C. 552(a)(2) requires that each agency 
maintain and

[[Page 60]]

make available for public inspection and copying certain kinds of 
records.
    (b) Procedure. To gain access to OO records that are available for 
public inspection, contact the division that maintains them. See 
Appendix A, List of Addresses, for the location and hours of operation.



Sec. 2811.3  Indexes.

    (a) Background. 15 U.S.C. 552(a)(2) also requires that each agency 
maintain and make available for public inspection and copying current 
indexes provided identifying information for the public with regard to 
any records which are made available for public inspection and copying. 
OO does not maintain any materials within the scope of these 
requirements.



Sec. 2811.4  Initial requests for records.

    (a) Background. The head of each OO division, each OO contracting 
officer, each OO leasing officer, and the OO FOIA officer is authorized 
to:
    (1) Grant or deny requests for OO records.
    (2) Make discretionary release of OO records when it is determined 
that the public interest in disclosure outweighs the public and/or 
private ones in withholding.
    (3) Reduce or waive fees to be charged where determined to be 
appropriate.
    (4) Refer a request to the OO FOIA Officer for determination.
    (b) Procedures. Persons wishing to request records from the Office 
of Operations may do so as follows:
    (1) How. Submit each initial request for OO records as prescribed in 
7 CFR 1.6.
    (2) Where. Submit each initial request to the head of the unit that 
maintains the records. See Appendix A, List of Addresses. Contact the 
FOIA Officer for guidance as needed. Or, submit the request to the FOIA 
Officer for forwarding to the proper officials: FOIA Officer, Office of 
Operations, USDA, Room 134-W Administration Building, 14th & 
Independence Avenue SW., Washington, DC 20250.



Sec. 2811.5  Appeals.

    Procedure. Any person whose initial request is denied in whole or in 
part may appeal that denial, in accordance with 7 CFR 1.6(e) and 1.8, to 
the Director, Office of Operations, USDA, Room 113-W Administration 
Building, 14th & Independence Avenue SW., Washington, DC 20250.



Sec. 2811.6  Fee schedule.

    Department regulations provide for a schedule of reasonable standard 
charges for document search and duplication. See 7 CFR 1.2(b). Fees to 
be charged are set forth in 7 CFR part 1, subpart A, appendix A.



             Sec. Appendix A to Part 2811--List of Addresses

                           Section 1. General

    This list provides the titles and mailing address of officials who 
have custody of OO records. The normal working hours of these offices 
are 8:30 a.m. to 5:00 p.m., Monday through Friday, exclusing holidays, 
during which public inspection and copying of certain kinds of records 
is permitted.

                      Section 2. List of Addresses

    All of the following addresses are located at 14th Street and 
Independence Avenue, Washington, DC. Address mail as follows:

Director, Office of Operations, USDA, Room 113-W Administration 
Building, Washington, DC 20250.
FOIA Officer, Office of Operations, USDA, Room 134-W Administration 
Building, Washington, DC 20250.
Chief, Administrative Unit, Office of Operations, USDA, Room 134-W, 
Washington, DC 20250.
Chief, Executive Services Division, Office of Operations, USDA, Room 10-
A, Administration Building, Washington, DC 20250.
Chief, Facilities Management Division, Office of Operations, USDA, Room 
S-313 South Building, Washington, DC 20250.
Chief, Mail and Reproduction Management Division, Office of Operations, 
USDA, Room 1540 South Building, Washington, DC 20250.
Chief, Personal Property Management Division, Office of Operations, USDA 
Room 1524 South Building, Washington, DC 20250.
Chief, Procurement Division, Office of Operations, USDA, Room 1550 South 
Building, Washington, DC 20250.
Chief, Real Property Management Division, Office of Operations, USDA, 
Room 1566, South Building, Washington, DC 20250.

[[Page 61]]



PART 2812_DEPARTMENT OF AGRICULTURE GUIDELINES FOR THE DONATION OF EXCESS RESEARCH EQUIPMENT UNDER 15 U.S.C. 3710(i)--Table of Contents



Sec.
2812.1 Purpose.
2812.2 Eligibility.
2812.3 Definitions.
2812.4 Procedures.
2812.5 Restrictions.
2812.6 Title.
2812.7 Costs.
2812.8 Accountability and recordkeeping.
2812.9 Disposal.
2812.10 Liabilities and losses.

    Authority: 5 U.S.C. 301; E.O. 12999, 61 FR 17227, 3 CFR, 1997 Comp., 
p. 180.

    Source: 60 FR 34456, July 3, 1995, unless otherwise noted.



Sec. 2812.1  Purpose.

    This part sets forth the procedures to be utilized by USDA agencies 
and laboratories in the donation of excess research equipment to 
educational institutions and non-profit organizations for the conduct of 
technical and scientific education and research activities as authorized 
by 15 U.S.C. 3710(i). Title to excess research equipment donated 
pursuant to 15 U.S.C. 3710(i), shall pass to the donee.



Sec. 2812.2  Eligibility.

    Eligible organizations are educational institutions or non-profit 
organizations involved in the conduct of technical and scientific 
educational and research activities.



Sec. 2812.3  Definitions.

    (a) Cannibalization. The dismantling of equipment for parts to 
repair or enhance other equipment. The residual is reported for 
disposal. Cannibalization is only authorized if the property value is 
greater when cannibalized than retention in the original condition.
    (b) Community-based educational organization means nonprofit 
organizations that are engaged in collaborative projects with pre-
kindergarten through twelfth grade educational institutions or that have 
education as their primary focus. Such organizations shall qualify as 
nonprofit educational institutions for purposes of section 203(j) of the 
Federal Property and Administrative Services Act of 1949 (40 U.S.C. 
484(j)).
    (c) Educational institution means a public or private, non-profit 
educational institution, encompassing pre-kindergarten through twelfth 
grade and two- and four-year institutions of higher education, as well 
as public school districts.
    (d) Educationally useful Federal equipment means computers and 
related peripheral tools (e.g., printers, modems, routers, and servers), 
including telecommunications and research equipment, that are 
appropriate for use in pre-kindergarten, elementary, middle, or 
secondary school education. It shall also include computer software, 
where the transfer of licenses is permitted.
    (e) Excess personal property. Items of personal property no longer 
required by the controlling Federal agency.
    (f) Federal empowerment zone or enterprise community (EZ/EC) means a 
rural area designated by the Secretary of Agriculture under 7 CFR part 
25.
    (g) Non-profit organization means any corporation, trust 
association, cooperative, or other organization which:
    (1) Is operated primarily for scientific, educational, service, 
charitable, or similar purposes in the public interest;
    (2) Is not organized primarily for profit; and
    (3) Uses its net proceeds to maintain, improve, or expand its 
operations. For the purposes of this part, ``non-profit organizations'' 
may include utilities affiliated with institutions of higher education, 
or with state and local governments and federally recognized Indian 
tribes.
    (h) Research equipment. Federal property determined to be essential 
to conduct scientific or technical educational research.
    (i) Technical and scientific education and research activities. Non-
profit tax exempt public educational institutions or government 
sponsored research organizations which serve to conduct technical and 
scientific education and research.

[60 FR 34456, July 3, 1995, as amended at 65 FR 69857, Nov. 21, 2000]

[[Page 62]]



Sec. 2812.4  Procedures.

    (a) [Reserved]
    (b) Each agency head will designate in writing an authorized 
official to approve donations of excess property/equipment under this 
part.
    (c) After USDA screening has been accomplished, excess personal 
property targeted for donation under this part will be made available on 
a first-come, first-served basis. If there are competing requests, 
donations will be made to eligible recipients in the following priority 
order:
    (1) Educationally useful Federal equipment for pre-kindergarten 
through twelfth grade educational institutions and community-based 
educational organizations in rural EZ/EC communities;
    (2) Educationally useful Federal equipment for pre-kindergarten 
through twelfth grade educational institutions and community-based 
educational organizations not in rural EZ/EC areas;
    (3) All other eligible organizations.
    (d) Upon reporting property for excess screening, if the pertinent 
USDA agency has an eligible organization in mind for donation under this 
part, it shall enter ``P.L. 102-245'' in the note field. The property 
will remain in the excess system approximately 30 days, and if no USDA 
agency or cooperator requests it during the excess cycle, the 
Departmental Excess Personal Property Coordinator will send the agency a 
copy of the excess report stamped, ``DONATION AUTHORITY TO THE HOLDING 
AGENCY IN ACCORDANCE WITH P.L. 102-245.'' The holding USDA agency may 
then donate the excess property to the eligible organization.
    (e) Donations under this Part will be accomplished by preparing a 
Standard Form (SF) 122, ``Transfer Order-Excess Personal Property''.
    (f) The SF-122 should be signed by both an authorized official of 
the agency and the Agency Property Management Officer. The following 
information should also be provided.
    (1) Name and address of Donee Institution (Ship to)
    (2) Agency name and address (holding Agency)
    (3) Location of property
    (4) Shipping instructions (Donee contact person)
    (5) Complete description of property, including acquisition amount, 
serial no., condition code, quantity, and agency order no.
    (6) This statement needs to be added following property 
descriptions. ``The property requested hereon is certified to be used 
for the conduct of technical and scientific education and research 
activities. This donation is pursuant to the provisions of Pub. L. 102-
245.''
    (g) Once the excess personal property/equipment is physically 
received, the donee is required to immediately return a copy of the SF-
122 to the donating agency indicating receipt of requested items. 
Cancellations should be reported to DEPPC so the property can be 
reported to the General Services Administration (GSA).

    Note: The USDA agency shall send an informational copy of the 
transaction to GSA.

[60 FR 34456, July 3, 1995, as amended at 65 FR 69857, Nov. 21, 2000]



Sec. 2812.5  Restrictions.

    (a) The authorized official (see Sec. 2812.4(b)) will approve the 
donation of excess personal property/equipment in the following groups 
to educational institutions or nonprofit organizations for the conduct 
of technical and scientific educational and research activities.

                             Eligible Groups
------------------------------------------------------------------------
               FSC group                               Name
------------------------------------------------------------------------
19.....................................  Ships, Small Craft, Pontoons,
                                          and Floating Docks.
23.....................................  Vehicles, Trailers and Cycles.
24.....................................  Tractors.
37.....................................  Agricultural Machinery and
                                          Equipment.
43.....................................  Pumps, Compressors.
48.....................................  Valves.
58.....................................  Communication, Detection, and
                                          Coherent Radiation Equipment.
59.....................................  Electrical and Electronic
                                          Equipment Components.
65.....................................  Medical, Dental, and Veterinary
                                          Equipment and Supplies.
66.....................................  Instruments and Laboratory
                                          Equipment.
67.....................................  Photographic Equipment.
68.....................................  Chemicals and Chemical
                                          Products.
70.....................................  General Purpose Automatic Data
                                          Processing Equipment, Software
                                          Supplies, and Support
                                          Equipment.
74.....................................  Office Machines and Visible
                                          Record Equipment.
------------------------------------------------------------------------


[[Page 63]]

    Note: Requests for items in FSC Groups or Classes other than the 
above should be referred to the agency head for consideration and 
approval.
    (b) Excess personal property/equipment may be donated for 
cannibalization purposes, provided the donee submits a supporting 
statement which clearly indicates that cannibalizing the requested 
property for secondary use has greater potential benefit than 
utilization of the item in its existing form.



Sec. 2812.6  Title.

    Title to excess personal property/equipment donated under this Part 
will automatically pass to the donee once the sponsoring agency receives 
the SF-122 indicating that the donee has received the property.



Sec. 2812.7  Costs.

    Donated excess personal property/equipment is free of charge. 
However, the donee must pay all costs associated with packaging and 
transportation, unless the sponsoring agency has made other 
arrangements. The donee should specify the method of shipment.



Sec. 2812.8  Accountability and recordkeeping.

    USDA requires that property requested by a donee be placed into use 
by the donee within a year of receipt and used for at least 1 year 
thereafter. Donees must maintain accountable records for such property 
during this time period.



Sec. 2812.9  Disposal.

    When the property is no longer needed by the donee, it may be used 
in support of other Federal projects or sold and the proceeds used for 
technical and scientific education and research activities.



Sec. 2812.10  Liabilities and losses.

    USDA assumes no liability with respect to accidents, bodily injury, 
illness, or any other damages or loss related to excess personal 
property/equipment donated under this part. The donee is advised to 
insure or otherwise protect itself and others as appropriate.

                       PARTS 2813	2899 [RESERVED]

[[Page 65]]



   CHAPTER XXIX--OFFICE OF ENERGY POLICY AND NEW USES, DEPARTMENT OF 
                               AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
2900            Essential agricultural uses and volumetric 
                    requirements--Natural Gas Policy Act....          67
2901            Administrative procedures for adjustments of 
                    natural gas curtailment priority........          68
2902

[Reserved]

2903            Biodiesel fuel education program............          72
2904-2999

 [Reserved]

[[Page 67]]



PART 2900_ESSENTIAL AGRICULTURAL USES AND VOLUMETRIC
REQUIREMENTS_NATURAL GAS POLICY ACT--Table of Contents



Sec.
2900.1 General.
2900.2 Definitions.
2900.3 Essential agricultural uses.
2900.4 Natural gas requirements.
2900.6 Effective date.

    Authority: Pub. L. 95-621, Nov. 9, 1978.

    Source: 44 FR 28786, May 17, 1979, unless otherwise noted.



Sec. 2900.1  General.

    Section 401(c) of the Natural Gas Policy Act of 1978 (NGPA) requires 
the Secretary of Agriculture to determine the essential uses of natural 
gas, and to certify to the Secretary of Energy and the Federal Energy 
Regulatory Commission (FERC) the natural gas requirements, expressed 
either as volumes or percentages of use, of persons, or classes thereof, 
for essential agricultural uses in order to meet requirements of full 
food and fiber production. This rule covers establishments performing 
functions classed as essential agricultural uses whose natural gas 
supplies are distributed through the interstate pipeline systems even 
though such establishments may receive such gas directly from an 
intrastate pipeline or local distribution company. The rule provides to 
the Secretary of Energy (for purposes of Section 401(a) of the NGPA) and 
to the Federal Energy Regulatory Commission the following 
certifications:
    (a) Essential agricultural uses of natural gas, expressed as classes 
of establishments that use gas for essential agricultural purposes; and
    (b) Essential agricultural current requirements of natural gas, 
expressed as percentages of use.



Sec. 2900.2  Definitions.

    (a) Full food and fiber production means the entire output of food 
and fiber produced for the domestic market, and for export, for building 
of reserves, and crops for soil building or conservation. This term also 
includes the processing of food and fiber into stable and storable 
products, and the maintenance of food quality after processing.
    (b) Establishment means an economic unit, generally at a single 
physical location where business is conducted or where service or 
industrial operations are performed (for example, a factory, mill, 
store, mine, farm, sales office, or warehouse). (Note: This is the same 
definition used in the Standard Industrial Classification Manual, 1972 
edition).
    (c) Essential Agricultural Use Establishment means any 
Establishment, or the portion of an Establishment, which performs (or 
has the capability to perform) activities specified in Sec. 2900.3.
    (d) Current Natural Gas Requirements means the amount of natural gas 
required by an Essential Agricultural Use Establishment to perform the 
activities devoted to full food and fiber production.

(Pub. L. 95-621, Nov. 8, 1979, 92 Stat. 3350, 15 U.S.C. 3301 et seq.)

[44 FR 28786, May 17, 1979, as amended at 46 FR 47216, Sept. 25, 1981]



Sec. 2900.3  Essential agricultural uses.

    For purposes of Section 401(c) of the NGPA the following classes or 
portions of classes are certified as essential agricultural uses in 
order to meet the requirements of full food and fiber production:

                       Essential Agricultural Uses

                Industry SIC No. and Industry Description

                    Food and Natural Fiber Production

    01 Agricultural Production--Crops
    02 Agricultural Production--Livestock Excluding 0272--Horses and 
Other Equines, and Nonfood Portions of 0279--Animal Specialties, Not 
Elsewhere Classified.
    0723 Crop Preparation Services for Market, Except Cotton Ginning 
(see fiber processing).
    4971 Irrigation Systems.

                  Fertilizer and Agricultural Chemicals

                    (Process and Feedstock Use Only)

    1474 Potash, Soda, and Borate Materials.
    1475 Phosphate Rock.
    1477 Sulfur.
    2819 Industrial Inorganic Chemicals, n.e.c. (Agricultural related 
only).
    2865 Cyclic Crudes and Cyclic Intermediates, Dyes and Organic 
Pigments (Agricutural related only).

[[Page 68]]

    2869 Industrial Organic Chemicals, n.e.c. (Agricutural related 
only).
    287 Agricultural Chemicals.
    2899 Chemicals and Chemical Preparations, n.e.c. (Salt--Feed grade 
only).
    3274 Lime (Agricultural lime only).

                 Food and Natural Fiber Processing-Food

    20 Food and Kindred Products Except 2047 Dog, Cat and Other Pet 
Food, and 2048 Prepared Feeds and Feed Ingredients for Animals and 
Fowls, Not Elsewhere Classified.
    2869 Industrial Organic Chemicals (Monosodium Glutamate, Food-grade 
Citric Acid and Food-grade Enzymes only).
    2899 Chemicals and Chemical Preparations, n.e.c. (Salt for food use 
only).

                         Animal Feeds, and Food

                    (Process and Feedstock Use Only)

    2047 Dog, Cat and Other Pet Food.
    2048 Prepared Feeds and Feed Ingredients for Animals and Fowls, Not 
Elsewhere Classified.

                              Natural Fiber

    0724 Cotton Ginning.
    2141 Tobacco Stemming and Redrying.
    2299 Textile Goods, n.e.c. (wool tops, combing and converting).
    3111 Leather Tanning and Finishing.

                Food Quality Maintenance--Food Packaging

    2641 Paper Coating and Glazing (food related only).
    2643 Bags, Except Textile (food related only).
    2645 Die Cut Paper and Paperboard (food related only).
    2646 Pressed and Molded Pulp Goods (food related only).
    2649 Converted Paper Products (food related only).
    2651 Folding Paperboard Boxes (food related only).
    2653 Corrugated and Solid Fiber Boxes (food related only).
    2654 Sanitary Food Containers.
    2655 Fiber Cans, Tubes, Drums, and Similar Products (food related 
only).
    3079 Miscellaneous Plastic Products (food related only).
    3221 Glass Containers (food related only).
    3411 Metal Cans (food related only).
    3412 Metal Shipping Barrels, Drums, Kegs, and Pails (food related 
only).
    3466 Metal Crowns and Closures (Food Related Only).
    3497 Metal Foil and Leaf (food related only).
    Petroleum wax, synthetic petroleum wax and polyethylene wax (food 
grade only) as food containers.

                       Marketing and Distribution

    4221 Farm Product Warehousing and Storage.
    4222 Refrigerated Warehousing.
    514 Groceries and Related Products.
    5153 Farm Product Raw Materials--Grain.
    54 Food Stores.

                            Energy Production

    (1) Agricultural production on set-aside acreage or acreage diverted 
from the production of a commodity (as provided under the Agricultural 
Act of 1949) to be devoted to the production of any commodity for 
conversion into alcohol or hydrocarbons for use as motor fuel or other 
fuels;
    (2) Sugar refining for production of alcohol; and
    (3) Distillation of fuel-grade alcohol from food grains and other 
biomass by facilities in existence on June 30, 1980 which do not have 
the installed capability to burn coal lawfully, for a period ending June 
29, 1985.

(Pub. L. 95-621, Nov. 8, 1978, 92 Stat. 3350; 15 U.S.C. 3301 et seq.)

[44 FR 28786, May 17, 1979, as amended at 45 FR 5298, Jan. 23, 1980; 45 
FR 45887, 45888, July 8, 1980; 45 FR 50550, July 30, 1980; 47 FR 25320, 
June 11, 1982; 48 FR 43670, Sept. 26, 1983; 49 FR 37733, Sept. 26, 1984]



Sec. 2900.4  Natural gas requirements.

    For purposes of Section 401(c), NGPA, the natural gas requirements 
for each Essential Agricultural Use Establishment, whether such 
Essential Agricultural Use Establishment is in existence on the 
effective date of this rule or comes into existence thereafter, are 
certified to be 100 percent of Current Natural Gas Requirements.



Sec. 2900.6  Effective date.

    This rule shall become effective on May 14, 1979.



PART 2901_ADMINISTRATIVE PROCEDURES FOR ADJUSTMENTS OF NATURAL GAS CURTAILMENT PRIORITY--Table of Contents



Sec.
2901.1 Purpose and scope.
2901.2 Definitions.
2901.3 Oral presentation.
2901.4 Interpretations.
2901.5 Modifications and rescissions.
2901.6 Exceptions and exemptions.
2901.7 Review of denials.
2901.8 Judicial review.
2901.9 Effective date.


[[Page 69]]


    Authority: Secs. 502, 507. Pub. L. 95-621, 92 Stat. 3397, 3405, Nov. 
9, 1978.

    Source: 44 FR 55803, Sept. 28, 1979, unless otherwise noted.



Sec. 2901.1  Purpose and scope.

    The purpose of this part 2901 is to provide procedures for the 
making of certain adjustments to the Secretary of Agriculture's 
Essential Agricultural Uses and Requirements regulations in accordance 
with section 502(c) of the Natural Gas Policy Act of 1978, in order to 
prevent special hardship, inequity, or an unfair distribution of 
burdens. The procedures in this part 2901 apply to any person seeking an 
interpretation of, modification of, rescission of, exception of, or 
exemption from the Essential Agricultural Uses and Requirements 
regulations in part 2900 of this chapter.



Sec. 2901.2  Definitions.

    (a) Person means any individual, firm, sole proprietorship, 
partnership, association, company, joint venture or corporation.
    (b) Director means the Director of the Office of Energy, U.S. 
Department of Agriculture.
    (c) Secretary means the Secretary of the U.S. Department of 
Agriculture.
    (d) Adjustment means an interpretation, modification, rescission of, 
exception to or exemption from the Essential Agricultural Uses and 
Requirements regulations, part 2900 of this chapter.
    (e) NGPA means the Natural Gas Policy Act of 1978, Pub. L. 95-621.
    (f) Petitioner means any person seeking an adjustment under this 
part 2901.



Sec. 2901.3  Oral presentation.

    Any person seeking an adjustment under this part 2901 shall be given 
an opportunity to make an oral presentation of data, views and arguments 
in support of the request for an adjustment, provided that a request to 
make an oral presentation is submitted in writing with the request for 
the adjustment. An official of the Department of Agriculture shall 
preside at such oral presentation.



Sec. 2901.4  Interpretations.

    (a) Request for an interpretation. (1) Any person seeking an 
interpretation of the Essential Agricultural Uses and Requirements 
regulations in part 2900 shall file a formal written request with the 
Director. The request should contain a full and complete statement of 
all relevant facts pertaining to the circumstances, act or transaction 
that is the subject of the request and to the action sought, and should 
state the special hardship, inequity, or unfair distribution of burdens 
that will be prevented by the interpretation sought and why the 
interpretation is consistent with the purposes of NGPA. The Director 
shall publish a notice in the Federal Register advising the public that 
a request for an interpretation has been received and that written 
comments will be accepted with respect thereto, if received within 20 
days of the notice. The Federal Register notice will provide that copies 
of the request for interpretation from which confidential information 
has been deleted in accordance with paragraph (a)(2) of this section may 
be obtained from the petitioner.
    (2) If the petitioner wishes to claim confidential treatment for any 
information contained in the request or other documents submitted under 
this part 2901, such person shall file together with the document a 
second copy of the document from which has been deleted the information 
for which such person wishes to claim confidential treatment. The 
petitioner shall indicate in the original document that it is 
confidential or contains confidential information and may file a 
statement specifying the justification for non-disclosure of the 
information for which non-disclosure is sought. The Director shall 
consider such requests, and subject to the Freedom of Information Act, 5 
U.S.C. 552 and other applicable laws and regulations, shall treat such 
information as confidential.
    (b) Investigations. The Director may initiate an investigation of 
any statement in a request and utilize in his evaluation any relevant 
facts obtained in such investigation. The Director may accept 
submissions from third persons relevant to any request for 
interpretation provided that the petitioner

[[Page 70]]

is afforded an opportunity to respond to all such submissions. In 
evaluating a request for interpretation, the Director may consider any 
other source of information.
    (c) Applicability. Any interpretation issued hereunder shall be 
issued on the basis of the information provided on the request, as 
supplemented by other information brought to the attention of the 
Director during the consideration of the request. The interpretation 
shall, therefore, depend for its authority on the accuracy of the 
factual statement and may be relied upon only to the extent that the 
facts of the actual situation correspond to those upon which the 
interpretation was based.
    (d) Issuance of an interpretation. Upon consideration of the request 
for interpretation and other relevant information received or obtained 
by the Director, the Director may issue a written interpretation. A copy 
of the written interpretation shall be provided to FERC and the 
Secretary of Energy. Notice of the issuance of the written 
interpretation shall be published in the Federal Register. The granting 
of a request for issuance of an interpretation shall be considered final 
agency action for purposes of judicial review under Sec. 2901.8.
    (e) Denial of an interpretation. An interpretation shall be 
considered denied for purpose of review of such denial under Sec. 
2901.7 only if:
    (1) The Director notifies the petitioner in writing that the request 
is denied and that an interpretation will not be issued; or
    (2) The Director does not respond to a request for an 
interpretation, by (i) issuing an interpretation, or (ii) giving notice 
of when an interpretation will be issued within 45 days of the date of 
receipt of the request, or within such extended time as the Director may 
prescribe by written notice within the 45-day period.
    (f) For purposes of this part 2901 the word interpretation shall not 
be deemed to include a simple clarification of an actual or purported 
ambiguity in part 2900. The Director reserves the right to determine 
whether a request involves simple clarification and shall advise the 
requester of his decision.



Sec. 2901.5  Modifications and rescissions.

    (a) Request for modification or rescission. (1) Any person seeking a 
modification or a rescission of the Essential Agricultural Uses and 
Requirements regulations of part 2900 shall file a formal written 
request with the Director. The request shall contain a full and complete 
statement of all relevant facts pertaining to the circumstance, act or 
transaction that is the subject of the request and to the action sought. 
The request should state the special hardship, inequity or unfair 
distribution of burdens that will be prevented by making the 
modification or rescission.
    (2) If the petitioner wishes to claim confidential treatment for any 
information contained in the request or other documents submitted under 
this part 2901, such person shall file together with the document a 
second copy of the document from which has been deleted the information 
for which such person wishes to claim confidential treatment. The 
petitioner shall indicate in the original document that it is 
confidential or contains confidential information and may file a 
statement specifying the justification for non-disclosure of the 
information for which non-disclosure is sought. The Director shall 
consider such requests, and subject to the Freedom of Information Act, 5 
U.S.C. 552 and other applicable laws and regulations, shall treat such 
information as confidential.
    (3) The request shall be filed as a petition for rulemaking and 
treated in accordance with the procedures, as applicable, of 7 CFR part 
1, subpart B.
    (b) Institution of rulemaking. Upon consideration of the request for 
modification or rescission and other relevant information received or 
obtained by the Director, the Director may institute rulemaking 
proceedings in accordance with the Administrative Procedures Act 5 
U.S.C. 551 et seq. and applicable regulations.
    (c) Denial of a modification or rescission. If the Director (1) 
denies the request for modification or rescission in writing by 
notifying the petitioner that he does not intend to institute rulemaking 
proceedings as proposed and stating the reasons therefor, or (2) does 
not respond to a request for a

[[Page 71]]

modification or rescission in accordance with paragraph (b) of this 
section or (3) notifies the petitioner in writing that the matter is 
under continuing consideration and that no decision can be made at that 
time because of the inadequacy of available information, changing 
circumstances or other reasons as set forth therein, within 45 days of 
the date of the receipt thereof, or within such extended time as the 
Director may prescribe by written notice within that 45-day period, the 
request shall be considered denied for the purpose of review of such 
denial under Sec. 2901.7.



Sec. 2901.6  Exceptions and exemptions.

    (a) Request for exception or exemption. (1) Any person seeking an 
exception or exemption from the Essential Agricultural Uses and 
Requirements regulations in part 2900 shall file a formal written 
request with the Director. The request shall contain a full and complete 
statement of all relevant facts pertaining to the circumstance, act, or 
transaction that is the subject of the request and to the action sought. 
The request should state the special hardship, inequity or unfair 
distribution of burdens that will be prevented by making the exception 
or exemption. The Director shall publish a notice in the Federal 
Register advising the public that a request for an exception or 
exemption has been received and that written comments will be accepted 
with respect thereto if received within 20 days of the notice. The 
Federal Register notice will provide that copies of the request from 
which confidential information has been deleted in accordance with 
paragraph (a)(2) of this section may be obtained from the petitioner. 
The Petitioner shall be afforded an opportunity to respond to such 
submissions.
    (2) If the petitioner wishes to claim confidential treatment for any 
information contained in the request or other documents submitted under 
this part 2901, such person shall file together with the document a 
second copy of the document from which has been deleted the information 
for which such person wishes to claim confidential treatment. The 
petitioner shall indicate in the original document that it is 
confidential or contains confidential information and may file a 
statement specifying the justification for non-disclosure of the 
information for which non-disclosure is sought. The Director shall 
consider such requests, and subject to the Freedom of Information Act, 5 
U.S.C. 552 and other applicable laws and regulations, shall treat such 
information as confidential.
    (b) Decision and order. Upon consideration of the request for an 
exception or exemption and other relevant information received or 
obtained during the proceedings, the Director shall issue an order 
granting or denying the request. The Director shall publish a notice in 
the Federal Register of the issuance of a decision and order on the 
request. The granting of a request for an exception or exemption shall 
be considered final agency action for purposes of judicial review under 
Sec. 2901.8.
    (c) Denial of an exception or exemption. A request for an exception 
or exemption shall be considered denied for purposes of review of such 
denial under Sec. 2901.7 only if:
    (1) The Director has notified the petitioner in writing that the 
request is denied under paragraph (b) of this section; or
    (2) The Director does not respond to a request for an exception or 
exemption by (i) granting the request for an exception or exemption 
under paragraph (b) of this section or (ii) giving notice of when a 
decision will be made within 45 days of the receipt of the request, or 
with such extended time as the Director may prescribe by written notice 
within the 45-day period.



Sec. 2901.7  Review of denials.

    (a) Request for review. (1) Any person aggrieved or adversely 
affected by a denial of a request for any interpretation under Sec. 
2901.4 may request a review of the denial by the Secretary, within 30 
days from the date of the denial.
    (2) Any person aggrieved or adversely affected by a denial of a 
request for a modification or rescission under Sec. 2901.5, may request 
a review of the denial by the Secretary within 30 days from the date of 
the denial.
    (3) Any person aggrieved or adversely affected by a denial of a 
request for an exception or an exemption under

[[Page 72]]

Sec. 2901.6, may request a review of the denial by the Secretary within 
30 days from the date of the denial.
    (b) Procedures. Any request for review under Sec. 2901.7(a) shall 
be in writing and shall set forth the specific ground upon which the 
request is based. There is no final agency action for purposes of 
judicial review under Sec. 2901.8 until that request has been acted 
upon. If the request for review has not been acted upon within 30 days 
after it is received, the request shall be deemed to have been denied. 
That denial shall then constitute final agency action for the purpose of 
judicial review under Sec. 2901.8.



Sec. 2901.8  Judicial review.

    Any person aggrieved or adversely affected by a final agency action 
taken on a request for an adjustment under this section may obtain 
judicial review in accordance with section 506 of the Natural Gas Policy 
Act of 1978.



Sec. 2901.9  Effective date.

    This rule shall become effective on October 29, 1979.

                          PART 2902 [RESERVED]



PART 2903_BIODIESEL FUEL EDUCATION PROGRAM--Table of Contents



                      Subpart A_General Information

Sec.
2903.1 Applicability of regulations.
2903.2 Purpose of the program.
2903.3 Eligibility.
2903.4 Indirect costs.
2903.5 Matching requirements.

                      Subpart B_Program Description

2903.6 Project types.
2903.7 Project objectives.

                 Subpart C_Preparation of an Application

2903.8 Program application materials.
2903.9 Content of an application.
2903.10 Submission of an application.
2903.11 Acknowledgment of applications.

               Subpart D_Application Review and Evaluation

2903.12 Application review.
2903.13 Evaluation criteria.
2903.14 Conflicts of interest and confidentiality.

                     Subpart E_Award Administration

2903.15 General.
2903.16 Organizational management information.
2903.17 Award document and notice of award.

                   Subpart F_Supplementary Information

2903.18 Access to review information.
2903.19 Use of funds; changes.
2903.20 Reporting requirements.
2903.21 Applicable Federal statutes and regulations.
2903.22 Confidential aspects of applications and awards.
2903.23 Definitions.

    Authority: 7 U.S.C. 8104; 5 U.S.C. 301.

    Source: 68 FR 56139, Sept. 30, 2003, unless otherwise noted.



                      Subpart A_General Information



Sec. 2903.1  Applicability of regulations.

    (a) The regulations of this part only apply to Biodiesel Fuel 
Education Program grants awarded under the provisions of section 9004 of 
the Farm Security and Rural Investment Act of 2002 (FSRIA) (7 U.S.C. 
8104) which authorizes the Secretary to award competitive grants to 
eligible entities to educate governmental and private entities that 
operate vehicle fleets, other interested entities (as determined by the 
Secretary), and the public about the benefits of biodiesel fuel use. 
Eligibility is limited to nonprofit organizations and institutions of 
higher education (as defined in sec. 101 of the Higher Education Act of 
1965 (20 U.S.C. 1001)) that have demonstrated both knowledge of 
biodiesel fuel production, use, or distribution and the ability to 
conduct educational and technical support programs. The Secretary 
delegated this authority to the Chief Economist, who in turn delegated 
this authority to the Director of OEPNU.
    (b) The regulations of this part do not apply to grants awarded by 
the Department of Agriculture under any other authority.



Sec. 2903.2  Purpose of the program.

    The Biodiesel Fuel Education Program seeks to familiarize public and

[[Page 73]]

private vehicle fleet operators, other interested entities, and the 
public, with the benefits of biodiesel, a relatively new fuel option in 
the United States. It will also address concerns previously identified 
by fleet operators and other potential users of this alternative fuel, 
including the need to balance the positive environmental, social and 
human health impacts of biodiesel utilization with the increased per 
gallon cost to the user. It is the Program's goal to stimulate biodiesel 
demand and encourage the further development of a biodiesel industry in 
the United States.



Sec. 2903.3  Eligibility.

    (a) Eligibility is limited to nonprofit organizations and 
institutions of higher education that have demonstrated both knowledge 
of biodiesel fuel production, use, or distribution and the ability to 
conduct educational and technical support programs.
    (b) Award recipients may subcontract to organizations not eligible 
to apply provided such organizations are necessary for the conduct of 
the project.



Sec. 2903.4  Indirect costs.

    (a) For the Biodiesel Fuel Education Program, applicants should use 
the current indirect cost rate negotiated with the cognizant Federal 
negotiating agency. Indirect costs may not exceed the negotiated rate. 
If no indirect cost rate has been negotiated, a reasonable dollar amount 
for indirect costs may be requested, which will be subject to approval 
by USDA. In the latter case, if a proposal is recommended for funding, 
an indirect cost rate proposal must be submitted prior to award to 
support the amount of indirect costs requested.
    (b) A proposer may elect not to charge indirect costs and, instead, 
charge only direct costs to grant funds. Grantees electing this 
alternative will not be allowed to charge, as direct costs, indirect 
costs that otherwise would be in the grantee's indirect cost pool under 
the applicable Office of Management and Budget cost principles. Grantees 
who request no indirect costs will not be permitted to revise their 
budgets at a later date to charge indirect costs to grant funds.



Sec. 2903.5  Matching requirements.

    There are no matching funds requirements for the Biodiesel Fuel 
Education Program and matching resources will not be factored into the 
review process as evaluation criteria.



                      Subpart B_Program Description



Sec. 2903.6  Project types.

    OEPNU intends to award continuation grants to successful Biodiesel 
Fuel Education Program applicants. A continuation grant is a grant 
instrument by which the Department agrees to support a specified level 
of effort for a predetermined project period with a statement of 
intention to provide additional support at a future date, provided that 
performance has been satisfactory, appropriations are available for this 
purpose, and continued government support would be in the best interest 
of the Federal government and the public. If these three elements are 
met, OEPNU plans to provide additional support to the funded project(s).



Sec. 2903.7  Project objectives.

    (a) Successful projects will develop practical indicators or 
milestones to measure their progress towards achieving the following 
objectives:
    (1) Enhance current efforts to collect and disseminate biodiesel 
information;
    (2) Coordinate with other biodiesel educational or promotional 
programs, and with Federal, State and local programs aimed at 
encouraging biodiesel use, including the EPAct program;
    (3) Create a nationwide networking system that delivers biodiesel 
information to targeted audiences, including users, distributors and 
other infrastructure-related personnel;
    (4) Identify and document the benefits of biodiesel (e.g., lifecycle 
costing); and
    (5) Gather data pertaining to information gaps and develop 
strategies to address the gaps.
    (b) [Reserved]

[[Page 74]]



                 Subpart C_Preparation of an Application



Sec. 2903.8  Program application materials.

    OEPNU will publish periodic program announcements to notify 
potential applicants of the availability of funds for competitive 
continuation grants. The program announcement will provide information 
about obtaining program application materials.



Sec. 2903.9  Content of an application.

    (a) Applications should be prepared following the guidelines and the 
instructions in the program announcement. At a minimum, applications 
shall include: a proposal cover page, project summary, project 
description, information about key personnel, documentation of 
collaborative arrangements, information about potential conflicts-of-
interest, budget forms and a budget narrative, information about current 
and pending support, and assurance statements.
    (b) Proper preparation of applications will assist reviewers in 
evaluating the merits of each application in a systematic, consistent 
fashion. Specific instructions regarding additional application content 
requirements and the ordering of application contents will be included 
in the program announcement. These will include instructions about paper 
size, margins, font type and size, line spacing, page numbering, the 
inclusion of illustrations, and electronic submission.



Sec. 2903.10  Submission of an application.

    The program announcement will provide the deadline date for 
submitting an application, the number of copies of each application that 
must be submitted, and the address to which proposals must be submitted.



Sec. 2903.11  Acknowledgment of applications.

    The receipt of all applications will be acknowledged. Applicants who 
do not receive an acknowledgment within 60 days of the submission 
deadline should contact the program contact indicated on the program 
announcement. Once the application has been assigned a proposal number, 
that number should be cited on all future correspondence.



               Subpart D_Application Review and Evaluation



Sec. 2903.12  Application review.

    (a) Reviewers will include government and non-government 
individuals. All reviewers will be selected based upon training and 
experience in relevant scientific, extension, or education fields, 
taking into account the following factors:
    (1) The level of relevant formal scientific, technical education, or 
extension experience of the individual, as well as the extent to which 
an individual is engaged in relevant research, education, or extension 
activities; and
    (2) The need to include as reviewers experts from various areas of 
specialization within relevant scientific, education, or extension 
fields.
    (b) In addition, when selecting non-government reviewers, the 
following factors will be considered:
    (1) The need to include as reviewers other experts (e.g., producers, 
range or forest managers/operators, and consumers) who can assess 
relevance of the applications to targeted audiences and to program 
needs;
    (2) The need to include as reviewers experts from a variety of 
organizational types (e.g., colleges, universities, industry, state and 
Federal agencies, private profit and non-profit organizations) and 
geographic locations;
    (3) The need to maintain a balanced composition of reviewers with 
regard to minority and female representation and an equitable age 
distribution; and
    (4) The need to include reviewers who can judge the effective 
usefulness to producers and the general public of each application.
    (c) Authorized departmental officers will compile application 
reviews and recommend awards to OEPNU. OEPNU will make final award 
decisions.



Sec. 2903.13  Evaluation criteria.

    (a) The following evaluation criteria will be used in reviewing 
applications submitted for the Biodiesel Fuel Education Program:

[[Page 75]]

    (1) Relevance of proposed project to current and future issues 
related to the production, use, distribution, fuel quality, and fuel 
properties of biodiesel, including:
    (i) Demonstrated knowledge about markets, state initiatives, impacts 
on local economies, regulatory issues, standards, and technical issues;
    (ii) Demonstrated knowledge about issues associated with developing 
a biodiesel infrastructure; and
    (iii) Quality and extent of stakeholder involvement in planning and 
accomplishment of program objectives.
    (2) Reasonableness of project proposal, including:
    (i) Sufficiency of scope and strategies to provide a consistent 
message in keeping with existing standards and regulations;
    (ii) Adequacy of Project Description, suitability and feasibility of 
methodology to develop and implement program;
    (iii) Clarity of objectives, milestones, and indicators of progress;
    (iv) Adequacy of plans for reporting, assessing and monitoring 
results over project's duration; and
    (v) Demonstration of feasibility, and probability of success.
    (3) Technical quality of proposed project, including:
    (i) Suitability and qualifications of key project personnel;
    (ii) Institutional experience and competence in providing 
alternative fuel education, including:
    (A) Demonstrated knowledge about programs involved in alternative 
fuel research and education;
    (B) Demonstrated knowledge about other fuels, fuel additives, engine 
performance, fuel quality and fuel emissions;
    (C) Demonstrated knowledge about Federal, State and local programs 
aimed at encouraging alternative fuel use;
    (D) Demonstrated ability in providing educational programs and 
developing technical programs; and
    (E) Demonstrated ability to analyze technical information relevant 
to the biodiesel industry.
    (iii) Adequacy of available or obtainable resources; and
    (iv) Quality of plans to administer and maintain the project, 
including collaborative efforts, evaluation and monitoring efforts.
    (b) [Reserved]



Sec. 2903.14  Conflicts of interest and confidentiality.

    (a) During the peer evaluation process, extreme care will be taken 
to prevent any actual or perceived conflicts of interest that may impact 
review or evaluation. Determinations of conflicts of interest will be 
based on the academic and administrative autonomy of an institution. The 
program announcement will specify the methodology for determining such 
autonomy.
    (b) Names of submitting institutions and individuals, as well as 
application content and peer evaluations, will be kept confidential, 
except to those involved in the review process, to the extent permitted 
by law. In addition, the identities of peer reviewers will remain 
confidential throughout the entire review process. Therefore, the names 
of the reviewers will not be released to applicants. At the end of the 
fiscal year, names of reviewers will be made available in such a way 
that the reviewers cannot be identified with the review of any 
particular application.



                     Subpart E_Award Administration



Sec. 2903.15  General.

    Within the limit of funds available for such purpose, the Authorized 
Departmental Officer (ADO) shall make grants to those responsible, 
eligible applicants whose applications are judged most meritorious under 
the procedures set forth in this part. The date specified by the ADO as 
the effective date of the grant shall be no later than September 30 of 
the Federal fiscal year in which the project is approved for support and 
funds are appropriated for such purpose, unless otherwise permitted by 
law. It should be noted that the project need not be initiated on the 
grant effective date, but as soon thereafter as practical so that 
project goals may be attained within the funded project period. All 
funds granted by OEPNU under this program shall be expended solely for 
the purpose for which the funds are granted in accordance

[[Page 76]]

with the approved application and budget, the regulations of this part, 
the terms and conditions of the award, the applicable Federal cost 
principles, and the applicable Department assistance regulations 
(including part 3019 of this title).



Sec. 2903.16  Organizational management information.

    Specific management information relating to an applicant shall be 
submitted on a one-time basis as part of the responsibility 
determination prior to the award of a grant identified under this 
program, if such information has not been provided previously. Copies of 
forms recommended for use in fulfilling these requirements will be 
provided as part of the preaward process.



Sec. 2903.17  Award document and notice of award.

    (a) The award document will provide pertinent instructions and 
information including, at a minimum, the following:
    (1) Legal name and address of performing organization or institution 
to whom OEPNU has issued an award under this program;
    (2) Title of project;
    (3) Name(s) and institution(s) of PDs chosen to direct and control 
approved activities;
    (4) Identifying award number assigned by the Department;
    (5) Project period;
    (6) Total amount of Departmental financial assistance approved by 
OEPNU during the project period;
    (7) Legal authority(ies) under which the award is issued;
    (8) Appropriate Catalog of Federal Domestic Assistance (CFDA) 
number;
    (9) Approved budget plan for categorizing allocable project funds to 
accomplish the stated purpose of the award; and
    (10) Other information or provisions deemed necessary by OEPNU and 
the Authorized Departmental Officer to carry out the awarding activities 
or to accomplish the purpose of a particular award.
    (b) [Reserved]



                   Subpart F_Supplementary Information



Sec. 2903.18  Access to review information.

    Copies of reviews, not including the identity of reviewers, and a 
summary of the comments will be sent to the applicant PD after the 
review process has been completed.



Sec. 2903.19  Use of funds; changes.

    (a) Delegation of fiscal responsibility. Unless the terms and 
conditions of the award state otherwise, the awardee may not in whole or 
in part delegate or transfer to another person, institution, or 
organization the responsibility for use or expenditure of award funds.
    (b) Changes in project plans. (1) The permissible changes by the 
awardee, PD(s), or other key project personnel in the approved project 
shall be limited to changes in methodology, techniques, or other similar 
aspects of the project to expedite achievement of the project's approved 
goals. If the awardee or the PD(s) is uncertain as to whether a change 
complies with this provision, the question must be referred to the 
Authorized Departmental Officer (ADO) for a final determination. The ADO 
is the signatory of the award document, not the program contact.
    (2) Changes in approved goals or objectives shall be requested by 
the awardee and approved in writing by the ADO prior to effecting such 
changes. In no event shall requests for such changes be approved which 
are outside the scope of the original approved project.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
awardee and approved in writing by the ADO prior to effecting such 
changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the awardee and 
approved in writing by the ADO prior to effecting such transfers, unless 
prescribed otherwise in the terms and conditions of the award.
    (5) Changes in project period. The project period may be extended by

[[Page 77]]

OEPNU without additional financial support, for such additional 
period(s) as the ADO determines may be necessary to complete or fulfill 
the purposes of an approved project, but in no case shall the total 
project period exceed five years. Any extension of time shall be 
conditioned upon prior request by the awardee and approval in writing by 
the ADO, unless prescribed otherwise in the terms and conditions of 
award.
    (6) Changes in approved budget. Changes in an approved budget must 
be requested by the awardee and approved in writing by the ADO prior to 
instituting such changes if the revision will involve transfers or 
expenditures of amounts requiring prior approval as set forth in the 
applicable Federal cost principles, Departmental regulations, or award.



Sec. 2903.20  Reporting requirements.

    The award document will give instructions regarding the submission 
of progress reports, including the frequency and required contents of 
the reports.



Sec. 2903.21  Applicable Federal statutes and regulations.

    Several Federal statutes and regulations apply to grant applications 
considered for review and to project grants awarded under this program. 
These include, but are not limited to:
    (a) 7 CFR part 1, subpart A--USDA implementation of the Freedom of 
Information Act.
    (b) 7 CFR part 3--USDA implementation of OMB Circular No. A-129 
regarding debt collection.
    (c) 7 CFR part 15, subpart A--USDA implementation of Title VI of the 
Civil Rights Act of 1964, as amended.
    (d) 2 CFR part 417, Nonprocurement Debarment and Suspension.
    (e) 2 CFR part 418, New Restrictions on Lobbying. Imposes 
prohibitions and requirements for disclosure and certification related 
to lobbying on recipients of Federal contracts, grants, cooperative 
agreements, and loans.
    (f) 2 CFR part 200, subparts B--General Provisions, C--Pre-Federal 
Award Requirements and Contents of Federal Awards, and D--Post-Federal 
Award Requirements, as adopted by USDA through 2 CFR part 400.
    (g) 2 CFR part 421, Requirements for Drug-Free Workplace (Financial 
Assistance).
    (h) 2 CFR part 200, subpart F--Audit Requirements, as adopted by 
USDA through 2 CFR part 400. Title 29 U.S.C. 794 (sec. 504, 
Rehabilitation Act of 1973) and 7 CFR part 15b (USDA implementation of 
statute)--prohibiting discrimination based upon physical or mental 
handicap in federally assisted programs. Title 35 U.S.C. 200 et seq.--
Bayh-Dole Act, controlling allocation of rights to inventions made by 
employees of small business firms and domestic nonprofit organizations, 
including universities, in federally assisted programs (implementing 
regulations are contained in 37 CFR part 401).

[85 FR 31939, May 28, 2020]



Sec. 2903.22  Confidential aspects of applications and awards.

    When an application results in an award, it becomes a part of the 
record of USDA transactions, available to the public upon specific 
request. Information that the Secretary determines to be of a 
confidential, privileged, or proprietary nature will be held in 
confidence to the extent permitted by law. Therefore, any information 
that the applicant wishes to have considered as confidential, 
privileged, or proprietary should be clearly marked within the 
application. The original copy of an application that does not result in 
an award will be retained by the Agency for a period of one year. Other 
copies will be destroyed. Such an application will be released only with 
the consent of the applicant or to the extent required by law. An 
application may be withdrawn at any time prior to the final action 
thereon.



Sec. 2903.23  Definitions.

    For the purpose of this program, the following definitions are 
applicable:
    Authorized departmental officer or ADO means the Secretary or any 
employee of the Department who has the authority to issue or modify 
grant instruments on behalf of the Secretary.
    Authorized organizational representative or AOR means the president 
or chief executive officer of the applicant

[[Page 78]]

organization or the official, designated by the president or chief 
executive officer of the applicant organization, who has the authority 
to commit the resources of the organization.
    Biodiesel means a monoalkyl ester that meets the requirements of an 
appropriate American Society for Testing and Materials Standard.
    Budget period means the interval of time (usually 12 months) into 
which the project period is divided for budgetary and reporting 
purposes.
    Department or USDA means the United States Department of 
Agriculture.
    Education activity means an act or process that imparts knowledge or 
skills through formal or informal training and outreach.
    Grant means the award by the Secretary of funds to an eligible 
recipient for the purpose of conducting the identified project.
    Grantee means the organization designated in the award document as 
the responsible legal entity to which a grant is awarded.
    Institution of higher education, as defined in sec. 101 of the 
Higher Education Act of 1965 (20 U.S.C. 1001), means an educational 
institution in any State that:
    (1) Admits as regular students only persons having a certificate of 
graduation from a school providing secondary education, or the 
recognized equivalent of such a certificate;
    (2) Is legally authorized within such State to provide a program of 
education beyond secondary education;
    (3) Provides an educational program for which the institution awards 
a bachelor's degree or provides not less than a two-year program that is 
acceptable for full credit toward such a degree;
    (4) Is a public or other nonprofit institution; and
    (5) Is accredited by a nationally recognized accrediting agency or 
association, or if not so accredited, is an institution that has been 
granted preaccreditation status by such an agency or association that 
has been recognized by the Secretary of Education for the granting of 
preaccreditation status, and the Secretary of Education has determined 
that there is satisfactory assurance that the institution will meet the 
accreditation standards of such an agency or association within a 
reasonable time.
    OEPNU means the Office of Energy Policy and New Uses.
    Peer review is an evaluation of a proposed project performed by 
experts with the scientific knowledge and technical skills to conduct 
the proposed work whereby the technical quality and relevance to the 
program are assessed.
    Prior approval means written approval evidencing prior consent by an 
authorized departmental officer (as defined in this section).
    Program means the Biodiesel Fuel Education Program.
    Project means the particular activity within the scope of the 
program supported by a grant award.
    Project director or PD means the single individual designated by the 
grantee in the grant application and approved by the Secretary who is 
responsible for the direction and management of the project, also known 
as a principal investigator for research activities.
    Project period means the period, as stated in the award document and 
modifications thereto, if any, during which Federal sponsorship begins 
and ends.
    Secretary means the Secretary of Agriculture and any other officer 
or employee of the Department to whom the authority involved may be 
delegated.

                       PARTS 2904	2999 [RESERVED]

[[Page 79]]



   CHAPTER XXX--OFFICE OF THE CHIEF FINANCIAL OFFICER, DEPARTMENT OF 
                               AGRICULTURE




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Part                                                                Page
3000-3010

 [Reserved]

3011            Availability of information to the public...          81
3053-3099

 [Reserved]

[[Page 81]]

                       PARTS 3000	3010 [RESERVED]



PART 3011_AVAILABILITY OF INFORMATION TO THE PUBLIC--Table of Contents



Sec.
3011.1 General statement.
3011.2 Public inspection and copying.
3011.3 Indexes.
3011.4 Initial requests for records.
3011.5 Appeals.
3011.6 Fee schedule.

    Authority: 5 U.S.C. 301 and 522; 7 CFR 1.3.

    Source: 54 FR 51869, Dec. 19, 1989, unless otherwise noted.



Sec. 3011.1  General statement.

    This part is issued in accordance with 7 CFR 1.3 of the Department 
of Agriculture regulations governing the availability of records (7 CFR 
1.1-1.23 and Appendix A) under the Freedom of Information Act (5 U.S.C. 
552, as amended). These regulations supplement the Department's 
regulations by providing guidance for any person wishing to request 
records from the Office of Finance and Management (OFM).



Sec. 3011.2  Public inspection and copying.

    (a) Background. 5 U.S.C. 552(a)(2) requires each agency to maintain 
and make available for public inspection and copying certain kinds of 
records.
    (b) Procedure. To gain access to OFM records that are available for 
public inspection, contact the Freedom of Information Act Officer by 
writing to the address shown in Sec. 3011.4(b) of this title.



Sec. 3011.3  Indexes.

    5 U.S.C. 552(a)(2) also requires that each agency maintain and make 
available for public inspection and copying current indexes providing 
identifying information for the public with regard to any records which 
are made available for public inspection and copying. OFM does not 
maintain any materials within the scope of these requirements.



Sec. 3011.4  Initial requests for records.

    (a) Background. The Freedom of Information Act Officer is authorized 
to:
    (1) Grant or deny requests for OFM records,
    (2) Make discretionary release of OFM records when the benefit to 
the public in releasing the document outweighs any harm likely to result 
from disclosure,
    (3) Reduce or waive fees to be charged where determined to be 
appropriate.
    (b) Procedures. This part provides the titles and mailing address of 
officials who are authorized to release records to the public. The 
normal working hours of these offices are 8:30 a.m. to 5:00 p.m., local 
time, Monday through Friday, excluding holidays, during which public 
inspection and copying of certain kinds of records is permitted. Persons 
wishing to request records from the Office of Finance and Management may 
do so by submitting each initial written request for OFM records to the 
appropriate OFM official shown below:
    (1) For records held at the Washington, DC Headquarters units, 
submit initial requests to the Freedom of Information Act Officer, 
Office of Finance and Management, USDA, 14th and Independence Ave., SW., 
Room 117-W, Administration Building, Washington, DC 20250-9000.
    (2) For records held at the National Finance Center in New Orleans, 
Louisiana, submit initial requests to the Freedom of Information Act 
Officer, National Finance Center, OFM, USDA, 13800 Old Gentilly Road, 
Building 350, (P.O. Box 60,000, New Orleans, LA 70160), New Orleans, 
Louisiana 70129.

If the requester is unable to determine the official to whom the request 
should be addressed, it should be submitted to the Headquarters Freedom 
of Information Act Officer who will refer such requests to the 
appropriate officials.



Sec. 3011.5  Appeals.

    Any person whose initial request is denied in whole or in part may 
appeal that denial, in accordance with 7 CFR 1.6(e) and 1.8, to the 
Director, Office of Finance and Management, USDA, Room 117-W, 
Administration Building, 14th and Independence Ave., Washington, DC 
20250-9000.



Sec. 3011.6  Fee schedule.

    Departmental regulations provide for a schedule of reasonable 
standard

[[Page 82]]

charges for document search and duplication. See 7 CFR 1.2(b). Fees to 
be charged are set forth in 7 CFR part 1, subpart A, Appendix A.

                       PARTS 3053	3099 [RESERVED]

[[Page 83]]



CHAPTER XXXI--OFFICE OF ENVIRONMENTAL QUALITY, DEPARTMENT OF AGRICULTURE




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Part                                                                Page
3100            Cultural and environmental quality..........          85
3101-3199

 [Reserved]

[[Page 85]]



PART 3100_CULTURAL AND ENVIRONMENTAL QUALITY--Table of Contents



Subparts A-B [Reserved]

   Subpart C_Enhancement, Protection, and Management of the Cultural 
                               Environment

Sec.
3100.40 Purpose.
3100.41 Authorities.
3100.42 Definitions.
3100.43 Policy.
3100.44 Implementation.
3100.45 Direction to agencies.
3100.46 Responsibilities of the Department of Agriculture.

Subparts A-B [Reserved]



   Subpart C_Enhancement, Protection, and Management of the Cultural 
                               Environment

    Authority: Sec. 106, National Historic Preservation Act, as amended 
(16 U.S.C. 470f); National Environmental Policy Act, as amended (42 
U.S.C. 4321 et seq.); E.O. 11593, 36 FR 8921, May 13, 1971.

    Source: 44 FR 66181, Nov. 19, 1979, unless otherwise noted.



Sec. 3100.40  Purpose.

    (a) This subpart establishes USDA policy regarding the enhancement, 
protection, and management of the cultural environment.
    (b) This subpart establishes procedures for implementing Executive 
Order 11593, and regulations promulgated by the Advisory Council on 
Historic Preservation (ACHP) ``Protection of Historical and Cultural 
Properties'' in 36 CFR part 800 as required by Sec. 800.10 of those 
regulations.
    (c) Direction is provided to the agencies of USDA for protection of 
the cultural environment.



Sec. 3100.41  Authorities.

    These regulations are based upon and implement the following laws, 
regulations, and Presidential directives:
    (a) Antiquities Act of 1906 (Pub. L. 59-209; 34 Stat. 225; 16 U.S.C. 
431 et seq.) which provides for the protection of historic or 
prehistoric remains or any object of antiquity on Federal lands; 
establishes criminal sanctions for unauthorized destruction or 
appropriation of antiquities; and authorizes scientific investigation of 
antiquities on Federal lands, subject to permit and regulations. 
Paleontological resources also are considered to fall within the 
authority of this Act.
    (b) Historic Sites Act of 1935 (Pub. L. 74-292; 49 Stat. 666; 16 
U.S.C. 461 et seq.) which authorizes the establishment of National 
Historic Sites and otherwise authorizes the preservation of properties 
of national historical or archeological significance; authorizes the 
designation of National Historic Landmarks; establishes criminal 
sanctions for violation of regulations pursuant to the Act; authorizes 
interagency, intergovernmental, and interdisciplinary efforts for the 
preservation of cultural resources; and other provisions.
    (c) Reservoir Salvage Act of 1960 (Pub. L. 86-521; 74 Stat. 220; 16 
U.S.C. 469-469c.) which provides for the recovery and preservation of 
historical and archeological data, including relics and specimens, that 
might be lost or destroyed as a result of the construction of dams, 
reservoirs, and attendant facilities and activities.
    (d) The National Historic Preservation Act of 1966 as amended (16 
U.S.C. 470), which establishes positive national policy for the 
preservation of the cultural environment, and sets forth a mandate for 
protection in section 106. The purpose of section 106 is to protect 
properties on or eligible for the National Register of Historic Places 
through review and comment by the ACHP of Federal undertakings that 
affect such properties. Properties are listed on the National Register 
or declared eligible for listing by the Secretary of the Interior. As 
developed through the ACHP's regulations, section 106 establishes a 
public interest process in which the Federal agency proposing an 
undertaking, the State Historic Preservation Officer, the ACHP, 
interested organizations and individuals participate. The process is 
designed to insure that properties, impacts on them, and effects to them 
are identified, and that alternatives to avoid or mitigate an adverse 
effect on property eligible for the National Register are adequately 
considered in the planning process.
    (e) The National Environmental Policy Act of 1969 (NEPA) (Pub. L. 
91-190; 83

[[Page 86]]

Stat. 852; 42 U.S.C. 4321 et seq.) which declares that it is the policy 
of the Federal Government to preserve important historic, cultural, and 
natural aspects of our national heritage. Compliance with NEPA requires 
consideration of all environmental concerns during project planning and 
execution.
    (f) Executive Order 11593, ``Protection and Enhancement of the 
Cultural Environment'', which gives the Federal Government the 
responsibility for stewardship of our nation's heritage resources and 
charges Federal agencies with the task of inventorying historic and 
prehistoric sites on their lands. E.O. 11593 also charges agencies with 
the task of identifying and nominating all historic properties under 
their jurisdiction, and exercising caution to insure that they are not 
transferred, sold, demolished, or substantially altered.
    (g) Historical and Archeological Data Preservation Act of 1974. 
(Pub. L. 93-291; 88 Stat. 174.) which amends the Reservoir Salvage Act 
of 1960 to extend its provisions beyond the construction of dams to any 
alteration of the terrain caused as a result of any Federal construction 
project or federally licensed activity or program. In addition, the Act 
provides a mechanism for funding the protection of historical and 
archeological data.
    (h) Presidential memorandum of July 12, 1978, ``Environmental 
Quality and Water Resource Management'' which directs the ACHP to 
publish final regulations, implementing section 106 of the National 
Historic Preservation Act (NHPA), and further directs each agency with 
water and related land resources responsibilities to publish procedures 
implementing those regulations.
    (i) 36 CFR part 800, ``Protection of Historic and Cultural 
Properties'' which establishes procedures for the implementation of 
section 106 of the NHPA, and directs publication of agency implementing 
procedures.
    (j) Land use policy of the USDA (Secretary's Memorandum No. 1827 
Revised, with Supplement) which establishes a commitment by the 
Department to the preservation of farms, rural communities, and rural 
landscapes.
    (k) Public Buildings Cooperative Use Act of 1976 (40 U.S.C. 611) and 
Executive Order 12072 (Federal Space Management). The Act encourages 
adaptive use of historic buildings as administrative facilities for 
Federal agencies and activities; the Executive Order directs Federal 
agencies to locate administrative and other facilities in central 
business districts.
    (l) American Indian Religious Freedom Act of 1978 (42 U.S.C. 1996) 
which declares it to be the policy of the United States to protect and 
preserve for American Indians their inherent right of freedom to 
believe, express, and exercise the traditional religions of the American 
Indian, Eskimo, Aleut, and Native Hawaiians.



Sec. 3100.42  Definitions.

    All definitions are those which appear in 36 CFR part 800. In 
addition, the following apply in this rule:
    Cultural resources (heritage resources) are the remains or records 
of districts, sites, structures, buildings, networks, neighborhoods, 
objects, and events from the past. They may be historic, prehistoric, 
archeological, or architectural in nature. Cultural resources are an 
irreplaceable and nonrenewable aspect of our national heritage.
    Cultural environment is that portion of the environment which 
includes reminders of the rich historic and prehistoric past of our 
nation.



Sec. 3100.43  Policy.

    (a) The nonrenewable cultural environment of our country constitutes 
a valuable and treasured portion of the national heritage of the 
American people. The Department of Agriculture is committed to the 
management--identification, protection, preservation, interpretation, 
evaluation and nomination--of our prehistoric and historic cultural 
resources for the benefit of all people of this and future generations.
    (b) The Department supports the cultural resource goals expressed in 
Federal legislation. Executive orders, and regulations.
    (c) The Department supports the preservation and protection of 
farms, rural landscapes, and rural communities.
    (d) The Department is committed to consideration of the needs of 
American

[[Page 87]]

Indians, Eskimo, Aleut, and Native Hawaiians in the practice of their 
traditional religions.
    (e) The Department will aggressively implement these policies to 
meet goals for the positive management of the cultural environment.



Sec. 3100.44  Implementation.

    (a) It is the intent of the Department to carry out its program of 
management of the cultural environment in the most effective and 
efficient manner possible. Implementation must consider natural resource 
utilization, must exemplify good government, and must constitute a 
noninflationary approach which makes the best use of tax dollars.
    (b) The commitment to cultural resource protection is vital. That 
commitment will be balanced with the multiple departmental goals of food 
and fiber production, environmental protection, natural resource and 
energy conservation, and rural development. It is essential that all of 
these be managed to reduce conflicts between programs. Positive 
management of the cultural environment can contribute to achieving 
better land use, protection of rural communities and farm lands, 
conservation of energy, and more efficient use of resources.
    (c) In reaching decisions, the long-term needs of society and the 
irreversible nature of an action must be considered. The Department must 
act to preserve future options; loss of important cultural resources 
must be avoided except in the face of overriding national interest where 
there are no reasonable alternatives.
    (d) To assure the protection of Native American religious practices, 
traditional religious leaders and other native leaders (or their 
representatives) should be consulted about potential conflict areas in 
the management of the cultural environment and the means to reduce or 
eliminate such conflicts.



Sec. 3100.45  Direction to agencies.

    (a) Each agency of the Department shall consult with OEQ to 
determine whether its programs and activities may affect the cultural 
environment. Then, if needed, the agency, in consultation with the OEQ, 
shall develop its own specific procedures for implementing section 106 
of the National Historic Preservation Act, Executive Order 11593, the 
regulations of the ACHP (36 CFR part 800), the American Indian Religious 
Freedom Act of 1978 and other relevant legislation and regulations in 
accordance with the agency's programs, mission and authorities. Such 
implementing procedures shall be published as proposed and final 
procedures in the Federal Register, and must be consistent with the 
requirements of 36 CFR part 800 and this subpart. Where applicable, each 
agency's procedures must contain mechanisms to insure:
    (1) Compliance with section 106 of NHPA and mitigation of adverse 
effects to cultural properties on or eligible for the National Register 
of Historic Places;
    (2) Clear definition of the kind and variety of sites and properties 
which should be managed;
    (3) Development of a long-term program of management of the cultural 
environment on lands administered by USDA as well as direction for 
project-specific protection;
    (4) Identification of all properties listed on or eligible for 
listing in the National Register that may be affected directly or 
indirectly by a proposed activity;
    (5) Location, identification and nomination to the Register of all 
sites, buildings, objects, districts, neighborhoods, and networks under 
its management which appear to qualify (in compliance with E.O. 11593);
    (6) The exercise of caution to assure that properties managed by 
USDA which may qualify for nomination are not transferred, sold, 
demolished, or substantially altered;
    (7) Early consultation with, and involvement of, the State Historic 
Preservation Officer(s), the ACHP, Native American traditional religious 
leaders and appropriate tribal leaders, and others with appropriate 
interests or expertise;
    (8) Early notification to insure substantive and meaningful 
involvement by the public in the agency's decisionmaking process as it 
relates to the cultural environment;

[[Page 88]]

    (9) Identification and consideration of alternatives to a proposed 
undertaking that would mitigate or minimize adverse effects to a 
property identified under paragraph (a)(4) of this section;
    (10) Funding of mitigation measures where required to minimize the 
potential for adverse effects on the cultural environment. Funds for 
mitigation shall be available and shall be spent when needed during the 
life of the project to mitigate the expected loss; and
    (11) Development of plans to provide for the management, protection, 
maintenance and/or restoration of Register sites under its management.
    (b) Each agency of the Department which conducts programs or 
activities that may have an effect on the cultural environment shall 
recruit, place, develop, or otherwise have available, professional 
expertise in anthropology, archeology, history, historic preservation, 
historic architecture, and/or cultural resource management (depending 
upon specific need). Such arrangements may include internal hiring, 
Intergovernmental Personnel Act assignments, memoranda of agreement with 
other agencies or Departments, or other mechanisms which insure a 
professionally directed program. Agencies should use Department of the 
Interior professional standards (36 CFR 61.5) as guidelines to insure 
Departmentwide competence and consistency.
    (c) Compliance with cultural resource legislation is the 
responsibility of each individual agency. Consideration of cultural 
resource values must begin during the earliest planning stages of any 
undertaking.
    (d) Agency heads shall insure that cultural resource management 
activities meet professional standards as promulgated by the Department 
of the Interior (e.g., 36 CFR parts 60, 63, 66, 1208).
    (e) Cultural resource review requirements and compliance with 
section 106 of NHPA and Executive Order 11593 shall be integrated and 
run concurrently, rather than consecutively, with the other 
environmental considerations under NEPA regulations. As such, direct and 
indirect impacts on cultural resources must be addressed in the 
environmental assessment for every agency undertaking. In meeting these 
requirements, agencies shall be guided by regulations implementing the 
procedural provisions of NEPA (40 CFR parts 1500-1508) and Department of 
Agriculture regulations (7 CFR part 3100, subpart B).
    (f) Each agency shall work closely with the appropriate State 
Historic Preservation Officer(s) in their preparation of State plans, 
determination of inventory needs, and collection of data relevant to 
general plans or specific undertakings in carrying out mutual cultural 
resource responsibilities.
    (g) Each agency shall, to the maximum extent possible, use existing 
historic structures for administrative purposes in compliance with 
Public Buildings Cooperative Use Act of 1976 and Executive Order 12072, 
``Federal Space Management''.
    (h) Each agency should consult with Native American traditional 
religious leaders or their representatives and other native leaders in 
the development and implementation of cultural resource programs which 
may affect their religious customs and practices.



Sec. 3100.46  Responsibilities of the Department of Agriculture.

    (a) Within the Department, the responsibility for the protection of 
the cultural environment is assigned to the Office of Environmental 
Quality (OEQ). The Office is responsible for reviewing the development 
and implementation of agency procedures and insuring Departmental 
commitment to cultural resource goals.
    (b) The Director of the OEQ is the Secretary's Designee to the ACHP.
    (c) In order to carry out cultural resource responsibilities, there 
will be professional expertise within the OEQ to advise agencies, aid 
the Department in meeting its cultural resource management goals, and to 
insure that all Departmental and agency undertakings comply with 
applicable cultural resource protection legislation and regulations.
    (d) The OEQ will be involved in individual compliance cases only 
where resolution cannot be reached at the agency level. Prior to the 
decision to refer a matter to the full Council of the

[[Page 89]]

ACHP, the OEQ will review the case and make recommendations to the 
Secretary regarding the position of the Department. The agency also will 
consult with the OEQ before reaching a final decision in response to the 
Council's comments. Copies of correspondence relevant to compliance with 
Section 106 shall be made available to OEQ.

                       PARTS 3101	3199 [RESERVED]

[[Page 91]]



CHAPTER XXXII--OFFICE OF PROCUREMENT AND PROPERTY MANAGEMENT, DEPARTMENT 
                             OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3200            Department of Agriculture guidelines for the 
                    acquisition and transfer of excess 
                    personal property.......................          93
3201            Guidelines for designating biobased products 
                    for Federal procurement.................          95
3202            Voluntary labeling program for biobased 
                    products................................         155
3203            Guidelines for the transfer of excess 
                    computers or other technical equipment 
                    pursuant to section 14220 of the 2008 
                    Farm Bill...............................         168
3204-3299

 [Reserved]

[[Page 93]]



PART 3200_DEPARTMENT OF AGRICULTURE GUIDELINES FOR THE ACQUISITION AND 
TRANSFER OF EXCESS PERSONAL PROPERTY--Table of Contents



Sec.
3200.1 Purpose.
3200.2 Eligibility.
3200.3 Definitions.
3200.4 Procedures.
3200.5 Dollar limitation.
3200.6 Restrictions.
3200.7 Title.
3200.8 Costs.
3200.9 Accountability and record keeping.
3200.10 Disposal.
3200.11 Liabilities and losses.

    Authority: 5 U.S.C. 301; 7 U.S.C. 2206a.

    Source: 63 FR 57234, Oct. 27, 1998, unless otherwise noted.



Sec. 3200.1  Purpose.

    This Part sets forth the procedures to be utilized by Department of 
Agriculture (USDA) in the acquisition and transfer of excess property to 
the 1890 Land Grant Institutions (including Tuskegee University), 1994 
Land Grant Institutions, and the Hispanic-Serving Institutions in 
support of research, educational, technical, and scientific activities 
or for related programs as authorized by 7 U.S.C. 2206a. Title to the 
personal property shall pass to the institution.



Sec. 3200.2  Eligibility.

    Institutions that are eligible to receive Federal excess personal 
property pursuant to the provisions of this part are the 1890 Land Grant 
Institutions (including Tuskegee University), 1994 Land Grant 
Institutions, and the Hispanic-Serving Institutions conducting research, 
educational, technical, and scientific activities or related programs.



Sec. 3200.3  Definitions.

    (a) 1890 Land grant institutions--any college or university eligible 
to receive funds under the Act of August 30, 1890 (7 U.S.C. 321 et. 
seq.), including Tuskegee University.
    (b) 1994 Land grant institutions--any of the tribal colleges or 
universities as defined in section 532 of the Equity in Educational 
Land-Grant Status Act of 1994 (7 U.S.C. 301 note).
    (c) Hispanic-serving institutions--institutions of higher education 
as defined in section 316(b) of the Higher Education Act of 1965 (20 
U.S.C. 1059c (b)).
    (d) Property management officer--is an authorized USDA or 
institution official responsible for property management.
    (e) Screener--is an individual designated by an eligible institution 
and authorized by the General Services Administration (GSA) to visit 
property sites for the purpose of inspecting personal property intended 
for use by the institution.
    (f) Excess personal property--is any personal property under the 
control of a Federal agency that is no longer needed.
    (g) Cannibalization--is the dismantling of equipment for parts to 
repair or enhance other equipment.



Sec. 3200.4  Procedures.

    (a) To receive information concerning the availability of Federal 
excess personal property, an eligible institution's property management 
officer may contact their regional GSA, Area Utilization Officer. For 
information on USDA excess personal property, visit the USDA Web site at 
http://www.nfc.usda.gov/propexcs. USDA excess property will first be 
screened by USDA agencies through the Departmental Excess Personal 
Property Coordinator (DEPPC) using the Departmental Property Management 
Information System.
    (b) Excess property selected by screeners of eligible institutions 
should be inspected whenever possible, or the holding agency should be 
contacted to verify the condition of the items, because interpretation 
of condition codes varies among Federal agencies.
    (c) If the condition of the item is acceptable, the institution 
should ``freeze'' (reserve) items by calling the appropriate GSA office 
or USDA Departmental Excess Personal Property Coordinator (DEPPC). Since 
GSA may have several ``freezes'' on a piece of equipment, it is critical 
that the paperwork be submitted as soon as possible. Further, while 
transfers of excess personal property normally will be approved by GSA 
on a first-come-first-serve basis, consideration will be given

[[Page 94]]

to such factors as national defense requirements, emergency needs, 
preclusion of new procurement, energy conservation, equitable 
distribution, and retention of title in the Government.
    (d) Eligible institutions may submit property requests by mail or 
fax on a Standard Form 122, ``Transfer Order Excess Personal Property''.
    (e) The SF-122 should be signed by the eligible institution's 
property management officer or authorized designee.
    (1) The following information should also be provided:
    (i) Date prepared.
    (ii) GSA/DEPPC address.
    (iii) Ordering Agency and address.
    (iv) Holding Agency and address.
    (v) Name and address of Institution.
    (vi) Location of property.
    (vii) Shipping instruction (including institution contact person and 
phone number).
    (viii) Complete description of property including original 
acquisition cost, serial number, condition code, and quantity.
    (2) This statement needs to be added following the property 
description:

    ``The property requested hereon is certified to be used in support 
of research, educational, technical, and scientific activities or for 
related programs. This transfer is requested pursuant to the provisions 
of Section 923 Pub. L. 104-127 (7 U.S.C. 2206a). Also, in accordance 
with these provisions USDA authorizes transfer of title of this property 
to the college/university/institution.''

    (f) The SF-122 should be forwarded to USDA for approval and 
signature by an authorized USDA official. As confirmation of approval, 
the eligible institution's property management officer will receive a 
stamped copy of the SF-122. If the request is disapproved, it will be 
returned to the property management officer of the eligible institution 
with an appropriate explanation. All USDA approved SF-122's will be 
forwarded to DEPPC or the appropriate GSA office for final approval.
    (g) Once the excess personal property is physically received, the 
institution is required to immediately return a copy of the SF-122 to 
USDA indicating receipt of requested items. Cancellations should also be 
reported to USDA.

    Note: USDA shall send an informational copy of all SF-122's 
transactions to GSA.

[63 FR 57234, Oct. 27, 1998, as amended at 68 FR 75107, Dec. 30, 2003]



Sec. 3200.5  Dollar limitation.

    There is no dollar limitation on excess personal property obtained 
under these procedures.



Sec. 3200.6  Restrictions.

    (a) Property in the following Federal Supply Groups are prohibited 
from transfer.

                  Ineligible Federal Supply Code Groups
------------------------------------------------------------------------
                 FSC Group                              Name
------------------------------------------------------------------------
10........................................  Weapons.
11........................................  Nuclear ordinance.
13........................................  Ammunition and explosives.
14........................................  Guided missiles.
18........................................  Space vehicles.
------------------------------------------------------------------------

    (b) The property in the FSC's listed below are discouraged from 
transfer and not approved on a routine basis. However, Institutions may 
request items in these FSC groups, but all requests will be referred to 
the Director, Office of Procurement and Property Management for 
consideration and approval:

------------------------------------------------------------------------
                 FSC Group                              Name
------------------------------------------------------------------------
15........................................  Aircraft and airframe
                                             structural components.
16........................................  Aircraft components and
                                             accessories.
17........................................  Aircraft launching, landing
                                             and ground handling
                                             equipment.
20........................................  Ship and marine equipment.
------------------------------------------------------------------------

    (c) Excess personal property may be transferred for the purpose of 
cannibalization, provided the eligible institution submits a supporting 
statement which clearly indicates that cannibalizing the requested 
property for secondary use has greater benefit than utilization of the 
item in its existing form.
    (d) Use of the procedures in this part for the purpose of 
stockpiling of excess personal property for future cannibalization is 
prohibited. Transfer requests for the purpose of cannibalization will be 
considered, but are normally subordinate to requests for complete items.

[63 FR 57234, Oct. 27, 1998, as amended at 68 FR 75107, Dec. 30, 2003]

[[Page 95]]



Sec. 3200.7  Title.

    Title to excess personal property obtained under Part 3200 will 
automatically pass to the 1890 Land Grant Institutions (including 
Tuskegee University), 1994 Land Grant Institutions, and the Hispanic-
Serving Institutions once USDA receives the SF-122 indicating that the 
institution has received the property. Note: When competing Federal 
claims are made for particular items of excess personal property held by 
agencies other than USDA, with or without payment of reimbursement, GSA 
will give preference to the Federal agency that will retain title in the 
Government.



Sec. 3200.8  Costs.

    Excess personal property obtained under this part is provided free 
of charge. However, the institution must pay all costs associated with 
packaging and transportation. The institution should specify the method 
of shipment on the SF-122.



Sec. 3200.9  Accountability and record keeping.

    USDA requires that Federal excess personal property received by an 
eligible institution pursuant to this part shall be placed into use for 
a research, educational, technical, or scientific activity, or for a 
related purpose, within 1 year of receipt of the property, and used for 
such purpose for at least 1 year thereafter. The institution's property 
management officer must establish and maintain accountable records 
identifying the property's location, description, utilization and value. 
To ensure that the excess personal property is being used for its 
intended purpose under this part, compliance reviews will be conducted 
by an authorized representative of USDA. The review will include site 
visit inspections of the property and the accountability and record 
keeping systems.



Sec. 3200.10  Disposal.

    Once the requirements in Sec. 3200.9 are met for retention and use 
of property by the Institution and title is transferred, Federal excess 
personal property (FEPP) no longer needed by an Institution will be 
disposed of in accordance with the Institution's disposal practices. 
Regardless of ownership, FEPP must never be disposed of in any manner 
which is detrimental or dangerous to public health or safety. Also, any 
costs incurred during the disposal process are the responsibility of the 
Institution.

[68 FR 75108, Dec. 30, 2003]



Sec. 3200.11  Liabilities and losses.

    USDA assumes no liability with respect to accidents, bodily injury, 
illness, or any other damages or loss related to excess personal 
property transferred under this part.



PART 3201_GUIDELINES FOR DESIGNATING BIOBASED PRODUCTS FOR FEDERAL PROCUREMENT--Table of Contents



                            Subpart A_General

Sec.
3201.1 Purpose and scope.
3201.2 Definitions.
3201.3 Applicability to Federal procurements.
3201.4 Procurement programs.
3201.5 Category designation.
3201.6 Providing product information to Federal agencies.
3201.7 Determining biobased content.
3201.8 Determining price, environmental and health benefits, and 
          performance.
3201.9 [Reserved]

Subpart B_Designated Product Categories and Intermediate Ingredients or 
                               Feedstocks

3201.10 Mobile equipment hydraulic fluids.
3201.11 Roof coatings.
3201.12 Water tank coatings.
3201.13 Diesel fuel additives.
3201.14 Penetrating lubricants.
3201.15 Bedding, bed linens, and towels.
3201.16 Adhesive and mastic removers.
3201.17 Plastic insulating foam for residential and commercial 
          construction.
3201.18 Hand cleaners and sanitizers.
3201.19 Composite panels.
3201.20 Fluid-filled transformers.
3201.21 Disposable containers.
3201.22 Fertilizers.
3201.23 Sorbents.
3201.24 Graffiti and grease removers.
3201.25 2-Cycle engine oils.
3201.26 Lip care products.
3201.27 Films.
3201.28 Stationary equipment hydraulic fluids.
3201.29 Disposable cutlery.
3201.30 Glass cleaners.

[[Page 96]]

3201.31 Greases.
3201.32 Dust suppressants.
3201.33 Carpets.
3201.34 Carpet and upholstery cleaners.
3201.35 Bathroom and spa cleaners.
3201.36 Concrete and asphalt release fluids.
3201.37 De-Icers.
3201.38 Firearm cleaners, lubricants, and protectants.
3201.39 Floor strippers.
3201.40 Laundry products.
3201.41 Metalworking fluids.
3201.42 Wood and concrete sealers.
3201.43 Chain and cable lubricants.
3201.44 Corrosion preventatives.
3201.45 Food cleaners.
3201.46 Forming lubricants.
3201.47 Gear lubricants.
3201.48 General purpose household cleaners.
3201.49 Industrial cleaners.
3201.50 Multipurpose cleaners.
3201.51 Parts wash solutions.
3201.52 Disposable tableware.
3201.53 Expanded polystyrene foam recycling products.
3201.54 Heat transfer fluids.
3201.55 Ink removers and cleaners.
3201.56 Mulch and compost materials.
3201.57 Multipurpose lubricants.
3201.58 [Reserved]
3201.59 Topical pain relief products.
3201.60 Turbine drip oils.
3201.61 Animal repellents.
3201.62 Bath products.
3201.63 Bioremediation materials.
3201.64 Compost activators and accelerators.
3201.65 Concrete and asphalt cleaners.
3201.66 Cuts, burns, and abrasions ointments.
3201.67 Dishwashing products.
3201.68 Erosion control materials.
3201.69 Floor cleaners and protectors.
3201.70 Hair care products.
3201.71 Interior paints and coatings.
3201.72 Oven and grill cleaners.
3201.73 Slide way lubricants.
3201.74 Thermal shipping containers.
3201.75 Air fresheners and deodorizers.
3201.76 Asphalt and tar removers.
3201.77 Asphalt restorers.
3201.78 Blast media.
3201.79 Candles and wax melts.
3201.80 Electronic components cleaners.
3201.81 Floor coverings (non-carpet).
3201.82 Foot care products.
3201.83 Furniture cleaners and protectors.
3201.84 Inks.
3201.85 Packing and insulating materials.
3201.86 Pneumatic equipment lubricants.
3201.87 Wood and concrete stains.
3201.88 Agricultural spray adjuvants.
3201.89 Animal cleaning products.
3201.90 Deodorants.
3201.91 Dethatcher products.
3201.92 Fuel conditioners.
3201.93 Leather, vinyl, and rubber care products.
3201.94 Lotions and moisturizers.
3201.95 Shaving products.
3201.96 Specialty precision cleaners and solvents.
3201.97 Sun care products.
3201.98 Wastewater systems coatings.
3201.99 Water and wastewater treatment chemicals.
3201.100 Aircraft and boat cleaners.
3201.101 Automotive care products.
3201.102 Engine crankcase oil.
3201.103 Gasoline fuel additives.
3201.104 Metal cleaners and corrosion removers.
3201.105 Microbial cleaning products.
3201.106 Paint removers.
3201.107 Water turbine bearing oils.
3201.108 Intermediates--Plastic Resins.
3201.109 Intermediates--Chemicals.
3201.110 Intermediates--Paint and Coating Components.
3201.111 Intermediates--Textile Processing Materials.
3201.112 Intermediates--Foams.
3201.113 Intermediates--Fibers and Fabrics.
3201.114 Intermediates--Lubricant Components.
3201.115 Intermediates--Binders.
3201.116 Intermediates--Cleaner Components.
3201.117 Intermediates--Personal Care Product Components.
3201.118 Intermediates--Oils, Fats, and Waxes.
3201.119 Intermediates--Rubber Materials.
3201.120 Adhesives.
3201.121 Animal habitat care products.
3201.122 Cleaning tools.
3201.123 Concrete curing agents.
3201.124 Concrete repair materials.
3201.125 Durable cutlery.
3201.126 Durable tableware.
3201.127 Epoxy systems.
3201.128 Exterior paints and coatings.
3201.129 Facial care products.
3201.130 Feminine care products.
3201.131 Fire logs and fire starters.
3201.132 Folders and filing products.
3201.133 Foliar sprays.
3201.134 Gardening supplies and accessories.
3201.135 Heating fuels and wick lamps.
3201.136 Kitchenware and accessories.
3201.137 Other lubricants.
3201.138 Phase change materials.
3201.139 Playground and athletic surface materials.
3201.140 Powder coatings.
3201.141 Product packaging.
3201.142 Rugs and floor mats.
3201.143 Shopping and trash bags.
3201.144 Soil amendments.
3201.145 Surface guards, molding, and trim.
3201.146 Toys and sporting gear.
3201.147 Traffic and zone marking paints.
3201.148 Transmission fluids.

[[Page 97]]

3201.149 Wall coverings.

    Source: 70 FR 1809, Jan. 11, 2005, unless otherwise noted.

    Authority: 7 U.S.C. 8102.



                            Subpart A_General

    Source: 70 FR 1809, Jan. 11, 2005, unless otherwise noted. 
Redesignated at 76 FR 53632, Aug. 29, 2011.



Sec. 3201.1  Purpose and scope.

    (a) Purpose. The purpose of the guidelines in this part is to assist 
procuring agencies in complying with the requirements of section 9002 of 
the Farm Security and Rural Investment Act of 2002 (FSRIA), Public Law 
107-171, 116 Stat. 476 (7 U.S.C. 8102), as amended by the Food, 
Conservation, and Energy Act of 2008, Public Law 110-246, 122 Stat. 
1651, as they apply to the procurement of the products designated in 
subpart B of this part.
    (b) Scope. The guidelines in this part establish a process for 
designating categories of products that are, or can be, produced with 
biobased components and materials and whose procurement by procuring 
agencies and other relevant stakeholders will carry out the objectives 
of section 9002 of FSRIA. The guidelines also establish a process for 
designating categories of intermediate ingredients and feedstocks that 
are, or can be, used to produce final products that will be designated 
and, thus, subject to Federal preferred procurement. The guidelines also 
establish a process for calculating the biobased content of complex 
assembly products, whose biobased content cannot be measured following 
ASTM Standard Method D6866, and for designating complex assembly product 
categories.

[76 FR 6321, Feb. 4, 2011, as amended at 79 FR 44654, Aug. 1, 2014]



Sec. 3201.2  Definitions.

    These definitions apply to this part:
    Agricultural materials. Agricultural-based, including plant, animal, 
and marine materials, raw materials or residues used in the manufacture 
of commercial or industrial, nonfood/nonfeed products.
    ASTM International. ASTM International, a nonprofit organization 
organized in 1898, is one of the largest voluntary standards development 
organizations in the world with about 30,000 members in over 100 
different countries. ASTM provides a forum for the development and 
publication of voluntary consensus standards for materials, products, 
systems, and services.
    BEES. An acronym for ``Building for Environmental and Economic 
Sustainability,'' an analytic tool used to determine the environmental 
and health benefits and life cycle costs of products and materials, 
developed by the U.S. Department of Commerce National Institute of 
Standards and Technology.
    Biobased components. Any intermediary biobased materials or parts 
that, in combination with other components, are functional parts of the 
biobased product.
    Biobased content. Biobased content shall be determined based on the 
amount of biobased carbon in the material or product as a percent of 
weight (mass) of the total organic carbon in the material or product.
    Biobased product. (1) A product determined by USDA to be a 
commercial or industrial product (other than food or feed) that is:
    (i) Composed, in whole or in significant part, of biological 
products, including renewable domestic agricultural materials and 
forestry materials; or
    (ii) An intermediate ingredient or feedstock.
    (2) The term ``biobased product'' includes, with respect to forestry 
materials, forest products that meet biobased content requirements, 
notwithstanding the market share the product holds, the age of the 
product, or whether the market for the product is new or emerging.
    Biodegradability. A quantitative measure of the extent to which a 
material is capable of being decomposed by biological agents, especially 
bacteria.
    Biological products. Products derived from living materials other 
than agricultural or forestry materials.
    Complex assembly. A system of distinct materials and components 
assembled to create a finished product with specific functional intent 
where some

[[Page 98]]

or all of the system inputs contain some amount of biobased material or 
feedstock.
    Designated intermediate ingredient or feedstock category. A generic 
grouping of biobased intermediate ingredients or feedstocks identified 
in subpart B of this part that, when comprising more than 50 percent (or 
another amount as specified in subpart B of this part) of a resultant 
final product, qualifies the resultant final product for the procurement 
preference established under section 9002 of FSRIA.
    Designated product category. A generic grouping of biobased 
products, including those final products made from designated 
intermediate ingredients or feedstocks, or complex assemblies identified 
in subpart B of this part, that is eligible for the procurement 
preference established under section 9002 of FSRIA.
    Diluent. A substance used to diminish the strength, scent, or other 
basic property of a substance.
    Engineered wood products. Products produced with a combination of 
wood, food fibers and adhesives.
    EPA-designated recovered content product. A product, designated 
under the Resource Conservation and Recovery Act, that is subject to 
Federal procurement as specified in section 6002 of the Solid Waste 
Disposal Act (42 U.S.C. 6962), whereby Federal agencies must give 
preferred procurement to those products composed of the highest 
percentage of recovered materials practicable, subject to availability, 
cost, and performance.
    FCEA. The Food, Conservation and Energy Act of 2008, Pub. L. 110-
246.
    Federal agency. Any executive agency or independent establishment in 
the legislative or judicial branch of the Government (except the Senate, 
the House of Representatives, the Architect of the Capitol, and any 
activities under the Architect's direction).
    Filler. A substance added to a product to increase the bulk, weight, 
viscosity, strength, or other property.
    Forest product. A product made from materials derived from the 
practice of forestry or the management of growing timber. The term 
``forest product'' includes:
    (1) Pulp, paper, paperboard, pellets, lumber, and other wood 
products; and
    (2) Any recycled products derived from forest materials.
    Forest thinnings. Refers to woody materials removed from a dense 
forest, primarily to improve growth, enhance forest health, or recover 
potential mortality. (To recover potential mortality means to remove 
trees that are going to die in the near future.)
    Formulated product. A product that is prepared or mixed with other 
ingredients, according to a specified formula and includes more than one 
ingredient.
    FSRIA. The Farm Security and Rural Investment Act of 2002, Public 
Law 107-171, 116 Stat. 134 (7 U.S.C. 8102).
    Functional unit. A measure of product technical performance that 
provides a common reference to which all environmental and economic 
impacts of the product are scaled. This reference is necessary to ensure 
comparability of performance results across competing products. 
Comparability of results is critical when competing product alternatives 
are being assessed to ensure that such comparisons are made on a common 
basis. For example, the functional unit for competing interior paint 
products may be defined as ``protecting one square foot of interior wall 
surface for 50 years.''
    Ingredient. A component; part of a compound or mixture; may be 
active or inactive.
    Intermediate ingredient or feedstock. A material or compound made in 
whole or in significant part from biological products, including 
renewable agricultural materials (including plant, animal, and marine 
materials) or forestry materials that have undergone value added 
processing (including thermal, chemical, biological, or a significant 
amount of mechanical processing), excluding harvesting operations, 
offered for sale by a manufacturer or vendor and that is subsequently 
used to make a more complex compound or product.
    ISO. The International Organization for Standardization, a network 
of national standards institutes from 145 countries working in 
partnership with international organizations, governments, industries, 
business, and consumer representatives.

[[Page 99]]

    Neat product. A product that is made of only one ingredient and is 
not diluted or mixed with other substances.
    Procuring agency. Any Federal agency that is using Federal funds for 
procurement or any person contracting with any Federal agency with 
respect to work performed under the contract.
    Qualified biobased product. A product that is eligible for Federal 
preferred procurement because it meets the definition and minimum 
biobased content criteria for one or more designated product categories, 
or one or more designated intermediate ingredient or feedstock 
categories, as specified in subpart B of this part.
    Relative price. The price of a product as compared to the price of 
other products on the market that have similar performance 
characteristics.
    Relevant stakeholder. Individuals or officers of state or local 
government organizations, private non-profit institutions or 
organizations, and private businesses or consumers.
    Renewable chemical. A monomer, polymer, plastic, formulated product, 
or chemical substance produced from renewable biomass.
    Residues. That which remains after a part is taken, separated, 
removed, or designated; a remnant; a remainder; and, for this purpose, 
is from agricultural materials, biological products, or forestry 
materials.
    Secretary. The Secretary of the United States Department of 
Agriculture.
    Small and emerging private business enterprise. Any private business 
which will employ 50 or fewer new employees and has less than $1 million 
in projected annual gross revenues.
    Sustainably managed forests. Refers to the practice of a land 
stewardship ethic that integrates the reforestation, management, 
growing, nurturing, and harvesting of trees for useful products while 
conserving soil and improving air and water quality, wildlife, fish 
habitat, and aesthetics.

[70 FR 1809, Jan. 11, 2005, as amended at 71 FR 13704, Mar. 16, 2006; 71 
FR 42575, July 27, 2006; 76 FR 6321, Feb. 4, 2011; 79 FR 44654, Aug. 1, 
2014; 80 FR 34029, June 15, 2015]



Sec. 3201.3  Applicability to Federal procurements.

    (a) Applicability to procurement actions. The guidelines in this 
part apply to all procurement actions by procuring agencies involving 
items designated by USDA in this part, where the procuring agency 
purchases $10,000 or more worth of one of these items during the course 
of a fiscal year, or where the quantity of such items or of functionally 
equivalent items purchased during the preceding fiscal year was $10,000 
or more. The $10,000 threshold applies to Federal agencies as a whole 
rather than to agency subgroups such as regional offices or subagencies 
of a larger Federal department or agency.
    (b) Exception for procurements subject to EPA regulations under the 
Solid Waste Disposal Act. For any procurement by any procuring agency 
that is subject to regulations of the Administrator of the Environmental 
Protection Agency under section 6002 of the Solid Waste Disposal Act as 
amended by the Resource Conservation Act of 1976 (40 CFR part 247), 
these guidelines do not apply to the extent that the requirements of 
this part are inconsistent with such regulations.
    (c) Procuring products composed of the highest percentage of 
biobased content. Section 9002(a)(2) of FSRIA requires procuring 
agencies to procure qualified biobased products composed of the highest 
percentage of biobased content practicable or such products that comply 
with the regulations issued under section 103 of Public Law 100-556 (42 
U.S.C. 6914b-1). Procuring agencies may decide not to procure such 
qualified biobased products if they are not reasonably priced or readily 
available or do not meet specified or reasonable performance standards.
    (d) This guideline does not apply to purchases of qualified biobased 
products that are unrelated to or incidental to Federal funding; i.e., 
not the direct result of a contract or agreement with persons supplying 
items to a procuring agency or providing support services that include 
the supply or use of products.
    (e) Exemptions. The following applications are exempt from the 
preferred procurement requirements of this part:

[[Page 100]]

    (1) Military equipment: Products or systems designed or procured for 
combat or combat-related missions.
    (2) Spacecraft systems and launch support equipment.

[71 FR 42575, July 27, 2006, as amended at 73 FR 27953, May 14, 2008; 76 
FR 6321, Feb. 4, 2011; 79 FR 44655, Aug. 1, 2014]



Sec. 3201.4  Procurement programs.

    (a) Integration into the Federal procurement framework. The Office 
of Federal Procurement Policy, in cooperation with USDA, has the 
responsibility to coordinate this policy's implementation in the Federal 
procurement regulations. These guidelines are not intended to address 
full implementation of these requirements into the Federal procurement 
framework. This will be accomplished through revisions to the Federal 
Acquisition Regulation.
    (b) Federal agency preferred procurement programs. (1) On or before 
July 31, 2015, each Federal agency shall develop a procurement program 
which will assure that qualified biobased products are purchased to the 
maximum extent practicable and which is consistent with applicable 
provisions of Federal procurement laws. Each procurement program shall 
contain:
    (i) A preference program for purchasing qualified biobased products;
    (ii) A promotion program to promote the preference program;
    (iii) Provisions for the annual review and monitoring of the 
effectiveness of the procurement program; and
    (iv) Provisions for reporting quantities and types of biobased 
products purchased by the Federal agency.
    (2) In developing the preference program, Federal agencies shall 
adopt one of the following options, or a substantially equivalent 
alternative, as part of the procurement program:
    (i) A policy of awarding contracts on a case-by-case basis to the 
vendor offering a qualified biobased product composed of the highest 
percentage of biobased content practicable except when such products:
    (A) Are not available within a reasonable time;
    (B) Fail to meet performance standards set forth in the applicable 
specifications, or the reasonable performance standards of the Federal 
agency; or
    (C) Are available only at an unreasonable price.
    (ii) A policy of setting minimum biobased content specifications in 
such a way as to assure that the required biobased content of qualified 
biobased products is consistent with section 9002 of FSRIA and the 
requirements of the guidelines in this part except when such products:
    (A) Are not available within a reasonable time;
    (B) Fail to meet performance standards for the use to which they 
will be put, or the reasonable performance standards of the Federal 
agency; or
    (C) Are available only at an unreasonable price.
    (3) In implementing the preference program, Federal agencies shall 
treat as eligible for the preference biobased products from ``designated 
countries,'' as that term is defined in section 25.003 of the Federal 
Acquisition Regulation, provided that those products otherwise meet all 
requirements for participation in the preference program.
    (4) No later than June 15, 2016, each Federal agency shall establish 
a targeted biobased-only procurement requirement under which the 
procuring agency shall issue a certain number of biobased-only contracts 
when the procuring agency is purchasing products, or purchasing services 
that include the use of products, that are included in a biobased 
product category designated by the Secretary.
    (c) Procurement specifications. After the publication date of each 
designated product category and each designated intermediate ingredient 
or feedstock category, Federal agencies that have the responsibility for 
drafting or reviewing specifications for products procured by Federal 
agencies shall ensure within a specified time frame that their 
specifications require the use of qualified biobased products, 
consistent with the guidelines in this part. USDA will specify the 
allowable time frame in each designation rule. The biobased content of 
qualified biobased products within a designated product category or a 
designated intermediate ingredient or feedstock category may vary 
considerably from product to product

[[Page 101]]

based on the mix of ingredients used in its manufacture. Likewise, the 
biobased content of qualified biobased products that qualify because 
they are made from materials within designated intermediate ingredient 
or feedstock categories may also vary significantly. In procuring 
qualified biobased products, the percentage of biobased content should 
be maximized, consistent with achieving the desired performance for the 
product.

[70 FR 1809, Jan. 11, 2005, as amended at 71 FR 42575, July 27, 2006; 76 
FR 6322, Feb. 4, 2011; 79 FR 44655, Aug. 1, 2014; 80 FR 34029, June 15, 
2015]



Sec. 3201.5  Category designation.

    (a) Procedure. Designated product categories, designated 
intermediate ingredient or feedstock categories, and designated final 
product categories composed of qualifying intermediate ingredients or 
feedstocks are listed in subpart B of this part.
    (1) In designating product categories, USDA will designate 
categories composed of generic groupings of specific products or complex 
assemblies and will identify the minimum biobased content for each 
listed category or subcategory. As product categories are designated for 
procurement preference, they will be added to subpart B of this part.
    (2) In designating intermediate ingredient or feedstock categories, 
USDA will designate categories composed of generic groupings of specific 
intermediate ingredients or feedstocks, and will identify the minimum 
biobased content for each listed category or sub-category. As categories 
are designated for product qualification, they will be added to subpart 
B of this part. USDA encourages manufacturers and vendors of 
intermediate ingredients or feedstocks to provide USDA with information 
relevant to significant potential applications for intermediate 
ingredients or feedstocks, including estimates of typical formulation 
rates.
    (3) During the process of designating intermediate ingredient or 
feedstock categories, USDA will also gather information on the various 
types of final products that are, or can be, made from those 
intermediate ingredients or feedstocks. Final products that fall within 
existing designated product categories will be subject to the minimum 
biobased content requirements for those product categories, as specified 
in subpart B of this part. New product categories that are identified 
during the information gathering process will be listed in the Federal 
Register proposed rule for designating the intermediate ingredient or 
feedstock categories. A minimum biobased content for each of the final 
product categories will also be identified based on the amount of 
designated intermediate ingredients or feedstocks such products contain. 
Public comment will be invited on the list of potential final product 
categories, and the minimum biobased content for each, as well as on the 
intermediate ingredient and feedstock categories being proposed for 
designation. Public comments on the list of potential final product 
categories will be considered, along with any additional information 
gathered by USDA, and the list will be finalized. When the final rule 
designating the intermediate ingredient or feedstock categories, by 
adding them to subpart B of this part, is published in the Federal 
Register, the list of final product categories will also be added to 
subpart B of this part. Once these final product categories are listed 
in subpart B of this part, they will become eligible for the Federal 
procurement preference.
    (b) Considerations. (1) In designating product categories and 
intermediate ingredient or feedstock categories, USDA will consider the 
availability of qualified biobased products and the economic and 
technological feasibility of using such products, including price. USDA 
will gather information on individual qualified biobased products within 
a category and extrapolate that information to the category level for 
consideration in designating categories.
    (2) In designating product categories and intermediate ingredient or 
feedstock categories for the BioPreferred Program, USDA will consider as 
eligible only those products that use innovative approaches in the 
growing, harvesting, sourcing, procuring, processing, manufacturing, or 
application of the biobased product. USDA will consider products that 
meet one or

[[Page 102]]

more of the criteria in paragraphs (b)(2)(i) through (iv) of this 
section to be eligible for the BioPreferred Program. USDA will also 
consider other documentation of innovative approaches in the growing, 
harvesting, sourcing, procuring, processing, manufacturing, or 
application of biobased products on a case-by-case basis. USDA may 
exclude from the BioPreferred Program any products whose manufacturers 
are unable to provide USDA with the documentation necessary to verify 
claims that innovative approaches are used in the growing, harvesting, 
sourcing, procuring, processing, manufacturing, or application of their 
biobased products.
    (i) Product applications. (A) The biobased product or material is 
used or applied in applications that differ from historical 
applications; or
    (B) The biobased product or material is grown, harvested, 
manufactured, processed, sourced, or applied in other innovative ways; 
or
    (C) The biobased content of the product or material makes its 
composition different from products or material used for the same 
historical uses or applications.
    (ii) Manufacturing and processing. (A) The biobased product or 
material is manufactured or processed using renewable, biomass energy or 
using technology that is demonstrated to increase energy efficiency or 
reduce reliance on fossil-fuel based energy sources; or
    (B) The biobased product or material is manufactured or processed 
with technologies that ensure high feedstock material recovery and use.
    (iii) Environmental Product Declaration. The product has a current 
Environmental Product Declaration as defined by International Standard 
ISO 14025, Environmental Labels and Declarations--Type III Environmental 
Declarations--Principles and Procedures.
    (iv) Raw material sourcing. (A) The raw material used in the product 
is sourced from a Legal Source, a Responsible Source, or a Certified 
Source as designated by ASTM D7612-10, Standard Practice for 
Categorizing Wood and Wood-Based Products According to Their Fiber 
Sources; or
    (B) The raw material used in the product is 100% resourced or 
recycled (such as material obtained from building deconstruction); or
    (C) The raw material used in the product is from an urban 
environment and is acquired as a result of activities related to a 
natural disaster, land clearing, right-of-way maintenance, tree health 
improvement, or public safety.
    (c) Exclusions. Motor vehicle fuels, heating oil, and electricity 
are excluded by statute from this program.

[79 FR 44655, Aug. 1, 2014, as amended at 80 FR 34029, June 15, 2015]



Sec. 3201.6  Providing product information to Federal agencies.

    (a) Informational Web site. An informational USDA Web site 
implementing section 9002 of FSRIA can be found at: http://
www.biopreferred.gov. USDA will maintain a voluntary Web-based 
information site for manufacturers and vendors of qualified biobased 
products and Federal agencies to exchange information, as described in 
paragraphs (a)(1) and (2) of this section.
    (1) Product information. The Web site will, as determined to be 
necessary by the Secretary based on the availability of data, provide 
information as to the availability, price, biobased content, performance 
and environmental and public health benefits of the designated product 
categories and designated intermediate ingredient or feedstock 
categories. USDA encourages manufacturers and vendors to provide product 
and business contact information for designated categories. Instructions 
for posting information are found on the Web site itself. USDA also 
encourages Federal agencies to utilize this Web site to obtain current 
information on designated categories, contact information on 
manufacturers and vendors, and access to information on product 
characteristics relevant to procurement decisions. In addition to any 
information provided on the Web site, manufacturers and vendors are 
expected to provide relevant information to Federal agencies, subject to 
the limitations specified in Sec. 3201.8(a), with respect to product 
characteristics, including verification of such characteristics if 
requested.

[[Page 103]]

    (2) National Testing Center Registry. The Web site will include an 
electronic listing of recognized industry standard testing organizations 
that will serve biobased product manufacturers such as ASTM 
International, Society of Automotive Engineers, and the American 
Petroleum Institute. USDA encourages stakeholders to submit information 
on other possible testing resources to the BioPreferred program for 
inclusion.
    (b) Advertising, labeling and marketing claims. Manufacturers and 
vendors are reminded that their advertising, labeling, and other 
marketing claims, including claims regarding health and environmental 
benefits of the product, must conform to the Federal Trade Commission 
``Guides for the Use of Environmental Marketing Claims,'' 16 CFR part 
260 (see: http://www.access.gpo.gov/nara/cfr/waisidx_08/
16cfr260_08.html). For further requirements, click on the link to the 
``Guidelines for Marketing the BioPreferred Program.''

[70 FR 1809, Jan. 11, 2005, as amended at 76 FR 6322, Feb. 4, 2011; 79 
FR 44656, Aug. 1, 2014; 80 FR 34030, June 15, 2015]



Sec. 3201.7  Determining biobased content.

    (a) Certification requirements. For any qualified biobased product 
offered for preferred procurement, manufacturers and vendors must 
certify that the product meets the biobased content requirements for the 
designated product category or designated intermediate ingredient or 
feedstock category within which the qualified biobased product falls. 
Paragraph (c) of this section addresses how to determine biobased 
content. Upon request, manufacturers and vendors must provide USDA and 
Federal agencies information to verify biobased content for products 
certified to qualify for preferred procurement.
    (b) Minimum biobased content. Unless specified otherwise in the 
designation of a particular product category or intermediate ingredient 
or feedstock category, the minimum biobased content requirements in a 
specific category designation refer to the organic carbon portion of the 
product, and not the entire product.
    (c) Determining biobased content. Verification of biobased content 
must be based on third party ASTM/ISO compliant test facility testing 
using the ASTM Standard Method D6866, ``Standard Test Methods for 
Determining the Biobased Content of Solid, Liquid, and Gaseous Samples 
Using Radiocarbon Analysis.'' ASTM Standard Method D6866 determines 
biobased content based on the amount of biobased carbon in the material 
or product as percent of the weight (mass) of the total organic carbon 
in the material or product.
    (1) Biobased products, intermediate ingredients or feedstocks. 
Biobased content will be based on the amount of biobased carbon in the 
product or material as a percent of the weight (mass) of the total 
organic carbon in the product or material.
    (2) Final products composed of designated intermediate ingredient or 
feedstock materials. The biobased content of final products composed of 
designated intermediate ingredient or feedstock materials will be 
determined by calculating the percentage by weight (mass) that the 
biobased component of each designated intermediate ingredient or 
feedstock material represents of the total organic carbon content of the 
final product and summing the results (if more than one designated 
intermediate ingredient or feedstock is used). If the final product also 
contains biobased content from intermediate ingredient or feedstock 
material that is not designated, the percentage by weight that these 
biobased ingredients represent of the total organic carbon content 
should be included in the calculation.
    (3) Complex assemblies. The biobased content of a complex assembly 
product, where the product has ``n'' components whose biobased and 
organic carbon content can be experimentally determined, will be 
calculated using the following equation:

[[Page 104]]

[GRAPHIC] [TIFF OMITTED] TR01AU14.001

Where:

Mi = mass of the nth component
BCCi = biobased carbon content of the nth component (%)
OCCi = organic carbon content of the nth component (%)

    (d) Products and intermediate ingredients or feedstocks with the 
same formulation. In the case of products and intermediate ingredients 
or feedstocks that are essentially the same formulation, but marketed 
under more than one brand name, biobased content test data need not be 
brand-name specific.

[79 FR 44656, Aug. 1, 2014]



Sec. 3201.8  Determining price, environmental and health benefits, and performance.

    (a) Providing information on price and environmental and health 
benefits. Federal agencies may not require manufacturers or vendors of 
qualified biobased products to provide to procuring agencies more data 
than would be required of other manufacturers or vendors offering 
products for sale to a procuring agency (aside from data confirming the 
biobased contents of the products) as a condition of the purchase of 
biobased products from the manufacturer or vendor. USDA will work with 
manufacturers and vendors to collect information needed to estimate the 
price of biobased products, complex assemblies, intermediate materials 
or feedstocks as part of the designation process, including application 
units, average unit cost, and application frequency. USDA encourages 
industry stakeholders to provide information on environmental and public 
health benefits based on industry accepted analytical approaches 
including, but not limited to: Material carbon footprint analysis, the 
ASTM D7075 standard for evaluating and reporting on environmental 
performance of biobased products, the International Standards 
Organization ISO 14040, the ASTM International life-cycle cost method 
(E917) and multi-attribute decision analysis (E1765), the British 
Standards Institution PAS 2050, and the National Institute of Standards 
and Technology BEES analytical tool. USDA will make such stakeholder-
supplied information available on the BioPreferred Web site.
    (b) Performance test information. In assessing performance of 
qualified biobased products, USDA requires that procuring agencies rely 
on results of performance tests using applicable ASTM, ISO, Federal or 
military specifications, or other similarly authoritative industry test 
standards. Such testing must be conducted by a laboratory compliant with 
the requirements of the standards body. The procuring official will 
decide whether performance data must be brand-name specific in the case 
of products that are essentially of the same formulation.
    (c) Biodegradability information. If biodegradability is claimed by 
the manufacturer of a qualifying biobased product as a characteristic of 
that product, USDA requires that, if requested by procuring agencies, 
these claims be verified using the appropriate, product-specific ASTM 
biodegradability standard(s). Such testing must be conducted by an ASTM/
ISO-compliant laboratory. The procuring official will decide whether 
biodegradability data must be brand-name specific in the case of 
products that are essentially of the same formulation. ASTM 
biodegradability standards include:
    (1) D5338 ``Standard Test Method for Determining Aerobic 
Biodegradation of Plastic Materials Under Controlled Composting 
Conditions'';
    (2) D5864 ``Standard Test Method for Determining the Aerobic Aquatic 
Biodegradation of Lubricants or Their Components'';
    (3) D6006 ``Standard Guide for Assessing Biodegradability of 
Hydraulic Fluids'';
    (4) D6400 ``Standard Specification for Compostable Plastics'' and 
the standards cited therein;

[[Page 105]]

    (5) D6139 ``Standard Test Method for Determining the Aerobic Aquatic 
Biodegradation of Lubricants or Their Components Using the Gledhill 
Shake Flask'';
    (6) D6868 ``Standard Specification for Biodegradable Plastics Used 
as Coatings on Paper and Other Compostable Substrates''; and
    (7) D7081 ``Standard Specification for Non-Floating Biodegradable 
Plastics in the Marine Environment.''

[70 FR 1809, Jan. 11, 2005, as amended at 71 FR 13704, Mar. 16, 2006; 71 
FR 42575, July 27, 2006; 76 FR 6322, Feb. 4, 2011; 79 FR 44657, Aug. 1, 
2014]



Sec. 3201.9  [Reserved]



Subpart B_Designated Product Categories and Intermediate Ingredients or 
                               Feedstocks

    Source: 71 FR 13705, Mar. 16, 2006, unless otherwise noted. 
Redesignated at 76 FR 53632, Aug. 29, 2011.



Sec. 3201.10  Mobile equipment hydraulic fluids.

    (a) Definition. Hydraulic fluids formulated for general use in non-
stationary equipment, such as tractors, end loaders, or backhoes.
    (b) Minimum biobased content. The minimum biobased content is 44 
percent and shall be based on the amount of qualifying biobased carbon 
in the product as a percent of the weight (mass) of the total organic 
carbon in the finished product.
    (c) Preference effective date. No later than March 16, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased mobile equipment 
hydraulic fluids. By that date, Federal agencies that have the 
responsibility for drafting or reviewing specifications for items to be 
procured shall ensure that the relevant specifications require the use 
of biobased mobile equipment hydraulic fluids.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the following EPA-designated recovered content 
product: Re-refined Lubricating Oils. USDA is requesting that 
manufacturers of these qualifying biobased products provide information 
for the BioPreferred Web site of qualifying biobased products about the 
intended uses of the product, information on whether or not the product 
contains petroleum-based ingredients, re-refined oil, and/or any other 
recovered material, in addition to biobased ingredients, and performance 
standards against which the product has been tested. This information 
will assist Federal agencies in determining whether or not a qualifying 
biobased product overlaps with EPA-designated lubricating oils 
containing re-refined oil and which product should be afforded the 
preference in purchasing.

    Note to paragraph (d): Mobile equipment hydraulic fluid products 
within this designated item can compete with similar lubricating oils 
containing re-refined oil. Under the Resource Conservation and Recovery 
Act of 1976, section 6002, the U.S. Environmental Protection Agency 
designated lubricating oils containing re-refined oil as items for which 
Federal agencies must give preference in their purchasing programs. The 
designation can be found in the Comprehensive Procurement Guideline, 40 
CFR 247.11.

[71 FR 13705, Mar. 16, 2006, as amended at 73 FR 27953, May 14, 2008]



Sec. 3201.11  Roof coatings.

    (a) Definition. Coatings formulated for use in commercial roof deck 
systems to provide a single-coat monolith coating system.
    (b) Minimum biobased content. The minimum biobased content is 20 
percent and shall be based on the entire product.
    (c) Preference effective date. No later than March 16, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased roof coatings. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased roof coatings.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the following EPA-designated recovered content 
product:

[[Page 106]]

Roofing Materials. USDA is requesting that manufacturers of these 
qualifying biobased products provide information for the BioPreferred 
Web site of qualifying biobased products about the intended uses of the 
product, information on whether or not the product contains any type of 
recovered material, in addition to biobased ingredients, and performance 
standards against which the product has been tested. This information 
will assist Federal agencies in determining whether or not a qualifying 
biobased product overlaps with recovered content roofing materials and 
which product should be afforded the preference in purchasing.

    Note to paragraph (d): Roof coating products within this designated 
item can compete with similar roofing material products. Under the 
Resource Conservation and Recovery Act of 1976, section 6002, the U.S. 
Environmental Protection Agency designated roofing material containing 
recycled material as items for which Federal agencies must give 
preference in their purchasing programs. The designation can be found in 
the Comprehensive Procurement Guideline, 40 CFR 247.12.

[71 FR 13705, Mar. 16, 2006, as amended at 73 FR 27953, May 14, 2008]



Sec. 3201.12  Water tank coatings.

    (a) Definition. Coatings formulated for use in potable water storage 
systems.
    (b) Minimum biobased content. The minimum biobased content is 59 
percent and shall be based on the entire product.
    (c) Preference effective date. No later than November 20, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased water tank coatings. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased water tank coatings.

[71 FR 13705, Mar. 16, 2006, as amended at 71 FR 67032, Nov. 20, 2006]



Sec. 3201.13  Diesel fuel additives.

    (a) Definition. (1) Any substance, other than one composed solely of 
carbon and/or hydrogen, that is intentionally added to diesel fuel 
(including any added to a motor vehicle's fuel system) and that is not 
intentionally removed prior to sale or use.
    (2) Neat biodiesel, also referred to as B100, when used as an 
additive. Diesel fuel additive does not mean neat biodiesel when used as 
a fuel or blended biodiesel fuel (e.g., B20).
    (b) Minimum biobased content. The minimum biobased content is 90 
percent and shall be based on the amount of qualifying biobased carbon 
in the product as a percent of the weight (mass) of the total organic 
carbon in the finished product.
    (c) Preference effective date. No later than March 16, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased diesel fuel additives. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased diesel fuel 
additives.

[71 FR 13705, Mar. 16, 2006, as amended at 73 FR 27953, May 14, 2008]



Sec. 3201.14  Penetrating lubricants.

    (a) Definition. Products formulated to provide light lubrication and 
corrosion resistance in close tolerant internal and external 
applications including frozen nuts and bolts, power tools, gears, 
valves, chains, and cables.
    (b) Minimum biobased content. The minimum biobased content is 68 
percent and shall be based on the amount of qualifying biobased carbon 
in the product as a percent of the weight (mass) of the total organic 
carbon in the finished product.
    (c) Preference effective date. No later than March 16, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased penetrating lubricants. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for items to be procured shall ensure that 
the relevant specifications require the use of biobased penetrating 
lubricants.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases,

[[Page 107]]

overlap with the following EPA-designated recovered content product: Re-
refined Lubricating Oils. USDA is requesting that manufacturers of these 
qualifying biobased products provide information for the BioPreferred 
Web site of qualifying biobased products about the intended uses of the 
product, information on whether or not the product contains petroleum-
based ingredients, re-refined oil, and/or any other recovered material, 
in addition to biobased ingredients, and performance standards against 
which the product has been tested. This information will assist Federal 
agencies in determining whether or not a qualifying biobased product 
overlaps with EPA-designated lubricating oils containing re-refined oil 
and which product should be afforded the preference in purchasing.

    Note to paragraph (d): Penetrating lubricant products within this 
designated item can compete with similar re-refined lubricating oil 
products. Under the Resource Conservation and Recovery Act of 1976, 
section 6002, the U.S. Environmental Protection Agency designated re-
refined lubricating oils containing recycled material as items for which 
Federal agencies must give preference in their purchasing programs. The 
designation can be found in the Comprehensive Procurement Guideline, 40 
CFR 247.11.

[71 FR 13705, Mar. 16, 2006, as amended at 73 FR 27953, May 14, 2008]



Sec. 3201.15  Bedding, bed linens, and towels.

    (a) Definition. (1) Bedding is that group of woven cloth products 
used as coverings on a bed. Bedding includes products such as blankets, 
bedspreads, comforters, and quilts.
    (2) Bed linens are woven cloth sheets and pillowcases used in 
bedding.
    (3) Towels are woven cloth products used primarily for drying and 
wiping.
    (b) Minimum biobased content. The minimum biobased content is 12 
percent and shall be based on the amount of qualifying biobased carbon 
in the finished product as a percent of the weight (mass) of the total 
organic carbon in the finished product. The 12 percent biobased content 
must be of a qualifying biobased feedstock. Cotton, wool, linen, and 
silk are not qualifying biobased feedstocks for the purpose of 
determining the biobased content of bedding, bed linens, and towels.
    (c) Preference effective date. No later than November 20, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased bedding, bed linens, and 
towels. By that date, Federal agencies that have the responsibility for 
drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
bedding, bed linens, and towels.

[71 FR 13705, Mar. 16, 2006, as amended at 71 FR 67032, Nov. 20, 2006]



Sec. 3201.16  Adhesive and mastic removers.

    (a) Definition. Solvent products formulated for use in removing 
asbestos, carpet, and tile mastics as well as adhesive materials, 
including glue, tape, and gum, from various surface types.
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 58 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased adhesive and mastic 
removers. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
adhesive and mastic removers.

[73 FR 27953, May 14, 2008]



Sec. 3201.17  Plastic insulating foam for residential and commercial construction.

    (a) Definition. Spray-in-place plastic foam products designed to 
provide a sealed thermal barrier for residential or commercial 
construction applications.
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 7 percent, which shall be based on 
the amount of qualifying biobased carbon

[[Page 108]]

in the product as a percent of the weight (mass) of the total organic 
carbon in the finished product.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased plastic insulating foam 
for residential and commercial construction. By that date, Federal 
agencies that have the responsibility for drafting or reviewing 
specifications for items to be procured shall ensure that the relevant 
specifications require the use of biobased plastic insulating foam for 
residential and commercial construction.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the EPA-designated recovered content product: 
Building Insulation. USDA is requesting that manufacturers of these 
qualifying biobased products provide information on the BioPreferred Web 
site of qualifying biobased products about the intended uses of the 
product, information on whether or not the product contains any 
recovered material, in addition to biobased ingredients, and performance 
standards against which the product has been tested. This information 
will assist Federal agencies in determining whether or not a qualifying 
biobased product overlaps with EPA-designated building insulation and 
which product should be afforded the preference in purchasing.

    Note to paragraph (d): Biobased insulating products within this 
designated item can compete with similar insulating products with 
recycled content. Under the Resource Conservation and Recovery Act of 
1976, section 6002, the U.S. Environmental Protection Agency designated 
building insulation containing recovered materials as items for which 
Federal agencies must give preference in their purchasing programs. The 
designation can be found in the Comprehensive Procurement Guideline, 40 
CFR 247.12. EPA provides recovered materials content recommendations for 
building insulation products in the Recovered Materials Advisory Notice 
(RMAN) published for these products. The RMAN recommendations can be 
found by accessing EPA's Web site http://www.epa.gov/epaoswer/non-hw/
procure/products.htm and then clicking on the appropriate product name.

[73 FR 27953, May 14, 2008]



Sec. 3201.18  Hand cleaners and sanitizers.

    (a) Definitions--(1) Hand cleaners. Products formulated for personal 
care use in removing a variety of different soils, greases, and similar 
substances from human hands with or without the use of water.
    (2) Hand sanitizers. Products formulated for personal care use in 
removing bacteria from human hands with or without the use of water. 
Personal care products that are formulated for use in removing a variety 
of different soils, greases and similar substances and bacteria from 
human hands with or without the use of water are classified as hand 
sanitizers for the purposes of this rule.
    (b) Minimum biobased content. The minimum biobased content 
requirement for all hand cleaners and/or sanitizers shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product. 
The applicable minimum biobased contents are:
    (1) Hand cleaners--64 percent.
    (2) Hand sanitizers (including hand cleaners and sanitizers)--73 
percent.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased hand cleaners and 
sanitizers. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased hand 
cleaners and sanitizers.

[73 FR 27953, May 14, 2008]



Sec. 3201.19  Composite panels.

    (a) Definitions--(1) Plastic lumber composite panels. Engineered 
products suitable for non-structural outdoor needs such as exterior 
signs, trash can holders, and dimensional letters.
    (2) Acoustical composite panels. Engineered products designed for 
use as

[[Page 109]]

structural and sound deadening material suitable for office partitions 
and doors.
    (3) Interior panels. Engineered products designed specifically for 
interior applications and providing a surface that is impact-, scratch-, 
and wear-resistant and that does not absorb or retain moisture.
    (4) Structural interior panels. Engineered products designed for use 
in structural construction applications, including cabinetry, casework, 
paneling, and decorative panels.
    (5) Structural wall panels. Engineered products designed for use in 
structural walls, curtain walls, floors and flat roofs in commercial 
buildings.
    (6) Countertops. Engineered products designed to serve as horizontal 
work surfaces in locations such as kitchens, break rooms or other food 
preparation areas, bathrooms or lavatories, and workrooms.
    (b) Minimum biobased content. The minimum biobased content 
requirement for all composite panels shall be based on the amount of 
qualifying biobased carbon in the product as a percent of the weight 
(mass) of the total organic carbon in the finished product. The 
applicable minimum biobased contents are:
    (1) Plastic lumber composite panels--23 percent.
    (2) Acoustical composite panels--37 percent.
    (3) Interior panels--55 percent.
    (4) Structural interior panels--89 percent.
    (5) Structural wall panels--94 percent.
    (6) Countertops--89 percent.
    (c) Preference compliance dates. (1) No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for those qualifying biobased composite panels 
specified in paragraphs (a)(1) through (a)(5) of this section. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased composite panels.
    (2) No later than June 11, 2014, procuring agencies, in accordance 
with this part, will give a procurement preference for those qualifying 
biobased composite panels specified in paragraph (a)(6) of this section. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for items to be procured shall ensure that 
the relevant specifications require the use of biobased composite 
panels.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the following EPA-designated recovered content 
products: Laminated Paperboard and Structural Fiberboard; Shower and 
Restroom Dividers; and Signage. USDA is requesting that manufacturers of 
these qualifying biobased products provide information on the 
BioPreferred Web site of qualifying biobased products about the intended 
uses of the product, information on whether or not the product contains 
any recovered material, in addition to biobased ingredients, and 
performance standards against which the product has been tested. This 
information will assist Federal agencies in determining whether or not a 
qualifying biobased product overlaps with EPA-designated laminated 
paperboard, structural fiberboard, shower and restroom dividers, and 
signage, and which product should be afforded the preference in 
purchasing.

    Note to paragraph (d): Composite panel products within this 
designated item can be made with recycled material. Under the Resource 
Conservation and Recovery Act of 1976, section 6002, the U.S. 
Environmental Protection Agency designated laminated paperboard and 
structural fiberboard, shower and restroom dividers, and signage 
containing recovered materials as items for which Federal agencies must 
give preference in their purchasing programs. The designation can be 
found in the Comprehensive Procurement Guideline, 40 CFR 247.12. EPA 
provides recovered materials content recommendations for laminated 
paperboard and structural fiberboard, shower and restroom dividers, and 
signage in the Recovered Materials Advisory Notice (RMAN) published for 
these products. The RMAN recommendations can be found by accessing EPA's 
Web site http://www.epa.gov/epaoswer/non-hw/procure/products.htm and 
then clicking on the appropriate product name.

[73 FR 27953, May 14, 2008, as amended at 78 FR 34872, June 11, 2013]

[[Page 110]]



Sec. 3201.20  Fluid-filled transformers.

    (a) Definition--(1) Synthetic ester-based fluid-filled transformers. 
Electric power transformers that are designed to utilize a synthetic 
ester-based dielectric (non-conducting) fluid to provide insulating and 
cooling properties.
    (2) Vegetable oil-based fluid-filled transformers. Electric power 
transformers that are designed to utilize a vegetable oil-based 
dielectric (non-conducting) fluid to provide insulating and cooling 
properties.
    (b) Minimum biobased content. The minimum biobased content 
requirement for all fluid-filled transformers shall be based on the 
amount of qualifying biobased carbon in the product as a percent of the 
weight (mass) of the total organic carbon in the finished product. The 
applicable minimum biobased contents are:
    (1) Synthetic ester-based fluid-filled transformers--66 percent.
    (2) Vegetable oil-based fluid-filled transformers--95 percent.
    (c) Preference compliance date--(1) Synthetic ester-based fluid-
filled transformers. Determination of the compliance date for synthetic 
ester-based fluid-filled transformers is deferred until USDA identifies 
two or more manufacturers of synthetic ester-based fluid-filled 
transformers. At that time, USDA will publish a document in the Federal 
Register announcing that Federal agencies have one year from the date of 
publication to give procurement preference to biobased synthetic ester-
based fluid-filled transformers.
    (2) Vegetable oil-based fluid-filled transformers. No later than May 
14, 2009, procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased vegetable oil-based 
fluid-filled transformers. By that date, Federal agencies that have the 
responsibility for drafting or reviewing specifications for items to be 
procured shall ensure that the relevant specifications require the use 
of biobased vegetable oil-based fluid-filled transformers.

[73 FR 27953, May 14, 2008]



Sec. 3201.21  Disposable containers.

    (a) Definition. Products designed to be used for temporary storage 
or transportation of materials including, but not limited to, food 
items.
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 72 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product.
    (c) Biodegradability. At the time a manufacturer offers a product 
under this item for Federal purchase under the BioPreferred Program, the 
preferred procurement product must be capable of meeting the current 
version of ASTM D6400 if disposed of in a non-marine environment, the 
current version of ASTM D7081 if disposed of in a marine environment, or 
other appropriate and applicable standard for biodegradability.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the EPA-designated recovered content product: 
Paper and Paper Products. USDA is requesting that manufacturers of these 
qualifying biobased products provide information on the BioPreferred Web 
site of qualifying biobased products about the intended uses of the 
product, information on whether or not the product contains any 
recovered material, in addition to biobased ingredients, and performance 
standards against which the product has been tested. This information 
will assist Federal agencies in determining whether or not a qualifying 
biobased product overlaps with EPA-designated paper and paper products 
and which product should be afforded the preference in purchasing.

    Note to paragraph (d): Disposable containers can include boxes and 
packaging made from paper. Under the Resource Conservation and Recovery 
Act of 1976, section 6002, the U.S. Environmental Protection Agency 
designated paper and paper products containing recovered materials as 
items for which Federal agencies must give preference in their 
purchasing programs. The designation can be found in the Comprehensive 
Procurement Guideline, 40 CFR 247.10. EPA provides recovered materials 
content recommendations for paper and paper products in the Recovered 
Materials Advisory Notice (RMAN) published for these products. The

[[Page 111]]

RMAN recommendations can be found on EPA's Web site http://www.epa.gov/
epaoswer/non-hw/procure/products.htm and then clicking on the 
appropriate product name.

    (e) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased disposable containers. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased disposable 
containers.

[73 FR 27953, May 14, 2008]



Sec. 3201.22  Fertilizers.

    (a) Definition. Products formulated or processed to provide 
nutrients for plant growth and/or beneficial bacteria to convert 
nutrients into plant usable forms. Biobased fertilizers, which are 
likely to consist mostly of biobased components, may include both 
biobased and chemical components.

    Note to paragraph (a): Biobased fertilizers, as well as other 
fertilizers, may be made with recycled hazardous waste. Such fertilizers 
need to meet applicable land disposal restriction standards for any 
hazardous constituents they contain, as required under 40 CFR 266.20(d).

    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 71 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased fertilizers. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased fertilizers.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the EPA-designated recovered content product: 
Fertilizer. USDA is requesting that manufacturers of these qualifying 
biobased products provide information on the BioPreferred Web site of 
qualifying biobased products about the intended uses of the product, 
information on whether or not the product contains any recovered 
material, in addition to biobased ingredients, and performance standards 
against which the product has been tested. This information will assist 
Federal agencies in determining whether or not a qualifying biobased 
product overlaps with EPA-designated fertilizer product and which 
product should be afforded the preference in purchasing.

    Note to paragraph (d): Fertilizers within this designated item can 
be made with recycled materials. Under the Resource Conservation and 
Recovery Act of 1976, section 6002, the U.S. Environmental Protection 
Agency designated fertilizers containing recovered materials as items 
for which Federal agencies must give preference in their purchasing 
programs. The designation can be found in the Comprehensive Procurement 
Guideline, 40 CFR 247.15. EPA provides recovered materials content 
recommendations for fertilizers in the Recovered Materials Advisory 
Notice (RMAN) published for these products. The RMAN recommendations can 
be found by accessing EPA's Web site http://www.epa.gov/epaoswer/non-hw/
procure/products.htm and then clicking on the appropriate product name.

[73 FR 27953, May 14, 2008]



Sec. 3201.23  Sorbents.

    (a) Definition. Materials formulated for use in the cleanup and 
bioremediation of oil and chemical spills, the disposal of liquid 
materials, or the prevention of leakage or leaching in maintenance 
applications, shop floors, and fuel storage areas.
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 89 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased sorbents. By that date, 
Federal agencies that have the

[[Page 112]]

responsibility for drafting or reviewing specifications for items to be 
procured shall ensure that the relevant specifications require the use 
of biobased sorbents.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the EPA-designated recovered content product: 
Sorbents. USDA is requesting that manufacturers of these qualifying 
biobased products provide information on the BioPreferred Web site of 
qualifying biobased products about the intended uses of the product, 
information on whether or not the product contains any recovered 
material, in addition to biobased ingredients, and performance standards 
against which the product has been tested. This information will assist 
Federal agencies in determining whether or not a qualifying biobased 
product overlaps with EPA-designated sorbents and which product should 
be afforded the preference in purchasing.

    Note to paragraph (d): Sorbents within this designated item can be 
made with recycled materials. Under the Resource Conservation and 
Recovery Act of 1976, section 6002, the U.S. Environmental Protection 
Agency designated sorbents containing recovered materials as items for 
which Federal agencies must give preference in their purchasing 
programs. The designation can be found in the Comprehensive Procurement 
Guideline, 40 CFR 247.17. EPA provides recovered materials content 
recommendations for sorbents in the Recovered Materials Advisory Notice 
(RMAN) published for these products. The RMAN recommendations can be 
found by accessing EPA's Web site http://www.epa.gov/epaoswer/non-hw/
procure/products.htm and then clicking on the appropriate product name.

[73 FR 27953, May 14, 2008]



Sec. 3201.24  Graffiti and grease removers.

    (a) Definition. Industrial solvent products formulated to remove 
automotive, industrial, or kitchen soils and oils, including grease, 
paint, and other coatings, from hard surfaces.
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 34 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product. 
If the finished product is to be diluted before use, the biobased 
content of the remover must be determined before dilution.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying graffiti and grease removers. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased graffiti and grease 
removers.

[73 FR 27953, May 14, 2008]



Sec. 3201.25  2-Cycle engine oils.

    (a) Definition. Lubricants designed for use in 2-cycle engines to 
provide lubrication, decreased spark plug fouling, reduced deposit 
formation, and/or reduced engine wear.
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 34 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased 2-cycle engine oils. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased 2-cycle engine oils.

[73 FR 27973, May 14, 2008]



Sec. 3201.26  Lip care products.

    (a) Definition. Personal care products formulated to replenish the 
moisture and/or prevent drying of the lips.
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 82 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the

[[Page 113]]

weight (mass) of the total organic carbon in the finished product.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased lip care products. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased lip care products.

[73 FR 27973, May 14, 2008]



Sec. 3201.27  Films.

    (a) Definition. (1) Products that are used in packaging, wrappings, 
linings, and other similar applications.
    (2) Films for which preferred procurement applies are:
    (i) Semi-durable films. Films that are designed to resist water, 
ammonia, and other compounds, to be re-used, and to not readily 
biodegrade. Products in this item are typically used in the production 
of bags and packaging materials.
    (ii) Non-durable films. Films that are intended for single use for 
short-term storage or protection before being discarded. Non-durable 
films that are designed to have longer lives when used are included in 
this item.
    (b) Minimum biobased content. The minimum biobased content for all 
films shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product. The applicable minimum biobased contents are:
    (1) Semi-durable films--45 percent.
    (2) Non-durable films--85 percent.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased semi-durable and non-
durable films. By that date, Federal agencies that have the 
responsibility for drafting or reviewing specifications for items to be 
procured shall ensure that the relevant specifications require the use 
of biobased semi-durable and non-durable films.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying products within the semi-durable films subcategory 
may overlap with the EPA-designated recovered content product: Plastic 
trash bags. USDA is requesting that manufacturers of these qualifying 
biobased products provide information for the BioPreferred Web site of 
qualifying biobased products about the intended uses of the product, 
information on whether or not the product contains any recovered 
material, in addition to biobased ingredients, and performance standards 
against which the product has been tested. This information will assist 
Federal agencies in determining whether or not a qualifying biobased 
product overlaps with EPA-designated plastic trash bags and which 
product should be afforded the preference in purchasing.

    Note to paragraph (d): Biobased semi-durable film products within 
this designated item can compete with plastic trash bag products with 
recycled content. Under the Resource Conservation and Recovery Act of 
1976, section 6002, the U.S. Environmental Protection Agency designated 
plastic trash bags containing recovered materials as items for which 
Federal agencies must give preference in their purchasing programs. The 
designation can be found in the Comprehensive Procurement Guideline, 40 
CFR 247.16. EPA provides recovered materials content recommendations for 
plastic trash bags in the May 1, 1995, Recovered Materials Advisory 
Notice (RMAN I). The RMAN recommendations can be found on EPA's Web site 
http://www.epa.gov/epaoswer/non-hw/procure/products.htm and then 
clicking on the appropriate product name.

[73 FR 27973, May 14, 2008]



Sec. 3201.28  Stationary equipment hydraulic fluids.

    (a) Definition. Fluids formulated for use in stationary hydraulic 
equipment systems that have various mechanical parts, such as cylinders, 
pumps, valves, pistons, and gears, that are used for the transmission of 
power (and also for lubrication and/or wear, rust, and oxidation 
protection).
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 44 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product.

[[Page 114]]

    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased stationary equipment 
hydraulic fluids. By that date, Federal agencies that have the 
responsibility for drafting or reviewing specifications for items to be 
procured shall ensure that the relevant specifications require the use 
of biobased stationary equipment hydraulic fluids.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the EPA-designated recovered content product: 
Re-refined lubricating oils. USDA is requesting that manufacturers of 
these qualifying biobased products provide information for the 
BioPreferred Web site of qualifying biobased products about the intended 
uses of the product, information on whether or not the product contains 
any recovered material, in addition to biobased ingredients, and 
performance standards against which the product has been tested. This 
information will assist Federal agencies in determining whether or not a 
qualifying biobased product overlaps with EPA-designated re-refined 
lubricating oils and which product should be afforded the preference in 
purchasing.

    Note to paragraph (d): Stationary equipment hydraulic fluid products 
within this designated item can compete with hydraulic fluid products 
with recycled content. Under the Resource Conservation and Recovery Act 
of 1976, section 6002, the U.S. Environmental Protection Agency 
designated re-refined lubricating oils containing recovered materials as 
items for which Federal agencies must give preference in their 
purchasing programs. The designation can be found in the Comprehensive 
Procurement Guideline, 40 CFR 247.11. EPA provides recovered materials 
content recommendations for re-refined lubricating oils in the May 1, 
1995, Recovered Materials Advisory Notice (RMAN I). The RMAN 
recommendations can be found by accessing EPA's Web site http://
www.epa.gov/epaoswer/non-hw/procure/products.htm and then clicking on 
the appropriate product name.

[73 FR 27973, May 14, 2008]



Sec. 3201.29  Disposable cutlery.

    (a) Definition. Hand-held, disposable utensils designed for one-time 
use in eating food.
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 48 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased disposable cutlery. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased disposable cutlery.

[73 FR 27973, May 14, 2008]



Sec. 3201.30  Glass cleaners.

    (a) Definition. Cleaning products designed specifically for use in 
cleaning glass surfaces, such as windows, mirrors, car windows, and 
computer monitors.
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 49 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product. 
If the finished product is to be diluted before use, the biobased 
content of the cleaner must be determined before dilution.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased glass cleaners. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased glass cleaners.

[73 FR 27973, May 14, 2008]



Sec. 3201.31  Greases.

    (a) Definitions. (1) Lubricants composed of oils thickened to a 
semisolid

[[Page 115]]

or solid consistency using soaps, polymers or other solids, or other 
thickeners.
    (2) Greases for which preferred procurement applies are:
    (i) Food grade greases. Lubricants that are designed for use on 
food-processing equipment as a protective anti-rust film, as a release 
agent on gaskets or seals of tank closures, or on machine parts and 
equipment in locations in which there is exposure of the lubricated part 
to food.
    (ii) Multipurpose greases. Lubricants that are designed for general 
use.
    (iii) Rail track greases. Lubricants that are designed for use on 
railroad tracks or heavy crane tracks.
    (iv) Truck greases. Lubricants that are designed for use on the 
fifth wheel of tractor trailer trucks onto which the semi-trailer rests 
and pivots.
    (v) Greases not elsewhere specified. Lubricants that meet the 
general definition of greases as defined in paragraph (a)(1) of this 
section, but are not otherwise covered by paragraphs (a)(2)(i) through 
(iv) of this section.
    (b) Minimum biobased content. The minimum biobased content for all 
greases shall be based on the amount of qualifying biobased carbon in 
the product as a percent of the weight (mass) of the total organic 
carbon in the finished product. The applicable minimum biobased contents 
are:
    (1) Food grade grease--42 percent.
    (2) Multipurpose grease--72 percent.
    (3) Rail track grease--30 percent.
    (4) Truck grease--71 percent.
    (5) Greases not elsewhere specified--75 percent.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased greases. By that date, 
Federal agencies that have the responsibility for drafting or reviewing 
specifications for items to be procured shall ensure that the relevant 
specifications require the use of biobased greases.

[73 FR 27973, May 14, 2008]



Sec. 3201.32  Dust suppressants.

    (a) Definition. Products formulated to reduce or eliminate the 
spread of dust associated with gravel roads, dirt parking lots, or 
similar sources of dust, including products used in equivalent indoor 
applications.
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 85 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product. 
If the finished product is to be diluted before use, the biobased 
content of the suppressant must be determined before dilution.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased dust suppressants. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased dust suppressants.

[73 FR 27973, May 14, 2008]



Sec. 3201.33  Carpets.

    (a) Definition. Floor coverings composed of woven, tufted, or 
knitted fiber and a backing system.
    (b) Minimum biobased content. The preferred procurement product must 
have a biobased content of at least 7 percent, which shall be based on 
the amount of qualifying biobased carbon in the product as a percent of 
the weight (mass) of the total organic carbon in the finished product.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased carpet. By that date, 
Federal agencies that have the responsibility for drafting or reviewing 
specifications for items to be procured shall ensure that the relevant 
specifications require the use of biobased carpet.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the EPA-designated recovered content product: 
Carpets (polyester). USDA is requesting that manufacturers of these 
qualifying biobased

[[Page 116]]

products provide information for the BioPreferred Web site of qualifying 
biobased products about the intended uses of the product, information on 
whether or not the product contains any recovered material, in addition 
to biobased ingredients, and performance standards against which the 
product has been tested. This information will assist Federal agencies 
in determining whether or not a qualifying biobased product overlaps 
with EPA-designated carpets (polyester) and which product should be 
afforded the preference in purchasing.

    Note to paragraph (d): Biobased carpets within this designated item 
can compete with polyester carpet products with recycled content. Under 
the Resource Conservation and Recovery Act of 1976, section 6002, the 
U.S. Environmental Protection Agency designated carpets (polyester) 
containing recovered materials as items for which Federal agencies must 
give preference in their purchasing programs. The designation can be 
found in the Comprehensive Procurement Guideline, 40 CFR 247.12. EPA 
provides recovered materials content recommendations for carpets 
(polyester) in the May 1, 1995, Recovered Materials Advisory Notice 
(RMAN I). The RMAN recommendations can be found on EPA's Web site http:/
/www.epa.gov/epaoswer/non-hw/procure/products.htm and then clicking on 
the appropriate product name.

[73 FR 27973, May 14, 2008]



Sec. 3201.34  Carpet and upholstery cleaners.

    (a) Definition. (1) Cleaning products formulated specifically for 
use in cleaning carpets and upholstery, through a dry or wet process, 
found in locations such as houses, cars, and workplaces.
    (2) Carpet and upholstery cleaners for which preferred procurement 
applies are:
    (i) General purpose cleaners. Carpet and upholstery cleaners 
formulated for use in cleaning large areas such as the carpet in an 
entire room or the upholstery on an entire piece of furniture.
    (ii) Spot removers. Carpet and upholstery cleaners formulated for 
use in removing spots or stains in a small confined area.
    (b) Minimum biobased content. The minimum biobased content for all 
carpet and upholstery cleaners shall be based on the amount of 
qualifying biobased carbon in the product as a percent of the weight 
(mass) of the total organic carbon in the finished product. The 
applicable minimum biobased contents are:
    (1) General purpose cleaners--54 percent.
    (2) Spot removers--7 percent.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased carpet and upholstery 
cleaners. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
carpet and upholstery cleaners.

[73 FR 27973, May 14, 2008]



Sec. 3201.35  Bathroom and spa cleaners.

    (a) Definition. Products that are designed to clean and/or prevent 
deposits on surfaces found in bathrooms and spas including, but not 
necessarily limited to, bath tubs and spas, shower stalls, shower doors, 
shower curtains, and bathroom walls, floors, doors, and counter and sink 
tops. Products in this item may be designed to be applied to a specific 
type of surface or to multiple surface types. They are available both in 
concentrated and ready-to-use forms.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 74 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased bathroom and spa 
cleaners. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
bathroom and spa cleaners.

[73 FR 27994, May 14, 2008]

[[Page 117]]



Sec. 3201.36  Concrete and asphalt release fluids.

    (a) Definition. Products that are designed to provide a lubricating 
barrier between the composite surface materials (e.g., concrete or 
asphalt) and the container (e.g., wood or metal forms, truck beds, 
roller surfaces).
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 87 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased concrete and asphalt 
release fluids. By that date, Federal agencies that have the 
responsibility for drafting or reviewing specifications for items to be 
procured shall ensure that the relevant specifications require the use 
of biobased concrete and asphalt release fluids.

[73 FR 27994, May 14, 2008]



Sec. 3201.37  De-Icers.

    (a) Definition. Chemical products (e.g., salts, fluids) that are 
designed to aid in the removal of snow and/or ice, and/or in the 
prevention of the buildup of snow and/or ice, by lowering the freezing 
point of water.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 93 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance dates. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased de-icers. By that date, 
Federal agencies responsible for drafting or reviewing specifications 
for products to be procured shall ensure that the relevant 
specifications require the use of biobased de-icers.

[73 FR 27994, May 14, 2008, as amended at 84 FR 32020, July 5, 2019]



Sec. 3201.38  Firearm cleaners, lubricants, and protectants.

    (a) Definition. Products that are designed to care for firearms by 
cleaning, lubricating, protecting, or any combination thereof. Examples 
include products that are designed for use in firearms to reduce the 
friction and wear between the moving parts of a firearm, to keep the 
weapon clean, and/or to prevent the formation of deposits that could 
cause the weapon to jam.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 32 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance dates. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased firearm cleaners, 
lubricants, and protectants. By that date, Federal agencies responsible 
for drafting or reviewing specifications for products to be procured 
shall ensure that the relevant specifications require the use of 
biobased firearm cleaners, lubricants, and protectants.

[84 FR 32020, July 5, 2019]



Sec. 3201.39  Floor strippers.

    (a) Definition. Products that are formulated to loosen waxes, 
resins, or varnishes from floor surfaces. They can be in either liquid 
or gel form, and may also be used with or without mechanical assistance.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 78 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased floor strippers. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant

[[Page 118]]

specifications require the use of biobased floor strippers.

[73 FR 27994, May 14, 2008]



Sec. 3201.40  Laundry products.

    (a) Definitions. (1) Products that are designed to clean, condition, 
or otherwise affect the quality of the laundered material. Such products 
include but are not limited to laundry detergents, bleach, stain 
removers, and fabric softeners.
    (2) Laundry products for which preferred procurement applies are:
    (i) Pretreatment/spot removers. These are laundry products 
specifically used to pretreat laundry to assist in the removal of spots 
and stains during laundering.
    (ii) General purpose laundry products. These are laundry products 
used for regular cleaning activities.
    (iii) Dryer sheets. These are small sheets that are added to laundry 
in clothes dryers to eliminate static cling, soften fabrics, or 
otherwise improve the characteristics of the fabric.
    (b) Minimum biobased content. The minimum biobased content shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product. The applicable minimum biobased contents for the preferred 
procurement product are:
    (1) Pretreatment/spot removers--46 percent.
    (2) General purpose laundry products--34 percent.
    (3) Dryer sheets--90 percent.
    (c) Preference compliance dates. (1) No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for those qualifying biobased laundry products 
specified in paragraphs (a)(2)(i) and (ii) of this section. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased laundry products.
    (2) No later than July 6, 2020, procuring agencies, in accordance 
with this part, will give a procurement preference for those qualifying 
biobased laundry products specified in paragraph (a)(2)(iii) of this 
section. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased laundry 
products.

[73 FR 27994, May 14, 2008, as amended at 84 FR 32020, July 5, 2019]



Sec. 3201.41  Metalworking fluids.

    (a) Definition. (1) Fluids that are designed to provide cooling, 
lubrication, corrosion prevention, and reduced wear on the contact parts 
of machinery used for metalworking operations such as cutting, drilling, 
grinding, machining, and tapping.
    (2) Metalworking fluids for which preferred procurement applies are:
    (i) Straight oils. Metalworking fluids that are not diluted with 
water prior to use and are generally used for metalworking processes 
that require lubrication rather than cooling.
    (ii) General purpose soluble, semi-synthetic, and synthetic oils. 
Metalworking fluids formulated for use in a re-circulating fluid system 
to provide cooling, lubrication, and corrosion prevention when applied 
to metal feedstock during normal grinding and machining operations.
    (iii) High performance soluble, semi-synthetic, and synthetic oils. 
Metalworking fluids formulated for use in a re-circulating fluid system 
to provide cooling, lubrication, and corrosion prevention when applied 
to metal feedstock during grinding and machining operations involving 
unusually high temperatures or corrosion potential.
    (b) Minimum biobased content. The minimum biobased content shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product. The applicable minimum biobased contents for the preferred 
procurement product are:
    (1) Straight oils--66 percent.
    (2) General purpose soluble, semi-synthetic, and synthetic oils--57 
percent.
    (3) High performance soluble, semi-synthetic, and synthetic oils--40 
percent.
    (c) Preference compliance date--(1) Straight oils. No later than May 
14, 2009, procuring agencies, in accordance with

[[Page 119]]

this part, will give a procurement preference for qualifying biobased 
metalworking fluids--straight oils. By that date, Federal agencies that 
have the responsibility for drafting or reviewing specifications for 
items to be procured shall ensure that the relevant specifications 
require the use of biobased metalworking fluids--straight oils.
    (2) General purpose soluble, semi-synthetic, and synthetic oils. No 
later than May 14, 2009, procuring agencies, in accordance with this 
part, will give a procurement preference for qualifying biobased 
metalworking fluids--general purpose soluble, semi-synthetic, and 
synthetic oils. By that date, Federal agencies that have the 
responsibility for drafting or reviewing specifications for items to be 
procured shall ensure that the relevant specifications require the use 
of biobased metalworking fluids--general purpose soluble, semi-
synthetic, and synthetic oils.
    (3) High performance soluble, semi-synthetic, and synthetic oils. 
Determination of the preference compliance date for metalworking 
fluids--high performance soluble, semi-synthetic, and synthetic oils is 
deferred until USDA identifies two or more manufacturers of biobased 
products within this subcategory. At that time, USDA will publish a 
document in the Federal Register announcing that Federal agencies have 
one year from the date of publication to give procurement preference to 
biobased metalworking fluids--high performance soluble, semi-synthetic, 
and synthetic oils.

[73 FR 27994, May 14, 2008]



Sec. 3201.42  Wood and concrete sealers.

    (a) Definition. (1) Products that are penetrating liquids formulated 
to protect wood and/or concrete, including masonry and fiber cement 
siding, from damage caused by insects, moisture, and decaying fungi and 
to make surfaces water resistant.
    (2) Wood and concrete sealers for which preferred procurement 
applies are:
    (i) Penetrating liquids. Wood and concrete sealers that are 
formulated to penetrate the outer surface of the substrate.
    (ii) Membrane concrete sealers. Concrete sealers that are formulated 
to form a protective layer on the surface of the substrate.
    (b) Minimum biobased content. The minimum biobased content shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product. The applicable minimum biobased contents for the preferred 
procurement product are:
    (1) Penetrating liquids--79 percent.
    (2) Membrane concrete sealers--11 percent.
    (c) Preference compliance date. No later than May 14, 2009, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased wood and concrete 
sealers. By that date, Federal agencies that have the responsibility for 
drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased wood 
and concrete sealers.

[73 FR 27994, May 14, 2008]



Sec. 3201.43  Chain and cable lubricants.

    (a) Definition. Products designed to provide lubrication in such 
applications as bar and roller chains, sprockets, and wire ropes and 
cables. Products may also prevent rust and corrosion in these 
applications.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 77 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 27, 2010, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased chain and cable 
lubricants. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
chain and cable lubricants.

[74 FR 55093, Oct. 27, 2009]

[[Page 120]]



Sec. 3201.44  Corrosion preventatives.

    (a) Definition. Products designed to prevent the deterioration 
(corrosion) of metals.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 53 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 27, 2010, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased corrosion preventatives. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for items to be procured shall ensure that 
the relevant specifications require the use of biobased corrosion 
preventatives.

[74 FR 55093, Oct. 27, 2009]



Sec. 3201.45  Food cleaners.

    (a) Definition. Anti-microbial products designed to clean the outer 
layer of various food products, such as fruit, vegetables, and meats.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 53 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 27, 2010, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased food cleaners. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased food cleaners.

[74 FR 55093, Oct. 27, 2009]



Sec. 3201.46  Forming lubricants.

    (a) Definition. Products designed to provide lubrication during 
metalworking applications that are performed under extreme pressure. 
Such metalworking applications include tube bending, stretch forming, 
press braking, and swaging.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 68 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 27, 2010, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased forming lubricants. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased forming lubricants.

[74 FR 55093, Oct. 27, 2009]



Sec. 3201.47  Gear lubricants.

    (a) Definition. Products, such as greases or oils, that are designed 
to reduce friction when applied to a toothed machine part (such as a 
wheel or cylinder) that meshes with another toothed part to transmit 
motion or to change speed or direction.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 58 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 27, 2010, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased gear lubricants. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of gear lubricants.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the following EPA-designated recovered content 
product: Lubricating oils containing re-refined oil.

[[Page 121]]

USDA is requesting that manufacturers of these qualifying biobased 
products provide information for the BioPreferred Web site of qualifying 
biobased products about the intended uses of the product, information on 
whether or not the product contains any recovered material, in addition 
to biobased ingredients, and performance standards against which the 
product has been tested. This information will assist Federal agencies 
in determining whether or not a qualifying biobased product overlaps 
with EPA-designated re-refined lubricating oils and which product should 
be afforded the preference in purchasing.

    Note to paragraph (d): Biobased gear lubricant products within this 
designated item can compete with similar gear lubricant products with 
recycled content. Under the Resource Conservation and Recovery Act of 
1976, section 6002, the U.S. Environmental Protection Agency designated 
re-refined lubricating oils containing recovered materials as items for 
which Federal agencies must give preference in their purchasing 
programs. The designation can be found in the Comprehensive Procurement 
Guideline, 40 CFR 247.11.

[74 FR 55093, Oct. 27, 2009]



Sec. 3201.48  General purpose household cleaners.

    (a) Definition. Products designed to clean multiple common household 
surfaces. This designated item does not include products that are 
formulated for use as disinfectants. Task-specific cleaning products, 
such as spot and stain removers, upholstery cleaners, bathroom cleaners, 
glass cleaners, etc., are not included in this item.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 39 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 27, 2010, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased general purpose household 
cleaners. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
general purpose household cleaners.

[74 FR 55093, Oct. 27, 2009]



Sec. 3201.49  Industrial cleaners.

    (a) Definition. Products used to remove contaminants, such as 
adhesives, inks, paint, dirt, soil, and grease, from parts, products, 
tools, machinery, equipment, vessels, floors, walls, and other 
production-related work areas. The cleaning products within this item 
are usually solvents, but may take other forms. They may be used in 
either straight solution or diluted with water in pressure washers, or 
in hand wiping applications in industrial or manufacturing settings, 
such as inside vessels. Task-specific cleaners used in industrial 
settings, such as parts wash solutions, are not included in this 
definition.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 41 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 27, 2010, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased industrial cleaners. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased industrial cleaners.

[74 FR 55093, Oct. 27, 2009]



Sec. 3201.50  Multipurpose cleaners.

    (a) Definition. Products used to clean dirt, grease, and grime from 
a variety of items in both industrial and domestic settings. This 
designated item does not include products that are formulated for use as 
disinfectants.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 56 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of

[[Page 122]]

the weight (mass) of the total organic carbon in the finished product.
    (c) Preference compliance date. No later than October 27, 2010, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased multipurpose cleaners. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased multipurpose 
cleaners.

[74 FR 55093, Oct. 27, 2009]



Sec. 3201.51  Parts wash solutions.

    (a) Definition. Products that are designed to clean parts in manual 
or automatic cleaning systems. Such systems include, but are not limited 
to, soak vats and tanks, cabinet washers, and ultrasonic cleaners.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 65 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 27, 2010, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased parts wash solutions. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased parts wash 
solutions.

[74 FR 55093, Oct. 27, 2009]



Sec. 3201.52  Disposable tableware.

    (a) Definition. Products made from, or coated with, plastic resins 
and used in dining, such as drink ware and dishware, including but not 
limited to cups, plates, bowls, and serving platters, and that are 
designed for one-time use. This item does not include disposable 
cutlery, which is a separate item.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 72 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 18, 2011, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased disposable tableware. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased disposable 
tableware.

[75 FR 63701, Oct. 18, 2010]



Sec. 3201.53  Expanded polystyrene (EPS) foam recycling products.

    (a) Definition. Products formulated to dissolve EPS foam to reduce 
the volume of recycled or discarded EPS items.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 90 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 18, 2011, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased EPS foam recycling 
products. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased EPS 
foam recycling products.

[75 FR 63701, Oct. 18, 2010]



Sec. 3201.54  Heat transfer fluids.

    (a) Definition. Products with high thermal capacities used to 
facilitate the transfer of heat from one location to another, including 
coolants or refrigerants for use in HVAC applications, internal 
combustion engines, personal cooling devices, thermal energy storage, or 
other heating or cooling closed-loops.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 89 percent, which shall be 
based on the amount of qualifying biobased

[[Page 123]]

carbon in the product as a percent of the weight (mass) of the total 
organic carbon in the finished product.
    (c) Preference compliance date. No later than October 18, 2011, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased heat transfer fluids. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased heat transfer 
fluids.

[75 FR 63701, Oct. 18, 2010]



Sec. 3201.55  Ink removers and cleaners.

    (a) Definition. Chemical products designed to remove ink, haze, 
glaze, and other residual ink contaminants from the surfaces of 
equipment, such as rollers, used in the textile and printing industries.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 79 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 18, 2011, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased ink removers and 
cleaners. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased ink 
removers and cleaners.

[75 FR 63701, Oct. 18, 2010]



Sec. 3201.56  Mulch and compost materials.

    (a) Definition. Products designed to provide a protective covering 
placed over the soil, primarily to keep down weeds and to improve the 
appearance of landscaping. Compost is the aerobically decomposed 
remnants of organic materials used in gardening and agriculture as a 
soil amendment, and commercially by the landscaping and container 
nursery industries.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 95 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 18, 2011, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased mulch and compost 
materials. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
mulch and compost materials.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying products within this item may overlap with the EPA-
designated recovered content product: Landscaping products--``compost'' 
and ``hydraulic mulch''. USDA is requesting that manufacturers of these 
qualifying biobased products provide information on the USDA Web site of 
qualifying biobased products about the intended uses of the product, 
information on whether or not the product contains any recovered 
material, in addition to biobased ingredients, and performance standards 
against which the product has been tested. This information will assist 
Federal agencies in determining whether or not a qualifying biobased 
product overlaps with EPA-designated landscaping products and which 
product should be afforded the preference in purchasing.

    Note to paragraph (d): Biobased mulch and compost materials within 
this designated item can compete with similar landscaping products with 
recycled content. Under the Resource Conservation and Recovery Act of 
1976, section 6002, the U.S. Environmental Protection Agency designated 
landscaping products containing recovered materials as items for which 
Federal agencies must give preference in their purchasing programs. The 
designation can be found in the Comprehensive Procurement Guideline, 40 
CFR 247.15.

[75 FR 63701, Oct. 18, 2010]

[[Page 124]]



Sec. 3201.57  Multipurpose lubricants.

    (a) Definition. Products designed to provide lubrication under a 
variety of conditions and in a variety of industrial settings to prevent 
friction or rust. Greases, which are lubricants composed of oils 
thickened to a semisolid or solid consistency using soaps, polymers or 
other solids, or other thickeners, are not included in this item. In 
addition, task-specific lubricants, such as chain and cable lubricants 
and gear lubricants, are not included in this item.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 88 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 18, 2011, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased multipurpose lubricants. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for items to be procured shall ensure that 
the relevant specifications require the use of biobased multipurpose 
lubricants.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying products within this item may overlap with the EPA-
designated recovered content product: Re-refined lubricating oils. USDA 
is requesting that manufacturers of these qualifying biobased products 
provide information on the BioPreferred Web site about the intended uses 
of the product, information on whether or not the product contains any 
recovered material, in addition to biobased ingredients, and performance 
standards against which the product has been tested. This information 
will assist Federal agencies in determining whether or not a qualifying 
biobased product overlaps with EPA-designated re-refined lubricating 
oils and which product should be afforded the preference in purchasing.

    Note to paragraph (d): Biobased multipurpose lubricant products 
within this designated item can compete with similar multipurpose 
lubricant products with recycled content. Under the Resource 
Conservation and Recovery Act of 1976, section 6002, the U.S. 
Environmental Protection Agency designated re-refined lubricating oils 
containing recovered materials as items for which Federal agencies must 
give preference in their purchasing programs. The designation can be 
found in the Comprehensive Procurement Guideline, 40 CFR 247.11.

[75 FR 63701, Oct. 18, 2010]



Sec. 3201.58  [Reserved]



Sec. 3201.59  Topical pain relief products.

    (a) Definition. Products that can be balms, creams and other topical 
treatments used for the relief of muscle, joint, headache, and nerve 
pain, as well as sprains, bruises, swelling, and other aches.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 91 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 18, 2011, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased topical pain relief 
products. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
topical pain relief products.

[75 FR 63701, Oct. 18, 2010]



Sec. 3201.60  Turbine drip oils.

    (a) Definition. Products that are lubricants for use in drip 
lubrication systems for water well line shaft bearings, water turbine 
bearings for irrigation pumps, and other turbine bearing applications.
    (b) Minimum biobased content. The preferred procurement product must 
have a minimum biobased content of at least 87 percent, which shall be 
based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than October 18, 2011, 
procuring

[[Page 125]]

agencies, in accordance with this part, will give a procurement 
preference for qualifying biobased turbine drip oils. By that date, 
Federal agencies that have the responsibility for drafting or reviewing 
specifications for items to be procured shall ensure that the relevant 
specifications require the use of biobased turbine drip oils.

[75 FR 63701, Oct. 18, 2010]



Sec. 3201.61  Animal repellents.

    (a) Definition. Products used to aid in deterring animals that cause 
destruction to plants and/or property.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 79 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased animal repellents. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased animal repellents.

[76 FR 43817, July 22, 2011]



Sec. 3201.62  Bath products.

    (a) Definition. Personal hygiene products including bar soaps, 
liquids, or gels that are referred to as body washes, body shampoos, or 
cleansing lotions, but excluding products marketed as hand cleaners and/
or hand sanitizers.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 61 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased bath products. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased bath products.

[76 FR 43817, July 22, 2011]



Sec. 3201.63  Bioremediation materials.

    (a) Definition. Dry or liquid solutions (including those containing 
bacteria or other microbes but not including sorbent materials) used to 
clean oil, fuel, and other hazardous spill sites.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 86 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased bioremediation materials. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for items to be procured shall ensure that 
the relevant specifications require the use of biobased bioremediation 
materials.

[76 FR 43817, July 22, 2011]



Sec. 3201.64  Compost activators and accelerators.

    (a) Definition. Products in liquid or powder form designed to be 
applied to compost piles to aid in speeding up the composting process 
and to ensure successful compost that is ready for consumer use.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 95 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part,

[[Page 126]]

will give a procurement preference for qualifying biobased compost 
activators and accelerators. By that date, Federal agencies that have 
the responsibility for drafting or reviewing specifications for items to 
be procured shall ensure that the relevant specifications require the 
use of biobased compost activators and accelerators.

[76 FR 43817, July 22, 2011]



Sec. 3201.65  Concrete and asphalt cleaners.

    (a) Definition. Chemicals used in concrete etching as well as to 
remove petroleum-based soils, lubricants, paints, mastics, organic 
soils, rust, and dirt from concrete, asphalt, stone and other hard 
porous surfaces. Products within this item include only those marketed 
for use in commercial or residential construction or industrial 
applications.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 70 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased concrete and asphalt 
cleaners. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
concrete and asphalt cleaners.

[76 FR 43817, July 22, 2011]



Sec. 3201.66  Cuts, burns, and abrasions ointments.

    (a) Definition. Products designed to aid in the healing and 
sanitizing of scratches, cuts, bruises, abrasions, sun damaged skin, 
tattoos, rashes and other skin conditions.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 84 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased cuts, burns, and 
abrasions ointments. By that date, Federal agencies that have the 
responsibility for drafting or reviewing specifications for items to be 
procured shall ensure that the relevant specifications require the use 
of biobased cuts, burns, and abrasions ointments.

[76 FR 43817, July 22, 2011]



Sec. 3201.67  Dishwashing products.

    (a) Definition. Soaps and detergents used for cleaning and clean 
rinsing of tableware in either hand washing or dishwashing.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 58 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased dishwashing products. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased dishwashing 
products.

[76 FR 43817, July 22, 2011]



Sec. 3201.68  Erosion control materials.

    (a) Definition. Woven or non-woven fiber materials manufactured for 
use on construction, demolition, or other sites to prevent wind or water 
erosion of loose earth surfaces, which may be combined with seed and/or 
fertilizer to promote growth.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 77 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a

[[Page 127]]

percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased erosion control 
materials. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
erosion control materials.

[76 FR 43817, July 22, 2011]



Sec. 3201.69  Floor cleaners and protectors.

    (a) Definition. Cleaning solutions for either direct application or 
use in floor scrubbers for wood, vinyl, tile, or similar hard surface 
floors. Products within this item are marketed specifically for use on 
industrial, commercial, and/or residential flooring.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 77 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased floor cleaners and 
protectors. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
floor cleaners and protectors.

[76 FR 43817, July 22, 2011]



Sec. 3201.70  Hair care products.

    (a) Definitions. (1) Personal hygiene products specifically 
formulated for hair cleaning and treating applications, including 
shampoos and conditioners.
    (2) Hair care products for which Federal preferred procurement 
applies are:
    (i) Shampoos. These are products whose primary purpose is cleaning 
hair. Products that contain both shampoos and conditioners are included 
in this subcategory because the primary purpose of these products is 
cleaning the hair.
    (ii) Conditioners. These are products whose primary purpose is 
treating hair to improve the overall condition of hair.
    (b) Minimum biobased content. The minimum biobased content for all 
hair care products shall be based on the amount of qualifying biobased 
carbon in the product as a percent of the weight (mass) of the total 
organic carbon in the finished product. The applicable minimum biobased 
contents for the Federal preferred procurement products are:
    (1) Shampoos--66 percent.
    (2) Conditioners--78 percent.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased hair care products. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased hair care products.

[76 FR 43817, July 22, 2011]



Sec. 3201.71  Interior paints and coatings.

    (a) Definition. (1) Pigmented liquids, formulated for use indoors, 
that dry to form a film and provide protection and added color to the 
objects or surfaces to which they are applied.
    (2) Interior paints and coatings products for which Federal 
preferred procurement applies are:
    (i) Interior latex and waterborne alkyd paints and coatings.
    (ii) Interior oil-based and solventborne alkyd paints and coatings.
    (b) Minimum biobased content. The minimum biobased content for all 
interior paints and coatings products shall be based on the amount of 
qualifying biobased carbon in the product as a percent of the weight 
(mass) of the total organic carbon in the finished product. The 
applicable minimum

[[Page 128]]

biobased contents for the Federal preferred procurement products are:
    (1) Interior latex and waterborne alkyd paints and coatings--20 
percent.
    (2) Interior oil-based and solventborne alkyd paints and coatings--
67 percent.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased interior paints and 
coatings. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
interior paints and coatings.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products within the interior latex and 
waterborne alkyd paints and coatings subcategory may, in some cases, 
overlap with the EPA-designated recovered content products: Reprocessed 
latex paints and consolidated latex paints. USDA is requesting that 
manufacturers of these qualifying biobased products provide information 
on the USDA Web site of qualifying biobased products about the intended 
uses of the product, information on whether or not the product contains 
any recovered material, in addition to biobased ingredients, and 
performance standards against which the product has been tested. This 
information will assist Federal agencies in determining whether or not a 
qualifying biobased product overlaps with EPA-designated reprocessed 
latex paints and consolidated latex paints and which product should be 
afforded the preference in purchasing.

    Note to paragraph (d): Biobased interior latex and waterborne alkyd 
paints and coatings products within this subcategory can compete with 
similar reprocessed latex paint and consolidated latex paint products 
with recycled content. Under the Resource Conservation and Recovery Act 
of 1976, section 6002, the U.S. Environmental Protection Agency 
designated reprocessed latex paints and consolidated latex paints 
containing recovered materials as items for which Federal agencies must 
give preference in their purchasing programs. The designation can be 
found in the Comprehensive Procurement Guideline, 40 CFR 247.12.

[76 FR 43817, July 22, 2011]



Sec. 3201.72  Oven and grill cleaners.

    (a) Definition. Liquid or gel cleaning agents used on high 
temperature cooking surfaces such as barbeques, smokers, grills, stoves, 
and ovens to soften and loosen charred food, grease, and residue.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 66 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased oven and grill cleaners. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for items to be procured shall ensure that 
the relevant specifications require the use of biobased oven and grill 
cleaners.

[76 FR 43817, July 22, 2011]



Sec. 3201.73  Slide way lubricants.

    (a) Definition. Products used to provide lubrication and eliminate 
stick-slip and table chatter by reducing friction between mating 
surfaces, or slides, found in machine tools.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 74 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 23, 2012, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased slide way lubricants. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that

[[Page 129]]

the relevant specifications require the use of biobased slide way 
lubricants.

[76 FR 43817, July 22, 2011]



Sec. 3201.74  Thermal shipping containers.

    (a) Definitions. (1) Insulated containers designed for shipping 
temperature-sensitive materials.
    (2) Thermal shipping containers for which Federal preferred 
procurement applies are:
    (i) Durable thermal shipping container. These are thermal shipping 
containers that are designed to be reused over an extended period of 
time.
    (ii) Non-durable thermal shipping containers. These are thermal 
shipping containers that are designed to be used once.
    (b) Minimum biobased content. The minimum biobased content for all 
thermal shipping container products shall be based on the amount of 
qualifying biobased carbon in the product as a percent of the weight 
(mass) of the total organic carbon in the finished product. The 
applicable minimum biobased contents for the Federal preferred 
procurement products are:
    (1) Durable thermal shipping containers--21 percent.
    (2) Non-durable thermal shipping containers--82 percent.
    (c) Preference compliance date--(1) Durable thermal shipping 
containers. Determination of the preference compliance date for durable 
thermal shipping containers is deferred until USDA identifies two or 
more manufacturers of biobased durable thermal shipping containers. At 
that time, USDA will publish a document in the Federal Register 
announcing that Federal agencies have one year from the date of 
publication to give procurement preference to biobased durable thermal 
shipping containers.
    (2) Non-durable thermal shipping containers. Determination of the 
preference compliance date for non-durable thermal shipping containers 
is deferred until USDA identifies two or more manufacturers of biobased 
non-durable thermal shipping containers. At that time, USDA will publish 
a document in the Federal Register announcing that Federal agencies have 
one year from the date of publication to give procurement preference to 
biobased non-durable thermal shipping containers.

[76 FR 43817, July 22, 2011]



Sec. 3201.75  Air fresheners and deodorizers.

    (a) Definition. Products used to alleviate the experience of 
unpleasant odors by chemical neutralization, absorption, 
anesthetization, or masking.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 97 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased air fresheners and 
deodorizers. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for products to be procured 
shall ensure that the relevant specifications require the use of 
biobased air fresheners and deodorizers.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.76  Asphalt and tar removers.

    (a) Definition. Cleaning agents designed to remove asphalt or tar 
from equipment, roads, or other surfaces.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 80 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased asphalt and tar removers. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for products to be procured shall ensure 
that the relevant specifications require

[[Page 130]]

the use of biobased asphalt and tar removers.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.77  Asphalt restorers.

    (a) Definition. Products designed to seal, protect, or restore 
poured asphalt and concrete surfaces.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 68 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased asphalt restorers. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased asphalt 
restorers.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.78  Blast media.

    (a) Definition. Abrasive particles sprayed forcefully to clean, 
remove contaminants, or condition surfaces, often preceding coating.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 94 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased blast media. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased blast media.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying products within this item may overlap with the EPA-
designated recovered content product: Miscellaneous products--blasting 
grit. USDA is requesting that manufacturers of these qualifying biobased 
products provide information on the USDA Web site of qualifying biobased 
products about the intended uses of the product, information on whether 
or not the product contains any recovered material, in addition to 
biobased ingredients, and performance standards against which the 
product has been tested. This information will assist Federal agencies 
in determining whether or not a qualifying biobased product overlaps 
with EPA-designated blasting grit products and which product should be 
afforded the preference in purchasing.

    Note to paragraph (d): Biobased blast media within this designated 
product category can compete with similar blasting grit products with 
recycled content. Under the Resource Conservation and Recovery Act of 
1976, section 6002, the U.S. Environmental Protection Agency designated 
blasting grit products containing recovered materials as products for 
which Federal agencies must give preference in their purchasing 
programs. The designation can be found in the Comprehensive Procurement 
Guideline, 40 CFR 247.17.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.79  Candles and wax melts.

    (a) Definition. Products composed of a solid mass and either an 
embedded wick that is burned to provide light or aroma, or that are 
wickless and melt when heated to produce an aroma.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 88 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased candles and wax melts. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require

[[Page 131]]

the use of biobased candles and wax melts.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.80  Electronic components cleaners.

    (a) Definition. Products that are designed to wash or remove dirt or 
extraneous matter from electronic parts, devices, circuits, or systems.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 91 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased electronic components 
cleaners. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for products to be procured 
shall ensure that the relevant specifications require the use of 
biobased electronic components cleaners.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.81  Floor coverings (non-carpet).

    (a) Definition. Products, other than carpet products, that are 
designed for use as the top layer on a floor. Examples are bamboo, 
hardwood, and cork tiles.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 91 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased floor coverings (non-
carpet). By that date, Federal agencies that have the responsibility for 
drafting or reviewing specifications for products to be procured shall 
ensure that the relevant specifications require the use of biobased 
floor coverings (non-carpet).
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying products within this item may overlap with the EPA-
designated recovered content product: Construction Products--floor 
tiles. USDA is requesting that manufacturers of these qualifying 
biobased products provide information on the USDA Web site of qualifying 
biobased products about the intended uses of the product, information on 
whether or not the product contains any recovered material, in addition 
to biobased ingredients, and performance standards against which the 
product has been tested. This information will assist Federal agencies 
in determining whether or not a qualifying biobased product overlaps 
with EPA-designated floor tile products and which product should be 
afforded the preference in purchasing.

    Note to paragraph (d): Biobased floor coverings within this 
designated product category can compete with similar floor tile products 
with recycled content. Under the Resource Conservation and Recovery Act 
of 1976, section 6002, the U.S. Environmental Protection Agency 
designated floor tile products containing recovered materials as 
products for which Federal agencies must give preference in their 
purchasing programs. The designation can be found in the Comprehensive 
Procurement Guideline, 40 CFR 247.17.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.82  Foot care products.

    (a) Definition. Products formulated to be used in the soothing or 
cleaning of feet.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 83 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased foot care products. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for products to

[[Page 132]]

be procured shall ensure that the relevant specifications require the 
use of biobased foot care products.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.83  Furniture cleaners and protectors.

    (a) Definition. Products designed to clean and provide protection to 
the surfaces of household furniture other than the upholstery.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 71 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased furniture cleaners and 
protectors. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for products to be procured 
shall ensure that the relevant specifications require the use of 
biobased furniture cleaners and protectors.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.84  Inks.

    (a) Definitions. (1) Inks are liquid or powdered materials that are 
available in several colors and that are used to create the visual image 
on a substrate when writing, printing, and copying.
    (2) Inks for which Federal preferred procurement applies are:
    (i) Specialty inks. Inks used by printers to add extra 
characteristics to their prints for special effects or functions. 
Specialty inks include, but are not limited to: CD printing, erasable, 
FDA compliant, invisible, magnetic, scratch and sniff, thermochromic, 
and tree marking inks.
    (ii) Inks (sheetfed--color). Pigmented inks (other than black inks) 
used on coated and uncoated paper, paperboard, some plastic, and foil to 
print in color on annual reports, brochures, labels, and similar 
materials.
    (iii) Inks (sheetfed--black). Black inks used on coated and uncoated 
paper, paperboard, some plastic, and foil to print in black on annual 
reports, brochures, labels, and similar materials.
    (iv) Inks (printer toner--<25 pages per minute (ppm)). Inks that are 
a powdered chemical, used in photocopying machines and laser printers, 
which is transferred onto paper to form the printed image. These inks 
are formulated to be used in printers with standard fusing mechanisms 
and print speeds of less than 25 ppm.
    (v) Inks (printer toner--=25 ppm). Inks that are a 
powdered chemical, used in photocopying machines and laser printers, 
which is transferred onto paper to form the printed image. These inks 
are formulated to be used in printers with advanced fusing mechanisms 
and print speeds of 25 ppm or greater.
    (vi) Inks (news). Inks used primarily to print newspapers.
    (b) Minimum biobased content. The minimum biobased content for all 
inks shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product. The applicable minimum biobased contents for the 
Federal preferred procurement products are:
    (1) Specialty inks--66 percent.
    (2) Inks (sheetfed--color)--67 percent.
    (3) Inks (sheetfed--black)--49 percent.
    (4) Inks (printer toner--<25 ppm)--34 percent.
    (5) Inks (printer toner--=25 ppm)--20 percent.
    (6) Inks (news)--32 percent.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased inks. By that date, 
Federal agencies that have the responsibility for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased inks.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.85  Packing and insulating materials.

    (a) Definition. Pre-formed and molded materials that are used to 
hold package contents in place during shipping or for insulating and 
sound proofing applications.

[[Page 133]]

    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 74 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased packing and insulating 
materials. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for products to be procured 
shall ensure that the relevant specifications require the use of 
biobased packing and insulating materials.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.86  Pneumatic equipment lubricants.

    (a) Definition. Lubricants designed specifically for pneumatic 
equipment, including air compressors, vacuum pumps, in-line lubricators, 
rock drills, jackhammers, etc.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 67 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased pneumatic equipment 
lubricants. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for products to be procured 
shall ensure that the relevant specifications require the use of 
biobased pneumatic equipment lubricants.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying products within this item may overlap with the EPA-
designated recovered content product: Vehicular Products--re-refined 
lubricating oils. USDA is requesting that manufacturers of these 
qualifying biobased products provide information on the USDA Web site of 
qualifying biobased products about the intended uses of the product, 
information on whether or not the product contains any recovered 
material, in addition to biobased ingredients, and performance standards 
against which the product has been tested. This information will assist 
Federal agencies in determining whether or not a qualifying biobased 
product overlaps with EPA-designated re-refined lubricating oil products 
and which product should be afforded the preference in purchasing.

    Note to paragraph (d): Biobased pneumatic equipment lubricants 
within this designated product category can compete with similar re-
refined lubricating oil products with recycled content. Under the 
Resource Conservation and Recovery Act of 1976, section 6002, the U.S. 
Environmental Protection Agency designated re-refined lubricating oil 
products containing recovered materials as products for which Federal 
agencies must give preference in their purchasing programs. The 
designation can be found in the Comprehensive Procurement Guideline, 40 
CFR 247.17.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.87  Wood and concrete stains.

    (a) Definition. Products that are designed to be applied as a finish 
for concrete and wood surfaces and that contain dyes or pigments to 
change the color without concealing the grain pattern or surface 
texture.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 39 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than April 4, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased wood and concrete stains. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for products to be procured shall ensure 
that the relevant specifications require

[[Page 134]]

the use of biobased wood and concrete stains.

[77 FR 20289, Apr. 4, 2012]



Sec. 3201.88  Agricultural spray adjuvants.

    (a) Definition. Products mixed in the spray tank with the herbicide, 
pesticide, or fertilizer formulas that will improve the efficiency and 
the effectiveness of the chemicals, including sticking agents, wetting 
agents, etc.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 50 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than November 19, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased agricultural spray 
adjuvants. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for products to be procured 
shall ensure that the relevant specifications require the use of 
biobased agricultural spray adjuvants.

[77 FR 69386, Nov. 19, 2012]



Sec. 3201.89  Animal cleaning products.

    (a) Definition. Products designed to clean, condition, or remove 
substances from animal hair or other parts of an animal.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 57 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than November 19, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased animal cleaning products. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for products to be procured shall ensure 
that the relevant specifications require the use of biobased animal 
cleaning products.

[77 FR 69386, Nov. 19, 2012]



Sec. 3201.90  Deodorants.

    (a) Definition. Products that are designed for inhibiting or masking 
perspiration and other body odors and that are often combined with an 
antiperspirant.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 73 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than November 19, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased deodorants. By that date, 
Federal agencies that have the responsibility for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased deodorants.

[77 FR 69386, Nov. 19, 2012]



Sec. 3201.91  Dethatcher products.

    (a) Definition. Products used to remove non-decomposed plant 
material accumulated in grassy areas.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 87 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than November 19, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased dethatchers. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased dethatchers.

[77 FR 69386, Nov. 19, 2012]

[[Page 135]]



Sec. 3201.92  Fuel conditioners.

    (a) Definition. Products formulated to improve the performance and 
efficiency of engines by providing benefits such as removing accumulated 
deposits, increasing lubricity, removing moisture, increasing the cetane 
number, and/or preventing microbial growths within the fuel system.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 64 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than November 19, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased fuel conditioners. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased fuel 
conditioners.

[77 FR 69386, Nov. 19, 2012]



Sec. 3201.93  Leather, vinyl, and rubber care products.

    (a) Definition. Products that help clean, nourish, protect, and 
restore leather, vinyl, and rubber surfaces, including cleaners, 
conditioners, protectants, polishes, waxes, etc.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 55 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than November 19, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased leather, vinyl, and 
rubber care products. By that date, Federal agencies that have the 
responsibility for drafting or reviewing specifications for products to 
be procured shall ensure that the relevant specifications require the 
use of biobased leather, vinyl, and rubber care products.

[77 FR 69386, Nov. 19, 2012]



Sec. 3201.94  Lotions and moisturizers.

    (a) Definition. Creams and oils used to soften and treat damaged 
skin.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 59 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than November 19, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased lotions and moisturizers. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for products to be procured shall ensure 
that the relevant specifications require the use of biobased lotions and 
moisturizers.

[77 FR 69386, Nov. 19, 2012]



Sec. 3201.95  Shaving products.

    (a) Definition. Products designed for every step of the shaving 
process, including shaving creams, gels, soaps, lotions, and aftershave 
balms.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 92 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than November 19, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased shaving products. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased shaving 
products.

[77 FR 69386, Nov. 19, 2012]

[[Page 136]]



Sec. 3201.96  Specialty precision cleaners and solvents.

    (a) Definition. Cleaners and solvents used in specialty 
applications. These materials may be used in neat solution, diluted with 
water, or in hand wiping applications.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 56 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than November 19, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased specialty precision 
cleaners and solvents. By that date, Federal agencies that have the 
responsibility for drafting or reviewing specifications for products to 
be procured shall ensure that the relevant specifications require the 
use of biobased specialty precision cleaners and solvents.

[77 FR 69386, Nov. 19, 2012]



Sec. 3201.97  Sun care products.

    (a) Definition. Products including sunscreens, sun blocks, and 
suntan lotions that are topical products that absorb or reflect the 
sun's ultraviolet radiation to protect the skin.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 53 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than November 19, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased sun care products. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased sun care 
products.

[77 FR 69386, Nov. 19, 2012]



Sec. 3201.98  Wastewater systems coatings.

    (a) Definition. Coatings that protect wastewater containment tanks, 
liners, roofing, flooring, joint caulking, manholes and related 
structures from corrosion. Protective coatings may cover the entire 
system or be used to fill cracks in systems.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 47 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than November 19, 2013, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased wastewater systems 
coatings. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for products to be procured 
shall ensure that the relevant specifications require the use of 
biobased wastewater systems coatings.

[77 FR 69386, Nov. 19, 2012]



Sec. 3201.99  Water and wastewater treatment chemicals.

    (a) Definition. Chemicals that are specifically formulated to purify 
raw water or to treat and purify wastewater from residential, 
commercial, industrial, and agricultural systems. Examples include 
coagulants, flocculants, neutralizing agents, activated carbon, or 
defoamers. This category excludes microbial cleaning products.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 87 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased water and wastewater 
treatment chemicals. By that date, Federal agencies responsible for 
drafting or reviewing specifications for

[[Page 137]]

products to be procured shall ensure that the relevant specifications 
require the use of biobased water and wastewater treatment chemicals.

[84 FR 32021, July 5, 2019]



Sec. 3201.100  Aircraft and boat cleaners.

    (a) Definition. (1) Aircraft and boat cleaners are products designed 
to remove built-on grease, oil, dirt, pollution, insect reside, or 
impact soils on both interior and exterior of aircraft and/or boats.
    (2) Aircraft and boat cleaners for which Federal preferred 
procurement applies are:
    (i) Aircraft cleaners. Cleaning products designed to remove built-on 
grease, oil, dirt, pollution, insect reside, or impact soils on both 
interior and exterior of aircraft.
    (ii) Boat cleaners. Cleaning products designed to remove built-on 
grease, oil, dirt, pollution, insect reside, or impact soils on both 
interior and exterior of boats.
    (b) Minimum biobased content. The minimum biobased content for all 
aircraft and boat cleaners shall be based on the amount of qualifying 
biobased carbon in the product as a percent of the weight (mass) of the 
total organic carbon in the finished product. The applicable minimum 
biobased contents for the Federal preferred procurement products are:
    (1) Aircraft cleaners--48 percent.
    (2) Boat cleaners--38 percent.
    (c) Preference compliance date. No later than June 11, 2014, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased aircraft and boat 
cleaners. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for products to be procured 
shall ensure that the relevant specifications require the use of 
biobased aircraft and boat cleaners.

[78 FR 34872, June 11, 2013]



Sec. 3201.101  Automotive care products.

    (a) Definition. Products such as waxes, buffing compounds, polishes, 
degreasers, soaps, wheel and tire cleaners, leather care products, 
interior cleaners, and fragrances that are formulated for cleaning and 
protecting automotive surfaces.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 75 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than June 11, 2014, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased automotive care products. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for products to be procured shall ensure 
that the relevant specifications require the use of biobased automotive 
care products.

[78 FR 34872, June 11, 2013]



Sec. 3201.102  Engine crankcase oils.

    (a) Definition. Lubricating products formulated to provide 
lubrication and wear protection for four-cycle gasoline or diesel 
engines.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 25 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than June 11, 2014, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased engine crankcase oils. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased engine crankcase 
oils.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying products within this item may overlap with the EPA-
designated recovered content product: Re-refined lubricating oils. USDA 
is requesting that manufacturers of these qualifying biobased products 
provide information

[[Page 138]]

on the USDA Web site of qualifying biobased products about the intended 
uses of the product, information on whether or not the product contains 
any recovered material, in addition to biobased ingredients, and 
performance standards against which the product has been tested. This 
information will assist Federal agencies in determining whether or not a 
qualifying biobased product overlaps with EPA-designated re-refined 
lubricating oil products and which product should be afforded the 
preference in purchasing.

    Note to paragraph (d): Engine crankcase oils within this designated 
product category can compete with similar re-refined lubricating oil 
products with recycled content. Under the Resource Conservation and 
Recovery Act of 1976, section 6002, the U.S. Environmental Protection 
Agency designated re-refined lubricating oil products containing 
recovered materials as products for which Federal agencies must give 
preference in their purchasing programs. The designation can be found in 
the Comprehensive Procurement Guideline, 40 CFR 247.17.

[78 FR 34872, June 11, 2013]



Sec. 3201.103  Gasoline fuel additives.

    (a) Definition. Chemical agents added to gasoline to increase octane 
levels, improve lubricity, and provide engine cleaning properties to 
gasoline-fired engines.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 92 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than June 11, 2014, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased gasoline fuel additives. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for products to be procured shall ensure 
that the relevant specifications require the use of biobased gasoline 
fuel additives.

[78 FR 34872, June 11, 2013]



Sec. 3201.104  Metal cleaners and corrosion removers.

    (a) Definition. (1) Products that are designed to clean and remove 
grease, oil, dirt, stains, soils, and rust from metal surfaces.
    (2) Metal cleaners and corrosion removers for which Federal 
preferred procurement applies are:
    (i) Corrosion removers. Products that are designed to remove rust 
from metal surfaces through chemical action.
    (ii) Stainless steel cleaners. Products that are designed to clean 
and remove grease, oil, dirt, stains, and soils from stainless steel 
surfaces.
    (iii) Other metal cleaners. Products that are designed to clean and 
remove grease, oil, dirt, stains, and soils from metal surfaces other 
than stainless steel.
    (b) Minimum biobased content. The minimum biobased content for all 
metal cleaners and corrosion removers shall be based on the amount of 
qualifying biobased carbon in the product as a percent of the weight 
(mass) of the total organic carbon in the finished product. The 
applicable minimum biobased contents for the Federal preferred 
procurement products are:
    (1) Corrosion removers--71 percent.
    (2) Stainless steel cleaners--75 percent.
    (3) Other metal cleaners--56 percent.
    (c) Preference compliance date. No later than June 11, 2014, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased metal cleaners and 
corrosion removers. By that date, Federal agencies that have the 
responsibility for drafting or reviewing specifications for products to 
be procured shall ensure that the relevant specifications require the 
use of biobased metal cleaners and corrosion removers.

[78 FR 34872, June 11, 2013]



Sec. 3201.105  Microbial cleaning products.

    (a) Definition. (1) Cleaning agents that use microscopic organisms 
to treat or eliminate waste materials within drains, plumbing fixtures, 
sewage systems, wastewater treatment systems, or on a variety of other 
surfaces. These products typically include organisms that digest 
protein, starch, fat, and cellulose.

[[Page 139]]

    (2) Microbial cleaning products for which Federal preferred 
procurement applies are:
    (i) Drain maintenance products. Products containing microbial agents 
that are intended for use in plumbing systems such as sinks, showers, 
and tubs.
    (ii) Wastewater maintenance products. Products containing microbial 
agents that are intended for use in wastewater systems such as sewer 
lines and septic tanks.
    (iii) General cleaners. Products containing microbial agents that 
are intended for multi-purpose cleaning in locations such as residential 
and commercial kitchens and bathrooms.
    (b) Minimum biobased content. The minimum biobased content for all 
microbial cleaning products shall be based on the amount of qualifying 
biobased carbon in the product as a percent of the weight (mass) of the 
total organic carbon in the finished product. The applicable minimum 
biobased contents for the Federal preferred procurement products are:
    (1) Drain maintenance products--45 percent.
    (2) Wastewater maintenance products--44 percent.
    (3) General cleaners--50 percent.
    (c) Preference compliance date. No later than June 11, 2014, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased microbial cleaning 
products. By that date, Federal agencies that have the responsibility 
for drafting or reviewing specifications for products to be procured 
shall ensure that the relevant specifications require the use of 
biobased microbial cleaning products.

[78 FR 34872, June 11, 2013]



Sec. 3201.106  Paint removers.

    (a) Definition. Products formulated to loosen and remove paint from 
painted surfaces.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 41 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than June 11, 2014, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased paint removers. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased paint removers.

[78 FR 34872, June 11, 2013]



Sec. 3201.107  Water turbine bearing oils.

    (a) Definition. Lubricants that are specifically formulated for use 
in the bearings found in water turbines for electric power generation. 
Previously designated turbine drip oils are used to lubricate bearings 
of shaft driven water well turbine pumps.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 46 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than June 11, 2014, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased water turbine bearing 
oils. By that date, Federal agencies that have the responsibility for 
drafting or reviewing specifications for products to be procured shall 
ensure that the relevant specifications require the use of biobased 
water turbine bearing oils.

[78 FR 34872, June 11, 2013]



Sec. 3201.108  Intermediates--Plastic Resins.

    (a) Definition. Intermediates--Plastic Resins are materials that are 
typically viscous liquids with the ability to harden permanently and may 
exist in liquid or solid (powder or pellets) states. Intermediates--
Plastic Resins may be used in a variety of finished products neat, 
consisting of a single resin or polymer, or a homogeneous blend of two 
or more neat resins or polymers, or a composite, containing two or more 
distinct materials such as

[[Page 140]]

fiber-reinforced resins. Additionally, Intermediates--Plastic Resins may 
be used in finished products as additives such as plasticizers, 
pigments, thermal stability agents, or impact modifiers.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 22 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Plastic 
Resins. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased Intermediates--
Plastic Resins.

[83 FR 31848, July 10, 2018]



Sec. 3201.109  Intermediates--Chemicals.

    (a) Definition. Intermediates--Chemicals are those used as reactants 
for organic synthesis reactions rather than for their functional 
properties in a chemical mixture; those used as building block chemicals 
and secondary chemicals such as glycerol, succinic acid, propanediol, 
and monomers such as lactic acid and propylene; those used for specific 
functional properties during manufacturing of other products such as pH 
regulators, flocculants, precipitants, neutralizing agents, emulsifiers, 
viscosity reducers, rheology modifiers, adhesion agents, detergents, 
wetting agents, foaming agents, or dispersants; those that are added to 
end-use products for their specific functional properties including 
polyols, polymers, and solvents for thinning and drying applications but 
excluding solvents used for cleaning; and those used for dyes, pigments, 
and scents including flavorings for non-food products such as lip balm.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 22 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Chemicals. 
By that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased Intermediates--
Chemicals.

[83 FR 31848, July 10, 2018]



Sec. 3201.110  Intermediates--Paint and Coating Components.

    (a) Definition. Intermediates--Paint and Coating Components are 
ingredients used to formulate finished waterborne or solvent borne paint 
and coating products. Examples of Intermediates--Paint and Coating 
Components include binders, pigments, thickeners, curing agents, 
modifiers, humectants, open time additives, alkyd latex resins, 
polymers, polyols, reactive oligomers, or reactive diluents.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 22 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Paint and 
Coating Components. By that date, Federal agencies responsible for 
drafting or reviewing specifications for products to be procured shall 
ensure that the relevant specifications require the use of biobased 
Intermediates--Paint and Coating Components.

[83 FR 31848, July 10, 2018]



Sec. 3201.111  Intermediates--Textile Processing Materials.

    (a) Definition. Intermediates--Textile Processing Materials are used 
to treat

[[Page 141]]

or finish textiles for the purposes of altering textile characteristics 
such as color, fading, wrinkle resistance, texture, or moisture 
management.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 22 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Textile 
Processing Materials. By that date, Federal agencies responsible for 
drafting or reviewing specifications for products to be procured shall 
ensure that the relevant specifications require the use of biobased 
Intermediates--Textile Processing Materials.

[83 FR 31848, July 10, 2018]



Sec. 3201.112  Intermediates--Foams.

    (a) Definition. Intermediates--Foams are dry polymer foams used for 
non-construction purposes, such as cushions for furniture.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 22 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Foams. By 
that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased Intermediates--
Foams.

[83 FR 31848, July 10, 2018]



Sec. 3201.113  Intermediates--Fibers and Fabrics.

    (a) Definition. Intermediates--Fibers and Fabrics encompasses plant 
and animal fibers, fibers made from plant-derived polymers that are not 
yet formed into more complex products such as carpet or fabrics, fabrics 
made from natural fibers, fabrics made from synthetic fibers, or fabrics 
made from a blend of the two. These materials are used to manufacture 
finished products such as clothing, upholstery, or drapes.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 25 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Fibers and 
Fabrics. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased Intermediates--
Fibers and Fabrics.

[83 FR 31848, July 10, 2018]



Sec. 3201.114  Intermediates--Lubricant Components.

    (a) Definition. Intermediates--Lubricant Components are ingredients 
that used specifically to formulate finished lubricant products. 
Examples of Intermediates--Lubricant Components include base oils, base 
fluids, additives, or friction modifiers.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 44 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Lubricant 
Components. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure

[[Page 142]]

that the relevant specifications require the use of biobased 
Intermediates--Lubricant Components.

[83 FR 31848, July 10, 2018]



Sec. 3201.115  Intermediates--Binders.

    (a) Definition. Intermediates--Binders are materials used to provide 
cohesiveness throughout an entire finished product. Binders are 
generally polymers or polymer precursors (such as epoxies) and include 
the polymeric materials used to formulate coatings, adhesives, sealants, 
and elastomers. The product category does not include adhesives and 
glues that are finished products used to attach the surfaces of two or 
more distinct and separate components to one another.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 47 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Binders. 
By that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased Intermediates--
Binders.

[83 FR 31848, July 10, 2018]



Sec. 3201.116  Intermediates--Cleaner Components.

    (a) Definition. Intermediates--Cleaner Components are intermediate 
ingredients used specifically for formulating finished cleaning 
products. Examples of Intermediates--Cleaner Components include 
chelating agents, surfactants, hydrotropes, fatty acids, or solvents.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 55 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Cleaner 
Components. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased Intermediates--
Cleaner Components.

[83 FR 31848, July 10, 2018]



Sec. 3201.117  Intermediates--Personal Care Product Components.

    (a) Definition. Intermediates--Personal Care Product Components are 
ingredients used to formulate finished personal care products. Examples 
of Intermediates--Personal Care Product Components include surfactants, 
oils, humectants, emollients, or emulsifiers.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 62 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Personal 
Care Product Components. By that date, Federal agencies responsible for 
drafting or reviewing specifications for products to be procured shall 
ensure that the relevant specifications require the use of biobased 
Intermediates--Personal Care Product Components.

[83 FR 31848, July 10, 2018]



Sec. 3201.118  Intermediates--Oils, Fats, and Waxes.

    (a) Definition. Intermediates--Oils, Fats, and Waxes include raw or 
modified fats and oils derived from plants or animals.
    (b) Minimum biobased content. The Federal preferred procurement 
product

[[Page 143]]

must have a minimum biobased content of at least 65 percent, which shall 
be based on the amount of qualifying biobased carbon in the product as a 
percent of the weight (mass) of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Oils, 
Fats, and Waxes. By that date, Federal agencies responsible for drafting 
or reviewing specifications for products to be procured shall ensure 
that the relevant specifications require the use of biobased 
Intermediates--Oils, Fats, and Waxes.

[83 FR 31848, July 10, 2018]



Sec. 3201.119  Intermediates--Rubber Materials.

    (a) Definition. Intermediates--Rubber Materials are used in finished 
products such as rubber gloves, vehicle tires, footwear, sports apparel 
and equipment, bedding and pillow foams, tubing, catheters, gasketing, 
or cosmetic adhesives and bases.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 96 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the weight (mass) of the total organic carbon in 
the finished product.
    (c) Preference compliance date. No later than July 10, 2019, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased Intermediates--Rubber 
Materials. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased Intermediates--
Rubber Materials.

[83 FR 31848, July 10, 2018]



Sec. 3201.120  Adhesives.

    (a) Definition. Adhesives are compounds that temporarily or 
permanently bind two item surfaces together. These products include 
glues and sticky tapes used in construction, household, flooring, and 
industrial settings. This category excludes epoxy systems.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 24 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased adhesives. By that date, 
Federal agencies responsible for drafting or reviewing specifications 
for products to be procured shall ensure that the relevant 
specifications require the use of biobased adhesives.

[84 FR 32021, July 5, 2019]



Sec. 3201.121  Animal habitat care products.

    (a) Definition. Animal habitat care products are products that are 
intended to improve the quality of animal habitats such as cleaning 
supplies, sanitizers, feeders, and products that control, mask, or 
suppress pet odors. This category excludes animal bedding or litter 
products and animal cleaning products.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 22 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased animal habitat care 
products. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased animal habitat 
care products.

[84 FR 32021, July 5, 2019]

[[Page 144]]



Sec. 3201.122  Cleaning tools.

    (a) Definition. Cleaning tools are objects that are used to clean a 
variety of surfaces or items and can be used multiple times. This 
category includes tools such as brushes, scrapers, abrasive pads, and 
gloves that are used for cleaning. The expendable materials used in 
cleaning, such as glass cleaners, single-use wipes, and all-purpose 
cleaners, are excluded from this category, as these materials better fit 
in other categories.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 22 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased cleaning tools. By that 
date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased cleaning tools.

[84 FR 32021, July 5, 2019]



Sec. 3201.123  Concrete curing agents.

    (a) Definition. Concrete curing agents are products that are 
designed to enhance and control the curing process of concrete.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 59 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased concrete curing agents. 
By that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased concrete curing 
agents.
    (d) Determining overlap with a designated product category in the 
EPA's Comprehensive Procurement Guideline (CPG) program. Qualifying 
products within this product category may overlap with the EPA's CPG-
designated recovered content product category of Construction Products: 
Cement and Concrete. USDA is requesting that manufacturers of these 
qualifying biobased products provide information on the BioPreferred 
Program's website about the intended uses of the product, information on 
whether the product contains any recovered material, in addition to 
biobased ingredients, and performance standards against which the 
product has been tested. This information will assist Federal agencies 
in determining whether a qualifying biobased product overlaps with the 
EPA's CPG-designated product category of Construction Products: Cement 
and Concrete and which product should be afforded the preference in 
purchasing.
    Note 1 to Paragraph (d): Concrete curing agents within this 
designated product category can compete with similar concrete curing 
agents with recycled content. Under the Resource Conservation and 
Recovery Act of 1976, section 6002, the U.S. Environmental Protection 
Agency CPG-designated Construction Products: Cement and Concrete 
containing recovered materials as products for which Federal agencies 
must give preference in their purchasing programs. The designation can 
be found in the Comprehensive Procurement Guideline, 40 CFR 247.12.

[84 FR 32021, July 5, 2019]



Sec. 3201.124  Concrete repair materials.

    (a) Definition. (1) Products that are designed to repair cracks and 
other damage to concrete.
    (2) Concrete repair materials for which preferred procurement 
applies are:
    (i) Concrete repair materials--concrete leveling. Concrete repair 
materials--concrete leveling are products that are designed to repair 
cracks and other damage to concrete by raising or stabilizing concrete.
    (ii) Concrete repair materials--concrete patching. Concrete repair 
materials--concrete patching are products that are designed to repair 
cracks and other damage to concrete by filling and patching the 
concrete.

[[Page 145]]

    (b) Minimum biobased content. The minimum biobased content for all 
concrete repair materials shall be based on the amount of qualifying 
biobased carbon in the product as a percent of the total organic carbon 
in the finished product. The applicable minimum biobased contents are:
    (1) Concrete repair materials--concrete leveling--23 percent.
    (2) Concrete repair materials--concrete patching--69 percent.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased concrete repair 
materials. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased concrete repair 
materials.
    (d) Determining overlap with a designated product category in the 
EPA's CPG program. Qualifying products within this product category may 
overlap with the EPA's CPG-designated recovered content product category 
of Construction Products: Cement and Concrete. USDA is requesting that 
manufacturers of these qualifying biobased products provide information 
on the BioPreferred Program's website about the intended uses of the 
product, information on whether the product contains any recovered 
material, in addition to biobased ingredients, and performance standards 
against which the product has been tested. This information will assist 
Federal agencies in determining whether a qualifying biobased product 
overlaps with the EPA's CPG-designated product category of Construction 
Products: Cement and Concrete and which product should be afforded the 
preference in purchasing.
    Note 1 to Paragraph (d): Concrete repair materials within this 
designated product category can compete with similar concrete repair 
materials with recycled content. Under the Resource Conservation and 
Recovery Act of 1976, section 6002, the U.S. Environmental Protection 
Agency CPG-designated Construction Products: Cement and Concrete 
containing recovered materials as products for which Federal agencies 
must give preference in their purchasing programs. The designation can 
be found in the Comprehensive Procurement Guideline, 40 CFR 247.12.

[84 FR 32021, July 5, 2019]



Sec. 3201.125  Durable cutlery.

    (a) Definition. Durable cutlery consists of dining utensils that are 
designed to be used multiple times.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 28 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased durable cutlery. By that 
date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased durable cutlery.

[84 FR 32021, July 5, 2019]



Sec. 3201.126  Durable tableware.

    (a) Definition. Durable tableware consists of multiple-use drinkware 
and dishware including cups, plates, bowls, and serving platters.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 28 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased durable tableware. By 
that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased durable tableware.

[84 FR 32021, July 5, 2019]



Sec. 3201.127  Epoxy systems.

    (a) Definition. Epoxy systems are two-component systems that are 
epoxy-

[[Page 146]]

based and are used as coatings, adhesives, surface fillers, and 
composite matrices.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 23 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased epoxy systems. By that 
date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased epoxy systems.

[84 FR 32021, July 5, 2019]



Sec. 3201.128  Exterior paints and coatings.

    (a) Definition. Exterior paints and coatings are pigmented liquid 
products that typically contain pigments to add color and are formulated 
for use on outdoor surfaces. When these products dry, they typically 
form a protective layer and provide a coat of color to the applied 
surface. This category includes paint and primers but excludes wood and 
concrete sealers and stains and specialty coatings such as roof 
coatings, wastewater system coatings, and water tank coatings.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 83 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased exterior paints and 
coatings. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased exterior paints 
and coatings.
    (d) Determining overlap with a designated product category in the 
EPA's CPG program. Qualifying products within this product category may 
overlap with the EPA's CPG-designated recovered content product category 
of Construction Products: Consolidated and Reprocessed Latex Paint for 
Specified Uses. USDA is requesting that manufacturers of these 
qualifying biobased products provide information on the BioPreferred 
Program's website about the intended uses of the product, information on 
whether the product contains any recovered material, in addition to 
biobased ingredients, and performance standards against which the 
product has been tested. This information will assist Federal agencies 
in determining whether a qualifying biobased product overlaps with the 
EPA's CPG-designated product category of Construction Products: 
Consolidated and Reprocessed Latex Paint for Specified Uses and which 
product should be afforded the preference in purchasing.
    Note 1 to Paragraph (d): Exterior paints and coatings within this 
designated product category can compete with similar exterior paints and 
coatings with recycled content. Under the Resource Conservation and 
Recovery Act of 1976, section 6002, the U.S. Environmental Protection 
Agency CPG-designated Construction Products: Consolidated and 
Reprocessed Latex Paint for Specified Uses containing recovered 
materials as products for which Federal agencies must give preference in 
their purchasing programs. The designation can be found in the 
Comprehensive Procurement Guideline, 40 CFR 247.12.

[84 FR 32021, July 5, 2019]



Sec. 3201.129  Facial care products.

    (a) Definition. Facial care products are cleansers, moisturizers, 
and treatments specifically designed for the face. These products are 
used to care for the condition of the face by supporting skin integrity, 
enhancing its appearance, and relieving skin conditions. This category 
does not include tools and applicators, such as those used to apply 
facial care products.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 88 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a

[[Page 147]]

percent of the total organic carbon in the finished product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased facial care products. By 
that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased facial care 
products.

[84 FR 32021, July 5, 2019]



Sec. 3201.130  Feminine care products.

    (a) Definition. Feminine care products are products that are 
designed for maintaining feminine health and hygiene. This category 
includes sanitary napkins, panty liners, and tampons.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 65 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased feminine care products. 
By that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased feminine care 
products.

[84 FR 32021, July 5, 2019]



Sec. 3201.131  Fire logs and fire starters.

    (a) Definition. Fire logs and fire starters are devices or 
substances that are used to start a fire intended for uses such as 
comfort heat, decoration, or cooking. Examples include fire logs and 
lighter fluid. This category excludes heating fuels for chafing dishes, 
beverage urns, warming boxes, and wick lamps.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 92 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased fire logs and fire 
starters. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased fire logs and 
fire starters.

[84 FR 32021, July 5, 2019]



Sec. 3201.132  Folders and filing products.

    (a) Definition. Folders and filing products are products that are 
designed to hold together items such as loose sheets of paper, 
documents, and photographs with clasps, fasteners, rings, or folders. 
This category includes binders, folders, and document covers.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 56 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased folders and filing 
products. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased folders and 
filing products.
    (d) Determining overlap with a designated product category in the 
EPA's CPG program. Qualifying products within this product category may 
overlap with the EPA's CPG-designated recovered content product 
categories of Non-Paper Office Products: Binders, Clipboards, File 
Folders, Clip Portfolios, and Presentation Folders and Non-Paper Office 
Products: Plastic Envelopes. USDA is requesting that manufacturers of 
these qualifying biobased products provide information on the 
BioPreferred Program's website about

[[Page 148]]

the intended uses of the product, information on whether the product 
contains any recovered material, in addition to biobased ingredients, 
and performance standards against which the product has been tested. 
This information will assist Federal agencies in determining whether a 
qualifying biobased product overlaps with the EPA's CPG-designated 
product categories of Non-Paper Office Products: Binders, Clipboards, 
File Folders, Clip Portfolios, and Presentation Folders and Non-Paper 
Office Products: Plastic Envelopes and which product should be afforded 
the preference in purchasing.
    Note 1 to Paragraph (d): Biobased folders and filing products within 
this designated product category can compete with similar folders and 
filing products with recycled content. Under the Resource Conservation 
and Recovery Act of 1976, section 6002, the U.S. Environmental 
Protection Agency CPG-designated Non-Paper Office Products: Binders, 
Clipboards, File Folders, Clip Portfolios, and Presentation Folders and 
Non-Paper Office Products: Plastic Envelopes containing recovered 
materials as products for which Federal agencies must give preference in 
their purchasing programs. The designation can be found in the 
Comprehensive Procurement Guideline, 40 CFR 247.16.

[84 FR 32021, July 5, 2019]



Sec. 3201.133  Foliar sprays.

    (a) Definition. Foliar sprays are products that are applied to the 
leaves of plants and provide plants with nutrients. These products may 
also repair plants from previous pest attacks. Examples include liquid 
fertilizers, foliar feeds, and micronutrient solutions.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 50 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased foliar sprays. By that 
date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased foliar sprays.

[84 FR 32021, July 5, 2019]



Sec. 3201.134  Gardening supplies and accessories.

    (a) Definition. Gardening supplies and accessories are products that 
are used to grow plants in outdoor and indoor settings. Examples include 
seedling starter trays, nonwoven mats or substrates for hydroponics, and 
flower or plant pots. This category excludes compost activators and 
accelerators; erosion control materials; fertilizers, including soil 
inoculants; foliar sprays; mulch and compost materials; and soil 
amendments.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 43 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased gardening supplies and 
accessories. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased gardening 
supplies and accessories.

[84 FR 32021, July 5, 2019]



Sec. 3201.135  Heating fuels and wick lamps.

    (a) Definition. Heating fuels and wick lamps are products that 
create controlled sources of heat or sustain controlled open flames that 
are used for warming food, portable stoves, beverage urns, or fondue 
pots. This category also includes wick lamps and their fuels that create 
controlled sources of light indoors and in camping or emergency 
preparedness situations. This category excludes fire logs and fire 
starters and candles and wax melts.
    (b) Minimum biobased content. The Federal preferred procurement 
product

[[Page 149]]

must have a minimum biobased content of at least 75 percent, which shall 
be based on the amount of qualifying biobased carbon in the product as a 
percent of the total organic carbon in the finished product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased heating fuels and wick 
lamps. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased heating fuels 
and wick lamps.

[84 FR 32021, July 5, 2019]



Sec. 3201.136  Kitchenware and accessories.

    (a) Definition. Kitchenware and accessories are products designed 
for food or drink preparation. These products include cookware and 
bakeware, such as baking cups, cookie sheets, parchment paper, and 
roasting bags or pans; cooking utensils, such as brushes, tongs, 
spatulas, and ladles; and food preparation items, such as cutting 
boards, measuring cups, mixing bowls, coffee filters, food preparation 
gloves, and sandwich and snack bags. These products exclude kitchen 
appliances, such as toasters, blenders, and coffee makers; disposable 
tableware; disposable cutlery; disposable containers; durable tableware; 
durable cutlery; and cleaning tools.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 22 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased kitchenware and 
accessories. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased kitchenware and 
accessories.

[84 FR 32021, July 5, 2019]



Sec. 3201.137  Other lubricants.

    (a) Definition. Other lubricants are lubricant products that do not 
fit into any of the BioPreferred Program's specific lubricant 
categories. This category includes lubricants that are formulated for 
specialized uses. Examples of other lubricants include lubricants used 
for sporting or exercise gear and equipment, musical instruments, and 
specialized equipment such as tree shakers. This category excludes 
lubricants that are covered by the specific lubricant categories such as 
chain and cable lubricants, firearm lubricants, forming lubricants, gear 
lubricants, multi-purpose lubricants, penetrating lubricants, pneumatic 
equipment lubricants, and slide way lubricants.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 39 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased other lubricants. By that 
date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased other lubricants.
    (d) Determining overlap with a designated product category in the 
EPA's CPG program. Qualifying products within this product category may 
overlap with the EPA's CPG-designated recovered content product category 
of Vehicular Products: Re-Refined Lubricating Oil. USDA is requesting 
that manufacturers of these qualifying biobased products provide 
information on the BioPreferred Program's website about the intended 
uses of the product, information on whether the product contains any 
recovered material, in addition to biobased ingredients, and performance 
standards against which the

[[Page 150]]

product has been tested. This information will assist Federal agencies 
in determining whether a qualifying biobased product overlaps with the 
EPA's CPG-designated product category of Vehicular Products: Re-Refined 
Lubricating Oil and which product should be afforded the preference in 
purchasing.
    Note 1 to Paragraph (d): Other lubricants within this designated 
product category can compete with similar other lubricants with recycled 
content. According to the Resource Conservation and Recovery Act of 
1976, section 6002, Federal agencies must give preference in their 
purchasing programs for the U.S. Environmental Protection Agency's CPG-
designated Vehicular Products: Re-Refined Lubricating Oil containing 
recovered materials as products. The designation can be found in the 
Comprehensive Procurement Guideline, 40 CFR 247.11.

[84 FR 32021, July 5, 2019]



Sec. 3201.138  Phase change materials.

    (a) Definition. Phase change materials are products that are capable 
of absorbing and releasing large amounts of thermal energy by freezing 
and thawing at certain temperatures. Heat is absorbed or released when 
the material changes from solid to liquid and vice versa. Applications 
may include, but are not limited to, conditioning of buildings, medical 
applications, thermal energy storage, or cooling of food. Materials such 
as animal fats and plant oils that melt at desirable temperatures are 
typically used to make products in this category.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 71 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased phase change materials. 
By that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased phase change 
materials.

[84 FR 32021, July 5, 2019]



Sec. 3201.139  Playground and athletic surface materials.

    (a) Definition. Playground and athletic surface materials are 
products that are designed for use on playgrounds and athletic surfaces. 
Examples include materials that are applied to the surfaces of 
playgrounds, athletic fields, and other sports surfaces to enhance or 
change the color or general appearance of the surface and to provide 
safety and/or performance benefits. Such materials include, but are not 
limited to, top coatings, primers, line marking paints, and rubberized 
pellets that are used on athletic courts, tracks, natural or artificial 
turf, and other playing surfaces. This category does not include the 
artificial turf or surface itself, as that is included in the carpets 
product category.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 22 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased playground and athletic 
surface materials. By that date, Federal agencies responsible for 
drafting or reviewing specifications for products to be procured shall 
ensure that the relevant specifications require the use of biobased 
playground and athletic surface materials.
    (d) Determining overlap with a designated product category in the 
EPA's CPG program. Qualifying products within this product category may 
overlap with the EPA's CPG-designated recovered content product 
categories of Parks and Recreation Products: Playground Surfaces and 
Running Tracks. USDA is requesting that manufacturers of these 
qualifying biobased products provide information on the BioPreferred 
Program's website about the intended uses of the product, information on 
whether the product contains any recovered material, in addition to 
biobased ingredients, and performance standards against which the 
product has been tested. This information will

[[Page 151]]

assist Federal agencies in determining whether a qualifying biobased 
product overlaps with the EPA's CPG-designated product categories of 
Parks and Recreation Products: Playground Surfaces and Running Tracks 
and which product should be afforded the preference in purchasing.
    Note 1 to Paragraph (d): Playground and athletic surface materials 
within this designated product category can compete with similar 
playground and athletic surface materials with recycled content. 
According to the Resource Conservation and Recovery Act of 1976, section 
6002, Federal agencies must give preference in their purchasing programs 
for the U.S. Environmental Protection Agency's CPG-designated product 
categories of Parks and Recreation Products: Playground Surfaces and 
Running Tracks containing recovered materials as products. The 
designation can be found in the Comprehensive Procurement Guideline, 40 
CFR 247.10.

[84 FR 32021, July 5, 2019]



Sec. 3201.140  Powder coatings.

    (a) Definition. Powder coatings are polymer resin systems that are 
combined with stabilizers, curatives, pigments, and other additives and 
ground into a powder. These coatings are applied electrostatically to 
metallic surfaces and then cured under heat. Powder coatings are 
typically used for coating metals, such as vehicle and bicycle parts, 
household appliances, and aluminum extrusions.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 34 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased powder coatings. By that 
date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased powder coatings.

[84 FR 32021, July 5, 2019]



Sec. 3201.141  Product packaging.

    (a) Definition. Product packaging items are used to protect, handle, 
and retain a product during activities related but not limited to its 
storage, distribution, sale, and use. These containers are typically 
designed to be used once. This category excludes packing and insulating 
materials and shopping and trash bags.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 25 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased product packaging. By 
that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased product packaging.
    (d) Determining overlap with a designated product category in the 
EPA's CPG program. Qualifying products within this product category may 
overlap with the EPA's CPG-designated recovered content product category 
of Paper Products: Paperboard and Packaging. USDA is requesting that 
manufacturers of these qualifying biobased products provide information 
on the BioPreferred Program's website about the intended uses of the 
product, information on whether the product contains any recovered 
material, in addition to biobased ingredients, and performance standards 
against which the product has been tested. This information will assist 
Federal agencies in determining whether a qualifying biobased product 
overlaps with the EPA's CPG-designated product category of Paper 
Products: Paperboard and Packaging and which product should be afforded 
the preference in purchasing.
    Note 1 to Paragraph (d): Product packaging within this designated 
product category can compete with similar product packaging with 
recycled content. Under the Resource Conservation and Recovery Act of 
1976, section 6002, the U.S. Environmental

[[Page 152]]

Protection Agency CPG-designated Paper Products: Paperboard and 
Packaging containing recovered materials as products for which Federal 
agencies must give preference in their purchasing programs. The 
designation can be found in the Comprehensive Procurement Guideline, 40 
CFR 247.10.

[84 FR 32021, July 5, 2019]



Sec. 3201.142  Rugs and floor mats.

    (a) Definition. Rugs or floor mats are floor coverings that are used 
for decorative or ergonomic purposes and that are not attached to the 
floor. This category includes items such as area rugs, rug runners, 
chair mats, and bathroom and kitchen mats. This category excludes 
products composed of woven, tufted, or knitted fiber and a backing 
system because these products fall under the ``Carpets'' product 
category.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 23 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased rugs and floor mats. By 
that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased rugs and floor mats.
    (d) Determining overlap with a designated product category in the 
EPA's CPG program. Qualifying products within this product category may 
overlap with the EPA's CPG-designated recovered content product category 
of Miscellaneous Products: Mats. USDA is requesting that manufacturers 
of these qualifying biobased products provide information on the 
BioPreferred Program's website about the intended uses of the product, 
information on whether the product contains any recovered material, in 
addition to biobased ingredients, and performance standards against 
which the product has been tested. This information will assist Federal 
agencies in determining whether a qualifying biobased product overlaps 
with the EPA's CPG-designated product category of Miscellaneous 
Products: Mats and which product should be afforded the preference in 
purchasing.
    Note 1 to Paragraph (d): Rugs and floor mats within this designated 
product category can compete with similar rugs or floor mats with 
recycled content. Under the Resource Conservation and Recovery Act of 
1976, section 6002, the U.S. Environmental Protection Agency CPG-
designated Miscellaneous Products: Mats containing recovered materials 
as products for which Federal agencies must give preference in their 
purchasing programs. The designation can be found in the Comprehensive 
Procurement Guideline, 40 CFR 247.17.

[84 FR 32021, July 5, 2019]



Sec. 3201.143  Shopping and trash bags.

    (a) Definition. Shopping and trash bags are open-ended bags that are 
typically made of thin, flexible film and are used for containing and 
transporting items such as consumer goods and waste. Examples include 
trash bags, can liners, shopping or grocery bags, pet waste bags, 
compost bags, and yard waste bags. This category does not include 
product packaging, disposable containers, or semi-durable and non-
durable films.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 22 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased shopping and trash bags. 
By that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased shopping and trash 
bags.
    (d) Determining overlap with a designated product category in the 
EPA's CPG program. Qualifying products within this product category may 
overlap with the EPA's CPG-designated recovered content product category 
of Non-Paper Office Products: Plastic Trash Bags. USDA is requesting 
that manufacturers of these qualifying biobased

[[Page 153]]

products provide information on the BioPreferred Program's website about 
the intended uses of the product, information on whether the product 
contains any recovered material, in addition to biobased ingredients, 
and performance standards against which the product has been tested. 
This information will assist Federal agencies in determining whether a 
qualifying biobased product overlaps with the EPA's CPG-designated 
product category of Non-Paper Office Products: Trash Bags and which 
product should be afforded the preference in purchasing.
    Note 1 to Paragraph (d): Shopping and trash bags within this 
designated product category can compete with similar shopping and trash 
bags with recycled content. Under the Resource Conservation and Recovery 
Act of 1976, section 6002, the U.S. Environmental Protection Agency CPG-
designated Non-Paper Office Products: Trash Bags containing recovered 
materials as products for which Federal agencies must give preference in 
their purchasing programs. The designation can be found in the 
Comprehensive Procurement Guideline, 40 CFR 247.17.

[84 FR 32021, July 5, 2019]



Sec. 3201.144  Soil amendments.

    (a) Definition. Soil amendments are materials that enhance the 
physical characteristics of soil through improving water retention or 
drainage, improving nutrient cycling, promoting microbial growth, or 
changing the soil's pH. This category excludes foliar sprays and 
chemical fertilizers.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 72 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased soil amendments. By that 
date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased soil amendments.
    (d) Determining overlap with a designated product category in the 
EPA's CPG program. Qualifying products within this product category may 
overlap with the EPA's CPG-designated recovered content product 
categories of Landscaping Products: Compost Made From Recovered Organic 
Materials and Landscaping Products: Fertilizer Made From Recovered 
Organic Materials. USDA is requesting that manufacturers of these 
qualifying biobased products provide information on the BioPreferred 
Program's website about the intended uses of the product, information on 
whether the product contains any recovered material, in addition to 
biobased ingredients, and performance standards against which the 
product has been tested. This information will assist Federal agencies 
in determining whether a qualifying biobased product overlaps with the 
EPA's CPG-designated product categories Landscaping Products: Compost 
Made From Recovered Organic Materials and Landscaping Products: 
Fertilizer Made From Recovered Organic Materials and which product 
should be afforded the preference in purchasing.
    Note 1 to Paragraph (d): Soil amendments within this designated 
product category can compete with similar soil amendments with recycled 
content. Under the Resource Conservation and Recovery Act of 1976, 
section 6002, the U.S. Environmental Protection Agency CPG-designated 
Landscaping Products: Compost Made From Recovered Organic Materials and 
Landscaping Products: Fertilizer Made From Recovered Organic Materials 
containing recovered materials as products for which Federal agencies 
must give preference in their purchasing programs. The designation can 
be found in the Comprehensive Procurement Guideline, 40 CFR 247.15.

[84 FR 32021, July 5, 2019]



Sec. 3201.145  Surface guards, molding, and trim.

    (a) Definition. Surface guards, molding, and trim products are 
typically used during construction or manufacturing. These products are 
designed to protect surfaces, such as walls and floors, from damage or 
to cover the exposed edges of furniture or floors.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 26 percent, 
which shall

[[Page 154]]

be based on the amount of qualifying biobased carbon in the product as a 
percent of the total organic carbon in the finished product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased surface guards, molding, 
and trim. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased surface guards, 
molding, and trim.

[84 FR 32021, July 5, 2019]



Sec. 3201.146  Toys and sporting gear.

    (a) Definition. Toys and sporting gear are products that are 
designed for indoor or outdoor recreational use including, but not 
limited to, toys; games; and sporting equipment and accessories such as 
balls, bats, racquets, nets, and bicycle seats. This category does not 
include products such as cleaners, lubricants, and oils that are used to 
maintain or clean toys and sporting gear.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 32 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased toys and sporting gear. 
By that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased toys and sporting 
gear.

[84 FR 32021, July 5, 2019]



Sec. 3201.147  Traffic and zone marking paints.

    (a) Definition. Traffic and zone marking paints are products that 
are formulated and marketed for marking and striping parking lots, 
roads, streets, highways, or other traffic surfaces including, but not 
limited to, curbs, crosswalks, driveways, sidewalks, and airport 
runways.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 30 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased traffic and zone marking 
paints. By that date, Federal agencies responsible for drafting or 
reviewing specifications for products to be procured shall ensure that 
the relevant specifications require the use of biobased traffic and zone 
marking paints.

[84 FR 32021, July 5, 2019]



Sec. 3201.148  Transmission fluids.

    (a) Definition. Transmission fluids are liquids that lubricate and 
cool the moving parts in a transmission to prevent wearing and to ensure 
smooth performance.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 60 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased transmission fluids. By 
that date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased transmission fluids.
    (d) Determining overlap with a designated product category in the 
EPA's CPG program. Qualifying products within this product category may 
overlap with the EPA's CPG-designated recovered content product category 
of Vehicular Products: Re-refined Lubricating Oil. USDA is requesting 
that manufacturers of these qualifying

[[Page 155]]

biobased products provide information on the BioPreferred Program's 
website about the intended uses of the product, information on whether 
the product contains any recovered material, in addition to biobased 
ingredients, and performance standards against which the product has 
been tested. This information will assist Federal agencies in 
determining whether a qualifying biobased product overlaps with the 
EPA's CPG-designated Vehicular Products: Re-Refined Lubricating Oil and 
which product should be afforded the preference in purchasing.
    Note 1 to Paragraph (d): Transmission fluids within this designated 
product category can compete with similar transmission fluids with 
recycled content. Under the Resource Conservation and Recovery Act of 
1976, section 6002, the U.S. Environmental Protection Agency CPG-
designated product categories Vehicular Products: Re-Refined Lubricating 
Oil containing recovered materials as products for which Federal 
agencies must give preference in their purchasing programs. The 
designation can be found in the Comprehensive Procurement Guideline, 40 
CFR 247.11.

[84 FR 32021, July 5, 2019]



Sec. 3201.149  Wall coverings.

    (a) Definition. Wall coverings are materials that are applied to 
walls using an adhesive. This category includes, but is not limited to, 
wallpaper, vinyl wall coverings, and wall fabrics. This category 
excludes all types of paints or coatings.
    (b) Minimum biobased content. The Federal preferred procurement 
product must have a minimum biobased content of at least 62 percent, 
which shall be based on the amount of qualifying biobased carbon in the 
product as a percent of the total organic carbon in the finished 
product.
    (c) Preference compliance date. No later than July 6, 2020, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased wall coverings. By that 
date, Federal agencies responsible for drafting or reviewing 
specifications for products to be procured shall ensure that the 
relevant specifications require the use of biobased wall coverings.

[84 FR 32021, July 5, 2019]



PART 3202_VOLUNTARY LABELING PROGRAM FOR BIOBASED PRODUCTS--Table of Contents



Sec.
3202.1 Purpose and scope.
3202.2 Definitions.
3202.3 Applicability.
3202.4 Criteria for product eligibility to use the certification mark.
3202.5 Initial approval process.
3202.6 Appeal processes.
3202.7 Requirement associated with the certification mark.
3202.8 Violations.
3202.9 Recordkeeping requirements.
3202.10 Oversight and monitoring.

    Authority: 7 U.S.C. 8102.

    Source: 76 FR 3806, Jan. 20, 2011, unless otherwise noted. 
Redesignated at 76 FR 53632, Aug. 29, 2011.



Sec. 3202.1  Purpose and scope.

    The purpose of this part is to set forth the terms and conditions 
for voluntary use of the ``USDA Certified Biobased Product'' 
certification mark. This part establishes the criteria that biobased 
products must meet in order to be eligible to become certified biobased 
products to which the ``USDA Certified Biobased Product'' mark can be 
affixed, the process manufacturers and vendors must use to obtain and 
maintain USDA certification, and the recordkeeping requirements for 
manufacturers and vendors who obtain certification. In addition, this 
part establishes specifications for the correct and incorrect uses of 
the certification mark, which apply to manufacturers, vendors, and other 
entities. Finally, this part establishes actions that constitute 
voluntary labeling program violations.



Sec. 3202.2  Definitions.

    Applicable minimum biobased content. The biobased content at or 
above the level set by USDA to qualify for use of the certification 
mark.
    ASTM International (ASTM). American Society for Testing and 
Materials is a nonprofit organization that provides an international 
forum for the development and publication of voluntary consensus 
standards for materials, products, systems, and services.
    Biobased content. The amount of biobased carbon in the material or

[[Page 156]]

product expressed as a percent of weight (mass) of the total organic 
carbon in the material or product. For BioPreferred Products (products 
that have been identified for Federal preferred procurement), the 
biobased content shall be defined and determined as specified in the 
applicable section of subpart B of part 3201. For all other products, 
the biobased content is to be determined using ASTM Method D6866, 
Standard Test Methods for Determining the Biobased Content of Solid, 
Liquid, and Gaseous Samples Using Radiocarbon Analysis.
    Biobased product. (1) A product determined by USDA to be a 
commercial or industrial product (other than food or feed) that is:
    (i) Composed, in whole or in significant part, of biological 
products, including renewable domestic agricultural materials and 
forestry materials; or
    (ii) An intermediate ingredient or feedstock.
    (2) The term ``biobased product'' includes, with respect to forestry 
materials, forest products that meet biobased content requirements, 
notwithstanding the market share the product holds, the age of the 
product, or whether the market for the product is new or emerging.
    Certification mark. A combination of the certification mark artwork 
(as defined in this subpart); one of three statements identifying 
whether the USDA certification applies to the product, the package, or 
both the product and package; and, where applicable, the letters ``FP'' 
to indicate that the product is within a designated product category and 
eligible for Federal preferred procurement. The certification mark is 
owned, and its use is managed by, USDA (standard trademark law 
definition applies).
    Certification mark artwork. The distinctive image, as shown in 
Figures 1-3, that identifies products as USDA Certified.

[[Page 157]]

[GRAPHIC] [TIFF OMITTED] TR15JN15.000

    Certified biobased product. A biobased product for which the 
manufacturer or vendor of the product has received approval from USDA to 
affix to the product the ``USDA Certified Biobased Product'' 
certification mark.
    Days. As used in this part means calendar days.

[[Page 158]]

    Designated product category. A generic grouping of biobased 
products, including those final products made from designated 
intermediate ingredients or feedstocks, or complex assemblies identified 
in subpart B of 7 CFR part 3201, that is eligible for the procurement 
preference established under section 9002 of FSRIA.
    Designated representative. An entity authorized by a manufacturer or 
vendor to affix the USDA certification mark to the manufacturer's or 
vendor's certified biobased product or its packaging.
    Forest product. A product made from materials derived from the 
practice of forestry or the management of growing timber. The term 
``forest product'' includes:
    (1) Pulp, paper, paperboard, pellets, lumber, and other wood 
products; and
    (2) Any recycled products derived from forest materials.
    Intermediate ingredient or feedstock. A material or compound made in 
whole or in significant part from biological products, including 
renewable agricultural materials (including plant, animal, and marine 
materials) or forestry materials that have undergone value added 
processing (including thermal, chemical, biological, or a significant 
amount of mechanical processing), excluding harvesting operations, 
offered for sale by a manufacturer or vendor and that is subsequently 
used to make a more complex compound or product.
    ISO. The International Organization for Standardization, a network 
of national standards institutes working in partnership with 
international organizations, governments, industries, business, and 
consumer representatives.
    ISO 9001 conformant. An entity that meets all of the requirements of 
the ISO 9001 standard, but that is not required to be ISO 9001 
certified. ISO 9001 refers to the International Organization for 
Standardization's standards and guidelines relating to ``quality 
management'' systems. ``Quality management'' is defined as what the 
manufacturer does to ensure that its products or services satisfy the 
customer's quality requirements and comply with any regulations 
applicable to those products or services.
    Manufacturer. An entity that performs the necessary chemical and/or 
mechanical processes to make a final marketable product.
    Other entity. Any person, group, public or private organization, or 
business other than USDA, or manufacturers or vendors of biobased 
products that may wish to use the ``USDA Certified Biobased Product'' 
certification mark in informational or promotional material related to a 
certified biobased product.
    Program Manager. The manager of the BioPreferred Program.
    Qualified biobased product. A product that is eligible for federal 
preferred procurement because it meets the definition and minimum 
biobased content criteria for one or more designated product categories, 
or one or more designated intermediate ingredient or feedstock 
categories, as specified in subpart B of 7 CFR part 3201.
    Renewable chemical. A monomer, polymer, plastic, formulated product, 
or chemical substance produced from renewable biomass.
    USDA. The United States Department of Agriculture.
    Vendor. An entity that offers for sale final marketable biobased 
products that are produced by manufacturers.

[76 FR 3806, Jan. 20, 2011. Redesignated and amended at 76 FR 53632, 
Aug. 29, 2011; 80 FR 34036, June 15, 2015]



Sec. 3202.3  Applicability.

    (a) Manufacturers, vendors, and designated representatives. The 
requirements in this part apply to all manufacturers and vendors, and 
their designated representatives, who wish to participate in the USDA 
voluntary labeling program for biobased products. Manufacturers and 
vendors wishing to participate in the voluntary labeling program are 
required to obtain and maintain product certification.
    (b) Other entities. The requirements in this part apply to other 
entities who wish to use the certification mark in promoting the sales 
or the public awareness of certified biobased products.

[[Page 159]]



Sec. 3202.4  Criteria for product eligibility to use the certification mark.

    A product must meet each of the criteria specified in paragraphs (a) 
through (c) of this section in order to be eligible to receive biobased 
product certification.
    A product must meet each of the criteria specified in paragraphs (a) 
and (b) of this section in order to be eligible to receive biobased 
product certification.
    (a) Biobased product. The product for which certification is sought 
must be a biobased product as defined in Sec. 3202.2 of this part.
    (b) Minimum biobased content. The biobased content of the product 
must be equal to or greater than the applicable minimum biobased 
content, as described in paragraphs (b)(1) through (b)(4) of this 
section.
    (1) Qualified Biobased Products--(i) Product is within a single 
product category. If the product is within a single product category 
that, at the time the application for certification is submitted, has 
been designated by USDA for Federal preferred procurement, the 
applicable minimum biobased content is the minimum biobased content 
specified for the item as found in subpart B of 7 CFR part 3201.
    (ii) Product is within multiple product categories. If a biobased 
product is marketed within more than one product category identified for 
preferred Federal purchasing, uses the same packaging for each product, 
and the applicant seeks certification of the product, the product's 
biobased content must meet or exceed the specified minimum biobased 
content for each of the applicable product categories in order to use 
the certification mark on the product. However, if the manufacturer 
packages the product differently for each product category, then the 
applicable minimum biobased contents are those established under 
paragraph (b)(1)(i) of this section for each product category for which 
the applicant seeks to use the certification mark.
    (2) Finished biobased products that are not Qualified Biobased 
Products. (i) If the product is not an intermediate ingredient or 
feedstock, and is not within a product category eligible for Federal 
preferred procurement at the time the application for certification is 
submitted, the applicable minimum biobased content is 25 percent. 
Manufacturers, vendors, groups of manufacturers and/or vendors, and 
trade associations may propose an alternative applicable minimum 
biobased content for the product by developing, in consultation with 
USDA, and conducting an analysis to support the proposed alternative 
applicable minimum biobased content. If approved by USDA, the proposed 
alternative applicable minimum biobased content would become the 
applicable minimum biobased content for the product to be labeled.
    (ii) If a product certified under paragraph (b)(2)(i) of this 
section is within a product category that USDA subsequently designates 
for Federal preferred procurement, the applicable minimum biobased 
content shall become, as of the effective date of the final designation 
rule, the minimum biobased content specified for the item as found in 
subpart B of 7 CFR part 3201.
    (3) Products that are intermediate ingredients or feedstocks. (i) If 
the product is an intermediate ingredient or feedstock that is not 
eligible for Federal preferred procurement at the time the application 
for certification is submitted, the applicable minimum biobased content 
is 25 percent. Manufacturers, vendors, groups of manufacturers and/or 
vendors, and trade associations may propose an alternative applicable 
minimum biobased content for the product by developing, in consultation 
with USDA, and conducting an analysis to support the proposed 
alternative applicable minimum biobased content. If approved by USDA, 
the proposed alternative applicable minimum biobased content would 
become the applicable minimum biobased content for the intermediate 
ingredient or feedstock product to be labeled.
    (ii) If a product certified under paragraph (b)(3)(i) of this 
section is within a category that USDA subsequently designates for 
Federal preferred procurement, the applicable minimum biobased content 
shall become, as of the effective date of the final designation rule, 
the minimum biobased content specified for the item as found in subpart 
B of 7 CFR part 3201.

[[Page 160]]

    (4) Finished products that are complex assemblies. (i) If the 
product is a complex assembly, as defined in subpart A of 7 CFR part 
3201, that is not eligible for federal preferred procurement at the time 
the application for certification is submitted, the applicable minimum 
biobased content is 25 percent. The biobased content shall be determined 
using the procedures specified in Sec. 3201.7(c)(3) of this chapter. 
Manufacturers, vendors, groups of manufacturers and/or vendors, and 
trade associations may propose an alternative applicable minimum 
biobased content for the product by developing, in consultation with 
USDA, and conducting an analysis to support the proposed alternative 
applicable minimum biobased content. If approved by USDA, the proposed 
alternative applicable minimum biobased content would become the 
applicable minimum biobased content for the complex assembly to be 
labeled.
    (ii) If a product certified under paragraph (b)(4)(i) of this 
section is within a category that USDA subsequently designates for 
federal preferred procurement, the applicable minimum biobased content 
shall become, as of the effective date of the final designation rule, 
the minimum biobased content specified for the item as found in subpart 
B of 7 CFR part 3201.
    (c) Innovative approach. In determining eligibility for 
certification under the BioPreferred Program, USDA will consider as 
eligible only those products that use innovative approaches in the 
growing, harvesting, sourcing, procuring, processing, manufacturing, or 
application of the biobased product. USDA will consider products that 
meet one or more of the criteria in paragraphs (c)(1) through (4) of 
this section to be eligible for certification. USDA will also consider 
other documentation of innovative approaches in the growing, harvesting, 
sourcing, procuring, processing, manufacturing, or application of 
biobased products on a case by case basis. USDA may deny certification 
for any products whose manufacturers are unable to provide USDA with the 
documentation necessary to verify claims that innovative approaches are 
used in the growing, harvesting, sourcing, procuring, processing, 
manufacturing, or application of their biobased products.
    (1) Product applications. (i) The biobased product or material is 
used or applied in applications that differ from historical 
applications; or
    (ii) The biobased product or material is grown, harvested, 
manufactured, processed, sourced, or applied in other innovative ways; 
or
    (iii) The biobased content of the product or material makes its 
composition different from products or material used for the same 
historical uses or applications.
    (2) Manufacturing and processing. (i) The biobased product or 
material is manufactured or processed using renewable, biomass energy or 
using technology that is demonstrated to increase energy efficiency or 
reduce reliance on fossil-fuel based energy sources; or
    (ii) The biobased product or material is manufactured or processed 
with technologies that ensure high feedstock material recovery and use.
    (3) Environmental Product Declaration. The product has a current 
Environmental Product Declaration as defined by International Standard 
ISO 14025, Environmental Labels and Declarations--Type III Environmental 
Declarations--Principles and Procedures.
    (4) Raw material sourcing. (i) The raw material used in the product 
is sourced from a Legal Source, a Responsible Source, or a Certified 
Source as designated by ASTM D7612--10, Standard Practice for 
Categorizing Wood and Wood-Based Products According to Their Fiber 
Sources; or
    (ii) The raw material used in the product is 100% resourced or 
recycled (such as material obtained from building deconstruction); or
    (iii) The raw material used in the product is from an urban 
environment and is acquired as a result of activities related to a 
natural disaster, land clearing, right-of-way maintenance, tree health 
improvement, or public safety.

[76 FR 3806, Jan. 20, 2011. Redesignated and amended at 76 FR 53632, 
Aug. 29, 2011; 80 FR 34038, June 15, 2015]

[[Page 161]]



Sec. 3202.5  Initial approval process.

    (a) Application. Manufacturers and vendors seeking USDA approval to 
use the certification mark for an eligible biobased product must submit 
a USDA-approved application for each biobased product. A standardized 
application form and instructions are available on the USDA BioPreferred 
Program Web site (http://www.biopreferred.gov). The contents of an 
acceptable application are as specified in paragraphs (a)(1) through 
(a)(4) of this section.
    (1) General content. The applicant must provide contact information 
and product information including all brand names or other identifying 
information, intended uses of the product, information to document that 
one or more of the innovative approach criteria specified in section 
3202.4(c) has been met, and, if applicable, the corresponding product 
category classification for federal preferred procurement. The applicant 
must also provide a sample of the product to be analyzed by a third-
party, ISO 9001 conformant, testing entity for determination of the 
biobased content. In situations where a new product for which 
certification is sought is composed of the same biobased ingredients and 
has the same biobased content as a product that has already been 
certified, the manufacturer may, in lieu of having the new product 
tested, self-declare the biobased content of the new product by 
referencing the tested biobased content of the original certified 
product. Certification of the original product must have been obtained 
by either the manufacturer of the new product or by the supplier of the 
biobased ingredients used in the new product.
    (2) Certifications. The applicant must certify in the application 
that the product for which use of the certification mark is sought is a 
biobased product as defined in Sec. 3202.2 of this part.
    (3) Commitments. The applicant must sign a statement in the 
application that commits the applicant to submitting to USDA the 
information specified in paragraph (c)(1) through (c)(4) of this 
section, which USDA will post to the USDA BioPreferred Program Web site, 
and to providing USDA with up-to-date information for posting on this 
Web site.
    (4) Application fee. Effective (date to be added after authority to 
collect fee is granted), applicants must submit an application fee of 
$500 with each completed application for certification. Instructions for 
submitting the application fee are available on the USDA BioPreferred 
Program Web site (http://www.biopreferred.gov), along with the 
application form and instructions.
    (b) Evaluation of applications. (1) USDA will evaluate each 
application to determine if it contains the information specified in 
paragraph (a) of this section. If USDA determines that the application 
is not complete, USDA will return the application to the applicant with 
an explanation of its deficiencies. Once the deficiencies have been 
addressed, the applicant may resubmit the application, along with a 
cover letter explaining the changes made, for re-evaluation by USDA. 
USDA will evaluate resubmitted applications separately from first-time 
applications, and those with the earliest original application submittal 
date will be given first priority.
    (2)(i) USDA will evaluate each complete application to determine 
compliance with the criteria specified in Sec. 3202.4. USDA will 
provide a written response to each applicant within 60 days after the 
receipt of a complete application, informing the applicant of whether 
the application has been conditionally approved or has been disapproved.
    (ii) For those applications that are conditionally approved, a 
notice of certification, as specified in paragraph (c) of this section, 
must be issued before the use of the certification mark can begin.
    (iii) For those applications that are disapproved, USDA will issue a 
notice of denial of certification and will inform the applicant in 
writing of each criterion not met. Applicants who receive a notice of 
denial of certification may appeal using the procedures specified in 
Sec. 3202.6.
    (c) Notice of certification. After notification that its application 
has been conditionally approved, the applicant must provide to USDA (for 
posting by

[[Page 162]]

USDA on the USDA BioPreferred Program Web site) the information 
specified in paragraphs (c)(1) through (c)(4) of this section. Once USDA 
confirms that the information is received and complete, USDA will issue 
a notice of certification to the applicant. Upon receipt of a notice of 
certification, the applicant may begin using the certification mark on 
the certified biobased product. Paragraph (c)(5) of this section 
presents the procedures for revising the information provided under 
paragraphs (c)(1) through (4) of this section after a notice of 
certification has been issued.
    (1) The product's brand name(s), or other identifying information.
    (2) Contact information, including the name, mailing address, email 
address, and telephone number of the applicant.
    (3) The biobased content of the product.
    (4) A hot link directly to the applicant's Web site (if available).
    (5) If at any time, during the application process or after a 
product has been certified, any of the information specified in 
paragraphs (c)(1) through (4) of this section changes, the applicant 
must notify USDA of the change within 30 days. Such notification must be 
provided in writing to USDA.
    (d) Term of certification. (1) The effective date of certification 
is the date on which the applicant receives a notice of certification 
from USDA. Except as specified in paragraphs (d)(2)(i) through (d)(2)(v) 
of this section, certifications will remain in effect as long as the 
product is manufactured and marketed in accordance with the approved 
application and the requirements of this subpart.
    (2)(i) If the product formulation of a certified product is changed 
such that the biobased content of the product is reduced to a level 
below that reported in the approved application, the existing 
certification will not be valid for the product under the revised 
conditions and the manufacturer or vendor, as applicable, and its 
designated representatives must discontinue affixing the certification 
mark to the product and must not initiate any further advertising of the 
product using the certification mark. USDA will consider a product under 
such revised conditions to be a reformulated product, and the 
manufacturer or vendor, as applicable, must submit a new application for 
certification using the procedures specified in paragraph (a) of this 
section.
    (ii) If the product formulation of a certified product is changed 
such that the biobased content of the product is increased from the 
level reported in the approved application, the existing certification 
will continue to be valid for the product.
    (iii) If the applicable required minimum biobased content for a 
product to be eligible to display the certification mark is revised by 
USDA, manufacturers and vendors may continue to label their previously 
certified product only if it meets the new minimum biobased content 
level. In those cases where the biobased content of a certified product 
fails to meet the new minimum biobased content level, USDA will notify 
the manufacturer or vendor that their certification is no longer valid. 
Such manufacturers and vendors must increase the biobased content of 
their product to a level at or above the new minimum biobased content 
level and must re-apply for certification within 60 days if they wish to 
continue to use the certification mark. Manufacturers and vendors who 
have re-applied for certification may continue using the existing 
certification mark until they receive notification from USDA on the 
results of their re-application for certification.
    (iv) All certifications are subject to USDA periodic auditing 
activities, as described in Sec. 3202.10(d). If a manufacturer or 
vendor of a certified biobased product fails to participate in such 
audit activities or if such audit activities reveal biobased content 
violations, as specified in Sec. 3202.8(b)(1), the certification will 
be subject to suspension and revocation according to the procedures 
specified in Sec. 3202.8(c).
    (v) If USDA discovers that a certification has been issued for an 
ineligible biobased product as a result of errors on the part of USDA 
during the approval process, USDA will notify the product's manufacturer 
or vendor in

[[Page 163]]

writing that the certification is revoked effective 30 days from the 
date of the notice.

[76 FR 3806, Jan. 20, 2011. Redesignated and amended at 76 FR 53632, 
Aug. 29, 2011; 80 FR 34038, June 15, 2015]



Sec. 3202.6  Appeal processes.

    An applicant for certification may appeal a notice of denial of 
certification to the Program Manager. Entities that have received a 
notice of violation, and manufacturers and vendors of certified biobased 
products who have received a notice of suspension or revocation, may 
appeal to the Program Manager.
    (a)(1) Appeals to the Program Manager must be filed within 30 days 
of receipt by the appellant of a notice of denial of certification, a 
notice of violation, a notice of suspension, or a notice of revocation. 
Appeals must be filed in writing and addressed to: Program Manager, USDA 
Voluntary Labeling Program for Biobased Products, Room 361, Reporters 
Building, 300 Seventh Street, SW., Washington, DC 20024.
    (2) All appeals must include a copy of the adverse decision and a 
statement of the appellant's reasons for believing that the decision was 
not made in accordance with applicable program regulations, policies, or 
procedures, or otherwise was not proper.
    (b)(1) If the Program Manager sustains an applicant's appeal of a 
notice of denial of certification, USDA will issue a notice of 
certification to the applicant for its biobased product.
    (2) If the Program Manager sustains a manufacturer's or vendor's 
appeal of a notice of violation, USDA will rescind the notice and no 
further action will be taken by USDA.
    (3) If the Program Manager sustains a manufacturer's or vendor's 
appeal of a notice of suspension, the manufacturer, vendor, and their 
designated representative(s) may immediately resume affixing the 
certification mark to the certified biobased product and USDA will 
reinstate the product's information to the USDA BioPreferred Program Web 
site.
    (4) If the Program Manager sustains a manufacturer's or vendor's 
appeal of a notice of revocation, the manufacturer or vendor, and its 
designated representatives may immediately resume affixing the 
certification mark to the certified biobased product and sell and 
distribute the certified biobased product with the certification mark. 
In addition, USDA will reinstate the product's information to the USDA 
BioPreferred Program Web site.
    (c) If the Program Manager sustains a manufacturer's or vendor's 
appeal of its product's exclusion from the program, the manufacturers or 
vendors may then apply for certification to use the certification mark 
on that product, as specified in Sec. 3202.5(a) of this part.
    (d) Appeals of any of the Program Manager's decisions may be made to 
the USDA Assistant Secretary for Administration. Appeals must be made, 
in writing, within 30 days of receipt of the Program Manager's decision 
and addressed to: Assistant Secretary for Administration, Room 209A, 
Whitten Building, 1400 Independence Avenue, SW., Washington, DC 20250-
0103. If the Assistant Secretary for Administration sustains an appeal, 
the provisions of paragraph (b) of this section will apply.

[76 FR 3806, Jan. 20, 2011. Redesignated and amended at 76 FR 53632, 
Aug. 29, 2011]



Sec. 3202.7  Requirements associated with the certification mark.

    (a) Who may use the certification mark? (1) Manufacturers and 
vendors. Only manufacturers and vendors who have received a notice of 
certification, or designated representatives of the manufacturer or 
vendor, may affix the official certification mark (in one of the three 
variations, as applicable) to the product or its packaging. A 
manufacturer or vendor who has received a notice of certification for a 
product under this part:
    (i) May use the certification mark on the product, its packaging, 
and other related materials including, but not limited to, 
advertisements, catalogs, specification sheets, procurement databases, 
promotional material, Web sites, or user manuals for that product, 
according to the requirements set forth in this section; and
    (ii) Is responsible for the manner in which the mark is used by its 
companies, as well as its designated representatives, including 
advertising

[[Page 164]]

agencies, marketing and public relations firms and subcontractors.
    (2) Other entities. (i) Other entities may use the mark to advertise 
or promote certified biobased products in materials including, but not 
limited to, advertisements, catalogs, procurement databases, Web sites, 
and promotional and educational materials, as long as the manufacturer 
or vendor of the product, or one of their designated representatives, 
has affixed the mark to the product or its packaging.
    (ii) Other entities may use the certification mark; the phrase 
``USDA Certified Biobased Product/Package/Product & Package,'' as 
applicable; and the BioPreferred Program name in general statements as 
described in paragraph (b) of this section, as long as the statements do 
not imply that a non-certified biobased product is certified.
    (b) Correct usage of the certification mark. (1) The certification 
mark can be affixed only to certified biobased products and their 
associated packaging.
    (2) The certification mark may be used in material including, but 
not limited to, advertisements, catalogs, procurement databases, Web 
sites, and promotional and educational materials to distinguish products 
that are certified for use of the label from those that are not 
certified. The certification mark may be used in advertisements for both 
certified biobased products and non-certified/labeled products if the 
advertisement clearly indicates which products are certified/labeled. 
Care must be taken to avoid implying that any non-certified products are 
certified.
    (3) The certification mark may be used without reference to a 
specific certified biobased product only when informing the public about 
the purpose of the certification mark. For example, the following or 
similar claim is acceptable: ``Look for the `USDA Certified Biobased 
Product' certification mark. It means that the product meets USDA 
standards for the amount of biobased content and the manufacturer or 
vendor has provided relevant information on the product to be posted on 
the USDA BioPreferred Program Web site.'' This exception allows 
manufacturers, vendors, and other entities to use the certification mark 
in documents such as corporate reports, but only in an informative 
manner, not as a statement of product certification.
    (4) The certification mark may appear next to a picture of the 
product(s) or text describing it.
    (5) The certification mark must stand alone and not be incorporated 
into any other certification mark or logo designs.
    (6) The certification mark may be used as a watermark provided the 
use does not violate any usage restrictions specified in this part.
    (7) The text portion of the certification mark must be written in 
English and may not be translated, even when the certification mark is 
used outside of the United States.
    (c) Incorrect usage of the certification mark. (1) The certification 
mark shall not be used on any product that has not been certified by 
USDA as a ``USDA Certified Biobased Product.''
    (2) The certification mark shall not be used on any advertisements 
or informational materials where both certified biobased products and 
non-certified products are shown unless it is clear that the 
certification mark applies to only the certified biobased product(s).
    (3) The certification mark shall not be used to imply endorsement by 
USDA or the BioPreferred Program of any particular product, service, or 
company.
    (4) The certification mark shall not be used in any form that could 
be misleading to the consumer.
    (5) The certification mark shall not be used by manufacturers or 
vendors of certified products in a manner disparaging to USDA or any 
other government body.
    (6) The certification mark shall not be used with an altered 
certification mark or incorporated into other label or logo designs.
    (7) The certification mark shall not be used on business cards, 
company letterhead, or company stationery.
    (8) The certification mark shall not be used in, or as part of, any 
company name, logo, product name, service, or Web site, except as may be 
provided for in this part.
    (9) The certification mark shall not be used in a manner that 
violates any

[[Page 165]]

of the applicable requirements contained in this part.
    (d) Imported products. The certification mark can be used only with 
a product that is certified by USDA under this part. The certification 
mark cannot be used to imply that a product meets or exceeds the 
requirements of biobased programs in other countries. Products imported 
for sale in the U.S. must adhere to the same guidelines as U.S.-sourced 
biobased products. Any product sold in the U.S. as a ``USDA Certified 
Biobased Product/Package/Product & Package'' must have received 
certification from USDA.
    (e) Contents of the certification mark. The certification mark shall 
consist of the certification mark artwork, the biobased content 
percentage, and one of the three variations of text specified in 
paragraphs (e)(1) through (e)(3) of this section, as applicable.
    (1) USDA Certified Biobased Product.
    (2) USDA Certified Biobased Product: Package.
    (3) USDA Certified Biobased Product & Package.
    (f) Physical aspects of the certification mark. The certification 
mark artwork may not be altered, cut, separated into components, or 
distorted in appearance or perspective. Certification marks that are 
applied to biobased products that have been designated for preferred 
Federal procurement will include the letters ``FP'' as part of the 
certification mark artwork. The certification mark must appear only in 
the colors specified in paragraphs (f)(1) through (f)(3) of this 
section, unless approval is given by USDA for an exception.
    (1) A multi-color version of the certification mark is preferred. 
The certification mark colors to be applied will be stipulated in the 
``Marketing Guides'' document available on the USDA BioPreferred Program 
Web site (http://www.biopreferred.gov).
    (2) A one-color version of the certification mark may be substituted 
for the multi-color version as long as the one color used is one of the 
multi-color choices reapplied without modification. Further guidance on 
the one-color certification mark application will also be detailed in 
the ``Marketing Guides.''
    (3) A black and white version of the certification mark is 
acceptable.
    (g) Placement of the certification mark. (1) The certification mark 
can appear directly on a product, its associated packaging, in user 
manuals, and in other materials including, but not limited to, 
advertisements, catalogs, procurement databases, and promotional and 
educational materials.
    (2) The certification mark shall not be placed in a manner that is 
ambiguous about which product is a certified biobased product or that 
could indicate certification of a non-certified product.
    (3) When used to distinguish a certified biobased product in 
material including, but not limited to, advertisements, catalogs, 
procurement databases, Web sites, and promotional and educational 
materials, the certification mark must appear near a picture of the 
product or the text describing it.
    (i) If all products on a page are certified biobased products, the 
certification mark may be placed anywhere on the page.
    (ii) If a page contains a mix of certified biobased products and 
non-certified products, the certification mark shall be placed in close 
proximity to the certified biobased products. An individual 
certification mark near each certified biobased product may be necessary 
to avoid confusion.
    (h) Minimum size and clear space recommendations for the 
certification mark--(1) The certification mark may be sized to fit the 
individual application as long as the correct proportions are maintained 
and the certification mark remains legible.
    (2) A border of clear space must surround the certification mark and 
must be of sufficient width to offset it from surrounding images and 
text and to avoid confusion. If the certification mark's color is 
similar to the background color of the product or packaging, the 
certification mark in a contrasting (i.e., black, white) color may be 
used.
    (i) Where to obtain copies of the certification mark artwork. The 
certification mark artwork is available at the USDA BioPreferred Program 
Web site http://www.biopreferred.gov.

[[Page 166]]



Sec. 3202.8  Violations.

    This section identifies the types of actions that USDA considers 
violations under this part and the penalties (e.g., the suspension or 
revocation of certification) associated with such violations.
    (a) General. Violations under this section occur on a per product 
basis and the penalties are to be applied on a per product basis. 
Entities cited for a violation under this section may appeal using the 
provisions in Sec. 3202.6. If certification for a product is revoked, 
the manufacturer or vendor whose certification has been revoked may seek 
re-certification for the product using the procedures specified under 
the provisions in Sec. 3202.5.
    (b) Types of violations. Actions that will be considered violations 
of this part include, but are not limited to, the following specific 
examples:
    (1) Biobased content violations. The Program Manager will utilize 
occasional random testing of certified biobased products to compare the 
biobased content of the tested product with the product's applicable 
minimum biobased content and the biobased content reported by the 
manufacturer or vendor in its approved application. Such testing will be 
conducted using ASTM Method D6866. USDA will provide a copy of the 
results of its testing to the applicable manufacturer or vendor.
    (i) If USDA testing shows that the biobased content of a certified 
biobased product is less than its applicable minimum biobased content, 
then a violation of this part will have occurred.
    (ii) If USDA testing shows that the biobased content is less than 
that reported by the manufacturer or vendor in its approved application, 
but is still equal to or greater than its applicable minimum biobased 
content(s), USDA will provide written notification to the manufacturer 
or vendor. The manufacturer or vendor must submit, within 90 days from 
receipt of USDA written notification, a new application for the lower 
biobased content. Failure to submit a new application within 90 days 
will be considered a violation of this part.
    (A) The manufacturer or vendor can submit in the new application the 
biobased content reported to it by USDA in the written notification.
    (B) Alternatively, the manufacturer or vendor may elect to retest 
the product in question and submit the results of the retest in the new 
application. If the manufacturer or vendor elects to retest the product, 
it must test a sample of the current product.
    (2) Certification mark violations. (i) Any usage or display of the 
certification mark that does not conform to the requirements specified 
in Sec. 3202.7.
    (ii) Affixing the certification mark to any product prior to 
issuance of a notice of certification from USDA.
    (iii) Affixing the certification mark to a certified biobased 
product during periods when certification has been suspended or revoked.
    (3) Application violations. Knowingly providing false or misleading 
information in any application for certification of a biobased product 
constitutes a violation of this part.
    (4) USDA BioPreferred Program Web site violations. Failure to 
provide to USDA updated information when the information for a certified 
biobased product becomes outdated or when new information for a 
certified biobased product becomes available constitutes a violation of 
this part.
    (c) Notice of violations and associated actions. USDA will provide 
the applicable manufacturer or vendor or their designated 
representatives and any involved other entity known to USDA written 
notification of any violations identified by USDA. USDA will first issue 
a preliminary notice that apparent violations have been identified. If 
satisfactory resolution of the apparent violation is not reached within 
30 days from receipt of the preliminary notice, USDA will issue a notice 
of violation. Entities who receive a notice of violation for a biobased 
content violation must correct the violation(s) within 90 days from 
receipt of the notice of violation. Entities who receive a notice of 
violation for other types of violations also must correct the 
violation(s) within 90 days from receipt of the notice of violation. If 
the entity receiving a notice of violation is a manufacturer, a vendor, 
or a designated representative of a manufacturer or vendor, USDA will 
pursue notices of suspensions and

[[Page 167]]

revocation, as discussed in paragraphs (c)(1) and (c)(2) of this 
section. USDA reserves the right to further pursue action against these 
entities as provided for in paragraph (c)(3) of this section. If the 
entity receiving a notice of violation is an ``other entity'' (i.e., not 
a manufacturer, vendor, or designated representative), then USDA will 
pursue action according to paragraph (c)(3) of this section. Entities 
that receive notices of suspension or revocation may appeal such notices 
using the procedures specified in Sec. 3202.6.
    (1) Suspension. (i) If a violation is applicable to a manufacturer, 
vendor, or designated representative and the applicable entity fails to 
make the required corrections within 90 days of receipt of a notice of 
violation, USDA will notify the manufacturer or vendor, as appropriate, 
of the continuing violation, and the USDA certification for that product 
will be suspended. As of the date that the manufacturer or vendor 
receives a notice of suspension, the manufacturer or vendor and their 
designated representatives must not affix the certification mark to any 
of that product, or associated packaging, not already labeled and must 
not distribute any additional products bearing the certification mark. 
USDA will both remove the product information from the USDA BioPreferred 
Program Web site and actively communicate the product suspension to 
buyers in a timely and overt manner.
    (ii) If, within 30 days from receipt of the notice of suspension, 
the manufacturer or vendor whose USDA product certification has been 
suspended makes the required corrections and notifies USDA that the 
corrections have been made, the manufacturer or vendor and their 
designated representatives may, upon receipt of USDA approval of the 
corrections, resume use of the certification mark. USDA will also 
restore the product information to the USDA BioPreferred Program Web 
site.
    (2) Revocation. (i) If a manufacturer or vendor whose USDA product 
certification has been suspended fails to make the required corrections 
and notify USDA of the corrections within 30 days of the date of the 
suspension, USDA will notify the manufacturer or vendor that the 
certification for that product is revoked.
    (ii) As of the date that the manufacturer or vendor receives the 
notice revoking USDA certification, the manufacturer or vendor and their 
designated representatives must not affix the certification mark to any 
of that product not already labeled. In addition, the manufacturer or 
vendor and their designated representatives are prohibited from further 
sales of product to which the certification mark is affixed.
    (iii) If a manufacturer or vendor whose product certification has 
been revoked wishes to use the certification mark, the manufacturer or 
vendor must follow the procedures required for original certification.
    (3) Other remedies. In addition to the suspension or revocation of 
the certification to use the label, depending on the nature of the 
violation, USDA may pursue suspension or debarment of the entities 
involved in accordance with 2 CFR part 417 and 48 CFR subpart 9.4. USDA 
further reserves the right to pursue any other remedies available by 
law, including any civil or criminal remedies, against any entity that 
violates the provisions of this part.

[76 FR 3806, Jan. 20, 2011. Redesignated and amended at 76 FR 53632, 
Aug. 29, 2011; 80 FR 34039, June 15, 2015]



Sec. 3202.9  Recordkeeping requirements.

    (a) Records. Manufacturers and vendors shall maintain records 
documenting compliance with this part for each product that has received 
certification to use the label, as specified in paragraphs (a)(1) 
through (a)(3) of this section.
    (1) The results of all tests, and any associated calculations, 
performed to determine the biobased content of the product.
    (2) The date the applicant receives certification from USDA, the 
dates of changes in formulation that affect the biobased content of 
certified biobased products, and the dates when the biobased content of 
certified biobased products was tested.
    (3) Documentation of analyses performed by manufacturers to support 
claims of environmental or human

[[Page 168]]

health benefits, life cycle cost, sustainability benefits, and product 
performance made by the manufacturer.
    (b) Record retention. For each certified biobased product, records 
kept under paragraph (a) of this section must be maintained for at least 
three years beyond the end of the label certification period (i.e., 
three years beyond the period of time when manufacturers and vendors 
cease using the certification mark). Records may be kept in either 
electronic format or hard copy format. All records kept in electronic 
format must be readily accessible, and/or provided by request during a 
USDA audit.



Sec. 3202.10  Oversight and monitoring.

    (a) General. USDA will conduct oversight and monitoring of 
manufacturers, vendors, designated representatives, and other entities 
involved with the voluntary product labeling program to ensure 
compliance with this part. This oversight will include, but not be 
limited to, conducting facility visits of manufacturers and vendors who 
have certified biobased products, and of their designated 
representatives. Manufacturers, vendors, and their designated 
representatives are required to cooperate fully with all USDA audit 
efforts for the enforcement of the voluntary labeling program.
    (b) Biobased content testing. USDA will conduct biobased content 
testing of certified biobased products, as described in Sec. 
3202.8(b)(1) to ensure compliance with this part.
    (c) Inspection of records. Manufacturers, vendors, and their 
designated representatives must allow Federal representatives access to 
the records required under Sec. 3202.9 for inspection and copying 
during normal Federal business hours.
    (d) Audits. USDA expects to conduct audits of the voluntary labeling 
program on an ongoing basis with audit activities conducted every other 
calendar year (bi-annually). Audit activities will include three stages 
and will be conducted in sequential order as follows:
    (1) Stage 1 auditing includes contacting all participants via email 
and requesting that they complete a ``Declaration of Conformance Form.'' 
Program participants are asked to confirm that they still manufacture 
the product and that the formulation and manufacturing processes remain 
the same. Participants are also asked to list all active products and 
advise the USDA of any complaints regarding the claim of the biobased 
content. The first Stage 1 auditing activity was completed in 2012 and 
the second Stage 1 audit will be conducted in 2018.
    (2) Stage 2 auditing consists of a random sampling of certified 
products to confirm the accuracy of biobased content percentages 
claimed. The participants whose products are selected will be required 
to submit product samples to be tested by independent testing labs at 
USDA expense. The first Stage 2 auditing activity began in 2014 and is 
scheduled to be completed during 2015 and the second Stage 2 audit will 
be conducted in 2020.
    (3) Stage 3 auditing requires manufacturers of products that have 
been certified for 5 years or more to have their products re-tested at 
their expense to confirm that the biobased content remains at or above 
the level at which the product was originally certified. The first Stage 
3 auditing activity is scheduled to be completed during 2016 and the 
second Stage 3 audit will be conducted in 2022.

[76 FR 3806, Jan. 20, 2011. Redesignated and amended at 76 FR 53632, 
Aug. 29, 2011; 80 FR 34039, June 15, 2015]



PART 3203_GUIDELINES FOR THE TRANSFER OF EXCESS COMPUTERS OR OTHER TECHNICAL EQUIPMENT PURSUANT TO SECTION 14220 OF THE 2008 FARM BILL--Table of Contents



Sec.
3203.1 Purpose.
3203.2 Eligibility.
3203.3 Definitions.
3203.4 Procedures.
3203.5 Dollar limitation.
3203.6 Restrictions.
3203.7 Title.
3203.8 Costs.
3203.9 Accountability and recordkeeping.
3203.10 Disposal.
3203.11 Liabilities and losses.

    Authority: 7 U.S.C. 2206b.

[[Page 169]]


    Source: 77 FR 26661, May 7, 2012, unless otherwise noted.



Sec. 3203.1  Purpose.

    This part sets forth the procedures to be utilized by USDA when 
transferring excess USDA computers or other technical equipment to an 
organization for the purposes of distribution to a city, town, or local 
government entity in a rural area as authorized by 7 U.S.C. 2206b.



Sec. 3203.2  Eligibility.

    To be eligible under this part:
    (a) A city, town, or local government entity must be located in a 
rural area as defined in 7 U.S.C. 1991(a)(13)(A).
    (b) A designated organization must:
    (1) Have the documented capability to refurbish and distribute 
excess computers or other technical equipment;
    (2) Serve the interest of cities, towns, or local government 
entities in rural areas; and
    (3) Have been designated by an official of a city, town, or local 
government entity in a rural area to receive excess computers or other 
technical equipment under this part.



Sec. 3203.3  Definitions.

    Cannibalization means to remove serviceable parts from one item of 
equipment in order to install them on another item of equipment in order 
to repair or enhance its operability.
    City, town, or local government entity in a rural area as defined in 
7 U.S.C. 1991(a)(13)(A) means any area other than:
    (1) A city or town that has a population of greater than 50,000 
inhabitants; and
    (2) Any urbanized area contiguous and adjacent to such a city or 
town described in paragraph (1) of this definition.
    Computers or other technical equipment means central processing 
units, laptops, desktops, computer mouses, keyboards, monitors, related 
peripheral tools (e.g., printers, modems, routers, servers, multimedia 
projectors, multifunctional devices, external hard drives) and fax 
machines. This term may also include computer software where the 
transfer of a license is permitted.
    Designated organization means an organization that has been selected 
by an official of a city, town, or local government entity in a rural 
area to provide refurbishing services on donated computer and technical 
equipment.
    Excess means any property under the control of a USDA agency that is 
no longer required for that agency's or another USDA agency's needs, as 
determined by the agency head or designee.
    Property Management Officer (PMO) is an eligible recipient's 
designated point of contact, responsible for adherence to procedures 
described in this part.
    Recipient means a city, town, or local government entity located in 
a rural area as defined in 7 U.S.C. 1991(a)(13)(A) that may receive 
excess computers or other technical equipment under this part.
    Refurbish means to make `like new' by the process of major 
maintenance or minor repair of an item, either aesthetically or 
mechanically.



Sec. 3203.4  Procedures.

    (a) Each agency head will designate, in writing, an authorized 
official to approve transfers of excess computers or other technical 
equipment under this part consistent with the Department's policies on 
personal property management.
    (b) Excess computers or other technical equipment must first be 
internally screened to ensure it is not needed elsewhere in the 
Department.
    (c) To receive information concerning the availability of USDA 
excess computers or other technical equipment, an eligible recipient's 
PMO should contact any USDA office near to its location.
    (d) The USDA employee responsible for personal property, at the 
office contacted, will review the request for eligibility of the 
recipient and the availability of excess computers or other technical 
equipment. The USDA employee will inform the requestor of the outcome of 
the review (e.g. eligibility, the availability of excess computers or 
other technical equipment).
    (e) Eligible recipients will express their interest in receiving 
property under this part by submitting a request, on letterhead paper 
(electronic

[[Page 170]]

copy is acceptable), to a USDA authorized official. All requests must 
originate from, and be signed by, a representative of an eligible 
recipient city, town, or local government entity. Requests must include:
    (1) Type of excess computers or other technical equipment requested 
(should include specifications);
    (2) Justification for eligibility (see Sec. 3203.2);
    (3) Contact information of the requestor;
    (4) Logistical information such as when and how the property will be 
picked up; and
    (5) Information on the recipient's designated organization (company 
name, contact person and phone number) that is designated to receive and 
refurbish the property for the eligible recipient along with a copy of 
the agreement between the recipient and its designated organization.
    (f) Excess computers or other technical equipment should be 
inspected before the property is transferred or the USDA agency should 
be contacted to verify the condition of the property.
    (g) If the condition of the property is acceptable, the recipient or 
its designated organization will coordinate with the USDA contact for 
transfer of the property. Since the USDA agency office may have several 
requests for property, it is critical that the recipient or its 
designated organization contact USDA as soon as possible. Property will 
usually be allocated on a first-come, first-served basis, taking into 
account fair and equitable distribution of excess computers or other 
technical equipment to all eligible recipients.
    (h) Transfers will be accomplished using the appropriate USDA 
property transfer form. The transfer form must contain the following 
statement: ``Property listed on this form is being transferred pursuant 
to the provisions in 7 CFR Part 3203.'' The form must be signed by an 
authorized official of the USDA agency and an official of the recipient 
organization.
    (i) A copy of the request that transferred the property must be 
attached to the transfer order and kept in the USDA agency's files.
    (j) When property is transferred to a designated organization, a 
copy of the completed transfer document will be sent to the eligible 
recipient government entity for its records. Eligible recipients are 
responsible for following up with the designated organization they have 
designated for the final receipt of the property.
    (k) In cases where an agency receives competing requests for excess 
computers or other technical equipment, to the extent permitted by law, 
the agency shall give full consideration to such factors as national 
defense requirements, emergency needs, energy conservation, preclusion 
of new procurement, fair and equitable distribution, transportation 
costs, and retention of title in the Government.
    (l) Prior to transferring any property pursuant to this Act, the 
transferring agency must remove data from the excess computers or other 
technical equipment (memory or any kind of data storage device) 
according to accepted sanitization procedures. To the maximum extent 
practicable, the transferring agency must remove data using a means that 
does not remove, disable, destroy, or otherwise render unusable the 
excess computers or other technical equipment or components. It is 
imperative that agencies take the necessary steps to ensure that no 
personal computer, server, external storage device, or related 
electronic component is transferred that might contain sensitive or 
confidential information. See Departmental Manual 3575-001, Security 
Controls in the System Life Cycle/System Development Life Cycle, for 
additional guidance.



Sec. 3203.5  Dollar limitation.

    There is no dollar limitation on excess computers or other technical 
equipment obtained under this part.



Sec. 3203.6  Restrictions.

    (a) Only an authorized USDA official may approve the transfer of 
excess computers or other technical equipment under this part.
    (b) Excess computers or other technical equipment may be transferred 
for the purpose of cannibalization, provided that the requestor submits 
a

[[Page 171]]

statement clearly indicating that cannibalization of the requested 
property will have greater benefit than utilization of the item in its 
existing form. Cannibalization is a secondary use of equipment and, 
therefore, these requests are considered subordinate to requests for 
primary use.
    (c) Designated organizations will only receive property for 
cannibalization when it has been specifically requested by the recipient 
and the cannibalized parts must only be used in computers or other 
technical equipment destined for eligible recipients.



Sec. 3203.7  Title.

    Title of ownership to excess computers or other technical equipment 
transferred under this part shall automatically pass to the recipient 
once the transferring agency and recipient or designated organization 
sign the transfer form indicating that the designated organization has 
received the property.



Sec. 3203.8  Costs.

    The designated organization must pay any costs associated with 
packaging and transportation of the property unless it has made other 
arrangements. The designated organization must remove property from the 
USDA agency's premises within 15 calendar days after being notified that 
the property is available for pickup, unless otherwise coordinated with 
the USDA agency. If the recipient decides prior to picking up or 
removing the property that it no longer wants the property, it must 
notify the USDA agency that approved the transfer request that the 
property is no longer needed.



Sec. 3203.9  Accountability and recordkeeping.

    (a) USDA requires all excess computers or other technical equipment 
received by an eligible recipient pursuant to this part be placed into 
use within one year of receipt of the property and used for at least one 
year thereafter. The recipient's PMO must maintain accountable records 
for such property during this time period.
    (b) GSA requires that all excess personal property given to non-
federal recipients be reported each fiscal year. USDA agencies that 
transfer property under this part must report the transfers in their 
annual reports to OPPM and include both the recipient and organization 
names. OPPM will review the reports for accuracy, as well as fair and 
equitable distribution of the excess computers or other technical 
equipment, before submitting to GSA.



Sec. 3203.10  Disposal.

    When property received under this part is no longer needed by the 
recipient, it must be disposed of in an environmentally sound manner 
that is not detrimental or dangerous to public health or safety and in 
accordance with all Federal, State and local laws.



Sec. 3203.11  Liabilities and losses.

    USDA assumes no liability with respect to accidents, bodily injury, 
illness, or any other damages or loss related to excess computers or 
other technical equipment transferred under this part. The recipient/
designated organization is advised to insure or otherwise protect itself 
and others as appropriate.

                       PARTS 3204	3299 [RESERVED]

[[Page 173]]



   CHAPTER XXXIII--OFFICE OF TRANSPORTATION, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3300            Agreement on the international carriage of 
                    perishable foodstuffs and on the special 
                    equipment to be used for such carriage 
                    (ATP); inspection, testing, and 
                    certification of special equipment......         175
3301-3399

 [Reserved]

[[Page 175]]



PART 3300_AGREEMENT ON THE INTERNATIONAL CARRIAGE OF PERISHABLE FOODSTUFFS
AND ON THE SPECIAL EQUIPMENT TO BE USED FOR SUCH CARRIAGE (ATP); INSPECTION, TESTING, 
AND CERTIFICATION OF SPECIAL EQUIPMENT--Table of Contents



                         Subpart A_Introduction

Sec.
3300.1 Scope of authority and purpose.
3300.4 Definitions.

              Subpart B_Procedures for Testing of Equipment

3300.7 General.
3300.10 Measurement of the K-coefficient of an insulated body.
3300.13 Determination of the efficiency of the thermal appliances as 
          installed in the insulated body.

                 Subpart C_Approval of Testing Stations

3300.16 General.
3300.19 Application for approval.
3300.22 Response to application for approval.
3300.25 Application for renewal of approval.
3300.28 Response to application for renewal of approval.
3300.31 Termination of approval.

 Subpart D_Procedures for Separate Testing of Mechanical Refrigerating 
                               Appliances

3300.34 General.
3300.37 Testing of a mechanical refrigerating appliance.

               Subpart E_Approval of Testing Laboratories

3300.40 General.
3300.43 Application for approval.
3300.46 Response to application for approval.
3300.49 Application for renewal of approval.
3300.52 Response to application for renewal of approval.
3300.55 Termination of approval.

                Subpart F_Certification of New Equipment

3300.58 General.
3300.61 Testing and verification requirements.
3300.64 Application for certificate for new equipment produced or 
          assembled in the United States or in a foreign country which 
          is not a contracting party to the ATP.
3300.67 Application for certificate for new equipment produced or 
          assembled in a foreign country which is a contracting party to 
          the ATP.
3300.70 Issuance of certificate.
3300.73 Period of validity of certificates.

             Subpart G_Certification of Equipment in Service

3300.76 General.
3300.79 Application for certificate.
3300.82 Issuance of certificate.
3300.85 Period of validity of certificates.

                       Subpart H_Other Provisions

3300.88 Fees for U.S. ATP certificates.
3300.91 List of approved testing stations, approved testing 
          laboratories, and fees for certificates.
3300.94 Appeals.

    Authority: Sec. 4, Pub. L. 97-325, International Carriage of 
Perishable Foodstuffs Act (7 U.S.C. 4403).

    Source: 51 FR 33879, Sept. 24, 1986, unless otherwise noted.



                         Subpart A_Introduction



Sec. 3300.1  Scope of authority and purpose.

    The International Carriage of Perishable Foodstuffs Act assigns to 
the Secretary of Agriculture the responsibility for implementation of 
the Agreement on the International Carriage of Perishable Foodstuffs and 
on the Special Equipment to be Used for Such Carriage (ATP). The purpose 
of this rule is to establish procedures for the inspection, testing, and 
certification of insulated, refrigerated, mechanically refrigerated, and 
heated transport equipment in accordance with the Act and the standards 
specified in the Agreement. In the process, the intent is to utilize 
existing industry organizations and facilities for testing and 
inspection of equipment. The Secretary is the sole authority to issue 
certificates of compliance.



Sec. 3300.4  Definitions.

    Administrator means the Administrator, Office of Transportation, 
U.S. Department of Agriculture, whose address is: 1405 Auditors 
Building, 201 14th Street, SW., Washington, DC 20250.

[[Page 176]]

    ATP means the Agreement on the International Carriage of Perishable 
Foodstuffs and on the Special Equipment to be Used for Such Carriage 
(ATP), and the annexes and appendices thereto, done at Geneva, September 
1, 1970, under the auspices of the Economic Commission for Europe, and 
any subsequent amendments thereto. \1\
---------------------------------------------------------------------------

    \1\ A copy of the agreement can be obtained by request to the ATP 
Manager, Office of Transportation, U.S. Department of Agriculture, 1405 
Auditors Building, 201 14th Street, SW., Washington, DC 20250.
---------------------------------------------------------------------------

    ATP manager means the person designated by the Administrator to 
manage the program established by this rule, whose address is: ATP 
Manager, Office of Transportation, U.S Department of Agriculture, 1405 
Auditors Building, 201 14th Street, SW., Washington, DC 20250.
    Contracting party means a country which is signatory to the ATP.
    Domestic owner means an organization incorporated or chartered under 
the laws of, and with principal office in, the United States, and to 
which one of the following applies:
    (a) The organization owns and operates the equipment directly.
    (b) The organization owns and operates the equipment through a 
wholly owned subsidiary in a foreign country.
    (c) The organization is a lessee or bailee of the equipment, and a 
written lease or bailment provides that the organization is responsible 
for any inspection, testing, and certification of the equipment with 
respect to the ATP rule.
    Equipment means the special transport equipment that meets the 
definitions and standards set forth in ATP, Annex 1, including, but not 
limited to, railcars, trucks, trailers, semitrailers, and intermodal 
freight containers that have an insulated body only, or an insulated 
body equipped with a refrigerating, mechanically refrigerating, or 
heating appliance.
    Equipment manufacturer means an organization which producers or 
assembles the complete unit of equipment, that is, the insulated body 
with the thermal appliance installed.
    Foreign owner means an organization registered under the laws of, or 
with principal office in, a country outside the United States, and which 
owns or operates the equipment.
    Foreign-ATP certificate means a certificate issued by a foreign 
country which is a contracting party to the ATP, attesting that the 
equipment listed in the certificate complies with pertinent standards in 
the ATP.
    Identical mechanical refrigerating appliance means an appliance 
which is of the same model number and design as the reference mechanical 
refrigerating appliance.
    Insulated body means the six-sided structural component of 
equipment, consisting of insulated doors, sidewalls, roof, floor, and 
endwall, inside which perishable foodstuffs are carried.
    International carriage means transportation of perishable foodstuffs 
if such foodstuffs are loaded in equipment or the equipment containing 
them is loaded onto a rail or road vehicle, in the territory of any 
country and such foodstuffs are, or the equipment containing them is, 
unloaded in the territory of another country that is a contracting 
party, where such transportation is by:
    (a) Rail,
    (b) Road,
    (c) Any combination of rail and road, or
    (d) Any sea crossing of less than one hundred and fifty kilometers, 
if preceded or followed by one or more land journeys as referred to in 
clauses (a), (b), and (c) of this definition, and the perishable 
foodstuffs are shipped in the same equipment used for such land journeys 
without transloading of such foodstuffs.

In the case of any transportation that involves one or more sea 
crossings other than as specified in clause (d) of this definition, each 
land journey shall be considered separately.
    New equipment means equipment produced or assembled on or after the 
effective date of this rule.
    Perishable foodstuffs means the quick deep-frozen and frozen food 
products listed in Annex 2, and the chilled food products listed in 
Annex 3 to the ATP.
    Reference equipment means a unit of equipment which has passed a 
test in an approved testing station, and can thereby serve as a basis 
for certification of related serially-produced equipment.

[[Page 177]]

    Reference insulated body means an insulated body which has passed a 
test in an approved testing station for measurement of the K-coefficient 
of the body, and can thereby serve as the basis for approval of 
serially-produced bodies in the case in which the body and the 
mechanical refrigerating appliance of the equipment are tested 
separately.
    Reference mechanical refrigerating appliance means an appliance 
which has passed a test in an approved testing laboratory, and can 
thereby serve as the basis for approval of identical mechanical 
refrigerating appliances in the case in which the appliance and the 
insulated body of the equipment are tested separately.
    Serially-produced bodies means insulated bodies which meet the 
definition in ATP, Annex 1 Appendix 1, paragraph 2(c)(i).
    Serially-produced equipment means equipment of a specific type 
(container, semi-trailer, trailer, truck, or container), which meets the 
definition in ATP, Annex 1, Appendix 1, paragraphs 2(c), (i), (ii), 
(iii), and (iv).
    Thermal appliance means the refrigerating, mechanical refrigerating, 
or heating appliance which is installed in the insulated body of the 
equipment.
    United States means the fifty States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, Guam, American 
Samoa, the Virgin Islands of the United States, the Commonwealth of the 
Northern Mariana Islands, and any other territory or possession of the 
United States.
    U.S. ATP certificate means a certificate issued by the U.S. 
Department of Agriculture, attesting that the equipment listed in the 
certificate complies with pertinent standards in the ATP.
    U.S. ATP testing laboratory means a facility in the United States 
which has been approved by the Administrator to conduct tests of 
mechanical refrigerating appliances.
    U.S. ATP testing station means a facility in the United States which 
has been approved by the Administrator to conduct tests of equipment.



              Subpart B_Procedures for Testing of Equipment



Sec. 3300.7  General.

    Testing of equipment according to the ATP is basically done in two 
phases:
    (a) Measurement of the insulating capacity, that is, the K-
coefficient, of the insulated body.
    (b) Determination of the efficiency of the thermal appliance as 
installed in the insulated body. In the case of mechanically 
refrigerated equipment, the mechanical refrigerating appliance may be 
tested separate from the body.



Sec. 3300.10  Measurement of the K-coefficient of an insulated body.

    The K-coefficient shall be measured according to the procedures in 
ATP, Annex 1, Appendix 2, paragraphs 1-28, and the following shall 
apply:
    (a) The internal heating method shall be used.
    (b) In ATP, Annex 1, Appendix 2, paragraph 8, last line, ``about + 
20 [deg]C for the mean temperature of the walls of the body shall be 
interpreted to mean between +19 [deg]C (+66 [deg]F) and 21 [deg]C (+70 
[deg]F).
    (c) A report of each test shall be completed on a form corresponding 
to the pertinent test report model prescribed in ATP, Annex 1, Appendix 
2. Report forms may be obtained by a request to the ATP manager.



Sec. 3300.13  Determination of the efficiency of the thermal appliances as installed in the insulated body.

    In determining the efficiency of a thermal appliance with respect to 
maintaining a prescribed temperature inside the body, the procedures in 
ATP, Annex 1, Appendix 2, paragraphs 31-40 and 43-47 shall be used. A 
report of each test shall be completed on a form corresponding to the 
pertinent test report model prescribed in ATP, Annex 1, Appendix 2. 
Report forms may be obtained by a request to the ATP manager.

[[Page 178]]



                 Subpart C_Approval of Testing Stations



Sec. 3300.16  General.

    Any public or private organization incorporated or chartered under 
the laws of, and with principal office in, the United States may apply 
to have one or more of its facilities in the United States designated as 
a U.S. ATP testing station.



Sec. 3300.19  Application for approval.

    An application by an officer of the organization shall be submitted 
to the Administrator for each facility for which approval is sought. 
Copies of the Form, Application for Approval as a U.S. ATP Testing 
Station, may be obtained by a request to the ATP manager. The following 
information must be supplied in the application:
    (a) A statement that the organization is incorporated or chartered 
under the laws of, and that it has its principal office in, the United 
States, including the name, address, and telephone number of the 
principal office.
    (b) The address and telephone number of the testing station, and 
name and title of person in charge of the station.
    (c) A summary of experience at the facility which would indicate the 
capability to conduct tests of equipment according to Subpart B of this 
rule.
    (d) A general description of the station, including drawings on 
letter size (8 \1/2\ x 11 inches) paper to show the floor plan and 
cross-sections of the test chamber, basic dimensions, location of heat 
exchangers and instruments, and any other pertinent information.
    (e) An indication of which of the following types of equipment, as 
defined in ATP, Annex 1, that the station is capable of testing: 
intermodal freight containers, semi-trailers, trailers, railcars, and 
trucks.
    (f) A statement that the ATP manager or other representative of the 
Administrator may, before a decision is made concerning the application, 
observe a test at the station of a Class ``C'' mechanically refrigerated 
container or semi-trailer, with Class ``C'' being defined as in ATP, 
Annex 1, paragraph 3.
    (g) A statement that the station will be open to public use, that 
is, to manufacturers and owners of equipment which may apply to have 
equipment tested.
    (h) A statement that the fees to be charged by the organization for 
testing will be reasonable with respect to costs involved, and that such 
fees will be payable directly to the organization by those who seek 
testing of their equipment.
    (i) A statement that the station will maintain records of basic data 
developed in each test conducted under this rule, such records to be 
available for review by the ATP manager or other representative of the 
Administrator upon request. The record for each test shall be maintained 
for a period of three years.
    (j) A statement that the organization will advise the ATP manager as 
soon as practicable of its intent to conduct a test under this rule and 
that it will, as soon as possible, advise when a firm test date has been 
set so that the ATP manager or other representative of the Administrator 
may observe the test.
    (k) A statement that the organization will send to the ATP manager a 
copy of each test report for equipment tested at the station according 
to this rule, within 30 days after completion of the test.
    (l) A statement that, should any significant change occur in the 
facility with respect to structure or test equipment as a result of 
redesign or other cause during the period of approval, the organization 
will so advise the ATP manager within 30 days after such change.
    (m) Any other pertinent information.



Sec. 3300.22  Response to application for approval.

    The Administrator will, within 30 days of receipt of the application 
and any relevant information required, advise the applicant whether or 
not the facility is approved as a testing station. Approval is for a 5-
year period.



Sec. 3300.25  Application for renewal of approval.

    If an organization wishes to have an approval renewed at the end of 
a 5-year

[[Page 179]]

period, it shall submit a request for renewal to the Administrator 90 
days before expiration of the existing approval. The request for renewal 
shall contain the same type of information as required in the original 
application, that is, the information called for in Sec. 3300.19 of 
subpart C.



Sec. 3300.28  Response to application for renewal of approval.

    The Administrator will, within 30 days of receipt of application and 
any relevant information required, advise the applicant whether or not 
approval is renewed. A renewal is good for 5 years.



Sec. 3300.31  Termination of approval.

    An approved testing station may at any time withdraw as an approved 
testing station by written notice to the Administrator. Similarly, the 
Administrator may suspend or terminate for cause the approved status of 
a testing station by written notice to the organization, setting forth 
the reasons for such action. Examples of causes for suspension or 
termination of approval of a testing station would be a change in 
equipment or operations at the station which would render the station 
incapable of performing tests according to the standards in the ATP, or 
noncompliance of the station with pertinent portions of this rule.



 Subpart D_Procedures for Separate Testing of Mechanical Refrigerating 
                               Appliances



Sec. 3300.34  General.

    ATP, Annex 1, Appendix 2, paragraph 41, provides that approval of 
mechanically refrigerated equipment may be done on the basis of separate 
testing of the mechanical refrigerating appliance.



Sec. 3300.37  Testing of a mechanical refrigerating appliance.

    For separate testing of a mechanical refrigerating appliance, the 
following shall pertain:
    (a) The calibrated-box method shall be used, as set forth in ARI 
Standard 1110, Standard for Mechanical Refrigeration Units, of the Air-
Conditioning and Refrigeration Institute.
    (b) The appliance shall be rated according to the class, or classes, 
of service for which the appliance is intended, with classes being 
defined as in ATP, Annex 1, paragraph 3.
    (c) A report of each test shall be completed on a form corresponding 
to the pertinent test report model prescribed in ATP, Annex 1, Appendix 
2. Report forms may be obtained by a request to the ATP manager.



               Subpart E_Approval of Testing Laboratories



Sec. 3300.40  General.

    Any public or private organization incorporated or chartered under 
the laws of, and with principal office in, the United States may apply 
to have one or more of its facilities in the United States designated as 
a U.S. ATP testing laboratory.



Sec. 3300.43  Application for approval.

    An application by an officer of the organization shall be submitted 
to the Administrator for each facility for which approval is sought. 
Copies of the Form, Application for Approval as a U.S. ATP Testing 
Laboratory, may be obtained by a request to the ATP manager. The 
following information must be supplied in the application:
    (a) A statement that the organization is incorporated or chartered 
under the laws of, and that it has its principal office in, the United 
States, including the address and telephone number of the principal 
office.
    (b) The address and telephone number of the testing laboratory, and 
name and title of person in charge of the laboratory.
    (c) A summary of the experience at the facility which would indicate 
a capability to conduct tests of mechanical refrigerating appliances 
according to subpart D of this rule.
    (d) A general description of the laboratory, including drawings on 
letter size (8\1/2\ x 11 inches) paper to show the floor plan and cross-
section of the test chamber, basic dimensions, location of heat 
exchangers and instruments, and any other pertinent information.
    (e) A statement that the ATP manager or other representative of the 
Administrator may, before a decision is

[[Page 180]]

made concerning the application, observe a test at the laboratory of a 
mechanical refrigerating appliance for a Class ``C'' mechanically 
refrigerated container or trailer, with Class ``C'' as defined in ATP, 
Annex 1, paragraph 3.
    (f) A statement that the laboratory will maintain records of basic 
data developed in each test conducted under this rule, such records to 
be available for review by the ATP manager or other representative of 
the Administrator, upon request. The record for each test shall be 
maintained for a period of three years.
    (g) A statement that the organization will advise the ATP manager as 
soon as practicable of its intent to conduct a test under this rule and 
that it will, as soon as possible, advise when a firm test has been set 
so that the ATP manager or other representative of the Administrator may 
observe the test.
    (h) A statement that the organization will send to the ATP manager a 
copy of each test report for an appliance tested at the laboratory 
according to this rule, within 30 days after completion of the test.
    (i) A statement that, should any significant change occur in the 
facility with respect to structure or test equipment as a result of 
redesign or other cause during the period of approval, the organization 
will so advise the ATP manager within 30 days after such change.
    (j) Any other pertinent information.



Sec. 3300.46  Response to application for approval.

    The Administrator will, within 30 days of receipt of an application 
and any relevant information required, advise the applicant whether or 
not the facility is approved as a testing laboratory. Approval is for a 
5-year period from date of approval.



Sec. 3300.49  Application for renewal of approval.

    If an organization wishes to have an approval renewed at the end of 
a 5-year period, it shall submit a request for renewal to the 
Administrator 90 days before expiration of the existing approval. The 
request for renewal shall contain the same type of information as 
required in the original application, that is, the information called 
for in Sec. 3300.43 of subpart E.



Sec. 3300.52  Response to application for renewal of approval.

    The Administrator will, within 30 days of receipt of application and 
any relevant information required, advise the applicant whether or not 
approval is renewed. A renewal extends the period of approval for 5 
years.



Sec. 3300.55  Termination of approval.

    An approved testing laboratory may at any time withdraw as an 
approved testing laboratory by written notice to the Administrator. 
Similarly, the Administrator may suspend or terminate for cause the 
approved status of a testing laboratory by written notice to the 
organization, setting forth the reasons for such action. Examples of 
causes for suspension or termination of approval would be a change in 
equipment or operations at the laboratory which would render it 
incapable of performing tests according to the standards in the ATP, or 
noncompliance of the laboratory with pertinent portions of this rule.



                Subpart F_Certification of New Equipment



Sec. 3300.58  General.

    The following shall apply for certification of new equipment:
    (a) Domestic owners are eligible to receive U.S. ATP certificates 
for equipment produced or assembled in the United States or in a foreign 
country.
    (b) Foreign owners are eligible to receive U.S. ATP certificates 
only for equipment produced or assembled in the United States.
    (c) For equipment manufactured (i.e., produced or assembled) in the 
United States:
    (1) When the complete unit of equipment is tested, the test shall be 
performed in a U.S. ATP testing station.
    (2) When the mechanical refrigerating appliance and the insulated 
body are tested separately, such tests shall be performed in approved 
testing facilities in the United States or in test facilities located 
in, and approved by, a foreign country which is a Contracting Party.

[[Page 181]]

    (d) For equipment manufactured in a foreign country which is a 
Contracting Party, a domestic owner may receive a U.S. ATP certiticate 
in exchange for the Foreign-ATP certificate issued by the country of 
manufacture.
    (e) For equipment manufactured in a foreign country which is not a 
Contracting Party, tests shall be performed in approved testing 
facilities in the United States or in facilities located in and approved 
by a foreign country which is a Contracting Party.
    (f) In accordance with ATP, Annex 1, Appendix 1, paragraphs 2(a) and 
(d), the validity of a test report for a reference equipment shall 
expire at the end of a period of 3 years or at the end of the 
manufacture of 1,000 units of serially-produced equipment, whichever 
occurs first.
    (g) The validity of a test report for a reference mechanical 
refrigerating appliance shall expire at the end of a period of three 
years, or at the end of the manufacture of 1,000 identical mechanical 
refrigerating appliances, whichever occurs first.
    (h) The validity of a test report for a reference insulated body 
shall expire at the end of a period of three years, or at the end of the 
manufacture of 1,000 serially-produced bodies, whichever occurs first.
    (i) Serially-produced equipment shall be produced or assembled by 
the same manufacturer and at the same manufacturing plant as the 
reference equipment.
    (j) Identical mechanical refrigerating appliances shall be 
manufactured by the same manufacturer and at the same manufacturing 
plant as the reference mechanical refrigerating appliance.
    (k) Serially-produced bodies shall be manufactured by the same 
manufacturer and at the same manufacturing plant as the reference 
insulated body.
    (l) Equipment manufacturers shall notify the ATP manager 30 days 
before start of manufacture so that the ATP manager or other 
representative of the Administrator may observe the manufacturing 
operation.
    (m) Owners who receive a U.S. ATP certificate have the 
responsibility to manitain the equipment in good repair and operating 
condition with the understanding that the certificate is valid only so 
long as:
    (1) The insulated body and the thermal appliance are maintained in 
good condition;
    (2) No material alteration is made to the thermal appliance which 
decreases its refrigerating capacity, and;
    (3) If the thermal appliance is replaced, it is replaced by an 
appliance of equal or greater refrigerating capacity.



Sec. 3300.61  Testing and verification requirements.

    In accordance with ATP, Annex 1, Appendix 1, paragraphs 1, 1(a), 
2(a), 2(b), 2(c) and 3, and Appendix 2, paragraph 41, certification of 
new equipment is based upon the following:
    (a) For a unit of equipment, a test of the equipment in an approved 
testing station.
    (b) For serially-produced equipment:
    (1) A test of one unit of equipment in an approved testing station, 
such unit to serve as the reference equipment.
    (2) Verification that production of other units of equipment is in 
conformity with the reference equipment.
    (c) For mechanically refrigerated equipment, certification may be 
based upon a separate test of the mechanical refrigerating appliance and 
a separate test of the insulated body.



Sec. 3300.64  Application for certificate for new equipment produced or assembled in the United States or in a foreign country which is not a contracting party 
          to the ATP.

    Application for certification shall be submitted to the ATP manager 
by an officer in the organization of the owner of the equipment. In the 
case of equipment manufactured in the United States, application may be 
made by an officer in the organization of the equipment manufacturer, 
acting on behalf of the owner. Copies of the Form, Application for U.S. 
ATP Certificate for New Equipment Produced or Assembled in the United 
States or in a Foreign Country Which is not a Contracting Party to the 
ATP, may be obtained by a request to the ATP manager. The following 
information must be supplied in the application:
    (a) A statement whether the owner is a domestic owner or a foreign 
owner, with the name, address and telephone

[[Page 182]]

number of its principal office, and the name and title of person to 
contact.
    (b) If the operator of the equipment is different from the owner, 
the name and address of the operator.
    (c) Type of equipment (intermodal freight container, semi-trailer, 
trailer, railcar, or truck).
    (d) Total number of units of equipment.
    (e) Definition and distinguishing mark of the equipment for which 
certification is sought, referring to ATP, Annex 1, paragraph 3 and 
Appendix 4.
    (f) Name, address, and telephone number of the principal office of 
the equipment manufacturer, and name and title of the person to contact.
    (g) Name and address of the plant at which the equipment was 
manufactured.
    (h) In the case of a unit of equipment (i.e., the insulated body 
with its mechanical refrigerating appliance installed) that has been 
tested to serve as the reference equipment for serially-produced 
equipment:
    (1) The original or certified true copy of the test report for the 
reference equipment.
    (2) For the serially-produced equipment:
    (i) The manufacturer's make and model number for the equipment, 
including a brief description of the equipment and enclosure of any 
brochure on the equipment which might be available.
    (ii) The basis upon which the equipment meets the definition of 
serially-produced equipment, with respect to the reference equipment.
    (iii) A statement that the equipment was manufactured at the same 
plant at which the reference equipment was manufactured.
    (iv) A statement that production of the equipment was in conformity 
with the reference equipment.
    (i) In the case where the mechanical refrigerating appliance and the 
insulated body have been tested separately:
    (1) For the reference mechanical refrigerating appliance:
    (i) The original or certified true copy of the test report.
    (ii) From the test report, the effective refrigerating capacity, W, 
in watts, of the appliance at an outside temperature of + 30 [deg]C and 
the inside temperature (see ATP, Annex 1, paragraph 3 and Appendix 4) 
for the class of equipment for which certification is sought. ``W'' must 
be equal to, or greater than, the increased heat transfer rate, 
Hi, for the reference insulated body. See paragraph (3)(iii) 
below.
    (2) For the identical mechanical refrigerating appliances:
    (i) Name and address of the plant at which the identical appliances 
and reference appliance were manufactured.
    (ii) The manufacturer's make, model number, and a brief description 
of the appliances with enclosure of any brochure on the appliances which 
might be available.
    (iii) A statement that the appliances meet the definition of 
identical mechanical refrigerating appliances.
    (3) For the reference insulated body:
    (i) The original or certified true copy of the test report.
    (ii) The total heat transfer rate of the body, Ht = S x K 
x [Delta] T, in watts, where: ``S'' is the mean surface area of the 
body, from the test report; ``K'' is the heat transfer coefficient of 
the body, from the test report; and, ``[Delta] T'' is the difference in 
degrees Kelvin between an outside temperature of + 30 [deg]C and the 
inside temperature for the class of equipment for which certification is 
sought.
    (iii) The increased beat transfer rate, Hi, obtained by 
multiplying the total heat transfer rate Ht, by the factor of 
1.75.
    (4) For the serially-produced insulated bodies:
    (i) Name and address of the plant at which the serially-produced 
bodies and reference body were manufactured.
    (ii) The manufacturer's make, model number, and a brief description 
of the bodies, with any brochure on the bodies which might be available.
    (iii) The basis upon which the bodies meet the definition of 
serially-produced bodies, with respect to the reference insulated body.
    (iv) A statement that production of the bodies was in conformity 
with the reference insulated body.
    (j) Information on the equipment after manufacture:

[[Page 183]]

    (1) A statement that each mechanical refrigerating appliance, after 
it was installed in the body, was operated and thoroughly checked and 
that each appliance functioned properly.
    (2) A statement that each body and each appliance has affixed to it 
a manufacturer's plate or other means of identification which shows the 
items of information required by ATP, Annex 1, paragraph 6.
    (3) A statement that each unit of equipment, before it is put into 
service, will have affixed to it a certification plate and 
distinguishing mark as specified in ATP, Annex 1, Appendix 1, paragraphs 
4 and 5, and Appendixes 3 and 4.
    (4) A list showing, for each unit of equipment, the serial number of 
the body and the corresponding owner's equipment identification number.



Sec. 3300.67  Application for certificate for new equipment produced or assembled in a foreign country which is a contracting party to the ATP.

    An application for certification of equipment shall be submitted to 
the ATP manager by an officer in the organization of the owner of the 
equipment. Copies of the Form, Application for U.S. ATP Certificate for 
New Equipment Produced or Assembled in a Foreign Country Which is a 
Contracting Party, may be obtained by a request to the ATP manager. The 
following information must be submitted in the application:
    (a) A statement that the owner is a domestic owner, with the name, 
address and telephone number of its principal office, and the name and 
title of the person to contact.
    (b) If the operator of the equipment is different from the owner, 
the name and address of the operator.
    (c) The type of equipment (intermodal freight container, trailer, 
semi-trailer, railcar, or truck.)
    (d) Total number of units of equipment.
    (e) Definition of the equipment for which certification is sought, 
referring to ATP, Annex 1, paragraph 3, and Appendix 4.
    (f) Name, address, and telephone number of the manufacturer of the 
equipment, and the name and title of the person to contact.
    (g) The manufacturer's make and model number for the equipment, 
including a brief description of the equipment and any brochure on the 
equipment which might be available.
    (h) The original or certified true copy of the test report for the 
reference equipment.
    (i) The original or certified true copy of the Foreign-ATP 
certificate issued for the equipment.
    (j) A statement that each unit of equipment, before it is put into 
service, will have affixed to it a certification plate and 
distinguishing mark as specified in ATP, Annex 1, Appendix 1, paragraphs 
4 and 5, and Appendixes 3 and 4.
    (k) A list showing, for each unit of equipment, the serial number of 
the body and the corresponding owner's equipment identification number.



Sec. 3300.70  Issuance of certificate.

    The ATP manager will evaluate the documents received and, for 
equipment deemed qualified, will issue a U.S. ATP certificate to the 
applicant within 30 days of the receipt of an application and any 
relevant information required. The certificate will be in the format 
prescribed in ATP, Annex 1, Appendix 3. For equipment deemed not 
qualified, the applicant will be advised of the reasons for non-
qualification within 30 days of the receipt of an application and any 
relevant information required.



Sec. 3300.73  Period of validity of certificates.

    In accordance with ATP, Annex 1, Appendix 1, paragraphs 1(a) and 
1(b), certificates issued for new equipment are valid for a period of 6 
years from date of issue.



             Subpart G_Certification of Equipment in Service



Sec. 3300.76  General.

    Only domestic owners are eligible to receive U.S. ATP certificates 
for equipment in service, with certification based upon the following:
    (a) For equipment which has not previously been certified:
    (1) For each unit of equipment, a test in a U.S. ATP testing station 
or in a testing station located in and approved by a country which is a 
Contracting

[[Page 184]]

Party, to measure the K-coefficient of the insulated body and the 
efficiency of the thermal appliance in accordance with Sec. 3300.10 and 
Sec. 3300.13 of this rule.
    (2) If the equipment consists of serially-produced equipment 
manufactured by a particular equipment manufacturer, and belonging to 
one owner, certification may be based upon the following:
    (i) A test of 1 percent of the units of equipment as prescribed in 
preceding paragraph (a)(1) of this section, the units tested to serve as 
reference equipment.
    (ii) An inspection of each unit of equipment, using the procedures 
set forth in ATP, Annex 1, Appendix 2, paragraphs 29 and 49. The 
inspections shall be performed by one of the following, at the choice of 
the owner:
    (A) Persons in the owner's organization whom the owner deems 
qualified to perform inspections, or;
    (B) By an independent inspection agency which the owner deems 
competent to perform inspections. Fees charged by such inspection agency 
shall be payable directly to the agency by the owner.
    (iii) A report of each inspection shall be completed on a form 
corresponding to the pertinent test report model in ATP, Annex 1, 
Appendix 2. Report forms may be obtained by a request to the ATP 
manager.
    (b) For renewal of a U.S. ATP certificate which is nearing its 
expiration date, any of the following three procedures:
    (1) For each unit of equipment, a test as prescribed in preceding 
paragraph (a)(1) of this section, or;
    (2) If the equipment is serially-produced by a particular 
manufacturer and belongs to one owner, test and inspection of the 
equipment according to the procedures prescribed in preceding paragraphs 
(a)(2)(i), (ii), and (iii) of this section, or;
    (3) An inspection of each unit of equipment as prescribed in 
paragraphs (a)(2)(ii) and (iii) of this section.
    (c) For equipment which is currently certified according to a U.S. 
ATP certificate, and which has been transferred from one domestic owner 
to another, the new owner may obtain a U.S. ATP certificate by 
submitting the original or certified true copy of the certificate issued 
to the previous owner, and by performing an inspection and submitting an 
inspection report for each unit of equipment.
    (d) For equipment which is currently certified according to a 
Foreign-ATP certificate, and which has been transferred from a foreign 
owner to a domestic owner, the domestic owner may obtain a U.S. ATP 
certificate by submitting the original or certified true copy of the 
test report for the reference equipment and the original or certified 
true copy of the foreign certificate, and by performing an inspection 
and submitting an inspection report for each unit of equipment.
    (e) Owners who receive a U.S. ATP certificate have the 
responsibility to maintain equipment in good repair and operating 
condition with the understanding that the certificate is valid only so 
long as:
    (1) The insulated body and the thermal appliance are maintained in 
good condition;
    (2) No material alteration is made to the thermal appliance which 
decreases its refrigeration capacity, and;
    (3) If the thermal appliance is replaced, it is replaced by an 
appliance of equal or greater refrigerating capacity.



Sec. 3300.79  Application for certificate.

    An application shall be submitted to the ATP manager by an officer 
in the organization of the owner of the equipment. Copies of the Form, 
Application for U.S. ATP Certificate for Equipment in Service, may be 
obtained by a request to the ATP manager. The following information is 
requested in the application:
    (a) A statement that the owner is a domestic owner, with the name, 
address, and telephone number of its principal office, and name and 
title of person to contact.
    (b) If the operator of the equipment is different from the owner, 
the name and address of the operator.
    (c) The type of equipment (intermodal freight container, trailer, 
semi-trailer, railcar, or truck).
    (d) The total number of units of equipment.

[[Page 185]]

    (e) The definition of the equipment for which certification is 
sought, referring to ATP, Annex 1, paragraph 3 and Appendix 4.
    (f) For equipment which has not been previously certified, one of 
the following:
    (1) For each unit of equipment, the original or certified true copy 
of the test report, or;
    (2) If the equipment is serially-produced by one manufacturer:
    (i) Name of manufacturer.
    (ii) The original or certified true copy of the test report(s) of 1 
percent of the equipment which was tested to serve as reference 
equipment.
    (iii) A report of inspection for each unit of equipment.
    (g) For renewal of a U.S. ATP Certificate which is nearing its 
expiration date:
    (1) The original or certified true copy of that certificate, and;
    (2) One of the following, (i) (ii), or (iii):
    (i) For each unit of equipment, the original or certified true copy 
of the test report.
    (ii) If the equipment is serially-produced by one manufacturer:
    (A) Name of manufacturer.
    (B) The original or certified true copy of the test report(s) of 1 
percent of the equipment which was tested to serve as reference 
equipment.
    (C) A report of inspection from each unit of equipment.
    (iii) A report of inspection for each unit of equipment.
    (h) For equipment which is currently certified according to a U.S. 
ATP certificate, and which has been transferred from one domestic owner 
to another:
    (1) The original or certified true copy of that certificate.
    (2) A report of inspection for each unit of equipment.
    (i) For equipment which is currently certified according to a 
Foreign-ATP certificate, and which has been transferred from a foreign 
owner to a domestic owner:
    (1) The original or certified true copy of the test report for the 
reference equipment.
    (2) The original or certified true copy of the Foreign-ATP 
certificate.
    (3) A report of inspection for each unit of equipment.
    (j) A statement that each unit of equipment has, or will have, 
affixed to it a certification plate and distinguishing mark as 
prescribed in ATP, Annex 1, Appendix 1, paragraphs 4 and 5, and 
Appendices 3 and 4.
    (k) A list showing, for each unit of equipment, the serial number of 
the body and the corresponding owner's equipment identification number.



Sec. 3300.82  Issuance of certificate.

    The ATP manager will evaluate documents received and, for equipment 
deemed qualified, will issue a U.S. ATP certificate to the applicant 
within 30 days of receipt of the application and any relevant 
information required. The certificate will be in the format prescribed 
in ATP, Annex 1, Appendix 3. For equipment deemed not qualified, the 
applicant will be advised of reasons for non-qualification within 30 
days of receipt of an application and any relevant information required.



Sec. 3300.85  Period of validity of certificates.

    In accordance with ATP, Annex 1, Appendix 1, paragraphs 1(b), and 
Appendix 2, paragraphs 29(c) and 49(b) and (d), considered in 
combination, certificates will be valid for periods as follows:
    (a) For equipment which passes a test, 6 years.
    (b) For serially-produced equipment of which 1 percent have passed a 
test, and all units have been inspected and passed such inspection, 6 
years.
    (c) For renewal of a U.S. ATP certificate which is nearing its 
expiration date, where the equipment has passed an inspection but has 
not been tested, 3 years.
    (d) For equipment currently certified according to a U.S. ATP 
certificate, where the equipment has been transferred from one domestic 
owner to another and the equipment has passed an inspection, 3 years or 
the date of expiration of the current U.S. ATP certificate, whichever 
gives the later expiration date on the new U.S. ATP certificate.

[[Page 186]]

    (e) For equipment currently certified according to a Foreign-ATP 
certificate, where the equipment has been transferred from a foreign 
owner to a domestic owner and the equipment has passed an inspection, 3 
years or the date of expiration of the foreign certificate, whichever 
gives the later expiration date on the newly issued U.S. ATP 
certificate.



                       Subpart H_Other Provisions



Sec. 3300.88  Fees for U.S. ATP certificates.

    The fee schedule for issuance of U.S. ATP certificates by the U.S. 
Department of Agriculture will be calculated according to the criteria 
in Circular A-25 \2\, issued by the Office of Management and Budget. 
Fees may be revised as required on an annual basis.
---------------------------------------------------------------------------

    \2\ A copy of Circular A-25 can be obtained by a request to the 
Office of Management and Budget (OMB), 17th Street and Pennsylvania 
Avenue, NW., Washington, DC 20503.
---------------------------------------------------------------------------



Sec. 3300.91  List of approved testing stations, approved testing
laboratories, and fees for certificates.

    A current list of U.S. ATP testing stations, U.S. ATP testing 
laboratories, and fees for issuance of U.S. ATP certificates may be 
obtained by request to the ATP manager.



Sec. 3300.94  Appeals.

    Any organization aggrieved by an action in connection with this rule 
may obtain a review of such action by submitting pertinent information 
by letter to the Administrator. The decision of the Administrator is the 
final agency action.

                       PARTS 3301	3399 [RESERVED]

[[Page 187]]



        CHAPTER XXXIV--NATIONAL INSTITUTE OF FOOD AND AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3400            Special Research Grants Program.............         189
3401            Rangeland Research Grants Program...........         199
3402            Food and Agricultural Sciences National 
                    Needs Graduate and Postgraduate 
                    Fellowship Grants Program...............         209
3403            Small Business Innovation Research Grants 
                    Program.................................         218
3404            Public information..........................         233
3405            Higher Education Challenge Grants Program...         234
3406            1890 Institution Capacity Building Grants 
                    Program.................................         250
3407            Implementation of National Environmental 
                    Policy Act..............................         280
3411

National Research Initiative Competition Grants Program [Reserved]

3415            Biotechnology Risk Assessment Research 
                    Grants Program..........................         285
3418            Stakeholder input requirements for 
                    recipients of agricultural research, 
                    education, and extension formula funds..         296
3419            Matching funds requirement for agricultural 
                    research and extension capacity funds at 
                    1890 land-grant institutions, including 
                    Central State University, Tuskegee 
                    University, and West Virginia State 
                    University and at 1862 land-grant 
                    institutions in insular areas...........         297
3430            Competitive and noncompetitive non-formula 
                    Federal assistance programs--general 
                    award administrative provisions.........         299
3431            Veterinary Medicine Loan Repayment Program..         354
3434            Hispanic-serving agricultural colleges and 
                    universities certification process......         363
3435-3499

 [Reserved]

[[Page 189]]



PART 3400_SPECIAL RESEARCH GRANTS PROGRAM--Table of Contents



                            Subpart A_General

Sec.
3400.1 Applicability of regulations.
3400.2 Definitions.
3400.3 Eligibility requirements.
3400.4 How to apply for a grant.
3400.5 Evaluation and disposition of applications.
3400.6 Grant awards.
3400.7 Use of funds; changes.
3400.8 Other Federal statutes and regulations that apply.
3400.9 Other conditions.

     Subpart B_Scientific Peer Review of Research Grant Applications

3400.10 Establishment and operation of peer review groups.
3400.11 Composition of peer review groups.
3400.12 Conflicts of interest.
3400.13 Availability of information.
3400.14 Proposal review.
3400.15 Review criteria.

          Subpart C_Peer and Merit Review Arranged by Grantees

3400.20 Grantee review prior to award.
3400.21 Scientific peer review for research activities.
3400.22 Merit review for education and extension activities.

                        Subpart D_Annual Reports

3400.23 Annual reports.

    Authority: 7 U.S.C. 450i(c).

    Source: 56 FR 58147, Nov 15, 1991, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 3400 appear at 76 FR 
4806, Jan. 27, 2011.



                            Subpart A_General



Sec. 3400.1  Applicability of regulations.

    (a) The regulations of this part apply to special research grants 
awarded under the authority of subsection (c) of the Competitive, 
Special, and Facilities Research Grant Act, as amended (7 U.S.C. 450i 
(c)), to facilitate or expand promising breakthroughs in areas of the 
food and agricultural sciences of importance to the United States. 
Subparts A and B, excepting this section, apply only to special research 
grants awarded under subsection (c)(1)(A). Subpart C, Peer and Merit 
Review Arranged by Grantees, and Subpart D, Annual Reports, apply to all 
grants awarded under subsection (c).
    (b) Each year the Director of NIFA shall determine and announce 
through publication of a Notice in such publications as the Federal 
Register, professional trade journals, agency or program handbooks, the 
Catalog of Federal Domestic Assistance, or any other appropriate means, 
research program areas for which proposals will be solicited 
competitively, to the extent that funds are available.
    (c) The regulations of this part do not apply to research, extension 
or education grants awarded by the Department of Agriculture under any 
other authority.

[64 FR 34103, June 24, 1999]



Sec. 3400.2  Definitions.

    As used in this part:
    (a) Director means the Director of the National Institute of Food 
and Agriculture (NIFA) and any other officer or employee of the 
Department of Agriculture to whom the authority involved may be 
delegated.
    (b) Department means the Department of Agriculture.
    (c) Principal investigator means a single individual designated by 
the grantee in the grant application and approved by the Director who is 
responsible for the scientific and technical direction of the project.
    (d) Grantee means the entity designated in the grant award document 
as the responsible legal entity to whom a grant is awarded under this 
part.
    (e) Research project grant means the award by the Director of funds 
to a grantee to assist in meeting the costs of conducting, for the 
benefit of the public, an identified project which is intended and 
designed to establish, discover, elucidate, or confirm information or 
the underlying mechanisms relating to a research program area identified 
in the annual solicitation of applications.
    (f) Project means the particular activity within the scope of one or 
more of the research program areas identified in the annual solicitation 
of applications, which is supported by a grant award under this part.

[[Page 190]]

    (g) Project period means the total length of time that is approved 
by the Director for conducting the research project as outlined in an 
approved grant application.
    (h) Budget period means the interval of time (usually 12 months) 
into which the project period is divided for budgetary and reporting 
purposes.
    (i) Awarding official means the Director and any other officer or 
employee of the Department to whom the authority to issue or modify 
research project grant instruments has been delegated.
    (j) Peer review group means an assembled group of experts or 
consultants qualified by training and experience in particular 
scientific or technical fields to give expert advice, in accordance with 
the provisions of this part, on the scientific and technical merit of 
grant applications in those fields.
    (k) Ad hoc reviewers means experts or consultants qualified by 
training and experience in particular scientific or technical fields to 
render special expert advice, whose written evaluations of grant 
applications are designed to complement the expertise of the peer review 
group, in accordance with the provisions of this part, on the scientific 
or technical merit of grant applications in those fields.
    (l) Research means any systematic study directed toward new or 
fuller knowledge and understanding of the subject studied.
    (m) Methodology means the project approach to be followed and the 
resources needed to carry out the project.

[56 FR 58147, Nov. 15, 1991, as amended at 76 FR 4806, Jan. 27, 2011]



Sec. 3400.3  Eligibility requirements.

    (a) Except where otherwise prohibited by law, any State agricultural 
experiment station, all colleges and universities, other research 
institutions and organizations, Federal agencies, private organizations 
or corporations, and individuals, shall be eligible to apply for and to 
receive a special research project grant under this part, provided that 
the applicant qualifies as a responsible grantee under the criteria set 
forth in paragraph (b) of this section.
    (b) To qualify as responsible, an applicant must meet the following 
standards as they relate to a particular project:
    (1) Have adequate financial resources for performance, the necessary 
experience, organizational and technical qualifications, and facilities, 
or a firm commitment, arrangement, or ability to obtain such (including 
proposed subagreements);
    (2) Be able to comply with the proposed or required completion 
schedule for the project;
    (3) Have a satisfactory record of integrity, judgment, and 
performance, including, in particular, any prior performance under 
grants and contracts from the Federal Government;
    (4) Have an adequate financial management system and audit procedure 
which provides efficient and effective accountability and control of all 
property, funds, and other assets; and
    (5) Be otherwise qualified and eligible to receive a research 
project grant under applicable laws and regulations.
    (c) Any applicant who is determined to be not responsible will be 
notified in writing of such findings and the basis therefor.



Sec. 3400.4  How to apply for a grant.

    (a) A request for proposals will be prepared and announced through 
publications such as the Federal Register, professional trade journals, 
agency or program handbooks, the Catalog of Federal Domestic Assistance, 
or any other appropriate means of solicitation, as early as practicable 
each fiscal year. It will contain information sufficient to enable all 
eligible applicants to prepare special research grant proposals and will 
be as complete as possible with respect to:
    (1) Descriptions of specific research program areas which the 
Department proposes to support during the fiscal year involved, 
including anticipated funds to be awarded;
    (2) Deadline dates for having proposal packages postmarked;
    (3) Name and address where proposals should be mailed;
    (4) Number of copies to be submitted;
    (5) Forms required to be used when submitting proposals; and
    (6) Special requirements.

[[Page 191]]

    (b) Grant Application Kit. A Grant Application Kit will be made 
available to any potential grant applicant who requests a copy. This kit 
contains required forms, certifications, and instructions applicable to 
the submission of grant proposals.
    (c) Format for research grant proposals. Unless otherwise stated in 
the specific program solicitation, the following applies:
    (1) Grant Application. All research grant proposals submitted by 
eligible applicants should contain a Grant Application form, which must 
be signed by the proposing principal investigator(s) and endorsed by the 
cognizant authorized organizational representative who possesses the 
necessary authority to commit the applicant's time and other relevant 
resources.
    (2) Title of Project. The title of the project must be brief (80-
character maximum), yet represent the major thrust of the research. This 
title will be used to provide information to the Congress and other 
interested parties who may be unfamiliar with scientific terms; 
therefore, highly technical words or phraseology should be avoided where 
possible. In addition, phrases such as ``investigation of'' or 
``research on'' should not be used.
    (3) Objectives. Clear, concise, complete, enumerated, and logically 
arranged statement(s) of the specific aims of the research must be 
included in all proposals.
    (4) Procedures. The procedures or methodology to be applied to the 
proposed research plan should be explicitly stated. This section should 
include but not necessarily be limited to:
    (i) A description of the proposed investigations and/or experiments 
in the sequence in which it is planned to carry them out;
    (ii) Techniques to be employed, including their feasibility;
    (iii) Kinds of results expected;
    (iv) Means by which data will be analyzed or interpreted;
    (v) Pitfalls which might be encountered; and
    (vi) Limitations to proposed procedures.
    (5) Justification. This section should describe:
    (i) The importance of the problem to the needs of the Department and 
to the Nation, including estimates of the magnitude of the problem.
    (ii) The importance of starting the work during the current fiscal 
year, and
    (iii) Reasons for having the work performed by the proposing 
organization.
    (6) Literature review. A summary of pertinent publications with 
emphasis on their relationship to the research should be provided and 
should include all important and recent publications. The citations 
should be accurate, complete, written in acceptable journal format, and 
be appended to the proposal.
    (7) Current research. The relevancy of the proposed research to 
ongoing and, as yet, unpublished research of both the applicant and any 
other institutions should be described.
    (8) Facilities and equipment. All facilities, including 
laboratories, which are available for use or assignment to the proposed 
research project during the requested period of support, should be 
reported and described. Any materials, procedures, situations, or 
activities, whether or not directly related to a particular phase of the 
proposed research, and which may be hazardous to personnel, must be 
fully explained, along with an outline of precautions to be exercised. 
All items of major instrumentation available for use or assignment to 
the proposed research project during the requested period of support 
should be itemized. In addition, items of nonexpendable equipment needed 
to conduct and bring the proposed project to a successful conclusion 
should be listed.
    (9) Collaborative arrangements. If the proposed project requires 
collaboration with other research scientists, corporations, 
organizations, agencies, or entities, such collaboration must be fully 
explained and justified. Evidence should be provided to assure peer 
reviewers that the collaborators involved agree with the arrangements. 
It should be specifically indicated whether or not such collaborative 
arrangements have the potential for any conflict(s) of interest. 
Proposals which indicate collaborative involvement must state

[[Page 192]]

which proposer is to receive any resulting grant award, since only one 
eligible applicant, as provided in Sec. 3400.3 of this part, may be the 
recipient of a research project grant under one proposal.
    (10) Research timetable. The applicant should outline all important 
research phases as a function of time, year by year.
    (11) Personnel support. All personnel who will be involved in the 
research effort must be clearly identified. For each scientist involved, 
the following should be included:
    (i) An estimate of the time commitments necessary;
    (ii) Vitae of the principal investigator(s), senior associate(s), 
and other professional personnel to assist reviewers in evaluating the 
competence and experience of the project staff. This section should 
include curricula vitae of all key persons who will work on the proposed 
research project, whether or not Federal funds are sought for their 
support. The vitae are to be no more than two pages each in length, 
excluding publications listings; and
    (iii) A chronological listing of the most representative 
publications during the past five years shall be provided for each 
professional project member for whom a curriculum vitae appears under 
this section. Authors should be listed in the same order as they appear 
on each paper cited, along with the title and complete reference as 
these usually appear in journals.
    (12) Budget. A detailed budget is required for each year of 
requested support. In addition, a summary budget is required detailing 
requested support for the overall project period. A copy of the form 
which must be used for this purpose, along with instructions for 
completion, is included in the Grant Application Kit identified under 
Sec. 3400.4(b) of this part and may be reproduced as needed by 
applicants. Funds may be requested under any of the categories listed, 
provided that the item or service for which support is requested is 
allowable under applicable Federal cost principles and can be identified 
as necessary for successful conduct of the proposed research project. No 
funds will be awarded for the renovation or refurbishment of research 
spaces; purchases or installation of fixed equipment in such spaces; or 
for the planning, repair, rehabilitation, acquisition, or construction 
of a building or facility. All research project grants awarded under 
this part shall be issued without regard to matching funds or cost 
sharing.
    (13) Research involving special considerations. A number of 
situations encountered in the conduct of research require special 
information and supporting documentation before funding can be approved 
for the project. If such situations are anticipated, the proposal must 
so indicate. It is expected that a significant number of special 
research grant proposals will involve the following:
    (i) Recombinant DNA molecules. All key personnel identified in a 
proposal and all endorsing officials of a proposed performing entity are 
required to comply with the guidelines established by the National 
Institutes of Health entitled, ``Guidelines for Research Involving 
Recombinant DNA Molecules,'' as revised. The Grant Application Kit, 
identified above in Sec. 3400.4(b), contains forms which are suitable 
for such certification of compliance.
    (ii) Human subjects at risk. Responsibility for safeguarding the 
rights and welfare of human subjects used in any research project 
supported with grant funds provided by the Department rests with the 
performing entity. Regulations have been issued by the Department under 
7 CFR Part 1c, Protection of Human Subjects. In the event that a project 
involving human subjects at risk is recommended for award, the applicant 
will be required to submit a statement certifying that the research plan 
has been reviewed and approved by the Institutional Review Board at the 
proposing organization or institution. The Grant Application Kit, 
identified above in Sec. 3400.4(b), contains forms which are suitable 
for such certification.
    (iii) Laboratory animal care. The responsibility for the humane care 
and treatment of any laboratory animal, which has the same meaning as 
``animal'' in section 2(g) of the Animal Welfare Act of 1966, as amended 
(7 U.S.C. 2132(g)), used in any research project supported with Special 
Research Grants Program funds rests with the

[[Page 193]]

performing organization. In this regard, all key personnel identified in 
a proposal and all endorsing officials of the proposed performing entity 
are required to comply with applicable provisions of the Animal Welfare 
Act of 1966, as amended (7 U.S.C. 2131 et. seq.) and the regulation 
promulgated thereunder by the Secretary of Agriculture in 9 CFR parts 1, 
2, 3, and 4. In the event that a project involving the use of a 
laboratory animal is recommended for award, the applicant will be 
required to submit a statement certifying such compliance. The Grant 
Application Kit, identified above in Sec. 3400.4(b), contains forms 
which are suitable of such certification.
    (14) Current and pending support. All proposals must list any other 
current public or private research support, in addition to the proposed 
project, to which key personnel listed in the proposal under 
consideration have committed portions of their time, whether or not 
salary support for the person(s) involved is included in the budgets of 
the various projects. This section must also contain analogous 
information for all projects underway and for pending research proposals 
which are currently being considered by, or which will be submitted in 
the near future to, other possible sponsors, including other 
Departmental programs or agencies. Concurrent submission of identical or 
similar projects to other possible sponsors will not prejudice its 
review or evaluation by the Director or experts or consultants engaged 
by the Director for this purpose. The Grant Application Kit, identified 
above in Sec. 3400.4(b), contains a form which is suitable for listing 
current and pending support.
    (15) Additions to project description. Each project description is 
expected by the Director, members of peer review groups, and the 
relevant program staff to be complete in itself. However, in those 
instances in which the inclusion of additional information is necessary, 
the number of copies submitted should match the number of copies of the 
application requested in the annual solicitation of proposals as 
indicated in Sec. 3400.4(a)(4). Each set of such materials must be 
identified with the title of the research project as it appears in the 
Grant Application and the name(s) of the principal investigator(s). 
Examples of additional materials may include photographs which do not 
reproduce well, reprints, and other pertinent materials which are deemed 
to be unsuitable for inclusion in the proposal.
    (16) Organizational management information. Specific management 
information relating to an applicant shall be submitted on a one-time 
basis prior to the award of a research project grant identified under 
this part if such information has not been provided previously under 
this or another program for which the sponsoring agency is responsible. 
Copies of forms recommended for use in fulfilling the requirements 
contained in this section will be provided by the agency specified in 
this part once a research project grant has been recommended for 
funding.

[56 FR 58147, Nov 15, 1991, as amended at 80 FR 81738, Dec. 31, 2015]



Sec. 3400.5  Evaluation and disposition of applications.

    (a) Evaluation. All proposals received from eligible applicants in 
accordance with eligible research problem or program areas and deadlines 
established in the applicable request for proposals shall be evaluated 
by the Director through such officers, employees, and others as the 
Director determines are uniquely qualified in the areas of research 
represented by particular projects. To assist in equitably and 
objectively evaluating proposals and to obtain the best possible balance 
of viewpoints, the Director shall solicit the advice of peer scientists, 
ad hoc reviewers, or others who are recognized specialists in the 
research program areas covered by the applications received and whose 
general roles are defined in Sec. Sec. 3400.2(j) and 3400.2(k). 
Specific evaluations will be based upon the criteria established in 
subpart B Sec. 3400.15, unless NIFA determines that different criteria 
are necessary for the proper evaluation of proposals in one or more 
specific program areas, and announces such criteria and their relative 
importance in the annual program solicitation. The overriding purpose of 
such evaluations is to provide information upon which the Director can 
make

[[Page 194]]

informed judgments in selecting proposals for ultimate support. 
Incomplete, unclear, or poorly organized applications will work to the 
detriment of applicants during the peer evaluation process. To ensure a 
comprehensive evaluation, all applications should be written with the 
care and thoroughness accorded papers for publication.
    (b) Disposition. On the basis of the Director's evaluation of an 
application in accordance with paragraph (a) of this section, the 
Director will
    (1) Approve support using currently available funds,
    (2) Defer support due to lack of funds or a need for further 
evaluations, or
    (3) Disapprove support for the proposed project in whole or in part.

With respect to approved projects, the Director will determine the 
project period (subject to extension as provided in Sec. 3400.7(c)) 
during which the project may be supported. Any deferral or disapproval 
of an application will not preclude its reconsideration or a 
reapplication during subsequent fiscal years.



Sec. 3400.6  Grant awards.

    (a) General. Within the limit of funds available for such purpose, 
the awarding official shall make research project grants to those 
responsible, eligible applicants whose proposals are judged most 
meritorious in the announced program areas under the evaluation criteria 
and procedures set forth in this part. The date specified by the 
Director as the beginning of the project period shall be no later than 
September 30 of the Federal fiscal year in which the project is approved 
for support and funds are appropriated for such purpose, unless 
otherwise permitted by law. All funds granted under this part shall be 
expended solely for the purpose for which the funds are granted in 
accordance with the approved application and budget, the regulations of 
this part, the terms and conditions of the award, the applicable Federal 
cost principles, and 2 CFR part 20 (part 3015 of this title).
    (b) Grant award document and notice of grant award--(1) Grant award 
document. The grant award document shall include at a minimum the 
following:
    (i) Legal name and address of performing organization or institution 
to whom the Director has awarded a special research project grant under 
the terms of this part;
    (ii) Title of project;
    (iii) Name(s) and address(es) of principal investigator(s) chosen to 
direct and control approved activities;
    (iv) Identifying grant number assigned by the Department;
    (v) Project period, which specifies how long the Department intends 
to support the effort without requiring recompetition for funds;
    (vi) Total amount of Departmental financial assistance approved by 
the Director during the project period;
    (vii) Legal authority(ies) under which the research project grant is 
awarded to accomplish the purpose of the law;
    (viii) Approved budget plan for categorizing allocable project funds 
to accomplish the stated purpose of the research project grant award; 
and
    (ix) Other information or provisions deemed necessary by the 
Department to carry out its granting activities or to accomplish the 
purpose of a particular research project grant.
    (2) Notice of grant award. The notice of grant award, in the form of 
a letter, will be prepared and will provide pertinent instructions or 
information to the grantee that is not included in the grant award 
document.
    (c) Categories of grant instruments. The major categories of grant 
instruments shall be as follows:
    (1) Standard grant. This is a grant instrument by which the 
Department agrees to support a specified level of research effort for a 
predetermined project period without the announced intention of 
providing additional support at a future date. This type of research 
project grant is approved on the basis of peer review and recommendation 
and is funded for the entire project period at the time of award.
    (2) Renewal grant. This is a document by which the Department agrees 
to provide additional funding under a standard grant as specified in 
paragraph (c)(1) of this section for a project period beyond that 
approved in an original or amended award, provided that the cumulative 
period does not exceed the statutory limitation. When a

[[Page 195]]

renewal application is submitted, it should include a summary of 
progress to date under the previous grant instrument. Such a renewal 
shall be based upon new application, de novo peer review and staff 
evaluation, new recommendation and approval, and a new award instrument.
    (3) Continuation grant. This is a grant instrument by which the 
Department agrees to support a specified level of effort for a 
predetermined period of time with a statement of intention to provide 
additional support at a future date, provided that performance has been 
satisfactory, appropriations are available for this purpose, and 
continued support would be in the best interests of the Federal 
Government and the public. It involves a long-term research project that 
is considered by peer reviewers and Departmental officers to have an 
unusually high degree of scientific merit, the results of which are 
expected to have a significant impact on the food and agricultural 
sciences, and it supports the efforts of experienced scientists with 
records of outstanding research accomplishments. This kind of document 
will normally be awarded for an initial one-year period and any 
subsequent continuation research project grants will also be awarded in 
one-year increments. The award of a continuation research project grant 
to fund an initial or succeeding budget period does not constitute an 
obligation to fund any subsequent budget period. A grantee must submit a 
separate application for continued support for each subsequent fiscal 
year. Requests for such continued support must be submitted in duplicate 
at least three months prior to the expiration date of the budget period 
currently being funded. Such requests must include: an interim progress 
report detailing all work performed to date; a Grant Application; a 
proposed budget for the ensuing period, including an estimate of funds 
anticipated to remain unobligated at the end of the current budget 
period; and current information regarding other extramural support for 
senior personnel. Decisions regarding continued support and the actual 
funding levels of such support in future years will usually be made 
administratively after consideration of such factors as the grantee's 
progress and management practices and within the context of available 
funds. Since initial peer reviews were based upon the full term and 
scope of the original special research grant application, additional 
evaluations of this type generally are not required prior to successive 
years' support. However, in unusual cases (e.g., when the nature of the 
project or key personnel change or when the amount of future support 
requested substantially exceeds the grant application originally 
reviewed and approved), additional reviews may be required prior to 
approving continued funding.
    (4) Supplemental grant. This is an instrument by which the 
Department agrees to provide small amounts of additional funding under a 
standard, renewal, or continuation grant as specified in paragraphs 
(c)(1), (c)(2), and (c)(3) of this section and may involve a short-term 
(usually six months or less) extension of the project period beyond that 
approved in an original or amended award, but in no case may the 
cumulative period of the project, including short term extensions, 
exceed the statutory time limitation. A supplement is awarded only if 
required to assure adequate completion of the original scope of work and 
if there is sufficient justification of need to warrant such action. A 
request of this nature normally does not require additional peer review.
    (d) Obligation of the Federal Government. Neither the approval of 
any application nor the award of any research project grant shall commit 
or obligate the United States in any way to make any renewal, 
supplemental, continuation, or other award with respect to any approved 
application or portion of an approved application.

[56 FR 58147, Nov. 15, 1991, as amended at 79 FR 75997, Dec. 26, 2014]



Sec. 3400.7  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not 
delegate or transfer in whole or in part, to another person, 
institution, or organization the responsibility for use or expenditure 
of grant funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee,

[[Page 196]]

principal investigator(s), or other key project personnel in the 
approved research project grant shall be limited to changes in 
methodology, techniques, or other aspects of the project to expedite 
achievement of the projects' approved goals. If the grantee or the 
principal investigator(s) is uncertain as to whether a change complies 
with this provision, the question must be referred to the Director for a 
final determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the Department prior to effecting 
such changes. In no event shall requests for such changes be approved 
which are outside the scope of the original approved project.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and approved in writing by the Department prior to effecting 
such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the grantee and 
approved in writing by the Department prior to effecting such changes, 
except as may be allowed in the terms and conditions of the grant award.
    (c) Changes in project period. The project period determined 
pursuant to Sec. 3400.5(b) may be extended by the Director without 
additional financial support for such additional period(s) as the 
Director determines may be necessary to complete or fulfill the purposes 
of an approved project. Any extension, when combined with the originally 
approved or amended project period shall not exceed three (3) years (the 
limitation established by statute) and shall be further conditioned upon 
prior request by the grantee and approval in writing by the Department, 
unless prescribed otherwise in the terms and conditions of a grant 
award.
    (d) Changes in approved budget. The terms and conditions of a grant 
will prescribe circumstances under which written Departmental approval 
will be requested and obtained prior to instituting changes in an 
approved budget.

[56 FR 58147, Nov. 15, 1991, as amended at 64 FR 34103, June 24, 1999]



Sec. 3400.8  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.''
    (b) Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to research project grants awarded 
under this part. These include but are not limited to:

2 CFR part 200--Uniform Administrative Requirements, Cost Principles, 
and Audit Requirements for Federal Awards.
2 CFR part 180 and Part 417--OMB Guidelines to Agencies on Government-
Wide Debarment and Suspension (Nonprocurement) and USDA Nonprocurement 
Debarment and Suspension.
7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
7 CFR 1.1--USDA Implementation of Freedom of Information Act.
7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding Debt 
Collection.
7 CFR part 15, subpart A--USDA Implementation of Title VI of the Civil 
Rights Act of 1964.
7 CFR part 3407--NIFA procedures to implement the National Environmental 
Policy Act.
29 U.S.C. 794, section 504--Rehabilitation Act of 1973, and 7 CFR part 
15B (USDA implementation of statute), prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs.
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted

[[Page 197]]

programs (implementing regulations are contained in 37 CFR part 401).

[79 FR 75997, Dec. 19, 2014]



Sec. 3400.9  Other conditions.

    The Director may, with respect to any research project grant or to 
any class of awards, impose additional conditions prior to or at the 
time of any award when, in the Director's judgment, such conditions are 
necessary to assure or protect advancement of the approved project, the 
interests of the public, or the conservation of grant funds.



     Subpart B_Scientific Peer Review of Research Grant Applications



Sec. 3400.10  Establishment and operation of peer review groups.

    Subject to Sec. 3400.5, the Director will adopt procedures for the 
conduct of peer reviews and the formulation of recommendations under 
Sec. 3400.14.



Sec. 3400.11  Composition of peer review groups.

    (a) Peer review group members will be selected based upon their 
training and experience in relevant scientific or technical fields, 
taking into account the following factors:
    (1) The level of formal scientific or technical education by the 
individual;
    (2) The extent to which the individual has engaged in relevant 
research, the capacities in which the individual has done so (e.g., 
principal investigator, assistant), and the quality of such research;
    (3) Professional recognition as reflected by awards and other honors 
received from scientific and professional organizations outside of the 
Department;
    (4) The need of the group to include within its membership experts 
from various areas of specialization within relevant scientific or 
technical fields;
    (5) The need of the group to include within its membership experts 
from a variety of organizational types (e.g., universities, industry, 
private consultant(s)) and geographic locations; and
    (6) The need of the group to maintain a balanced membership, e.g., 
minority and female representation and an equitable age distribution.
    (b) [Reserved]



Sec. 3400.12  Conflicts of interest.

    Members of peer review groups covered by this part are subject to 
relevant provisions contained in Title 18 of the United States Code 
relating to criminal activity, Department regulations governing employee 
responsibilities and conduct (part O of this title), and Executive Order 
11222, as amended.



Sec. 3400.13  Availability of information.

    Information regarding the peer review process will be made available 
to the extent permitted under the Freedom of Information Act (5 U.S.C. 
552), the Privacy Act (5 U.S.C. 552a), and implementing Departmental 
regulations (part 1 of this title).



Sec. 3400.14  Proposal review.

    (a) All research grant applications will be acknowledged. Prior to 
technical examination, a preliminary review will be made for 
responsiveness to the request for proposals (e.g., relationship of 
application to research program area). Proposals which do not fall 
within the guidelines as stated in the annual request for proposals will 
be eliminated from competition and will be returned to the applicant. 
Proposals whose budgets exceed the maximum allowable amount for a 
particular program area as announced in the request for proposals may be 
considered as lying outside the guidelines.
    (b) All applications will be carefully reviewed by the Director, 
qualified officers or employees of the Department, the respective peer 
review group, and ad hoc reviewers, as required. Written comments will 
be solicited from ad hoc reviewers when required, and individual written 
comments and in-depth discussions will be provided by peer review group 
members prior to recommending applications for funding. Applications 
will be ranked and support levels recommended within the limitation of 
total available funding for each research program area as announced in 
the applicable request for proposals.
    (c) No awarding official will make a research project grant based 
upon an application covered by this part unless the application has been 
reviewed by a

[[Page 198]]

peer review group and/or ad hoc reviewers in accordance with the 
provisions of this part and said reviewers have made recommendations 
concerning the scientific merit of such application.
    (d) Except to the extent otherwise provided by law, such 
recommendations are advisory only and are not binding on program 
officers or on the awarding official.



Sec. 3400.15  Review criteria.

    (a) Subject to the varying conditions and needs of States, Federal 
funded agricultural research supported under these provisions shall be 
designed to, among other things, accomplish one or more of the following 
purposes:
    (1) Continue to satisfy human food and fiber needs;
    (2) Enhance the long-term viability and competitiveness of the food 
production and agricultural system of the United States within the 
global economy;
    (3) Expand economic opportunities in rural America and enhance the 
quality of life for farmers, rural citizens, and society as a whole;
    (4) Improve the productivity of the American agricultural system and 
develop new agricultural crops and new uses for agricultural 
commodities;
    (5) Develop information and systems to enhance the environment and 
the natural resource base upon which a sustainable agricultural economy 
depends; or
    (6) Enhance human health.

In carrying out its review under Sec. 3400.14, the peer review group 
will use the following form upon which the evaluation criteria to be 
used are enumerated, unless pursuant to Sec. 3400.5(a), different 
evaluation criteria are specified in the annual solicitation of 
proposals for a particular program.

                         Peer Panel Scoring Form

Proposal Identification No._____________________________________________

Institution and Project Title___________________________________________

                          I. Basic Requirement:

    Proposal falls within guidelines? __________ Yes __________ No. If 
no, explain why proposal does not meet guidelines under comment section 
of this form.

                         II. Selection Criteria:

------------------------------------------------------------------------
                                                       Score X
                                       Score   Weight   weight  Comments
                                       1-10    factor   factor
------------------------------------------------------------------------
1. Overall scientific and technical   ......       10
 quality of proposal................
2. Scientific and technical quality   ......       10
 of the approach....................
3. Relevance and importance of        ......        6
 proposed research to solution of
 specific areas of inquiry..........
4. Feasibility of attaining           ......        5  .......  ........
 objectives; adequacy of
 professional training and
 experience, facilities and
 equipment..........................
------------------------------------------------------------------------

Score___________________________________________________________________

Summary Comments________________________________________________________

    (b) Proposals satisfactorily meeting the guidelines will be 
evaluated and scored by the peer review panel for each criterion 
utilizing a scale of 1 through 10. A score of one (1) will be considered 
low and a score of ten (10) will be considered high for each selection 
criterion. A weighted factor is used for each criterion.



          Subpart C_Peer and Merit Review Arranged by Grantees

    Source: 64 FR 34104, June 24, 1999, unless otherwise noted.



Sec. 3400.20  Grantee review prior to award.

    (a) Review requirement. Prior to the award of a standard or 
continuation grant by NIFA, any proposed project shall have undergone a 
review arranged by the grantee as specified in this subpart. For 
research projects, such review must be a scientific peer review 
conducted in accordance with Sec. 3400.21. For education and extension 
projects, such review must be a merit review conducted in accordance 
with Sec. 3400.22.
    (b) Credible and independent. Review arranged by the grantee must 
provide for a credible and independent assessment of the proposed 
project. A credible review is one that provides an appraisal of 
technical quality and relevance sufficient for an organizational 
representative to make an informed judgment as to whether the proposal 
is

[[Page 199]]

appropriate for submission for Federal support. To provide for an 
independent review, such review may include USDA employees, but should 
not be conducted solely by USDA employees.
    (c) Notice of completion and retention of records. A notice of 
completion of review shall be conveyed in writing to NIFA either as part 
of the submitted proposal or prior to the issuance of an award, at the 
option of NIFA. The written notice constitutes certification by the 
applicant that a review in compliance with these regulations has 
occurred. Applicants are not required to submit results of the review to 
NIFA; however, proper documentation of the review process and results 
should be retained by the applicant.
    (d) Renewal and supplemental grants. Review by the grantee is not 
automatically required for renewal or supplemental grants as defined in 
Sec. 3400.6. A subsequent grant award will require a new review if, 
according to NIFA, either the funded project has changed significantly, 
other scientific discoveries have affected the project, or the need for 
the project has changed. Note that a new review is necessary when 
applying for another standard or continuation grant after expiration of 
the grant term.



Sec. 3400.21  Scientific peer review for research activities.

    Scientific peer review is an evaluation of a proposed project for 
technical quality and relevance to regional or national goals performed 
by experts with the scientific knowledge and technical skills to conduct 
the proposed research work. Peer reviewers may be selected from an 
applicant organization or from outside the organization, but shall not 
include principals, collaborators or others involved in the preparation 
of the application under review.



Sec. 3400.22  Merit review for education and extension activities.

    Merit review is an evaluation of a proposed project or elements of a 
proposed program whereby the technical quality and relevance to regional 
or national goals are assessed. The merit review shall be performed by 
peers and other individuals with expertise appropriate to evaluate the 
proposed project. Merit reviewers may not include principals, 
collaborators or others involved in the preparation of the application 
under review.



                        Subpart D_Annual Reports



Sec. 3400.23  Annual reports.

    (a) Reporting requirement. The recipient shall submit an annual 
report describing the results of the research, extension, or education 
activity and the merit of the results.
    (b) Report type and content. Unless otherwise stipulated, grant 
recipients will have met the reporting requirement under this subpart by 
complying with the reporting requirements as set forth in the terms and 
conditions of the grant at the time of award.

[64 FR 34104, June 24, 1999]



PART 3401_RANGELAND RESEARCH GRANTS PROGRAM--Table of Contents



                            Subpart A_General

Sec.
3401.1 Applicability of regulations of this part.
3401.2 Definitions.
3401.3 Eligibility requirements.
3401.4 Matching funds requirement.
3401.5 Indirect costs and tuition remission costs.
3401.6 How to apply for a grant.
3401.7 Evaluation and disposition of applications.
3401.8 Grant awards.
3401.9 Use of funds; changes.
3401.10 Other Federal statutes and regulations that apply.
3401.11 Other conditions.

  Subpart B_Scientific Peer Review of Research Applications for Funding

3401.12 Establishment and operation of peer review groups.
3401.13 Composition of peer review groups.
3401.14 Conflicts of interest.
3401.15 Availability of information.
3401.16 Proposal review.
3401.17 Review criteria.

    Authority: Section 1470 of the National Agricultural Research, 
Extension and Teaching Policy Act of 1977 (7 U.S.C. 3316).

    Source: 61 FR 27753, May 31, 1996, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 3401 appear at 76 FR 
4806, Jan. 27, 2011.

[[Page 200]]



                            Subpart A_General



Sec. 3401.1  Applicability of regulations of this part.

    (a) The regulations of this part apply to rangeland research grants 
awarded under the authority of section 1480 of the National Agricultural 
Research, Extension, and Teaching Policy Act of 1977, as amended (7 
U.S.C. 3333) to land-grant colleges and universities, State agricultural 
experiment stations, and colleges, universities, and Federal 
laboratories having a demonstrable capacity in rangeland research, as 
determined by the Secretary, to carry out rangeland research. The 
Director of the National Institute of Food and Agriculture (NIFA) shall 
determine and announce, through publication each year of a Notice in the 
Federal Register, professional trade journals, agency or program 
handbooks, the catalog of Federal Domestic Assistance or any other 
appropriate means, research program areas for which proposals will be 
solicited, to the extent that funds are available.
    (b) The regulations of this part do not apply to research grants 
awarded by the Department of Agriculture under any other authority.



Sec. 3401.2  Definitions.

    As used in this part:
    (a) Director means the Director of NIFA and any other officer or 
employee of the Department of Agriculture to whom the authority involved 
may be delegated.
    (b) Department means the Department of Agriculture.
    (c) Principal investigator means a single individual designated by 
the grantee in the application for funding and approved by the Director 
who is responsible for the scientific and technical direction of the 
project.
    (d) Grantee means the entity designated in the grant award document 
as the responsible legal entity to whom a grant is awarded under this 
part.
    (e) Research project grant means the award by the Director of funds 
to a grantee to assist in meeting the costs of conducting, for the 
benefit of the public, an identified project which is intended and 
designed to establish, discover, elucidate, or confirm information or 
the underlying mechanisms relating to a research program area identified 
in the annual solicitation of applications.
    (f) Project means the particular activity within the scope of one or 
more of the research program areas identified in the annual solicitation 
of applications, which is supported by a grant award under this part.
    (g) Project period means the total length of time that is approved 
by the Director for conducting the research project as outlined in an 
approved application for funding.
    (h) Budget period means the interval of time (usually 12 months) 
into which the project period is divided for budgetary and reporting 
purposes.
    (i) Awarding official means the Director and any other officer or 
employee of the Department to whom the authority to issue or modify 
research project grant instruments has been delegated.
    (j) Peer review group means an assembled group of experts or 
consultants qualified by training or experience in particular scientific 
or technical fields to give expert advice, in accordance with the 
provisions of this part, on the scientific and technical merit of 
applications for funding in those fields.
    (k) Ad hoc reviewers means experts or consultants qualified by 
training or experience in particular scientific or technical fields to 
render special expert advice, whose written evaluations of applications 
for funding are designed to complement the expertise of the peer review 
group, in accordance with the provisions of this part, on the scientific 
or technical merit of applications for Funding in those fields.
    (l) Research means any systematic study directed toward new or 
fuller knowledge and understanding of the subject studied.
    (m) Methodology means the project approach to be followed and the 
resources needed to carry out the project.



Sec. 3401.3  Eligibility requirements.

    (a) Except where otherwise prohibited by law, any land-grant college 
and university, State agricultural experiment station, and college, 
university,

[[Page 201]]

and Federal laboratory having a demonstrable capacity in rangeland 
research, as determined by the Secretary, shall be eligible to apply for 
and to receive a project grant under this part, provided that the 
applicant qualifies as a responsible grantee under the criteria set 
forth in paragraph (b) of this section.
    (b) To qualify as responsible, an applicant must meet the following 
standards as they relate to a particular project:
    (1) Have adequate financial resources for performance, the necessary 
experience, organizational and technical qualifications, and facilities, 
or a firm commitment, arrangement, or ability to obtain such (including 
proposed subagreements);
    (2) Be able to comply with the proposed or required completion 
schedule for the project;
    (3) Have a satisfactory record of integrity, judgment, and 
performance, including, in particular, any prior performance under 
grants and contracts from the Federal government;
    (4) Have an adequate financial management system and audit procedure 
which provides efficient and effective accountability and control of all 
property, funds, and other assets; and
    (5) Be otherwise qualified and eligible to receive a research 
project grant under applicable laws and regulations.
    (c) Any applicant who is determined to be not responsible will be 
notified in writing of such findings and the basis therefor.



Sec. 3401.4  Matching funds requirement.

    In accordance with section 1480 of the National Agricultural 
Research, Extension, and Teaching Policy Act of 1977, as amended (7 
U.S.C. 3333), except in the case of Federal laboratories, each grant 
recipient must match the Federal funds expended on a research project 
based on a formula of 50 percent Federal and 50 percent non-Federal 
funding.



Sec. 3401.5  Indirect costs and tuition remission costs.

    Pursuant to section 1473 of the National Agricultural Research, 
Extension, and Teaching Policy Act of 1977, as amended (7 U.S.C. 3319), 
funds made available under this program to recipients other than Federal 
laboratories shall not be subject to reduction for indirect costs or 
tuition remission costs. Since indirect costs and tuition remission 
costs, except in the case of Federal laboratories, are not allowable 
costs for purposes of this program, such costs may not be used to 
satisfy the matching requirement set forth in Sec. 3401.4.



Sec. 3401.6  How to apply for a grant.

    (a) General. After consultation with the Rangeland Research Advisory 
Board, established pursuant to section 1482 of the National Agricultural 
Research, Extension, and Teaching Policy Act of 1977, as amended (7 
U.S.C. 3335), a request for proposals will be prepared and announced 
through publications such as the Federal Register, professional trade 
journals, agency or program handbooks, the Catalog of Federal Domestic 
Assistance, or any other appropriate means of solicitation, as early as 
practicable each fiscal year. It will contain information sufficient to 
enable all eligible applicants to prepare rangeland research grant 
proposals and will be as complete as possible with respect to:
    (1) Descriptions of specific research program areas which the 
Department proposes to support during the fiscal year involved, 
including anticipated funds to be awarded;
    (2) Deadline dates for having proposal packages postmarked;
    (3) Name and address where proposals should be mailed;
    (4) Number of copies to be submitted;
    (5) Forms required to be used when submitting proposals; and
    (6) Special requirements.
    (b) Application kit. An Application Kit will be made available to 
any potential grant applicant who requests a copy. This kit contains 
required forms, certifications, and instructions applicable to the 
submission of grant proposals.
    (c) Format for research grant proposals. Unless otherwise stated in 
the specific program solicitation, the following format applies:
    (1) Application for funding. All research grant proposals submitted 
by eligible applicants should contain an Application for Funding form, 
which must

[[Page 202]]

be signed by the proposing principal investigator(s) and endorsed by the 
cognizant authorized organizational representative who possesses the 
necessary authority to commit the applicant's time and other relevant 
resources.
    (2) Title of project. The title of the project must be brief (80-
character maximum), yet represent the major thrust of the research. This 
title will be used to provide information to the Congress and other 
interested parties who may be unfamiliar with scientific terms; 
therefore, highly technical words or phraseology should be avoided where 
possible. In addition, phrases such as ``investigation of'' or 
``research on'' should not be used.
    (3) Objectives. Clear, concise, complete, enumerated, and logically 
arranged statement(s) of the specific aims of the research must be 
included in all proposals.
    (4) Procedures. The procedures of methodology to be applied to the 
proposed research plan should be stated explicitly. This section should 
include but not necessarily be limited to:
    (i) A description of the proposed investigations and/or experiments 
in the sequence in which it is planned to carry them out;
    (ii) Techniques to be employed, including their feasibility;
    (iii) Kinds of results expected;
    (iv) Means by which data will be analyzed or interpreted;
    (v) Pitfalls which might be encountered; and
    (vi) Limitations to proposed procedures.
    (5) Justification. This section of the grant proposal should 
describe:
    (i) The importance of the problem to the needs of the Department and 
to the Nation, including estimates of the magnitude of the problem;
    (ii) The importance of starting the work during the current fiscal 
year; and
    (iii) Reasons for having the work performed by the proposing 
organization.
    (6) Literature review. A summary of pertinent publications with 
emphasis on their relationship to the research should be provided and 
should include all important and recent publications. The citations 
should be accurate, complete, written in acceptable journal format, and 
be appended to the proposal.
    (7) Current research. The relevancy of the proposed research to 
ongoing and, as yet, unpublished research of both the applicant and any 
other institutions should be described.
    (8) Facilities and equipment. All facilities, including 
laboratories, that are available for use or assignment to the proposed 
research project during the requested period of support, should be 
reported and described. Any materials, procedures, situations, or 
activities, whether or nor directly related to a particular phase of the 
proposed research, and which may be hazardous to personnel, must be 
explained fully, along with an outline of precautions to be exercised. 
All items of major instrumentation available for use or assignment to 
the proposed research project during the requested period of support 
should be itemized. In addition, items of nonexpendable equipment needed 
to conduct and bring the proposed project to a successful conclusion 
should be listed.
    (9) Collaborative arrangements. If the proposed project requires 
collaboration with other research scientists, corporations, 
organizations, agencies, or entities, such collaboration must be 
explained fully and justified. Evidence should be provided to assure 
peer reviewers that the collaborators involved agree with the 
arrangements. It should be specifically indicated whether or not such 
collaborative arrangements have the potential for any conflict(s) of 
interest. Proposals which indicate collaborative involvements must state 
which applicant is to receive any resulting grant award, since only one 
eligible applicant, as provided in Sec. 3401.3 may be the recipient of 
a research project grant under one proposal.
    (10) Research timetable. The applicant should outline all important 
research phases as a function of time, year by year.
    (11) Personnel support. All personnel who will be involved in the 
research effort must be identified clearly. For each scientist involved, 
the following should be included:
    (i) An estimate of the time commitments necessary;

[[Page 203]]

    (ii) Vitae of the principal investigator(s), senior associate(s), 
and other professional personnel to assist reviewers in evaluating the 
competence and experience of the project staff. This section should 
include curricula vitae of all key persons who will work on the proposed 
research project, whether or not Federal funds are sought for their 
support. The vitae are to be no more than two pages each in length, 
excluding publication listings; and
    (iii) A chronological listing of the most representative 
publications during the past five years shall be provided for each 
professional project member of whom a curriculum vitae appears under 
this section. Authors should be listed in the same order as they appear 
on each paper cited, along with the title and complete reference as 
these usually appear in journals.
    (12) Budget. A detailed budget is required for each year of 
requested support. In addition, a summary budget is required detailing 
requested support for the overall project period. A copy of the form 
which must be used for this purpose, along with instructions for 
completion, is included in the Application Kit identified under Sec. 
3401.6(b) and may be reproduced as needed by applicants. Funds may be 
requested under any of the categories listed, provided that the item or 
service for which support is requested is allowable under applicable 
Federal cost principles and can be identified as necessary for 
successful conduct of the proposed research project. As stated in Sec. 
3401.4 each grant recipient must match the Federal funds expended on a 
research project based on a formula of 50 percent Federal and 50 percent 
non-Federal funding. As stated in Sec. 3401.5, indirect costs and 
tuition remission costs are not allowable costs for purposes of this 
program and , thus, may not be used to satisfy the matching requirement 
set forth in Sec. 3401.4.
    (13) Research involving special considerations. A number of 
situations encountered in the conduct of research require special 
information and supporting documentation before funding can be approved 
for the project. If such situations are anticipated, the proposal must 
so indicate. It is expected that a significant number of rangeland grant 
proposals will involve the following:
    (i) Recombinant DNA molecules. All key personnel identified in a 
proposal and all endorsing officials of a proposed performing entity are 
required to comply with the guidelines establishing by the National 
Institutes of Health entitled, ``Guidelines for Research Involving 
Recombinant DNA Molecules,'' as revised. The Application Kit, identified 
above in Sec. 3401.6(b), contains a form which is suitable for such 
certification of compliance. In the event a project involving 
recombinant DNA and RNA molecules results in a grant award, the 
Institutional Biosafety Committee must approve the research before NIFA 
funds will be released.
    (ii) Human subjects at risk. Responsibility for safeguarding the 
rights and welfare of human subjects used in any research project 
supported with grant funds provided by the Department rests with the 
performing entity. Regulations have been issued by the Department under 
7 CFR part 1c, Protection of Human Subjects. In the event that a project 
involving human subjects at risk is recommended for award, the applicant 
will be required to submit a statement certifying that the research plan 
has been reviewed and approved by the Institutional Review Board at the 
proposing organization or institution. The Application Kit, identified 
above in Sec. 3401.6(b), contains a form which is suitable for such 
certification. In the event a project involving human subjects results 
in a grant award, funds will be released only after the Institutional 
Committee has approved the project.
    (iii) Laboratory animal care. The responsibility for the humane care 
and treatment of any laboratory animal, which has the same meaning as 
``animal'' in section 2(g) of the Animal Welfare Act of 1966, as amended 
(7 U.S.C. 2132(g)), used in any research project supported with 
Rangeland Research Grant Program funds rests with the performing 
organization. In this regard, all key personnel identified in a proposal 
and all endorsing officials of the proposed performing entity are 
required to comply with the applicable provisions of the Animal Welfare 
Act of 1966, as amended (7 U.S.C. 2131 et seq.)

[[Page 204]]

and the regulations promulgated thereunder by the Secretary of 
Agriculture in 9 CFR parts 1, 2, 3, and 4. In the event that a project 
involving the use of a laboratory animal is recommended for award, the 
applicant will be required to submit a statement certifying such 
compliance. The Application Kit, identified above in Sec. 3401.6(b), 
contains a form which is suitable for such certification. In the event a 
project involving the use of living vertebrate animals results in a 
grant award, funds will be released only after the Institutional Animal 
Care and Use Committee has approved the project.
    (14) Current and pending support. All proposals must list any other 
current public or private research support, in addition to the proposed 
project, to which key personnel listed in the proposal under 
consideration have committed portions of their time, whether or not 
salary support for the person(s) involved is included in the budgets of 
the various projects. This section must also contain analogous 
information for all projects underway and for pending research proposals 
which are currently being considered by, or which will be submitted in 
the near future to, other possible sponsors, including other 
Departmental programs or agencies. Concurrent submission of identical or 
similar projects to other possible sponsors will not prejudice its 
review or evaluation by the Director or experts or consultants engaged 
by the Director for this purpose. The Application Kit, identified above 
in Sec. 3401.6(b), contains a form which is suitable for listing 
current and pending support.
    (15) Additions to project description. Each project description is 
expected by the Director, members of peer review groups, and the 
relevant program staff to be complete in itself. However, in those 
instances in which the inclusion of additional information is necessary, 
the number of copies submitted should match the number of copies of the 
application requested in the annual solicitation of proposals as 
indicated in Sec. 3401.6(a)(4). Each set of such materials must be 
identified with the title of the research project as it appears in the 
Application for Funding and the name(s) of the principal 
investigator(s). Examples of additional materials may include 
photographs which do not reproduce well, reprints, and other pertinent 
materials which are deemed to be unsuitable for inclusion in the 
proposal.
    (16) National Environmental Policy Act. As outlined in NIFA's 
implementing regulations of the National Environmental Policy Act of 
1969 (NEPA) at 7 CFR part 3407, environmental data or documentation for 
the proposed project is to be provided to NIFA in order to assist NIFA 
in carrying out its responsibilities under NEPA. These responsibilities 
include determining whether the project requires an Environmental 
Assessment or an Environmental Impact Statement or whether it can be 
excluded from this requirement on the basis of several categorical 
exclusions listed in 7 CFR part 3407. In this regard, the applicant 
should review the categories defined for exclusion to ascertain whether 
the proposed project may fall within one or more of the exclusions, and 
should indicate if it does so on the National Environmental Policy Act 
Exclusions Form (Form NIFA--1234) provided in the Application Kit. Even 
though the applicant considers that a proposed project may fall within a 
categorical exclusion, NIFA may determine that an Environmental 
Assessment or an Environmental Impact Statement is necessary for a 
proposed project should substantial controversy on environmental grounds 
exist or if other extraordinary conditions or circumstances are present 
that may cause such activity to have a significant environmental effect.
    (17) Organizational management information. Specific management 
information relating to an applicant shall be submitted on an one-time 
basis prior to the award of a research project grant identified under 
this part if such information has not been provided previously under 
this or another program for which the sponsoring agency is responsible. 
Copies of forms recommended for use in fulfilling the requirements 
contained in this section will be provided by the agency specified in 
this part once a research project grant has been recommended for 
funding.

[[Page 205]]



Sec. 3401.7  Evaluation and disposition of applications.

    (a) Evaluation. All proposals received from eligible applicants in 
accordance with eligible research problem or program areas and deadlines 
established in the applicable request for proposals shall be evaluated 
by the Director through such officers, employees, and others as the 
Director determines are particularly qualified in the areas of research 
represented by particular projects. To assist in equitably and 
objectively evaluating proposals and to obtain the best possible balance 
of viewpoints, the Director may solicit the advice of peer scientists, 
ad hoc reviewers, or others who are recognized specialists in the 
research program areas covered by the applications received. Specific 
evaluations will be based upon the criteria established in subpart B of 
this part, Sec. 3401.17, unless NIFA determines that different criteria 
are necessary for the proper evaluation of proposals in one or more 
specific program areas, and announces such criteria and their relative 
importance in the annual program solicitation. The overriding purpose of 
such evaluations is to provide information upon which the Director can 
make informed judgments in selecting proposals for ultimate support. 
Incomplete, unclear, or poorly organized applications will work to the 
detriment of applicants during the peer evaluation process. To ensure a 
comprehensive evaluation, all applications should be written with the 
care and thoroughness accorded papers for publication.
    (b) Disposition. On the basis of the Director's evaluation of an 
application in accordance with paragraph (a) of this section, the 
Director will approve using currently available funds, defer support due 
to lack of funds or a need for further evaluations, or disapprove 
support for the proposed project in whole or in part. With respect to 
approved projects, the Director will determine the project period 
(subject to extension as provided in Sec. 3401.9(c)) during which the 
project may be supported. Any deferral or disapproval of an application 
will not preclude its reconsideration or a reapplication during 
subsequent fiscal years.



Sec. 3401.8  Grant awards.

    (a) General. Within the limit of funds available for such purpose, 
the awarding official shall make research project grants to those 
responsible, eligible applicants whose proposals are judged most 
meritorious in the announced program areas under the evaluation criteria 
and procedures set forth in this part. The date specified by the 
Director as the beginning of the project period shall be no later than 
September 30 of the Federal fiscal year in which the project is approved 
for support and funds are appropriated for such purpose, unless 
otherwise permitted by law. All funds granted under this part shall be 
expended solely for the purpose for which the funds are granted in 
accordance with the approved application and budget, the regulations of 
this part, the terms and conditions of the award, the applicable Federal 
cost principles, and 2 CFR part 200 (parts 3015 and 3019 of this title).
    (b) Grant award document and notice of grant award--(1) Grant award 
documents. The grant award document shall include at a minimum the 
following:
    (i) Legal name and address of performing organization or institution 
to whom the Director has awarded a rangeland research project grant 
under the terms of this part;
    (ii) Title of project;
    (iii) Name(s) and address(es) of principal investigator(s) chosen to 
direct and control approved activities;
    (iv) Identifying grant number assigned by the Department;
    (v) Project period, which specifies how long the Department intends 
to support the effort without requiring recompetition for funds;
    (vi) Total amount of Departmental financial assistance approved by 
the Director during the project period;
    (vii) Legal authority(ies) under which the research project grant is 
awarded to accomplish the purpose of the law;
    (viii) Approved budget plan for categorizing allocable project funds 
to accomplish the stated purpose of the research project grant award; 
and
    (ix) Other information or provisions deemed necessary by the 
Department to carry out its granting activities or to accomplish the 
purpose of a particular research project grant.

[[Page 206]]

    (2) Notice of grant award. The notice of grant award, in the form of 
a letter, will be prepared and will provide pertinent instructions or 
information to the grantee that is not included in the grant award 
document.
    (c) Categories of grant instruments. The major categories of grant 
instruments by which the Department may provide support are as follows:
    (1) Standard grant. This is a grant instrument by which the 
Department agrees to support a specified level of research effort for a 
predetermined project period without the announced intention of 
providing additional support at a future date. This type of research 
project grant is approved on the basis of peer review and recommendation 
and is funded for the entire project period at the time of award.
    (2) Renewal grant. This is a document by which the Department agrees 
to provide additional funding under a standard grant as specified in 
paragraph (c)(1) of this section for a project period beyond that 
approved in an original or amended award, provided that the cumulative 
period does not exceed the statutory limitation. When a renewal 
application is submitted, it should include a summary of progress to 
date under the previous grant instrument. Such a renewal shall be based 
upon new application, de novo peer review and staff evaluation, new 
recommendation and approval, and a new award instrument.
    (3) Continuation grant. This is a grant instrument by which the 
Department agrees to support a specified level of effort for a 
predetermined period of time with a statement of intention to provide 
additional support at a future date, provided that performance has been 
satisfactory, appropriations are available for this purpose, and 
continued support would be in the best interests of the Federal 
government and the public. It involves a long-term research project that 
is considered by peer reviewers and Departmental officers to have an 
unusually high degree of scientific merit, the results of which are 
expected to have a significant impact on the productivity of the 
Nation's rangelands, and it supports the efforts of experienced 
scientists with records of outstanding research accomplishments. This 
kind of document normally will be awarded for an initial one-year period 
and any subsequent continuation research project grants also will be 
awarded in one-year increments, but in no case may the cumulative period 
of the project exceed the statutory limit. The award of a continuation 
research project grant to fund an initial or succeeding budget period 
does not constitute an obligation to fund any subsequent budget period. 
A grantee must submit a separate application for continued support for 
each subsequent fiscal year. Requests for such continued support must be 
submitted in duplicate at least three months prior to the expiration 
date of the budget period currently being funded. Such requests must 
include: an interim progress report detailing all work performed to 
date; an Application for Funding; a proposed budget for the enuring 
period, including an estimate of funds anticipated to remain unobligated 
at the end of the current budget period; and current information 
regarding other extramural support for senior personnel. Decisions 
regarding continued support and the actual funding levels of such 
support in future years usually will be made administratively after 
consideration of such factors as the grantee's progress and management 
practices and within the context of available funds. Since initial peer 
reviews were based upon the full term and scope of the original 
rangeland research application for funding, additional evaluations of 
this type generally are not required prior to successive years' support. 
However, in unusual cases (e.g., when the nature of the project or key 
personnel change or when the amount of future support requested 
substantially exceeds the application for funding originally reviewed 
and approved), additional reviews may be required prior to approval of 
continued funding.
    (4) Supplemental grant. This is an instrument by which the 
Department agrees to provide small amounts of additional funding under a 
standard, renewal, or continuation grant as specified in paragraphs 
(c)(1), (c)(2), and (c)(3) of this section and may involve a short-term 
(usually six months or less) extension of the project period beyond

[[Page 207]]

that approved in an original or amended award, but in no case may the 
cumulative period of the project, including short term extensions, 
exceed the statutory time limitation. A supplement is awarded only if 
required to assure adequate completion of the original scope of work and 
if there is sufficient justification of need to warrant such action. A 
request of this nature normally does not require additional peer review.
    (d) Obligation of the Federal government. Neither the approval of 
any application nor the award of any research project grant shall commit 
or obligate the United States in any way to make any renewal, 
supplemental, continuation, or other award with respect to any approved 
application or portion of an approved application.

[61 FR 27753, May 31, 1996, as amended at 79 FR 75998, Dec. 19, 2014]



Sec. 3401.9  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not 
delegate or transfer in whole or in part, to another person, 
institution, or organization the responsibility for use or expenditure 
of grant funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee, principal investigator(s), or other key project personnel in 
the approved research project grant shall be limited to changes in 
methodology, techniques, or other aspects of the project to expedite 
achievement of the projects' approved goals. If the grantee or the 
principal investigator(s) is uncertain as to whether a change complies 
with this provision, the question shall be referred to the Director for 
a final determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the Department prior to effecting 
such changes. In no event shall requests for such changes be approved 
which are outside the scope of the original approved project.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and approved in writing by the Department prior to effecting 
such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the grantee and 
approved in writing by the Department prior to effecting such changes, 
except as may be allowed in the terms and conditions of a grant award.
    (c) Changes in project period. The project period determined 
pursuant to Sec. 3401.7(b) may be extended by the Director without 
additional financial support, for such additional period(s) as the 
Director determines may be necessary to complete, or fulfill the 
purposes of, an approved project. Any extension, when combined with the 
originally approved or amended project period, shall be conditioned upon 
prior request by the grantee and approval in writing by the Department, 
unless prescribed otherwise in the terms and conditions of a grant 
award.
    (d) Changes in approved budget. The terms and conditions of a grant 
will prescribe circumstances under which written Departmental approval 
will be requested and obtained prior to instituting changes in an 
approved budget.



Sec. 3401.10  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.''
    (b) Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to research project grants awarded 
under this part. These include but are not limited to:


[[Page 208]]


2 CFR part 200--Uniform Administrative Requirements, Cost Principles, 
And Audit Requirements For Federal Awards.
2 CFR part 180 and Part 417--OMB Guidelines To Agencies On Government-
Wide Debarment And Suspension (Nonprocurement) And USDA Nonprocurement 
Debarment And Suspension
7 CFR part 1c--USDA implementation of the Federal Policy for the 
Protection of Human Subjects.
7 CFR 1.1--USDA implementation of Freedom of Information Act.
7 CFR part 3--USDA implementation of OMB Circular A-129 regarding debt 
collection.
7 CFR part 15, subpart A--USDA implementation of Title VI of the Civil 
Rights Act of 1964.
7 CFR part 3407--NIFA procedures to implement the National Environmental 
Policy Act;
29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR part 
15B (USDA implementation of statute)--prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs; and
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).

[79 FR 75998, Dec. 19, 2014]



Sec. 3401.11  Other conditions.

    The Director may, with respect to any research project grant or to 
any class of awards, impose additional conditions prior to or at the 
time of any award when, in the Director's judgment, such conditions are 
necessary to assure or protect advancement of the approved project, the 
interests of the public, or the conservation of grant funds.



  Subpart B_Scientific Peer Review of Research Applications for Funding



Sec. 3401.12  Establishment and operation of peer review groups.

    Subject to Sec. 3401.7, the Director will adopt procedures for the 
conduct of peer reviews and the formulation of recommendations under 
Sec. 3401.16.



Sec. 3401.13  Composition of peer review groups.

    Peer review group members will be selected based upon their training 
or experience in relevant scientific or technical fields, taking into 
account the following factors:
    (a) The level of formal scientific or technical education by the 
individual;
    (b) The extent to which the individual has engaged in relevant 
research, the capacities in which the individual has done so (e.g., 
principal investigator, assistant), and the quality of such research;
    (c) Professional recognition as reflected by awards and other honors 
received from scientific and professional organizations outside of the 
Department;
    (d) The need of the group to include within its membership experts 
from various areas of specialization within relevant scientific or 
technical fields;
    (e) The need of the group to include within its membership experts 
from a variety of organizational types (e.g., universities, industry, 
private consultant(s)) and geographic locations; and
    (f) The need of the group to maintain a balanced membership, e.g., 
minority and female representation and an equitable age distribution.



Sec. 3401.14  Conflicts of interest.

    Members of peer review groups covered by this part are subject to 
relevant provisions contained in Title 18 of the United States Code 
relating to criminal activity, Department regulations governing employee 
responsibilities and conduct (part 0 of this title), and Executive Order 
11222 (3 CFR, 1964-1965 Comp., p. 306), as amended. Administration of 
the peer review group must be in accordance with the Department's 
conflict of interest policy, 2 CFR 400.2.

[61 FR 27753, May 31, 1996, as amended at 79 FR 75998, Dec. 19, 2014]



Sec. 3401.15  Availability of information.

    Information regarding the peer review process will be made available 
to the extent permitted under the Freedom of Information Act (5 U.S.C. 
552), the Privacy Act (5 U.S.C. 552a.), and

[[Page 209]]

implementing Departmental regulations (part 1 of this title).



Sec. 3401.16  Proposal review.

    (a) All research Applications for Funding will be acknowledged. 
Prior to technical examination, a preliminary review will be made for 
responsiveness to the request for proposals (e.g., relationship of 
application to research program area). Proposals that do not fall within 
the guidelines as stated in the annual request for proposals will be 
eliminated from competition and will be returned to the applicant. 
Proposals whose budgets exceed the maximum allowable amount for a 
particular program area as announced in the request for proposals may be 
considered as lying outside the guidelines.
    (b) All applications will be reviewed carefully by the Director , 
qualified officers or employees of the Department, the respective merit 
review panel, and ad hoc reviewers, as required. Written comments will 
be solicited from ad hoc reviewers, when required, and individual 
written comments and in-depth discussions will be provided by peer 
review group members prior to recommending applications for funding. 
Applications will be ranked and support levels recommended within the 
limitation of total available funding for each research program area as 
announced in the applicable request for proposals.
    (c) Except to the extent otherwise provided by law, such 
recommendations are advisory only and are not binding on program 
officers or on the awarding official.



Sec. 3401.17  Review criteria.

    (a) Federally funded research supported under these provisions shall 
be designed to, among other things, accomplish one or more of the 
following purposes:
    (1) Improve management of rangelands as an integrated system and/or 
watershed;
    (2) Remedy unstable or unsatisfactory rangeland conditions;
    (3) Increase revegetation and/or rehabilitation of rangelands;
    (4) Examine the health of rangelands; and
    (5) Define economic parameters associated with rangelands.
    (b) In carrying out its review under Sec. 3401.16, the peer review 
panel will use the following form upon which the evaluation criteria to 
be used are enumerated, unless, pursuant to Sec. 3401.7(a), different 
evaluation criteria are specified in the annual solicitation of 
proposals for a particular program:

                         Peer Panel Scoring Form

Proposal Identification No._____________________________________________

Institution and Project Title___________________________________________

                          I. Basic Requirement:

    Proposal falls within guidelines? __________ Yes __________ No. If 
no, explain why proposal does not meet guidelines under comment section 
of this form.

                         II. Selection Criteria:

------------------------------------------------------------------------
                                                       Score X
                                       Score   Weight   weight  Comments
                                       1-10    factor   factor
------------------------------------------------------------------------
1. Overall scientific and technical   ......       10
 quality of proposal................
2. Scientific and technical quality   ......       10
 of the approach....................
3. Relevance and importance of        ......        6
 proposed research to solution of
 specific areas of inquiry..........
4. Feasibility of attaining           ......        5  .......  ........
 objectives; adequacy of
 professional training and
 experience, facilities and
 equipment..........................
------------------------------------------------------------------------

Score___________________________________________________________________

Summary Comments________________________________________________________

    (c) Proposals satisfactorily meeting the guidelines will be 
evaluated and scored by the peer review panel for each criterion 
utilizing a scale of 1 through 10. A score of one (1) will be considered 
low and a score of ten (10) will be considered high for each selection 
criterion. A weighted factor is used for each criterion.



PART 3402_FOOD AND AGRICULTURAL SCIENCES NATIONAL NEEDS GRADUATE AND POSTGRADUATE FELLOWSHIP GRANTS PROGRAM--Table of Contents



                     Subpart A_General Introduction

Sec.
3402.1 Applicability of regulations.

[[Page 210]]

3402.2 Definitions.
3402.3 Institutional eligibility.

                      Subpart B_Program Description

3402.4 Food and agricultural sciences areas targeted for National Needs 
          Graduate and Postdoctoral Fellowship Grants Program support.
3402.5 Overview of National Needs Graduate and Postdoctoral Fellowship 
          Grants Program.
3402.6 Overview of the special international study and/or thesis/
          dissertation research travel allowance.
3402.7 Fellowship appointments.
3402.8 Fellowship activities.
3402.9 Financial provisions.

                 Subpart C_Preparation of an Application

3402.10 Application package.
3402.11 Proposal cover page.
3402.12 Project summary.
3402.13 National need narrative.
3402.14 Budget and budget narrative.
3402.15 Faculty vitae.
3402.16 Appendix.

          Subpart D_Submission and Evaluation of an Application

3402.17 Where to submit an application.
3402.18 Evaluation criteria.

                   Subpart E_Supplementary Information

3402.19 Terms and conditions of grant awards.
3402.20 Other Federal statutes and regulations that apply.
3402.21 Confidential aspects of applications and awards.
3402.22 Access to peer review information.
3402.23 Documentation of progress on funded projects.
3402.24 Evaluation of program.

    Authority: 7 U.S.C. 3316.

    Source: 69 FR 62537, Oct. 26, 2004, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 3402 appear at 76 FR 
4807, Jan. 27, 2011.



                     Subpart A_General Introduction



Sec. 3402.1  Applicability of regulations.

    (a) The regulations of this part apply to competitive grants awarded 
under the provisions of section 1417(b)(6) of the National Agricultural 
Research, Extension and Teaching Policy Act of 1977, as amended, 7 
U.S.C. 3152(b)(6). The Act designates the U.S. Department of Agriculture 
(USDA) as the lead Federal agency for agricultural research, extension, 
and teaching in the food and agricultural sciences. Section 1417(b)(6) 
authorizes the Secretary of Agriculture, who has delegated the authority 
to theNational Institute of Food and Agriculture (NIFA), to make 
competitive grants to land-grant colleges and universities, colleges and 
universities having significant minority enrollments and a demonstrable 
capacity to carry out the teaching of food and agricultural sciences, 
and to other colleges and universities having a demonstrable capacity to 
carry out the teaching of food and agricultural sciences, to administer 
and conduct graduate and postdoctoral fellowship programs to help meet 
the Nation's needs for development of scientific and professional 
expertise in the food and agricultural sciences. The Graduate 
Fellowships are intended to encourage outstanding students to pursue and 
complete graduate degrees in the areas of food and agricultural sciences 
designated by NIFA through the Office of Higher Education Programs (HEP) 
as national needs. The postdoctoral Fellowships are intended to provide 
additional mentoring and training to outstanding USDA Graduate Fellows 
who completed their doctoral degrees no more than five (5) years before 
they begin the postdoctoral Fellowships.
    (b) The regulations of this part do not apply to grants awarded by 
the Department of Agriculture under any other authority.



Sec. 3402.2  Definitions.

    As used in this part:
    Citizen or national of the United States means--
    (1) A citizen or native resident of a State; or,
    (2) A person defined in the Immigration and Nationality Act, 8 
U.S.C. 1101(a)(22), who, though not a citizen of the United States, owes 
permanent allegiance to the United States.
    College and university means an educational institution in any State 
which--
    (1) Admits as regular students only persons having a certificate of 
graduation from a school providing secondary education, or the 
recognized equivalent of such a certificate,

[[Page 211]]

    (2) Is legally authorized within such State to provide a program of 
education beyond secondary education,
    (3) Provides an educational program for which a bachelor's degree or 
any other higher degree is awarded,
    (4) Is a public or other nonprofit institution, and
    (5) Is accredited by a nationally recognized accrediting agency or 
association.
    Food and agricultural sciences means basic, applied, and 
developmental research, extension, and teaching activities in the food, 
agricultural, renewable natural resources, forestry, and physical and 
social sciences in the broadest sense of these terms including but not 
limited to research, extension and teaching activities concerned with 
the production, processing, marketing, distribution, conservation, 
consumption, research, and development of food and agriculturally 
related products and services, inclusive of programs in agriculture, 
natural resources, aquaculture, forestry, veterinary medicine, home 
economics, rural development, and closely allied fields.
    Graduate degree means a master's or doctoral degree.
    State means any one of the fifty States, the Commonwealth of Puerto 
Rico, Guam, American Samoa, the Commonwealth of the Northern Marianas, 
the Federated States of Micronesia, the Republic of the Marshall 
Islands, the Republic of Palau, the Virgin Islands of the United States, 
and the District of Columbia.
    Teaching activities means formal classroom instruction, laboratory 
instruction, and practicum experience specific to the food and 
agricultural sciences and matters relating thereto conducted by colleges 
and universities offering baccalaureate or higher degrees.



Sec. 3402.3  Institutional eligibility.

    Applications may be submitted by land-grant colleges and 
universities, by colleges and universities having significant minority 
enrollments and a demonstrable capacity to carry out the teaching of 
food and agricultural sciences, and by other colleges and universities 
having a demonstrable capacity to carry out the teaching of food and 
agricultural sciences. All applicants must be institutions that confer a 
graduate degree in at least one area of the food and agricultural 
sciences targeted for National Needs Fellowships, that have a 
significant on-going commitment to the food and agricultural sciences 
generally, and that have a significant ongoing commitment to the 
specific subject area for which a grant application is made. It is the 
objective to award grants to colleges and universities which have 
notable teaching and research competencies in the food and agricultural 
sciences. The Graduate Fellowships are specifically intended to support 
programs that encourage outstanding students to pursue and complete a 
graduate degree at such institutions in an area of the food and 
agricultural sciences for which there is a national need for the 
development of scientific and professional expertise. The postdoctoral 
Fellowships are designed to support academic programs that provide 
additional training and mentoring to USDA Graduate Fellows and have 
notable teaching and research competencies in the NIFA designated 
national need areas. Institutions which currently have excellent 
programs of graduate study and training in the food and agricultural 
sciences dealing with targeted national needs are particularly 
encouraged to apply for all National Needs Fellowships.



                      Subpart B_Program Description



Sec. 3402.4  Food and agricultural sciences areas targeted for National Needs Graduate and Postdoctoral Fellowship Grants Program support.

    Areas of the food and agricultural sciences, including 
multidisciplinary studies, appropriate for Fellowship grant applications 
are those in which developing shortages of expertise have been 
determined and targeted by HEP for National Needs Graduate and 
Postdoctoral Fellowship Grants Program support. When funds are available 
and HEP determines that a new competition is warranted, the specific 
areas and funds per area will be identified in a funding opportunity 
announcement announcing the program and soliciting program applications.

[[Page 212]]



Sec. 3402.5  Overview of National Needs Graduate and Postdoctoral Fellowship Grants Program.

    (a) The program will provide funds for a limited number of grants to 
support graduate student stipends and cost-of-education institutional 
allowances. These grants will be awarded competitively to eligible 
institutions. In order to encourage the development of special 
activities that are expected to contribute to Fellows' advanced degree 
objectives, the program will also provide competitive, special 
international study or thesis/dissertation research travel allowances 
for a limited number of USDA Graduate Fellows. To encourage academic 
institutions to provide additional training/mentoring to outstanding 
USDA Graduate Fellows who have completed their doctoral degrees, the 
program will also provide postdoctoral Fellowship grants to a limited 
number of USDA Graduate Fellows.
    (b) Based on the amount of funds appropriated in any fiscal year, 
HEP will determine:
    (1) Whether new competitions for graduate Fellowships, postdoctoral 
Fellowships, and/or special international study or thesis/dissertation 
research travel allowances will be held during that fiscal year;
    (2) The degree level(s) to be supported--master's, doctoral and/or 
postdoctoral;
    (3) The proportion of appropriations to be targeted for Fellowship 
stipends for each respective degree level supported;
    (4) The proportion of appropriations to be targeted for the cost-of-
education institutional allowances for each respective degree level 
supported;
    (5) The proportion of appropriations to be targeted for the special 
international study or thesis/dissertation research travel allowances 
for each respective degree level supported;
    (6) The allowable stipend amount for each respective degree level 
supported, the cost-of-education institutional allowance for each 
respective degree level supported, and the maximum funds available for 
each special international study or thesis/dissertation research travel 
allowance for each respective degree level supported;
    (7) The activities for which the cost-of-education allowance may be 
used for awards made in that year; and
    (8) The maximum total funds that may be awarded to an institution 
under the program in a given fiscal year.
    (c) HEP will also determine:
    (1) The maximum number of national needs areas for which funding may 
be requested in a single application;
    (2) The degree levels for which funding may be requested in a single 
application;
    (3) The minimum and maximum number of fellowships for which an 
institution may apply in a single application; and
    (4) The limits on the total number of applications that can be 
submitted by an institution, college, school, or other administrative 
unit.
    (d) These determinations will be published as a part of the 
solicitation, which will be available at http://www.grants.gov.



Sec. 3402.6  Overview of the special international study and/or thesis/dissertation research travel allowance.

    (a) For each USDA Graduate Fellow who desires to be considered for a 
special international study or thesis/dissertation research travel 
allowance, the Project Director must apply to HEP for a supplemental 
grant in accordance with instructions published in the solicitation. 
Postdoctoral Fellows are not eligible to receive the special 
international study or thesis/dissertation research travel allowance. 
Each application must include a ``Proposal Cover Page'' (Form NIFA-
2002), ``Project Summary'' (Form NIFA-2003), ``Budget'' (Form NIFA-2004) 
and National Environmental Policy Act Exclusions Form (Form NIFA--2006).
    (1) To provide HEP with sufficient information upon which to 
evaluate the merits of the requests for a special international study or 
thesis/dissertation research travel allowance, each application for a 
supplemental grant must contain a narrative which provides the 
following:
    (i) The specific destination(s) and duration of the travel;

[[Page 213]]

    (ii) The specific study or thesis/dissertation research activities 
in which the Fellow will be engaged;
    (iii) How the international experience will contribute to the 
Fellow's program of study;
    (iv) A budget narrative specifying and justifying the dollar amount 
requested for the travel;
    (v) Summary credentials of the faculty or other professionals with 
whom the Fellow will be working during the international experience 
(summary credentials must not exceed three pages per person);
    (vi) A letter from the dean of the Fellow's college or equivalent 
administrative unit supporting the Fellow's travel request and 
certifying that the travel experience will not jeopardize the Fellow's 
satisfactory progress toward degree completion; and
    (vii) A letter from the fellowship grant Project Director certifying 
the Fellow's eligibility, the accuracy of the Fellow's travel request, 
and the relevance of the travel to the Fellow's advanced degree 
objectives.
    (2) The narrative portion of the application must not exceed the 
page limitation included in the program solicitation.
    (b) All complete requests will be evaluated by professional staff 
from USDA or other Federal agencies, as appropriate. Evaluation criteria 
will be published in the solicitation. HEP will award grants in 
accordance with evaluation criteria and to the extent possible based on 
availability of funds.
    (c) Any current Fellow with sufficient time to complete the 
international experience before the termination date of the grant under 
which he/she is supported is eligible for a special international study 
or thesis/dissertation research travel allowance. Before the 
international study or thesis/dissertation research travel may commence, 
a Fellow must have completed one academic year of full-time study, as 
defined by the institution, under the Fellowship appointment and 
arrangements must have been formalized for the Fellow to study and/or 
conduct research in the foreign location(s).



Sec. 3402.7  Fellowship appointments.

    (a)(1) Fellows must be identified and Fellowships must be awarded 
within 18 months of the effective date of a grant. Institutions failing 
to meet this deadline will be required to refund monies associated with 
any unawarded Fellowship(s). Graduate Fellowship appointments may be 
held only by persons who enroll and pursue full-time study in a graduate 
degree program in the national need area and at the degree level 
supported by the grant. Postdoctoral Fellowship appointments may be held 
only by persons who pursue full-time traineeship in research, teaching 
or extension in the national need area and are supervised by the mentor 
indicated in the grant application.
    (2) It will be the responsibility of the grantee institution to 
award fellowships to students of superior academic ability.
    (3) Graduate Fellows:
    (i) Must be appointed before completing two semesters or equivalent 
hours of full-time study, as defined by the institution, or immediately 
after passing of candidacy/qualifying examinations, whichever is later;
    (ii) Must be citizens or nationals of the United States as 
determined in accordance with Federal law; and
    (iii) Must have strong interest, as judged by the institution, in 
pursuing a degree in a targeted national need area and in preparing for 
a career as a food or agricultural scientist or professional.
    (4) Postdoctoral Fellows:
    (i) Must have been USDA Graduate Fellows who successfully completed 
their doctoral degrees in areas of the food and agricultural sciences 
designated by NIFA as national need areas;
    (ii) Must not have obtained their doctoral degrees more than five 
years prior to beginning their postdoctoral Fellowships;
    (iii) Must have strong interest, as judged by the institution, in 
preparing for a career in agricultural research, teaching or extension.
    (5)(i) A doctoral level Graduate Fellow who maintains satisfactory 
progress in his or her course of study is eligible for support for a 
maximum of 36 months within a 42-month period. A

[[Page 214]]

master's level Fellow who maintains satisfactory progress in his or her 
course of study is eligible for support for a maximum of 24 months 
during a 30-month period. A postdoctoral Fellow who achieves his or her 
training objectives is eligible for support for a maximum of 36 months 
during a 60-month period. It is the intent of this program that Graduate 
Fellows pursue full-time uninterrupted study or thesis/dissertation 
research, including time spent pursuing USDA-funded special 
international study or thesis/dissertation research activities.
    (ii) Postdoctoral Fellowship appointments may be held only by 
persons who pursue full-time traineeship in research, teaching, or 
extension in the national need area and are supervised by the mentor 
indicated in the grant application.
    However, during the period of support, USDA Graduate and 
Postdoctoral Fellows are permitted, at the discretion of their 
institutions, to accept additional supplemental employment that would 
positively contribute to their training or research and provide 
eligibility for tuition waivers (e.g., full or partial tuition waivers 
with research or teaching assignments).
    (iii) For graduate Fellows requiring additional time to complete a 
degree, it is expected that the institution will endeavor to continue 
supporting individuals originally appointed to Fellowships through such 
other institutional means as teaching assistantships and research 
assistantships. For postdoctoral Fellows who terminate the Fellowships 
prematurely, the institution must return all unexpended monies to USDA. 
For USDA Graduate Fellows who complete the program of study early (less 
than 24 months for master's degree or 36 months for doctoral degree) or 
terminate their Fellowships prematurely, the institution may use any 
unexpended monies, within the time remaining on the project grant, to 
support pursuit of a doctoral degree in a discipline in the food and 
agricultural sciences by a master's degree level Fellow at the grantee 
institution; or a replacement Graduate Fellow. Where less than one 
semester/quarter remains before the expiration date of the Graduate 
Fellowship grant, the institution must refund any unexpended monies to 
the granting agency. Such funds cannot be used to increase the annual 
stipend amounts for current USDA Graduate or Postdoctoral Fellows.
    (b) Within the framework of the regulations in this part, all 
decisions with respect to the appointment of Fellows will be made by the 
institution. However, institutions are urged to take maximum advantage 
of opportunities for awarding Fellowships to members of underrepresented 
groups at the graduate and postdoctoral level in the food and 
agricultural sciences, particularly minorities and women. Throughout a 
USDA Graduate Fellow's tenure, the institution should satisfy itself 
that the Fellow is making satisfactory academic progress, and carrying 
out, or planning to carry out, national needs related research. If an 
institution finds it necessary to terminate support of a USDA Graduate 
Fellow or a postdoctoral Fellow for insufficient progress or by decision 
on the part of the Fellow, the Fellow may no longer receive funds from 
the active grant. However, termination does not automatically disqualify 
a Fellow from receiving future grant support under this program. If a 
graduate or postdoctoral Fellow finds it necessary to interrupt his or 
her program of study because of health, personal reasons, or outside 
employment, the institution must reserve the funds for the purpose of 
allowing the Fellow to resume funded training any time within a six (6) 
month period. However, a USDA Graduate or Postdoctoral Fellow who finds 
it necessary to interrupt his/her program of training more than one time 
cannot exceed a total of six (6) months' cumulative leave status without 
forfeiting eligibility. For a USDA Graduate Fellowship terminated 
because of insufficient progress, by decision on the part of the Fellow, 
or reserved due to an interrupted program but not resumed within the 
required time period, the institution may use any unexpended monies to 
support, within the time remaining on the project grant, and subject to 
the limitations above, a replacement Fellow at the same master's or 
doctoral levels. For postdoctoral Fellowships terminated

[[Page 215]]

because of insufficient progress, by decision on the part of the Fellow, 
or reserved due to an interrupted program but not resumed within the 
required time period, the institution must return all the unexpended 
monies to NIFA.
    (c) Only Fellows enrolled in master's programs of study may be 
supported under master's Fellowship grants. Master's degree level 
Fellows who complete their degree early may be supported under master's 
Fellowship grants, if they are enrolled in Ph.D. programs in areas of 
the food and agricultural sciences designated as national need areas. 
Only Fellows enrolled in doctoral programs of study may be supported 
under doctoral degree Fellowship grants. Only USDA Graduate Fellows who 
have completed their doctoral degrees may be supported under 
postdoctoral Fellowship grants.



Sec. 3402.8  Fellowship activities.

    A USDA Graduate Fellow shall be enrolled as a full-time graduate 
student, as defined by the institution, at all times during the tenure 
of the Fellowship in the national need area and at the degree level 
supported by the grant. This includes the time used for special 
international study or thesis/dissertation research, if the 
international travel is funded through a special international study or 
thesis/dissertation research travel allowance under this grant program. 
However, the normal requirement for formal registration during part of 
this tenure may be waived if permitted by the policy of the Fellowship 
institution, provided that the Graduate Fellow is making satisfactory 
progress toward degree completion and remains engaged in appropriate 
full-time Fellowship activities such as thesis/dissertation research. 
Postdoctoral Fellowship appointments may be held only by persons who 
pursue full-time traineeship in research, teaching, or extension in the 
national need area and are supervised by the mentor indicated in the 
grant application. Graduate and postdoctoral Fellows in academic 
institutions are not entitled to vacations as such. They are entitled to 
the short normal student holidays observed by the institution. The time 
between academic semesters or quarters is to be utilized as an active 
part of the grant period. During the period of support, USDA Graduate 
and Postdoctoral Fellows are permitted, at the discretion of their 
institutions, to accept additional supplemental employment that would 
positively contribute to their training or research and provide 
eligibility for tuition waivers (e.g., full or partial tuition waivers 
provided with research or teaching assignments). A Fellow may accept 
from any other entity a grant supporting the Fellow's research costs.



Sec. 3402.9  Financial provisions.

    An institution may elect to apply the cost-of-education/training 
institutional allowance to a Fellow's tuition, fees and laboratory 
expenses and to defray other program expenses (e.g., recruitment, 
travel, publications, or salaries of project personnel), unless stated 
otherwise in the solicitation. Tuition and fees are the responsibility 
of the Fellow unless an institution elects to use its cost-of-education 
institutional allowance for this purpose or elects to pay such costs out 
of non-USDA monies. No dependency allowances are provided to any USDA 
Graduate or Postdoctoral Fellows. Stipend payments and special 
international study or thesis/dissertation research travel allowances 
may be made to Fellows by the institution, in accordance with standard 
institutional procedures for graduate and postdoctoral fellowships and 
assistantships.



                 Subpart C_Preparation of an Application



Sec. 3402.10  Application package.

    Applications will be available at http://www.grants.gov and through 
the NIFA Web site. An application package will be made available to any 
potential grant applicant upon request. This package will include all 
necessary forms and instructions to apply for a grant under this 
program.



Sec. 3402.11  Proposal cover page.

    The Proposal Cover Page, Form NIFA-2002, must be completed in its

[[Page 216]]

entirety, including all authorizing signatures. One copy of each grant 
application must contain the original pen-and-ink signatures, or 
approved electronic equivalent, of:
    (a) The Project Director(s); and
    (b) The Authorized Organizational Representative for the 
institution.



Sec. 3402.12  Project summary.

    Using the Project Summary, Form NIFA-2003, applicants must summarize 
the proposed graduate program of study and/or the academic and research 
strengths of the institution in the national need area for which funding 
is requested. To the extent possible, applicants should emphasize the 
uniqueness of the proposed program of training. The summary should not 
include any reference to the specific number of fellowships requested. 
The information on Form NIFA-2003 will be used in assigning the most 
appropriate panelists to review an application. If an application is 
supported, this Form may be used in program publications.



Sec. 3402.13  National need narrative.

    HEP will determine the composition of the narrative for each 
competition, including page limits, font size, the number and the order 
of sections, and other supporting information that may be required. 
Detailed instructions for preparing the narrative will be published in 
the solicitation.



Sec. 3402.14  Budget and budget narrative.

    Applicants must prepare the Budget, Form NIFA-2004, and a budget 
narrative identifying all costs associated with the application. 
Instructions for completing the Budget are provided with the form.



Sec. 3402.15  Faculty vitae.

    This section should include a Summary Vita, no more than 2 pages 
excluding publications listing, for each faculty member contributing 
significantly to institutional competence at the level of graduate study 
for the national need area addressed in the application. Applicants 
should arrange the faculty vitae with the Project Director(s) first, 
followed by the remaining faculty, in alphabetical order.



Sec. 3402.16  Appendix.

    Any additional supporting information deemed essential to enhancing 
the application should be included in an Appendix and referenced in the 
national need narrative.



          Subpart D_Submission and Evaluation of an Application



Sec. 3402.17  Where to submit an application.

    The solicitation will indicate the date for submission of 
applications and the number of application copies required to apply for 
a grant. In addition, the solicitation will provide the address to which 
the application, the required number of accompanying duplicate copies, 
and any other required forms and materials should be sent.



Sec. 3402.18  Evaluation criteria.

    Applications addressing a particular national need area at a 
particular Fellowship level (master's, doctoral or postdoctoral) will be 
evaluated in competition with other applications addressing the same 
national need area at the same level. Both USDA internal staff and the 
panelists will evaluate applications on the basis of the criteria 
published in the solicitation.



                   Subpart E_Supplementary Information



Sec. 3402.19  Terms and conditions of grant awards.

    Within the limit of funds available for such purpose, the awarding 
official shall make project grants to those responsible, eligible 
applicants whose applications are judged most meritorious according to 
evaluation criteria stated in the solicitation. The beginning of the 
project period shall be no later than September 30 of the Federal fiscal 
year in which the project is approved for support. All funds granted 
under this part shall be expended solely for the purpose for which the 
funds are granted in accordance with the approved application and 
budget, the regulations of this part, the terms and conditions of the 
award, the applicable Federal cost principles, and 2 CFR part 200.

[[Page 217]]



Sec. 3402.20  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.
    (b) Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to research project grants awarded 
under this part. These include but are not limited to:

2 CFR part 200--Uniform Administrative Requirements, Cost Principles, 
and Audit Requirements for Federal Awards.
2 CFR part 180 and Part 417--OMB Guidelines to Agencies on Government-
Wide Debarment And Suspension (Nonprocurement) And USDA Nonprocurement 
Debarment And Suspension
7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
7 CFR 1.1--USDA Implementation of Freedom of Information Act.
7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding Debt 
Collection.
7 CFR part 15, subpart A--USDA Implementation of Title VI of the Civil 
Rights Act of 1964.
7 CFR part 3407--NIFA procedures to implement the National Environmental 
Policy Act;
29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR part 
15B (USDA implementation of statute)--prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs; and
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).

[79 FR 75998, Dec. 19, 2014]



Sec. 3402.21  Confidential aspects of applications and awards.

    When an application results in a grant, the application and 
supporting information become part of the record of NIFA transactions, 
and available to the public upon specific request. Information that the 
Secretary determines to be of a confidential, privileged, or proprietary 
nature will be held in confidence to the extent permitted by law. 
Therefore, any information that the applicant wishes to have considered 
as confidential, privileged, or proprietary should be clearly marked 
within the application. The original copy of an application that does 
not result in a grant will be retained by the Agency for a period of one 
year. Other copies will be destroyed. Such an application will be 
released only with the consent of the applicant or to the extent 
required by law. An application may be withdrawn at any time prior to 
the final action thereon.



Sec. 3402.22  Access to peer review information.

    After final decisions have been announced, HEP will, upon request, 
inform the PD of the reasons for its decision on an application. 
Verbatim copies of summary reviews, not including the identity of the 
reviewers, will be made available to respective PDs upon specific 
request.



Sec. 3402.23  Documentation of progress on funded projects.

    (a) Fellowships/Scholarships Entry/Exit Forms (Form NIFA-2010) are 
available from NIFA upon request. Upon request by HEP, Project Directors 
awarded Graduate Fellowship (excluding supplemental international and 
postdoctoral) grants under the program shall complete and submit this 
form.
    (1) Appointment Information shall be submitted to HEP within 3 
months of appointment of a Fellow;
    (2) The Project Director shall submit an annual update of each 
Fellow's progress to HEP by September 30 each year. Additional progress 
reports may be needed to assess continuing progress of Fellows supported 
by any special

[[Page 218]]

international study or thesis/dissertation research allowance and/or 
institutional adherence to program guidelines.
    (3) Exit Information shall be completed and submitted to HEP by the 
Project Director for each Fellow supported by a grant as soon as a 
Fellow either: Graduates; is officially terminated from the Fellowship 
or the academic program due to unsatisfactory academic progress; or 
voluntarily withdraws from the Fellowship or the academic program. If a 
Fellow has not completed all degree requirements at the end of the five-
year grant duration, HEP may request a preliminary exit report. In such 
a case, a final exit report shall be required at a later date. When a 
final exit report for each Fellow supported by a grant has been accepted 
by HEP, the grantee will have satisfied the requirement of a final 
performance report for the grant. Additional follow-up reports to track 
Fellows' career patterns may be requested.
    (b) All grantees (supplemental international, graduate, and 
postdoctoral) shall submit initial project information and annual and 
summary reports to NIFA' Current Research Information System (CRIS). The 
CRIS database contains narrative project information, progress/impact 
statements, and final technical reports that are made available to the 
public. For applications recommended for funding, instructions on 
preparation and submission of project documentation will be provided to 
the applicant by the agency contact. Documentation must be submitted to 
CRIS before NIFA funds will be released. Project reports will be 
requested by the CRIS office when required. For more information about 
CRIS, visit http://cris.nifa.usda.gov.



Sec. 3402.24  Evaluation of program.

    Grantees should be aware that HEP may, as a part of its own program 
evaluation activities, carry out in-depth evaluations of assisted 
activities through independent third parties. Thus, grantees should be 
prepared to cooperate with evaluators retained by HEP to analyze both 
the institutional context and the impact of any supported project.



PART 3403_SMALL BUSINESS INNOVATION RESEARCH GRANTS PROGRAM--Table of Contents



                      Subpart A_General Information

Sec.
3403.1 Applicability of regulations.
3403.2 Definitions.
3403.3 Eligibility requirements.

                      Subpart B_Program Description

3403.4 Three-phase program.

                   Subpart C_Preparation of Proposals

3403.5 Program solicitation.
3403.6 Content of proposals.
3403.7 Proposal format for phase I applications.
3403.8 Proposal format for phase II applications.

            Subpart D_Submission and Evaluation of Proposals

3403.9 Submission of proposals.
3403.10 Proposal review.
3403.11 Availability of information.

                   Subpart E_Supplementary Information

3403.12 Terms and conditions of grant awards.
3403.13 Notice of grant awards.
3403.14 Use of funds; changes.
3403.15 Other Federal statutes and regulations that apply.
3403.16 Other considerations.

    Authority: 15 U.S.C. 638.

    Source: 72 FR 20703, Apr. 26, 2007, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 3403 appear at 76 FR 
4807, Jan. 27, 2011.



                      Subpart A_General Information



Sec. 3403.1  Applicability of regulations.

    (a) The regulations of this part apply to small business innovation 
research grants awarded under the general authority of section 630 of 
the Act making appropriations for Agriculture, Rural Development, and 
Related Agencies' programs for fiscal year ending 1987, and for other 
purposes as made applicable by section 101(a) of Pub. L. 99-591, 100 
Stat. 3341, and the provisions of the Small Business Innovation 
Development Act of 1982, as amended (15

[[Page 219]]

U.S.C. 638), and the Small Business Innovation Research Program 
Reauthorization Act of 2000, Pub. L. 106-554, which extends the SBIR 
Program through September 30, 2008. The Small Business Innovation 
Development Act of 1982, as amended, mandates that each Federal agency 
with an annual extramural budget for research or research and 
development in excess of $100 million participate in a Small Business 
Innovation Research (SBIR) program by reserving a statutory percentage 
of its annual extramural budget for award to small business concerns for 
research or research and development in order to stimulate technological 
innovation, use small business to meet Federal research and development 
needs, increase private sector commercialization of innovations derived 
from Federal research and development, and foster and encourage the 
participation of socially and economically disadvantaged small business 
concerns and women-owned small business concerns in technological 
innovation. The Department will participate in this program through the 
issuance of competitive research grants which will be administered by 
NIFA.
    (b) The regulations of this part do not apply to research grants 
awarded by the Department under any other authority.

[72 FR 20703, Apr. 26, 2007, as amended at 79 FR 75998, Dec. 19, 2014]



Sec. 3403.2  Definitions.

    As used in this part:
    Ad hoc reviewers means experts or consultants, qualified by training 
and experience in particular scientific or technical fields to render 
expert advice on the scientific technical merit of the grant 
applications in those fields, who review on an individual basis one or 
several of the eligible proposals submitted to this program in their 
area of expertise and who submit to the Department written evaluations 
of such proposals.
    Applicant is the organizational entity that, at the time of award, 
will qualify as a small business concern and that submits a grant 
application for a funding agreement under the SBIR Program.
    Authorized departmental officer (ADO) means the Secretary or any 
employee of the Department who has the authority to issue or modify 
grant instruments on behalf of the Secretary. The ADO is also referred 
to as the Funding Agreement Officer.
    Authorized organizational representative (AOR) means the president, 
director, or chief executive officer or other designated official of the 
applicant organization who has the authority to commit the resources of 
the organization.
    Budget Period means the interval of time into which the project 
period is divided for budgetary and reporting purposes.
    Commercialization is the process of developing marketable products 
or services and producing and delivering products or services for sale 
(whether by the originating party or by others) to Government or 
commercial markets.
    Department means the U.S. Department of Agriculture.
    Essentially equivalent work occurs when:
    (1) Substantially the same research is proposed for funding in more 
than one grant application submitted to the same Federal agency;
    (2) Substantially the same research is submitted to two or more 
different Federal agencies for review and funding consideration; or
    (3) A specific research objective and the research design for 
accomplishing an objective are the same or closely related in two or 
more proposals or awards, regardless of the funding source.
    Funding agreement is any contract, grant, or cooperative agreement 
entered into between any Federal agency and any small business concern 
for the performance of experimental, developmental, or research work, 
including products or services funded in whole or in part by the Federal 
Government.
    A grant is a financial assistance mechanism providing money, 
property, or both to an eligible entity to carry out the approved 
project or activity, and substantial programmatic involvement by 
Government is not anticipated.
    Grantee means the small business concern designated in the grant 
award

[[Page 220]]

document as the responsible legal entity to whom the grant is awarded 
under this part.
    Innovation is something new or improved, having marketable potential 
including:
    (1) Development of new technologies;
    (2) Refinement of existing technologies; or
    (3) Development of new applications for existing technologies.
    Intellectual property means the separate and distinct types of 
intangible property that are referred to collectively as ``intellectual 
property,'' including but not limited to: Patents, trademarks, 
copyrights, trade secrets, SBIR technical data (as defined in this 
section), ideas, designs, know-how, business, technical and research 
methods, other types of intangible business assets, and all types of 
intangible assets either proposed or generated by a small business 
concern as a result of its participation in the SBIR Program.
    Joint venture is an association of concerns with interests in any 
degree or proportion by way of contract, express or implied, consorting 
to engage in and carry out a single specific business venture for joint 
profit, for which purpose they combine their efforts, property, money, 
skill, or knowledge, but not on a continuing or permanent basis for 
conducting business generally. A joint venture is viewed as a business 
entity in determining power to control its management.
    NIFA means the National Institute of Food and Agriculture.
    Outcomes are the measure of long-term, eventual, program impact.
    Outputs are the measures of near-term program impact.
    Peer review group means experts or consultants, qualified by 
training and experience in particular scientific or technical fields to 
give expert advice on the scientific and technical merit of grant 
applications to those fields, who assemble as a group to discuss and 
evaluate all of the eligible proposals submitted to this program in 
their area of expertise.
    Principal investigator/project director is the one individual 
designated by the applicant to provide the scientific and technical 
direction to a project supported by the funding agreement.
    Professional Employer Organization is an organization that provides 
an integrated approach to the management and administration of the human 
resources and employer risk of its clients, by contractually assuming 
substantial employer rights, responsibilities, and risk, through the 
establishment and maintenance of an employer relationship with the 
workers assigned to its clients.
    Program solicitation is a formal request for proposals whereby an 
agency notifies the small business community of its research or research 
and development needs and interests in broad and selected areas, as 
appropriate to the agency, and requests proposals from small business 
concerns in response to these needs and interests.
    Project period means the total length of time that is approved by 
the Department for conducting the research project as outlined in an 
approved grant application.
    Prototype is a model of something to be further developed, which 
includes designs, protocols, questionnaires, software, and devices.
    Research or research and development (R/R&D) means any activity 
which is:
    (1) A systematic, intensive study directed toward greater knowledge 
or understanding of the subject studied;
    (2) A systematic study directed specifically toward applying new 
knowledge to meet a recognized need; or
    (3) A systematic application of knowledge toward the production of 
useful materials, devices, and systems or methods, including design, 
development, and improvement of prototypes and new processes to meet 
specific requirements.
    Research project grant means the award by the Department of funds to 
a grantee to assist in meeting the costs of conducting for the benefit 
of the public an identified project which is intended and designed to 
establish, discover, elucidate, or confirm information or the underlying 
mechanisms relating to a research topic area identified in the annual 
solicitation of applications.
    SBIR Participants are business concerns that have received SBIR 
awards or that have submitted SBIR proposals/applications.

[[Page 221]]

    SBIR Technical Data is defined as all data generated during the 
performance of an SBIR award.
    SBIR Technical Data Rights are the rights a small business concern 
obtains in data generated during the performance of any SBIR award that 
an awardee delivers to the Government during or upon completion of a 
Federally-funded project, and to which the government receives a 
license.
    Small business concern (SBC) means a concern that, on the date of 
award for both Phase I and Phase II funding agreements:
    (1) Is organized for profit, with a place of business located in the 
United States, which operates primarily within the United States, or 
which makes a significant contribution to the United States economy 
through the payment of taxes or use of American products, materials or 
labor;
    (2) Is in the legal form of an individual proprietorship, 
partnership, limited liability company, corporation, joint venture, 
association, trust or cooperative, except that where the form is a joint 
venture, there can be no more than 49 percent participation by foreign 
business entities in the joint venture;
    (3) Is at least 51 percent owned and controlled by one or more 
individuals who are citizens of, or permanent resident aliens in, the 
United States, except in the case of a joint venture, where each entity 
in the venture must be 51 percent owned and controlled by one or more 
individuals who are citizens of, or permanent resident aliens in the 
United States; and
    (4) Has, including its affiliates, not more than 500 employees. The 
term ``affiliates'' is defined in greater detail in 13 CFR 121.103. The 
term ``number of employees'' is defined in 13 CFR 121.106.
    Socially and economically disadvantaged small business concern is 
defined in 13 CFR part 124-8(A) Business Development/Small Disadvantaged 
Business Status Determinations, Sec. 124.103 (Who is socially 
disadvantaged?) and Sec. 124.104 (Who is economically disadvantaged?).
    United States means the 50 states, the territories and possessions 
of the Federal Government, the Commonwealth of Puerto Rico, the District 
of Columbia, the Republic of the Marshall Islands, the Federated States 
of Micronesia, and the Republic of Palau.
    Women-owned small business concern means a small business concern 
that is at least 51 percent owned by one or more women, or in the case 
of any publicly owned business, at least 51 percent of the stock is 
owned by women, and women control the management and daily business 
operations.

[72 FR 20703, Apr. 26, 2007, as amended at 76 FR 4808, Jan. 27, 2011]



Sec. 3403.3  Eligibility requirements.

    (a) Eligibility of organization. (1) To receive SBIR funds, each 
awardee of a SBIR Phase I or Phase II must qualify as a small business 
concern.
    (2) For Phase I, a minimum of two-thirds of the research or 
analytical effort, as measured by the budget, must be performed by the 
awardee. Occasionally, deviations from this requirement may occur, and 
must be approved in writing by the ADO after consultation with the 
agency SBIR National Program Leader.
    (3) For Phase II, a minimum of one-half of the research or 
analytical effort, as measured by the budget, must be performed by the 
awardee. Occasionally, deviations from this requirement may occur, and 
must be approved in writing by the ADO after consultation with the 
agency SBIR National Program Leader.
    (4) For both Phase I and Phase II, the primary employment of the 
principal investigator must be with the SBC at the time of award and 
during the conduct of the proposed project. Primary employment means 
that more than one-half of the principal investigator's time is spent in 
the employ of the SBC. This precludes full-time employment with another 
organization. Occasionally, deviations from this requirement may occur, 
and must be approved in writing by the ADO after consultation with the 
agency SBIR National Program Leader. Further, an SBC may replace the 
principal investigator on an SBIR Phase I or Phase II award, subject to 
approval in writing by the ADO after consultation with the SBIR National 
Program Leader. For purposes of the SBIR Program, personnel obtained 
through a Professional Employer Organization or other similar personnel

[[Page 222]]

leasing company must be considered employees of the awardee. This is 
consistent with SBA's size regulations, 13 CFR 121.106--Small Business 
Size Regulations.
    (5) For both Phase I and Phase II, the R/R&D must be performed in 
the United States. However, based on a rare and unique circumstance, ADO 
approval may be granted to perform a particular portion of the research 
or research and development work outside of the United States, for 
example, if a supply of material or other item or project requirement is 
not available in the United States. The ADO, after consultation with the 
agency SBIR National Program Leader, must approve each such specific 
condition in writing.
    (b) [Reserved]



                      Subpart B_Program Description



Sec. 3403.4  Three-phase program.

    The Small Business Innovation Research Grants Program is carried out 
in three separate phases described in this section. The first two phases 
are designed to assist USDA in meeting its research or research and 
development objectives and will be supported with SBIR Program funds. 
The purpose of the third phase is to pursue the commercial applications 
or objectives of the research carried out in Phases I and II through the 
use of private or Federal non-SBIR funds.
    (a) Phase I. Phase I involves a solicitation of grant applications 
(hereinafter referred to as proposals) to conduct feasibility-related 
experimental research and development related to described agency 
requirements. These requirements, as defined by agency topics contained 
in the solicitation, may be general or narrow in scope, depending on 
USDA needs. The object of this phase is to determine the scientific and 
technical merit and feasibility of the proposed effort and the quality 
of performance of the small business concern with a relatively small 
agency investment before consideration of further Federal support in 
Phase II.
    (b) Phase II is the principal research or research and development 
effort in which the results from Phase I are expanded upon and further 
pursued, normally for a period not to exceed 24 months. Only SBIR 
awardees in Phase I are eligible to participate in Phase II. This 
includes those awardees identified via a ``novated'' or ``successor in 
interest'' or similarly-revised funding agreement, or those that have 
reorganized with the same key staff, regardless of whether they have 
been assigned a different tax identification number. For each Phase I 
project funded, the awardee may apply for a Phase II award only once. 
Phase I awardees who for valid reasons cannot apply for Phase II support 
in the next fiscal year funding cycle may normally apply for support no 
later than the second fiscal year funding cycle.
    (c) Phase III refers to work that derives from, extends, or 
logically concludes effort(s) performed under prior SBIR funding 
agreements, but is funded by sources other than the SBIR Program. Phase 
III work is typically oriented towards commercialization of SBIR 
research or technology. This portion of a project is funded by a non-
SBIR source through the use of a follow-on funding commitment. A follow-
on funding commitment is an agreement between the small business concern 
and a provider of the follow-on capital for a specified amount of funds 
to be made available to the small business concern for future 
development of their effort upon achieving certain mutually agreed upon 
technical objectives.



                   Subpart C_Preparation of Proposals



Sec. 3403.5  Program solicitation.

    (a) Phase I. A program solicitation requesting Phase I proposals 
will be prepared each fiscal year in which funds are made available for 
this purpose. This solicitation will contain information sufficient to 
enable eligible applicants to prepare grant proposals and will include 
descriptions of specific research topic areas which the Department will 
support during the fiscal year involved. A notice of solicitation, and 
the entire contents of the program solicitation will be published, at a 
minimum, on the agency's Web site.
    (b) Phase II. For each fiscal year in which funds are made available 
for this

[[Page 223]]

purpose, the Department will send correspondence requesting Phase II 
proposals from the Phase I grantees eligible to apply for Phase II 
funding in that fiscal year. The correspondence will contain information 
sufficient to enable eligible applicants to prepare grant proposals.



Sec. 3403.6  Content of proposals.

    (a) The proposed research must be responsive to one of the USDA 
program interests stated in the research topic descriptions of the 
program solicitation.
    (b) Proposals must cover only scientific/technological research 
activities. A small business concern must not propose product 
development, technical assistance, demonstration projects, classified 
research, or patent applications. Many of the research projects 
supported by the SBIR program lead to the development of new products 
based upon the research results obtained during the project. However, 
projects that seek funding solely for product development where no 
research is involved, i.e., funds are needed to permit the development 
of a project based on previously completed research, will not be 
accepted. Literature surveys should be conducted prior to preparing 
proposals for submission and must not be proposed as a part of the SBIR 
Phase I or Phase II effort. Proposals principally for the development of 
proven concepts toward commercialization or for market research should 
not be submitted since such efforts are considered the responsibility of 
the private sector and therefore are not supported by USDA.
    (c) A proposal must be limited to only one topic. The same proposal 
may not be submitted under more than one topic as defined in the 
solicitation. However, an organization may submit separate proposals on 
the same topic. Where similar research is discussed under more than one 
topic, the proposer should choose that topic whose description appears 
most relevant to the proposer's research concept. USDA will not consider 
funding duplicate (essentially equivalent work) proposals. In addition, 
essentially equivalent work funded by another entity will be returned to 
the applicant without review.



Sec. 3403.7  Proposal format for phase I applications.

    (a) The following items relate to Phase I applications. Further 
instructions or descriptions for these items as well as any additional 
items to be included will be provided in the annual solicitation, as 
necessary.
    (1) SF-424 R&R Cover. Applicants must submit basic proposal 
identification information on the first page of the proposals. 
Applicants must also certify on the first page of the proposals that 
they meet the definition of a small business concern as stated in the 
solicitation, and must certify as to whether or not they qualify as 
socially and economically disadvantaged small business concerns, or 
women-owned small business concerns.
    (2) Project Summary/Abstract. The technical abstract should include 
a brief description of the problem or opportunity, project objectives, 
and a description of the effort. Anticipated results and potential 
commercial applications of the proposed research also should be 
summarized in the space provided. Keywords should characterize the most 
important aspects of the project. The project summary of successful 
proposals may be published by USDA and therefore should not contain 
proprietary information.
    (3) Project Narrative. The main body of the proposal should include:
    (i) Identification and significance of the problem or opportunity.
    (ii) Background and rationale.
    (iii) Relationship with future research or research and development.
    (iv) Phase I technical objectives.
    (v) Phase I work plan.
    (vi) Related research or research and development.
    (vii) References. For each reference cited in the Proposal, provide 
the complete name for each author, the date of publication, the full 
title of the article, name of the journal, etc.
    (4) Key personnel and bibliography. Identify key personnel involved 
in the effort, including information on their directly related education 
and experience. For each key person, provide a chronological list of the 
most recent

[[Page 224]]

representative publications in the topic area.
    (5) Facilities and equipment. Describe the types, location, and 
availability of instrumentation and physical facilities necessary to 
carry out the work proposed. Items of equipment to be purchased must be 
fully justified under this section.
    (6) Outside services. Involvement of university or other consultants 
in the planning and research stages of the project as consultants or 
through subcontracting arrangements is permitted and may be particularly 
helpful to small business concerns that have not previously received 
Federal research awards. If such involvement is intended, it should be 
described in detail.
    (7) Satisfying the public interest. Specify how the proposed 
research will satisfy one or more of the following objectives:
    (i) Develops sustainable agriculture production systems;
    (ii) Protects natural resources and the environment;
    (iii) Creates a safe, nutritious and affordable food supply;
    (iv) Develops value-added food and non-food products from 
agricultural materials;
    (v) Enhances global competitiveness; and
    (vi) Enhances economic opportunity and quality of life, especially 
for people in rural areas.
    (8) Potential post applications. Briefly describe the 
commercialization potential of the proposed research. Indicate whether 
and by what means there appears to be a potential for the Federal 
Government to use the proposed research. Include a brief description of 
the proposing company (e.g., date founded, number of employees) and its 
field of interest. What are the major competitive products in this 
field, and what advantages will the proposed research have over existing 
technology (in application, performance, technique, efficiency or cost)?
    (9) Similar Proposals or Awards. (i) WARNING--While it is 
permissible with proposal notification to submit identical proposals 
containing a significant amount of essentially equivalent work for 
consideration under numerous Federal program solicitations, it is 
unlawful to enter into funding agreements requiring essentially 
equivalent work. If there is any question concerning this, it must be 
disclosed to the soliciting agency or agencies before award. If an 
applicant elects to submit identical proposals or proposals containing a 
significant amount of essentially equivalent work under other Federal 
program solicitations, a statement must be included in each such 
proposal indicating:
    (A) Name and address of the agency(ies) to which the proposal was 
submitted, or will be submitted, or from which an award is expected or 
has been received.
    (B) Date of actual or anticipated proposal submission or date of 
award, as appropriate.
    (C) Title of proposal or award, identifying number assigned to the 
solicitation or proposal by the agency involved, and the date the 
proposal(s) were submitted or the award was received.
    (D) Applicable research topic area for each proposal submitted or 
award received.
    (E) Titles of research projects.
    (F) Name and title of principal investigator for each proposal 
submitted or award received.
    (ii) USDA will not make awards that duplicate research funded (or to 
be funded) by other Federal agencies.
    (10) Cost breakdown on proposal budget. Complete a budget form for 
the phase under which you are currently applying. (An applicant for 
Phase I funding should not submit both Phase I and Phase II budgets.) A 
budget narrative with supporting detail for each budget category must be 
included.
    (11) Special Considerations. If the proposed research will include 
laboratory animals or human subjects at risk, the applicant may be 
required to have the research plan reviewed and approved by an 
Institutional Animal Care and Use Committee (IACUC) or Institutional 
Review Board (IRB) prior to commencing actual substantive work. If such 
approval is required, USDA may not release funds for the award until 
proper documentation is submitted and accepted by USDA. It is suggested 
that applicants contact local universities,

[[Page 225]]

colleges, or nonprofit research organizations which have established 
reviewing mechanisms to have this service performed.
    (12) Proprietary information. (i) If proprietary information is 
provided by an applicant in a proposal which constitutes a trade secret, 
proprietary commercial or financial information, confidential personal 
information, or data affecting the national security, it will be treated 
in confidence to the extent permitted by law. This information must be 
clearly marked by the applicant with the term ``confidential proprietary 
information'' and the following legend must appear on the title page of 
the proposal: ``These data shall not be disclosed outside the Government 
and shall not be duplicated, used, or disclosed in whole or in part for 
any purpose other than evaluation of this proposal. If a funding 
agreement is awarded to this applicant as a result of or in connection 
with the submission of these data, the Government shall have the right 
to duplicate, use, or disclose the data to the extent provided in the 
funding agreement and pursuant to applicable law. This restriction does 
not limit the Government's right to use information contained in the 
data if it is obtained from another source without restriction. The data 
subject to this restriction are contained on pages ____ of this 
proposal.''
    (ii) USDA, by law, is required to make the final decision as to 
whether the information is required to be kept in confidence. 
Information contained in unsuccessful proposals will remain the property 
of the applicant. However, USDA will retain for three years one copy of 
all proposals received; extra copies will be destroyed. Public release 
of information for any proposal submitted will be subject to existing 
statutory and regulatory requirements. Any proposal which is funded will 
be considered an integral part of the award and normally will be made 
available to the public upon request through the Freedom of Information 
Act, except for designated proprietary information.
    (iii) The inclusion of proprietary information is discouraged unless 
it is necessary for the proper evaluation of the proposal. If 
proprietary information is to be included, it should be limited, set 
apart from other text on a separate page, and keyed to the text by 
numbers. It should be confined to a few critical technical items which, 
if disclosed, could jeopardize the obtaining of foreign or domestic 
patents. Trade secrets, salaries, or other information which could 
jeopardize commercial competitiveness should be similarly keyed and 
presented on a separate page. Proposals or reports which attempt to 
restrict dissemination of large amounts of information may be found 
unacceptable by USDA.
    (13) Rights in data developed under SBIR funding agreement. The 
legend (or statements) in the SBIR datarights clause included in the 
SBIR award must be affixed to any submissions of technical data. Where 
such legend is affixed, rights in technical data, including software 
developed under the terms of any funding agreement resulting from a 
proposal submitted in response to the program solicitation shall remain 
with the grantee. The Government may not use, modify, reproduce, 
release, perform, display, or disclose technical data or computer 
software marked with this legend for 4 years. After expiration of the 4-
year period, the Government has a royalty-free license to use, and to 
authorize others to use on its behalf, these data for Government 
purposes, and is relieved of all disclosure prohibitions and assumes no 
liability for unauthorized use of these data by third parties, except 
that any such data that is also protected and referenced under a 
subsequent SBIR award shall remain protected through the protection of 
that subsequent SBIR award.
    (14) Patents and Inventions. Allocation of rights to inventions 
shall be in accordance with 35 U.S.C. 202 through 206 and the Department 
of Commerce implementing regulations entitled ``Rights to Inventions 
Made by Nonprofit Organizations and Small Business Firms under 
Government Grants, Contracts and Cooperative Agreements'' at 37 CFR part 
401. These regulations provide that small businesses normally may retain 
the principal worldwide patent rights to any invention developed with 
USDA support. USDA receives a royalty-free license

[[Page 226]]

for Federal Government use, reserves the right to require the patentee 
to license others in certain circumstances, and requires that anyone 
exclusively licensed to sell the invention in the United States must 
normally manufacture it domestically. To the extent authorized by 35 
U.S.C. 205, USDA will not make public any information disclosing a USDA-
supported invention for a four-year period. SBIR awardees must report 
inventions to the awarding agency within two months of the inventor's 
report to the awardee. The reporting of inventions shall be made through 
submission to Interagency Edison as specified in the terms and 
conditions of the grant.
    (15) Organizational management information. Before the award of an 
SBIR funding agreement, USDA requires the submission of certain 
organizational management, personnel, and financial information to 
assure responsibility of the applicant. This information is not required 
unless a project is recommended for funding, and then it is submitted on 
a one-time basis only. However, new information should be submitted if a 
small business concern has undergone significant changes in 
organization, personnel, finance or policies, including those relating 
to civil rights.
    (16) Documentation of commercialization record of firms with 
multiple phase II awards. A small business concern submitting a proposal 
for a Phase I award that has received more than 15 Phase II SBIR awards 
during the preceding five fiscal years must document the extent to which 
it was able to secure Phase III funding to develop concepts resulting 
from previous Phase II SBIR awards.
    (b) [Reserved]



Sec. 3403.8  Proposal format for phase II applications.

    (a) The following items relate to Phase II applications. Further 
instructions or descriptions for these items as well as any additional 
items to be included will be identified in the annual program 
solicitation as necessary. See Sec. 3403.9.
    (1) SF-424 R&R cover sheet. Follow instructions found in Sec. 
3403.7(a)(1).
    (2) Project summary. Follow instructions found at Sec. 
3403.7(a)(2).
    (3) Phase I results. The proposal should contain an extensive 
section that lists Phase I objectives and makes detailed presentation of 
the Phase I results. This section should establish the degree to which 
Phase I objectives were met and feasibility of the proposed research 
project was established.
    (4) Proposal. Since Phase II is the principal research and 
development effort, proposals should be more comprehensive than those 
submitted under Phase I. However, the outline and information contained 
in Sec. 3403.7(a)(3)-(9) and Sec. 3403.7(a)(11)-(14) should be 
followed, tailoring the information requested to the Phase II project.
    (5) Cost breakdown on proposal budget. For Phase II, a detailed 
budget is required for each year of requested support. In addition, a 
summary budget is required detailing the requested support for the 
overall project period. A budget narrative, with supporting budget 
detail for each budget category must be included.
    (6) Organizational management information. Each Phase II awardee 
will be asked to submit an updated statement of financial condition 
(such as the latest audit report, financial statements or balance sheet) 
and report any changes in management or principals.
    (7) Commercialization Plan. A succinct commercialization plan must 
be included in each SBIR Phase II proposal moving toward 
commercialization. Elements of a commercialization plan may include the 
following:
    (i) Company information. Focused objectives/core competencies; size; 
specialization area(s); products with significant sales; and history of 
previous Federal and non-Federal funding; regulatory experience; and 
subsequent commercialization.
    (ii) Customer and competition. Clear description of key technology 
objectives, current competition, and advantages compared to competing 
products or services; description of hurdles to acceptance of the 
innovation.
    (iii) Market. Milestone, target dates, analyses of market size, and 
estimated market share after first year sales and after five years; 
explanation of plan to obtain market share.
    (iv) Intellectual property. Patent status, technology lead, trade 
secrets or

[[Page 227]]

other demonstration of a plan to achieve sufficient protection to 
realize the commercialization state and attain at least a temporary 
competitive advantage.
    (v) Financing. Plans for securing necessary funding in Phase III.
    (vi) Assistance and mentoring. Plans for securing needed technical 
or business assistance through mentoring, partnering, or through 
arrangements with state assistance programs, Small Business Development 
Centers, Federally-funded research laboratories, manufacturing extension 
Partnership Centers, or other assistance providers.
    (8) Data Collection. Each Phase II applicant will be required to 
provide information to the Tech-Net Database System (http://
technet.sba.gov) per OMB No. 3245-03356. The following are examples of 
the data to be entered by applicants into Tech-Net:
    (i) Any business concern or subsidiary established for the 
commercial application of a product or service for which an SBIR award 
is made;
    (ii) Revenue from the sale of new products or services resulting 
from the research conducted under each Phase II award;
    (iii) Additional investment from any source, other than Phase I or 
Phase II awards, to further the research and development conducted under 
each Phase II award; and
    (iv) Updates to information in the Tech-Net database for any prior 
Phase II award received by the small business concern.
    (b) [Reserved]



            Subpart D_Submission and Evaluation of Proposals



Sec. 3403.9  Submission of proposals.

    The SBIR program solicitation for Phase I proposals and the 
correspondence requesting Phase II proposals will provide the deadline 
date for submitting proposals, and instructions for submitting the 
proposal to NIFA for funding consideration.



Sec. 3403.10  Proposal review.

    (a) The receipt of all proposals will be acknowledged.
    (b) All Phase I and II proposals will be evaluated and judged on a 
competitive basis. Proposals will be initially screened to determine 
responsiveness. Proposals passing this initial screening will be 
technically evaluated by scientists to determine the most promising 
technical and scientific approaches. Each proposal will be judged on its 
own merit. USDA is under no obligation to fund any proposal or any 
specific number of proposals in a given topic. It also may elect to fund 
several or none of the proposed approaches to the same topic or 
subtopic.
    (c) Phase I and II proposal evaluation criteria will be published in 
the ``Method of Selection and Evaluation Criteria'' section of the 
program solicitation.
    (d) External peer reviewers may be used during the technical 
evaluation stage of this process. Selections will be made from among 
recognized specialists who are uniquely qualified by training and 
experience in their respective fields to render expert advice on the 
merit of proposals received. It is anticipated that such experts will 
include those located in universities, government, and nonprofit 
research organizations. If possible, USDA intends that peer review 
groups shall be balanced with minority and female representation and 
with an equitable age distribution.
    (e) Reviewers will base their conclusions and recommendations on 
information contained in the Phase I or Phase II proposal. It cannot be 
assumed that reviewers are acquainted with any experiments referred to 
within a proposal, with key individuals, or with the firm itself. 
Therefore, the proposals should be self-contained and written with the 
care and thoroughness accorded papers for publication.
    (f) Final decisions will be made by USDA based upon the rating 
assigned by reviewers in consideration of the technical and commercial 
potential of the application, duplication of research, any critical USDA 
requirements, resubmission and budget limitation. In the event that two 
or more proposals are of approximately equal merit, the existence of a 
cooperative research and development agreement (CRADA) with a USDA 
laboratory will

[[Page 228]]

be an important consideration. The existence of a follow-on funding 
commitment for continued development in Phase III will also be an 
important consideration. The value of any commitment will depend upon 
the degree of financial commitment made by investors, with the maximum 
value resulting from a signed agreement with reasonable terms for an 
amount at least equal to funding requested from USDA in Phase II.



Sec. 3403.11  Availability of information.

    Information regarding the peer review process will be made available 
to the extent permitted under the Freedom of Information Act (5 U.S.C. 
552), the Privacy Act (5 U.S.C. 552a), the SBIR Policy Directive, and 
implementing Departmental and other Federal regulations. Implementing 
Departmental regulations are found at 7 CFR part 1.



                   Subpart E_Supplementary Information



Sec. 3403.12  Terms and conditions of grant awards.

    Within the limit of funds available for such purposes, the 
Authorized Departmental Officer shall make research project grants to 
those responsible, eligible applicants whose proposals are judged most 
meritorious in the announced program areas under the evaluation criteria 
and procedures set forth in the annual program solicitation. The 
beginning of the project period shall be no later than September 30 of 
the Federal fiscal year in which the project is approved for support. 
All funds granted under this part shall be expended solely for the 
purpose for which funds are granted in accordance with the approved 
application and budget, the regulations of this part, the terms and 
conditions of award, the Federal Acquisition Regulations (48 CFR part 
31), and 2 CFR part 200.

[72 FR 20703, Apr. 26, 2007, as amended at 79 FR 75998, Dec. 19, 2014]



Sec. 3403.13  Notice of grant awards.

    (a) The grant award document may include the following:
    (1) Legal name and address of performing organization or 
institution;
    (2) Title of project;
    (3) Name and institution of Project Director's chosen to direct and 
control approved activities;
    (4) Identifying grant number assigned by the Department;
    (5) Project period, specifying the amount of time the Department 
intends to support the project;
    (6) Total amount of Departmental financial assistance approved for 
the project period;
    (7) Legal authority(ies) under which the grant is awarded;
    (8) Appropriate Catalog of Federal Domestic Assistance (CFDA) 
number;
    (9) Applicable award terms and conditions;
    (10) Approved budget plan for categorizing allocable project funds 
to accomplish the stated purpose of the grant award; and
    (11) Other information or provisions deemed necessary by NIFA to 
carry out its respective granting activities or to accomplish the 
purpose of a particular grant.
    (b) [Reserved]



Sec. 3403.14  Use of funds; changes.

    (a) Delegation of fiscal responsibility. Unless the terms and 
conditions of the grant state otherwise, the grantee may not in whole or 
in part delegate or transfer to another person, institution, or 
organization the responsibility for use or expenditure of grant funds.
    (b) Changes in Project Plans. (1) The permissible changes by the 
grantee, Project Director, or other key project personnel in the 
approved project grant shall be limited to changes in methodology, 
techniques, or other similar aspects of the project to expedite 
achievement of the project's approved goals. If the grantee or the 
Project Director (PD) is uncertain as to whether a change complies with 
this provision, the question must be referred to the Authorized 
Departmental Officer (ADO) for a final determination. The signatory of 
the award document is the ADO, not the program contact.
    (2) Changes in approved goals or objectives shall be requested by 
the grantee and, in consultation with the NIFA SBIR National Program 
Leader,

[[Page 229]]

approved in writing by the ADO prior to effecting such changes. In no 
event shall requests for such changes be approved which are outside the 
scope of the original approved project.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and, in consultation with the NIFA SBIR National Program Leader, 
approved in writing by the ADO prior to effecting such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the grantee and, 
in consultation with the NIFA SBIR National Program Leader, approved in 
writing by the ADO prior to effecting such transfers, unless prescribed 
otherwise in the terms and conditions of the grant.
    (c) Changes in Project Period. The project period may be extended by 
NIFA without additional financial support, for such additional period(s) 
as the ADO determines may be necessary to complete or fulfill the 
purposes of an approved project provided Federal funds remain. Any 
extension of time shall be conditioned upon prior request by the grantee 
and approval in writing by the ADO unless otherwise noted in the award 
terms and conditions. In such cases the extension will not normally 
exceed 12 months. The Phase I award will still be limited to the 
approved award amount, and the submission of a Phase II proposal will 
normally be delayed by no more than one year. The extension allows the 
grantee to continue expending the remaining Federal funds for the 
intended purpose over the extension period. In instances where no 
Federal funds remain, it is unnecessary to approve an extension since 
the purpose of the extension is to continue using Federal funds. The 
grantee may opt to continue the Phase I project after the grant's 
termination and closeout, however, the grantee would have to do so 
without additional Federal funds. In the latter case, no communication 
with USDA is necessary.
    (d) Changes in approved budget. Changes in an approved budget must 
be requested by the grantee and approved in writing by the ADO prior to 
instituting such changes if the revision will involve transfers or 
expenditures of amounts requiring prior approval as set forth in the 
applicable Federal cost principles, Departmental regulations, or grant 
award.
    (e) Use of Change of Name and Novation Agreement. (1) Occasionally, 
after an award has been made the name of the Awardee may change. NIFA 
requires execution of a ``Change of Name Agreement'' in such instances. 
The specific circumstances of each situation will determine which kind 
of agreement should be executed. This decision will be determined by the 
ADO.
    (i) A Change of Name Agreement is a legal instrument executed by the 
Awardee and the Government that recognizes a change of the legal name of 
the Awardee without disturbing the original rights and obligations of 
the parties. If only a change of the Awardee's name is involved and the 
Government's and Awardee's rights and obligations remain unaffected, the 
parties should execute an agreement to reflect the name change.
    (ii) In order to execute the actual Change of Name Agreement with 
USDA, the Awardee is required to submit the following information:
    (A) The document effecting the name change, authenticated by a 
proper official of the State having jurisdiction;
    (B) The opinion of the Grantee's legal counsel stating that the 
change of name was properly effected under applicable law and showing 
the effective date;
    (C) A list of all affected awards between the Grantee and NIFA.
    (iii) When NIFA is notified that a change of name has taken place, 
the ADO will request the aforementioned information from the Grantee. 
Upon receipt and review of this information, parties will properly 
execute a Change of Name Agreement and the appropriate changes will be 
made to the Agency's records. The following suggested format for an 
agreement may be adapted for specific cases:
    CHANGE OF NAME AGREEMENT
    THE ABC CORPORATION (Grantee), a corporation duly organized and 
existing under the laws of ____________ (insert State), and theNATIONAL 
INSTITUTE OF FOOD AND

[[Page 230]]

AGRICULTURE, USDA (Government) enter into this Agreement as of 
____________ (insert date when the change of name became effective under 
applicable State law).

              (a) THE PARTIES AGREE TO THE FOLLOWING FACTS:

    1. The Government, represented by the ADO, has entered into certain 
awards with XYZ CORPORATION, namely ____________ (insert award number or 
delete ``namely'' and insert ``as shown in the attached list marked 
`Exhibit A' and incorporated in this Agreement by reference.'') The term 
``the awards,'' as used in this Agreement, means the above awards and 
all other awards, including all modifications, made by the Government 
and the Grantee before the effective date of this Agreement (whether or 
not performance and payment have been completed and releases executed if 
the Government or the Grantee has any remaining rights, duties, or 
obligations under these awards.)
    2. The XYZ CORPORATION, by an amendment to its certificate of 
incorporation, dated ________, 20____, has changed its corporate name to 
ABC CORPORATION.
    3. This amendment accomplishes a change of corporate name only and 
all rights and obligations of the Government and of the Grantee under 
the awards are unaffected by this change.
    4. Documentary evidence of this change of corporate name has been 
filed with the Government.

      (b) IN CONSIDERATION OF THESE FACTS, THE PARTIES AGREE THAT:

    1. The awards covered by this Agreement are amended by substituting 
the name ``ABC CORPORATION'' for the name ``XYZ CORPORATION'' wherever 
it appears in the awards; and
    2. Each party has executed this Agreement as of the day and year 
first above written.

NATIONAL INSTITUTE OF FOOD AND AGRICULTURE, USDA

 BY:____________________________________________________________________
 TITLE:_________________________________________________________________
ABC CORPORATION
 BY:____________________________________________________________________
 TITLE:_________________________________________________________________

CERTIFICATE

    I, ____________, certify that I am the Secretary of ABC CORPORATION, 
that ____________ , who signed this Agreement for this corporation, was 
then ____________ of this corporation; and that this Agreement was duly 
signed for and on behalf of this corporation by authority of its 
governing body and within the scope of its corporation powers.

    WITNESS MY HAND, and the seal of this corporation, this ______ day 
of ____________, 20____.

 BY:____________________________________________________________________

(CORPORATE SEAL)

    (2) From time to time the legal entity performing the research under 
the award may have to be changed. In such instances, USDA will ensure 
that all parties properly execute a Novation Agreement (Successor in 
Interest Agreement).
    (i) A Novation Agreement is a legal instrument executed by the 
Grantee (transferor), the successor in interest (transferee), and the 
Government by which, among other things, the transferor guarantees 
performance of the award, the transferee assumes all obligations under 
the award, and the Government recognizes the transfer of the award and 
related assets. This occurs when the third party's interest in the award 
arises out of the transfer of all the Grantee's assets or the entire 
portion of the assets involved in performing the award. Examples 
include, but are not limited to: the sale of these assets with a 
provision for assuming liabilities; the transfer of these assets 
incident to a merger or corporate consolidation; and the incorporation 
of a proprietorship or partnership, or the formation of a partnership.
    (ii) When a Grantee asks the Government to recognize a successor in 
interest, the responsible ADO shall obtain the following from the 
Grantee:
    (A) An authenticated copy of the instrument effecting the transfer 
of assets; e.g., bill of sale, certificate of merger, contract, deed, 
agreement, or court decree;
    (B) A list of all affected awards;
    (C) A certified copy of each resolution of the corporate parties' 
boards of directors authorizing the transfer of assets;
    (D) A certified copy of the minutes of each corporate party's 
stockholder meeting necessary to approve the transfer of assets;
    (E) The opinion of legal counsel for the transferor and transferee 
stating that the transfer was properly effected under applicable law and 
the effective date of transfer;
    (F) An authenticated copy of the transferee's certificate and 
articles of incorporation, if a corporation was formed for the purpose 
of receiving the

[[Page 231]]

assets involved in performing the Government award;
    (G) Evidence of transferee's capability to perform the award; and
    (H) Balance sheets of the transferor and transferee as of the dates 
immediately before and after the transfer of assets, certified for 
accuracy by independent accountants.
    (iii) The ADO will review the Agency's financial records concerning 
the correct cash-on-hand balances held by the transferor to ensure that 
they are properly accounted for in the transfer process. If recognizing 
a successor in interest to a Government award is consistent with the 
Government's interest, the ADO will prepare a Novation Agreement for 
execution by all three parties. The agreement will provide that:
    (A) The transferee assumes all the transferor's obligations under 
the award(s);
    (B) The transferor waives all rights under the award against the 
Government;
    (C) The transferor guarantees performance of the award by the 
transferee (a satisfactory performance bond may be accepted instead of 
the guarantee); and
    (D) Nothing in the agreement shall relieve the transferor or 
transferee from compliance with any Federal law.
    (E) The following suggested format for an agreement may be adapted 
for specific cases:
    NOVATION AGREEMENT (SUCCESSOR IN INTEREST AGREEMENT)
    THE ABC CORPORATION (Transferor), a corporation duly organized and 
existing under the laws of ____________ (insert state) with its 
principal office in ____________ (insert city); the XYZ CORPORATION 
(Transferee), a corporation duly organized and existing under the laws 
of ____________ (insert state) with its principal office in ____________ 
(insert city); and theNATIONAL INSTITUTE OF FOOD AND AGRICULTURE, USDA 
(Government) enter into this Agreement as of ____________ (insert the 
date transfer of assets became effective under applicable State law).

              (a) THE PARTIES AGREE TO THE FOLLOWING FACTS:

    1. The Government, represented by the ADO has entered into certain 
awards with the Transferor, namely: ____________ (insert award number or 
delete ``namely'' and insert ``as shown in the attached list marked 
`Exhibit A' and incorporated in this Agreement by reference.'') The term 
``the awards,'' as used in this Agreement, means the above awards and 
all other awards, including all modifications, made between the 
Government and Transferor before the effective date of this Agreement 
(whether or not performance and payment have been completed and releases 
executed if the Government or the Transferor has any remaining rights, 
duties, or obligations under these awards.) Included in the term 
``award'' are also all modifications made under the terms and conditions 
of these awards between the Government and the Transferor, on or after 
the effective date of this Agreement.
    2. As of ____________, 20____, the Transferor has transferred to the 
Transferee all the assets of the Transferor by virtue of a ____________ 
(insert terms or legal transaction involved) between the Transferor and 
the Transferee.
    3. The Transferee has acquired all the assets of the Transferor by 
virtue of the above transfer.
    4. The Transferee has assumed all obligations and liabilities of the 
Transferor under the awards by virtue of the above transfer.
    5. The Transferee is in a position to fully perform all obligations 
that may exist under the awards.
    6. It is consistent with the Government's interest to recognize the 
Transferee as the successor party to the awards.
    7. Evidence of the above transfer has been filed with the 
Government.

  (b) IN CONSIDERATION OF THESE FACTS, THE PARTIES AGREE THAT BY THIS 
                               AGREEMENT:

    1. The Transferor confirms the transfer to the Transferee, and 
waives any claims and rights against the Government that it now has or 
may have in the future in connection with the awards.
    2. The Transferee agrees to be bound by and to perform each award in 
accordance with the conditions contained in the awards. The Transferee 
also assumes all obligations and liabilities of, and all claims against, 
the Transferor under the awards as if the Transferee were the original 
party to the awards.
    3. The Transferee ratifies all previous actions taken by the 
Transferor with respect to the awards, with the same force and effect as 
if the action had been taken by the Transferee.
    4. The Government recognizes the Transferee as the Transferor's 
successor in interest in and to the awards. The Transferee by this 
Agreement becomes entitled to all rights, titles, and interests of the 
Transferor in and to the awards as if the Transferee were the original 
party to the awards. Following the effective date of this Agreement, the 
term Grantee, as used in the awards, shall refer to the Transferee.

[[Page 232]]

    5. Except as expressly provided in this Agreement, nothing in it 
shall be construed as a waiver of any rights of the Government against 
the Transferor.
    6. All payments and reimbursements previously made by the Government 
to the Transferor, and all other previous actions taken by the 
Government under the awards, shall be considered to have discharged 
those parts of the Government's obligations under the awards. All 
payments and reimbursements made by the Government after the date of 
this Agreement in the name of or to the Transferor shall have the same 
force and effect as if made to the Transferee, and shall constitute a 
complete discharge of the Government's obligations under the awards, to 
the extent of the amounts paid or reimbursed.
    7. The Transferor and the Transferee agree that the Government is 
not obligated to pay or reimburse either of them for, or otherwise give 
effect to, any costs, taxes, or other expenses, or any related 
increases, directly or indirectly arising out of or resulting from the 
transfer or this Agreement, other than those that the Government in the 
absence of this transfer or Agreement would have been obligated to pay 
or reimburse under the terms of the awards.
    8. The Transferor guarantees payment of all liabilities and the 
performance of all obligations that the Transferee (i) assumes under 
this Agreement or (ii) may undertake in the future should these awards 
be modified under their terms and conditions. The Transferor waives 
notice of, and consents to, any such future modifications.
    9. The awards shall remain in full force and effect, except as 
modified by this Agreement. Each party has executed this Agreement as of 
the day and year first above written.

NATIONAL INSTITUTE OF FOOD AND AGRICULTURE, USDA

 BY:____________________________________________________________________

 TITLE:_________________________________________________________________

ABC CORPORATION

 BY:____________________________________________________________________

 TITLE:_________________________________________________________________

XYZ CORPORATION

 BY:____________________________________________________________________

 TITLE:_________________________________________________________________
    CERTIFICATE
    I, ____________, certify that I am the Secretary of ABC CORPORATION, 
that ____________, who signed this Agreement for this corporation, was 
then____________ of this corporation; and that this Agreement was duly 
signed for and on behalf of this corporation by authority of its 
governing body and within the scope of its corporation powers. WITNESS 
MY HAND, and the seal of this corporation, this ____________day of 
____________, 20____

BY:_____________________________________________________________________

(CORPORATE SEAL)
    CERTIFICATE
    I, ____________, certify that I am the Secretary of XYZ CORPORATION, 
that ____________, who signed this Agreement for this corporation, was 
then____________ of this corporation; and that this Agreement was duly 
signed for and on behalf of this corporation by authority of its 
governing body and within the scope of its corporation powers. WITNESS 
MY HAND, and the seal of this corporation, this ____________day of 
____________, 20____

BY:_____________________________________________________________________

(CORPORATE SEAL)



Sec. 3403.15  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.''
    (b) Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to research project grants awarded 
under this part. These include but are not limited to:

2 CFR part 200--Uniform Administrative Requirements, Cost Principles, 
and Audit Requirements for Federal Awards.
2 CFR part 180 and Part 417--OMB Guidelines to Agencies on Government-
Wide Debarment and Suspension (Nonprocurement) and USDA Nonprocurement 
Debarment And Suspension
7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
7 CFR 1.1--USDA Implementation of Freedom of Information Act.
7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding Debt 
Collection.
7 CFR part 15, subpart A--USDA Implementation of Title VI of the Civil 
Rights Act of 1964.

[[Page 233]]

7 CFR part 3407--NIFA Procedures to Implement the National Environmental 
Policy Act;
29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR part 
15B (USDA implementation of statute)--prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs; and
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).

[79 FR 75998, Dec. 19, 2014]



Sec. 3403.16  Other considerations.

    The Department may, with respect to any research project grant, 
impose additional conditions prior to or at the time of any award when, 
in the Department's judgment, such conditions are necessary to assure or 
protect advancement of the approved project, the interests of the 
public, or the conservation of grant funds.



PART 3404_PUBLIC INFORMATION--Table of Contents



Sec.
3404.1 General statement.
3404.2 Public inspection, copying, and indexing.
3404.3 Requests for records.
3404.4 Multitrack processing.
3404.5 Denials.
3404.6 Appeals.

    Authority: 5 U.S.C. 301, 552; 7 CFR part 1, subpart A and appendix A 
thereto.

    Source: 66 FR 57842, Nov. 19, 2001, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 3404 appear at 76 FR 
4808, Jan. 27, 2011.



Sec. 3404.1  General statement.

    This part is issued in accordance with the regulations of the 
Secretary of Agriculture in part 1, subpart A of this title and appendix 
A thereto, implementing the Freedom of Information Act (FOIA) (5 U.S.C. 
552). The Secretary's regulations, as implemented by the regulations in 
this part, govern the availability of records of the National Institute 
of Food and Agriculture (NIFA) to the public.



Sec. 3404.2  Public inspection, copying, and indexing.

    5 U.S.C. 552(a)(2) requires that certain materials be made available 
for public inspection and copying and that a current index of these 
materials be published quarterly or otherwise be made available. Members 
of the public may request access to such materials maintained by NIFA at 
the following office: Information Staff, ARS, REE, USDA, Room 1-2248, 
Mail Stop 5128, 5601 Sunnyside Avenue, Beltsville, MD 20705-5128; 
Telephone (301) 504-1640 or (301) 504-1655; TTY-VOICE (301) 504-1743. 
Office hours are 8 a.m. to 4:30 p.m. Information maintained in our 
electronic reading room can be accessed at http://www.ars.usda.gov/is/
foia/Electronic.



Sec. 3404.3  Requests for records.

    Requests for records of NIFA under 5 U.S.C. 552(a)(3) shall be made 
in accordance with Sec. 1.5 of this title and submitted to the FOIA 
Coordinator, Information Staff, ARS, REE, USDA, Room 1-2248, Mail Stop 
5128, 5601 Sunnyside Avenue, Beltsville, MD 20705-5128; Telephone (301) 
504-1640 or (301) 504-1655; TTY-VOICE (301) 504-1743; Facsimile (301) 
504-1648; or E-mail [email protected]. The FOIA Coordinator is 
delegated authority to make determinations regarding such requests in 
accordance with Sec. 1.3(c) of this title.

[66 FR 57842, Nov. 19, 2001, as amended at 76 FR 4808, Jan. 27, 2011]



Sec. 3404.4  Multitrack processing.

    (a) When NIFA has a significant number of requests, the nature of 
which precludes a determination within 20 working days, the requests may 
be processed in a multitrack processing system, based on the date of 
receipt, the amount of work and time involved in processing the request, 
and whether the request qualifies for expedited processing.
    (b) NIFA may establish as many processing tracks as appropriate; 
processing within each track shall be based on a first-in, first-out 
concept, and rank-ordered by the date of receipt of the request.
    (c) A requester whose request does not qualify for the fastest track 
may

[[Page 234]]

be given an opportunity to limit the scope of the request in order to 
qualify for the fastest track. This multitrack processing system does 
not lessen agency responsibility to exercise due diligence in processing 
requests in the most expeditious manner possible.
    (d) NIFA shall process requests in each track on a ``first-in, 
first-out'' basis, unless there are unusual circumstances as set forth 
in Sec. 1.16 of this title, or the requester is entitled to expedited 
processing as set forth in Sec. 1.9 of this title.



Sec. 3404.5  Denials.

    If the FOIA Coordinator determines that a requested record is exempt 
from mandatory disclosure and that discretionary release would be 
improper, the FOIA Coordinator shall give written notice of denial in 
accordance with Sec. 1.7(a) of this title.



Sec. 3404.6  Appeals.

    Any person whose request is denied shall have the right to appeal 
such denial. Appeals shall be made in accordance with Sec. 1.14 of this 
title and should be addressed as follows: Director, NIFA, U.S. 
Department of Agriculture, Washington, DC 20250.



PART 3405_HIGHER EDUCATION CHALLENGE GRANTS PROGRAM--Table of Contents



                      Subpart A_General Information

Sec.
3405.1 Applicability of regulations.
3405.2 Definitions.
3405.3 Institutional eligibility.

                      Subpart B_Program Description

3405.4 Purpose of the program.
3405.5 Matching funds.
3405.6 Scope of program.
3405.7 Joint project proposals.
3405.8 Complementary project proposals.
3405.9 Use of funds for facilities.

                   Subpart C_Preparation of a Proposal

3405.10 Program application materials.
3405.11 Content of a proposal.

                   Subpart D_Submission of a Proposal

3405.12 Intent to submit a proposal.
3405.13 When and where to submit a proposal.

                Subpart E_Proposal Review and Evaluation

3405.14 Proposal review.
3405.15 Evaluation criteria.

                   Subpart F_Supplementary Information

3405.16 Access to peer review information.
3405.17 Grant awards.
3405.18 Use of funds; changes.
3405.19 Monitoring progress of funded projects.
3405.20 Other Federal statutes and regulations that apply.
3405.21 Confidential aspects of proposals and awards.
3405.22 Evaluation of program.

    Authority: Sec. 1470, National Agricultural Research, Extension, and 
Teaching Policy Act of 1977, as amended (7 U.S.C. 3316).

    Source: 62 FR 39317, July 22, 1997, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 3405 appear at 76 FR 
4808, Jan. 27, 2011.



                      Subpart A_General Information



Sec. 3405.1  Applicability of regulations.

    (a) The regulations of this part only apply to competitive Higher 
Education Challenge Grants awarded under the provisions of section 
1417(b)(1) of the National Agricultural Research, Extension, and 
Teaching Policy Act of 1977, as amended (NARETPA)(7 U.S.C. 3152(b)(1)), 
to strengthen institutional capacities, including curriculum, faculty, 
scientific instrumentation, instruction delivery systems, and student 
recruitment and retention. Section 1405 of NARETPA (7 U.S.C. 3121) 
designates the U.S. Department of Agriculture (USDA) as the lead Federal 
agency for agricultural research, extension, and teaching in the food 
and agricultural sciences. Section 1417 of NARETPA (7 U.S.C. 3152) 
authorizes the Secretary of Agriculture, who has delegated the authority 
to theDirector of the National Institute of Food and Agriculture (NIFA), 
to make competitive grants to land-grant colleges and universities, to 
colleges and universities having significant minority enrollments and a 
demonstrable capacity to carry out the teaching of food and agricultural 
sciences, and to other colleges and universities having a demonstrable 
capacity to carry out the teaching of food and agricultural sciences,

[[Page 235]]

for a period not to exceed 5 years, to administer and conduct programs 
to respond to identified State, regional, national, or international 
educational needs in the food and agricultural sciences.
    (b) To the extent that funds are available, each year NIFA will 
publish a Federal Register notice announcing the program and soliciting 
grant applications.
    (c)(1) Based on the amount of funds appropriated in any fiscal year, 
NIFA will determine and cite in the program announcement:
    (i) The targeted need area(s) to be supported or, if the entire 
scope of a particular targeted need area is not to be supported, the 
specific special interest(s) within that targeted need area to be 
supported;
    (ii) The degree level(s) to be supported;
    (iii) The maximum project period a proposal may request;
    (iv) The maximum amount of funds that may be requested by an 
institution under a regular, complementary, or joint project proposal; 
and
    (v) The maximum total funds that may be awarded to an institution 
under the program in a given fiscal year, including how funds awarded 
for complementary and for joint project proposals will be counted toward 
the institutional maximum.
    (2) The program announcement will also specify the deadline date for 
proposal submission, the number of copies of each proposal that must be 
submitted, the address to which a proposal must be submitted, and 
whether or not Form NIFA-711, ``Intent to Submit a Proposal,'' is 
requested.
    (d)(1) If it is deemed by NIFA that, for a given fiscal year, 
additional determinations are necessary, each, as relevant, will be 
stated in the program announcement. Such determinations may include:
    (i) Limits on the subject matter/emphasis areas to be supported;
    (ii) The maximum number of proposals that may be submitted on behalf 
of the same school, college, or equivalent administrative unit within an 
institution;
    (iii) The maximum total number of proposals that may be submitted by 
an institution;
    (iv) The minimum project period a proposal may request;
    (v) The minimum amount of funds that may be requested by an 
institution under a regular, complementary, or joint project proposal;
    (vi) The proportion of the appropriation reserved for, or available 
to, regular, complementary, and joint project proposals;
    (vii) The proportion of the appropriation reserved for, or available 
to, projects in each announced targeted need area;
    (viii) The proportion of the appropriation reserved for, or 
available to, each subject matter/emphasis area;
    (ix) The maximum number of grants that may be awarded to an 
institution under the program in a given fiscal year; and
    (x) Limits on the use of grant funds for travel or to purchase 
equipment, if any.
    (2) The program announcement also will contain any other limitations 
deemed necessary by NIFA for proper conduct of the program in the 
applicable year.
    (e) The regulations of this part do not apply to grants awarded by 
the Department of Agriculture under any other authority.



Sec. 3405.2  Definitions.

    As used in this part:
    (a) Authorized departmental officer means the Secretary or any 
employee of the Department who has the authority to issue or modify 
grant instruments on behalf of the Secretary.
    (b) Authorized organizational representative means the president of 
the institution or the official, designated by the president of the 
institution, who has the authority to commit the resources of the 
institution.
    (c) Budget period means the interval of time (usually 12 months) 
into which the project period is divided for budgetary and reporting 
purposes.
    (d) Cash contributions means the applicant's cash outlay, including 
the outlay of money contributed to the applicant by non-Federal third 
parties.

[[Page 236]]

    (e) Citizen or national of the United States means:
    (1) A citizen or native resident of a State; or,
    (2) A person defined in the Immigration and Nationality Act, 8 
U.S.C. 1101(a)(22), who, though not a citizen of the United States, owes 
permanent allegiance to the United States.
    (f) College or University means an educational institution in any 
State which:
    (1) Admits as regular students only persons having a certificate of 
graduation from a school providing secondary education, or the 
recognized equivalent of such a certificate;
    (2) Is legally authorized within such State to provide a program of 
education beyond secondary education;
    (3) Provides an educational program for which a baccalaureate degree 
or any other higher degree is awarded;
    (4) Is a public or other nonprofit institution; and
    (5) Is accredited by a nationally recognized accrediting agency or 
association.
    (g) Complementary project proposal means a proposal for a project 
which involves coordination with one or more other projects for which 
funding was awarded under this program in a previous fiscal year, or for 
which funding is requested under this program in the current fiscal 
year.
    (h) Department or USDA means the United States Department of 
Agriculture.
    (i) Eligible institution means a land-grant or other U.S. college or 
university offering a baccalaureate or first professional degree in at 
least one discipline or area of the food and agricultural sciences. The 
definition includes a research foundation maintained by an eligible 
college or university.
    (j) Eligible participant means, for purposes of Sec. 3405.6(b), 
Faculty Preparation and Enhancement for Teaching, and Sec. 3405.6(f), 
Student Recruitment and Retention, an individual who: Is a citizen or 
national of the United States, as defined in Sec. 3405.2(e); or is a 
citizen of the Federated States of Micronesia, the Republic of the 
Marshall Islands, or the Republic of Palau. Where eligibility is claimed 
under Sec. 3405.2(e)(2), documentary evidence from the Immigration and 
Naturalization Service as to such eligibility must be made available to 
NIFA upon request.
    (k) Food and agricultural sciences means basic, applied, and 
developmental research, extension, and teaching activities in the food, 
agricultural, renewable natural resources, forestry, and physical and 
social sciences, in the broadest sense of these terms, including but not 
limited to, activities concerned with the production, processing, 
marketing, distribution, conservation, consumption, research, and 
development of food and agriculturally related products and services, 
and inclusive of programs in agriculture, natural resources, 
aquaculture, forestry, veterinary medicine, home economics, rural 
development, and closely allied disciplines.
    (l) Grantee means the eligible institution designated in the grant 
award document as the responsible legal entity to which a grant is 
awarded.
    (m) Joint project proposal means a proposal for a project, which 
will involve the applicant institution and two or more other colleges, 
universities, community colleges, junior colleges, or other 
institutions, each of which will assume a major role in the conduct of 
the proposed project, and for which the applicant institution will 
transfer at least one-half of the awarded funds to the other 
institutions participating in the project. Only the applicant 
institution must meet the definition of ``eligible institution'' as 
specified in Sec. 3405.2(i); the other institutions participating in a 
joint project proposal are not required to meet the definition of 
``eligible institution'' as specified in Sec. 3405.2(i), nor required 
to meet the definition of ``college'' or ``university'' as specified in 
Sec. 3405.2(f).
    (n) Land-grant colleges and universities means those institutions 
eligible to receive funds under the Act of July 2, 1862 (12 Stat. 503-
505, as amended; 7 U.S.C. 301-305, 307 and 308), or the Act of August 
30, 1890 (26 Stat. 417-419, as amended; 7 U.S.C. 321-326 and 328), 
including Tuskegee University.
    (o) Matching or Cost-sharing means that portion of project costs not 
borne by the Federal Government, including the value of in-kind 
contributions.

[[Page 237]]

    (p) Peer review panel means a group of experts or consultants, 
qualified by training and experience in particular fields of science, 
education, or technology to give expert advice on the merit of grant 
applications in such fields, who evaluate eligible proposals submitted 
to this program in their personal area(s) of expertise.
    (q) Prior approval means written approval evidencing prior consent 
by an authorized departmental officer as defined in Sec. 3405.2(a) of 
this part.
    (r) Project means the particular activity within the scope of one or 
more of the targeted areas supported by a grant awarded under this 
program.
    (s) Project director means the single individual designated by the 
grantee in the grant application and approved by the Secretary who is 
responsible for the direction and management of the project.
    (t) Project period means the period, as stated in the award document 
and modifications thereto, if any, during which Federal sponsorship 
begins and ends.
    (u) Secretary means the Secretary of Agriculture and any other 
officer or employee of the Department of Agriculture to whom the 
authority involved may be delegated.
    (v) State means any one of the fifty States, the Commonwealth of 
Puerto Rico, Guam, American Samoa, the Commonwealth of the Northern 
Marianas, the Virgin Islands of the United States, and the District of 
Columbia.
    (w) Teaching means formal classroom instruction, laboratory 
instruction, and practicum experience in the food and agricultural 
sciences and matters related thereto (such as faculty development, 
student recruitment and services, curriculum development, instructional 
materials and equipment, and innovative teaching methodologies) 
conducted by colleges and universities offering baccalaureate or higher 
degrees.
    (x) Third party in-kind contributions means non-cash contributions 
of property or services provided by non-Federal third parties, including 
real property, equipment, supplies and other expendable property, 
directly benefiting and specifically identifiable to a funded project or 
program.
    (y) United States means the several States, the territories and 
possessions of the United States, the Commonwealth of Puerto Rico, Guam, 
American Samoa, the Commonwealth of the Northern Marianas, the Virgin 
Islands of the United States, and the District of Columbia.



Sec. 3405.3  Institutional eligibility.

    Proposals may be submitted by land-grant and other U.S. colleges and 
universities offering a baccalaureate or first professional degree in at 
least one discipline or area of the food and agricultural sciences. Each 
applicant must have a demonstrable capacity for, and a significant 
ongoing commitment to, the teaching of food and agricultural sciences 
generally and to the specific need and/or subject area(s) for which a 
grant is requested. Awards may be made only to eligible institutions as 
defined in Sec. 3405.2(i).



                      Subpart B_Program Description



Sec. 3405.4  Purpose of the program.

    The Department of Agriculture is designated as the lead Federal 
agency for higher education in the food and agricultural sciences. In 
this context, NIFA has specific responsibility to initiate and support 
projects to strengthen college and university teaching programs in the 
food and agricultural sciences. One national initiative for carrying out 
this responsibility is the competitive Higher Education Challenge Grants 
Program. A primary goal of the program is to attract and ensure a 
continual flow of outstanding students into food and agricultural 
sciences higher education programs and to provide them with an education 
of the highest quality available anywhere in the world and which 
reflects the unique needs of the Nation. It is designed to stimulate and 
enable colleges and universities to provide the quality of education 
necessary to produce baccalaureate or higher degree level graduates 
capable of strengthening the Nation's food and agricultural scientific 
and professional work force. It is intended that projects supported by 
the program will:

[[Page 238]]

    (a) Address a State, regional, national, or international 
educational need;
    (b) Involve a creative or nontraditional approach toward addressing 
that need which can serve as a model to others;
    (c) Encourage and facilitate better working relationships in the 
university science and education community, as well as between 
universities and the private sector, to enhance program quality and 
supplement available resources; and
    (d) Result in benefits which will likely transcend the project 
duration and USDA support.



Sec. 3405.5  Matching funds.

    Each application must provide for matching support from a non-
Federal source. NIFA will cite in the program announcement the required 
percentage of institutional cost sharing.



Sec. 3405.6  Scope of program.

    This program supports projects related to strengthening 
undergraduate or graduate teaching programs as specified in the annual 
program announcement. Only proposals addressing one or more of the 
specific targeted need areas(s) identified in the program announcement 
will be funded. Proposals may focus on any subject matter area(s) in the 
food and agricultural sciences unless limited by determinations as 
specified in the annual program announcement. A proposal may address a 
single targeted need area or multiple targeted need areas, and may be 
focused on a single subject matter area or multiple subject matter 
areas, in any combination (e.g., curriculum development in horticulture; 
curriculum development, faculty enhancement, and student experiential 
learning in animal science; faculty enhancement in food science and 
agribusiness management; or instruction delivery systems and student 
experiential learning in plant science, horticulture, and entomology). 
Targeted need areas will consist of one or more of the following:
    (a) Curricula design and materials development. (1) The purpose of 
this initiative is to promote new and improved curricula and materials 
to increase the quality of, and continuously renew, the Nation's 
academic programs in the food and agricultural sciences. The overall 
objective is to stimulate the development and facilitate the use of 
exemplary education models and materials that incorporate the most 
recent advances in subject matter, research on teaching and learning 
theory, and instructional technology. Proposals may emphasize: the 
development of courses of study, degree programs, and instructional 
materials; the use of new approaches to the study of traditional 
subjects; or the introduction of new subjects, or new applications of 
knowledge, pertaining to the food and agricultural sciences.
    (2) Examples include, but are not limited to, curricula and 
materials that promote:
    (i) Raising the level of scholastic achievement of the Nation's 
graduates in the food and agricultural sciences.
    (ii) Addressing the special needs of particular groups of students, 
such as minorities, gifted and talented, or those with educational 
backgrounds that warrant enrichment.
    (iii) Using alternative instructional strategies or methodologies, 
including computer-assisted instruction or simulation modeling, media 
programs that reach large audiences efficiently and effectively, 
activities that provide hands-on learning experiences, and educational 
programs that extend learning beyond the classroom.
    (iv) Using sound pedagogy, particularly with regard to recent 
research on how to motivate students to learn, retain, apply, and 
transfer knowledge, skills, and competencies.
    (v) Building student competencies to integrate and synthesize 
knowledge from several disciplines.
    (b) Faculty preparation and enhancement for teaching. (1) The 
purpose of this initiative is to advance faculty development in the 
areas of teaching competency, subject matter expertise, or student 
recruitment and advising skills. Teachers are central to education. They 
serve as models, motivators, and mentors--the catalysts of the learning 
process. Moreover, teachers are agents for developing, replicating, and 
exchanging effective teaching materials and methods. For these reasons, 
education can be

[[Page 239]]

strengthened only when teachers are adequately prepared, highly 
motivated, and appropriately recognized and rewarded.
    (2) Each faculty recipient of support for developmental activities 
under Sec. 3405.6(b) must be an ``eligible participant'' as defined in 
Sec. 3405.2(j) of this part.
    (3) Examples of developmental activities include, but are not 
limited to, those which enable teaching faculty to:
    (i) Gain experience with recent developments or innovative 
technology relevant to their teaching responsibilities.
    (ii) Work under the guidance and direction of experts who have 
substantial expertise in an area related to the developmental goals of 
the project.
    (iii) Work with scientists or professionals in government, industry, 
or other colleges or universities to learn new applications in a field.
    (iv) Obtain personal experience working with new ideas and 
techniques.
    (v) Expand competence with new methods of information delivery, such 
as computer-assisted or televised instruction.
    (vi) Increase understanding of the special needs of non-traditional 
students or students from groups that are underrepresented in the food 
and agricultural sciences workforce.
    (c) Instruction delivery systems. (1) The purpose of this initiative 
is to encourage the use of alternative methods of delivering instruction 
to enhance the quality, effectiveness, and cost efficiency of teaching 
programs. The importance of this initiative is evidenced by advances in 
educational research which have substantiated the theory that 
differences in the learning styles of students often require alternative 
instructional methodologies. Also, the rising costs of higher education 
strongly suggest that colleges and universities undertake more efforts 
of a collaborative nature in order to deliver instruction which 
maximizes program quality and reduces unnecessary duplication. At the 
same time, advancements in knowledge and technology continue to 
introduce new subject matter areas which warrant consideration and 
implementation of innovative instruction techniques, methodologies, and 
delivery systems.
    (2) Examples include, but are not limited to:
    (i) Use of computers.
    (ii) Teleconferencing.
    (iii) Networking via satellite communications.
    (iv) Regionalization of academic programs.
    (v) Mobile classrooms and laboratories.
    (vi) Individualized learning centers.
    (vii) Symposia, forums, regional or national workshops, etc.
    (d) Scientific instrumentation for teaching. (1) The purpose of this 
initiative is to provide students in science-oriented courses the 
necessary experience with suitable, up-to-date equipment in order to 
involve them in work central to scientific understanding and progress. 
This program initiative will support the acquisition of instructional 
laboratory and classroom equipment to assure the achievement and 
maintenance of outstanding food and agricultural sciences higher 
education programs. A proposal may request support for acquiring new, 
state-of-the-art instructional scientific equipment, upgrading existing 
equipment, or replacing non-functional or clearly obsolete equipment.
    (2) Examples include, but are not limited to:
    (i) Rental or purchase of modern instruments to improve student 
learning experiences in courses, laboratories, and field work.
    (ii) Development of new ways of using instrumentation to extend 
instructional capabilities.
    (iii) Establishment of equipment-sharing capability via consortia or 
centers that develop innovative opportunities, such as mobile 
laboratories or satellite access to industry or government laboratories.
    (e) Student experiential learning. (1) The purpose of this 
initiative is to further the development of student scientific and 
professional competencies through experiential learning programs which 
provide students with opportunities to solve complex problems in the 
context of real-world situations. Effective experiential learning is 
essential

[[Page 240]]

in preparing future graduates to advance knowledge and technology, 
enhance quality of life, conserve resources, and revitalize the Nation's 
economic competitiveness. Such experiential learning opportunities are 
most effective when they serve to advance decision-making and 
communication skills as well as technological expertise.
    (2) Examples include, but are not limited to, projects which:
    (i) Provide opportunities for students to participate in research 
projects, either as a part of an ongoing research project or in a 
project designed especially for this program.
    (ii) Provide opportunities for students to complete apprenticeships, 
internships, or similar participatory learning experiences.
    (iii) Expand and enrich courses which are of a practicum nature.
    (iv) Provide career mentoring experiences that link students with 
outstanding professionals.
    (f) Student recruitment and retention. (1) The purpose of this 
initiative is to strengthen student recruitment and retention programs 
in order to promote the future strength of the Nation's scientific and 
professional work force. The Nation's economic competitiveness and 
quality of life rest upon the availability of a cadre of outstanding 
research scientists, university faculty, and other professionals in the 
food and agricultural sciences. A substantial need exists to supplement 
efforts to attract increased numbers of academically outstanding 
students to prepare for careers as food and agricultural scientists and 
professionals. It is particularly important to augment the racial, 
ethnic, and gender diversity of the student body in order to promote a 
robust exchange of ideas and a more effective use of the full breadth of 
the Nation's intellectual resources.
    (2) Each student recipient of monetary support for education costs 
or developmental purposes under Sec. 3405.6(f) must be enrolled at an 
eligible institution and meet the requirement of an ``eligible 
participant'' as defined in Sec. 3405.2(j) of this part.
    (3) Examples include, but are not limited to:
    (i) Special outreach programs for elementary and secondary students 
as well as parents, counselors, and the general public to broaden 
awareness of the extensive nature and diversity of career opportunities 
for graduates in the food and agricultural sciences.
    (ii) Special activities and materials to establish more effective 
linkages with high school science classes.
    (iii) Unique or innovative student recruitment activities, 
materials, and personnel.
    (iv) Special retention programs to assure student progression 
through and completion of an educational program.
    (v) Development and dissemination of stimulating career information 
materials.
    (vi) Use of regional or national media to promote food and 
agricultural sciences higher education.
    (vii) Providing financial incentives to enable and encourage 
students to pursue and complete an undergraduate or graduate degree in 
an area of the food and agricultural sciences.
    (viii) Special recruitment programs to increase the participation of 
students from non-traditional or underrepresented groups in courses of 
study in the food and agricultural sciences.



Sec. 3405.7  Joint project proposals.

    Applicants are encouraged to submit joint project proposals as 
defined in Sec. 3405.2(m), which address regional or national problems 
and which will result overall in strengthening higher education in the 
food and agricultural sciences. The goals of such joint initiatives 
should include maximizing the use of limited resources by generating a 
critical mass of expertise and activity focused on a targeted need 
area(s), increasing cost-effectiveness through achieving economies of 
scale, strengthening the scope and quality of a project's impact, and 
promoting coalition building likely to transcend the project's lifetime 
and lead to future ventures.



Sec. 3405.8  Complementary project proposals.

    Institutions may submit proposals that are complementary in nature 
as

[[Page 241]]

defined in Sec. 3405.2(g). Such complementary project proposals may be 
submitted by the same or by different eligible institutions.



Sec. 3405.9  Use of funds for facilities.

    Under the Higher Education Challenge Grants Program, the use of 
grant funds to plan, acquire, or construct a building or facility is not 
allowed. With prior approval, in accordance with the cost principles set 
forth in 2 CFR part 200, some grant funds may be used for minor 
alterations, renovations, or repairs deemed necessary to retrofit 
existing teaching spaces in order to carry out a funded project. 
However, requests to use grant funds for such purposes must demonstrate 
that the alterations, renovations, or repairs are incidental to the 
major purpose for which a grant is made.

[62 FR 39317, July 22, 1997, as amended at 79 FR 75999, Dec. 19, 2014]



                   Subpart C_Preparation of a Proposal



Sec. 3405.10  Program application materials.

    Program application materials in an application package will be made 
available to eligible institutions upon request. These materials include 
the program announcement, the administrative provisions for the program, 
and the forms needed to prepare and submit grant applications under the 
program.



Sec. 3405.11  Content of a proposal.

    (a) Proposal cover page. (1) Form NIFA-712, ``Higher Education 
Proposal Cover Page,'' must be completed in its entirety. Note that 
providing a Social Security Number is voluntary, but is an integral part 
of the NIFA information system and will assist in the processing of the 
proposal.
    (2) One copy of the Form NIFA-712 must contain the pen-and-ink 
signatures of the Project Director(s) and authorized organizational 
representative for the applicant institution.
    (3) The title of the project shown on the ``Higher Education 
Proposal Cover Page'' must be brief (80-character maximum) yet represent 
the major thrust of the project. This information will be used by the 
Department to provide information to the Congress and other interested 
parties.
    (4) In block 7. of Form NIFA-712, enter ``Higher Education Challenge 
Grants Program.''
    (5) In block 8.a. of Form NIFA-712, enter ``Teaching.'' In block 
8.b. identify the code for the targeted need area(s) as found on the 
reverse of the form. If a proposal focuses on multiple targeted need 
areas, enter each code associated with the project and place an asterisk 
(*) immediately following the code for the primary targeted need area. 
In block 8.c. identify the major area(s) of emphasis as found on the 
reverse of the form. If a proposal focuses on multiple areas of 
emphasis, enter each code associated with the project. This information 
will be used by program staff for the proper assignment of proposals to 
peer reviewers.
    (6) In block 9. of Form NIFA-712, indicate if the proposal is a 
complementary project proposal or a joint project proposal as defined in 
Sec. 3405.2(g) and Sec. 3405.2(m), respectively, of this part. If it 
is not a complementary project proposal or a joint project proposal, 
identify it as a regular project proposal.
    (7) In block 13. of Form NIFA-712, indicate if the proposal is a 
new, first-time submission or if the proposal is a resubmission of a 
proposal that has been submitted to, but not funded under, the Higher 
Education Challenge Grants Program in a previous competition.
    (b) Table of contents. For ease in locating information, each 
proposal must contain a detailed table of contents just after the 
Proposal Cover Page. The Table of Contents should include page numbers 
for each component of the proposal. Pagination should begin immediately 
following the Table of Contents.
    (c) Project summary. (1) A Project Summary should immediately follow 
the Table of Contents. The information provided in the Project Summary 
may be used by the program staff for a variety of purposes, including 
the proper assignment of proposals to peer reviewers and providing 
information to peer reviewers prior to the peer panel meeting. The name 
of the institution, the targeted need area(s), and the title of

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the proposal must be identified exactly as shown on the ``Higher 
Education Proposal Cover Page.''
    (2) If the proposal is a complementary project proposal, as defined 
in Sec. 3405.2(g) of this part, indicate such and identify the other 
complementary project(s) by citing the name of the submitting 
institution, the title of the project, the project director, and the 
grant number (if funded in a previous year) exactly as shown on the 
cover page of the complementary project so that appropriate 
consideration can be given to the interrelatedness of the proposals in 
the evaluation process.
    (3) If the proposal is a joint project proposal, as defined in Sec. 
3405.2(m) of this part, indicate such and identify the other 
participating institutions and the key faculty member or other 
individual responsible for coordinating the project at each institution.
    (4) The Project Summary should be a concise description of the 
proposed activity suitable for publication by the Department to inform 
the general public about awards under the program. The text must not 
exceed one page, single-spaced. The Project Summary should be a self-
contained description of the activity which would result if the proposal 
is funded by USDA. It should include: The objectives of the project; a 
synopsis of the plan of operation; a description of how the project will 
strengthen higher education in the food and agricultural sciences in the 
United States; and the plans for disseminating project results. The 
Project Summary should be written so that a technically literate reader 
can evaluate the use of Federal funds in support of the project.
    (d) Resubmission of a proposal--(1) Resubmission of previously 
unfunded proposals. If a proposal has been submitted previously, but was 
not funded, such should be indicated in block 13. on Form NIFA-712, 
``Higher Education Proposal Cover Page,'' and the following information 
should be included in the proposal: The fiscal year(s) in which the 
proposal was submitted previously; a summary of the peer reviewers' 
comments; and how these comments have been addressed in the current 
proposal, including the page numbers in the current proposal where the 
peer reviewers' comments have been addressed. This information may be 
provided as a section of the proposal following the Project Summary and 
preceding the proposal narrative or it may be placed in the Appendix 
(see Sec. 3405.11(i)). In either case, the location of this information 
should be indicated in the Table of Contents. Further, when possible, 
the information should be presented in tabular format. Applicants who 
choose to resubmit proposals that were previously submitted, but not 
funded, should note that resubmitted proposals must compete equally with 
newly submitted proposals. Submitting a proposal that has been revised 
based on a previous peer review panel's critique of the proposal does 
not guarantee the success of the resubmitted proposal.
    (2) Resubmission of previously funded proposals. The Higher 
Education Challenge Grants Program is not designed to support activities 
that essentially are repetitive in nature over multiple grant awards. 
Project directors who have had their projects funded previously are 
discouraged from resubmitting relatively identical proposals for further 
funding. Proposals that are sequential continuations or new stages of 
previously funded Challenge Grants Program projects must compete with 
first-time proposals. Therefore, project directors should thoroughly 
demonstrate how the project proposed in the current application expands 
substantially upon a previously funded project (i.e., demonstrate how 
the new project will advance the former project to the next level of 
attainment or will achieve expanded goals). The proposal must also show 
the degree to which the new phase promotes innovativeness and creativity 
beyond the scope of the previously funded project.
    (e) Narrative of a proposal. The narrative portion of the proposal 
is limited to 20 pages in length. The one-page Project Summary is not 
included in the 20-page limitation. The narrative must be typed on one 
side of the page only, using a font no smaller than 12 point, and 
double-spaced. All margins must be at least one inch. All pages 
following the Table of Contents must be paginated. It should be noted 
that peer reviewers will not be required to read

[[Page 243]]

beyond 20 pages of the narrative to evaluate the proposal. The narrative 
should contain the following sections:
    (1) Potential for advancing the quality of education--(i) Impact. 
(A) Identify the targeted need area(s).
    (B) Clearly state the specific instructional problem or opportunity 
to be addressed.
    (C) Describe how and by whom the focus and scope of the project were 
determined. Summarize the body of knowledge which substantiates the need 
for the proposed project.
    (D) Describe ongoing or recently completed significant activities 
related to the proposed project for which previous funding was received 
under this program.
    (E) Discuss how the project will be of value at the State, regional, 
national, or international level(s).
    (F) Discuss how the benefits to be derived from the project will 
transcend the applicant institution or the grant period. Also discuss 
the probabilities of the project being adapted by other institutions. 
For example, can the project serve as a model for others?
    (ii) Continuation plans. Discuss the likelihood of, or plans for, 
continuation or expansion of the project beyond USDA support. For 
example, does the institution's long-range budget or academic plan 
provide for the realistic continuation or expansion of the initiative 
undertaken by this project after the end of the grant period, are plans 
for eventual self-support built into the project, are plans being made 
to institutionalize the program if it meets with success, and are there 
indications of other continuing non-Federal support?
    (iii) Innovation. Describe the degree to which the proposal reflects 
an innovative or non-traditional approach to solving a higher education 
problem or strengthening the quality of higher education in the food and 
agricultural sciences.
    (iv) Products and results. Explain the expected products and results 
and their potential impact on strengthening food and agricultural 
sciences higher education in the United States.
    (2) Overall approach and cooperative linkages--(i) Proposed 
approach--(A) bjectives. Cite and discuss the specific objectives to be 
accomplished under the project.
    (B) Plan of operation. (1) Describe procedures for accomplishing the 
objectives of the project.
    (2) Describe plans for management of the project to ensure its 
proper and efficient administration.
    (3) Describe the way in which resources and personnel will be used 
to conduct the project.
    (C) Timetable. Provide a timetable for conducting the project. 
Identify all important project milestones and dates as they relate to 
project start-up, execution, evaluation, dissemination, and close-out.
    (ii) Evaluation plans. (A) Provide a plan for evaluating the 
accomplishment of stated objectives during the conduct of the project. 
Indicate the criteria, and corresponding weight of each, to be used in 
the evaluation process, describe any data to be collected and analyzed, 
and explain the methodology that will be used to determine the extent to 
which the needs underlying the project are met.
    (B) Provide a plan for evaluating the effectiveness of the end 
results upon conclusion of the project. Include the same kinds of 
information requested in Sec. 3405.11(e)(2)(ii)(A).
    (iii) Dissemination plans. Discuss plans to disseminate project 
results and products. Identify target audiences and explain methods of 
communication.
    (iv) Partnerships and collaborative efforts. (A) Explain how the 
project will maximize partnership ventures and collaborative efforts to 
strengthen food and agricultural sciences higher education (e.g., 
involvement of faculty in related disciplines at the same institution, 
joint projects with other colleges or universities, or cooperative 
activities with business or industry). Also explain how it will 
stimulate academia, the States, or the private sector to join with the 
Federal partner in enhancing food and agricultural sciences higher 
education.
    (B) Provide evidence, via letters from the parties involved, that 
arrangements necessary for collaborative partnerships or joint 
initiatives have been discussed and realistically can be expected to 
come to fruition, or actually

[[Page 244]]

have been finalized contingent on an award under this program. Letters 
must be signed by an official who has the authority to commit the 
resources of the organization. Such letters should be referenced in the 
plan of operation, but the actual letters should be included in the 
Appendix section of the proposal. Any potential conflict(s) of interest 
that might result from the proposed collaborative arrangements must be 
discussed in detail.
    (3) Institutional commitment and resources--(i) Institutional 
commitment. Discuss the institution's commitment to the project. For 
example, substantiate that the institution attributes a high priority to 
the project, discuss how the project will contribute to the achievement 
of the institution's long-term (five-to ten-year) goals, explain how the 
project will help satisfy the institution's high-priority objectives, or 
show how this project is linked to and supported by the institution's 
strategic plan.
    (ii) Institutional resources. Document the commitment of 
institutional resources to the project, and show that the institutional 
resources to be made available to the project, when combined with the 
support requested from USDA, will be adequate to carry out the 
activities of the project. Discuss institutional facilities, equipment, 
computer services, and other appropriate resources available to the 
project.
    (f) Key personnel. A Form NIFA-708, ``Summary Vita--Teaching 
Proposal,'' should be included for each key person associated with the 
project.
    (g) Budget and cost-effectiveness--(1) Budget form. (i) Prepare Form 
NIFA-713, ``Higher Education Budget,'' in accordance with instructions 
provided with the form. Proposals may request support for a period to be 
identified in each year's program announcement. A budget form is 
required for each year of requested support. In addition, a summary 
budget is required detailing the requested total support for the overall 
project period. Form NIFA-713 may be reproduced as needed by proposers. 
Funds may be requested under any of the categories listed on the form, 
provided that the item or service for which support is requested is 
allowable under the authorizing legislation, the applicable Federal cost 
principles, and these administrative provisions, and can be justified as 
necessary for the successful conduct of the proposed project.
    (ii) The approved negotiated instruction rate or the rate allowed by 
law should be used when computing indirect costs. If a reduced rate of 
indirect costs is voluntarily requested from USDA, the remaining 
allowable indirect costs may be used as matching funds.
    (2) Matching funds. When documenting matching contributions, use the 
following guidelines:
    (i) When preparing the column of Form NIFA-713 entitled ``Applicant 
Contributions to Matching Funds,'' only those costs to be contributed by 
the applicant for the purposes of matching should be shown. The total 
amount of this column should be indicated in item M.
    (ii) In item N of Form NIFA-713, show a total dollar amount for Cash 
Contributions from both the applicant and any third parties; also show a 
total dollar amount (based on current fair market value) for Non-cash 
Contributions from both the applicant and any third parties.
    (iii) To be counted toward the matching requirements stated in Sec. 
3405.5 of this part, proposals must include written verification of any 
actual commitments of matching support (including both cash and non-cash 
contributions) from third parties. Written verification means--
    (A) For any third party cash contributions, a separate pledge 
agreement for each donation, signed by the authorized organizational 
representative(s) of the donor organization and the applicant 
institution, which must include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;
    (3) The title of the project for which the donation is made;
    (4) The dollar amount of the cash donation; and
    (5) A statement that the donor will pay the cash contribution during 
the grant period; and

[[Page 245]]

    (B) For any third party non-cash contributions, a separate pledge 
agreement for each contribution, signed by the authorized organizational 
representative(s) of the donor organization and the applicant 
institution, which must include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;
    (3) The title of the project for which the donation is made;
    (4) A good faith estimate of the current fair market value of the 
non-cash contribution; and
    (5) A statement that the donor will make the contribution during the 
grant period.
    (iv) All pledge agreements referenced in Sec. 3405.11(g)(2)(iii) 
(A) and (B) must be placed in the proposal immediately following Form 
NIFA-713. The sources and amounts of all matching support from outside 
the applicant institution should be summarized in the Budget Narrative 
section of the proposal.
    (v) Applicants should refer to 2 CFR part 200 and part 400 for 
further guidance and other requirements relating to matching and 
allowable costs.
    (3) Chart on shared budget for joint project proposal. For a joint 
project proposal, a plan must be provided indicating how funds will be 
distributed to the participating institutions. The budget section of a 
joint project proposal should include a chart indicating: The names of 
the participating institutions; the amount of funds to be disbursed to 
those institutions; and the way in which such funds will be used in 
accordance with items A through L of Form NIFA-713, ``Higher Education 
Budget.'' If a proposal is not for a joint project, such a chart is not 
required.
    (4) Budget narrative. (i) Discuss how the budget specifically 
supports the proposed project activities. Explain how such budget items 
as professional or technical staff, travel, equipment, etc., are 
essential to achieving project objectives.
    (ii) Justify that the total budget, including funds requested from 
USDA and any matching support provided, will be adequate to carry out 
the activities of the project. Provide a summary of sources and amounts 
of all third party matching support.
    (iii) Justify the project's cost-effectiveness. Show how the project 
maximizes the use of limited resources, optimizes educational value for 
the dollar, achieves economies of scale, or leverages additional funds. 
For example, discuss how the project has the potential to generate a 
critical mass of expertise and activity focused on a targeted need area, 
or to promote coalition building that could lead to future ventures.
    (iv) Include the percentage of time key personnel will work on the 
project, both during the academic year and summer. When salaries of 
university personnel will be paid by a combination of USDA and 
institutional funds, the total compensation must not exceed the faculty 
member's regular annual compensation. In addition, the total commitment 
of time devoted to the project, when combined with time for teaching and 
research duties, other sponsored agreements, and other employment 
obligations to the institution, must not exceed 100 percent of the 
normal workload for which the employee is compensated, in accordance 
with established university policies and applicable Federal cost 
principles.
    (v) If the proposal addresses more than one targeted need area 
(e.g., student experiential learning and instruction delivery systems), 
estimate the proportion of the funds requested from USDA that will 
support each respective targeted need area.
    (h) Current and pending support. Each applicant must complete Form 
NIFA-663, ``Current and Pending Support,'' identifying any other current 
public- or private-sponsored projects, in addition to the proposed 
project, to which key personnel listed in the proposal under 
consideration have committed portions of their time, whether or not 
salary support for the person(s) involved is included in the budgets of 
the various projects. This information should also be provided for any 
pending proposals which are currently being considered by, or which will 
be submitted in the near future to other possible sponsors, including 
other USDA programs or agencies. Concurrent submission of identical or 
similar projects

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to other possible sponsors will not prejudice the review or evaluation 
of a project under this program.
    (i) Appendix. Each project narrative is expected to be complete in 
itself and to meet the 20-page limitation. Inclusion of material in an 
Appendix should not be used to circumvent the 20-page limitation of the 
proposal narrative. However, in those instances where inclusion of 
supplemental information is necessary to guarantee the peer review 
panel's complete understanding of a proposal or to illustrate the 
integrity of the design or a main thesis of the proposal, such 
information may be included in an Appendix. Examples of supplemental 
material are photographs, journal reprints, brochures and other 
pertinent materials which are deemed to be illustrative of major points 
in the narrative but unsuitable for inclusion in the proposal narrative 
itself. Information on previously submitted proposals may also be 
presented in the Appendix (refer to Sec. 3405.11(d)). When possible, 
information in the Appendix should be presented in tabular format. A 
complete set of the Appendix material must be attached to each copy of 
the grant application submitted. The Appendix must be identified with 
the title of the project as it appears on Form NIFA-712 of the proposal 
and the name(s) of the project director(s). The Appendix must be 
referenced in the proposal narrative.

[62 FR 39317, July 22, 1997, as amended at 79 FR 75999, Dec. 19, 2014]



                   Subpart D_Submission of a Proposal



Sec. 3405.12  Intent to submit a proposal.

    To assist NIFA in preparing for the review of proposals, 
institutions planning to submit proposals may be requested to complete 
Form NIFA-711, ``Intent to Submit a Proposal,'' provided in the 
application package. NIFA will determine each year if Intent to Submit a 
Proposal forms will be requested and provide such information in the 
program announcement. If Intent to Submit a Proposal forms are required, 
one form should be completed and returned for each proposal an 
institution anticipates submitting. Submitting this form does not commit 
an institution to any course of action, nor does failure to send this 
form prohibit an institution from submitting a proposal.



Sec. 3405.13  When and where to submit a proposal.

    The program announcement will provide the deadline date for 
submitting a proposal, the number of copies of each proposal that must 
be submitted, and the address to which proposals must be submitted.



                Subpart E_Proposal Review and Evaluation



Sec. 3405.14  Proposal review.

    The proposal evaluation process includes both internal staff review 
and merit evaluation by peer review panels comprised of scientists, 
educators, business representatives, and Government officials. Peer 
review panels will be selected and structured to provide optimum 
expertise and objective judgment in the evaluation of proposals.



Sec. 3405.15  Evaluation criteria.

    The maximum score a proposal can receive is 200 points. Unless 
otherwise stated in the annual solicitation published in the Federal 
Register, the peer review panel will consider the following criteria and 
weights to evaluate proposals submitted:

------------------------------------------------------------------------
               Evaluation Criterion                        Weight
------------------------------------------------------------------------
(a) Potential for advancing the quality of
 education:
    This criterion is used to assess the
     likelihood that the project will have a
     substantial impact upon and advance the
     quality of food and agricultural sciences
     higher education by strengthening
     institutional capacities through promoting
     education reform to meet clearly delineated
     needs.
        (1) Impact--Does the project address a      20 points.
         targeted need area(s)? Is the problem or
         opportunity clearly documented? Does the
         project address a State, regional,
         national, or international problem or
         opportunity? Will the benefits to be
         derived from the project transcend the
         applicant institution and/or the grant
         period? Is it probable that other
         institutions will adapt this project for
         their own use? Can the project serve as a
         model for others?.

[[Page 247]]

 
        (2) Continuation plans--Are there plans     10 points.
         for continuation or expansion of the
         project beyond USDA support? Are there
         indications of external, non-Federal
         support? Are there realistic plans for
         making the project self-supporting?.
        (3) Innovation--Are significant aspects of  20 points.
         the project based on an innovative or a
         non-traditional approach toward solving a
         higher education problem or strengthening
         the quality of higher education in the
         food and agricultural sciences? If
         successful, is the project likely to lead
         to education reform?.
        (4) Products and results--Are the expected  20 points.
         products and results of the project
         clearly explained? Do they have the
         potential to strengthen food and
         agricultural sciences higher education?
         Are the products likely to be of high
         quality? Will the project contribute to a
         better understanding of or improvement in
         the quality, distribution, effectiveness,
         or racial, ethnic, or gender diversity of
         the Nation's food and agricultural
         scientific and professional expertise
         base?.
(b) Overall approach and cooperative linkages:
    This criterion relates to the soundness of the
     proposed approach and the quality of the
     partnerships likely to evolve as a result of
     the project.
        (1) Proposed approach--Do the objectives    20 points.
         and plan of operation appear to be sound
         and appropriate relative to the targeted
         need area(s) and the impact anticipated?
         Are the procedures managerially,
         educationally, and/or scientifically
         sound? Is the overall plan integrated
         with or does it expand upon other major
         efforts to improve the quality of food
         and agricultural sciences higher
         education? Does the timetable appear to
         be readily achievable?.
        (2) Evaluation--Are the evaluation plans    10 points.
         adequate and reasonable? Do they allow
         for continuous and/or frequent feedback
         during the life of the project? Are the
         individuals involved in project
         evaluation skilled in evaluation
         strategies and procedures? Can they
         provide an objective evaluation? Do
         evaluation plans facilitate the
         measurement of project progress and
         outcomes?.
        (3) Dissemination--Does the proposed        10 points.
         project include clearly outlined and
         realistic mechanisms that will lead to
         widespread dissemination of project
         results, including national electronic
         communication systems, publications,
         presentations at professional
         conferences, and/or use by faculty
         development or research/teaching skills
         workshops.
        (4) Partnerships and collaborative          20 points.
         efforts--Will the project expand
         partnership ventures among disciplines at
         a university, between colleges and
         universities, or with the private sector?
         Will the project lead to long-term
         relationships or cooperative partnerships
         that are likely to enhance program
         quality or supplement resources available
         to food and agricultural sciences higher
         education?.
(c) Institutional commitment and resources:
    This criterion relates to the institution's
     commitment to the project and the adequacy of
     institutional resources available to carry
     out the project.
        (1) Institutional commitment--Is there      10 points.
         evidence to substantiate that the
         institution attributes a high-priority to
         the project, that the project is linked
         to the achievement of the institution's
         long-term goals, that it will help
         satisfy the institution's high-priority
         objectives, or that the project is
         supported by the institution's strategic
         plans?.
        (2) Institutional resources--Will the       10 points.
         project have adequate support to carry
         out the proposed activities? Will the
         project have reasonable access to needed
         resources such as instructional
         instrumentation, facilities, computer
         services, library and other instruction
         support resources?.
(d) Key personnel:                                  20 points.
    This criterion relates to the number and
     qualifications of the key persons who will
     carry out the project. Are designated project
     personnel qualified to carry out a successful
     project? Are there sufficient numbers of
     personnel associated with the project to
     achieve the stated objectives and the
     anticipated outcomes?
(e) Budget and cost-effectiveness:
    This criterion relates to the extent to which
     the total budget adequately supports the
     project and is cost-effective.
        (1) Budget--Is the budget request           10 points.
         justifiable? Are costs reasonable and
         necessary? Will the total budget be
         adequate to carry out project activities?
         Are the source(s) and amount(s) of non-
         Federal matching support clearly
         identified and appropriately documented?
         For a joint project proposal, is the
         shared budget explained clearly and in
         sufficient detail?.
        (2) Cost-effectiveness--Is the proposed     10 points.
         project cost-effective? Does it
         demonstrate a creative use of limited
         resources, maximize educational value per
         dollar of USDA support, achieve economies
         of scale, leverage additional funds or
         have the potential to do so, focus
         expertise and activity on a targeted need
         area, or promote coalition building for
         current or future ventures?.
(f) Overall quality of proposal:                    10 points.
    This criterion relates to the degree to which
     the proposal complies with the application
     guidelines and is of high quality. Is the
     proposal enhanced by its adherence to
     instructions (table of contents,
     organization, pagination, margin and font
     size, the 20-page limitation, appendices,
     etc.); accuracy of forms; clarity of budget
     narrative; well prepared vitae for all key
     personnel associated with the project; and
     presentation (are ideas effectively
     presented, clearly articulated, and
     thoroughly explained, etc.)?
------------------------------------------------------------------------


[[Page 248]]



                   Subpart F_Supplementary Information



Sec. 3405.16  Access to peer review information.

    After final decisions have been announced, NIFA will, upon request, 
inform the project director of the reasons for its decision on a 
proposal. Verbatim copies of summary reviews, not including the identity 
of the peer reviewers, will be made available to respective project 
directors upon specific request.



Sec. 3405.17  Grant awards.

    (a) General. Within the limit of funds available for such purpose, 
the authorized departmental officer shall make project grants to those 
responsible, eligible applicants whose proposals are judged most 
meritorious in the announced targeted need areas under the evaluation 
criteria and procedures set forth in this part. The beginning of the 
project period shall be no later than September 30 of the Federal fiscal 
year in which the project is approved for support. All funds granted 
under this part shall be expended solely for the purpose for which the 
funds are granted in accordance with the approved application and 
budget, the regulations of this part, the terms and conditions of the 
award, the applicable Federal cost principles, and 2 CFR part 200.
    (b) Organizational management information. Specific management 
information relating to a proposing institution shall be submitted on a 
one-time basis prior to the award of a project grant identified under 
this part if such information has not been provided previously under 
this or another program for which the sponsoring agency is responsible. 
Copies of the forms used to fulfill this requirement will be sent to the 
proposing institution by the sponsoring agency as part of the pre-award 
process.
    (c) Notice of grant award. The grant award document shall include at 
a minimum the following:
    (1) Legal name and address of performing organization.
    (2) Title of project.
    (3) Name(s) and address(es) of project director(s).
    (4) Identifying grant number assigned by the Department.
    (5) Project period, which specifies how long the Department intends 
to support the effort without requiring reapplication for funds.
    (6) Total amount of Federal financial assistance approved during the 
project period.
    (7) Legal authority(ies) under which the grant is awarded.
    (8) Approved budget plan for categorizing allocable project funds to 
accomplish the stated purpose of the grant award.
    (9) Other information or provisions deemed necessary by the 
Department to carry out its granting activities or to accomplish the 
purpose of this particular project grant.
    (d) Obligation of the Federal Government. Neither the approval of 
any application nor the award of any project grant shall legally commit 
or obligate NIFA or the United States to provide further support of a 
project or any portion thereof.

[62 FR 39317, July 22, 1997, as amended at 79 FR 75999, Dec. 19, 2014]



Sec. 3405.18  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not in 
whole or in part delegate or transfer to another person, institution, or 
organization the responsibility for use or expenditure of grant funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee, project director(s), or other key project personnel in the 
approved project grant shall be limited to changes in methodology, 
techniques, or other aspects of the project to expedite achievement of 
the project's approved goals. If the grantee or the project director(s) 
are uncertain as to whether a change complies with this provision, the 
question must be referred to the Department for a final determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the authorized departmental 
officer prior to effecting such changes. In no event shall requests for 
such changes be approved that are outside the scope of the approved 
project.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel

[[Page 249]]

shall be requested by the grantee and approved in writing by the 
authorized departmental officer prior to effecting such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the grantee and 
approved in writing by the authorized departmental officer prior to 
effecting such transfers.
    (c) Changes in project period. The project period may be extended by 
the authorized departmental officer without additional financial support 
for such additional period(s) as the authorized departmental officer 
determines may be necessary to complete or fulfill the purposes of an 
approved project. However, due to statutory restriction, no grant may be 
extended beyond five years from the original start date of the grant, or 
pre-award date, if applicable. Grant extensions shall be conditioned 
upon prior request by the grantee and approval in writing by the 
authorized departmental officer, unless prescribed otherwise in the 
terms and conditions of a grant.
    (d) Changes in approved budget. Changes in an approved budget shall 
be requested by the grantee and approved in writing by the authorized 
departmental officer prior to instituting such changes if the revision 
will:
    (1) Involve transfers of amounts budgeted for indirect costs to 
absorb an increase in direct costs;
    (2) Involve transfers of amounts budgeted for direct costs to 
accommodate changes in indirect cost rates negotiated during a budget 
period and not approved when a grant was awarded; or
    (3) Involve transfers or expenditures of amounts requiring prior 
approval as set forth in the applicable Federal cost principles, 
Departmental regulations, or in the grant award.



Sec. 3405.19  Monitoring progress of funded projects.

    (a) During the tenure of a grant, project directors must attend at 
least one national project directors meeting, if offered, in Washington, 
DC or any other announced location. The purpose of the meeting will be 
to discuss project and grant management opportunities for collaborative 
efforts, future directions for education reform, and opportunities to 
enhance dissemination of exemplary end products/results.
    (b) An Annual Performance Report must be submitted to the USDA 
program contact person within 90 days after the completion of the first 
year of the project and annually thereafter during the life of the 
grant. Generally, the Annual Performance Reports should include a 
summary of the overall progress toward project objectives, current 
problems or unusual developments, the next year's activities, and any 
other information that is pertinent to the ongoing project or which may 
be specified in the terms and conditions of the award.
    (c) A Final Performance Report must be submitted to the USDA program 
contact person within 90 days after the expiration date of the project. 
The expiration date is specified in the award documents and 
modifications thereto, if any. Generally, the Final Performance Report 
should be a summary of the completed project, including: A review of 
project objectives and accomplishments; a description of any products 
and outcomes resulting from the project; activities undertaken to 
disseminate products and outcomes; partnerships and collaborative 
ventures that resulted from the project; future initiatives that are 
planned as a result of the project; the impact of the project on the 
project director(s), the institution, and the food and agricultural 
sciences higher education system; and data on project personnel and 
beneficiaries. The Final Performance Report should be accompanied by 
samples or copies of any products or publications resulting from or 
developed by the project. The Final Performance Report must also contain 
any other information which may be specified in the terms and conditions 
of the award.



Sec. 3405.20  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR

[[Page 250]]

part 200 on December 26, 2013. In 2 CFR 400.1, the Department adopted 
OMB's guidance in subparts A through F of 2 CFR part 200, as 
supplemented by 2 CFR part 400, as the Department's policies and 
procedures for uniform administrative requirements, cost principles, and 
audit requirements for federal awards. As a result, this regulation 
contains references to 2 CFR part 200 as it has regulatory effect for 
the Department's programs and activities.''
    (b) Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to research project grants awarded 
under this part. These include but are not limited to:

2 CFR part 200--Uniform Administrative Requirements, Cost Principles, 
and Audit Requirements for Federal Awards.
2 CFR part 180 and Part 417--OMB Guidelines to Agencies on Government-
Wide Debarment and Suspension (Nonprocurement) and USDA Nonprocurement 
Debarment and Suspension
7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
7 CFR 1.1--USDA Implementation of Freedom of Information Act.
7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding Debt 
Collection.
7 CFR part 15, subpart A--USDA Implementation of Title VI of the Civil 
Rights Act of 1964.
7 CFR part 3407--NIFA Procedures To Implement The National Environmental 
Policy Act;
29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR part 
15B (USDA implementation of statute)--prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs; and
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).

[79 FR 75999, Dec. 19, 2014]



Sec. 3405.21  Confidential aspects of proposals and awards.

    When a proposal results in a grant, it becomes a part of the record 
of the Agency's transactions, available to the public upon specific 
request. Information that the Secretary determines to be of a privileged 
nature will be held in confidence to the extent permitted by law. 
Therefore, any information that the applicant wishes to have considered 
as privileged should be clearly marked as such and sent in a separate 
statement, two copies of which should accompany the proposal. The 
original copy of a proposal that does not result in a grant will be 
retained by the Agency for a period of one year. Other copies will be 
destroyed. Such a proposal will be released only with the consent of the 
applicant or to the extent required by law. A proposal may be withdrawn 
at any time prior to the final action thereon.



Sec. 3405.22  Evaluation of program.

    Grantees should be aware that NIFA may, as a part of its own program 
evaluation activities, carry out in-depth evaluations of assisted 
activities. Thus, grantees should be prepared to cooperate with NIFA 
personnel, or persons retained by NIFA, evaluating the institutional 
context and the impact of any supported project. Grantees may be asked 
to provide general information on any students and faculty supported, in 
whole or in part, by a grant awarded under this program; information 
that may be requested includes, but is not limited to, standardized 
academic achievement test scores, grade point average, academic 
standing, career patterns, age, race/ethnicity, gender, citizenship, and 
disability.



PART 3406_1890 INSTITUTION CAPACITY BUILDING GRANTS PROGRAM--Table of Contents



                      Subpart A_General Information

Sec.
3406.1 Applicability of regulations.
3406.2 Definitions.
3406.3 Institutional eligibility.

                      Subpart B_Program Description

3406.4 Purpose of the program.
3406.5 Matching support.
3406.6 USDA agency cooperator requirement.
3406.7 General scope of program.
3406.8 Joint project proposals.
3406.9 Complementary project proposals.
3406.10 Use of funds for facilities.

[[Page 251]]

              Subpart C_Preparation of a Teaching Proposal

3406.11 Scope of a teaching proposal.
3406.12 Program application materials--teaching.
3406.13 Content of a teaching proposal.

         Subpart D_Review and Evaluation of a Teaching Proposal

3406.14 Proposal review--teaching.
3406.15 Evaluation criteria for teaching proposals.

              Subpart E_Preparation of a Research Proposal

3406.16 Scope of a research proposal.
3406.17 Program application materials--research.
3406.18 Content of a research proposal.

         Subpart F_Review and Evaluation of a Research Proposal

3406.19 Proposal review--research.
3406.20 Evaluation criteria for research proposals.

         Subpart G_Submission of a Teaching or Research Proposal

3406.21 Intent to submit a proposal.
3406.22 When and where to submit a proposal.

                   Subpart H_Supplementary Information

3406.23 Access to peer review information.
3406.24 Grant awards.
3406.25 Use of funds; changes.
3406.26 Monitoring progress of funded projects.
3406.27 Other Federal statutes and regulations that apply.
3406.28 Confidential aspects of proposals and awards.
3406.29 Evaluation of program.

    Authority: Sec. 1470, National Agricultural Research, Extension, and 
Teaching Policy Act of 1977, as amended (7 U.S.C. 3316).

    Source: 62 FR 39331, July 22, 1997, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 3406 appear at 76 FR 
4809, Jan. 27, 2011.



                      Subpart A_General Information



Sec. 3406.1  Applicability of regulations.

    (a) The regulations of this part apply only to capacity building 
grants awarded to the 1890 land-grant institutions and Tuskegee 
University under the provisions of section 1417(b)(4) of the National 
Agricultural Research, Extension, and Teaching Policy Act of 1977, as 
amended (NARETPA) (7 U.S.C. 3152(b)(4)) and pursuant to annual 
appropriations made available specifically for an 1890 capacity building 
program. Section 1417(b)(4) authorizes the Secretary of Agriculture, who 
has delegated the authority to theDirector of the National Institute of 
Food and Agriculture (NIFA), to make competitive grants to land-grant 
colleges and universities, to colleges and universities having 
significant minority enrollments and a demonstrable capacity to carry 
out the teaching of food and agricultural sciences, and to other 
colleges and universities having a demonstrable capacity to carry out 
the teaching of food and agricultural sciences, for a period not to 
exceed 5 years, to design and implement food and agricultural programs 
to build teaching and research capacity at colleges and universities 
having significant minority enrollments. Based on and subject to the 
express provisions of the annual appropriations act, only 1890 land-
grant institutions and Tuskegee University are eligible for this grants 
program.
    (b) To the extent that funds are available, each year NIFA will 
publish a Federal Register notice announcing the program and soliciting 
grant applications.
    (c)(1) Based on the amount of funds appropriated in any fiscal year, 
NIFA will determine and cite in the program announcement:
    (i) The program area(s) to be supported (teaching, research, or 
both);
    (ii) The proportion of the appropriation reserved for, or available 
to, teaching projects and research projects;
    (iii) The targeted need area(s) in teaching and in research to be 
supported;
    (iv) The degree level(s) to be supported;
    (v) The maximum project period a proposal may request;
    (vi) The maximum amount of funds that may be requested by an 
institution under a regular, complementary, or joint project proposal; 
and
    (vii) The maximum total funds that may be awarded to an institution 
under the program in a given fiscal

[[Page 252]]

year, including how funds awarded for complementary and for joint 
projects will be counted toward the institutional maximum.
    (2) The program announcement will also specify the deadline date for 
proposal submission, the number of copies of each proposal that must be 
submitted, the address to which a proposal must be submitted, and 
whether or not Form NIFA-711, ``Intent to Submit a Proposal,'' is 
requested.
    (d)(1) If it is deemed by NIFA that, for a given fiscal year, 
additional determinations are necessary, each, as relevant, will be 
stated in the program announcement. Such determinations may include:
    (i) Limits on the subject matter/emphasis areas to be supported;
    (ii) The maximum number of proposals that may be submitted on behalf 
of the same school, college, or equivalent administrative unit within an 
institution;
    (iii) The maximum total number of proposals that may be submitted by 
an institution;
    (iv) The maximum number of proposals that may be submitted by an 
individual in any one targeted need area;
    (v) The minimum project period a proposal may request;
    (vi) The minimum amount of funds that may be requested by an 
institution under a regular, complementary, or joint project proposal;
    (vii) The proportion of the appropriation reserved for, or available 
to, regular, complementary, and joint project proposals;
    (viii) The proportion of the appropriation reserved for, or 
available to, projects in each announced targeted need area;
    (ix) The proportion of the appropriation reserved for, or available 
to, each subject matter/emphasis area;
    (x) The maximum number of grants that may be awarded to an 
institution under the program in a given fiscal year, including how 
grants awarded for complementary and joint projects will be counted 
toward the institutional maximum; and
    (xi) Limits on the use of grant funds for travel or to purchase 
equipment, if any.
    (2) The program announcement also will contain any other limitations 
deemed necessary by NIF for proper conduct of the program in the 
applicable year.
    (e) The regulations of this part prescribe that this is a 
competitive program; it is possible that an institution may not receive 
any grant awards in a particular year.
    (f) The regulations of this part do not apply to grants for other 
purposes awarded by the Department of Agriculture under section 1417 of 
the National Agricultural Research, Extension, and Teaching Policy Act 
of 1977, as amended (7 U.S.C. 3152) or any other authority.



Sec. 3406.2  Definitions.

    As used in this part:
    Authorized departmental officer means the Secretary or any employee 
of the Department who has the authority to issue or modify grant 
instruments on behalf of the Secretary.
    Authorized organizational representative means the president of the 
1890 Institution or the official, designated by the president of the 
institution, who has the authority to commit the resources of the 
institution.
    Budget period means the interval of time (usually 12 months) into 
which the project period is divided for budgetary and reporting 
purposes.
    Cash contributions means the applicant's cash outlay, including the 
outlay of money contributed to the applicant by non-Federal third 
parties.
    Citizen or national of the United States means:
    (1) A citizen or native resident of a State; or,
    (2) a person defined in the Immigration and Nationality Act, 8 
U.S.C. 1101(a)(22), who, though not a citizen of the United States, owes 
permanent allegiance to the United States.
    College or University means an educational institution in any State 
which:
    (1) Admits as regular students only persons having a certificate of 
graduation from a school providing secondary education, or the 
recognized equivalent of such a certificate;

[[Page 253]]

    (2) Is legally authorized within such State to provide a program of 
education beyond secondary education;
    (3) Provides an educational program for which a baccalaureate degree 
or any other higher degree is awarded;
    (4) Is a public or other nonprofit institution; and
    (5) Is accredited by a nationally recognized accrediting agency or 
association.
    Complementary project proposal means a proposal for a project which 
involves coordination with one or more other projects for which funding 
was awarded under this program in a previous fiscal year, or for which 
funding is requested under this program in the current fiscal year.
    Cost-sharing or Matching means that portion of project costs not 
borne by the Federal Government, including the value of in-kind 
contributions.
    Department or USDA means the United States Department of 
Agriculture.
    1890 Institution or 1890 land-grant institution or 1890 colleges and 
universities means one of those institutions eligible to receive funds 
under the Act of August 30, 1890 (26 Stat. 417-419, as amended; 7 U.S.C. 
321-326 and 328), or a research foundation maintained by such 
institution, that are the intended recipients of funds under programs 
established in Subtitle G of the National Agricultural Research, 
Extension, and Teaching Policy Act of 1977, as amended (7 U.S.C. 3221 et 
seq.), including Tuskegee University.
    Eligible participant means, for purposes of Sec. 3406.11(b), 
Faculty Preparation and Enhancement for Teaching, and Sec. 3406.11(f), 
Student Recruitment and Retention, an individual who:
    (1) Is a citizen or national of the United States, as defined in 
this section; or
    (2) Is a citizen of the Federated States of Micronesia, the Republic 
of the Marshall Islands, or the Republic of Palau. Where eligibility is 
claimed under paragraph (2) of the definition of ``citizen or national 
of the United States'' as specified in this section, documentary 
evidence from the Immigration and Naturalization Service as to such 
eligibility must be made available to NIFA upon request.
    Food and agricultural sciences means basic, applied, and 
developmental research, extension, and teaching activities in the food, 
agricultural, renewable natural resources, forestry, and physical and 
social sciences, in the broadest sense of these terms, including but not 
limited to, activities concerned with the production, processing, 
marketing, distribution, conservation, consumption, research, and 
development of food and agriculturally related products and services, 
and inclusive of programs in agriculture, natural resources, 
aquaculture, forestry, veterinary medicine, home economics, rural 
development, and closely allied disciplines.
    Grantee means the 1890 Institution designated in the grant award 
document as the responsible legal entity to which a grant is awarded.
    Joint project proposal means a proposal for a project, which will 
involve the applicant 1890 Institution and two or more other colleges, 
universities, community colleges, junior colleges, or other 
institutions, each of which will assume a major role in the conduct of 
the proposed project, and for which the applicant institution will 
transfer at least one-half of the awarded funds to the other 
institutions participating in the project. Only the applicant 
institution must meet the definition of ``1890 Institution'' as 
specified in this section; the other institutions participating in a 
joint project proposal are not required to meet the definition of ``1890 
Institution'' as specified in this section, nor required to meet the 
definition of ``college'' or ``university'' as specified in this 
section.
    Peer review panel means a group of experts or consultants, qualified 
by training and experience in particular fields of science, education, 
or technology to give expert advice on the merit of grant applications 
in such fields, who evaluate eligible proposals submitted to this 
program in their personal area(s) of expertise.
    Principal investigator/project director means the single individual 
designated by the grantee in the grant application and approved by the 
Secretary who is responsible for the direction and management of the 
project.

[[Page 254]]

    Prior approval means written approval evidencing prior consent by an 
``authorized departmental officer'' as defined in this section.
    Project means the particular teaching or research activity within 
the scope of one or more of the targeted areas supported by a grant 
awarded under this program.
    Project period means the period, as stated in the award document and 
modifications thereto, if any, during which Federal sponsorship begins 
and ends.
    Research means any systematic inquiry directed toward new or fuller 
knowledge and understanding of the subject studied.
    Research capacity means the quality and depth of an institution's 
research infrastructure as evidenced by its: faculty expertise in the 
natural or social sciences, scientific and technical resources, research 
environment, library resources, and organizational structures and reward 
systems for attracting and retaining first-rate research faculty or 
students at the graduate and post-doctorate levels.
    Research project grant means a grant in support of a project that 
addresses one or more of the targeted need areas or specific subject 
matter/emphasis areas identified in the annual program announcement 
related to strengthening research programs including, but not limited 
to, such initiatives as: Studies and experimentation in food and 
agricultural sciences, centralized research support systems, technology 
delivery systems, and other creative projects designed to provide needed 
enhancement of the Nation's food and agricultural research system.
    Secretary means the Secretary of Agriculture and any other officer 
or employee of the Department of Agriculture to whom the authority 
involved may be delegated.
    State means any one of the fifty States, the Commonwealth of Puerto 
Rico, Guam, American Samoa, the Commonwealth of the Northern Marianas, 
the Virgin Islands of the United States, and the District of Columbia.
    Teaching means formal classroom instruction, laboratory instruction, 
and practicum experience in the food and agricultural sciences and 
matters related thereto (such as faculty development, student 
recruitment and services, curriculum development, instructional 
materials and equipment, and innovative teaching methodologies) 
conducted by colleges and universities offering baccalaureate or higher 
degrees.
    Teaching capacity means the quality and depth of an institution's 
academic programs infrastructure as evidenced by its: Curriculum, 
teaching faculty, instructional delivery systems, student experiential 
learning opportunities, scientific instrumentation for teaching, library 
resources, academic standing and racial, ethnic, or gender diversity of 
its faculty and student body as well as faculty and student recruitment 
and retention programs provided by a college or university in order to 
achieve maximum results in the development of scientific and 
professional expertise for the Nation's food and agricultural system.
    Teaching project grant means a grant in support of a project that 
addresses one or more of the targeted need areas or specific subject 
matter/emphasis areas identified in the annual program announcement 
related to strengthening teaching programs including, but not limited 
to, such initiatives as: Curricula design and materials development, 
faculty preparation and enhancement for teaching, instruction delivery 
systems, scientific instrumentation for teaching, student experiential 
learning, and student recruitment and retention.
    Third party in-kind contributions means non-cash contributions of 
property or services provided by non-Federal third parties, including 
real property, equipment, supplies and other expendable property, 
directly benefiting and specifically identifiable to a funded project or 
program.
    USDA agency cooperator means any agency or office of the Department 
which has reviewed and endorsed an applicant's request for support, and 
indicates a willingness to make available non-monetary resources or 
technical assistance throughout the life of a project to ensure the 
accomplishment

[[Page 255]]

of the objectives of a grant awarded under this program.

[62 FR 39331, July 22, 1997, as amended at 76 FR 4810, Jan. 27, 2011]



Sec. 3406.3  Institutional eligibility.

    Proposals may be submitted by any of the 16 historically black 1890 
land-grant institutions and Tuskegee University. The 1890 land-grant 
institutions are: Alabama A&M University; University of Arkansas--Pine 
Bluff; Delaware State University; Florida A&M University; Fort Valley 
State College; Kentucky State University; Southern University and A&M 
College; University of Maryland--Eastern Shore; Alcorn State University; 
Lincoln University; North Carolina A&T State University; Langston 
University; South Carolina State University; Tennessee State University; 
Prairie View A&M University; and Virginia State University. An 
institution eligible to receive an award under this program includes a 
research foundation maintained by an 1890 land-grant institution or 
Tuskegee University.



                      Subpart B_Program Description



Sec. 3406.4  Purpose of the program.

    (a) The Department of Agriculture and the Nation depend upon sound 
programs in the food and agricultural sciences at the Nation's colleges 
and universities to produce well trained professionals for careers in 
the food and agricultural sciences. The capacity of institutions to 
offer suitable programs in the food and agricultural sciences to meet 
the Nation's need for a well trained work force in the food and 
agricultural sciences is a proper concern for the Department.
    (b) Historically, the Department has had a close relationship with 
the 1890 colleges and universities, including Tuskegee University. 
Through its role as administrator of the Second Morrill Act, the 
Department has borne the responsibility for helping these institutions 
develop to their fullest potential in order to meet the needs of 
students and the needs of the Nation.
    (c) The institutional capacity building grants program is intended 
to stimulate development of quality education and research programs at 
these institutions in order that they may better assist the Department, 
on behalf of the Nation, in its mission of providing a professional work 
force in the food and agricultural sciences.
    (d) This program is designed specifically to build the institutional 
teaching and research capacities of the 1890 land-grant institutions 
through cooperative programs with Federal and non-Federal entities. The 
program is competitive among the 1890 Institutions and encourages 
matching funds on the part of the States, private organizations, and 
other non-Federal entities to encourage expanded linkages with 1890 
Institutions as performers of research and education, and as developers 
of scientific and professional talent for the United States food and 
agricultural system. In addition, through this program, NIFA will strive 
to increase the overall pool of qualified job applicants from 
underrepresented groups in order to make significant progress toward 
achieving the objectives of work force diversity within the Federal 
Government, particularly the U.S. Department of Agriculture.



Sec. 3406.5  Matching support.

    The Department strongly encourages and may require non-Federal 
matching support for this program. In the annual program solicitation, 
NIFA will announce any incentives that may be offered to applicants for 
committing their own institutional resources or securing third party 
contributions in support of capacity building projects. NIFA may also 
announce any required fixed dollar amount or percentage of institutional 
cost sharing, if applicable.



Sec. 3406.6  USDA agency cooperator requirement.

    (a) Each application must provide documentation that at least one 
USDA agency or office has agreed to cooperate with the applicant 
institution on the proposed project. The documentation should describe 
the expected benefits of the partnership venture for the USDA agency and 
for the 1890 Institution, and describe the partnership effort between 
USDA and the 1890 Institution in regard to the proposed

[[Page 256]]

project. Such USDA agency cooperation may include, but is not limited 
to, assisting the applicant institution with proposal development, 
identifying possible sources of matching funds, securing resources, 
implementing funded projects, providing technical assistance and 
expertise throughout the life of the project, participating in project 
evaluation, and disseminating project results.
    (b) The designated NIFA agency contact can provide suggestions to 
institutions seeking to secure a USDA agency cooperator on a particular 
proposal.
    (c) USDA 1890 Liaison Officers, and other USDA employees serving on 
the campuses of the 1890 colleges and universities, may assist with 
proposal development and project execution to satisfy the cooperator 
requirement, in whole or in part, but may not serve as project directors 
or principal investigators.
    (d) Any USDA office responsible for administering a competitive or 
formula grants program specifically targeted to 1890 Institutions may 
not be a cooperator for this program.



Sec. 3406.7  General scope of program.

    This program supports both teaching project grants and research 
project grants. Such grants are intended to strengthen the teaching and 
research capabilities of applicant institutions. Each 1890 Institution 
may submit one or more grant applications for either category of grants 
(as allowed by the annual program notice). However, each application 
must be limited to either a teaching project grant proposal or a 
research project grant proposal.



Sec. 3406.8  Joint project proposals.

    Applicants are encouraged to submit joint project proposals as 
defined in Sec. 3406.2, which address regional or national problems and 
which will result overall in strengthening the 1890 university system. 
The goals of such joint initiatives should include maximizing the use of 
limited resources by generating a critical mass of expertise and 
activity focused on a targeted need area(s), increasing cost-
effectiveness through achieving economies of scale, strengthening the 
scope and quality of a project's impact, and promoting coalition 
building likely to transcend the project's lifetime and lead to future 
ventures.



Sec. 3406.9  Complementary project proposals.

    Institutions may submit proposals that are complementary in nature 
as defined in Sec. 3406.2. Such complementary project proposals may be 
submitted by the same or by different eligible institutions.



Sec. 3406.10  Use of funds for facilities.

    Under the 1890 Institution Capacity Building Grants Program, the use 
of grant funds to plan, acquire, or construct a building or facility is 
not allowed. With prior approval, in accordance with the cost principles 
set forth in 2 CFR part 200, some grant funds may be used for minor 
alterations, renovations, or repairs deemed necessary to retrofit 
existing teaching or research spaces in order to carry out a funded 
project. However, requests to use grant funds for such purposes must 
demonstrate that the alterations, renovations, or repairs are incidental 
to the major purpose for which a grant is made.

[62 FR 39331, July 22, 1997, as amended at 79 FR 75999, Dec. 19, 2014]



              Subpart C_Preparation of a Teaching Proposal



Sec. 3406.11  Scope of a teaching proposal.

    The teaching component of the program will support the targeted need 
area(s) related to strengthening teaching programs as specified in the 
annual program announcement. Proposals may focus on any subject matter 
area(s) in the food and agricultural sciences unless limited by 
determinations as specified in the annual program announcement. A 
proposal may address a single targeted need area or multiple targeted 
need areas, and may be focused on a single subject matter area or 
multiple subject matter areas, in any combination (e.g., curriculum 
development in horticulture; curriculum development, faculty 
enhancement, and student experiential learning in animal science; 
faculty enhancement in food science

[[Page 257]]

and agribusiness management; or instruction delivery systems and student 
experiential learning in plant science, horticulture, and entomology). 
Applicants are also encouraged to include a library enhancement 
component related to the teaching project in their proposals. A proposal 
may be directed toward the undergraduate or graduate level of study as 
specified in the annual program announcement. Targeted need areas for 
teaching programs will consist of one or more of the following:
    (a) Curricula design and materials development. (1) The purpose of 
this need area is to promote new and improved curricula and materials to 
increase the quality of, and continuously renew, the Nation's academic 
programs in the food and agricultural sciences. The overall objective is 
to stimulate the development and facilitate the use of exemplary 
education models and materials that incorporate the most recent advances 
in subject matter, research on teaching and learning theory, and 
instructional technology. Proposals may emphasize: The development of 
courses of study, degree programs, and instructional materials; the use 
of new approaches to the study of traditional subjects; or the 
introduction of new subjects, or new applications of knowledge, 
pertaining to the food and agricultural sciences.
    (2) Examples include, but are not limited to, curricula and 
materials that promote:
    (i) Raising the level of scholastic achievement of the Nation's 
graduates in the food and agricultural sciences.
    (ii) Addressing the special needs of particular groups of students, 
such as minorities, gifted and talented, or those with educational 
backgrounds that warrant enrichment.
    (iii) Using alternative instructional strategies or methodologies, 
including computer-assisted instruction or simulation modeling, media 
programs that reach large audiences efficiently and effectively, 
activities that provide hands-on learning experiences, and educational 
programs that extend learning beyond the classroom.
    (iv) Using sound pedagogy, particularly with regard to recent 
research on how to motivate students to learn, retain, apply, and 
transfer knowledge, skills, and competencies.
    (v) Building student competencies to integrate and synthesize 
knowledge from several disciplines.
    (b) Faculty preparation and enhancement for teaching. (1) The 
purpose of this need area is to advance faculty development in the areas 
of teaching competency, subject matter expertise, or student recruitment 
and advising skills. Teachers are central to education. They serve as 
models, motivators, and mentors--the catalysts of the learning process. 
Moreover, teachers are agents for developing, replicating, and 
exchanging effective teaching materials and methods. For these reasons, 
education can be strengthened only when teachers are adequately 
prepared, highly motivated, and appropriately recognized and rewarded.
    (2) Each faculty recipient of support for developmental activities 
under Sec. 3406.11(b) must be an ``eligible participant'' as defined in 
Sec. 3406.2 of this part.
    (3) Examples of developmental activities include, but are not 
limited to, those which enable teaching faculty to:
    (i) Gain experience with recent developments or innovative 
technology relevant to their teaching responsibilities.
    (ii) Work under the guidance and direction of experts who have 
substantial expertise in an area related to the developmental goals of 
the project.
    (iii) Work with scientists or professionals in government, industry, 
or other colleges or universities to learn new applications in a field.
    (iv) Obtain personal experience working with new ideas and 
techniques.
    (v) Expand competence with new methods of information delivery, such 
as computer-assisted or televised instruction.
    (c) Instruction delivery systems. (1) The purpose of this need area 
is to encourage the use of alternative methods of delivering instruction 
to enhance the quality, effectiveness, and cost efficiency of teaching 
programs. The importance of this initiative is evidenced by advances in 
educational research which have substantiated the theory that 
differences in the learning styles of students often require alternative

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instructional methodologies. Also, the rising costs of higher education 
strongly suggest that colleges and universities undertake more efforts 
of a collaborative nature in order to deliver instruction which 
maximizes program quality and reduces unnecessary duplication. At the 
same time, advancements in knowledge and technology continue to 
introduce new subject matter areas which warrant consideration and 
implementation of innovative instruction techniques, methodologies, and 
delivery systems.
    (2) Examples include, but are not limited to:
    (i) Use of computers.
    (ii) Teleconferencing.
    (iii) Networking via satellite communications.
    (iv) Regionalization of academic programs.
    (v) Mobile classrooms and laboratories.
    (vi) Individualized learning centers.
    (vii) Symposia, forums, regional or national workshops, etc.
    (d) Scientific Instrumentation for teaching. (1) The purpose of this 
need area is to provide students in science-oriented courses the 
necessary experience with suitable, up-to-date equipment in order to 
involve them in work central to scientific understanding and progress. 
This program initiative will support the acquisition of instructional 
laboratory and classroom equipment to assure the achievement and 
maintenance of outstanding food and agricultural sciences higher 
education programs. A proposal may request support for acquiring new, 
state-of-the-art instructional scientific equipment, upgrading existing 
equipment, or replacing non-functional or clearly obsolete equipment.
    (2) Examples include, but are not limited to:
    (i) Rental or purchase of modern instruments to improve student 
learning experiences in courses, laboratories, and field work.
    (ii) Development of new ways of using instrumentation to extend 
instructional capabilities.
    (iii) Establishment of equipment-sharing capability via consortia or 
centers that develop innovative opportunities, such as mobile 
laboratories or satellite access to industry or government laboratories.
    (e) Student experiential learning. (1) The purpose of this need area 
is to further the development of student scientific and professional 
competencies through experiential learning programs which provide 
students with opportunities to solve complex problems in the context of 
real-world situations. Effective experiential learning is essential in 
preparing future graduates to advance knowledge and technology, enhance 
quality of life, conserve resources, and revitalize the Nation's 
economic competitiveness. Such experiential learning opportunities are 
most effective when they serve to advance decision-making and 
communication skills as well as technological expertise.
    (2) Examples include, but are not limited to, projects which:
    (i) Provide opportunities for students to participate in research 
projects, either as a part of an ongoing research project or in a 
project designed especially for this program.
    (ii) Provide opportunities for students to complete apprenticeships, 
internships, or similar participatory learning experiences.
    (iii) Expand and enrich courses which are of a practicum nature.
    (iv) Provide career mentoring experiences that link students with 
outstanding professionals.
    (f) Student recruitment and retention. (1) The purpose of this need 
area is to strengthen student recruitment and retention programs in 
order to promote the future strength of the Nation's scientific and 
professional work force. The Nation's economic competitiveness and 
quality of life rest upon the availability of a cadre of outstanding 
research scientists, university faculty, and other professionals in the 
food and agricultural sciences. A substantial need exists to supplement 
efforts to attract increased numbers of academically outstanding 
students to prepare for careers as food and agricultural scientists and 
professionals. It is particularly important to augment the racial, 
ethnic, and gender diversity of the student body in order to promote a 
robust exchange of ideas and a more effective

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use of the full breadth of the Nation's intellectual resources.
    (2) Each student recipient of monetary support for education costs 
or developmental purposes under Sec. 3406.11(f) must be enrolled at an 
eligible institution and meet the requirement of an ``eligible 
participant'' as defined in Sec. 3406.2 of this part.
    (3) Examples include, but are not limited to:
    (i) Special outreach programs for elementary and secondary students 
as well as parents, counselors, and the general public to broaden 
awareness of the extensive nature and diversity of career opportunities 
for graduates in the food and agricultural sciences.
    (ii) Special activities and materials to establish more effective 
linkages with high school science classes.
    (iii) Unique or innovative student recruitment activities, 
materials, and personnel.
    (iv) Special retention programs to assure student progression 
through and completion of an educational program.
    (v) Development and dissemination of stimulating career information 
materials.
    (vi) Use of regional or national media to promote food and 
agricultural sciences higher education.
    (vii) Providing financial incentives to enable and encourage 
students to pursue and complete an undergraduate or graduate degree in 
an area of the food and agricultural sciences.



Sec. 3406.12  Program application materials--teaching.

    Program application materials in an application package will be made 
available to eligible institutions upon request. These materials include 
the program announcement, the administrative provisions for the program, 
and the forms needed to prepare and submit teaching grant applications 
under the program.



Sec. 3406.13  Content of a teaching proposal.

    (a) Proposal cover page. (1) Form NIFA-712, ``Higher Education 
Proposal Cover Page,'' must be completed in its entirety. Note that 
providing a Social Security Number is voluntary, but is an integral part 
of the NIFA information system and will assist in the processing of the 
proposal.
    (2) One copy of the Form NIFA-712 must contain the pen-and-ink 
signatures of the project director(s) and authorized organizational 
representative for the applicant institution.
    (3) The title of the teaching project shown on the ``Higher 
Education Proposal Cover Page'' must be brief (80-character maximum) yet 
represent the major thrust of the project. This information will be used 
by the Department to provide information to the Congress and other 
interested parties.
    (4) In block 7. of Form NIFA-712, enter ``1890 Institution Capacity 
Building Grants Program.''
    (5) In block 8.a. of Form NIFA-712, enter ``Teaching.'' In block 
8.b. identify the code for the targeted need area(s) as found on the 
reverse of the form. If a proposal focuses on multiple targeted need 
areas, enter each code associated with the project. In block 8.c. 
identify the major area(s) of emphasis as found on the reverse of the 
form. If a proposal focuses on multiple areas of emphasis, enter each 
code associated with the project; however, limit the selection to three 
areas. This information will be used by program staff for the proper 
assignment of proposals to reviewers.
    (6) In block 9. of Form NIFA-712, indicate if the proposal is a 
complementary project proposal or a joint project proposal as defined in 
Sec. 3406.2 of this part. If it is not a complementary project proposal 
or a joint project proposal, identify it as a regular project proposal.
    (7) In block 13. of Form NIFA-712, indicate if the proposal is a 
new, first-time submission or if the proposal is a resubmission of a 
proposal that has been submitted to, but not funded under, the 1890 
Institution Capacity Building Grants Program in a previous competition.
    (b) Table of contents. For ease in locating information, each 
proposal must contain a detailed table of contents just after the 
Proposal Cover Page. The Table of Contents should include page numbers 
for each component of the proposal. Pagination should begin immediately 
following the summary documentation of USDA agency cooperation.

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    (c) USDA agency cooperator. To be considered for funding, each 
proposal must include documentation of cooperation with at least one 
USDA agency or office. If multiple agencies are involved as cooperators, 
documentation must be included from each agency. When documenting 
cooperative arrangements, the following guidelines should be used:
    (1) A summary of the cooperative arrangements must immediately 
follow the Table of Contents. This summary should:
    (i) Bear the signatures of the Agency Head (or his/her designated 
authorized representative) and the university project director;
    (ii) Indicate the agency's willingness to commit support for the 
project;
    (iii) Identify the person(s) at the USDA agency who will serve as 
the liaison or technical contact for the project;
    (iv) Describe the degree and nature of the USDA agency's involvement 
in the proposed project, as outlined in Sec. 3406.6(a) of this part, 
including its role in:
    (A) Identifying the need for the project;
    (B) Developing a conceptual approach;
    (C) Assisting with project design;
    (D) Identifying and securing needed agency or other resources (e.g., 
personnel, grants/contracts; in-kind support, etc.);
    (E) Developing the project budget;
    (F) Promoting partnerships with other institutions to carry out the 
project;
    (G) Helping the institution launch and manage the project;
    (H) Providing technical assistance and expertise;
    (I) Providing consultation through site visits, E-mail, conference 
calls, and faxes;
    (J) Participating in project evaluation and dissemination of final 
project results; and
    (K) Seeking other innovative ways to ensure the success of the 
project and advance the needs of the institution or the agency; and
    (v) Describe the expected benefits of the partnership venture for 
the USDA agency and for the 1890 Institution.
    (2) A detailed discussion of these partnership arrangements should 
be provided in the narrative portion of the proposal, as outlined in 
paragraph (f)(2)(iv)(C) of this section.
    (3) Additional documentation, including letters of support or 
cooperation, may be provided in the Appendix.
    (d) Project summary. (1) A Project Summary should immediately follow 
the summary documentation of USDA agency cooperation section. The 
information provided in the Project Summary will be used by the program 
staff for a variety of purposes, including the proper assignment of 
proposals to reviewers and providing information to reviewers prior to 
the peer panel meeting. The name of the institution, the targeted need 
area(s), and the title of the proposal must be identified exactly as 
shown on the ``Higher Education Proposal Cover Page.''
    (2) If the proposal is a complementary project proposal, as defined 
in Sec. 3406.2 of this part, indicate such and identify the other 
complementary project(s) by citing the name of the submitting 
institution, the title of the project, the project director, and the 
grant number (if funded in a previous year) exactly as shown on the 
cover page of the complementary project so that appropriate 
consideration can be given to the interrelatedness of the proposals in 
the evaluation process.
    (3) If the proposal is a joint project proposal, as defined in Sec. 
3406.2 of this part, indicate such and identify the other participating 
institutions and the key faculty member or other individual responsible 
for coordinating the project at each institution.
    (4) The Project Summary should be a concise description of the 
proposed activity suitable for publication by the Department to inform 
the general public about awards under the program. The text must not 
exceed one page, single-spaced. The Project Summary should be a self-
contained description of the activity which would result if the proposal 
is funded by USDA. It should include: The objectives of the project; a 
synopsis of the plan of operation; a statement of how the project will 
enhance the teaching capacity of the institution; a description of how

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the project will strengthen higher education in the food and 
agricultural sciences in the United States; a description of the 
partnership efforts between, and the expected benefits for, the USDA 
agency cooperator(s) and the 1890 Institution; and the plans for 
disseminating project results. The Project Summary should be written so 
that a technically literate reader can evaluate the use of Federal funds 
in support of the project.
    (e) Resubmission of a proposal--(1) Resubmission of previously 
unfunded proposals. (i) If a proposal has been submitted previously, but 
was not funded, such should be indicated in block 13. on Form NIFA-712, 
``Higher Education Proposal Cover Page,'' and the following information 
should be included in the proposal:
    (A) The fiscal year(s) in which the proposal was submitted 
previously;
    (B) A summary of the peer reviewers' comments; and
    (C) How these comments have been addressed in the current proposal, 
including the page numbers in the current proposal where the peer 
reviewers' comments have been addressed.
    (ii) This information may be provided as a section of the proposal 
following the Project Summary and preceding the proposal narrative or it 
may be placed in the Appendix (see paragraph (j) of this section). In 
either case, the location of this information should be indicated in the 
Table of Contents, and the fact that the proposal is a resubmitted 
proposal should be stated in the proposal narrative. Further, when 
possible, the information should be presented in tabular format. 
Applicants who choose to resubmit proposals that were previously 
submitted, but not funded, should note that resubmitted proposals must 
compete equally with newly submitted proposals. Submitting a proposal 
that has been revised based on a previous peer review panel's critique 
of the proposal does not guarantee the success of the resubmitted 
proposal.
    (2) Resubmission of previously funded proposals. Recognizing that 
capacity building is a long-term ongoing process, the 1890 Institution 
Capacity Building Grants Program is interested in funding subsequent 
phases of previously funded projects in order to build institutional 
capacity, and institutions are encouraged to build on a theme over 
several grant awards. However, proposals that are sequential 
continuations or new stages of previously funded Capacity Building 
Grants must compete with first-time proposals. Therefore, project 
directors should thoroughly demonstrate how the project proposed in the 
current application expands substantially upon a previously funded 
project (i.e., demonstrate how the new project will advance the former 
project to the next level of attainment or will achieve expanded goals). 
The proposal must also show the degree to which the new phase promotes 
innovativeness and creativity beyond the scope of the previously funded 
project. Please note that the 1890 Institution Capacity Building Grants 
Program is not designed to support activities that are essentially 
repetitive in nature over multiple grant awards. Project directors who 
have had their projects funded previously are discouraged from 
resubmitting relatively identical proposals for further funding.
    (f) Narrative of a teaching proposal. The narrative portion of the 
proposal is limited to 20 pages in length. The one-page Project Summary 
is not included in the 20-page limitation. The narrative must be typed 
on one side of the page only, using a font no smaller than 12 point, and 
double-spaced. All margins must be at least one inch. All pages 
following the summary documentation of USDA agency cooperation must be 
paginated. It should be noted that peer reviewers will not be required 
to read beyond 20 pages of the narrative to evaluate the proposal. The 
narrative should contain the following sections:
    (1) Potential for advancing the quality of education--(i) Impact. 
(A) Identify the targeted need area(s).
    (B) Clearly state the specific instructional problem or opportunity 
to be addressed.
    (C) Describe how and by whom the focus and scope of the project were 
determined. Summarize the body of knowledge which substantiates the need 
for the proposed project.

[[Page 262]]

    (D) Describe ongoing or recently completed significant activities 
related to the proposed project for which previous funding was received 
under this program.
    (E) Discuss how the project will be of value at the State, regional, 
national, or international level(s).
    (F) Discuss how the benefits to be derived from the project will 
transcend the proposing institution or the grant period. Also discuss 
the probabilities of its adaptation by other institutions. For example, 
can the project serve as a model for others?
    (ii) Continuation plans. Discuss the likelihood of, or plans for, 
continuation or expansion of the project beyond USDA support. For 
example, does the institution's long-range budget or academic plan 
provide for the realistic continuation or expansion of the initiative 
undertaken by this project after the end of the grant period, are plans 
for eventual self-support built into the project, are plans being made 
to institutionalize the program if it meets with success, and are there 
indications of other continuing non-Federal support?
    (iii) Innovation. Describe the degree to which the proposal reflects 
an innovative or non-traditional approach to solving a higher education 
problem or strengthening the quality of higher education in the food and 
agricultural sciences.
    (iv) Products and results. Explain the kinds of results and products 
expected and their impact on strengthening food and agricultural 
sciences higher education in the United States, including attracting 
academically outstanding students and increasing the ethnic, racial, and 
gender diversity of the Nation's food and agricultural scientific and 
professional expertise base.
    (2) Overall approach and cooperative linkages--(i) Proposed 
approach--(A) Objectives. Cite and discuss the specific objectives to be 
accomplished under the project.
    (B) Plan of operation. (1) Describe procedures for accomplishing the 
objectives of the project.
    (2) Describe plans for management of the project to enhance its 
proper and efficient administration.
    (3) Describe the way in which resources and personnel will be used 
to conduct the project.
    (C) Timetable. Provide a timetable for conducting the project. 
Identify all important project milestones and dates as they relate to 
project start-up, execution, dissemination, evaluation, and close-out.
    (ii) Evaluation plans. (A) Provide a plan for evaluating the 
accomplishment of stated objectives during the conduct of the project. 
Indicate the criteria, and corresponding weight of each, to be used in 
the evaluation process, describe any data to be collected and analyzed, 
and explain the methodology that will be used to determine the extent to 
which the needs underlying the project are met.
    (B) Provide a plan for evaluating the effectiveness of the end 
results upon conclusion of the project. Include the same kinds of 
information requested in paragraph (f) (2)(ii)(A) of this section.
    (iii) Dissemination plans. Discuss plans to disseminate project 
results and products. Identify target audiences and explain methods of 
communication.
    (iv) Partnerships and collaborative efforts. (A) Explain how the 
project will maximize partnership ventures and collaborative efforts to 
strengthen food and agricultural sciences higher education (e.g., 
involvement of faculty in related disciplines at the same institution, 
joint projects with other colleges or universities, or cooperative 
activities with business or industry). Also explain how it will 
stimulate academia, the States, or the private sector to join with the 
Federal partner in enhancing food and agricultural sciences higher 
education.
    (B) Provide evidence, via letters from the parties involved, that 
arrangements necessary for collaborative partnerships or joint 
initiatives have been discussed and realistically can be expected to 
come to fruition, or actually have been finalized contingent on an award 
under this program. Letters must be signed by an official who has the 
authority to commit the resources of the organization. Such letters 
should be referenced in the plan of operation, but the actual letters 
should be included in the Appendix section of

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the proposal. Any potential conflict(s) of interest that might result 
from the proposed collaborative arrangements must be discussed in 
detail. Proposals which indicate joint projects with other institutions 
must state which proposer is to receive any resulting grant award, since 
only one submitting institution can be the recipient of a project grant 
under one proposal.
    (C) Explain how the project will create a new or enhance an existing 
partnership between the USDA agency cooperator(s) and the 1890 
Institution(s). This section should expand upon the summary information 
provided in the documentation of USDA agency cooperation section, as 
outlined in paragraph (c)(1) of this section. This is particularly 
important because the focal point of attention in the peer review 
process is the proposal narrative. Therefore, a comprehensive discussion 
of the partnership effort between USDA and the 1890 Institution should 
be provided.
    (3) Institutional capacity building--(i) Institutional enhancement. 
Explain how the proposed project will strengthen the teaching capacity, 
as defined in Sec. 3406.2 of this part, of the applicant institution 
and, if applicable, any other institutions assuming a major role in the 
conduct of the project. For example, describe how the proposed project 
is intended to strengthen the institution's academic infrastructure by 
expanding the current faculty's expertise base, advancing the scholarly 
quality of the institution's academic programs, enriching the racial, 
ethnic, or gender diversity of the student body, helping the institution 
establish itself as a center of excellence in a particular field of 
education, helping the institution maintain or acquire state-of-the-art 
scientific instrumentation or library collections for teaching, or 
enabling the institution to provide more meaningful student experiential 
learning opportunities.
    (ii) Institutional commitment. (A) Discuss the institution's 
commitment to the project and its successful completion. Provide, as 
relevant, appropriate documentation in the Appendix. Substantiate that 
the institution attributes a high priority to the project.
    (B) Discuss how the project will contribute to the achievement of 
the institution's long-term (five- to ten-year) goals and how the 
project will help satisfy the institution's high-priority objectives. 
Show how this project is linked to and supported by the institution's 
strategic plan.
    (C) Discuss the commitment of institutional resources to the 
project. Show that the institutional resources to be made available to 
the project will be adequate, when combined with the support requested 
from USDA, to carry out the activities of the project and represent a 
sound commitment by the institution. Discuss institutional facilities, 
equipment, computer services, and other appropriate resources available 
to the project.
    (g) Key personnel. A Form NIFA-708, ``Summary Vita--Teaching 
Proposal,'' should be included for each key person associated with the 
project.
    (h) Budget and cost-effectiveness--(1) Budget form. (i) Prepare Form 
NIFA-713, ``Higher Education Budget,'' in accordance with instructions 
provided with the form. Proposals may request support for a period to be 
identified in each year's program announcement. A budget form is 
required for each year of requested support. In addition, a summary 
budget is required detailing the requested total support for the overall 
project period. Form NIFA-713 may be reproduced as needed by proposers. 
Funds may be requested under any of the categories listed on the form, 
provided that the item or service for which support is requested is 
allowable under the authorizing legislation, the applicable Federal cost 
principles, the administrative provisions in this part, and can be 
justified as necessary for the successful conduct of the proposed 
project.
    (ii) The approved negotiated instruction rate or the maximum rate 
allowed by law should be used when computing indirect costs. If a 
reduced rate of indirect costs is voluntarily requested from USDA, the 
remaining allowable indirect costs may be used as matching funds.
    (2) Matching funds. When documenting matching contributions, use the 
following guidelines:

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    (i) When preparing the column entitled ``Applicant Contributions to 
Matching Funds'' of Form NIFA-713, only those costs to be contributed by 
the applicant for the purposes of matching should be shown. The total 
amount of this column should be indicated in item M.
    (ii) In item N of Form NIFA-713, show a total dollar amount for Cash 
Contributions from both the applicant and any third parties; also show a 
total dollar amount (based on current fair market value) for Non-cash 
Contributions from both the applicant and any third parties.
    (iii) To qualify for any incentive benefits stemming from matching 
support or to satisfy any cost sharing requirements, proposals must 
include written verification of any actual commitments of matching 
support (including both cash and non-cash contributions) from third 
parties. Written verification means--
    (A) For any third party cash contributions, a separate pledge 
agreement for each donation, signed by the authorized organizational 
representative(s) of the donor organization (or by the donor if the gift 
is from an individual) and the applicant institution, which must 
include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;
    (3) The title of the project for which the donation is made;
    (4) The dollar amount of the cash donation; and
    (5) A statement that the donor will pay the cash contribution during 
the grant period; and
    (B) For any third party non-cash contributions, a separate pledge 
agreement for each contribution, signed by the authorized organizational 
representative(s) of the donor organization (or by the donor if the gift 
is from an individual) and the applicant institution, which must 
include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;
    (3) The title of the project for which the donation is made;
    (4) A good faith estimate of the current fair market value of the 
non-cash contribution; and
    (5) A statement that the donor will make the contribution during the 
grant period.
    (iv) All pledge agreements must be placed in the proposal 
immediately following Form NIFA-713. The sources and amounts of all 
matching support from outside the applicant institution should be 
summarized in the Budget Narrative section of the proposal.
    (v) Applicants should refer to OMB Circulars A-110, ``Uniform 
Administrative Requirements for Grants and Agreements With Institutions 
of Higher Education, Hospitals and Other Non-profit Organizations,'' and 
A-21, ``Cost Principles for Educational Institutions,'' for further 
guidance and other requirements relating to matching and allowable 
costs.
    (3) Chart on shared budget for joint project proposal. (i) For a 
joint project proposal, a plan must be provided indicating how funds 
will be distributed to the participating institutions. The budget 
section of a joint project proposal should include a chart indicating:
    (A) The names of the participating institutions;
    (B) the amount of funds to be disbursed to those institutions; and
    (C) the way in which such funds will be used in accordance with 
items A through L of Form NIFA-713, ``Higher Education Budget.''
    (ii) If a proposal is not for a joint project, such a chart is not 
required.
    (4) Budget narrative. (i) Discuss how the budget specifically 
supports the proposed project activities. Explain how each budget item 
(such as salaries and wages for professional and technical staff, 
student stipends/scholarships, travel, equipment, etc.) is essential to 
achieving project objectives.
    (ii) Justify that the total budget, including funds requested from 
USDA and any matching support provided, will be adequate to carry out 
the activities of the project. Provide a summary of sources and amounts 
of all third party matching support.

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    (iii) Justify the project's cost-effectiveness. Show how the project 
maximizes the use of limited resources, optimizes educational value for 
the dollar, achieves economies of scale, or leverages additional funds. 
For example, discuss how the project has the potential to generate a 
critical mass of expertise and activity focused on a targeted need area 
or promote coalition building that could lead to future ventures.
    (iv) Include the percentage of time key personnel will work on the 
project, both during the academic year and summer. When salaries of 
university project personnel will be paid by a combination of USDA and 
institutional funds, the total compensation must not exceed the faculty 
member's regular annual compensation. In addition, the total commitment 
of time devoted to the project, when combined with time for teaching and 
research duties, other sponsored agreements, and other employment 
obligations to the institution, must not exceed 100 percent of the 
normal workload for which the employee is compensated, in accordance 
with established university policies and applicable Federal cost 
principles.
    (v) If the proposal addresses more than one targeted need area 
(e.g., student experiential learning and instruction delivery systems), 
estimate the proportion of the funds requested from USDA that will 
support each respective targeted need area.
    (i) Current and pending support. Each applicant must complete Form 
NIFA-663, ``Current and Pending Support,'' identifying any other current 
public- or private-sponsored projects, in addition to the proposed 
project, to which key personnel listed in the proposal under 
consideration have committed portions of their time, whether or not 
salary support for the person(s) involved is included in the budgets of 
the various projects. This information should also be provided for any 
pending proposals which are currently being considered by, or which will 
be submitted in the near future to, other possible sponsors, including 
other USDA programs or agencies. Concurrent submission of identical or 
similar projects to other possible sponsors will not prejudice the 
review or evaluation of a project under this program.
    (j) Appendix. Each project narrative is expected to be complete in 
itself and to meet the 20-page limitation. Inclusion of material in an 
Appendix should not be used to circumvent the 20-page limitation of the 
proposal narrative. However, in those instances where inclusion of 
supplemental information is necessary to guarantee the peer review 
panel's complete understanding of a proposal or to illustrate the 
integrity of the design or a main thesis of the proposal, such 
information may be included in an Appendix. Examples of supplemental 
material are photographs, journal reprints, brochures and other 
pertinent materials which are deemed to be illustrative of major points 
in the narrative but unsuitable for inclusion in the proposal narrative 
itself. Information on previously submitted proposals may also be 
presented in the Appendix (refer to paragraph (e) of this section). When 
possible, information in the Appendix should be presented in tabular 
format. A complete set of the Appendix material must be attached to each 
copy of the grant application submitted. The Appendix must be identified 
with the title of the project as it appears on Form NIFA-712 of the 
proposal and the name(s) of the project director(s). The Appendix must 
be referenced in the proposal narrative.



         Subpart D_Review and Evaluation of a Teaching Proposal



Sec. 3406.14  Proposal review--teaching.

    The proposal evaluation process includes both internal staff review 
and merit evaluation by peer review panels comprised of scientists, 
educators, business representatives, and Government officials who are 
highly qualified to render expert advice in the areas supported. Peer 
review panels will be selected and structured to provide optimum 
expertise and objective judgment in the evaluation of proposals.



Sec. 3406.15  Evaluation criteria for teaching proposals.

    The maximum score a teaching proposal can receive is 150 points. 
Unless

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otherwise stated in the annual solicitation published in the Federal 
Register, the peer review panel will consider the following criteria and 
weights to evaluate proposals submitted:

------------------------------------------------------------------------
               Evaluation criterion                        Weight
------------------------------------------------------------------------
(a) Potential for advancing the quality of
 education:
    This criterion is used to assess the
     likelihood that the project will have a
     substantial impact upon and advance the
     quality of food and agricultural sciences
     higher education by strengthening
     institutional capacities through promoting
     education reform to meet clearly delineated
     needs.
        (1) Impact--Does the project address a      15 points.
         targeted need area(s)? Is the problem or
         opportunity clearly documented? Does the
         project address a State, regional,
         national, or international problem or
         opportunity? Will the benefits to be
         derived from the project transcend the
         applicant institution or the grant
         period? Is it probable that other
         institutions will adapt this project for
         their own use? Can the project serve as a
         model for others?
        (2) Continuation plans--Are there plans     10 points.
         for continuation or expansion of the
         project beyond USDA support with the use
         of institutional funds? Are there
         indications of external, non-Federal
         support? Are there realistic plans for
         making the project self-supporting?
        (3) Innovation--Are significant aspects of  10 points.
         the project based on an innovative or a
         non-traditional approach toward solving a
         higher education problem or strengthening
         the quality of higher education in the
         food and agricultural sciences? If
         successful, is the project likely to lead
         to education reform?
        (4) Products and results--Are the expected  15 points.
         products and results of the project
         clearly defined and likely to be of high
         quality? Will project results be of an
         unusual or unique nature? Will the
         project contribute to a better
         understanding of or an improvement in the
         quality, distribution, or effectiveness
         of the Nation's food and agricultural
         scientific and professional expertise
         base, such as increasing the
         participation of women and minorities?
(b) Overall approach and cooperative linkages:
    This criterion relates to the soundness of the
     proposed approach and the quality of the
     partnerships likely to evolve as a result of
     the project.
        (1) Proposed approach--Do the objectives    15 points.
         and plan of operation appear to be sound
         and appropriate relative to the targeted
         need area(s) and the impact anticipated?
         Are the procedures managerially,
         educationally, and scientifically sound?
         Is the overall plan integrated with or
         does it expand upon other major efforts
         to improve the quality of food and
         agricultural sciences higher education?
         Does the timetable appear to be readily
         achievable?
        (2) Evaluation--Are the evaluation plans    5 points.
         adequate and reasonable? Do they allow
         for continuous or frequent feedback
         during the life of the project? Are the
         individuals involved in project
         evaluation skilled in evaluation
         strategies and procedures? Can they
         provide an objective evaluation? Do
         evaluation plans facilitate the
         measurement of project progress and
         outcomes?
        (3) Dissemination--Does the proposed        5 points.
         project include clearly outlined and
         realistic mechanisms that will lead to
         widespread dissemination of project
         results, including national electronic
         communication systems, publications,
         presentations at professional
         conferences, or use by faculty
         development or research/teaching skills
         workshops?
        (4) Partnerships and collaborative          15 points.
         efforts--Does the project have
         significant potential for advancing
         cooperative ventures between the
         applicant institution and a USDA agency?
         Does the project workplan include an
         effective role for the cooperating USDA
         agency(s)? Will the project expand
         partnership ventures among disciplines at
         a university, between colleges and
         universities, or with the private sector?
         Will the project lead to long-term
         relationships or cooperative partnerships
         that are likely to enhance program
         quality or supplement resources available
         to food and agricultural sciences higher
         education?
(c) Institutional capacity building:
    This criterion relates to the degree to which
     the project will strengthen the teaching
     capacity of the applicant institution. In the
     case of a joint project proposal, it relates
     to the degree to which the project will
     strengthen the teaching capacity of the
     applicant institution and that of any other
     institution assuming a major role in the
     conduct of the project.
        (1) Institutional enhancement--Will the     15 points.
         project help the institution to: Expand
         the current faculty's expertise base;
         attract, hire, and retain outstanding
         teaching faculty; advance and strengthen
         the scholarly quality of the
         institution's academic programs; enrich
         the racial, ethnic, or gender diversity
         of the faculty and student body; recruit
         students with higher grade point
         averages, higher standardized test
         scores, and those who are more committed
         to graduation; become a center of
         excellence in a particular field of
         education and bring it greater academic
         recognition; attract outside resources
         for academic programs; maintain or
         acquire state-of-the-art scientific
         instrumentation or library collections
         for teaching; or provide more meaningful
         student experiential learning
         opportunities?
        (2) Institutional commitment--Is there      15 points.
         evidence to substantiate that the
         institution attributes a high-priority to
         the project, that the project is linked
         to the achievement of the institution's
         long-term goals, that it will help
         satisfy the institution's high-priority
         objectives, or that the project is
         supported by the institution's strategic
         plans? Will the project have reasonable
         access to needed resources such as
         instructional instrumentation,
         facilities, computer services, library
         and other instruction support resources?
(d) Personnel Resources: This criterion relates to  10 points.
 the number and qualifications of the key persons
 who will carry out the project. Are designated
 project personnel qualified to carry out a
 successful project? Are there sufficient numbers
 of personnel associated with the project to
 achieve the stated objectives and the anticipated
 outcomes?
(e) Budget and cost-effectiveness:

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    This criterion relates to the extent to which
     the total budget adequately supports the
     project and is cost-effective.
        (1) Budget--Is the budget request           10 points.
         justifiable? Are costs reasonable and
         necessary? Will the total budget be
         adequate to carry out project activities?
         Are the source(s) and amount(s) of non-
         Federal matching support clearly
         identified and appropriately documented?
         For a joint project proposal, is the
         shared budget explained clearly and in
         sufficient detail?
        (2) Cost-effectiveness--Is the proposed     5 points.
         project cost-effective? Does it
         demonstrate a creative use of limited
         resources, maximize educational value per
         dollar of USDA support, achieve economies
         of scale, leverage additional funds or
         have the potential to do so, focus
         expertise and activity on a targeted need
         area, or promote coalition building for
         current or future ventures?
(f) Overall quality of proposal: This criterion     5 points.
 relates to the degree to which the proposal
 complies with the application guidelines and is
 of high quality. Is the proposal enhanced by its
 adherence to instructions (table of contents,
 organization, pagination, margin and font size,
 the 20-page limitation, appendices, etc.);
 accuracy of forms; clarity of budget narrative;
 well prepared vitae for all key personnel
 associated with the project; and presentation
 (are ideas effectively presented, clearly
 articulated, and thoroughly explained, etc.)?
------------------------------------------------------------------------



              Subpart E_Preparation of a Research Proposal



Sec. 3406.16  Scope of a research proposal.

    The research component of the program will support projects that 
address high-priority research initiatives in areas such as those 
illustrated in this section where there is a present or anticipated need 
for increased knowledge or capabilities or in which it is feasible for 
applicants to develop programs recognized for their excellence. 
Applicants are also encouraged to include in their proposals a library 
enhancement component related to the initiative(s) for which they have 
prepared their proposals.
    (a) Studies and experimentation in food and agricultural sciences. 
(1) The purpose of this initiative is to advance the body of knowledge 
in those basic and applied natural and social sciences that comprise the 
food and agricultural sciences.
    (2) Examples include, but are not limited to:
    (i) Conduct plant or animal breeding programs to develop better 
crops, forests, or livestock (e.g., more disease resistant, more 
productive, yielding higher quality products).
    (ii) Conceive, design, and evaluate new bioprocessing techniques for 
eliminating undesirable constituents from or adding desirable ones to 
food products.
    (iii) Propose and evaluate ways to enhance utilization of the 
capabilities and resources of food and agricultural institutions to 
promote rural development (e.g., exploitation of new technologies by 
small rural businesses).
    (iv) Identify control factors influencing consumer demand for 
agricultural products.
    (v) Analyze social, economic, and physiological aspects of 
nutrition, housing, and life-style choices, and of community strategies 
for meeting the changing needs of different population groups.
    (vi) Other high-priority areas such as human nutrition, sustainable 
agriculture, biotechnology, agribusiness management and marketing, and 
aquaculture.
    (b) Centralized research support systems. (1) The purpose of this 
initiative is to establish centralized support systems to meet national 
needs or serve regions or clientele that cannot otherwise afford or have 
ready access to the support in question, or to provide such support more 
economically thereby freeing up resources for other research uses.
    (2) Examples include, but are not limited to:
    (i) Storage, maintenance, characterization, evaluation and 
enhancement of germplasm for use by animal and plant breeders, including 
those using the techniques of biotechnology.
    (ii) Computerized data banks of important scientific information 
(e.g., epidemiological, demographic, nutrition, weather, economic, crop 
yields, etc.).
    (iii) Expert service centers for sophisticated and highly 
specialized methodologies (e.g., evaluation of organoleptic and 
nutritional quality of

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foods, toxicology, taxonomic identifications, consumer preferences, 
demographics, etc.).
    (c) Technology delivery systems. (1) The purpose of this initiative 
is to promote innovations and improvements in the delivery of benefits 
of food and agricultural sciences to producers and consumers, 
particularly those who are currently disproportionately low in receipt 
of such benefits.
    (2) Examples include, but are not limited to:
    (i) Computer-based decision support systems to assist small-scale 
farmers to take advantage of relevant technologies, programs, policies, 
etc.
    (ii) Efficacious delivery systems for nutrition information or for 
resource management assistance for low-income families and individuals.
    (d) Other creative proposals. The purpose of this initiative is to 
encourage other creative proposals, outside the areas previously 
outlined, that are designed to provide needed enhancement of the 
Nation's food and agricultural research system.



Sec. 3406.17  Program application materials--research.

    Program application materials in an application package will be made 
available to eligible institutions upon request. These materials include 
the program announcement, the administrative provisions for the program, 
and the forms needed to prepare and submit research grant applications 
under the program.



Sec. 3406.18  Content of a research proposal.

    (a) Proposal cover page. (1) Form NIFA-712, ``Higher Education 
Proposal Cover Page,'' must be completed in its entirety. Note that 
providing a Social Security Number is voluntary, but is an integral part 
of the NIFA information system and will assist in the processing of the 
proposal.
    (2) One copy of Form NIFA-712 must contain the pen-and-ink 
signatures of the principal investigator(s) and Authorized 
Organizational Representative for the applicant institution.
    (3) The title of the research project shown on the ``Higher 
Education Proposal Cover Page'' must be brief (80-character maximum) yet 
represent the major thrust of the project. This information will be used 
by the Department to provide information to the Congress and other 
interested parties.
    (4) In block 7. of Form NIFA-712, enter ``Capacity Building Grants 
Program.''
    (5) In block 8.a. of Form NIFA-712, enter ``Research.'' In block 
8.b. identify the code of the targeted need area(s) as found on the 
reverse of the form. If a proposal focuses on multiple targeted need 
areas, enter each code associated with the project. In block 8.c. 
identify the major area(s) of emphasis as found on the reverse of the 
form. If a proposal focuses on multiple areas of emphasis, enter each 
code associated with the project; however, please limit your selection 
to three areas. This information will be used by the program staff for 
the proper assignment of proposals to reviewers.
    (6) In block 9. of Form NIFA-712, indicate if the proposal is a 
complementary project proposal or joint project proposal as defined in 
Sec. 3406.2 of this part. If it is not a complementary project proposal 
or a joint project proposal, identify it as a regular proposal.
    (7) In block 13. of Form NIFA-712, indicate if the proposal is a 
new, first-time submission or if the proposal is a resubmission of a 
proposal that has been submitted to, but not funded under the 1890 
Institution Capacity Building Grants Program in a previous competition.
    (b) Table of contents. For ease of locating information, each 
proposal must contain a detailed table of contents just after the 
Proposal Cover Page. The Table of Contents should include page numbers 
for each component of the proposal. Pagination should begin immediately 
following the summary documentation of USDA agency cooperation.
    (c) USDA agency cooperator. To be considered for funding, each 
proposal must include documentation of cooperation with at least one 
USDA agency or office. If multiple agencies are involved as cooperators, 
documentation must be included from each agency. When documenting 
cooperative arrangements, the following guidelines should be used:

[[Page 269]]

    (1) A summary of the cooperative arrangements must immediately 
follow the Table of Contents. This summary should:
    (i) Bear the signatures of the Agency Head (or his/her designated 
authorized representative) and the university project director;
    (ii) Indicate the agency's willingness to commit support for the 
project;
    (iii) Identify the person(s) at the USDA agency who will serve as 
the liaison or technical contact for the project;
    (iv) Describe the degree and nature of the USDA agency's involvement 
in the proposed project, as outlined in Sec. 3406.6(a) of this part, 
including its role in:
    (A) Identifying the need for the project;
    (B) Developing a conceptual approach;
    (C) Assisting with project design;
    (D) Identifying and securing needed agency or other resources (e.g., 
personnel, grants/contracts; in-kind support, etc.);
    (E) Developing the project budget;
    (F) Promoting partnerships with other institutions to carry out the 
project;
    (G) Helping the institution launch and manage the project;
    (H) Providing technical assistance and expertise;
    (I) Providing consultation through site visits, E-mail, conference 
calls, and faxes;
    (J) Participating in project evaluation and dissemination of final 
project results; and
    (K) Seeking other innovative ways to ensure the success of the 
project and advance the needs of the institution or the agency; and
    (v) Describe the expected benefits of the partnership venture for 
the USDA agency and for the 1890 Institution.
    (2) A detailed discussion of these partnership arrangements should 
be provided in the narrative portion of the proposal, as outlined in 
paragraph (f)(2)(iv)(C) of this section.
    (3) Additional documentation, including letters of support or 
cooperation, may be provided in the Appendix.
    (d) Project summary. (1) A Project Summary should immediately follow 
the summary documentation of USDA agency cooperation. The information 
provided in the Project Summary will be used by the program staff for a 
variety of purposes, including the proper assignment of proposals to 
peer reviewers and providing information to peer reviewers prior to the 
peer panel meeting. The name of the institution, the targeted need 
area(s), and the title of the proposal must be identified exactly as 
shown on the ``Higher Education Proposal Cover Page.''
    (2) If the proposal is a complementary project proposal, as defined 
in Sec. 3406.2 of this part, clearly state this fact and identify the 
other complementary project(s) by citing the name of the submitting 
institution, the title of the project, the principal investigator, and 
the grant number (if funded in a previous year) exactly as shown on the 
cover page of the complementary project so that appropriate 
consideration can be given to the interrelatedness of the proposals in 
the evaluation process.
    (3) If the proposal is a joint project proposal, as defined in Sec. 
3406.2 of this part, indicate such and identify the other participating 
institutions and the key person responsible for coordinating the project 
at each institution.
    (4) The Project Summary should be a concise description of the 
proposed activity suitable for publication by the Department to inform 
the general public about awards under the program. The text should not 
exceed one page, single-spaced. The Project Summary should be a self-
contained description of the activity which would result if the proposal 
is funded by USDA. It should include: The objective of the project, a 
synopsis of the plan of operation, a statement of how the project will 
enhance the research capacity of the institution, a description of how 
the project will enhance research in the food and agricultural sciences, 
and a description of the partnership efforts between, and the expected 
benefits for, the USDA agency cooperator(s) and the 1890 Institution and 
the plans for disseminating project results. The Project Summary should 
be written so that a technically literate reader can evaluate the use of 
Federal funds in support of the project.

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    (e) Resubmission of a proposal--(1) Resubmission of previously 
unfunded proposals. (i) If the proposal has been submitted previously, 
but was not funded, such should be indicated in block 13. on Form NIFA-
712, ``Higher Education Proposal Cover Page,'' and the following 
information should be included in the proposal:
    (A) The fiscal year(s) in which the proposal was submitted 
previously;
    (B) A summary of the peer reviewers' comments; and
    (C) How these comments have been addressed in the current proposal, 
including the page numbers in the current proposal where the peer 
reviewers' comments have been addressed.
    (ii) This information may be provided as a section of the proposal 
following the Project Summary and preceding the proposal narrative or it 
may be placed in the Appendix (see paragraph (j) of this section). In 
either case, the location of this information should be indicated in the 
Table of Contents, and the fact that the proposal is a resubmitted 
proposal should be stated in the proposal narrative. Further, when 
possible, the information should be presented in a tabular format. 
Applicants who choose to resubmit proposals that were previously 
submitted, but not funded, should note that resubmitted proposals must 
compete equally with newly submitted proposals. Submitting a proposal 
that has been revised based on a previous peer review panel's critique 
of the proposal does not guarantee the success of the resubmitted 
proposal.
    (2) Resubmission of previously funded proposals. Recognizing that 
capacity building is a long-term ongoing process, the 1890 Institution 
Capacity Building Grants Program is interested in funding subsequent 
phases of previously funded projects in order to build institutional 
capacity, and institutions are encouraged to build on a theme over 
several grant awards. However, proposals that are sequential 
continuations or new stages of previously funded Capacity Building 
Grants must compete with first-time proposals. Therefore, principal 
investigators should thoroughly demonstrate how the project proposed in 
the current application expands substantially upon a previously funded 
project (i.e., demonstrate how the new project will advance the former 
project to the next level of attainment or will achieve expanded goals). 
The proposal must also show the degree to which the new phase promotes 
innovativeness and creativity beyond the scope of the previously funded 
project. Please note that the 1890 Institution Capacity Building Grants 
Program is not designed to support activities that are essentially 
repetitive in nature over multiple grant awards. Principal investigators 
who have had their projects funded previously are discouraged from 
resubmitting relatively identical proposals for future funding.
    (f) Narrative of a research proposal. The narrative portion of the 
proposal is limited to 20 pages in length. The one-page Project Summary 
is not included in the 20-page limitation. The narrative must be typed 
on one side of the page only, using a font no smaller than 12 point, and 
double-spaced. All margins must be at least one inch. All pages 
following the summary documentation of USDA agency cooperation must be 
paginated. It should be noted that peer reviewers will not be required 
to read beyond 20 pages of the narrative to evaluate the proposal. The 
narrative should contain the following sections:
    (1) Significance of the problem--(i) Impact--(A) Identification of 
the problem or opportunity. Clearly identify the specific problem or 
opportunity to be addressed and present any research questions or 
hypotheses to be examined.
    (B) Rationale. Provide a rationale for the proposed approach to the 
problem or opportunity and indicate the part that the proposed project 
will play in advancing food and agricultural research and knowledge. 
Discuss how the project will be of value and importance at the State, 
regional, national, or international level(s). Also discuss how the 
benefits to be derived from the project will transcend the proposing 
institution or the grant period.
    (C) Literature review. Include a comprehensive summary of the 
pertinent scientific literature. Citations may be footnoted to a 
bibliography in the Appendix. Citations should be accurate, complete, 
and adhere to an acceptable

[[Page 271]]

journal format. Explain how such knowledge (or previous findings) is 
related to the proposed project.
    (D) Current research and related activities. Describe the relevancy 
of the proposed project to current research or significant research 
support activities at the proposing institution and any other 
institution participating in the project, including research which may 
be as yet unpublished.
    (ii) Continuation plans. Discuss the likelihood or plans for 
continuation or expansion of the project beyond USDA support. Discuss, 
as applicable, how the institution's long-range budget, and 
administrative and academic plans, provide for the realistic 
continuation or expansion of the line of research or research support 
activity undertaken by this project after the end of the grant period. 
For example, are there plans for securing non-Federal support for the 
project? Is there any potential for income from patents, technology 
transfer or university-business enterprises resulting from the project? 
Also discuss the probabilities of the proposed activity or line of 
inquiry being pursued by researchers at other institutions.
    (iii) Innovation. Describe the degree to which the proposal reflects 
an innovative or non-traditional approach to a food and agricultural 
research initiative.
    (iv) Products and results. Explain the kinds of products and results 
expected and their impact on strengthening food and agricultural 
sciences higher education in the United States, including attracting 
academically outstanding students or increasing the ethnic, racial, and 
gender diversity of the Nation's food and agricultural scientific and 
professional expertise base.
    (2) Overall approach and cooperative linkages--(i) Approach--(A) 
Objectives. Cite and discuss the specific objectives to be accomplished 
under the project.
    (B) Plan of operation. The procedures or methodologies to be applied 
to the proposed project should be explicitly stated. This section should 
include, but not necessarily be limited to a description of:
    (1) The proposed investigations, experiments, or research support 
enhancements in the sequence in which they will be carried out.
    (2) Procedures and techniques to be employed, including their 
feasibility.
    (3) Means by which data will be collected and analyzed.
    (4) Pitfalls that might be encountered.
    (5) Limitations to proposed procedures.
    (C) Timetable. Provide a timetable for execution of the project. 
Identify all important research milestones and dates as they relate to 
project start-up, execution, dissemination, evaluation, and close-out.
    (ii) Evaluation plans. (A) Provide a plan for evaluating the 
accomplishment of stated objectives during the conduct of the project. 
Indicate the criteria, and corresponding weight of each, to be used in 
the evaluation process, describe any performance data to be collected 
and analyzed, and explain the methodologies that will be used to 
determine the extent to which the needs underlying the project are being 
met.
    (B) Provide a plan for evaluating the effectiveness of the end 
results upon conclusion of the project. Include the same kinds of 
information requested in paragraph (f)(2)(ii)(A) of this section.
    (iii) Dissemination plans. Provide plans for disseminating project 
results and products including the possibilities for publications. 
Identify target audiences and explain methods of communication.
    (iv) Partnerships and collaborative efforts. (A) Explain how the 
project will maximize partnership ventures and collaborative efforts to 
strengthen food and agricultural sciences higher education (e.g., 
involvement of faculty in related disciplines at the same institution, 
joint projects with other colleges or universities, or cooperative 
activities with business or industry). Also explain how it will 
stimulate academia, the States, or the private sector to join with the 
Federal partner in enhancing food and agricultural sciences higher 
education.
    (B) Provide evidence, via letters from the parties involved, that 
arrangements necessary for collaborative partnerships or joint 
initiatives have been

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discussed and realistically can be expected to come to fruition, or 
actually have been finalized contingent on an award under this program. 
Letters must be signed by an official who has the authority to commit 
the resources of the organization. Such letters should be referenced in 
the plan of operation, but the actual letters should be included in the 
Appendix section of the proposal. Any potential conflict(s) of interest 
that might result from the proposed collaborative arrangements must be 
discussed in detail. Proposals which indicate joint projects with other 
institutions must state which proposer is to receive any resulting grant 
award, since only one submitting institution can be the recipient of a 
project grant under one proposal.
    (C) Explain how the project will create a new or enhance an existing 
partnership between the USDA agency cooperator(s) and the 1890 
Institution(s). This section should expand upon the summary information 
provided in the documentation of USDA agency cooperation section, as 
outlined in paragraph (c)(1) of this section. This is particularly 
important because the focal point of attention in the peer review 
process is the proposal narrative. Therefore, a comprehensive discussion 
of the partnership effort between USDA and the 1890 Institution should 
be provided.
    (3) Institutional capacity building--(i) Institutional enhancement. 
Explain how the proposed project will strengthen the research capacity, 
as defined in Sec. 3406.2 of this part, of the applicant institution 
and, if applicable, any other institutions assuming a major role in the 
conduct of the project. For example, describe how the proposed project 
is intended to strengthen the institution's research infrastructure by 
advancing the expertise of the current faculty in the natural or social 
sciences; providing a better research environment, state-of-the-art 
equipment, or supplies; enhancing library collections; or enabling the 
institution to provide efficacious organizational structures and reward 
systems to attract and retain first-rate research faculty and students--
particularly those from underrepresented groups.
    (ii) Institutional commitment. (A) Discuss the institution's 
commitment to the project and its successful completion. Provide, as 
relevant, appropriate documentation in the Appendix. Substantiate that 
the institution attributes a high priority to the project.
    (B) Discuss how the project will contribute to the achievement of 
the institution's long-term (five- to ten-year) goals and how the 
project will help satisfy the institution's high-priority objectives. 
Show how this project is linked to and supported by the institution's 
strategic plan.
    (C) Discuss the commitment of institutional resources to the 
project. Show that the institutional resources to be made available to 
the project will be adequate, when combined with the support requested 
from USDA, to carry out the activities of the project and represent a 
sound commitment by the institution. Discuss institutional facilities, 
equipment, computer services, and other appropriate resources available 
to the project.
    (g) Key personnel. A Form NIFA-710, ``Summary Vita--Research 
Proposal,'' should be included for each key person associated with the 
project.
    (h) Budget and cost-effectiveness--(1) Budget form. (i) Prepare Form 
NIFA-713, ``Higher Education Budget,'' in accordance with instructions 
provided with the form. Proposals may request support for a period to be 
identified in each year's program announcement. A budget form is 
required for each year of requested support. In addition, a summary 
budget is required detailing the requested total support for the overall 
project period. Form NIFA-713 may be reproduced as needed by proposers. 
Funds may be requested under any of the categories listed on the form, 
provided that the item or service for which support is requested is 
allowable under the authorizing legislation, the applicable Federal cost 
principles, the administrative provisions in this part, and can be 
justified as necessary for the successful conduct of the proposed 
project.
    (ii) The approved negotiated research rate or the maximum rate 
allowed by law should be used when computing indirect costs. If a 
reduced rate of indirect costs is voluntarily requested from

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USDA, the remaining allowable indirect costs may be used as matching 
funds. In the event that a proposal reflects an incorrect indirect cost 
rate and is recommended for funding, the correct rate will be applied to 
the approved budget in the grant award.
    (2) Matching funds. When documenting matching contributions, use the 
following guidelines:
    (i) When preparing the column entitled ``Applicant Contributions to 
Matching Funds'' of Form NIFA-713, only those costs to be contributed by 
the applicant for the purposes of matching should be shown. The total 
amount of this column should be indicated in item M.
    (ii) In item N of Form NIFA-713, show a total dollar amount for Cash 
Contributions from both the applicant and any third parties; also show a 
total dollar amount (based on current fair market value) for Non-cash 
Contributions from both the applicant and any third parties.
    (iii) To qualify for any incentive benefits stemming from matching 
support or to satisfy any cost sharing requirements, proposals must 
include written verification of any actual commitments of matching 
support (including both cash and non-cash contributions) from third 
parties. Written verification means--
    (A) For any third party cash contributions, a separate pledge 
agreement for each donation, signed by the authorized organizational 
representative(s) of the donor organization (or by the donor if the gift 
is from an individual) and the applicant institution, which must 
include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;
    (3) The title of the project for which the donation is made;
    (4) The dollar amount of the cash donation; and
    (5) A statement that the donor will pay the cash contribution during 
the grant period; and
    (B) For any third party non-cash contributions, a separate pledge 
agreement for each contribution, signed by the authorized organizational 
representative(s) of the donor organization (or by the donor if the gift 
is from an individual) and the applicant institution, which must 
include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;
    (3) The title of the project for which the donation is made;
    (4) A good faith estimate of the current fair market value of the 
non-cash contribution; and
    (5) A statement that the donor will make the contribution during the 
grant period.
    (iv) All pledge agreements must be placed in the proposal 
immediately following Form NIFA-713. The sources and amounts of all 
matching support from outside the applicant institution should be 
summarized in the Budget Narrative section of the proposal.
    (v) Applicants should refer to OMB Circulars A-110, ``Uniform 
Administrative Requirements for Grants and Agreements With Institutions 
of Higher Education, Hospitals and Other Non-profit Organizations,'' and 
A-21, ``Cost Principles for Educational Institutions,'' for further 
guidance and other requirements relating to matching and allowable 
costs.
    (3) Chart on shared budget for joint project proposal. (i) For a 
joint project proposal, a plan must be provided indicating how funds 
will be distributed to the participating institutions. The budget 
section of a joint project proposal should include a chart indicating:
    (A) The names of the participating institutions;
    (B) the amount of funds to be disbursed to those institutions; and
    (C) the way in which such funds will be used in accordance with 
items A through L of Form NIFA-713, ``Higher Education Budget.''
    (ii) If a proposal is not for a joint project, such a chart is not 
required.
    (4) Budget narrative. (i) Discuss how the budget specifically 
supports the proposed project activities. Explain how each budget item 
(such as salaries and wages for professional and technical staff, 
student workers, travel, equipment, etc.) is essential to achieving 
project objectives.
    (ii) Justify that the total budget, including funds requested from 
USDA

[[Page 274]]

and any matching support provided, will be adequate to carry out the 
activities of the project. Provide a summary of sources and amounts of 
all third party matching support.
    (iii) Justify the project's cost-effectiveness. Show how the project 
maximizes the use of limited resources, optimizes research value for the 
dollar, achieves economies of scale, or leverages additional funds. For 
example, discuss how the project has the potential to generate a 
critical mass of expertise and activity focused on a high-priority 
research initiative(s) or promote coalition building that could lead to 
future ventures.
    (iv) Include the percentage of time key personnel will work on the 
project, both during the academic year and summer. When salaries of 
university project personnel will be paid by a combination of USDA and 
institutional funds, the total compensation must not exceed the faculty 
member's regular annual compensation. In addition, the total commitment 
of time devoted to the project, when combined with time for teaching and 
research duties, other sponsored agreements, and other employment 
obligations to the institution, must not exceed 100 percent of the 
normal workload for which the employee is compensated, in accordance 
with established university policies and applicable Federal cost 
principles.
    (v) If the proposal addresses more than one targeted need area, 
estimate the proportion of the funds requested from USDA that will 
support each respective targeted need area.
    (i) Current and pending support. Each applicant must complete Form 
NIFA-663, ``Current and Pending Support,'' identifying any other current 
public- or private-sponsored projects, in addition to the proposed 
project, to which key personnel listed in the proposal under 
consideration have committed portions of their time, whether or not 
salary support for the person(s) involved is included in the budgets of 
the various projects. This information should also be provided for any 
pending proposals which are currently being considered by, or which will 
be submitted in the near future to, other possible sponsors, including 
other USDA programs or agencies. Concurrent submission of identical or 
similar projects to other possible sponsors will not prejudice the 
review or evaluation of a project under this program.
    (j) Appendix. Each project narrative is expected to be complete in 
itself and to meet the 20-page limitation. Inclusion of material in the 
Appendix should not be used to circumvent the 20-page limitation of the 
proposal narrative. However, in those instances where inclusion of 
supplemental information is necessary to guarantee the peer review 
panel's complete understanding of a proposal or to illustrate the 
integrity of the design or a main thesis of the proposal, such 
information may be included in the Appendix. Examples of supplemental 
material are photographs, journal reprints, brochures and other 
pertinent materials which are deemed to be illustrative of major points 
in the narrative but unsuitable for inclusion in the proposal narrative 
itself. Information on previously submitted proposals may also be 
presented in the Appendix (refer to paragraph (e) of this section). When 
possible, information in the Appendix should be presented in tabular 
format. A complete set of the Appendix material must be attached to each 
copy of the grant application submitted. The Appendix must be identified 
with the title of the project as it appears on Form NIFA-712 of the 
proposal and the name(s) of the principal investigator(s). The Appendix 
must be referenced in the proposal narrative.
    (k) Special considerations. A number of situations encountered in 
the conduct of research require special information or supporting 
documentation before funding can be approved for the project. If such 
situations are anticipated, proposals must so indicate via completion of 
Form NIFA-662, ``Assurance Statement(s).'' It is expected that some 
applications submitted in response to these guidelines will involve the 
following:
    (1) Recombinant DNA research. All key personnel identified in the 
proposal and all endorsing officials of the proposing organization are 
required to comply with the guidelines established by the National 
Institutes of Health entitled ``Guidelines for Research Involving 
Recombinant DNA Molecules,'' as revised.

[[Page 275]]

All applicants proposing to use recombinant DNA techniques must so 
indicate by checking the appropriate box on Form NIFA-712, ``Higher 
Education Proposal Cover Page,'' and by completing the applicable 
section of Form NIFA-662. In the event a project involving recombinant 
DNA or RNA molecules results in a grant award, the Institutional 
Biosafety Committee of the proposing institution must approve the 
research plan before NIFA will release grant funds.
    (2) Protection of human subjects. Responsibility for safeguarding 
the rights and welfare of human subjects used in any grant project 
supported with funds provided by NIFA rests with the performing 
organization. Guidance on this is contained in Department of Agriculture 
regulations under 7 CFR part 1c. All applicants who propose to use human 
subjects for experimental purposes must indicate their intention by 
checking the appropriate block on Form NIFA-712, ``Higher Education 
Proposal Cover Page,'' and by completing the appropriate portion of Form 
NIFA-662. In the event a project involving human subjects results in a 
grant award, the Institutional Review Board of the proposing institution 
must approve the research plan before NIFA will release grant funds.
    (3) Laboratory animal care. Responsibility for the humane care and 
treatment of laboratory animals used in any grant project supported with 
funds provided by NIFA rests with the performing organization. All key 
project personnel and all endorsing officials of the proposing 
organization are required to comply with the Animal Welfare Act of 1966, 
as amended (7 U.S.C. 2131 et seq.), and the regulations promulgated 
thereunder by the Secretary of Agriculture in 9 CFR parts 1, 2, 3, and 4 
pertaining to the care, handling, and treatment of laboratory animals. 
All applicants proposing a project which involves the use of laboratory 
animals must indicate their intention by checking the appropriate block 
on Form NIFA-712, ``Higher Education Proposal Cover Page,'' and by 
completing the appropriate portion of Form NIFA-662. In the event a 
project involving the use of living vertebrate animals results in a 
grant award, the Institutional Animal Care and Use Committee of the 
proposing institution must approve the research plan before NIFA will 
release grant funds.
    (l) Compliance with the National Environmental Policy Act (NEPA). As 
outlined in 7 CFR part 3407 (the Agriculture regulations implementing 
NEPA), the environmental data for any proposed project is to be provided 
to NIFA so that NIFA may determine whether any further action is needed. 
In some cases, however, the preparation of environmental data may not be 
required. Certain categories of actions are excluded from the 
requirements of NEPA.
    (1) NEPA determination. In order for NIFA to determine whether any 
further action is needed with respect to NEPA, pertinent information 
regarding the possible environmental impacts of a particular project is 
necessary; therefore, Form NIFA-1234, ``NEPA Exclusions Form,''ust be 
included in the proposal indicating whether the applicant is of the 
opinion that the project falls within a categorical exclusion and the 
reasons therefor. If it is the applicant's opinion that the proposed 
project falls within the categorical exclusions, the specific exclusion 
must be identified. Form NIFA-1234 and any supporting documentation 
should be placed at the end of the proposal and identified in the Table 
of Contents.
    (2) Exceptions to categorical exclusions. Even though a project may 
fall within the categorical exclusions, NIFA may determine that an 
Environmental Assessment or an Environmental Impact Statement is 
necessary for an activity, if substantial controversy on environmental 
grounds exists or if other extraordinary conditions or circumstances are 
present which may cause such activity to have a significant 
environmental effect.



         Subpart F_Review and Evaluation of a Research Proposal



Sec. 3406.19  Proposal review--research.

    The proposal evaluation process includes both internal staff review 
and merit evaluation by peer review panels comprised of scientists, 
educators, business representatives, and Government officials who are 
highly qualified

[[Page 276]]

to render expert advice in the areas supported. Peer review panels will 
be selected and structured to provide optimum expertise and objective 
judgment in the evaluation of proposals.



Sec. 3406.20  Evaluation criteria for research proposals.

    The maximum score a research proposal can receive is 150 points. 
Unless otherwise stated in the annual solicitation published in the 
Federal Register, the peer review panel will consider the following 
criteria and weights to evaluate proposals submitted:

------------------------------------------------------------------------
               Evaluation criterion                        Weight
------------------------------------------------------------------------
(a) Significance of the problem:
    This criterion is used to assess the
     likelihood that the project will advance or
     have a substantial impact upon the body of
     knowledge constituting the natural and social
     sciences undergirding the agricultural,
     natural resources, and food systems.
        (1) Impact--Is the problem or opportunity   15 points.
         to be addressed by the proposed project
         clearly identified, outlined, and
         delineated? Are research questions or
         hypotheses precisely stated? Is the
         project likely to further advance food
         and agricultural research and knowledge?
         Does the project have potential for
         augmenting the food and agricultural
         scientific knowledge base? Does the
         project address a State, regional,
         national, or international problem(s)?
         Will the benefits to be derived from the
         project transcend the applicant
         institution or the grant period?
        (2) Continuation plans--Are there plans     10 points.
         for continuation or expansion of the
         project beyond USDA support? Are there
         plans for continuing this line of
         research or research support activity
         with the use of institutional funds after
         the end of the grant? Are there
         indications of external, non-Federal
         support? Are there realistic plans for
         making the project self-supporting? What
         is the potential for royalty or patent
         income, technology transfer or university-
         business enterprises? What are the
         probabilities of the proposed activity or
         line of inquiry being pursued by
         researchers at other institutions?
        (3) Innovation--Are significant aspects of  10 points.
         the project based on an innovative or a
         non-traditional approach? Does the
         project reflect creative thinking? To
         what degree does the venture reflect a
         unique approach that is new to the
         applicant institution or new to the
         entire field of study?
        (4) Products and results--Are the expected  15 points.
         products and results of the project
         clearly outlined and likely to be of high
         quality? Will project results be of an
         unusual or unique nature? Will the
         project contribute to a better
         understanding of or an improvement in the
         quality, distribution, or effectiveness
         of the Nation's food and agricultural
         scientific and professional expertise
         base, such as increasing the
         participation of women and minorities?
(b) Overall approach and cooperative linkages:
    This criterion relates to the soundness of the
     proposed approach and the quality of the
     partnerships likely to evolve as a result of
     the project.
        (1) Proposed approach--Do the objectives    5 points.
         and plan of operation appear to be sound
         and appropriate relative to the proposed
         initiative(s) and the impact anticipated?
         Is the proposed sequence of work
         appropriate? Does the proposed approach
         reflect sound knowledge of current theory
         and practice and awareness of previous or
         ongoing related research? If the proposed
         project is a continuation of a current
         line of study or currently funded
         project, does the proposal include
         sufficient preliminary data from the
         previous research or research support
         activity? Does the proposed project flow
         logically from the findings of the
         previous stage of study? Are the
         procedures scientifically and
         managerially sound? Are potential
         pitfalls and limitations clearly
         identified? Are contingency plans
         delineated? Does the timetable appear to
         be readily achievable?
        (2) Evaluation--Are the evaluation plans    5 points
         adequate and reasonable? Do they allow
         for continuous or frequent feedback
         during the life of the project? Are the
         individuals involved in project
         evaluation skilled in evaluation
         strategies and procedures? Can they
         provide an objective evaluation? Do
         evaluation plans facilitate the
         measurement of project progress and
         outcomes?
        (3) Dissemination--Does the proposed        5 points.
         project include clearly outlined and
         realistic mechanisms that will lead to
         widespread dissemination of project
         results, including national electronic
         communication systems, publications and
         presentations at professional society
         meetings?
        (4) Partnerships and collaborative          15 points.
         efforts--Does the project have
         significant potential for advancing
         cooperative ventures between the
         applicant institution and a USDA agency?
         Does the project workplan include an
         effective role for the cooperating USDA
         agency(s)? Will the project encourage and
         facilitate better working relationships
         in the university science community, as
         well as between universities and the
         public or private sector? Does the
         project encourage appropriate multi-
         disciplinary collaboration? Will the
         project lead to long-term relationships
         or cooperative partnerships that are
         likely to enhance research quality or
         supplement available resources?
(c) Institutional capacity building:

[[Page 277]]

 
    This criterion relates to the degree to which
     the project will strengthen the research
     capacity of the applicant institution. In the
     case of a joint project proposal, it relates
     to the degree to which the project will
     strengthen the research capacity of the
     applicant institution and that of any other
     institution assuming a major role in the
     conduct of the project.
        (1) Institutional enhancement--Will the     15 points.
         project help the institution to advance
         the expertise of current faculty in the
         natural or social sciences; provide a
         better research environment, state-of-the-
         art equipment, or supplies; enhance
         library collections related to the area
         of research; or enable the institution to
         provide efficacious organizational
         structures and reward systems to attract,
         hire and retain first-rate research
         faculty and students--particularly those
         from underrepresented groups?
        (2) Institutional commitment--Is there      15 points.
         evidence to substantiate that the
         institution attributes a high-priority to
         the project, that the project is linked
         to the achievement of the institution's
         long-term goals, that it will help
         satisfy the institution's high-priority
         objectives, or that the project is
         supported by the institution's strategic
         plans? Will the project have reasonable
         access to needed resources such as
         scientific instrumentation, facilities,
         computer services, library and other
         research support resources?
(d) Personnel Resources...........................  10 Points
    This criterion relates to the number and
     qualifications of the key persons who will
     carry out the project. Are designated project
     personnel qualified to carry out a successful
     project? Are there sufficient numbers of
     personnel associated with the project to
     achieve the stated objectives and the
     anticipated outcomes? Will the project help
     develop the expertise of young scientists at
     the doctoral or post-doctorate level?
(e) Budget and cost-effectiveness:
    This criterion relates to the extent to which
     the total budget adequately supports the
     project and is cost-effective.
        (1) Budget--Is the budget request           10 points.
         justifiable? Are costs reasonable and
         necessary? Will the total budget be
         adequate to carry out project activities?
         Are the source(s) and amount(s) of non-
         Federal matching support clearly
         identified and appropriately documented?
         For a joint project proposal, is the
         shared budget explained clearly and in
         sufficient detail?
        (2) Cost-effectiveness--Is the proposed     5 points.
         project cost-effective? Does it
         demonstrate a creative use of limited
         resources, maximize research value per
         dollar of USDA support, achieve economies
         of scale, leverage additional funds or
         have the potential to do so, focus
         expertise and activity on a high-priority
         research initiative(s), or promote
         coalition building for current or future
         ventures?
(f) Overall quality of proposal...................  5 points
    This criterion relates to the degree to which
     the proposal complies with the application
     guidelines and is of high quality. Is the
     proposal enhanced by its adherence to
     instructions (table of contents,
     organization, pagination, margin and font
     size, the 20-page limitation, appendices,
     etc.); accuracy of forms; clarity of budget
     narrative; well prepared vitae for all key
     personnel associated with the project; and
     presentation (are ideas effectively
     presented, clearly articulated, thoroughly
     explained, etc.)?
------------------------------------------------------------------------



         Subpart G_Submission of a Teaching or Research Proposal



Sec. 3406.21  Intent to submit a proposal.

    To assist NIFA in preparing for the review of proposals, 
institutions planning to submit proposals may be requested to complete 
Form NIFA-711, ``Intent to Submit a Proposal,'' provided in the 
application package. NIFA will determine each year if Intent to Submit a 
Proposal forms will be requested and provide such information in the 
program announcement. If Intent to Submit a Proposal forms are required, 
one form should be completed and returned for each proposal an 
institution anticipates submitting. Submitting this form does not commit 
an institution to any course of action, nor does failure to send this 
form prohibit an institution from submitting a proposal.



Sec. 3406.22  When and where to submit a proposal.

    The program announcement will provide the deadline date for 
submitting a proposal, the number of copies of each proposal that must 
be submitted, and the address to which proposals must be submitted.



                   Subpart H_Supplementary Information



Sec. 3406.23  Access to peer review information.

    After final decisions have been announced, NIFA will, upon request, 
inform the principal investigator/project director of the reasons for 
its decision on a proposal. Verbatim copies of summary reviews, not 
including the identity of the peer reviewers, will be made

[[Page 278]]

available to the respective principal investigator/project directors 
upon specific request.



Sec. 3406.24  Grant awards.

    (a) General. Within the limit of funds available for such purpose, 
the authorized departmental officer shall make project grants to those 
responsible, eligible applicants whose proposals are judged most 
meritorious in the announced targeted need areas under the evaluation 
criteria and procedures set forth in this part. The beginning of the 
project period shall be no later than September 30 of the Federal fiscal 
year in which the project is approved for support. All funds granted 
under this part shall be expended solely for the purpose for which the 
funds are granted in accordance with the approved application and 
budget, the regulations of this part, the terms and conditions of the 
award, the applicable Federal cost principles, and2 CFR part 200 and 
part 400.
    (b) Organizational management information. Specific management 
information relating to a proposing institution shall be submitted on a 
one-time basis prior to the award of a project grant identified under 
this part if such information has not been provided previously under 
this or another program for which the sponsoring agency is responsible. 
Copies of forms used to fulfill this requirement will be sent to the 
proposing institution by the sponsoring agency as part of the pre-award 
process.
    (c) Notice of grant award. The grant award document shall include at 
a minimum the following:
    (1) Legal name and address of performing organization.
    (2) Title of project.
    (3) Name(s) and address(es) of principal investigator(s)/project 
director(s).
    (4) Identifying grant number assigned by the Department.
    (5) Project period, which specifies how long the Department intends 
to support the effort without requiring reapplication for funds.
    (6) Total amount of Federal financial assistance approved during the 
project period.
    (7) Legal authority(ies) under which the grant is awarded.
    (8) Approved budget plan for categorizing allocable project funds to 
accomplish the stated purpose of the grant award.
    (9) Other information or provisions deemed necessary by the 
Department to carry out its granting activities or to accomplish the 
purpose of this particular project grant.
    (d) Obligation of the Federal Government. Neither the approval of 
any application nor the award of any project grant shall legally commit 
or obligate NIFA or the United States to provide further support of a 
project or any portion thereof.

[62 FR 39331, July 22, 1997, as amended at 79 FR 75999, Dec. 19, 2014]



Sec. 3406.25  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not in 
whole or in part delegate or transfer to another person, institution, or 
organization the responsibility for use or expenditure of grant funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee, principal investigator(s)/project director(s), or other key 
project personnel in the approved project grant shall be limited to 
changes in methodology, techniques, or other aspects of the project to 
expedite achievement of the project's approved goals. If the grantee or 
the principal investigator(s)/project director(s) are uncertain as to 
whether a change complies with this provision, the question must be 
referred to the Department for a final determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the authorized departmental 
officer prior to effecting such changes. In no event shall requests for 
such changes be approved which are outside the scope of the approved 
project.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and approved in writing by the authorized departmental officer 
prior to effecting such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal

[[Page 279]]

funds are involved, shall be requested by the grantee and approved in 
writing by the authorized departmental officer prior to effecting such 
transfers.
    (c) Changes in project period. The project period may be extended by 
the authorized departmental officer without additional financial support 
for such additional period(s) as the authorized departmental officer 
determines may be necessary to complete or fulfill the purposes of an 
approved project. However, due to statutory restriction, no grant may be 
extended beyond five years from the original start date of the grant. 
Grant extensions shall be conditioned upon prior request by the grantee 
and approval in writing by the authorized departmental officer, unless 
prescribed otherwise in the terms and conditions of a grant.
    (d) Changes in approved budget. Changes in an approved budget must 
be requested by the grantee and approved in writing by the authorized 
departmental officer prior to instituting such changes if the revision 
will:
    (1) Involve transfers of amounts budgeted for indirect costs to 
absorb an increase in direct costs;
    (2) Involve transfers of amounts budgeted for direct costs to 
accommodate changes in indirect cost rates negotiated during a budget 
period and not approved when a grant was awarded; or
    (3) Involve transfers or expenditures of amounts requiring prior 
approval as set forth in the applicable Federal cost principles, 
Departmental regulations, or in the grant award.



Sec. 3406.26  Monitoring progress of funded projects.

    (a) During the tenure of a grant, principal investigators/project 
directors must attend at least one national principal investigators/
project directors meeting, if offered, in Washington, DC or any other 
announced location. The purpose of the meeting will be to discuss 
project and grant management, opportunities for collaborative efforts, 
future directions for education reform, research project management, 
advancing a field of science, and opportunities to enhance dissemination 
of exemplary end products/results.
    (b) An Annual Performance Report must be submitted to the USDA 
program contact person within 90 days after the completion of the first 
year of the project and annually thereafter during the life of the 
grant. Generally, the Annual Performance Reports should include a 
summary of the overall progress toward project objectives, current 
problems or unusual developments, the next year's planned activities, 
and any other information that is pertinent to the ongoing project or 
which may be specified in the terms and conditions of the award. These 
reports are in addition to the annual Current Research Information 
System (CRIS) reports required for all research grants under the award's 
``Special Terms and Conditions.''
    (c) A Final Performance Report must be submitted to the USDA program 
contact person within 90 days after the expiration date of the project. 
The expiration date is specified in the award documents and 
modifications thereto, if any. Generally, the Final Performance Report 
should be a summary of the completed project, including: A review of 
project objectives and accomplishments; a description of any products 
and outcomes resulting from the project; activities undertaken to 
disseminate products and outcomes; partnerships and collaborative 
ventures that resulted from the project; future initiatives that are 
planned as a result of the project; the impact of the project on the 
principal investigator(s)/project director(s), the institution, and the 
food and agricultural sciences higher education system; and data on 
project personnel and beneficiaries. The Final Performance Report should 
be accompanied by samples or copies of any products or publications 
resulting from or developed by the project. The Final Performance Report 
must also contain any other information which may be specified in the 
terms and conditions of the award.



Sec. 3406.27  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR

[[Page 280]]

part 200 on December 26, 2013. In 2 CFR 400.1, the Department adopted 
OMB's guidance in subparts A through F of 2 CFR part 200, as 
supplemented by 2 CFR part 400, as the Department's policies and 
procedures for uniform administrative requirements, cost principles, and 
audit requirements for federal awards. As a result, this regulation 
contains references to 2 CFR part 200 as it has regulatory effect for 
the Department's programs and activities.''
    (b) Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to research project grants awarded 
under this part. These include but are not limited to:

2 CFR part 200--Uniform Administrative Requirements, Cost Principles, 
And Audit Requirements For Federal Awards.
2 CFR part 180 and Part 417--OMB Guidelines To Agencies On Government-
Wide Debarment And Suspension (Nonprocurement) And USDA Nonprocurement 
Debarment And Suspension
7 CFR part 1c--USDA implementation of the Federal Policy for the 
Protection of Human Subjects.
7 CFR 1.1--USDA implementation of Freedom of Information Act.
7 CFR part 3--USDA implementation of OMB Circular A-129 regarding debt 
collection.
7 CFR part 15, subpart A--USDA implementation of Title VI of the Civil 
Rights Act of 1964.
7 CFR part 3407--NIFA procedures to implement the National Environmental 
Policy Act;
29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR part 
15B (USDA implementation of statute)--prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs; and
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).

[79 FR 75999, Dec. 19, 2014]



Sec. 3406.28  Confidential aspects of proposals and awards.

    When a proposal results in a grant, it becomes a part of the record 
of the Agency's transactions, available to the public upon specific 
request. Information that the Secretary determines to be of a privileged 
nature will be held in confidence to the extent permitted by law. 
Therefore, any information that the applicant wishes to have considered 
as privileged should be clearly marked as such and sent in a separate 
statement, two copies of which should accompany the proposal. The 
original copy of a proposal that does not result in a grant will be 
retained by the Agency for a period of one year. Other copies will be 
destroyed. Such a proposal will be released only with the consent of the 
applicant or to the extent required by law. A proposal may be withdrawn 
at any time prior to the final action thereon.



Sec. 3406.29  Evaluation of program.

    Grantees should be aware that NIFA may, as a part of its own program 
evaluation activities, carry out in-depth evaluations of assisted 
activities. Thus, grantees should be prepared to cooperate with NIFA 
personnel, or persons retained by NIFA, evaluating the institutional 
context and the impact of any supported project. Grantees may be asked 
to provide general information on any students and faculty supported, in 
whole or in part, by a grant awarded under this program; information 
that may be requested includes, but is not limited to, standardized 
academic achievement test scores, grade point average, academic 
standing, career patterns, age, race/ethnicity, gender, citizenship, and 
disability.



PART 3407_IMPLEMENTATION OF NATIONAL ENVIRONMENTAL POLICY ACT--Table of Contents



Sec.
3407.1 Background and purpose.
3407.2 Definitions.
3407.3 Policy.
3407.4 Responsibilities.
3407.5 Classes of action.
3407.6 Categorical exclusions.
3407.7 Actions normally requiring an environmental assessment.
3407.8 Actions normally requiring an environmental impact statement.
3407.9 Use of environmental documents in decisionmaking.
3407.10 Preparation of environmental assessments.
3407.11 Preparation of environmental impact statements.


[[Page 281]]


    Authority: National Environmental Policy Act of 1969, as amended, 42 
U.S.C. 4321 et seq.; E.O. 11514, 34 FR 4247, as amended by E.O. 11991, 
42 FR 26927; E.O. 12144, 44 FR 11957; 5 U.S.C. 301; 40 CFR 1500-1508; 
and 7 CFR 1b.

    Source: 56 FR 49245, Sept. 27, 1991, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 3407 appear at 76 FR 
4810, Jan. 27, 2011.



Sec. 3407.1  Background and purpose.

    (a) The National Environmental Policy Act of 1969 (NEPA), as amended 
(42 U.S.C. 4321 et seq.) establishes national policies and goals for the 
protection of the human environment. Section 102(2) of NEPA directs all 
Federal agencies to give appropriate consideration to the environmental 
consequences of proposed actions in their decisionmaking and to prepare 
detailed environmental statements on major Federal actions significantly 
affecting the quality of the human environment.
    (b) The purpose of this regulation is to supplement the regulations 
for implementation of NEPA established by the Council on Environmental 
Quality (CEQ) and codified at 40 CFR parts 1500-1508, as adopted by USDA 
in 7 CFR part 1b.
    (c) Unless otherwise noted, parenthetical citations throughout this 
part refer to the CEQ regulations.



Sec. 3407.2  Definitions.

    (a) Authorized Departmental Officer means the NIFA official, acting 
within the scope of delegated authority, who is responsible for awarding 
and administering project grants on behalf of USDA and for carrying out 
NEPA responsibilities as outlined in Sec. 3407.4(d) of this part. The 
Authorized Departmental Officer's responsibilities do not include the 
review, approval, management, or similar activity relating to programs 
or projects funded by NIFA on the basis of statutory formula and also do 
not include parallel responsibilities relating to the management or 
administration of cooperative agreements awarded by NIFA.
    (b) Other terms used in this regulation have the same meaning as 
they have in the CEQ regulations.



Sec. 3407.3  Policy.

    (a) It is NIFA policy to comply with the provisions of NEPA and 
related laws and policies and with the implementing regulations cited in 
Sec. 3407.1(b) of this part.
    (b) Environmental documents should be concise, written in plain 
language, and address the issues pertinent to the decision being made.
    (c) Environmental documents may be substituted for or combined with 
other reports which serve to facilitate decisionmaking (40 CFR 1506.4).
    (d) NIFA personnel will cooperate with other Federal and State 
agencies or units thereof, as well as with grantees, contractors, and 
other cooperating individuals or entities undertaking activities funded 
or recommended for funding by NIFA to assure that NEPA considerations 
are addressed early in the planning process to avoid delays and 
conflicts (40 CFR 1501.2).
    (e) NIFA reserves the right to require project participants outside 
of NIFA to furnish environmental data or documentation to assist NIFA in 
carrying out its responsibilities under NEPA. When an applicant, 
grantee, or other cooperating individual or organization is required to 
submit environmental data to NIFA, including preparation of an 
environmental assessment (EA), or when a contractor hired by a grantee 
or other cooperating party prepares environmental data or documentation, 
NIFA shall provide advance instructions to the applicant, grantee, or 
other cooperator relating to the preparation and submission of the 
required information. All information supplied by external project 
participants shall be subject to verification by NIFA (40 CFR 1506.5).
    (f) When possible, costs of analyses and development of required 
environmental documents shall be planned for during the budgetary 
process relating to the plan or program. Where the nature of particular 
program agreements (e.g., grants, cooperative agreements, formula 
projects) are determined by NIFA to require environmental documentation, 
the cost of preparing such documentation and of reasonable mitigation 
efforts shall be considered allowable costs and may be charged to the 
project as a portion of the Federal

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or the non-Federal share of project costs. However, NIFA funds above 
those authorized for the program award will not be made available to 
recipients to cover such costs.
    (g) Final environmental documents, decision notices, and records of 
decision shall be available to the public for review. There shall be an 
early and open process for determining the scope of issues to be 
addressed during environmental analysis (40 CFR 1501.7).
    (h) The concept of tiering to eliminate repetitive discussions 
applicable to EISs (40 CFR part 1502) is applicable to EAs also.
    (i) NIFA officials may adopt an existing Federal EA or EIS when a 
proposed action is substantially the same as the action for which an 
existing EA or EIS was prepared (40 CFR 1506.3), provided that the EA or 
EIS or portion thereof meets the standards for an adequate EA or EIS 
under these regulations.
    (j) Existing environmental documents may be incorporated by 
reference to reduce the bulk of an EA or EIS (40 CFR 1502.21).
    (k) After prior consultation with the Council on Environmental 
Quality, NIFA personnel may, in emergency situations, implement 
alternative arrangements for compliance with these procedures in 
accordance with 40 CFR 1506.11.



Sec. 3407.4  Responsibilities.

    The NIFA officials identified below are responsible for carrying out 
the provisions of NEPA as indicated:
    (a) Director. The Director is responsible for providing leadership, 
formulating agency policies and procedures to implement NEPA, and making 
available necessary resources to ensure that NEPA goals are met.
    (b) Deputy Directors and Assistant Directors. Deputy Directors and 
Assistant Directors are responsible for:
    (1) Ensuring that eligible institutions under NIFA formula grant 
programs are notified of agency environmental requirements before 
projects to be funded with formula funds are submitted to NIFA for 
approval;
    (2) Assuring that adequate consideration is given to environmental 
effects of proposed actions during programmatic planning and 
decisionmaking processes for grants, cooperative agreements, and formula 
projects;
    (3) Ensuring that environmental information is reviewed and that 
required documentation is developed in a timely and satisfactory manner 
for grants, cooperative agreements, and formula projects; and
    (4) Approving courses of action within the range of alternatives 
presented including, as appropriate, approval or recommendation of EAs 
and EISs for grants, cooperative agreements, and formula projects.
    (c) Program Managers. NIFA Program Managers are responsible for:
    (1) Preparing EISs when required;
    (2) Reviewing and making recommendations relating to environmental 
documentation submitted by project recipients;
    (3) Recommending and implementing courses of action within the range 
of alternatives presented; and
    (4) Monitoring results.
    (d) Authorized Departmental Officer. The Authorized Departmental 
Officer is responsible for:
    (1) Ensuring that eligible applicants under NIFA's project grant 
programs are notified of agency environmental requirements in advance of 
proposal preparation;
    (2) Providing terms and conditions of grant award for adequate 
environmental documentation; and
    (3) Authorizing the commencement of approved project activities.
    Note: Where agency environmental requirements are set forth in 
program regulations, solicitations of applications, program guidelines, 
or other documents that apprise applicants of environmental 
requirements, the requirement for advance notification to potential 
applicants shall be satisfied.

[56 FR 49245, Sept. 27, 1991, as amended at 79 FR 76000, Dec. 19, 2014]



Sec. 3407.5  Classes of action.

    The following describes typical classes of action associated with 
NIFA programs and related activities:
    (a) Actions which normally do not require the preparation of an EA 
or an EIS are those actions which ordinarily do not have significant 
individual or cumulative effect on the quality of the human environment. 
These include those activities described in Sec. Sec. 3407.6 (a)(1) and 
(a)(2) of this part.

[[Page 283]]

    (b) Actions normally requiring an EA, but not necessarily an EIS, 
are those projects in which at least some level of uncertainty exists 
regarding individual or cumulative effects on the quality of the human 
environment. Such actions generally include those identified in 
Sec. Sec. 3407.6(b) and 3407.7 of this part.
    (c) Actions normally requiring an EIS are projects which are 
determined to have a significant impact on the quality of the human 
environment or which will be performed under extraordinary 
circumstances. These types of actions are identified in Sec. Sec. 
3407.6(b) and 3407.8 of this part.



Sec. 3407.6  Categorical exclusions.

    (a) All NIFA actions will be analyzed by the appropriate NIFA 
official specified in Sec. 3407.4(c) to determine whether the project 
under consideration will have a significant environmental effect prior 
to recommending to the official responsible for approving a formula 
project in the case of formula grants, or the official responsible for 
awarding a grant or cooperative agreement in the case of a grant or 
cooperative agreement that the action be undertaken. Unless otherwise 
determined to be necessary under the provisions of paragraph (b) of this 
section, however, the preparation of an EA or EIS is not required for 
the following categories of actions:
    (1) Department of Agriculture Categorical Exclusions (7 CFR 1b.3). 
(i) Policy development, planning and implementation which are related to 
routine activities such as personnel, organizational changes, or similar 
administrative functions;
    (ii) Activities which deal solely with the functions of programs, 
such as program budget proposals, disbursement, and transfer or 
reprogramming of funds;
    (iii) Inventories, research activities and studies, such as resource 
inventories and routine data collection when such actions are clearly 
limited in context and intensity;
    (iv) Educational and informational programs and activities;
    (v) Civil and criminal law enforcement and investigative activities;
    (vi) Activities which are advisory and consultative to other 
agencies and public and private entities; and
    (vii) Activities related to trade representation and market 
development activities abroad.
    (2) NIFA categorical exclusions Based on previous experience, the 
following categories of NIFA actions are excluded because they have been 
found to have limited scope and intensity and to have no significant 
individual or cumulative impacts on the quality of the human 
environment:
    (i) The following categories of research programs or projects of 
limited size and magnitude or with only short-term effects on the 
environment:
    (A) Research conducted within any laboratory, greenhouse, or other 
contained facility where research practices and safeguards prevent 
environmental impacts;
    (B) Surveys, inventories, and similar studies that have limited 
context and minimal intensity in terms of changes in the environment; 
and
    (C) Testing outside of the laboratory, such as in small isolated 
field plots, which involves the routine use of familiar chemicals or 
biological materials.
    (ii) Routine renovation, rehabilitation, or revitalization of 
physical facilities, including the acquisition and installation of 
equipment, where such activity is limited in scope and intensity.
    (b) Exceptions to categorical exclusions. Notwithstanding paragraph 
(a) of this section, an EA or EIS shall be prepared for an activity 
which is normally within the purview of categorical exclusion where it 
is determined by NIFA that substantial controversy on environmental 
grounds exists or that other extraordinary conditions or circumstances 
are present which may cause such activity to have a significant 
environmental effect.



Sec. 3407.7  Actions normally requiring an environmental assessment.

    The following actions normally will require an EA:
    (a) Programs supported in whole or in part by NIFA which may result 
in a particular technology's moving from the field evaluation stage to 
large-

[[Page 284]]

scale demonstration or simulated commercial phase.
    (b) Field work that is expected to have an effect on the human 
environment such as large-scale excavations or the use of explosives.
    (c) Projects for the construction or renovation of physical 
facilities, unless categorically excluded under Sec. 3407.6(a)(2)(ii).
    (d) Activities specified in Sec. 3407.6(b).



Sec. 3407.8  Actions normally requiring an environmental impact statement.

    An EIS normally will be required for major actions where it is 
determined by NIFA that such activity will significantly affect the 
quality of the human environment, including those specified in Sec. 
3407.6(b).



Sec. 3407.9  Use of environmental documents in decisionmaking.

    In carrying out agency responsibilities under NEPA, NIFA officials 
shall:
    (a) Consider all relevant environmental documents in evaluating 
programs, proposals, or projects for final agency action.
    (b) Make all relevant final environmental documents, comments, and 
responses part of the record in rulemaking and adjudicatory proceedings.
    (c) Ensure that all relevant final environmental documents, 
comments, and responses are submitted to NIFA in a timely fashion, are 
subjected to normal agency review processes, and are made a part of the 
official record.
    (d) Consider only those alternatives encompassed by the range of 
alternatives discussed in the relevant environmental documents when 
evaluating plans, programs, or proposals for agency action.



Sec. 3407.10  Preparation of environmental assessments.

    (a) Format and content. An EA may be prepared in any format provided 
that it covers, in a logical and succinct fashion, the information 
necessary for determining whether a proposed NIFA action may have a 
significant environmental impact and thus warrant preparation of an EIS. 
The information must include brief discussions on the need for the 
project, alternatives to the proposed action, environmental impacts of 
the proposed action and alternatives, and a listing of agencies and 
persons consulted (40 CFR 1508.9). Where possible, EAs should be limited 
to 10-15 pages. NOTE: It is the scope and complexity of the 
environmental issues, rather than the size of the project, that should 
be used to determine the length of the EA
    (b) Supplements to environmental assessments. Where substantial 
changes occur in a project or activity for which an EA has been prepared 
and it is determined by a responsible NIFA official specified in Sec. 
3407.4(b) that the changes are pertinent to environmental concerns, a 
supplement to the EA may be required. Supplements to EAs shall be 
evaluated and processed as stated in paragraph (c) of this section.
    (c) Decision notice. Upon completion of an EA and any supplement 
thereto, the responsible NIFA official will evaluate the information it 
contains, determine whether an EIS is required or whether no significant 
environmental impact is likely to occur, and will document the decision 
and the reasons upon which it is based (40 CFR 1508.13). The EA shall be 
available to the public.



Sec. 3407.11  Preparation of environmental impact statements.

    (a) Actions involving more than one agency. If more than one Federal 
agency participates in a program activity, a lead agency shall be 
selected in accordance with 40 CFR 1501.5(c). The lead agency, in full 
cooperation with all participating agencies, shall assume responsibility 
for involving the public as required in 40 CFR 1501.4(b) and shall 
prepare the EIS or shall cause the EIS to be prepared as provided in 40 
CFR 1501.5.
    (b) Notice of intent. If a responsible NIFA official designated in 
Sec. 3407.4(b) of this part recommends the preparation of an EIS, the 
public shall be apprised of the decision. This notice shall be prepared 
according to 40 CFR 1508.2.
    (c) Draft and Final EIS. The process of preparing the draft and 
final EIS, as well as the format of the document, shall comply with the 
provisions of 40 CFR parts 1502-1506.

[[Page 285]]

    (d) Supplemental statements. Where substantial changes occur or new 
information becomes available under a project or activity for which an 
EIS or draft EIS has been prepared and it is determined by a responsible 
NIFA official specified in Sec. 3407.4(b) that the changes are 
pertinent to environmental concerns, a supplement to the EIS or draft 
EIS may be required. The supplement shall be evaluated and processed in 
accordance with 40 CFR 1502.9(c).
    (e) Decisionmaking and implementation. A responsible NIFA official 
designated in Sec. 3407.4(b) may make a decision no sooner than thirty 
days after the notice of availability of the final EIS has been 
published in the Federal Register by the Environmental Protection Agency 
(40 CFR 1506.10). The decision will be documented in a record of 
decision as required by 40 CFR 1505.2, and monitoring and mitigation 
activities will be implemented as required by 40 CFR 1505.3.

   PART 3411_NATIONAL RESEARCH INITIATIVE COMPETITION GRANTS PROGRAM 
                               [RESERVED]



PART 3415_BIOTECHNOLOGY RISK ASSESSMENT RESEARCH GRANTS PROGRAM--Table of Contents



                            Subpart A_General

Sec.
3415.1 Applicability of regulations.
3415.2 Definitions.
3415.3 Eligibility requirements.
3415.4 How to apply for a grant.
3415.5 Evaluation and disposition of applications.
3415.6 Grant awards.
3415.7 Use of funds; changes.
3415.8 Other Federal statutes and regulations that apply.
3415.9 Other conditions.

     Subpart B_Scientific Peer Review of Research Grant Applications

3415.10 Establishment and operation of peer review groups.
3415.11 Composition of peer review groups.
3415.12 Conflicts of interest.
3415.13 Availability of information.
3415.14 Proposal review.
3415.15 Evaluation factors.

    Authority: 5 U.S.C. 301 and 7 U.S.C. 5921.

    Source: 58 FR 65647, Dec. 15, 1993, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 3415 appear at 76 FR 
4811, Jan. 27, 2011.



                            Subpart A_General



Sec. 3415.1  Applicability of regulations.

    (a) The regulations of this part apply to research grants awarded 
under the authority of section 1668 of the Food, Agriculture, 
Conservation, and Trade Act of 1990, (7 U.S.C. 5921). Grants awarded 
under this section will support biotechnology risk assessment research 
to help address concerns about the effects of introducing certain 
biotechnology products into the environment and to help regulators 
develop policies concerning the introduction of such products. Taking 
into consideration any determinations made through consultations with 
such entities as the Animal and Plant Health Inspection Service, the 
Forest Service, the Environmental Protection Agency, the Office of 
Agricultural Biotechnology, and the Agricultural Biotechnology Research 
Advisory Committee, the Director of NIFA and Administrator of ARS shall 
determine and announce, through publication of a Notice in such 
publications as the Federal Register, professional trade journals, 
agency or program handbooks, the Catalog of Federal Domestic Assistance, 
or any other appropriate means, specific areas of research for which 
preproposals or proposals will be solicited and the extent that funds 
are available therefor.
    (b) The regulations of this part do not apply to grants awarded by 
the Department of Agriculture under any other authority.



Sec. 3415.2  Definitions.

    As used in this part:
    (a) Ad hoc reviewers means experts or consultants qualified by 
training and experience in particular scientific or technical fields to 
render special expert advice, through written evaluations of grant 
applications, in accordance with the provisions of this part, on the 
scientific or technical merit of grant applications in those fields.
    (b) Administrator means the Administrator of the Agricultural 
Research

[[Page 286]]

Service (ARS) and any other officer or employee of the Department of 
Agriculture to whom the authority involved may be delegated.
    (c) Awarding official means the Director or Administrator and any 
other officer or employee of the Department to whom the authority to 
issue or modify grant instruments has been delegated.
    (d) Biotechnology means any technique that uses living organisms (or 
parts of organisms) to make or modify products, to improve plants or 
animals, or to develop microorganisms for specific use. The development 
of materials that mimic molecular structures or functions of living 
systems is included.
    (e) Budget period means the interval of time (usually 12 months) 
into which the project period is divided for budgetary and reporting 
purposes.
    (f) Department means the Department of Agriculture.
    (g) Director means the Director of the National Institute of Food 
and Agriculture (NIFA) and any other officer or employee of the 
Department of Agriculture to whom the authority involved may be 
delegated.
    (h) Grant means the award by the Director or Administrator of funds 
to a grantee to assist in meeting the costs of conducting, for the 
benefit of the public, an identified project which is intended and 
designed to establish, discover, elucidate, or confirm information or 
the underlying mechanisms relating to a research program area identified 
in program solicitation.
    (i) Grantee means the entity designated in the grant award document 
as the responsible legal entity to whom a grant is awarded under this 
part.
    (j) Peer review group means an assembled group of experts or 
consultants qualified by training and experience in particular 
scientific or technical fields to give expert advice, in accordance with 
the provisions of this part, on the scientific and technical merit of 
grant applications in those fields.
    (k) Principal investigator means a single individual who is 
responsible for the scientific and technical direction of the project, 
as designated by the grantee in the grant application and approved by 
the Director or Administrator.
    (l) Project means the particular activity within the scope of one or 
more of the research program areas identified in the annual program 
solicitation that is supported by a grant under this part.
    (m) Project period means the total time approved by the Director or 
Administrator for conducting the proposed project as outlined in an 
approved grant application.
    (n) Research means any systematic study directed toward new or 
fuller knowledge and understanding of the subject studied.
    (o) Methodology means the project approach to be followed to carry 
out the project.

[58 FR 65647, Dec. 15, 1993, as amended at 76 FR 4811, Jan. 27, 2011]



Sec. 3415.3  Eligibility requirements.

    (a) Except where otherwise prohibited by law, any public or private 
research or educational institution or organization shall be eligible to 
apply for and to receive a grant award under this part, provided that 
the applicant qualifies as a responsible grantee under the criteria set 
forth in paragraph (b) of this section.
    (b) To qualify as responsible, an applicant must meet the following 
standards as they relate to a particular project:
    (1) Adequate financial resources for performance, the necessary 
experience, organizational and technical qualifications, and facilities, 
or a firm commitment, arrangement, or ability to obtain same (including 
by proposed subagreements);
    (2) Ability to comply with the proposed or required completion 
schedule for the project;
    (3) Satisfactory record of integrity, judgment, and performance, 
including, in particular, any prior performance under grants or 
contracts from the Federal government;
    (4) Adequate financial management system and audit procedures that 
provide efficient and effective accountability and control of all funds, 
property, and other assets; and
    (5) Otherwise be qualified and eligible to receive a grant under the 
applicable laws and regulations.
    (c) Any applicant who is determined to be not responsible will be 
notified in

[[Page 287]]

writing of such finding and the basis therefor.



Sec. 3415.4  How to apply for a grant.

    (a) A program solicitation will be prepared and announced through 
publications such as the Federal Register, professional trade journals, 
agency or program handbooks, the Catalog of Federal Domestic Assistance, 
or any other appropriate means, as early as practicable each fiscal 
year.

The Department may elect to solicit preproposals each fiscal year in 
order to eliminate from consideration proposed research that does not 
address narrowly focused program objectives. A preproposal will be 
limited in length (in comparison to a full proposal) to alleviate waste 
of time and effort by applicants in the preparation of proposals and 
USDA staff in the review of proposals. If the Department solicits 
preproposals through publication of the annual program solicitation, the 
Department does not anticipate publishing a subsequent solicitation for 
full proposals. Applicants submitting preproposals deemed appropriate to 
the objectives of this program as set out in the annual solicitation 
will be requested to submit full proposals; the full proposals will then 
be evaluated in accordance with Sec. 3415.5 through Sec. 3415.15 of 
this part.

The annual program solicitation will contain information sufficient to 
enable applicants to prepare preproposals or full proposals under this 
program and will be as complete as possible with respect to:
    (1) Descriptions of the specific research areas that the Department 
proposes to support during the fiscal year involved, including 
anticipated funds to be awarded;
    (2) Eligibility requirements;
    (3) Obtaining application kits;
    (4) Deadline dates for submission of preproposal or proposal 
packages;
    (5) Name and mailing address to send preproposals or proposals;
    (6) Number of copies to submit; and
    (7) Special requirements.
    (b) Application Kit. An Application Kit will be made available to 
any potential grant applicant who requests a copy. This kit contains 
required forms, certifications, and instructions applicable to the 
submission of grant preproposals or proposals.
    (c) Format for preproposals. As stated above, the Department may 
elect to solicit preproposals under this program. Unless otherwise 
indicated by the Department in the annual program solicitation, the 
following general format applies for the preparation of preproposals:
    (1) ``Application for Funding (Form NIFA-661)''. All preproposals 
submitted by eligible applicants should contain an ``Application for 
Funding'', Form NIFA-661, which must be signed by the proposing 
principal investigator(s) and endorsed by the cognizant authorized 
organizational representative who possesses the necessary authority to 
commit the applicant's time and other relevant resources. The title of 
the proposal must be brief (80-character maximum), yet represent the 
major thrust of the project. Because this title will be used to provide 
information to those who may not be familiar with the proposed project, 
highly technical words or phraseology should be avoided where possible. 
In addition, phrases such as ``investigation of'' and ``research on'' 
should not be used.
    (2) Project summary. Each preproposal must contain a project 
summary, the text of which may not exceed three (3) single- or double-
spaced pages. The Department reserves the option of not forwarding for 
further consideration a preproposal in which the project summary page 
limit is exceeded. The project summary is not intended for the general 
reader; consequently, it may contain technical language comprehensible 
primarily by persons in disciplines relating to the food and 
agricultural sciences. The project summary should be a self-contained 
specific description of the activity to be undertaken and should focus 
on:
    (i) Overall project goal(s) and supporting objectives;
    (ii) Plans to accomplish project goal(s); and
    (iii) Relevance or significance of the project to United States 
agriculture.
    (3) Budget. A budget detailing requested support for the proposed 
project period must be included in each preproposal. A copy of the form 
which must be used for this purpose, along

[[Page 288]]

with instructions for completion, is included in the Application Kit 
identified under Sec. 3415.4(b) of this part and may be reproduced as 
needed by applicants. Funds may be requested under any of the categories 
listed on the budget form, provided that the item or service for which 
support is requested may be identified as necessary for successful 
conduct of the proposed project, is allowable under applicable Federal 
cost principles, and is not prohibited under any applicable Federal 
statute.
    (4) Special requirements. (i) The annual program solicitation will 
describe any special preproposal submission requirements, such as paper 
size or type pitch to be used in the preparation of preproposals. The 
solicitation will also describe special program requirements, such as 
conference attendance or electronic project reporting, for which 
applicants may allocate funds when preparing proposed budgets.
    (ii) By signing the ``Application for Funding'' identified under 
Sec. 3415.4(c)(1) in its submission of a preproposal, the applicant is 
certifying compliance with the restrictions on the use of appropriated 
funds for lobbying set out in 7 CFR part 3018.
    (5) Evaluation of preproposals. Preproposals shall be evaluated to 
determine whether the substance of the proposed project is appropriate 
to the objectives of this program as set out in the annual program 
solicitation. Subsequently, the Director or Administrator shall request 
full proposals from those applicants proposing projects deemed 
appropriate to the objectives of this program as set out in the annual 
program solicitation. Such proposals shall conform to the format for 
full proposals set out below and shall be evaluated in accordance with 
Sec. 3415.5 through Sec. 3415.15 of this part.
    (d) Format for full proposals. Unless otherwise indicated by the 
Department in the annual program solicitation, the following general 
format applies for the preparation of full proposals under this program:
    (1) ``Application for Funding'' (Form NIFA-661). All full proposals 
submitted by eligible applicants should contain an Application for 
Funding'', Form NIFA-661, which must be signed by the proposed principal 
investigator(s) and endorsed by the cognizant authorized organizational 
representative who possesses the necessary authority to commit the 
applicant's time and other relevant resources. Investigators who do not 
sign the full proposal cover sheet will not be listed on the grant 
document in the event an award is made. The title of the proposal must 
be brief (80-character maximum), yet represent The major emphasis of the 
project. Because this title will be used to provide information to those 
who may not be familiar with the proposed project, highly technical 
words or phraseology should be avoided where possible. In addition, 
phrases such as ``investigation of'' or ``research on'' should not be 
used.
    (2) Project summary. Each full proposal must contain a project 
summary, the length of which may not exceed three (3) single- or double-
spaced pages. This summary is not intended for the general reader; 
consequently, it may contain technical language comprehensible primarily 
by persons in disciplines relating to the food and agricultural 
sciences. The project summary should be a self-contained, specific 
description of the activity to be undertaken and should focus on:
    (i) Overall project goal(s) and supporting objectives;
    (ii) Plans to accomplish project goal(s); and
    (iii) Relevance or significance of the project to United States 
agriculture.
    (3) Project description. The specific aims of the project must be 
included in all proposals. The text of the project description may not 
exceed 15 single- or double-spaced pages. The Department reserves the 
option of not forwarding for further consideration proposals in which 
the project description exceeds this page limit. The project description 
must contain the following components:
    (i) Introduction. A clear statement of the long-term goal(s) and 
supporting objectives of the proposed project should preface the project 
description. The most significant published work in the field under 
consideration, including the work of key project personnel on the 
current application, should be reviewed. The current status of research 
in the particular scientific field also

[[Page 289]]

should be described. All work cited, including that of key personnel, 
should be referenced.
    (ii) Progress report. If the proposal is a renewal of an existing 
project supported under this program, include a clearly marked 
performance report describing results to date from the previous award. 
This section should contain the following information:
    (A) A comparison of actual accomplishments with the goals 
established for the previous award;
    (B) The reasons established goals were not met, if applicable; and
    (C) A listing of any publications resulting from the award. Copies 
of reprints or preprints may be appended to the proposal if desired.
    (4) Rationale and significance. Present concisely the rationale 
behind the proposed project. The objectives' specific relationship and 
relevance to the area in which an application is submitted and the 
objectives' specific relationship and relevance to potential regulatory 
issues of United States biotechnology research should be shown clearly. 
Any novel ideas or contributions that the proposed project offers also 
should be discussed in this section.
    (5) Experimental plan. The hypotheses or questions being asked and 
the methodology to be applied to the proposed project should be stated 
explicitly. Specifically, this section must include:
    (i) A description of the investigations and/or experiments proposed 
and the sequence in which the investigations or experiments are to be 
performed;
    (ii) Techniques to be used in carrying out the proposed project, 
including the feasibility of the techniques;
    (iii) Results expected;
    (iv) Means by which experimental data will be analyzed or 
interpreted;
    (v) Pitfalls that may be encountered;
    (vi) Limitations to proposed procedures; and
    (vii) Tentative schedule for conducting major steps involved in 
these investigations and/or experiments.

In describing the experimental plan, the applicant must explain fully 
any materials, procedures, situations, or activities that may be 
hazardous to personnel (whether or not they are directly related to a 
particular phase of the proposed project), along with an outline of 
precautions to be exercised to avoid or mitigate the effects of such 
hazards.
    (6) Facilities and equipment. All facilities and major items of 
equipment that are available for use or assignment to the proposed 
research project during the requested period of support should be 
described. In addition, items of nonexpendable equipment necessary to 
conduct and successfully conclude the proposed project should be listed.
    (7) Collaborative arrangements. If the nature of the proposed 
project requires collaboration or subcontractual arrangements with other 
research scientists, corporations, organizations, agencies, or entities, 
the applicant must identify the collaborator(s) and provide a full 
explanation of the nature of the collaboration. Evidence (i.e., letters 
of intent) should be provided to assure peer reviewers that the 
collaborators involved have agreed to render this service. In addition, 
the proposal must indicate whether or not such a collaborative 
arrangement(s) has the potential for conflict(s) of interest.
    (8) Personnel support. To assist peer reviewers in assessing the 
competence and experience of the proposed project staff, key personnel 
who will be involved in the proposed project must be identified clearly. 
For each principal investigator involved, and for all senior associates 
and other professional personnel who expect to work on the project, 
whether or not funds are sought for their support, the following should 
be included:
    (i) An estimate of the time commitments necessary;
    (ii) Curriculum vitae. The curriculum vitae should be limited to a 
presentation of academic and research credentials, e.g., educational, 
employment and professional history, and honors and awards. Unless 
pertinent to the project, to personal status, or to the status of the 
organization, meetings attended, seminars given, or personal data such 
as birth date, marital status, or community activities should not be 
included. The vitae shall be no more than two pages each in length, 
excluding the publication lists. The Department reserves the option of 
not forwarding for further consideration a

[[Page 290]]

proposal in which each vitae exceeds the two-page limit; and
    (iii) Publication List(s). A chronological list of all publications 
in referred journals during the past five years, including those in 
press, must be provided for each professional project member for whom a 
curriculum vitae is provided. Authors should be listed in the same order 
as they appear on each paper cited, along with the title and complete 
reference as these items usually appear in journals.
    (9) Budget. A detailed budget is required for each year of requested 
support. In addition, a summary budget is required detailing requested 
support for the overall project period. A copy of the form which must be 
used for this purpose, Form NIFA-55, along with instructions for 
completion, is included in the Application Kit identified under Sec. 
3415.4(b) of this part and may be reproduced as needed by applicants. 
Funds may be requested under any of the categories listed, provided that 
the item or service for which support is requested may be identified as 
necessary for successful conduct of the proposed project, is allowable 
under applicable Federal cost principles, and is not prohibited under 
any applicable Federal statute.
    (10) Research involving special considerations. A number of 
situations encountered in the conduct of research require special 
information and supporting documentation before funding can be approved 
for the project. If any such situation is anticipated, the proposal must 
so indicate. It is expected that a significant number of proposals will 
involve the following:
    (i) Recombinant DNA and RNA molecules. All key personnel identified 
in a proposal and all endorsing officials of a proposed performing 
entity are required to comply with the guidelines established by the 
National Institutes of Health entitled, ``Guidelines for Research 
Involving Recombinant DNA Molecules,'' as revised. The Application Kit, 
identified above in Sec. 3415.4(b), contains a form which is suitable 
for such certification of compliance (Form NIFA-662).
    (ii) Human subjects at risk. Responsibility for safeguarding the 
rights and welfare of human subjects used in any proposed project 
supported with grant funds provided by the Department rests with the 
performing entity. Regulations have been issued by the Department under 
7 CFR Part 1c, Protection of Human Subjects. In the event that a project 
involving human subjects at risk is recommended for award, the applicant 
will be required to submit a statement certifying that the project plan 
has been reviewed and approved by the Institutional Review Board at the 
proposing organization or institution. The Application Kit, identified 
above in Sec. 3415.4(b), contains a form which is suitable for such 
certification (Form NIFA-662).
    (iii) Experimental vertebrate animal care. The responsibility for 
the humane care and treatment of any experimental vertebrate animal, 
which has the same meaning as ``animal'' in section 2(g) of the Animal 
Welfare Act of 1966, as amended (7 U.S.C. 2132(g)), used in any project 
supported with grant funds rests with the performing organization. In 
this regard, all key personnel associated with any supported project and 
all endorsing officials of the proposed performing entity are required 
to comply with the applicable provisions of the Animal Welfare Act of 
1966, as amended (7 U.S.C. 2131 et seq.) and the regulations promulgated 
thereunder by the Secretary of Agriculture in 9 CFR parts 1, 2, 3, and 
4. The applicant must submit a statement certifying that the proposed 
project is in compliance with the aforementioned regulations, and that 
the proposed project is either under review by or has been reviewed and 
approved by an Institutional Animal Care and Use Committee. The 
Application Kit, identified above in Sec. 3415.4(b), contains a form 
which is suitable for such certification (Form NIFA-662).
    (11) Current and pending support. All proposals must list any other 
current public or private research support (including in-house support) 
to which key personnel identified in the proposal have committed 
portions of their time, whether or not salary support for the person(s) 
involved is included in the budget. Analogous information must be 
provided for any pending proposals that are being considered by, or that 
will be submitted in the near future to,

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other possible sponsors, including other USDA programs or agencies. 
Concurrent submission of identical or similar proposals to other 
possible sponsors will not prejudice proposal review or evaluation by 
the Director or Administrator or experts or consultants engaged by the 
Director or Administrator for this purpose. However, a proposal that 
duplicates or overlaps substantially with a proposal already reviewed 
and funded (or that will be funded) by another organization or agency 
will not be funded under this program. The Application Kit, identified 
above in Sec. 3415.4(b), contains a form which is suitable for listing 
current and pending support (Form NIFA-663).
    (12) Additions to project description. Each project description is 
expected by the Director or Administrator, the members of peer review 
groups, and the relevant program staff to be complete while meeting the 
page limit established in Sec. 3415.4(d)(3). However, if the inclusion 
of additional information is necessary to ensure the equitable 
evaluation of the proposal (e.g., photographs that do not reproduce 
well, reprints, and other pertinent materials that are deemed to be 
unsuitable for inclusion in the text of the proposal), the number of 
copies submitted should match the number of copies of the application 
requested in the program solicitation. Each set of such materials must 
be identified with the name of the submitting organization, and the 
name(s) of the principal investigator(s). Information may not be 
appended to a proposal to circumvent page limitations prescribed for the 
project description. Extraneous materials will not be used during the 
peer review process.
    (13) Organizational management information. Specific management 
information relating to an applicant shall be submitted on a one-time 
basis prior to the award of a grant identified under this Part if such 
information has not been provided previously under this or another 
program for which the sponsoring agency is responsible. The Department 
will contact an applicant to request organizational management 
information once a proposal has been recommended for funding.



Sec. 3415.5  Evaluation and disposition of applications.

    (a) Evaluation. All proposals received from eligible applicants and 
submitted in accordance with deadlines established in the annual program 
solicitation shall be evaluated by the Director or Administrator through 
such officers, employees, and others as the Director or Administrator 
determines are uniquely qualified in the areas of research represented 
by particular projects. To assist in equitably and objectively 
evaluating proposals and to obtain the best possible balance of 
viewpoints, the Director or Administrator shall solicit the advice of 
peer scientists, ad hoc reviewers, or others who are recognized 
specialists in the areas covered by the applications received and whose 
general roles are defined in Sec. 3415.2. Specific evaluations will be 
based upon the criteria established in subpart B, Sec. 3415.15, unless 
NIFA and/or ARS determine that different criteria are necessary for the 
proper evaluation of proposals in one or more specific program areas, or 
for specific types of projects to be supported, and announces such 
criteria and their relative importance in the annual program 
solicitation. The overriding purpose of these evaluations is to provide 
information upon which the Director or Administrator may make an 
informed judgment in selecting proposals for support. Incomplete, 
unclear, or poorly organized applications will work to the detriment of 
applicants during the peer evaluation process. To ensure a comprehensive 
evaluation, all applications should be written with the care and 
thoroughness accorded papers for publication.
    (b) Disposition. On the basis of the Director's or Administrator's 
evaluation of an application in accordance with paragraph (a) of this 
section, the Director or Administrator will (1) approve support using 
currently available funds, (2) defer support due to lack of funds or a 
need for further evaluation, or (3) disapprove support for the proposed 
project in whole or in part. With respect to approved projects, the 
Director or Administrator will determine the project period (subject to 
extension as provided in Sec. 3415.7(c)) during which

[[Page 292]]

the project may be supported. Any deferral or disapproval of an 
application will not preclude its reconsideration or a reapplication 
during subsequent fiscal years.

[58 FR 65647, Dec. 15, 1993, as amended at 80 FR 81738, Dec. 31, 2015]



Sec. 3415.6  Grant awards.

    (a) General. Within the limit of funds available for such purpose, 
the awarding official of NIFA or ARS shall make grants to those 
responsible, eligible applicants whose proposals are judged most 
meritorious in the announced program areas under the evaluation criteria 
and procedures set forth in this part. The date specified by the 
Director or Administrator as the effective date of the grant shall be no 
later than September 30 of the Federal fiscal year in which the project 
is approved for support and funds are appropriated for such purpose, 
unless otherwise permitted by law. It should be noted that the project 
need not be initiated on the grant effective date, but as soon 
thereafter as practicable so that project goals may be attained within 
the funded project period. All funds granted by NIFA or ARS under this 
Part shall be expended solely for the purpose for which the funds are 
granted in accordance with the approved application and budget, the 
regulations of this part, the terms and conditions of the award, the 
applicable Federal cost principles, 2 CFR part 200.
    (b) Grant award document and notice of grant award--(1) Grant award 
document. The grant award document shall include at a minimum the 
following:
    (i) Legal name and address of performing organization or institution 
to whom the Director or Administrator has awarded a grant under the 
terms of this Part;
    (ii) Title of project;
    (iii) Name(s) and address(es) of principal investigator(s) chosen to 
direct and control approved activities;
    (iv) Identifying grant number assigned by the Department;
    (v) Project period, specifying the amount of time the Department 
intends to support the project without requiring recompetition for 
funds;
    (vi) Total amount of Departmental financial assistance approved by 
the Director or Administrator during the project period;
    (vii) Legal authority(ies) under which the grant is awarded;
    (viii) Approved budget plan for categorizing allocable project funds 
to accomplish the stated purpose of the grant award; and
    (ix) Other information or provisions deemed necessary by NIFA or ARS 
to carry out their respective granting activities or to accomplish the 
purpose of a particular grant.
    (2) Notice of grant award. The notice of grant award, in the form of 
a letter, will be prepared and will provide pertinent instructions or 
information to the grantee that is not included in the grant award 
document.
    (c) Types of grant instruments. The major types of grant instruments 
shall be as follows:
    (1) New grant. This is a grant instrument by which NIFA or ARS 
agrees to support a specified level of effort for a project that 
generally has not been supported previously under this program. This 
type of grant is approved on the basis of peer review recommendation.
    (2) Renewal grant. This is a grant instrument by which NIFA or ARS 
agrees to provide additional funding for a project period beyond that 
approved in an original or amended award. When a renewal application is 
submitted, it should include a summary of progress to date from the 
previous granting period. A renewal grant shall be based upon new 
application, de novo peer review and staff evaluation, new 
recommendation and approval, and a new award action reflecting that the 
grant has been renewed.
    (3) Supplemental grant. This is an instrument by which NIFA or ARS 
agrees to provide small amounts of additional funding under a new or 
renewal grant as specified in paragraphs (c)(1) and (c)(2) of this 
section and may involve a short-term (usually six months or less) 
extension of the project period beyond that approved in an

[[Page 293]]

original or amended award. A supplement is awarded only if required to 
assure adequate completion of the original scope of work and if there is 
sufficient justification to warrant such action. A request of this 
nature normally will not require additional peer review.
    (d) Funding mechanisms. The two mechanisms by which NIFA or ARS may 
elect to award new, renewal, and supplemental grants are as follows:
    (1) Standard grant. This is a funding mechanism whereby NIFA or ARS 
agrees to support a specified level of effort for a predetermined time 
period without the announced intention of providing additional support 
at a future date.
    (2) Continuation grant. This is a funding mechanism whereby NIFA or 
ARS agrees to support a specified level of effort for a predetermined 
period of time with a statement of intention to provide additional 
support at a future date, provided that performance has been 
satisfactory, appropriations are available for this purpose, and 
continued support would be in the best interests of the Federal 
government and the public. This kind of mechanism normally will be 
awarded for an initial one-year period, and any subsequent continuation 
project grants also will be awarded in one-year increments. The award of 
a continuation project grant to fund an initial or succeeding budget 
period does not constitute an obligation to fund any subsequent budget 
period. Unless prescribed otherwise by NIFA or ARS, a grantee must 
subject a separate application for continued support for each subsequent 
fiscal year. Requests for such continued support must be submitted in 
duplicate at least three months prior to the expiration date of the 
budget period currently being funded. Decisions regarding continued 
support and the actual funding levels of such support in future years 
usually will be made administratively after consideration of such 
factors as the grantee's progress and management practices and the 
availability of funds. Since initial peer reviews are based upon the 
full term and scope of the original grant application, additional 
evaluations of this type generally are not required prior to successive 
years' support. However, in unusual cases (e.g., when the nature of the 
project or key personnel change or when the amount of future support 
requested substantially exceeds the grant application originally 
reviewed and approved), additional reviews may be required prior to 
approving continued funding.
    (e) Obligation of the Federal Government. Neither the approval of 
any application nor the award of any project grant commits or obligates 
the United States in any way to make any renewal, supplemental, 
continuation, or other award with respect to any approved application or 
portion thereof.

[58 FR 65647, Dec. 15, 1993, as amended at 79 FR 76000, Dec. 19, 2014]



Sec. 3415.7  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not in 
whole or in part delegate or transfer to another person, institution, or 
organization the responsibility for use or expenditure of grant funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee, principal investigator(s), or other key project personnel in 
the approved grant shall be limited to changes in methodology, 
techniques, or other aspects of the project to expedite achievement of 
the project's approved goals. If the grantee or the principal 
investigator(s) is uncertain whether a particular change complies with 
this provision, the question must be referred to the awarding official 
of NIFA or ARS, as appropriate, for a final determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the awarding official of NIFA or 
ARS, as appropriate, prior to effecting such changes. Normally, no 
requests for such changes that are outside the scope of the original 
approved project will be approved.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and approved in writing by the awarding official of NIFA or ARS, 
as appropriate, prior to effecting such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in

[[Page 294]]

whole or in part and provisions for payment of funds, whether or not 
Federal funds are involved, shall be requested by the grantee and 
approved in writing by the awarding official of NIFA or ARS, as 
appropriate, prior to effecting such changes, unless prescribed 
otherwise in the terms and conditions of a grant.
    (c) Changes in project period. The project period determined 
pursuant to Sec. 3415.5(b) may be extended by the awarding official of 
NIFA or ARS, as appropriate, without additional financial support, for 
such additional period(s) as the appropriate awarding official 
determines may be necessary to complete, or fulfill the purposes of, an 
approved project. Any extension of time shall be conditioned upon prior 
request by the grantee and approval in writing by the appropriate 
awarding official, unless prescribed otherwise in the terms and 
conditions of a grant.
    (d) Changes in approved budget. The terms and conditions of a grant 
will prescribe the circumstances under which written approval must be 
requested and obtained from the awarding official of NIFA or ARS, as 
appropriate, prior to instituting changes in an approved budget.



Sec. 3415.8  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.''
    (b) Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to research project grants awarded 
under this part. These include but are not limited to:

2 CFR part 200--Uniform Administrative Requirements, Cost Principles, 
and Audit Requirements for Federal Awards.
2 CFR part 180 and Part 417--OMB Guidelines to Agencies on Government-
Wide Debarment And Suspension (Nonprocurement) and USDA Nonprocurement 
Debarment And Suspension
7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
7 CFR 1.1--USDA Implementation of Freedom of Information Act.
7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding Debt 
Collection.
7 CFR part 15, subpart A--USDA Implementation of Title VI of the Civil 
Rights Act of 1964.
7 CFR part 3407--NIFA Procedures To Implement the National Environmental 
Policy Act;
29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR part 
15B (USDA implementation of statute)--prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs; and
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).

[79 FR 76000, Dec. 19, 2014]



Sec. 3415.9  Other conditions.

    The Director or Administrator may elect to use a portion of 
available funding each fiscal year to support an Annual Conference, the 
purpose of which will be to bring together scientists and regulatory 
officials relevant to this program. At the Annual Conference, the 
participants may offer individual opinions regarding research needs, 
update information and discuss progress, or may offer individual 
opinions on areas of risk assessment research appropriate to 
agricultural biotechnology. The annual program solicitation will 
indicate whether funds are available to support an Annual Conference 
and, if so, will include instructions on the preparation and submission 
of proposals requesting funds from the Department for support of an 
Annual Conference. The Department may also elect to require principal 
investigators whose research is funded under this program to attend an 
Annual Conference and to present data on the results of their research 
efforts. Should

[[Page 295]]

attendance at an Annual Conference be required, the annual program 
solicitation will so indicate, and principal investigators may include 
attendance costs in their proposed budgets.
    The Director or Administrator may, with respect to any grant or to 
any class of awards, impose additional conditions prior to or at the 
time of any award when, in the Director's or Administrator's judgment, 
such conditions are necessary to ensure or protect advancement of the 
approved project, the interests of the public, or the conservation of 
grant funds.



     Subpart B_Scientific Peer Review of Research Grant Applications



Sec. 3415.10  Establishment and operation of peer review groups.

    Subject to Sec. 3415.5, the Director or Administrator shall adopt 
procedures for the conduct of peer reviews and the formulation of 
recommendations under Sec. 3415.14.



Sec. 3415.11  Composition of peer review groups.

    (a) Peer review group members and ad hoc reviewers will be selected 
based upon their training and experience in relevant scientific or 
technical fields, taking into account the following factors:
    (1) The level of formal scientific or technical education by the 
individual and the extent to which an individual is engaged in relevant 
research activities;
    (2) The need to include as peer reviewers experts from various areas 
of specialization within relevant scientific or technical fields;
    (3) The need to include as peer reviewers experts from a variety of 
organizational types (e.g., universities, Federal laboratories, 
industry, private consultant(s), Federal and State regulatory agencies, 
environmental organizations) and geographic locations; and
    (4) The need to maintain a balanced composition of peer review 
groups related to minority and female representation and an equitable 
age distribution.
    (b) [Reserved]



Sec. 3415.12  Conflicts of interest.

    Members of peer review groups covered by this part are subject to 
relevant provisions contained in title 18 of the United States Code 
relating to criminal activity, Departmental regulations governing 
employee responsibilities and conduct (part O of this title), and 
Executive Order No. 11222, as amended.



Sec. 3415.13  Availability of information.

    Information regarding the peer review process will be made available 
to the extent permitted under the Freedom of Information Act (5 U.S.C. 
552), the Privacy Act (5 U.S.C. 552a.), and implementing Departmental 
regulations (part 1 of this title).



Sec. 3415.14  Proposal review.

    (a) All grant applications will be acknowledged. Prior to technical 
examination, a preliminary review will be made for responsiveness to the 
program solicitation (e.g., relationship of application to announced 
program area). Proposals that do not fall within the guidelines as 
stated in the program solicitation will be eliminated from competition 
and will be returned to the applicant.
    (b) All applications will be carefully reviewed by the Director or 
Administrator, qualified officers or employees of the Department, the 
respective peer review group, and ad hoc reviewers, as required. Written 
comments will be solicited from ad hoc reviewers when required, and 
individual written comments and in-depth discussions will be provided by 
peer review group members prior to recommending applications for 
funding. Applications will be ranked and support levels recommended 
within the limitation of total available funding for each research 
program area as announced in the program solicitation.
    (c) No awarding official will make a grant based upon an application 
covered by this part unless the application has been reviewed in 
accordance with the provisions of this part and unless said reviewers 
have made recommendations concerning the scientific merit and relevance 
to the program of such application.

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    (d) Except to the extent otherwise provided by law, such 
recommendations are advisory only and are not binding on program 
officers or on the awarding officials of NIFA and ARS.



Sec. 3415.15  Evaluation factors.

    In carrying out its review under Sec. 3415.14, the peer review 
group will take into account the following factors unless, pursuant to 
Sec. 3415.5(a), different evaluation criteria are specified in the 
annual program solicitation:
    (a) Scientific merit of the proposal.
    (1) Conceptual adequacy of hypothesis;
    (2) Clarity and delineation of objectives;
    (3) Adequacy of the description of the undertaking and suitability 
and feasibility of methodology;
    (4) Demonstration of feasibility through preliminary data;
    (5) Probability of success of project;
    (6) Novelty, uniqueness and originality; and
    (7) Appropriateness to regulation of biotechnology and risk 
assessment.
    (b) Qualifications of proposed project personnel and adequacy of 
facilities.
    (1) Training and demonstrated awareness of previous and alternative 
approaches to the problem identified in the proposal, and performance 
record and/or potential for future accomplishments;
    (2) Time allocated for systematic attainment of objectives;
    (3) Institutional experience and competence in subject area; and
    (4) Adequacy of available or obtainable support personnel, 
facilities, and instrumentation.
    (c) Relevance of project to solving biotechnology regulatory 
uncertainty for United States agriculture.
    (1) Scientific contribution of research in leading to important 
discoveries or significant breakthroughs in announced program areas; and
    (2) Relevance of the risk assessment research to agriculture and 
environmental regulations.



PART 3418_STAKEHOLDER INPUT REQUIREMENTS FOR RECIPIENTS OF AGRICULTURAL RESEARCH, EDUCATION, AND EXTENSION FORMULA FUNDS--Table of Contents



Sec.
3418.1 Definitions.
3418.2 Scope and purpose.
3418.3 Applicability.
3418.4 Reporting requirement.
3418.5 Failure to comply and report.
3418.6 Prohibition.

    Authority: 5 U.S.C. 301; 7 U.S.C. 7612(c)(2).

    Source: 65 FR 5998, Feb. 8, 2000, unless otherwise noted.



Sec. 3418.1  Definitions.

    As used in this part:
    1862 institution means a college or university eligible to receive 
funds under the Act of July 2, 1862 (7 U.S.C. 301, et seq.).
    1890 institution means a college or university eligible to receive 
funds under the Act of August 30, 1890 (7 U.S.C. 321, et seq.), 
including Tuskegee University.
    1994 institution means an institution as defined in section 532 of 
the Equity in Educational Land-Grant Status Act of 1994 (7 U.S.C. 301 
note).
    Formula funds means agricultural research funds provided to 1862 
institutions and agricultural experiment stations under the Hatch Act of 
1887 (7 U.S.C. 361a, et seq.); extension funds provided to 1862 
institutions under sections 3(b) and 3(c) of the Smith-Lever Act (7 
U.S.C. 343(b) and (c)) and section 208(c) of the District of Columbia 
Public Postsecondary Education Reorganization Act, Pub. L. 93-471; 
agricultural extension and research funds provided to 1890 institutions 
under sections 1444 and 1445 of the National Agricultural Research, 
Extension, and Teaching Policy Act of 1977 (NARETPA)(7 U.S.C. 3221 and 
3222); education formula funds provided to 1994 institutions under 
section 534(a) of the Equity in Educational Land-Grant Status Act of 
1994 (7 U.S.C. 301 note); research funds provided to forestry schools 
under the McIntire-Stennis Act of 1962 (16 U.S.C. 582a, et seq.); and 
animal health and disease research funds provided to veterinary schools 
and agricultural experiment stations under

[[Page 297]]

section 1433 of NARETPA (7 U.S.C. 3195).
    Recipient institution means any 1862 institution, 1890 institution, 
1994 institution, or any other institution that receives formula funds 
from the Department of Agriculture.
    Seek stakeholder input means an open, fair, and accessible process 
by which individuals, groups, and organizations may have a voice, and 
one that treats all with dignity and respect.
    Stakeholder means any person who has the opportunity to use or 
conduct agricultural research, extension, or education activities of 
recipient institutions.



Sec. 3418.2  Scope and Purpose.

    Section 102(c) of the Agricultural Research, Extension, and 
Education Reform Act of 1998 (7 U.S.C. 7612(c)) requires land-grant 
institutions, as a condition of receipt of formula funds, to solicit and 
consider input and recommendations from stakeholders concerning the use 
of formula funds. This regulation implements this requirement 
consistently for all recipient institutions that receive formula funds.



Sec. 3418.3  Applicability.

    To obtain formula funds after September 30, 1999, each recipient 
institution shall establish and implement a process for obtaining 
stakeholder input on the uses of formula funds in accordance with this 
part.



Sec. 3418.4  Reporting requirement.

    Each recipient institution shall report to the Department of 
Agriculture by October 1 of each fiscal year, the following information 
related to stakeholder input and recommendations:
    (a) Actions taken to seek stakeholder input that encourages their 
participation;
    (b) A brief statement of the process used by the recipient 
institution to identify individuals and groups who are stakeholders and 
to collect input from them; and
    (c) A statement of how collected input was considered.



Sec. 3418.5  Failure to comply and report.

    Formula funds may be withheld and redistributed if a recipient 
institution fails to either comply with Sec. 3418.3 or report under 
Sec. 3418.4.



Sec. 3418.6  Prohibition.

    A recipient institution shall not require input from stakeholders as 
a condition of receiving the benefits of, or participating in, the 
agricultural research, education, or extension programs of the recipient 
institution.



PART 3419_MATCHING FUNDS REQUIREMENT FOR AGRICULTURAL RESEARCH AND EXTENSION CAPACITY FUNDS AT 1890 LAND-GRANT INSTITUTIONS, INCLUDING CENTRAL STATE UNIVERSITY, 
TUSKEGEE UNIVERSITY, AND WEST VIRGINIA STATE UNIVERSITY AND AT 1862 LAND-GRANT INSTITUTIONS IN INSULAR AREAS--Table of Contents



Sec.
3419.1 Definitions.
3419.2 Matching funds requirement.
3419.3 Limited waiver authority.
3419.4 Applications for waivers for both 1890 land-grant institutions 
          and 1862 land-grant institutions in insular areas.
3419.5 Certification of matching funds.
3419.6 Use of matching funds.
3419.7 Reporting of matching funds.
3419.8 Redistribution of funds.

    Authority: 7 U.S.C. 3222d; 7 U.S.C. 343(e); 7 U.S.C. 361c; Pub. L. 
107-171; Pub. L. 110-234; Pub. L. 113-79.

    Source: 65 FR 21631, Apr. 21, 2000, unless otherwise noted.



Sec. 3419.1  Definitions.

    As used in this part:
    Capacity funds means agricultural extension and research funds 
provided by formula to the eligible institutions under sections 1444 and 
1445 of the National Agricultural Research, Extension, and Teaching 
Policy Act of 1977 (NARETPA), as amended, or under sections 3(b) and (c) 
of the Smith-Lever Act, 7 U.S.C. 343(b) and (c) or under section 3 of 
the Hatch Act of 1887, 7 U.S.C. 361c.
    Eligible institution means a college or university eligible to 
receive funds under the Act of August 30, 1890 (7 U.S.C. 321 et seq.) 
(commonly known as

[[Page 298]]

the Second Morrill Act), including Central State University, Tuskegee 
University, and West Virginia State University (1890 land-grant 
institutions), and a college or university designated under the Act of 
July 2, 1862 (7 U.S.C. 301, et seq.) (commonly known as the First 
Morrill Act) and located in the Commonwealth of Puerto Rico and the 
insular areas of American Samoa, Guam, Micronesia, Northern Marianas, 
and the U.S. Virgin Islands (1862 land-grant institutions in insular 
areas).
    Matching funds means funds from non-Federal sources, including those 
made available by the State to the eligible institutions, for programs 
or activities that fall within the purposes of agricultural research and 
cooperative extension under: sections 1444 and 1445 of NARETPA; the 
Hatch Act of 1887; and the Smith-Lever Act.
    Non-Federal sources means funds made available by the State to the 
eligible institution either through direct appropriation or under any 
authority (other than authority to charge tuition and fees paid by 
students) provided by a State to an eligible institution to raise 
revenue, such as gift acceptance authority or user fees.
    Secretary means the Secretary of Agriculture and any other officer 
or employee of the Department of Agriculture to whom the authority 
involved may be delegated.
    State means the government of any one of the fifty States, the 
Commonwealth of Puerto Rico, Guam, American Samoa, the Commonwealth of 
Northern Marianas, the Virgin Islands of the United States, the Republic 
of Palau, the Republic of the Marshall Islands, and the Federated States 
of Micronesia.

[65 FR 21631, Apr. 21, 2000, as amended at 83 FR 21849, May 11, 2018]



Sec. 3419.2  Matching funds requirement.

    (a) 1890 land-grant institutions. The distribution of capacity funds 
are subject to a matching requirement. Matching funds will equal not 
less than 100% of the capacity funds to be distributed to the 
institution.
    (b) 1862 land-grant institutions in insular areas. The distribution 
of capacity funds are subject to a matching requirement. Matching funds 
will equal not less than 50% of the capacity funds to be distributed to 
the institution.
    (c) For fiscal year 2002 and each fiscal year thereafter, the 
matching funds shall equal not less than 50 percent of the formula funds 
to be distributed to the eligible institution.

[65 FR 21631, Apr. 21, 2000, as amended at 83 FR 21849, May 11, 2018]



Sec. 3419.3  Limited waiver authority.

    (a) 1890 land-grant institutions: The Secretary may waive the 
matching funds requirement in Sec. 3419.2 above the 50% level for any 
fiscal year for an eligible institution of a State if the Secretary 
determines that the State will be unlikely to satisfy the matching 
requirement.
    (b) 1862 land-grant institutions in insular areas: The Secretary may 
waive up to 100% of the matching funds requirements in Sec. 3419.2 for 
any fiscal year for an eligible institution in an insular area.
    (c) The criteria to waive the applicable matching requirement for 
1890 land-grant institutions and 1862 land-grant institutions in insular 
areas is demonstration of one or more of the following:
    (1) Impacts from natural disaster, flood, fire, tornado, hurricane, 
or drought;
    (2) State and/or institution facing a financial crisis; or
    (3) Lack of matching funds after demonstration of good faith efforts 
to obtain funds.
    (d) Approval or disapproval of the request for a waiver will be 
based on the application submitted, as defined under Sec. 3419.4.

[Redesignated and revised at 83 FR 21849, May 11, 2018]



Sec. 3419.4  Applications for waivers for both 1890 land-grant institutions and 1862 land-grant institutions in insular areas.

    Application for waivers for both 1890 land-grant institutions and 
1862 land-grant institutions in insular areas. The president of the 
eligible institution must submit any request for a waiver for matching 
requirements. A waiver application must include the name of the eligible 
institution, the type of Federal capacity funds (i.e. research,

[[Page 299]]

extension, Hatch, etc.), appropriate fiscal year, the basis for the 
request (e.g. one or more of the criteria identified in Sec. 3419.3); 
current supporting documentation, where current is defined as within the 
past two years from the date of the letter requesting the waiver; and 
the amount of the request.

[83 FR 21849, May 11, 2018]



Sec. 3419.5  Certification of matching funds.

    Prior to the distribution of capacity funds each fiscal year, each 
eligible institution must certify as to the availability of matching 
funds. Eligible institutions may revise their certification of matching 
funds through July 1 of the fiscal year in which funds are appropriated.

[65 FR 21631, Apr. 21, 2000, as amended at 83 FR 21850, May 11, 2018]



Sec. 3419.6  Use of matching funds.

    The required matching funds for the capacity programs must be used 
by an eligible institution for the same purpose as Federal award 
dollars: Agricultural research and extension activities that have been 
approved in the plan of work required under sections 1445(c) and 1444(d) 
of the National Agricultural Research, Extension, and Teaching Policy 
Act of 1977, section 7 of the Hatch Act of 1887, and section 4 of the 
Smith-Lever Act. For all programs, tuition dollars and student fees may 
not be used as matching funds.

[83 FR 21850, May 11, 2018]



Sec. 3419.7  Reporting of matching funds.

    Institutions will report all capacity matching funds expended 
annually using Standard Form (SF) 425, in accordance with 7 CFR 
3430.56(a).

[83 FR 21850, May 11, 2018]



Sec. 3419.8  Redistribution of funds.

    Unmatched research and extension funds will be reapportioned in 
accordance with the research and extension statutory distribution 
formulas applicable to the 1890 and 1862 land-grant institutions in 
insular areas, respectively. Any redistribution of funds must be subject 
to the same matching requirement under Sec. 3419.2.

[Redesignated and revised at 83 FR 21850, May 11, 2018]



PART 3430_COMPETITIVE AND NONCOMPETITIVE NON-FORMULA FEDERAL ASSISTANCE PROGRAMS_GENERAL AWARD ADMINISTRATIVE PROVISIONS--Table of Contents



                      Subpart A_General Information

Sec.
3430.1 Applicability of regulations.
3430.2 Definitions.
3430.3 Deviations.
3430.4 Other Federal statutes and regulations that apply.

            Subpart B_Pre-award: Solicitation and Application

3430.11 Competition.
3430.12 Requests for applications.
3430.13 Letter of intent to submit an application.
3430.14 Types of applications; types of award instruments.
3430.15 Stakeholder input.
3430.16 Eligibility requirements.
3430.17 Content of an application.
3430.18 Submission of an application.
3430.19 Resubmission of an application.
3430.20 Acknowledgment of an application.
3430.21 Confidentiality of applications and awards.

         Subpart C_Pre-award: Application Review and Evaluation

3430.31 Guiding principles.
3430.32 Preliminary application review.
3430.33 Selection of reviewers.
3430.34 Evaluation criteria.
3430.35 Review of noncompetitive applications.
3430.36 Procedures to minimize or eliminate duplication of effort.
3430.37 Feedback to applicants.

                             Subpart D_Award

3430.41 Administration.
3430.42 Special award conditions.

                    Subpart E_Post-award and Closeout

3430.51 Payment.
3430.52 Cost sharing and matching.
3430.53 Program income.
3430.54 Indirect costs.
3430.55 Technical reporting.
3430.56 Financial reporting.
3430.57 Project meetings.

[[Page 300]]

3430.58 Prior approvals.
3430.59 Review of disallowed costs.
3430.60 Suspension, termination, and withholding of support.
3430.61 Debt collection.
3430.62 Award appeals procedures.
3430.63 Expiring appropriations.

              Subpart F_Specialty Crop Research Initiative

3430.200 Applicability of regulations.
3430.201 Purpose.
3430.202 Definitions.
3430.203 Eligibility.
3430.204 Project types and priorities.
3430.205 Funding restrictions.
3430.206 Matching requirements.
3430.207 Duration of awards.
3430.208 Review of applications.
3430.209 Emergency Citrus Disease Research and Extension Program.

           Subpart G_Agriculture and Food Research Initiative

3430.300 Applicability of regulations.
3430.301 Purpose.
3430.302 Definitions.
3430.303 Eligibility.
3430.304 Project Types and priorities.
3430.305 Funding restrictions.
3430.306 Matching requirements.
3430.307 Coordination and stakeholder input requirements.
3430.308 Duration of awards.
3430.309 Priority areas.
3430.310 Allocation of AFRI funds.
3430.311 Allocation of research funds.
3430.312 Emphasis on Sustainable Agriculture.
3430.313 Inclusion of research topics proposed by national and state 
          commodity boards in request for applications.

     Subpart H_Organic Agriculture Research and Extension Initiative

3430.400 Applicability of regulations.
3430.401 Purpose.
3430.402 [Reserved]
3430.403 Eligibility.
3430.404 Project types and priorities.
3430.405 Funding restrictions.
3430.406 Matching requirements.
3430.407 Program requirements.

  Subpart I_Integrated Research, Education, and Extension Competitive 
                             Grants Program

3430.500 Applicability of regulations.
3430.501 Purpose.
3430.502 Definitions.
3430.503 Eligibility.
3430.504 Project types and priorities.
3430.505 Funding restrictions.
3430.506 Matching requirements.
3430.507 Program requirements.

       Subpart J_Beginning Farmer and Rancher Development Program

3430.600 Applicability of regulations.
3430.601 Purpose.
3430.602 Definitions.
3430.603 Eligibility.
3430.604 Project types and priorities.
3430.605 Funding restrictions.
3430.606 Matching requirements.
3430.607 Stakeholder input.
3430.608 Review criteria.
3430.609 Other considerations.

          Subpart K_Biomass Research and Development Initiative

3430.700 Applicability of regulations.
3430.701 Purpose.
3430.702 Definitions.
3430.703 Eligibility.
3430.704 Project types and priorities.
3430.705 Funding restrictions.
3430.706 Matching requirements.
3430.707 Administrative duties.
3430.708 Review criteria.
3430.709 Duration of awards.

   Subpart L_Capacity Building Grants for Non-Land Grant Colleges of 
                           Agriculture Program

3430.800 Applicability.
3430.801 Purpose.
3430.802 Definitions.
3430.803 Eligibility.
3430.804 Project types and priorities.
3430.805 Funding restrictions.
3430.806 Matching requirements.
3430.807 Duration of grant.

      Subpart M_New Era Rural Technology Competitive Grants Program

3430.900 Applicability of regulations.
3430.901 Purpose.
3430.902 Definitions.
3430.903 Eligibility.
3430.904 Project types and priorities.
3430.905 Funding restrictions.
3430.906 Matching requirements.
3430.907 Stakeholder input.
3430.908 Review criteria.
3430.909 Other considerations.

Subpart N [Reserved]

                       Subpart O_Sun Grant Program

3430.1000 Applicability of regulations.
3430.1001 Purpose.
3430.1002 Definitions.
3430.1003 Eligibility.
3430.1004 Project types and priorities.
3430.1005 Funding restrictions.

[[Page 301]]

3430.1006 Matching requirements.
3430.1007 Planning activities.
3430.1008 Sun Grant Information Analysis Center.
3430.1009 Administrative duties.
3430.1010 Review criteria.
3430.1011 Duration of awards.

          Subpart P_Food Insecurity Nutrition Incentive Program

3430.1100 Applicability of regulations.
3430.1101 Purpose.
3430.1102 Definitions.
3430.1103 Eligibility.
3430.1104 Project types and priorities.
3430.1105 Funding restrictions.
3430.1106 Matching requirements.
3430.1107 Program requirements.
3430.1108 Priorities.

               Subpart Q_Veterinary Services Grant Program

3430.1200 Applicability of regulations.
3430.1201 Purpose.
3430.1202 Definitions.
3430.1203 Eligibility.
3430.1204 Project types and priorities.
3430.1205 Funding restrictions.
3430.1206 Matching requirements.
3430.1207 Coordination preference.
3430.1208 Special requirements for Rural Practice Enhancement grants.
3430.1209 Duration of awards.

    Authority: 7 U.S.C. 3316; Pub. L. 106-107 (31 U.S.C. 6101 note)

    Source: 74 FR 45740, Sept. 4, 2009, unless otherwise noted.



                      Subpart A_General Information



Sec. 3430.1  Applicability of regulations.

    (a) General. This part provides agency specific regulations 
regarding the application for, and evaluation, award, and post-award 
administration of, National Institute of Food and Agriculture (NIFA) 
awards, and is supplementary to the USDA uniform assistance regulations 
at 2 CFR part 200, as applicable. These regulations apply to the 
following types of Federal assistance awards: Grants and cooperative 
agreements.
    (b) Competitive programs. This part applies to all agricultural 
research, education, and extension competitive and related programs for 
which NIFA has administrative or other authority, as well as any other 
Federal assistance program delegated to the NIFA Director . In cases 
where regulations of this part conflict with existing regulations of 
NIFA in Title 7 (i.e., 7 CFR parts 3400 through 3499) of the Code of 
Federal Regulations, regulations of this part shall supersede. This part 
does not apply to the Small Business Innovation Research (SBIR) Program 
(7 CFR part 3403) and the Veterinary Medicine Loan Repayment Program 
(VMLRP) authorized under section 1415A of the National Agricultural 
Research, Extension, and Teaching Policy Act of 1977 (NARETPA) (7 U.S.C. 
3151a).
    (c) Noncompetitive programs. Subparts A, B, D, and E, as well as 
Sec. 3430.35 of subpart C, apply to all noncompetitive agricultural 
research, education, and extension programs administered by NIFA, as 
well as any other Federal assistance program delegated to the NIFA 
Director.
    (d) Federal assistance programs administered on behalf of other 
agencies. Subparts A through E, as appropriate, apply to competitive and 
noncompetitive grants and cooperative agreements administered on behalf 
of other agencies of the Federal Government. Requirements specific to 
these Federal assistance programs will be included in the program 
solicitations or requests for applications (RFAs).
    (e) Federal assistance programs administered jointly with other 
agencies. Subparts A through E, as appropriate, apply to competitive and 
noncompetitive grants and cooperative agreements administered jointly 
with other agencies of the Federal Government. Requirements specific to 
these Federal assistance programs will be included in the appropriate 
program solicitations or RFAs published by both or either agency.
    (f) Formula fund grants programs. This part does not apply to any of 
the formula grant programs administered by NIFA. Formula funds are the 
research funds provided to 1862 Land-Grant Institutions and agricultural 
experiment stations under the Hatch Act of 1887 (7 U.S.C. 361a, et 
seq.); extension funds provided to 1862 Land-Grant Institutions under 
sections 3(b) and 3(c) of the Smith-Lever Act (7 U.S.C. 343(b) and (c)) 
and section 208(c) of the District of Columbia Public Postsecondary 
Education Reorganization Act, Public Law

[[Page 302]]

93-471; agricultural extension and research funds provided to 1890 Land-
Grant Institutions under sections 1444 and 1445 of NARETPA (7 U.S.C. 
3221 and 3222); expanded food and nutrition education program funds 
authorized under section 3(d) of the Smith-Lever Act (7 U.S.C. 343(d)) 
to the 1862 Land-Grant Institutions and the 1890 Land-Grant 
Institutions; extension funds under the Renewable Resources Extension 
Act of 1978 (16 U.S.C. 1671, et seq.) for the 1862 Land-Grant 
institutions and the 1890 Land-Grant Institutions; research funds 
provided to the 1862 Land-Grant Institutions, 1890 Land-Grant 
Institutions, and forestry schools under the McIntire-Stennis 
Cooperative Forestry Act (16 U.S.C. 582a, et seq.); and animal health 
and disease research funds provided to veterinary schools and 
agricultural experiment stations under section 1433 of NARETPA (7 U.S.C. 
3195).

[74 FR 45740, Sept. 4, 2009, as amended at 79 FR 76000, Dec. 19, 2014]



Sec. 3430.2  Definitions.

    As used in this part:
    1862 Land-Grant Institution means an institution eligible to receive 
funds under the Act of July 2, 1862, as amended (7 U.S.C. 301, et seq.). 
Unless otherwise stated for a specific program, this term includes a 
research foundation maintained by such an institution.
    1890 Land-Grant Institution means one of those institutions eligible 
to receive funds under the Act of August 30, 1890, as amended (7 U.S.C. 
321, et seq.), including Tuskegee University and West Virginia State 
University. Unless otherwise stated for a specific program, this term 
includes a research foundation maintained by such an institution.
    1994 Land-Grant Institution means one of those institutions as 
defined in section 532 of the Equity in Educational Land-Grant Status 
Act of 1994, as amended (7 U.S.C. 301 note). These institutions are 
commonly referred to as Tribal Colleges or Universities.
    Advisory Board means the National Agricultural Research, Extension, 
Education, and Economics Advisory Board (as established under section 
1408 of NARETPA (7 U.S.C. 3123).
    Agricultural research means research in the food and agricultural 
sciences.
    Applied research means research that includes expansion of the 
findings of fundamental research to uncover practical ways in which new 
knowledge can be advanced to benefit individuals and society.
    Authorized Departmental Officer or ADO means the Secretary or any 
employee of the Department with delegated authority to issue or modify 
award instruments on behalf of the Secretary.
    Authorized Representative or AR means the President or Chief 
Executive Officer of the applicant organization or the official, 
designated by the President or Chief Executive Officer of the applicant 
organization, who has the authority to commit the resources of the 
organization to the project.
    Award means financial assistance that provides support or 
stimulation to accomplish a public purpose. Awards may be grants or 
cooperative agreements.
    Budget period means the interval of time (usually 12 months) into 
which the project period is divided for budgetary and reporting 
purposes.
    Cash contributions means the recipient's cash outlay, including the 
outlay of money contributed to the recipient by non-Federal third 
parties.
    Center of Excellence in food and agricultural research, extension, 
and education is a grantee whose application was not only found to be 
highly meritorious by a peer panel, but met additional criteria (see 
Sec. 3430.17(c)) to receive the designation. This designation is 
specific to a grant application.
    Certification of Non-Land-Grant College of Agriculture status means 
an institution that followed NIFA's Process for Non-Land Grant College 
of Agriculture (NLGCA) Designation and received a certification of NLGCA 
designation from NIFA (see Sec. 3430.16(c)).
    College or university means, unless defined in a separate subpart, 
an educational institution in any State which:
    (1) Admits as regular students only persons having a certificate of 
graduation from a school providing secondary education, or the 
recognized equivalent of such a certificate;

[[Page 303]]

    (2) Is legally authorized within such State to provide a program of 
education beyond secondary education;
    (3) Provides an educational program for which a bachelor's degree or 
any other higher degree is awarded;
    (4) Is a public or other nonprofit institution; and
    (5) Is accredited by a nationally recognized accrediting agency or 
association. Unless otherwise stated for a specific program, this term 
includes a research foundation maintained by such an institution.
    Cooperative agreement means the award by the Authorized Departmental 
Officer of funds to an eligible awardee to assist in meeting the costs 
of conducting for the benefit of the public, an identified project which 
is intended and designed to accomplish the purpose of the program as 
identified in the program solicitation or RFA, and where substantial 
involvement is expected between NIFA and the awardee when carrying out 
the activity contemplated in the agreement.
    Department means the United States Department of Agriculture.
    Director means the Director of NIFA and any other officer or 
employee of NIFA to whom the authority involved is delegated.
    Education activity or teaching activity means formal classroom 
instruction, laboratory instruction, and practicum experience in the 
food and agricultural sciences and other related matters such as faculty 
development, student recruitment and services, curriculum development, 
instructional materials and equipment, and innovative teaching 
methodologies.
    Established and demonstrated capacity means that an organization has 
met the following criteria:
    (1) Conducts any systematic study directed toward new or fuller 
knowledge and understanding of the subject studied; or,
    (2) Systematically relates or applies the findings of research or 
scientific experimentation to the application of new approaches to 
problem solving, technologies, or management practices; and
    (3) Has facilities, qualified personnel, independent funding, and 
prior projects and accomplishments in research or technology transfer.
    Extension means informal education programs conducted in the States 
in cooperation with the Department.
    Extension activity means an act or process that delivers science-
based knowledge and informal educational programs to people, enabling 
them to make practical decisions.
    Food and agricultural sciences means basic, applied, and 
developmental research, extension, and teaching activities in food and 
fiber, agricultural, renewable energy and natural resources, forestry, 
and physical and social sciences, including activities relating to the 
following:
    (1) Animal health, production, and well-being.
    (2) Plant health and production.
    (3) Animal and plant germ plasm collection and preservation.
    (4) Aquaculture.
    (5) Food safety.
    (6) Soil, water, and related resource conservation and improvement.
    (7) Forestry, horticulture, and range management.
    (8) Nutritional sciences and promotion.
    (9) Farm enhancement, including financial management, input 
efficiency, and profitability.
    (10) Home economics.
    (11) Rural human ecology.
    (12) Youth development and agricultural education, including 4-H 
clubs.
    (13) Expansion of domestic and international markets for 
agricultural commodities and products, including agricultural trade 
barrier identification and analysis.
    (14) Information management and technology transfer related to 
agriculture.
    (15) Biotechnology related to agriculture.
    (16) The processing, distributing, marketing, and utilization of 
food and agricultural products.
    Fundamental research means research that increases knowledge or 
understanding of the fundamental aspects of phenomena and has the 
potential for broad application, and has an effect on agriculture, food, 
nutrition, or the environment.

[[Page 304]]

    Graduate degree means a Master's or doctoral degree.
    Grant means the award by the Authorized Departmental Officer of 
funds to an eligible grantee to assist in meeting the costs of 
conducting for the benefit of the public, an identified project which is 
intended and designed to accomplish the purpose of the program as 
identified in the program solicitation or RFA.
    Grantee means the organization designated in the grant award 
document as the responsible legal entity to which a grant is awarded.
    Insular area means the Commonwealth of Puerto Rico, Guam, American 
Samoa, the Commonwealth of the Northern Mariana Islands, the Federated 
States of Micronesia, the Republic of the Marshall Islands, the Republic 
of Palau, and the Virgin Islands of the United States.
    Integrated project means a project incorporating two or three 
components of the agricultural knowledge system (research, education, 
and extension) around a problem area or activity.
    Land-grant Institutions means the 1862 Land-Grant Institutions, 1890 
Land-Grant Institutions, and 1994 Land-Grant Institutions.
    Matching or cost sharing means that portion of allowable project or 
program costs not borne by the Federal Government, including the value 
of in-kind contributions.
    Merit review means an evaluation of a proposed project or elements 
of a proposed program whereby the technical quality and relevance to 
regional or national goals are assessed.
    Merit reviewers means peers and other individuals with expertise 
appropriate to conduct merit review of a proposed project.
    Methodology means the project approach to be followed.
    Mission-linked research means research on specifically identified 
agricultural problems which, through a continuum of efforts, provides 
information and technology that may be transferred to users and may 
relate to a product, practice, or process.
    National laboratories include Federal laboratories that are 
government-owned contractor-operated or government-owned government-
operated.
    Non-citizen national of the United States means the award by the 
Authorized Departmental Officer of funds to an eligible awardee to 
assist in meeting the costs of conducting for the benefit of the public, 
an identified project which is intended and designed to accomplish the 
purpose of the program as identified in the program solicitation or RFA, 
and where substantial involvement is expected between NIFA and the 
awardee when carrying out the activity contemplated in the agreement.
    Peer reviewers means experts or consultants qualified by training 
and experience to give expert advice on the scientific and technical 
merit of applications or the relevance of those applications to one or 
more of the application evaluation criteria. Peer reviewers may be adhoc 
or convened as a panel.
    Prior approval means written approval by an Authorized Departmental 
Officer evidencing prior consent.
    Private research organization means any non-governmental 
corporation, partnership, proprietorship, trust, or other organization.
    Private sector means all non-public entities, including for-profit 
and nonprofit commercial and non-commercial entities, and including 
private or independent educational associations.
    Program announcement (PA) means a detailed description of the RFA 
without the associated application package(s). NIFA will not solicit or 
accept applications in response to a PA.
    Program Officer means a NIFA individual (often referred to as a 
National Program Leader) who is responsible for the technical oversight 
of the award on behalf of the Department.
    Project means the particular activity within the scope of the 
program supported by an award.
    Project Director or PD means the single individual designated by the 
awardee in the application and approved by the Authorized Departmental 
Officer who is responsible for the direction and management of the 
project, also known as a Principal Investigator (PI) for research 
activities.
    Project period means the total length of time, as stated in the 
award document and modifications thereto, if any, during which Federal 
sponsorship begins and ends.

[[Page 305]]

    Research means any systematic study directed toward new or fuller 
knowledge and understanding of the subject studied.
    Scientific peer review means an evaluation of the technical quality 
of a proposed project and its relevance to regional or national goals, 
performed by experts with the scientific knowledge and technical skills 
to conduct the proposed research work.
    Secretary means the Secretary of Agriculture and any other officer 
or employee of the Department to whom the authority involved is 
delegated.
    Under Secretary means the Under Secretary for Research, Education, 
and Economics.
    United States means the several States, the District of Columbia, 
and the insular areas.
    Units of State government means all State institutions, including 
the formal divisions of State government (i.e., the official State 
agencies such as departments of transportation and education), local 
government agencies (e.g., a county human services office), and 
including State educational institutions (e.g., public colleges and 
universities).

[74 FR 45740, Sept. 4, 2009, as amended at 76 FR 4813, Jan. 27, 2011; 79 
FR 76000, Dec. 19, 2014; 81 FR 6413, Feb. 8, 2016; 82 FR 21109, May 5, 
2017]



Sec. 3430.3  Deviations.

    Any request by the applicant or awardee for a waiver of or deviation 
from any provision of this part shall be submitted to the ADO identified 
in the agency specific requirements. NIFA shall review the request and 
notify the applicant/awardee, within 30 calendar days from the date of 
receipt of the deviation request, whether the request to deviate has 
been approved. If the deviation request is still under consideration at 
the end of 30 calendar days, NIFA shall inform the applicant/awardee in 
writing of the date when the applicant/awardee may expect the decision.



Sec. 3430.4  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.''
    (b) Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to research project grants awarded 
under this part. These include but are not limited to:

2 CFR part 200--Uniform Administrative Requirements, Cost Principles, 
And Audit Requirements For Federal Awards.
2 CFR part 180 and Part 417--OMB Guidelines to Agencies on Government-
Wide Debarment and Suspension (Nonprocurement) and USDA Nonprocurement 
Debarment and Suspension
7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
7 CFR 1.1--USDA Implementation of Freedom of Information Act.
7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding Debt 
Collection.
7 CFR part 15, subpart A--USDA implementation of Title VI of the Civil 
Rights Act of 1964.
7 CFR part 3407--NIFA Procedures to Implement the National Environmental 
Policy Act;
29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR part 
15B (USDA implementation of statute)--prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs; and
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).

[79 FR 76000, Dec. 19, 2014]

[[Page 306]]



            Subpart B_Pre-award: Solicitation and Application



Sec. 3430.11  Competition.

    (a) Standards for competition. Except as provided in paragraph (b) 
of this section, NIFA will enter into grants and cooperative agreements, 
unless restricted by statute, only after competition.
    (b) Exception. The NIFA ADO and the designated Agency approving 
official may make a determination in writing that competition is not 
deemed appropriate for a particular transaction. Such determination 
shall be limited to transactions where it can be adequately justified 
that a noncompetitive award is in the best interest of the Federal 
Government and necessary to the goals of the program.



Sec. 3430.12  Requests for applications.

    (a) General. For each competitive and noncompetitive non-formula 
program, NIFA will prepare a program solicitation (also called a request 
for applications (RFA)), in accordance with appendix I to 2 CFR part 
200, establishing a standard format for Federal agency announcements 
(i.e., program solicitations or RFAs) of funding opportunities under 
programs that award discretionary grants or cooperative agreements. This 
policy directive requires the content of the RFA to be organized in a 
sequential manner beginning with overview information followed by the 
full text of the announcement and will apply unless superseded by 
statute or another OMB policy directive. The RFA may include all or a 
portion of the following items:
    (1) Contact information.
    (2) Directions for interested stakeholders or beneficiaries to 
submit written comments in a published program solicitation or RFA.
    (3) Catalog of Federal Domestic Assistance (CFDA) number.
    (4) Legislative authority and background information.
    (5) Purpose, priorities, and fund availability.
    (6) Program-specific eligibility requirements.
    (7) Program-specific restrictions on the use of funds, if 
Applicable.
    (8) Matching requirements, if applicable.
    (9) Acceptable types of applications.
    (10) Types of projects to be given priority consideration, including 
maximum anticipated awards and maximum project lengths, if applicable.
    (11) Program areas, if applicable.
    (12) Funding restrictions, if applicable.
    (13) Directions for obtaining additional requests for applications 
and application forms.
    (14) Information about how to obtain application forms and the 
instructions for completing such forms.
    (15) Instructions and requirements for submitting applications, 
including submission deadline(s).
    (16) Explanation of the application evaluation Process.
    (17) Specific evaluation criteria used in the review Process.
    (18) Type of Federal assistance awards (i.e., grants and/or 
cooperative agreements).
    (b) RFA variations. Where program-specific requirements differ from 
the requirements established in this part, program solicitations will 
also address any such variation(s). Variations may occur in the 
following:
    (1) Award management guidelines.
    (2) Restrictions on the delegation of fiscal responsibility.
    (3) Required approval for changes to project plans.
    (4) Expected program outputs and reporting requirements, if 
applicable.
    (5) Applicable Federal statutes and regulations.
    (6) Confidential aspects of applications and awards, if applicable.
    (7) Regulatory information.
    (8) Definitions.
    (9) Minimum and maximum budget requests, and whether applications 
outside of these limits will be returned without further review.
    (c) Program announcements. Occasionally, NIFA will issue a program 
announcement (PA) to alert potential applicants and the public about new 
and ongoing funding opportunities. These PAs may provide tentative due 
dates and are released without associated application packages. Hence, 
no applications are solicited under a PA. PAs are

[[Page 307]]

announced in the Federal Register or on the NIFA Web site.
    (d) If applicants choose to address center of excellence criteria, 
they must do so in their project narrative, subject to any page 
limitations on that section of the application.

[74 FR 45740, Sept. 4, 2009, as amended at 79 FR 76001, Dec. 19, 2014; 
82 FR 21109, May 5, 2017]



Sec. 3430.13  Letter of intent to submit an application.

    (a) General. NIFA may request or require that prospective applicants 
notify program staff of their intent to submit an application, 
identified as ``letter of intent''. If applicable, the request or 
requirement will be included in the RFA, along with directions for the 
preparation and submission of the letter of intent, the type of letter 
of intent, and any relevant deadlines. There are two types of letters of 
intent: optional and required.
    (b) Optional letter of intent. Entities interested in submitting an 
application for a NIFA award should complete and submit a ``Letter of 
Intent to Submit an Application'' by the due date specified in the RFA. 
This does not obligate the applicant in any way, but will provide useful 
information to NIFA in preparing for application review. Applicants that 
do not submit a letter of intent by the specified due date are still 
allowed to submit an application by the application due date specified 
in the RFA, unless otherwise specified in the RFA.
    (c) Required letter of intent. Certain programs may require that the 
prospective applicants submit a letter of intent for specific programs. 
This type of letter is evaluated by the program staff for suitability to 
the program and in regard to program priorities, needs, and scope. 
Invitations to submit a full application will be issued by the Program 
Officer or his or her representative. For programs requiring a letter of 
intent, applications submitted without prior approval of the letter of 
intent by the program staff will be returned without review. Programs 
requiring a specific letter of intent will be specified in the RFA.



Sec. 3430.14  Types of applications; types of award instruments.

    (a) Types of applications. The type of application acceptable may 
vary by funding opportunity. The RFA will stipulate the type of 
application that may be submitted to NIFA in response to the funding 
opportunity. Applicants may submit the following types of applications 
as specified in the RFA.
    (1) New. An application that is being submitted to the program for 
the first time.
    (2) Resubmission. This is a project application that has been 
submitted for consideration under the same program previously but has 
not been approved for an award under the program. For competitive 
programs, this type of application is evaluated in competition with 
other pending applications in the area to which it is assigned. 
Resubmissions are reviewed according to the same evaluation criteria as 
new applications. In addition, applicants must respond to the previous 
panel review summaries, unless waived by NIFA.
    (3) Renewal. An application requesting additional funding for a 
period subsequent to that provided by a current award. For competitive 
programs, a renewal application competes with all other applications. 
Renewal applications must be developed as fully as though the applicant 
is applying for the first time. Renewal applicants also must have filed 
a progress report via Current Research Information System (CRIS), unless 
waived by NIFA.
    (4) Continuation. A noncompeting application for an additional 
funding/budget period within a previously approved project.
    (5) Revision. An application that proposes a change in the Federal 
Government's financial obligations or contingent liability from an 
existing obligation; or, any other change in the terms and conditions of 
the existing award.
    (6) Resubmitted renewal. This is a project application that has been 
submitted for consideration under the same program previously. This type 
of application has also been submitted for renewal under the same 
program but was not approved. For competitive programs, this type of 
application is evaluated in competition with other pending applications 
in the area to which it

[[Page 308]]

is assigned. Resubmitted renewal applications are reviewed according to 
the same evaluation criteria as new applications. Applicants must 
respond to the previous panel review summaries and file a progress 
report via CRIS, unless waived by NIFA.
    (b) Types of award instruments. The following is a list of 
corresponding categories of award instruments issued by NIFA.
    (1) Standard. This is an award instrument by which NIFA agrees to 
support a specified level of effort for a predetermined project period 
without the announced intention of providing additional support at a 
future date.
    (2) Renewal. This is an award instrument by which NIFA agrees to 
provide additional funding under a standard award as specified in 
paragraph (b)(1) of this section for a project period beyond that 
approved in an original or amended award, provided that the cumulative 
period does not exceed any statutory time limitation of the award.
    (3) Continuation. This is an award instrument by which NIFA agrees 
to support a specified level of effort for a predetermined period of 
time with a statement of intention to provide additional support at a 
future date, provided that performance has been satisfactory, 
appropriations are available for this purpose, and continued support 
would be in the best interest of the Federal Government and the public.
    (4) Supplemental. This is an award instrument by which NIFA agrees 
to provide small amounts of additional funding under a standard, 
renewal, or continuation award as specified in paragraphs (b)(1), 
(b)(2), and (b)(3) of this section and may involve a short-term (usually 
six months or less) extension of the project period beyond that approved 
in an original or amended award, but in no case may the cumulative 
period of the project, including short term extensions, exceed any 
statutory time limitation of the award.
    (c) Obligation of the Federal Government. Neither the acceptance of 
any application nor the award of any project shall commit or obligate 
the United States in any way to make any renewal, supplemental, 
continuation, or other award with respect to any approved application or 
portion of an approved application.



Sec. 3430.15  Stakeholder input.

    Section 103(c)(2) of the Agricultural Research, Extension, and 
Education Reform Act of 1998 (AREERA) (7 U.S.C. 7613(c)(2)) requires the 
Secretary to solicit and consider input on each program RFA from persons 
who conduct agricultural research, education, and extension for use in 
formulating future RFAs for competitive programs. NIFA will provide 
instructions for submission of stakeholder input in the RFA. NIFA will 
consider any comments received within the specified timeframe in the 
development of the future RFAs for the program.



Sec. 3430.16  Eligibility requirements.

    (a) General. Program-specific eligibility requirements appear in the 
subpart applicable to each program and in the RFAs.
    (b) Foreign entities--(1) Awards to institutions. Unless 
specifically allowed, foreign commercial and non-profit institutions are 
not considered eligible to apply for and receive NIFA awards.
    (2) Awards to individuals. Unless otherwise specified, only United 
States citizens, non-citizen nationals of the United States, and lawful 
permanent residents of the United States are eligible to apply for and 
receive NIFA awards.
    (c) Responsibility determination. In addition to program-specific 
eligibility requirements, awards will be made only to responsible 
applicants. Specific management information relating to an applicant 
shall be submitted on a one-time basis, with updates on an as-needed 
basis, as part of the responsibility determination prior to an award 
being made under a specific NIFA program, if such information has not 
been provided previously under this or another NIFA program. NIFA will 
provide copies of forms recommended for use in fulfilling these 
requirements as part of the pre-award process. Although an applicant may 
be eligible based on its status as one of these entities, there are 
factors that may exclude an applicant from receiving Federal financial 
and nonfinancial assistance and benefits under a NIFA program

[[Page 309]]

(e.g., debarment or suspension of an individual involved or a 
determination that an applicant is not responsible based on submitted 
organizational management information).
    (d) Certification of NLGCA status. NIFA will make publically 
available (e.g., Federal Register) the process through which 
institutions may apply for designation as a NLGCA. The public notice 
will, at a minimum, include NLGCA criteria, instructions on how to 
request designation, information about how NIFA will respond to 
requests, and termination of NLGCA status.
    (e) Center of Excellence. (1) To be considered as a center of 
excellence, a center of excellence must be one of the following entities 
that provides financial or in-kind support to the center being proposed:
    (i) State agricultural experiment stations;
    (ii) Colleges and universities;
    (iii) University research foundations;
    (iv) Other research institutions and organizations;
    (v) Federal agencies;
    (vi) National laboratories;
    (vii) Private organizations, foundations, or corporations;
    (viii) Individuals; or
    (ix) A group consisting of two or more of the entities described in 
paragraphs (e)(1)(i) through (viii) of this section.
    (2) Only standard grant and coordinated agricultural project (CAP) 
grant applicants may be considered for center of excellence designation.

[74 FR 45740, Sept. 4, 2009, as amended at 81 FR 6414, Feb. 8, 2016; 82 
FR 21109, May 5, 2017]



Sec. 3430.17  Content of an application.

    (a) The RFA provides instructions on how to access a funding 
opportunity. The funding opportunity contains the application package, 
which includes the forms necessary for completion of an application in 
response to the RFA, as well as the application instructions. The 
application instructions document, ``NIFA Grants.gov Application Guide: 
A Guide for Preparation and Submission of NIFA Applications via 
Grants.gov,'' is intended to assist applicants in the preparation and 
submission of applications to NIFA. It is also the primary document for 
use in the preparation of NIFA applications via Grants.gov.
    (b) Center of Excellence: In addition to meeting the other 
requirements detailed in the request for application (RFA), eligible 
applicants who wish to be considered as a center of excellence must 
provide a brief justification statement at the end of their project 
narrative and within the page limits provided for the project narrative, 
describing how they meet the standards of a center of excellence, based 
on the following criteria:
    (1) The ability of the center of excellence to ensure coordination 
and cost effectiveness by reducing unnecessarily duplicative efforts 
regarding research, teaching, and extension in the implementation of the 
proposed research and/or extension activity outlined in this 
application;
    (2) In addition to any applicable matching requirements, the ability 
of the center of excellence to leverage available resources by using 
public- private partnerships among agricultural industry groups, 
institutions of higher education, and the Federal Government in the 
implementation of the proposed research and/or extension activity 
outlined in this application. Resources leveraged should be commensurate 
with the size of the award;
    (3) The planned scope and capability of the center of excellence to 
implement teaching initiatives to increase awareness and effectively 
disseminate solutions to target audiences through extension activities 
in the implementation of the proposed research and/or extension activity 
outlined in this application; and
    (4) The ability or capacity of the center of excellence to increase 
the economic returns to rural communities by identifying, attracting, 
and directing funds to high-priority agricultural issues in support of 
and as a result of the implementation of the proposed research and/or 
extension activity outlined in this application.
    (5) Additionally, where practicable (not required), center of 
excellence applicants should describe proposed efforts to improve 
teaching capacity and infrastructure at colleges and universities 
(including land-grant colleges

[[Page 310]]

and universities, cooperating forestry schools, certified Non-Land Grant 
Colleges of Agriculture (NLGCA) (list of certified NLGCA is available at 
http://www.nifa.usda.gov/funding/pdfs/nlgca_colleges.pdf), and schools 
of veterinary medicine).

[74 FR 45740, Sept. 4, 2009, as amended at 82 FR 21109, May 5, 2017]



Sec. 3430.18  Submission of an application.

    (a) When to submit. The RFA will provide deadlines for the 
submission of letters of intent, if requested and required, and 
applications. NIFA may issue separate RFAs and/or establish separate 
deadlines for different types of applications, different award 
instruments, or different topics or phases of the Federal assistance 
programs. If applications are not received by applicable deadlines, they 
will not be considered for funding. Exceptions will be considered only 
when extenuating circumstances exist, as determined by NIFA, and 
justification and supporting documentation are provided to NIFA.
    (b) What to submit. The contents of the applicable application 
package, as well as any other information, are to be submitted by the 
due date.
    (c) Where to submit. The RFA will provide addresses for submission 
of letters of intent, if requested or required, and applications. It 
also will indicate permissible methods of submission (i.e., electronic, 
e-mail, hand-delivery, U.S. Postal Service, courier). Conformance with 
preparation and submission instructions is required and will be strictly 
enforced unless a deviation had been approved. NIFA may establish 
additional requirements. NIFA may return without review applications 
that are not consistent with the RFA instructions.



Sec. 3430.19  Resubmission of an application.

    (a) Previously unfunded applications. (1) Applications that are 
resubmitted to a program, after being previously submitted but not 
funded by that program, must include the following information:
    (i) The NIFA-assigned proposal number of the previously submitted 
application.
    (ii) Summary of the previous reviewers' comments.
    (iii) Explanation of how the previous reviewers' comments or 
previous panel summary have been addressed in the current application.
    (2) Resubmitting an application that has been revised based on 
previous reviewers' critiques does not guarantee the application will be 
recommended for funding.
    (b) Previously funded applications. (1) NIFA competitive programs 
are generally not designed to support multiple Federal assistance awards 
activities that are essentially repetitive in nature. PDs who have had 
their projects funded previously are discouraged from resubmitting 
relatively identical applications for further funding. Applications that 
are sequential continuations or new stages of previously funded projects 
must compete with first-time applications, and should thoroughly 
demonstrate how the proposed project expands substantially on previously 
funded efforts and promotes innovation and creativity beyond the scope 
of the previously funded project.
    (2) An application may be submitted only once to NIFA. The 
submission of duplicative or substantially similar applications 
concurrently for review by more than one program will result in the 
exclusion of the redundant applications from NIFA consideration.



Sec. 3430.20  Acknowledgment of an application.

    The receipt of all letters of intent and applications will be 
acknowledged by NIFA. Applicants who do not receive an acknowledgement 
within a certain number of days (as established in the RFA, e.g., 15 and 
30 days) of the submission deadline should contact the program contact. 
Once the application has been assigned a proposal number by NIFA, that 
number should be cited on all future correspondence.



Sec. 3430.21  Confidentiality of applications and awards.

    (a) General. Names of submitting institutions and individuals, as 
well as application contents and evaluations, will be kept confidential, 
except to those involved in the review process, to the extent 
permissible by law.

[[Page 311]]

    (b) Identifying confidential and proprietary information in an 
application. If an application contains proprietary information that 
constitutes a trade secret, proprietary commercial or financial 
information, confidential personal information, or data affecting the 
national security, it will be treated in confidence to the extent 
permitted by law, provided that the information is clearly marked by the 
proposer with the term ``confidential and proprietary information'' and 
that the following statement is included at the bottom of the project 
narrative or any other attachment included in the application that 
contains such information: ``The following pages (specify) contain 
proprietary information which (name of proposing organization) requests 
not to be released to persons outside the Government, except for 
purposes of evaluation.''
    (c) Disposition of applications. By law, the Department is required 
to make the final decisions as to whether the information is required to 
be kept in confidence. Information contained in unsuccessful 
applications will remain the property of the proposer. However, the 
Department will retain for three years one file copy of each application 
received; extra copies will be destroyed. Public release of information 
from any application submitted will be subject to existing legal 
requirements. Any application that is funded will be considered an 
integral part of the award and normally will be made available to the 
public upon request, except for designated proprietary information that 
is determined by the Department to be proprietary information.
    (d) Submission of proprietary information. The inclusion of 
proprietary information is discouraged unless it is necessary for the 
proper evaluation of the application. If proprietary information is to 
be included, it should be limited, set apart from other text on a 
separate page, and keyed to the text by numbers. It should be confined 
to a few critical technical items that, if disclosed, could jeopardize 
the obtaining of foreign or domestic patents. Trade secrets, salaries, 
or other information that could jeopardize commercial competitiveness 
should be similarly keyed and presented on a separate page. Applications 
or reports that attempt to restrict dissemination of large amounts of 
information may be found unacceptable by the Department and constitute 
grounds for return of the application without further consideration. 
Without assuming any liability for inadvertent disclosure, the 
Department will limit dissemination of such information to its employees 
and, where necessary for the evaluation of the application, to outside 
reviewers on a confidential basis. An application may be withdrawn at 
any time prior to the final action thereon.



         Subpart C_Pre-award: Application Review and Evaluation



Sec. 3430.31  Guiding principles.

    The guiding principle for Federal assistance application review and 
evaluation is to ensure that each proposal is treated in a consistent 
and fair manner regardless of regional and institutional affiliation. 
After the evaluation process by the review panel, NIFA, through the 
program officer, ensures that applicants receive appropriate feedback 
and comments on their proposals, and processes the awards in as timely a 
manner as possible.



Sec. 3430.32  Preliminary application review.

    Prior to technical examination, a preliminary review will be made of 
all applications for responsiveness to the administrative requirements 
set forth in the RFA. Applications that do not meet the administrative 
requirements may be eliminated from program competition. However, NIFA 
retains the right to conduct discussions with applicants to resolve 
technical and/or budget issues, as deemed necessary by NIFA.



Sec. 3430.33  Selection of reviewers.

    (a) Requirement. NIFA is responsible for performing a review of 
applications submitted to NIFA competitive award programs in accordance 
with section 103(a) of AREERA (7 U.S.C. 7613(a)). Reviews are undertaken 
to ensure that projects supported by NIFA are of high quality and are 
consistent with the goals and requirements of the funding program. 
Applications submitted to

[[Page 312]]

NIFA undergo a programmatic evaluation to determine the worthiness of 
Federal support. The scientific peer review or merit review is performed 
by peer or merit reviewers and also may entail an assessment by Federal 
employees.
    (b) NIFA Peer Review System. The NIFA Application Review Process is 
accomplished through the use of the NIFA Peer Review System (PRS), a 
Web-based system which allows reviewers and potential reviewers to 
update personal information and to complete and submit reviews 
electronically to NIFA.
    (c) Relevant training and experience. Reviewers will be selected 
based upon training and experience in relevant scientific, extension, or 
education fields taking into account the following factors:
    (1) Level of relevant formal scientific, technical education, and 
extension experience of the individual, as well as the extent to which 
an individual is engaged in relevant research, education, or extension 
activities.
    (2) Need to include as reviewers experts from various areas of 
specialization within relevant scientific, education, and extension 
fields.
    (3) Need to include as reviewers other experts (e.g., producers, 
range or forest managers/operators, and consumers) who can assess 
relevance of the applications to targeted audiences and to program 
needs.
    (4) Need to include as reviewers experts from a variety of 
organizational types (e.g., colleges, universities, industry, State and 
Federal agencies, private profit and nonprofit organizations) and 
geographic locations.
    (5) Need to maintain a balanced composition of reviewers with regard 
to minority and female representation and an equitable age distribution.
    (6) Need to include reviewers who can judge the effective usefulness 
to producers and the general public of each application.
    (d) Confidentiality. The identities of reviewers will remain 
confidential to the maximum extent possible. Therefore, the names of 
reviewers will not be released to applicants. If it is possible to 
reveal the names of reviewers in such a way that they cannot be 
identified with the review of any particular application, this will be 
done at the end of the fiscal year or as requested. Names of submitting 
institutions and individuals, as well as application content and peer 
evaluations, will be kept confidential, except to those involved in the 
review process, to the extent permitted by law. Reviewers are expected 
to be in compliance with NIFA Confidentiality Guidelines. Reviewers 
provide this assurance through PRS.
    (e) Conflicts of interest. During the evaluation process, extreme 
care will be taken to prevent any actual or perceived conflicts of 
interest that may impact review or evaluation. For the purpose of 
determining conflicts of interest, the academic and administrative 
autonomy of an institution shall be determined. Reviewers are expected 
to be in compliance with NIFA Conflict-of-Interest Guidelines. Reviewers 
provide this assurance through PRS.



Sec. 3430.34  Evaluation criteria.

    (a) General. To ensure any project receiving funds from NIFA is 
consistent with the broad goals of the funding program, the content of 
each proposal/application submitted to NIFA will be evaluated based on a 
pre-determined set of review criteria. It is the responsibility of the 
Program Officer to develop, adopt, adapt, or otherwise establish the 
criteria by which proposals are to be evaluated. It may be appropriate 
for the Program Officer to involve other scientists or stakeholders in 
the development of criteria, or to extract criteria from legislative 
authority or appropriations language. The review criteria are described 
in the RFA and shall not include criteria concerning any cost sharing or 
matching requirements per section 103(a)(3) of AREERA (7 U.S.C. 
7613(a)(3)).
    (b) Guidance for reviewers. In order that all potential applicants 
for a program have similar opportunities to compete for funds, all 
reviewers will receive from the Program Officer a description of the 
review criteria. Reviewers are instructed to use those same evaluation 
criteria, and only those criteria, to judge the merit of the proposals 
they review.
    (c) Center of Excellence status. All eligible applicants will be 
competitively

[[Page 313]]

peer reviewed (as described in Part V, A. and B. of the RFA), and ranked 
in accordance with the evaluation criteria. Those that rank highly 
meritorious and requested to be considered as a center of excellence 
will be further evaluated by the peer panel to determine whether they 
have met the criteria to be a center of excellence. In instances where 
they are found to be equally meritorious with the application of a non-
center of excellence, based on peer review, selection for funding will 
be weighed in favor of applicants meeting the center of excellence 
criteria. NIFA will effectively use the center of excellence 
prioritization as a ``tie breaker''. Applicants that rank highly 
meritorious but who did not request consideration as a center of 
excellence or who are not deemed to have met the center of excellence 
standards may still receive funding.

[74 FR 45740, Sept. 4, 2009, as amended at 82 FR 21109, May 5, 2017]



Sec. 3430.35  Review of noncompetitive applications.

    (a) General. Some projects are directed by either authorizing 
legislation and/or appropriations to specifically support a designated 
institution or set of institutions for particular research, education, 
or extension topics of importance to the nation, a State, or a region. 
Although these projects may be awarded noncompetitively, these projects 
or activities are subject to the same application process, award terms 
and conditions, Federal assistance laws and regulations, reporting and 
monitoring requirements, and post-award administration and closeout 
policies and procedures as competitive Federal assistance programs. The 
only difference is these applications are not subject to a competitive 
peer or merit review process at the Agency level.
    (b) Requirements. All noncompetitive applications recommended for 
funding are required to be reviewed by the program officer and, as 
required, other Departmental and NIFA officials; and the review 
documented by the NIFA program officer. For awards recommended for 
funding at or greater than $10,000, an independent review and a unit 
review by program officials are required.



Sec. 3430.36  Procedures to minimize or eliminate duplication of effort.

    NIFA may implement appropriate business processes to minimize or 
eliminate the awarding of NIFA Federal assistance that unnecessarily 
duplicates activities already being sponsored under other awards, 
including awards made by other Federal agencies. Business processes may 
include the review of the Current and Pending Support Form; documented 
CRIS searches prior to award; the conduct of PD workshops, conferences, 
meetings, and symposia; and agency participation in Federal Government-
wide and other committees, taskforces, or groups that seek to solve 
problems related to agricultural research, education, and extension and 
other activities delegated to the NIFA Director.



Sec. 3430.37  Feedback to applicants.

    Copies of individual reviews and/or summary reviews, not including 
the identity of reviewers, will be sent to the applicant PDs after the 
review process has been completed.



                             Subpart D_Award



Sec. 3430.41  Administration.

    (a) General. Within the limit of funds available for such purpose, 
the NIFA ADO shall make Federal assistance awards to those responsible, 
eligible applicants whose applications are judged most meritorious under 
the procedures set forth in the RFA. The date specified by the NIFA ADO 
as the effective date of the award shall be no later than September 30th 
of the Federal fiscal year in which the project is approved for support 
and funds are appropriated for such purpose, unless otherwise permitted 
by law. It should be noted that the project need not be initiated on the 
award effective date, but as soon thereafter as practical so that 
project goals may be attained within the funded project period. All 
funds awarded by NIFA shall be expended solely for the purpose for which 
the funds are awarded in accordance with the approved application and 
budget,

[[Page 314]]

the regulations, the terms and conditions of the award, the applicable 
Federal cost principles, and the Department's assistance regulations 
(e.g., 2 CFR part 200).
    (b) Notice of Award. The notice of award document (i.e., Form NIFA-
2009, Award Face Sheet) will provide pertinent instructions and 
information noted in 2 CFR 200.211.
    (c) Center of Excellence. Applicant's Notice of Award will reflect 
that, for that particular grant program, the applicant meets all of the 
requirements of a center of excellence. Entities recognized as a center 
of excellence will maintain that distinction for the duration of their 
award or as identified in the terms and conditions of that award.

[74 FR 45740, Sept. 4, 2009, as amended at 79 FR 76001, Dec. 19, 2014; 
82 FR 21110, May 5, 2017; 85 FR 72913, Nov. 16, 2020]



Sec. 3430.42  Special award conditions.

    (a) General. NIFA may, with respect to any award, impose additional 
conditions prior to or at the time of any award when, in the judgment of 
NIFA, such conditions are necessary to ensure or protect advancement of 
the approved project, the interests of the public, or the conservation 
of grant or cooperative agreement funds. NIFA may impose additional 
requirements if an applicant or recipient has a history of poor 
performance; is not financially stable; has a management system that 
does not meet prescribed standards; has not complied with the terms and 
conditions of a previous award; or is not otherwise responsible.
    (b) Notification of additional requirements. When NIFA imposes 
additional requirements, NIFA will notify the recipient in writing as to 
the following: The nature of the additional requirements; the reason why 
the additional requirements are being imposed; the nature of the 
corrective actions needed; the time allowed for completing the 
corrective actions; and the method for requesting reconsideration of the 
additional requirements imposed.
    (c) Form NIFA-2009, Award Face Sheet. These special award 
conditions, as applicable, will be added as a special provision to the 
award terms and conditions and identified on the Form NIFA-2009, Award 
Face Sheet, for the award.
    (d) Removal of additional requirements. NIFA will promptly remove 
any additional requirements once the conditions that prompted them have 
been corrected.



                    Subpart E_Post-Award and Closeout



Sec. 3430.51  Payment.

    (a) General. All payments will be made in advance unless a deviation 
is accepted (see Sec. 3430.3) or as specified in paragraph (b) of this 
section. All payments to the awardee shall be made via the U.S. 
Department of Health and Human Services' Payment Management System 
(DHHS-PMS), U.S. Department of the Treasury's Automated Standard 
Application for Payments (ASAP) system, or another electronic funds 
transfer (EFT) method, except for awards to other Federal agencies. 
Awardees are expected to request funds via DHHS-PMS, ASAP, or other 
electronic payment system for reimbursement basis in a timely manner.
    (b) Reimbursement method. NIFA shall use the reimbursement method if 
it determines that advance payment is not feasible and that the awardee 
does not maintain or demonstrate the willingness to maintain written 
procedures that minimize the time elapsing between the transfer of funds 
and disbursement by the awardee, and financial management systems that 
meet the standards for fund control and accountability.



Sec. 3430.52  Cost sharing and matching.

    (a) General. Awardees may be required to match the Federal funds 
received under a NIFA award. The required percentage of matching, type 
of matching (e.g., cash and/or in-kind contributions), sources of match 
(e.g., non-Federal), and whether NIFA has any authority to waive the 
match will be specified in the subpart applicable to the specific 
Federal assistance program, as well as in the RFA.
    (1) A recipient of a NIFA competitive grant programs that are 
awarded under a covered law provided in section 3371 of under the 
National Agricultural Research, Extension, and Teaching Policy

[[Page 315]]

Act of 1977 must provide funds, in-kind contributions, or a combination 
of both, from sources other than funds provided through such grant in an 
amount that is at least equal to the amount awarded by NIFA unless an 
exception applies. NIFA will determine program applicability of this 
match and include in the RFA for those programs: The match requirement, 
exceptions, waivers, and any other information necessary to determine 
applicability of the match requirement. In accordance with section 1492 
of the National Agricultural Research, Extension, and Teaching Policy 
Act of 1977 (7 U.S.C. 3371), as added by section 7128 of the 
Agricultural Act of 2014 (Pub. L. 113-79), for grants awarded after 
October 1, 2014, the recipient of an award must provide funds, in-kind 
contributions, or a combination of both, from sources other than funds 
provided through such grant in an amount that is at least equal to the 
amount awarded by NIFA unless one of the exemptions described herein is 
applicable.
    (2) The matching funds requirement does not apply to grants awarded:
    (i) To a research agency of the United States Department of 
Agriculture (USDA); or
    (ii) To an entity eligible to receive funds under a capacity and 
infrastructure program (as defined in section 251(f)(1)(C) of the 
Department of Agriculture Reorganization Act of 1994, 7 U.S.C. 
6971(f)(1)(C)), including a partner of such an entity. Entities eligible 
to receive funds under a capacity and infrastructure program and exempt 
from the matching funds requirement include:
    (A) 1862 Land-grant Institutions, including State Agricultural 
Experiment Stations receiving funding under the Hatch Act of 1887;
    (B) 1890 Land-grant Institutions;
    (C) 1994 Land-grant Institutions;
    (D) Entities eligible to receive funds under the of Continuing 
Animal Health and Disease, Food Security, and Stewardship Research, 
Education, and Extension Program Funds--Capacity and Infrastructure 
Program (CIP);
    (E) Hispanic-Serving Agricultural Colleges and Universities (HSACU);
    (F) Insular Area Schools Eligible to Receive Funds from the Distance 
Education/Resident Instruction Grant Programs;
    (G) Entities eligible to receive funds under the of McIntire-Stennis 
Cooperative Forestry Program Funds;
    (H) Non-Land Grant Colleges of Agriculture (NLGCA)--(for exemption 
from the new matching requirement, these applications must include NLGCA 
certification, see instructions for requesting certifications at http://
www.nifa.usda.gov/form/form.html, and for attaching the certification in 
Part IV, B. of this RFA);
    (I) Entities eligible to receive funds under a program established 
under section 1417(b) of the National Agricultural Research, Extension, 
and Teaching Policy Act of 1977 (7 U.S.C. 3152(b)), including:
    (1) 1890 Institution Teaching, Research, and Extension Capacity 
Building Grants Program;
    (2) Higher Education Challenge Grants Program;
    (3) Higher Education Multicultural Scholars Program; and
    (4) Food and Agricultural Sciences National Needs Graduate and 
Postgraduate Fellowship Grants Program.
    (J) Individual public or private, nonprofit Alaska Native-Serving 
and Native Hawaiian-Serving Institutions of higher education (see 20 
U.S.C. 1059d).
    (b) Indirect Costs as in-kind matching contributions. Indirect costs 
may be claimed under the Federal portion of the award budget or, 
alternatively, indirect costs may be claimed as a matching contribution 
(if no indirect costs are requested under the Federal portion of the 
award budget). However, unless explicitly authorized in the RFA, 
indirect costs may not be claimed on both the Federal portion of the 
award budget and as a matching contribution, unless the total claimed on 
both the Federal portion of the award budget and as a matching 
contribution does not exceed the maximum allowed indirect costs or the 
institution's negotiated indirect cost rate, whichever is less. An 
awardee may split the allocation between the Federal and non-Federal 
portions of the budget only if the total amount of indirect costs 
charged to the project does not exceed the maximum allowed

[[Page 316]]

indirect costs or the institution's negotiated indirect cost rate, 
whichever is less. For example, if an awardee's indirect costs are 
capped at 22 percent pursuant to section 1462(a) of NARETPA (7 U.S.C. 
3310(a)), the awardee may request 11 percent of the indirect costs on 
both the Federal portion of the award and as a matching contribution. 
Or, the awardee may request any similar percentage that, when combined, 
does not exceed the maximum indirect cost rate of 22 percent.

[74 FR 45740, Sept. 4, 2009, as amended at 81 FR 6414, Feb. 8, 2016]



Sec. 3430.53  Program income.

    (a) General. NIFA shall apply the standards set forth in this 
subpart in requiring awardee organizations to account for program income 
related to projects financed in whole or in part with Federal funds.
    (b) Addition method. Unless otherwise provided in the authorizing 
statute, in accordance with the terms and conditions of the award, 
program income earned during the project period shall be retained by the 
awardee and shall be added to funds committed to the project by NIFA and 
the awardee and used to further eligible project or program objectives. 
Any specific program deviations will be identified in the individual 
subparts.
    (c) Award terms and conditions. Unless the program regulations 
identified in the individual subpart provide otherwise, awardees shall 
follow the terms and conditions of the award.



Sec. 3430.54  Indirect costs.

    Indirect cost rates for grants and cooperative agreements shall be 
determined in accordance with 2 CFR part 200, unless superseded by 
another authority. Any restriction on indirect costs is to be identified 
in the request for applications as appropriate. Use of indirect costs as 
in-kind matching contributions is subject to Sec. 3430.52(b).

[81 FR 6414, Feb. 8, 2016]



Sec. 3430.55  Technical reporting.

    (a) Requirement. All projects supported with Federal funds under 
this part must be documented in the Current Research Information System 
(CRIS).
    (b) Initial Documentation in the CRIS Database. Information 
collected in the ``Work Unit Description'' (Form AD-416) and ``Work Unit 
Classification'' (Form AD-417) is required upon project initiation for 
all new awards in CRIS (i.e., prior to award).
    (c) Annual CRIS Reports. Unless stated differently in the award 
terms and conditions, an annual ``Accomplishments Report'' (Form AD-421) 
is due 90 calendar days after the award's anniversary date (i.e., one 
year following the month and day on which the project period begins and 
each year thereafter up until a final report is required). An annual 
report covers a one-year period. In addition to the Form AD-421, the 
following information, when applicable, must be submitted to the 
programmatic contact person identified in block 14 of the Award Face 
Sheet (Form NIFA-2009): a comparison of actual accomplishments with the 
goals established for the reporting period (where the output of the 
project can be expressed readily in numbers, a computation of the cost 
per unit of output should be considered if the information is considered 
useful); the reasons for slippage if established goals were not met; and 
additional pertinent information including, when appropriate, analysis 
and explanation of cost overruns or unexpectedly high unit costs. The 
annual report of ``Funding and Staff Support'' (Form AD-419) is due 
February 1 of the year subsequent to the Federal fiscal year being 
reported.
    (d) CRIS Final Report. The CRIS final report, ``Accomplishments 
Report'' (Form AD-421), covers the entire period of performance of the 
award. The report should encompass progress made during the entire 
timeframe of the project instead of covering accomplishments made only 
during the final reporting segment of the project. In addition to 
providing the information required under paragraph (c) of this section, 
the final report must include the following when applicable: a 
disclosure of any inventions not previously reported that were conceived 
or first actually reduced to practice during the performance of the work 
under the

[[Page 317]]

award; a written statement on whether or not the awardee elects (or 
plans to elect) to obtain patent(s) on any such invention; and an 
identification of equipment purchased with any Federal funds under the 
award and any subsequent use of such equipment.
    (e) CRIS Web Site Via Internet. The CRIS database is available to 
the public on the worldwide web. CRIS project information is available 
via the Internet CRIS Web site at http://cris.nifa.usda.gov. To submit 
forms electronically, the CRIS forms Web site can be accessed through 
the CRIS Web site or accessed directly at http://cwf.uvm.edu/cris.
    (f) Additional reporting requirements. Awardees may be required to 
submit other technical reports or submit the CRIS reports more 
frequently than annually. Additional requirements for a specific Federal 
assistance program are described in the applicable subpart after subpart 
E and are identified in the RFA. The Award Face Sheet (Form NIFA-2009) 
also will specify these additional reporting requirements as a special 
provision to the award terms and conditions.



Sec. 3430.56  Financial reporting.

    (a) SF-269, Financial Status Report. Unless stated differently in 
the award terms and conditions, a final SF-269, Financial Status Report, 
is due 90 days after the expiration of the award and should be submitted 
to the Awards Management Branch (AMB) at Awards Management Branch; 
Office of Extramural Programs, NIFA; U.S. Department of Agriculture; 
STOP 2271; 1400 Independence Avenue, SW.; Washington, DC 20250-2271. The 
awardee shall report program outlays and program income on the same 
accounting basis (i.e., cash or accrual) that it uses in its normal 
accounting system. When submitting a final SF-269, Financial Status 
Report, the total matching contribution, if required, should be shown in 
the report. The final SF-269 must not show any unliquidated obligations. 
If the awardee still has valid obligations that remain unpaid when the 
report is due, it shall request an extension of time for submitting the 
report pursuant to paragraph (c) of this section; submit a provisional 
report (showing the unliquidated obligations) by the due date; and 
submit a final report when all obligations have been liquidated, but no 
later than the approved extension date. SF-269, Financial Status 
Reports, must be submitted by all awardees, including Federal agencies 
and national laboratories.
    (b) Awards with Required Matching. For awards requiring a matching 
contribution, an annual SF-269, Financial Status Report, is required and 
this requirement will be indicated on the Award Face Sheet, Form-2009, 
in which case it must be submitted no later than 45 days following the 
end of the budget or reporting period.
    (c) Requests for an extension to submit a final SF-269, Financial 
Status Report--(1) Before the due date. Awardees may request, prior to 
the end of the 90-day period following the award expiration date, an 
extension to submit a final SF-269, Financial Status Report. This 
request should include a provisional report pursuant to paragraph (a) of 
this section, as well as an anticipated submission date and a 
justification for the late submission. Subject to Sec. 3430.63 or other 
statutory or agency policy limitations, funds will remain available for 
drawdown during this period.
    (2) After the due date. Requests are considered late when they are 
submitted after the 90-day period following the award expiration date. 
Requests to submit a final SF-269, Financial Status Report, will only be 
considered, up to 30 days after the due date, in extenuating 
circumstances. This request should include a provisional report pursuant 
to paragraph (a) of this section, as well as an anticipated submission 
date, a justification for the late submission, and a justification for 
the extenuating circumstances. However, such requests are subject to 
Sec. 3430.63 or any other statutory or agency policy limitations. If an 
awardee needs to request additional funds, procedures in paragraph (d) 
of this section apply.
    (d) Overdue SF-269, Financial Status Reports. Awardees with overdue 
SF-269, Financial Status Reports, or other required financial reports 
(as identified in the award terms and conditions), will have their 
applicable balances at DHHS-PMS, ASAP, or other electronic

[[Page 318]]

payment system restricted or placed on ``manual review,'' which 
restricts the awardee's ability to draw funds, thus requiring prior 
approval from NIFA. If any remaining available balances are needed by 
the awardee (beyond the 90-day period following the award expiration 
date) and the awardee has not requested an extension to submit a final 
SF-269, Financial Status Report, the awardee will be required to contact 
AMB to request permission to draw any additional funds and will be 
required to provide justification and documentation to support the draw. 
Awardees also will need to comply with procedures in paragraph (c) of 
this section. AMB will approve these draw requests only in extenuating 
circumstances, as determined by NIFA.
    (e) SF-272, Federal Cash Transactions Report. Awardees receiving 
electronic payments through DHHS-PMS are required to submit their SF-
272, Federal Cash Transactions Report, via the DHHS-PMS by the specified 
dates. Failure to submit this quarterly report by the due date may 
result in funds being restricted by DHHS-PMS. Awardees not receiving 
payments through DHHS-PMS may be exempt from this reporting requirement.
    (f) Additional reporting requirements. NIFA may require additional 
financial reporting requirements as follows: NIFA may require forecasts 
of Federal cash requirements in the ``Remarks'' section of the report; 
and when practical and deemed necessary, NIFA may require awardees to 
report in the ``Remarks'' section the amount of cash advances received 
in excess of three days (i.e., short narrative with explanations of 
actions taken to reduce the excess balances). When NIFA needs additional 
information or more frequent reports, a special provision will be added 
to the award terms and conditions and identified on the Form NIFA-2009, 
Award Face Sheet. Should NIFA determine that an awardee's accounting 
system is inadequate, additional pertinent information to further 
monitor awards may be requested from the awardee until such time as the 
system is brought up to standard, as determined by NIFA. This additional 
reporting requirement will be required via a special provision to the 
award terms and conditions and identified on the Form-2009, Award Face 
Sheet.



Sec. 3430.57  Project meetings.

    In addition to reviewing (and monitoring the status of) progress and 
final technical reports and financial reports, NIFA Program Officers may 
use regular and periodic conference calls to monitor the awardee's 
performance as well as PD conferences, workshops, meetings, and symposia 
to not only monitor the awards, but to facilitate communication and the 
sharing of project results. These opportunities also serve to eliminate 
or minimize NIFA funding unneeded duplicative project activities. 
Required attendance at these conference calls, conferences, workshops, 
meetings, and symposia will be identified in the RFA and the awardee 
should develop a proposal accordingly.



Sec. 3430.58  Prior approvals.

    (a) Subcontracts. No more than 50 percent of the award may be 
subcontracted to other parties without prior written approval of the ADO 
except contracts to other Federal agencies. Any subcontract awarded to a 
Federal agency under an award must have prior written approval of the 
ADO. To request approval, a justification for the proposed 
subcontractual arrangements, a performance statement, and a detailed 
budget for the subcontract must be submitted to the ADO.
    (b) No-cost extensions of time--(1) General. Awardees may initiate a 
one-time no-cost extension of the expiration date of the award of up to 
12 months unless one or more of the following conditions apply: the 
terms and conditions of the award prohibit the extension; the extension 
requires additional Federal funds; and the extension involves any change 
in the approved objectives or scope of the project. For the first no-
cost extension, the awardee must notify NIFA in writing with the 
supporting reasons and revised expiration date at least 10 days before 
the expiration date specified in the award.
    (2) Additional requests for no-cost extensions of time before 
expiration date. When more than one no-cost extension of time or an 
extension of more than 12 months is required, the extension(s)

[[Page 319]]

must be approved in writing by the ADO. The awardee should prepare and 
submit a written request (which must be received no later than 10 days 
prior to the expiration date of the award) to the ADO. The request must 
contain, at a minimum, the following information: the length of the 
additional time required to complete the project objectives and a 
justification for the extension; a summary of the progress to date; an 
estimate of the funds expected to remain unobligated on the scheduled 
expiration date; a projected timetable to complete the portion(s) of the 
project for which the extension is being requested; and signature of the 
AR and the PD.
    (3) Requests for no-cost extensions of time after expiration date. 
NIFA may consider and approve requests for no-cost extensions of time up 
to 120 days following the expiration of the award. These will be 
approved only for extenuating circumstances, as determined by NIFA. The 
awardee's AR must submit the requirements identified under paragraph 
(b)(2) of this section as well as an ``extenuating circumstance'' 
justification and a description of the actions taken by the awardee to 
minimize these requests in the future.
    (4) Other requirements. No-cost extensions of time may not be 
exercised merely for the purpose of using unobligated balances. All 
extensions are subject to any statutory term limitations as well as any 
expiring appropriation limitations under Sec. 3430.63.



Sec. 3430.59  Review of disallowed costs.

    (a) Notice. If the NIFA determines that there is a basis for 
disallowing a cost, NIFA shall provide the awardee written notice of its 
intent to disallow the cost. The written notice shall state the amount 
of the cost and the factual and legal basis for disallowing it.
    (b) Awardee response. Within 60 days of receiving written notice of 
NIFA's intent to disallow the cost, the awardee may respond with written 
evidence and arguments to show the cost is allowable, or that , for 
equitable, practical, or other reasons, shall not recover all or part of 
the amount, or that the recovery should be made in installments. The 60-
day time period may be extended for an additional 30 days upon written 
request by the awardee; however, such request for an extension of time 
must be made before the expiration of the 60-day time period specified 
in this paragraph. An extension of time will be granted only in 
extenuating circumstances.
    (c) Decision. Within 60 days of receiving the awardee's written 
response to the notice of intent to disallow the cost, NIFA shall issue 
a management decision stating whether or not the cost has been 
disallowed, the reasons for the decision, and the method of appeal that 
has been provided under this section. If the awardee does not respond to 
the written notice under paragraph (a) of this section within the time 
frame specified in paragraph (b) of this section, NIFA shall issue a 
management decision on the basis of the information available to it. The 
management decision shall constitute the final action with respect to 
whether the cost is allowed or disallowed. In the case of a questioned 
cost identified in the context of an audit2 CFR 200.521, the management 
decision will constitute the management decision under 7 CFR 
3052.405(a).
    (d) Demand for payment. If the management decision under paragraph 
(c) of this section constitutes a finding that the cost is disallowed 
and, therefore, that a debt is owed to the Government, NIFA shall 
provide the required demand and notice pursuant to 7 CFR 3.11.
    (e) Review process. Within 60 days of receiving the demand and 
notice referred to in paragraph (d) of this section, the awardee may 
submit a written request to the NIFAOffice of Grants and Financial 
Management (OGFM) Deputy Director for a review of the final management 
decision that the debt exists and the amount of the debt. Within 60 days 
of receiving the written request for a review, the NIFA Deputy 
Administrator (or other senior NIFA official designated by the NIFA 
Office of Grants and Financial Management (OGFM) Deputy Director) will 
issue a final decision regarding the debt. Review by the NIFA Office of 
Grants and Financial Management (OGFM) Deputy Director or designee 
constitutes, and will be in accordance

[[Page 320]]

with, the administrative review procedures provided for debts under 7 
CFR part 3, subpart F.

[74 FR 45740, Sept. 4, 2009, as amended at 79 FR 76001, Dec. 19, 2014]



Sec. 3430.60  Suspension, termination, and withholding of support.

    (a) General. If an awardee has failed to materially comply with the 
terms and conditions of the award, NIFA may take certain enforcement 
actions, including, but not limited to, suspending the award pending 
corrective action, terminating the award for cause, and withholding of 
support.
    (b) Suspension. NIFA generally will suspend (rather than immediately 
terminate) an award to allow the awardee an opportunity to take 
appropriate corrective action before NIFA makes a termination decision. 
NIFA may decide to terminate the award if the awardee does not take 
appropriate corrective action during the period of suspension. NIFA may 
terminate, without first suspending, the award if the deficiency is so 
serious as to warrant immediate termination. Termination for cause may 
be appealed under the NIFA award appeals procedures specified in Sec. 
3430.62.
    (c) Termination. An award also may be terminated, partially or 
wholly, by the awardee or by NIFA with the consent of the awardee. If 
the awardee decides to terminate a portion of the award, NIFA may 
determine that the remaining portion of the award will not accomplish 
the purposes for which the award was originally made. In any such case, 
NIFA will advise the awardee of the possibility of termination of the 
entire award and allow the awardee to withdraw its termination request. 
If the awardee does not withdraw its request for partial termination, 
NIFA may initiate procedures to terminate the entire award for cause.
    (d) Withholding of support. Withholding of support is a decision not 
to make a non-competing continuation award within the current 
competitive segment. Support may be withheld for one or more of the 
following reasons: Adequate Federal funds are not available to support 
the project; an awardee failed to show satisfactory progress in 
achieving the objectives of the project; an awardee failed to meet the 
terms and conditions of a previous award; or for whatever reason, 
continued funding would not be in the best interests of the Federal 
Government. If a non-competing continuation award is denied (withheld) 
because the awardee failed to comply with the terms and conditions of a 
previous award, the awardee may appeal that determination under Sec. 
3430.62.



Sec. 3430.61  Debt collection.

    The collection of debts owed to NIFA by awardees, including those 
resulting from cost disallowances, recovery of funds, unobligated 
balances, or other circumstances, are subject to the Department's debt 
collection procedures as set forth in 7 CFR part 3, and, with respect to 
cost disallowances, Sec. 3430.59.



Sec. 3430.62  Award appeals procedures.

    (a) General. NIFA permits awardees to appeal certain post-award 
adverse administrative decisions made by NIFA. These include: 
termination, in whole or in part, of an award for failure of the awardee 
to carry out its approved project in accordance with the applicable law 
and the terms and conditions of award or for failure of the awardee 
otherwise to comply with any law, regulation, assurance, term, or 
condition applicable to the award; denial (withholding) of a non-
competing continuation award for failure to comply with the terms of a 
previous award; and determination that an award is void (i.e., a 
decision that an award is invalid because it was not authorized by 
statute or regulation or because it was fraudulently obtained). Appeals 
of determinations regarding the allowability of costs are subject to the 
procedures in Sec. 3430.59.
    (b) Appeal Procedures. The formal notification of an adverse 
determination will contain a statement of the awardee's appeal rights. 
As the first level in appealing an adverse determination, the awardee 
must submit a request for review to the NIFA official specified in the 
notification, detailing the nature of the disagreement with the adverse 
determination and providing supporting documents in accordance with the 
procedures contained in the notification. The awardee's request to NIFA 
for review must be received within 60

[[Page 321]]

days after receipt of the written notification of the adverse 
determination; however, an extension may be granted if the awardee can 
show good cause why an extension is warranted.
    (c) Decision. If the NIFA decision on the appeal is adverse to the 
awardee or if an awardee's request for review is rejected, the awardee 
then has the option of submitting a request to the NIFA Office of Grants 
and Financial Management (OGFM) Deputy Director for further review. The 
decision of the NIFA Office of Grants and Financial Management (OGFM) 
Deputy Director is considered final.

[74 FR 45740, Sept. 4, 2009, as amended at 79 FR 76001, Dec. 19, 2014]



Sec. 3430.63  Expiring appropriations.

    (a) NIFA awards supported with agency appropriations. Most NIFA 
awards are supported with annual appropriations. On September 30th of 
the 5th fiscal year after the period of availability for obligation 
ends, the funds for these appropriations accounts expire per 31 U.S.C. 
1552 and the account is closed, unless otherwise specified by law. Funds 
that have not been drawn through DHHS-PMS, ASAP, or other electronic 
payment system by the awardee or disbursed through any other system or 
method by August 31st of that fiscal year are subject to be returned to 
the U.S. Department of the Treasury after that date. The August 31st 
requirement also applies to awards with a 90-day period concluding on a 
date after August 31st of that fifth year. Appropriations cannot be 
restored after expiration of the accounts. More specific instructions 
are provided in the NIFA award terms and conditions.
    (b) NIFA awards supported with funds from other Federal agencies 
(reimbursable funds). NIFA may require that all draws and reimbursements 
for awards supported with reimbursable funds (from other Federal 
agencies) be completed prior to June 30th of the 5th fiscal year after 
the period of availability for obligation ends to allow for the proper 
billing, collection, and close-out of the associated interagency 
agreement before the appropriations expire. The June 30th requirement 
also applies to awards with a 90-day period concluding on a date after 
June 30th of that fifth year. Appropriations cannot be restored after 
expiration of the accounts. More specific instructions are provided in 
the NIFA award terms and conditions.



              Subpart F_Specialty Crop Research Initiative



Sec. 3430.200  Applicability of regulations.

    The regulations in this subpart apply to the program authorized 
under section 412 of the Agricultural Research, Extension, and Education 
Reform Act of 1998 (7 U.S.C. 7632).



Sec. 3430.201  Purpose.

    (a) Focus areas. The purpose of this program is to address the 
critical needs of the specialty crop industry by developing and 
disseminating science-based tools to address needs of specific crops and 
their regions, including the following five focus areas:
    (1) Research in plant breeding, genetics, genomics, and other 
methods to improve crop characteristics, such as--
    (i) Product, taste, quality, and appearance;
    (ii) Environmental responses and tolerances;
    (iii) Nutrient management, including plant nutrient uptake 
efficiency;
    (iv) Pest and disease management, including resistance to pests and 
diseases resulting in reduced application management strategies; and
    (v) Enhanced phytonutrient content.
    (2) Efforts to identify and address threats from pests and diseases, 
including threats to specialty crop pollinators.
    (3) Efforts to improve production efficiency, handling and 
processing, productivity, and profitability over the long term 
(including specialty crop policy and marketing).
    (4) New innovations and technology, including improved mechanization 
and technologies that delay or inhibit ripening.
    (5) Methods to prevent, detect, monitor, control, and respond to 
potential food safety hazards in the production and processing of 
specialty crops, including fresh produce.
    (b) Other. NIFA will award research and extension, including 
integrated,

[[Page 322]]

grants to eligible institutions listed in Sec. 3430.203. In addition to 
the focus areas identified in this section, NIFA may include additional 
activities or focus areas that will further address the critical needs 
of the specialty crop industry. Some of these activities or focus areas 
may be identified by stakeholder groups or by NIFA in response to 
emerging critical needs of the specialty crop industry.
    (c) In addition to SCRI grants, NIFA will make competitive research 
and extension grants under the Emergency Citrus Disease Research and 
Extension program (see Sec. 3430.209).

[74 FR 45740, Sept. 4, 2009, as amended at 81 FR 6414, Feb. 8, 2016]



Sec. 3430.202  Definitions.

    (a) The definitions applicable to the program under this subpart 
include:
    Integrated project means a project that incorporates the research 
and extension components of the agricultural knowledge system around a 
problem area or activity.
    Specialty crop means fruits and vegetables, tree nuts, dried fruits, 
and horticulture and nursery crops (including floriculture).
    Trans-disciplinary means a multi-discipline approach that brings 
biological and physical scientists together with economists and social 
scientists to address challenges in a holistic manner.
    (b) The following definitions apply to Sec. 3430.209:
    Citrus means edible fruit of the family Rutaceae, including any 
hybrid of such fruits and products of such hybrids that are produced for 
commercial purposes in the United States.
    Citrus producer means any person that is engaged in the domestic 
production and commercial sale of citrus in the United States.

[74 FR 45740, Sept. 4, 2009, as amended at 81 FR 6414, Feb. 8, 2016]



Sec. 3430.203  Eligibility.

    Eligible applicants for the grant program implemented under this 
subpart include: Federal agencies, national laboratories; colleges and 
universities (offering associate's or higher degrees); research 
institutions and organizations; private organizations or corporations; 
State agricultural experiment stations; individuals; and groups 
consisting of 2 or more entities identified in this sentence.



Sec. 3430.204  Project types and priorities.

    (a) For each RFA, NIFA may develop and include the appropriate 
project types and focus areas (in addition to the five focus areas 
identified in Sec. 3430.201) based on the critical needs of the 
specialty crop industry as identified through stakeholder input and 
deemed appropriate by NIFA. In making awards for this program, NIFA will 
give higher priority to projects that are multistate, multi-
institutional, and multidisciplinary; and include explicit mechanisms to 
communicate the results to producers and the public.
    (b) In awarding grants under Sec. 3430.208, priority will be given 
to grants that address the research and extension priorities established 
pursuant to section 1408A of the National Agricultural Research, 
Extension, and Teaching Policy Act of 1977 (7 U.S.C. 3123a).

[74 FR 45740, Sept. 4, 2009, as amended at 81 FR 6414, Feb. 8, 2016]



Sec. 3430.205  Funding restrictions.

    (a) Prohibition against construction. Funds made available under 
this subpart shall not be used for the construction of a new building or 
facility or the acquisition, expansion, remodeling, or alteration of an 
existing facility (including site grading and improvement, and architect 
fees).
    (b) Indirect costs. Subject to Sec. 3430.54, indirect costs are 
allowable.



Sec. 3430.206  Matching requirements.

    (a) Requirement. Grantees are required to provide funds or in-kind 
support from non-Federal sources in an amount that is at least equal to 
the amount provided by the Federal government. The matching contribution 
must be provided from non-Federal sources except when authorized by 
statute. The matching requirements under this subpart cannot be waived.
    (b) Indirect costs. Use of indirect costs as in-kind matching 
contributions is subject to Sec. 3430.52.

[[Page 323]]



Sec. 3430.207  Duration of awards.

    The term of a grant under this subpart shall not exceed 10 years.

[74 FR 45740, Sept. 4, 2009, as amended at 81 FR 6414, Feb. 8, 2016]



Sec. 3430.208  Review of applications.

    In addition to the scientific peer review (see Sec. 3430.33), NIFA 
will regularly conduct a panel of specialty crop industry 
representatives to review and rank applications for merit, relevance and 
impact.

[81 FR 6415, Feb. 8, 2016]



Sec. 3430.209  Emergency Citrus Disease Research and Extension Program.

    The purpose of this program is to award competitive grants to:
    (a) Conduct scientific research and extension activities, technical 
assistance, and development activities to combat citrus diseases and 
pests, both domestic and invasive, which pose imminent harm to the 
United States citrus production and threaten the future viability of the 
citrus industry, including huanglongbing and the Asian Citrus Psyllid; 
and
    (b) Provide support for the dissemination and commercialization of 
relevant information, techniques, and technologies discovered pursuant 
to research and extension activities funded through--
    (1) The emergency citrus disease research and extension program; or
    (2) Other research and extension projects intended to solve problems 
caused by citrus production diseases and invasive pests.

[81 FR 6415, Feb. 8, 2016]



           Subpart G_Agriculture and Food Research Initiative

    Source: 75 FR 54761, Sept. 9, 2010, unless otherwise noted.



Sec. 3430.300  Applicability of regulations.

    The regulations in this subpart apply to the Agriculture and Food 
Research Initiative (AFRI) authorized under section 2(b) of the 
Competitive, Special, and Facilities Research Grant Act (7 U.S.C. 
450i(b)).



Sec. 3430.301  Purpose.

    The purpose of this program is to make competitive grants for 
fundamental and applied research, extension, and education to address 
food and agricultural sciences, as defined under section 1404 of the 
National Agricultural Research, Extension, and Teaching Policy Act of 
1977 (7 U.S.C. 3103).



Sec. 3430.302  Definitions.

    The definitions applicable to the competitive grant programs under 
this subpart include:
    Food and Agricultural Science Enhancement (FASE) awards means 
funding awarded to eligible applicants to strengthen science 
capabilities of Project Directors, to help institutions develop 
competitive scientific programs, and to attract new scientists into 
careers in high-priority areas of National need in agriculture, food, 
and environmental sciences. FASE awards may apply to any of the three 
agricultural knowledge components (i.e., research, education, and 
extension). FASE awards include Pre- and Postdoctoral Fellowships, New 
Investigator grants, and Strengthening grants.
    Limited institutional success means institutions that are not among 
the most successful universities and colleges for receiving Federal 
funds for science and engineering research. A list of successful 
institutions will be provided in the RFA.
    Minority means Alaskan Native, American Indian, AsianAmerican, 
African-American, Hispanic American, Native Hawaiian, or Pacific 
Islander. The Secretary will determine on a case-by-case basis whether 
additional groups qualify under this definition, either at the 
Secretary's initiative, or in response to a written request with 
supporting explanation.
    Minority-serving institution means an accredited academic 
institution whose enrollment of a single minority or a combination of 
minorities exceeds fifty percent of the total enrollment, including 
graduate and undergraduate and full- and part-time students. An 
institution in this instance is an organization that is independently 
accredited

[[Page 324]]

as determined by reference to the current version of the Higher 
Education Directory, published by Higher Education Publications, Inc., 
6400 Arlington Boulevard, Suite 648, Falls Church, Virginia 22042.
    Multidisciplinary project means a project on which investigators 
from two or more disciplines collaborate to address a common problem. 
These collaborations, where appropriate, may integrate the biological, 
physical, chemical, or social sciences.
    Small and mid-sized institutions means academic institutions with a 
current total enrollment of 17,500 or less, including graduate and 
undergraduate as well as full- and part-time students. An institution, 
in this instance, is an organization that possesses a significant degree 
of autonomy. Significant degree of autonomy is defined by being 
independently accredited as determined by reference to the current 
version of the Higher Education Directory, published by Higher Education 
Publications, Inc., 6400 Arlington Boulevard, Suite 648, Falls Church, 
Virginia 22042 (703-532-2300).
    Strengthening grants means funds awarded to institutions eligible 
for FASE grants to enhance institutional capacity, with the goal of 
leading to future funding in the project area, as well as strengthening 
the competitiveness of the investigator's research, education, and/or 
extension activities. Strengthening grants consist of standard and 
Coordinated Agricultural Project (CAP) grant types as well as seed 
grants, equipment grants, and sabbatical grants.
    USDA EPSCoR States (Experimental Program for Stimulating Competitive 
Research) means States which have been less successful in receiving 
funding from AFRI, or its predecessor, the National Research Initiative 
(NRI), having a funding level no higher than the 38th percentile of all 
States based on a 3-year rolling average of AFRI and/or NRI funding 
levels, excluding FASE Strengthening funds granted to EPSCoR States, and 
small, mid-sized, and minority-serving degree-granting institutions. The 
most recent list of USDA EPSCoR States will be provided in the RFA.



Sec. 3430.303  Eligibility.

    (a) General. Unless otherwise specified in the RFA or this subpart, 
eligible applicants for the grant program implemented under this subpart 
include:
    (1) State agricultural experiment stations;
    (2) Colleges and universities (including junior colleges offering an 
associate's degree);
    (3) University research foundations;
    (4) Other research institutions and organizations;
    (5) Federal agencies;
    (6) National laboratories;
    (7) Private organizations or corporations;
    (8) Individuals; and
    (9) Any group consisting of 2 or more entities identified in 
paragraphs (a)(1) through (8) of this section.
    (b) Integrated projects. Eligible entities for the integrated 
component under this subpart include:
    (1) Colleges and universities;
    (2) 1994 Institutions; and
    (3) Hispanic-serving agricultural colleges and universities (as 
defined in section 1404 of the National Agricultural Research, 
Extension, and Teaching Policy Act of 1977 (7 U.S.C. 3103).
    (c) FASE Grants--(1) New investigator awards. To be eligible to 
apply, a new investigator must be in the beginning of his/her career, 
without an extensive publication record, and must have less than 5 years 
of postgraduate, career-track experience. To be eligible to receive a 
grant, the new investigator may not have received competitively awarded 
Federal funds, with the exception of pre- or postdoctoral awards or NRI/
AFRI Seed Grants. The AFRI RFA will contain specific instructions for 
New Investigator Grant eligibility, restrictions, and application 
preparation.
    (2) Pre- and postdoctoral fellowships. The following eligibility 
requirements apply to applicants for pre- and postdoctoral fellowships.
    (i) The doctoral degree of the applicant must be received not 
earlier than January 1 of the calendar year three years prior to the 
submission of the proposal and not later than nine months after the 
proposal due date; and

[[Page 325]]

    (ii) For pre-doctoral applications, the applicant must have advanced 
to candidacy by the application deadline.
    (3) Strengthening grants. Eligibility for all strengthening 
categories includes:
    (i) Small and mid-sized academic institutions that have had limited 
institutional success;
    (ii) Degree-granting institutions and State agricultural experiment 
stations (SAES) in USDA Experimental Program for Stimulating Competitive 
Research (EPSCoR) states; and
    (iii) Minority-serving institutions with limited institutional 
success.



Sec. 3430.304  Project Types and priorities.

    For each RFA, NIFA may develop and include the appropriate types of 
projects and focus areas to address the needs of scientists and 
educators in advanced or early stages of their careers and the 
differences in institutional capabilities. Types of projects will be 
revisited periodically based on stakeholder input and as deemed 
appropriate by NIFA. Types of projects under AFRI include, but are not 
limited to, the following.
    (a) Project Types--(1) Research projects. Single-function 
fundamental and applied Research Projects are conducted by individual 
investigators, co-investigators within the same discipline, or 
multidisciplinary teams.
    (2) Education projects. Single-function Education Projects provide 
funding to conduct classroom instruction, laboratory instruction, and 
practicum experience in the food and agricultural sciences and other 
related educational matters. Projects may include faculty development, 
student recruitment and services, curriculum development, instructional 
materials and equipment, and innovative teaching methods.
    (3) Extension Projects. Single-function Extension Projects provide 
funding for programs and activities that deliver science-based knowledge 
and informal educational programs to people, enabling them to make 
practical decisions.
    (4) Integrated Projects. Multifunction Integrated Projects bring 
together at least two of the three components of the agricultural 
knowledge system (i.e., research, education, and extension) around a 
problem or issue. The functions addressed in the project should be 
interwoven throughout the life of the project and act to complement and 
reinforce one another. The proposed research component of an Integrated 
Project should address knowledge gaps that are critical to the 
development of practices and programs to address the stated problem. The 
proposed education component of an Integrated Project should strengthen 
institutional capacities and result in curricula and related products 
that will be sustained beyond the life of the project. The proposed 
extension component of an Integrated Project should lead to measurable, 
documented changes in learning, actions, or conditions in an identified 
audience or stakeholder group. Appropriate project activities will be 
discussed in the RFA.
    (b) Grant Types--(1) Standard Grants. Standard Grants support 
targeted, original scientific Research, Education, Extension, or 
Integrated Projects.
    (2) Coordinated Agricultural Project (CAP) Grants. A CAP is a type 
of Research, Education, Extension, or Integrated Project that supports 
large-scale multi-million dollar projects that promote collaboration, 
open communication, and the exchange of information; reduce duplication 
of effort; and coordinate activities among individuals, institutions, 
States, and regions. Integrated CAP grants address problems through 
multi-function projects that incorporate at least two of the three 
components of the agricultural knowledge system (i.e., research, 
extension and education). Please note that there occasionally may be 
programs in which an Integrated CAP Grant is required to address all 
three components of the agricultural knowledge system. In a CAP, 
participants serve as a team that conducts targeted research, education 
and/or extension in response to emerging or priority area(s) of national 
need. A CAP contains the needed science-based expertise in research, 
education, and/or extension, as well as expertise from principle 
stakeholders and partners, to accomplish project goals and objectives.
    (3) Planning/Coordination Grants. Planning/Coordination Grants 
provide

[[Page 326]]

assistance to applicants in the development of quality future CAP 
applications. Applications must articulate benefits accrued from formal 
planning activities and provide evidence of a high likelihood that 
quality future applications will be submitted. These activities can take 
the form of workshops or symposia that bring together biological, 
physical, and social scientists and others as appropriate, including 
end-users and technology providers, to identify research, education, 
and/or extension needs, foster collaboration, and create networking 
opportunities. These events and the information they generate should be 
used to build teams that can develop applications to address priorities 
identified in the RFA.
    (4) Conference grants. AFRI provides partial or total funding for a 
limited number of scientific meetings that bring together scientists to 
identify research, education, or extension needs within the scope of 
AFRI.
    (5) FASE Grants.
    (i) General. FASE Grants are designed to help institutions develop 
competitive Research, Education, Extension, and Integrated Projects and 
to attract new scientists into careers in high-priority areas in 
agriculture, food, and environmental sciences. The FASE grants provide 
funding for new investigators, pre- and postdoctoral fellowships, and 
strengthening grants. FASE grants will be awarded as follows:
    (A) To an institution to allow for the improvement of the research, 
development, technology transfer, education, and extension capacity of 
the institution through the acquisition of special research equipment 
and the improvement of agricultural research, education, and extension;
    (B) To single investigators or coinvestigators who are beginning 
research, education, or extension careers and do not have an extensive 
publication record;
    (C) To ensure that the faculty of small, mid-sized, and minority-
serving institutions who have not previously been successful in 
obtaining competitive grants under this subsection receive a portion of 
the grants; and
    (D) To improve research, extension, and education capabilities in 
USDA EPSCoR States, as defined in Sec. 3430.302.
    (ii) Types of FASE Grants.
    (A) New Investigator Grant. These awards support Project Directors 
who meet the eligibility criteria of Sec. 3430.303.
    (B) Pre- and Postdoctoral Fellowship Grants. Doctoral candidates and 
individuals who recently have received or will soon receive their 
doctoral degree, and meet the eligibility criteria of Sec. 3430.303, 
may submit proposals for pre- and postdoctoral fellowships.
    (C) Strengthening Grants. Strengthening awards consist of the 
following four types of grants.
    (1) Strengthening Standard and CAP Grant. These grants provide 
funding to eligible entities, as defined in Sec. 3430.303, who 
submitted meritorious Standard Grant or CAP Grant applications that were 
highly ranked but were below the funding line.
    (2) Equipment Grant. These grants provide funding for the purchase 
of one major piece of equipment. The amount requested shall not exceed 
50 percent of the cost of the equipment. Unless eligible for a waiver 
(as described in Sec. 3430.306(b)(2)), the Project Director is 
responsible for securing the required non-Federal funds. No 
installation, maintenance, warranty, or insurance expenses may be paid 
from these awards, nor may these costs be part of the matching funds.
    (3) Seed Grant. A Seed grant is intended to provide funds to enable 
investigators to collect preliminary data in preparation for applying 
for a Standard Research, Standard Education, Standard Extension, or 
Integrated Grant. The grants are not intended to fund stand-alone 
projects, but rather projects that will lead to further work applicable 
to one of the priority areas in AFRI.
    (4) Sabbatical grants. A Sabbatical grant is intended to provide an 
opportunity for faculty to enhance their capabilities through sabbatical 
leaves.



Sec. 3430.305  Funding restrictions.

    (a) Construction. Funds made available under this subpart shall not 
be used for the construction of a new building or facility or the 
acquisition, expansion, remodeling, or alteration of an existing 
facility (including site

[[Page 327]]

grading and improvement, and architect fees).
    (b) Indirect costs. Subject to Sec. 3430.54, indirect costs are 
allowable. However, indirect costs are not allowed on pre- and 
postdoctoral grants, equipment grants, or conference grants.



Sec. 3430.306  Matching requirements.

    (a) General. Matching funds are not required as a condition of 
receiving grants under this subpart except as provided in paragraphs (c) 
and (d) of this section.
    (b) Indirect costs. Use of indirect costs as in-kind matching 
contributions is subject to Sec. 3430.52(b).
    (c) Equipment grants.
    (1) Except as provided in paragraph (c)(2) of this section, the 
amount of an equipment grant may not exceed 50 percent of the cost of 
the special research equipment or other equipment acquired using funds 
from the grant.
    (2) Waiver. The Secretary may waive all or part of the matching 
requirement under paragraph (c)(1) of this section in the case of a 
college, university, or research foundation maintained by a college or 
university that ranks in the lowest \1/3\ of such colleges, 
universities, and research foundations on the basis of Federal research 
funds received, if the equipment to be acquired using funds from the 
grant costs not more than $25,000, and has multiple uses within a single 
project or is usable in more than 1 project.
    (d) Applied research grants. As a condition of making a grant for 
applied research, the Secretary shall require the funding of the grant 
to be matched with equal matching funds from a non-Federal source if the 
grant is for applied research that is:
    (1) Commodity-specific; and
    (2) Not of national scope.



Sec. 3430.307  Coordination and stakeholder input requirements.

    (a) Stakeholder input. In making grants under this Part, NIFA shall 
solicit and consider input from persons who conduct or use agricultural 
research, extension, or education in accordance with section 102(b) of 
the Agricultural Research, Extension, and Education Reform Act of 1998 
(7 U.S.C. 7612(b)).
    (b) Allocation of funds to high-priority research. To the maximum 
extent practicable, the Secretary, in coordination with the Under 
Secretary, shall allocate grants under this subpart to high-priority 
research as defined in section 1672 of Food, Agriculture, Conservation, 
and Trade Act of 1990, 7 U.S.C. 5925. NIFA shall take into 
consideration, when available, the determinations made by the Advisory 
Board.



Sec. 3430.308  Duration of awards.

    The Secretary may set award limits up to 10 years based on 
priorities and stakeholder input, subject to other statutory 
limitations. The duration of individual awards may vary as specified in 
the RFA and is subject to the availability of appropriations.



Sec. 3430.309  Priority areas.

    NIFA will award competitive grants in the following areas:
    (a) Plant health and production and plant products. Plant systems, 
including:
    (1) Plant genome structure and function;
    (2) Molecular and cellular genetics and plant biotechnology;
    (3) Conventional breeding, including cultivar and breed development, 
selection theory, applied quantitative genetics, breeding for improved 
food quality, breeding for improved local adaptation to biotic stress 
and abiotic stress, and participatory breeding;
    (4) Plant-pest interactions and biocontrol systems;
    (5) Crop plant response to environmental stresses;
    (6) Unproved nutrient qualities of plant products; and
    (7) New food and industrial uses of plant products.
    (b) Animal health and production and animal products. Animal 
systems, including:
    (1) Aquaculture;
    (2) Cellular and molecular basis of animal reproduction, growth, 
disease, and health;
    (3) Animal biotechnology;
    (4) Conventional breeding, including breed development, selection 
theory, applied quantitative genetics, breeding for improved food 
quality, breeding for improved local adaptation to biotic

[[Page 328]]

stress and abiotic stress, and participatory breeding;
    (5) Identification of genes responsible for improved production 
traits and resistance to disease;
    (6) Improved nutritional performance of animals;
    (7) Improved nutrient qualities of animal products and uses;
    (8) The development of new and improved animal husbandry and 
production systems that take into account production efficiency, animal 
well-being, and animal systems applicable to aquaculture;
    (9) The research and development of surveillance methods, vaccines, 
vaccination delivery systems, or diagnostic tests for pests and 
diseases, including--
    (i) Epizootic diseases in domestic livestock (including deer, elk, 
bison, and other animals of the family Cervidae); and
    (ii) Zoonotic diseases (including bovine brucellosis and bovine 
tuberculosis) in domestic livestock or wildlife reservoirs that present 
a potential concern to public health; and
    (10) The identification of animal drug needs and the generation and 
dissemination of data for safe and effective therapeutic applications of 
animal drugs for minor species and minor uses of such drugs in major 
species.
    (c) Food safety, nutrition, and health. Nutrition, food safety and 
quality, and health, including:
    (1) Microbial contaminants and pesticides residue relating to human 
health;
    (2) Links between diet and health;
    (3) Bioavailability of nutrients;
    (4) Postharvest physiology and practices; and
    (5) Improved processing technologies.
    (d) Bioenergy, natural resources, and environment. Natural resources 
and the environment, including:
    (1) Fundamental structures and functions of ecosystems;
    (2) Biological and physical bases of sustainable production systems;
    (3) Minimizing soil and water losses and sustaining surface water 
and ground water quality;
    (4) The effectiveness of conservation practices and technologies 
designed to address nutrient losses and improve water quality;
    (5) Global climate effects on agriculture;
    (6) Forestry; and
    (7) Biological diversity.
    (e) Agriculture systems and technology. Engineering, products, and 
processes, including:
    (1) New uses and new products from traditional and nontraditional 
crops, animals, byproducts, and natural resources;
    (2) Robotics, energy efficiency, computing, and expert systems;
    (3) New hazard and risk assessment and mitigation measures; and
    (4) Water quality and management.
    (f) Agriculture economics and rural communities. Markets, trade, 
economics, and policy, including:
    (1) Strategies for entering into and being competitive in domestic 
and overseas markets;
    (2) Farm efficiency and profitability, including the viability and 
competitiveness of small and medium-sized dairy, livestock, crop and 
other commodity operations;
    (3) New decision tools for farm and market systems;
    (4) Choices and applications of technology;
    (5) The economic costs, benefits, and viability of producers 
adopting conservation practices and technologies designed to improve 
water quality;
    (6) Technology assessment; and
    (7) New approaches to rural development, including rural 
entrepreneurship.

[75 FR 54761, Sept. 9, 2010, as amended at 81 FR 6415, Feb. 8, 2016]



Sec. 3430.310  Allocation of AFRI funds.

    (a) General. The Secretary shall decide the allocation of funds 
among research, education, extension, and integrated multifunctional 
projects in an appropriate manner and in accordance with the allocation 
restrictions found in this section.
    (b) Integrated programs. Not less than 30 percent of funds allocated 
to AFRI each fiscal year shall be used to fund integrated programs.
    (c) FASE awards.
    (1) Each fiscal year, a percentage of AFRI funding (no less than 10 
percent

[[Page 329]]

of the available funding) will be awarded as FASE awards. This 
percentage requirement may be adjusted by the Secretary based upon 
priorities and stakeholder input.
    (2) The Secretary shall use not less than 25 percent of the funds 
made available for FASE grants to provide fellowships to outstanding 
pre- and postdoctoral students for research in the agricultural 
sciences.
    (d) Rapid Response Food and Agricultural Science for Emergency 
Issues Awards. The Secretary may allocate some funding to address 
emergency issues in the food and agricultural sciences as determined by 
the Secretary. Letters of intent and applications may be requested, as 
appropriate. Although the solicitation and award processes may be 
expedited for these awards, NIFA will adhere to AFRI peer review and 
competitive requirements of this subpart.



Sec. 3430.311  Allocation of research funds.

    (a) Fundamental research. Of the amount allocated by the Director 
for research, not less than 60 percent shall be used to make grants for 
fundamental research (as defined in subsection (f)(1) of section 251 of 
the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 
6971)).
    (1) Research by multidisciplinary teams. Of the amount allocated by 
the Director for fundamental research under this paragraph (a), not less 
than 30 percent shall be made available to make grants for research to 
be conducted by multidisciplinary teams.
    (2) Equipment grants. Of the amount allocated by the Director for 
fundamental research under this paragraph (a) not more than 2 percent 
shall be used for equipment grants.
    (b) Applied research. Of the amount allocated by the Director for 
research, not less than 40 percent shall be made available to make 
grants for applied research.



Sec. 3430.312  Emphasis on sustainable agriculture.

    NIFA shall ensure that grants made under this subpart are, where 
appropriate, consistent with the development of systems of sustainable 
agriculture as defined in section 1404 of NARETPA.



Sec. 3430.313  Inclusion of research topics proposed by national and state commodity boards in request for applications.

    NIFA will solicit funding ideas under this subpart from statutorily 
defined national and state commodity boards for research topics that the 
commodity boards are willing to co-fund equally with NIFA under the AFRI 
competitive grant program. If the ideas are evaluated and found to be 
consistent with the AFRI statutory priorities and priorities noted in 
the President's budget request related to NIFA, the topics will be 
incorporated in existing program areas in the relevant AFRI Request for 
Applications (RFA(s)). Researchers wishing to submit a proposal on a 
topic suggested by a commodity board will be required to obtain a letter 
of support from the co-funding commodity board. The applications 
submitted in response to a commodity board co-funded topic will compete 
against all proposals submitted in the same RFA program area. Supported 
applications will receive no preference regarding the evaluation of 
their scientific merit. Letters of commodity board support will be used 
by NIFA solely to determine that the application fits within the 
commodity board co-funded topic and the commodity board is willing to 
co-fund that application, if it is evaluated by the review panel as 
being meritorious and recommended for award.

[81 FR 58810, Aug. 26, 2016]



     Subpart H_Organic Agriculture Research and Extension Initiative

    Source: 75 FR 54761, Sept. 9, 2010, unless otherwise noted.



Sec. 3430.400  Applicability of regulations.

    The regulations in this subpart apply to the program authorized 
under section 1672B of the Food, Agriculture, Conservation, and Trade 
Act of 1990 (FACT Act), as amended by the Food, Conservation, and Energy 
Act of 2008 (FCEA), Public Law 110-246 (7 U.S.C. 5925b).

[[Page 330]]



Sec. 3430.401  Purpose.

    (a) The purpose of this program is to make competitive grants, in 
consultation with the Advisory Board, to support research, education and 
extension activities regarding organically grown and processed 
agricultural commodities.
    (b) Grants may be made for the following purposes:
    (1) Facilitating the development and improvement of organic 
agriculture production, breeding, and processing methods;
    (2) Evaluating the potential economic benefits of organic 
agricultural production and methods to producers, processors, and rural 
communities;
    (3) Exploring international trade opportunities for organically 
grown and processed agricultural commodities;
    (4) Determining desirable traits for organic commodities;
    (5) Identifying marketing and policy constraints on the expansion of 
organic agriculture;
    (6) Conducting advanced on-farm research and development that 
emphasizes observation of, experimentation with, and innovation for 
working organic farms, including research relating to production, 
marketing, food safety, socioeconomic conditions, and farm business 
management;
    (7) Examining optimal conservation and environmental outcomes 
relating to organically produced agricultural products; and
    (8) Developing new and improved seed varieties that are particularly 
suited for organic agriculture.

[75 FR 54761, Sept. 9, 2010, as amended at 81 FR 6415, Feb. 8, 2016]



Sec. 3430.402  [Reserved]



Sec. 3430.403  Eligibility.

    Unless otherwise specified in the RFA, eligible applicants for the 
grant program implemented under this subpart include:
    (a) State agricultural experiment stations;
    (b) Colleges and universities (including junior colleges offering an 
associate's degree);
    (c) University research foundations;
    (d) Other research institutions and organizations;
    (e) Federal agencies;
    (f) National laboratories;
    (g) Private organizations or corporations;
    (h) Individuals; and
    (i) Any group consisting of 2 or more entities identified in 
paragraphs (a) through (i) of this section.



Sec. 3430.404  Project types and priorities.

    For each RFA, NIFA may develop and include the appropriate project 
types and priority areas based on stakeholder input and as deemed 
appropriate by NIFA. Duration and amount of grants may vary depending on 
the type of project.



Sec. 3430.405  Funding restrictions.

    (a) Construction. Funds made available for grants under this 
subsection shall not be used for the construction of a new building or 
facility or the acquisition, expansion, remodeling, or alteration of an 
existing building or facility (including site grading and improvement, 
and architect fees).
    (b) Indirect costs. Subject to Sec. 3430.54, indirect costs are 
allowable.
    (c) Start-up businesses. NIFA does not fund start-up businesses 
under this subpart.



Sec. 3430.406  Matching requirements.

    (a) In general. NIFA requires the recipient of a grant under this 
section to provide funds or in-kind support from non-Federal sources in 
an amount at least equal to the amount provided by the Federal 
Government.
    (b) Indirect costs. Use of indirect costs as in-kind matching 
contributions is subject to Sec. 3430.52(b).
    (c) Waiver authority. NIFA may waive the matching requirement 
specified in paragraph (a) of this section with respect to a grant if 
NIFA determines that:
    (1) The results of the project, while of particular benefit to a 
specific agricultural commodity, are likely to be applicable to 
agricultural commodities generally; or
    (2) When all three of the following conditions are present:
    (i) The project involves a minor commodity,
    (ii) The project deals with scientifically important research, and

[[Page 331]]

    (iii) The grant recipient is unable to satisfy the matching funds 
requirement.



Sec. 3430.407  Program requirements.

    Following the completion of a peer review process for grant 
proposals received under this subpart, the Director may provide a 
priority for those proposals, found in the peer review process to be 
scientifically meritorious, that involve the cooperation of multiple 
entities.



  Subpart I_Integrated Research, Education, and Extension Competitive 
                             Grants Program

    Source: 75 FR 54761, Sept. 9, 2010, unless otherwise noted.



Sec. 3430.500  Applicability of regulations.

    The regulations in this subpart apply to the program authorized 
under section 406 of the Agricultural Research, Extension, and Education 
Reform Act of 1998 (AREERA), 7 U.S.C. 7626, as amended by the Food, 
Conservation, and Energy Act of 2008 (FCEA), Public Law 110-246.



Sec. 3430.501  Purpose.

    The purpose of this subpart is to make competitive grants for 
integrated, multifunctional agricultural research, extension, and 
education activities.



Sec. 3430.502  Definitions.

    The definitions applicable to the competitive grant programs under 
this subpart include:
    Integrated program means a program that brings the three 
agricultural knowledge components (i.e., research, extension, and 
education) together around a problem or activity through the award of 
integrated projects and single component projects.
    Integrated project means a project that brings at least two out of 
three agricultural knowledge components (i.e., research, extension, and 
education) together around a problem or activity.



Sec. 3430.503  Eligibility.

    The following entities are eligible to apply for and receive a grant 
under this subpart:
    (a) Colleges and universities;
    (b) 1994 Institutions; and
    (c) Hispanic-serving agricultural colleges and universities (as 
defined in section 1404 of the National Agricultural Research, 
Extension, and Teaching Policy Act of 1977 (7 U.S.C. 3103), and in the 
RFA).



Sec. 3430.504  Project types and priorities.

    For each RFA, NIFA may develop and include the appropriate project 
types and priority areas based on stakeholder input and as deemed 
appropriate by NIFA, in consultation with the Advisory Board, and that 
involve integrated research, extension, and education activities. 
Duration and amount of grants may vary depending on the type of project.



Sec. 3430.505  Funding restrictions.

    (a) Construction. Funds made available for grants under this 
subsection shall not be used for the construction of a new building or 
facility or the acquisition, expansion, remodeling, or alteration of an 
existing building or facility (including site grading and improvement, 
and architect fees).
    (b) Indirect Costs. Subject to Sec. 3430.54, indirect costs are 
allowable.



Sec. 3430.506  Matching requirements.

    (a) General requirement. If a grant under this subpart provides a 
particular benefit to a specific agricultural commodity, the recipient 
of the grant is required to provide funds or in-kind support to match 
the amount of funds provided by NIFA.
    (b) Indirect costs. Use of indirect costs as in-kind matching 
contributions is subject to Sec. 3430.52(b).
    (c) Waiver authority. NIFA may waive the matching requirement 
specified in paragraph (a) of this section with respect to a grant if 
NIFA determines that:
    (1) The results of the project, while of particular benefit to a 
specific agricultural commodity, are likely to be applicable to 
agricultural commodities generally; or

[[Page 332]]

    (2) When all three of the following conditions are present:
    (i) The project involves a minor commodity,
    (ii) The project deals with scientifically important research, and
    (iii) The grant recipient is unable to satisfy the matching funds 
requirement.



Sec. 3430.507  Program requirements.

    (a) General. Grants under this subpart shall address priorities in 
the United States agriculture that involve integrated research, 
extension, and education activities as determined by the Secretary 
through Agency stakeholder input processes and in consultation with the 
Advisory Board.
    (b) Duration of awards. The term of a grant under this subpart may 
not exceed 5 years.



       Subpart J_Beginning Farmer and Rancher Development Program

    Source: 74 FR 45970, Sept. 4, 2009, unless otherwise noted.



Sec. 3430.600  Applicability of regulations.

    The regulations in this subpart apply to the program authorized 
under section 7405 of the Farm Security and Rural Investment Act of 2002 
(7 U.S.C. 3319f).



Sec. 3430.601  Purpose.

    The purpose of the Beginning Farmer and Rancher Development Program 
(BFRDP) is to establish a beginning farmer and rancher development 
program that provides local and regional training, education, outreach, 
and technical assistance initiatives for beginning farmers and ranchers.



Sec. 3430.602  Definitions.

    The definitions applicable to the program under this subpart 
include:
    Beginning farmer or rancher means a person that has not operated a 
farm or ranch or has operated a farm or ranch for not more than 10 
years, and meets such other criteria as the Secretary may establish.
    Clearinghouse means an online repository that will make available to 
beginning farmers or ranchers education curricula and training materials 
and programs, and which may include online courses for direct use by 
beginning farmers or ranchers.
    Limited resource beginning farmers or ranchers means beginning 
farmers or ranchers who have: (1) direct or indirect gross farm sales 
not more than the sales amount established by the USDA Natural Resources 
Conservation Service (NRCS) in each of the previous two years (in 
current dollars, adjusted for inflation each year, based on the October 
2002 Prices Paid by Farmer Index compiled and updated annually by the 
USDA National Agricultural Statistics Service (NASS), and (2) a total 
household income at or below the National Poverty Level for a family of 
four or less than 50 percent of county median household income in each 
of the previous 2 years as determined by the U.S. Department of Health 
and Human Services (DHHS), using the Census Poverty Data.
    Outcome-based reporting means reporting that includes an outcome 
statement with performance targets, necessary milestones, beneficiary 
engagement, key individuals, and verification.

[74 FR 45970, Sept. 4, 2009, as amended at 76 FR 35323, June 17, 2011]



Sec. 3430.603  Eligibility.

    To be eligible to receive an award under this subpart, the recipient 
shall be a collaborative State, tribal, local, or regionally-based 
network or partnership of public or private entities, including:
    (a) A State cooperative extension service;
    (b) A Federal, State, or tribal agency;
    (c) A community-based or nongovernmental organization;
    (d) A college or university (including a junior college offering an 
associate's degree) or foundation maintained by a college or university;
    (e) A private for-profit organization; or
    (f) Any other appropriate partner, as determined by the Secretary.

[74 FR 45970, Sept. 4, 2009, as amended at 81 FR 6415, Feb. 8, 2016]

[[Page 333]]



Sec. 3430.604  Project types and priorities.

    (a) Standard BFRDP projects. For standard BFRDP projects, 
competitive grants will be awarded to support programs and services, as 
appropriate, relating to the following focus areas and activities:
    (1) Basic livestock, forest management, and crop farming practices;
    (2) Innovative farm, ranch, and private, nonindustrial forest land 
transfer strategies;
    (3) Entrepreneurship and business training;
    (4) Financial and risk management training (including the 
acquisition and management of agricultural credit);
    (5) Natural resource management and planning;
    (6) Diversification and marketing strategies;
    (7) Curriculum development;
    (8) Mentoring, apprenticeships, and internships;
    (9) Resources and referral;
    (10) Farm financial benchmarking;
    (11) Assisting beginning farmers or ranchers in acquiring land from 
retiring farmers and ranchers;
    (12) Agricultural rehabilitation and vocational training for 
veterans;
    (13) Farm safety and awareness; and
    (14) Other similar subject areas of use to beginning farmers or 
ranchers.
    (15) Basic livestock and crop farming practices, forestry and range 
management.
    (16) Acquisition and management of agricultural credit.
    (17) Environmental compliance.
    (18) Information processing.
    (19) Tax management, including record keeping and tax form 
preparation.
    (20) Basic agricultural law.
    (21) Other similar subject areas of use to beginning farmers or 
ranchers.
    NIFA may include additional activities or focus areas that further 
address the critical needs of beginning farmers and ranchers as defined 
in this subpart. Some of these activities or focus areas may be 
identified by stakeholder groups or by NIFA in response to emerging 
critical needs of the Nation's farmers and ranchers.
    (b) Other BFRDP Projects. In addition to the competitive grants made 
under paragraph (a) of this section, competitive awards (grants or 
cooperative agreements) will be made:
    (1) to establish beginner farmer and rancher educational enhancement 
projects that develop curricula and conduct educational programs and 
workshops for beginning farmers or ranchers in diverse geographical 
areas of the Unites States; and
    (2) to establish and maintain an online clearinghouse.

[74 FR 45970, Sept. 4, 2009, as amended at 76 FR 35323, June 17, 2011; 
81 FR 6415, Feb. 8, 2016]



Sec. 3430.605  Funding restrictions.

    (a) Facility costs. Funds made available under this subpart shall 
not be used for the planning, repair, rehabilitation, acquisition, or 
construction of a building or facility.
    (b) Indirect costs. Subject to Sec. 3430.54, indirect costs are 
allowable.
    (c) Participation by other farmers and ranchers. Projects may allow 
farmers and ranchers who are not beginning farmers and ranchers to 
participate in the programs funded under this subpart if their 
participation is appropriate and will not detract from the primary 
purpose of educating beginning farmers and ranchers as defined under 
this subpart.

[74 FR 45970, Sept. 4, 2009, as amended at 81 FR 6415, Feb. 8, 2016]



Sec. 3430.606  Matching requirements.

    (a) Requirement. Awardees are required to provide a match in the 
form of cash or in-kind contributions in an amount at least equal to 25 
percent of the Federal funds provided by the award. The matching funds 
must be from non-Federal sources except when authorized by statute. The 
matching requirements under this subpart cannot be waived.
    (b) Indirect costs. Use of indirect costs as in-kind matching 
contributions is subject to Sec. 3430.52.



Sec. 3430.607  Stakeholder input.

    NIFA shall seek and obtain stakeholder input through a variety of 
forums (e.g., public meetings, request for input and/or via Web site), 
as well as through a notice in the Federal Register, from the following 
entities:

[[Page 334]]

    (a) Beginning farmers and ranchers.
    (b) National, State, tribal, and local organizations, community-
based organizations, and other persons with expertise in operating 
beginning farmer and rancher programs.
    (c) The Advisory Committee on Beginning Farmers and Ranchers 
established under section 5 of the Agricultural Credit Improvement Act 
of 1992 (7 U.S.C. 1929 note; Pub. L. 102-554).



Sec. 3430.608  Review criteria.

    (a) Evaluation criteria. NIFA shall evaluate project proposals 
according to the following factors:
    (1) Relevancy.
    (2) Technical merit.
    (3) Achievability.
    (4) The expertise and track record of one or more applicants.
    (5) The adequacy of plans for the participatory evaluation process, 
outcome-based reporting, and the communication of findings and results 
beyond the immediate target audience.
    (6) Other appropriate factors, as determined by the Secretary.
    (b) Partnership and collaboration. In making awards under this 
subpart, NIFA shall give priority to partnerships and collaborations 
that are led by or include nongovernmental, and community-based 
organizations, and school-based agricultural educational organizations 
with expertise in new agricultural producer training and outreach.
    (c) Regional balance. In making awards under this subpart, NIFA 
shall, to the maximum extent practicable, ensure geographical diversity.

[74 FR 45970, Sept. 4, 2009, as amended at 81 FR 6415, Feb. 8, 2016]



Sec. 3430.609  Other considerations.

    (a) Set aside. (1) Not less than 5 percent of the funds used to 
carry out this subsection for a fiscal year shall be used to support 
programs and services that address the needs of--
    (i) Limited resource beginning farmers or ranchers (see 3430.602);
    (ii) Socially disadvantaged farmers or ranchers (as defined in 
section 355(e) of the Consolidated Farm and Rural Development Act (7 
U.S.C. 2003(e)) who are beginning farmers or ranchers; and
    (iii) Farmworkers desiring to become farmers or ranchers.
    (2) Each fiscal year, NIFA shall set aside not less than 5 percent 
of the funds to support the standard BFRDP projects under this subpart 
to support programs and services that address the needs of veteran 
farmers and ranchers (as defined in section 2501(e) of the Food, 
Agriculture, Conservation, and Trade Act of 1990 (7 U.S.C. 2279(e)). 
Recipients of these funds may coordinate with a recipient of an award 
under section 1680 of the Food, Agriculture, Conservation, and Trade Act 
of 1990 (7 U.S.C. 5933) in addressing the needs of veteran farmers and 
ranchers with disabilities.
    (b) Consecutive awards. An eligible recipient may receive a 
consecutive grant for a standard BFRDP project under this subpart.
    (c) Duration of awards. The term of a grant for a standard BFRDP 
project under this subpart shall not exceed 3 years. Awards for all 
other projects under this subpart shall not exceed 5 years. No-cost 
extensions of time beyond the maximum award terms will not be considered 
or granted.
    (d) Amount of grants. A grant for a standard BFRDP project under 
this subpart shall not be in an amount that is more than $250,000 for 
each year.

[74 FR 45970, Sept. 4, 2009, as amended at 76 FR 35323, June 17, 2011; 
81 FR 6416, Feb. 8, 2016]



          Subpart K_Biomass Research and Development Initiative

    Source: 75 FR 33498, June 14, 2010, unless otherwise noted.



Sec. 3430.700  Applicability of regulations.

    The regulations in this subpart apply to the Federal assistance 
awards made under the program authorized under section 9008 of the Farm 
Security and Rural Investment Act of 2002 (7 U.S.C. 8108), as amended by 
section 9001 of the Food, Conservation, and Energy Act of 2008 (Pub. L. 
110-246).

[76 FR 38549, July 1, 2011]



Sec. 3430.701  Purpose.

    In carrying out the program, NIFA, in cooperation with the 
Department of

[[Page 335]]

Energy, is authorized to make competitive awards under section 9008(e) 
of FSRIA (7 U.S.C. 8108(e)) to develop:
    (a) Technologies and processes necessary for abundant commercial 
production of biofuels at prices competitive with fossil fuels;
    (b) High-value biobased products--
    (1) To enhance the economic viability of biofuels and power,
    (2) To serve as substitutes for petroleum-based feedstocks and 
products, and
    (3) To enhance the value of coproducts produced using the 
technologies and processes; and
    (c) A diversity of economically and environmentally sustainable 
domestic sources of renewable biomass for conversion to biofuels, 
bioenergy, and biobased products.

[75 FR 33498, June 14, 2010, as amended at 76 FR 38549, July 1, 2011]



Sec. 3430.702  Definitions.

    The definitions specific to BRDI are from the authorizing 
legislation, the National Program Leadership of NIFA, and the Department 
of Energy. The definitions applicable to the program under this subpart 
include:
    Advanced Biofuel means fuel derived from renewable biomass other 
than corn kernel starch, including:
    (1) Biofuel derived from cellulose, hemicellulose, or lignin;
    (2) Biofuel derived from sugar and starch (other than ethanol 
derived from corn kernel starch);
    (3) Biofuel derived from waste material, including crop residue, 
other vegetative waste material, animal waste, food waste, and yard 
waste;
    (4) Diesel-equivalent fuel derived from renewable biomass, including 
algael oils, oil seed crops, re-claimed vegetable oils and animal fat;
    (5) Biogas (including landfill gas and sewage waste treatment gas) 
produced through the conversion of organic matter from renewable 
biomass;
    (6) Butanol or other alcohols produced through the conversion of 
organic matter from renewable biomass; and
    (7) Other fuel derived from cellulosic biomass.
    Advisory Committee means the Biomass Research and Development 
Technical Advisory Committee established by section 9008(d) of FSRIA (7 
U.S.C. 8108(d)).
    Biobased Product means:
    (1) An industrial product (including chemicals, materials, and 
polymers) produced from biomass; or
    (2) A commercial or industrial product (including animal feed and 
electric power) derived in connection with the conversion of biomass to 
fuel.
    Bioenergy means power generated in the form of electricity or heat 
using biomass as a feedstock.
    Biofuel means a fuel derived from renewable biomass.
    Biomass Conversion Facility means a facility that converts or 
proposes to convert renewable biomass into:
    (1) Heat;
    (2) Power;
    (3) Biobased products; or
    (4) Advanced biofuels.
    Biorefinery means a facility (including equipment and processes) 
that--
    (1) Converts renewable biomass into biofuels and biobased products; 
and
    (2) May produce electricity.
    Board means the Biomass Research and Development Board established 
by section 9008(c) of the FSRIA of 2002 (7 U.S.C. 8108(c)).
    BRDI means the Biomass Research and Development Initiative.
    Cellulosic Biofuel means renewable fuel derived from any cellulose, 
hemicellulose, or lignin that is derived from renewable biomass and that 
has lifecycle greenhouse gas emissions, as determined by the 
Administrator of the Environmental Protection Agency, that are at least 
60 percent less than the baseline lifecycle greenhouse gas emissions.
    Demonstration means demonstration of technology in a pilot plant or 
semi-works scale facility, including a plant or facility located on a 
farm. A biorefinery demonstration is a system capable of processing a 
minimum of 50 tons/day of biomass feedstock.
    DOE means the Department of Energy.
    Institutions of higher education has the meaning given the term in 
section 102 of the Higher Education Act of 1965 (20 U.S.C. 1002(a)).
    Intermediate Ingredient or Feedstock means a material or compound 
made in

[[Page 336]]

whole or in significant part from biological products, including 
renewable agricultural materials (including plant, animal, and marine 
materials) or forestry materials, that are subsequently used to make a 
more complex compound or product.
    Life cycle assessment means the comprehensive examination of a 
product's environmental and economic aspects and potential impacts 
throughout its lifetime, including raw material extraction, 
transportation, manufacturing, use, and disposal.
    Life cycle cost means the amortized annual cost of a product, 
including capital costs, installation costs, operating costs, 
maintenance costs, and disposal costs discounted over the lifetime of 
the product.
    Pilot Plant is an integrated chemical processing system that 
includes the processing units necessary to convert biomass feedstock 
into biofuels/bioenergy/biobased products at a minimum feed rate of 1 
ton/day of biomass feedstock.
    Private sector entities include companies, corporations, farms, 
ranches, cooperatives, and others that compete in the marketplace.
    Recovered materials means waste materials and by-products that have 
been recovered or diverted from solid waste, but such term does not 
include those materials and by-products generated from, and commonly 
reused within, an original manufacturing process (42 U.S.C. 6903 (19)).
    Recycling means the series of activities, including collection, 
separation, and processing, by which products or other materials are 
recovered from the solid waste stream for use in the form of raw 
materials in the manufacture of new products other than fuel for 
producing heat or power by combustion.
    Renewable Biomass means:
    (1) Materials, pre-commercial thinnings, or invasive species from 
National Forest System land (as defined in section 11(a) of the Forest 
and Rangeland Renewable Resources Planning Act of 1974 (16 U.S.C. 
1609(a)) and public lands (as defined in section 103 of the Federal Land 
Policy and Management Act of 1976 (43 U.S.C. 1702)) that--
    (i) Are byproducts of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health;
    (ii) Would not otherwise be used for higher-value products; and
    (iii) Are harvested in accordance with applicable law and land 
management plans; and the requirements for--
    (A) Old-growth maintenance, restoration, and management direction of 
paragraphs (2), (3), and (4) of subsection (e) of section 102 of the 
Healthy Forests Restoration Act of 2003 (16 U.S.C. 6512); and
    (B) Large-tree retention of subsection (f) of section 102 of the 
Healthy Forests Restoration Act of 2003 (16 U.S.C. 6512); or
    (2) Any organic matter that is available on a renewable or recurring 
basis from non-Federal land or land belonging to an Indian or Indian 
tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including--
    (i) Renewable plant material, including feed grains; other 
agricultural commodities; other plants and trees; and algae; and
    (ii) Waste material, including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and 
byproducts (including fats, oils, greases, and manure); and food waste 
and yard waste.
    Research and development (R&D) projects means a research project 
only, a development project only, or a combination of research and 
development project; however, an R&D project may not be submitted 
including a demonstration project or vice versa.
    Semi-works is a combination of chemical processing units that 
constitute a subset of the fully integrated system and are used to 
develop process flow diagrams and mass and energy balances for the 
purposes of scaling up to a demonstration scale facility.
    Transportation fuel means fuel for use in motor vehicles, motor 
vehicle engines, non-road vehicles, or non-road engines (except for 
ocean-going vessels).

[75 FR 33498, June 14, 2010, as amended at 76 FR 38549, July 1, 2011]

[[Page 337]]



Sec. 3430.703  Eligibility.

    To be eligible to receive an award under this subpart, the recipient 
shall be--
    (a) An institution of higher education (as defined in Sec. 
3430.702);
    (b) A National Laboratory;
    (c) A Federal research agency;
    (d) A State research agency;
    (e) A private sector entity (as defined in Sec. 3430.702 of this 
part);
    (f) A nonprofit organization; or
    (g) A consortium of two or more entities listed in paragraphs (a) 
through (f) of this section.



Sec. 3430.704  Project types and priorities.

    (a) Technical Topic Areas. Biomass Research and Development 
Initiative (BRDI) awards shall be directed (in consultation with the 
Biomass Research and Development Board, the Administrator of the 
Environmental Protection Agency and heads of other appropriate 
departments and agencies) in the following three primary technical topic 
areas:
    (1) Feedstocks Development. Research, development, and demonstration 
activities regarding feedstocks and feedstock logistics (including the 
harvest, handling, transport, preprocessing, and storage) relevant to 
production of raw materials for conversion to biofuels and biobased 
products.
    (2) Biofuels and Biobased Products Development. Research, 
development, and demonstration activities to support--
    (i) The development of diverse cost-effective technologies for the 
use of cellulosic biomass in the production of biofuels and biobased 
products; and
    (ii) Product diversification through technologies relevant to 
production of a range of biobased products (including chemicals, animal 
feeds, and cogenerated power) that potentially can increase the 
feasibility of fuel production in a biorefinery.
    (3) Biofuels Development Analysis--(i) Strategic Guidance. The 
development of analysis that provides strategic guidance for the 
application of renewable biomass technologies to improve sustainability 
and environmental quality, cost effectiveness, security, and rural 
economic development.
    (ii) Energy and Environmental Impact. Development of systematic 
evaluations of the impact of expanded biofuel production on the 
environment (including forest land) and on the food supply for humans 
and animals, including the improvement and development of tools for life 
cycle analysis of current and potential biofuels.
    (iii) Assessment of Federal Land. Assessments of the potential of 
Federal land resources to increase the production of feedstocks for 
biofuels and biobased products, consistent with the integrity of soil 
and water resources and with other environmental considerations.
    (b) Additional considerations. Within the technical topic areas 
described in paragraph (a) of this section, NIFA, in cooperation with 
DOE, shall support research and development to--
    (1) Create continuously expanding opportunities for participants in 
existing biofuels production by seeking synergies and continuity with 
current technologies and practices;
    (2) Maximize the environmental, economic, and social benefits of 
production of biofuels and derived biobased products on a large scale; 
and
    (3) Facilitate small-scale production and local and on-farm use of 
biofuels, including the development of smallscale gasification 
technologies for production of biofuel from cellulosic feedstocks.

[75 FR 33498, June 14, 2010, as amended at 76 FR 38549, July 1, 2011]



Sec. 3430.705  Funding restrictions.

    (a) Facility costs. Funds made available under this subpart shall 
not be used for the construction of a new building or facility or the 
acquisition, expansion, remodeling, or alteration of an existing 
building or facility (including site grading and improvement, and 
architect fees).
    (b) Indirect costs. Subject to Sec. 3430.54, indirect costs are 
allowable for Federal assistance awards made by NIFA.
    (c) Minimum allocations. After consultation with the Board, NIFA in 
cooperation with DOE, shall require that each of the three technical 
topic areas described in Sec. 3430.704(a) receives not less than 15 
percent of funds made available to carry out BRDI.

[76 FR 38549, July 1, 2011]

[[Page 338]]



Sec. 3430.706  Matching requirements.

    (a) Requirement for Research and/or Development Projects. The non-
Federal share of the cost of a research or development project under 
BRDI shall be not less than 20 percent. NIFA may reduce the non-Federal 
share of a research or development project if the reduction is 
determined to be necessary and appropriate.
    (b) Requirement for Demonstration and Commercial Projects. The non-
Federal share of the cost of a demonstration or commercial project under 
BRDI shall be not less than 50 percent.
    (c) Indirect costs. Use of indirect costs as in-kind matching 
contributions is subject to Sec. 3430.52 of this part.

[75 FR 33498, June 14, 2010, as amended at 76 FR 38549, July 1, 2011]



Sec. 3430.707  Administrative duties.

    (a) After consultation with the Board, NIFA, in cooperation with 
DOE, shall:
    (1) Publish annually one or more joint requests for proposals for 
Federal assistance under BRDI; and
    (2) Require that Federal assistance under BRDI be awarded based on a 
scientific peer review by an independent panel of scientific and 
technical peers.
    (b) NIFA, in cooperation with DOE, shall ensure that applicable 
research results and technologies from the BRDI are:
    (1) Adapted, made available, and disseminated, as appropriate; and
    (2) Included in the best practices database established under 
section 1672C(e) of the Food, Agriculture, Conservation, and Trade Act 
of 1990 (7 U.S.C. 5925e(e)).

[75 FR 33498, June 14, 2010, as amended at 76 FR 38549, July 1, 2011]



Sec. 3430.708  Review criteria.

    (a) General. BRDI peer reviews of applications are conducted in 
accordance with requirements found in section 9008 of FSRIA (7 U.S.C. 
8108); section 103 of the Agricultural Research, Extension, and 
Education Reform Act of 1998 (7 U.S.C. 7613); and regulations found in 
title 7 of the Code of Federal Regulations, sections 3430.31 through 
3430.37.
    (b) Additional Considerations. Special consideration will be given 
to applications that--
    (1) Involve a consortium of experts from multiple institutions;
    (2) Encourage the integration of disciplines and application of the 
best technical resources; and
    (3) Increase the geographic diversity of demonstration projects.

[75 FR 33498, June 14, 2010, as amended at 76 FR 38549, July 1, 2011]



Sec. 3430.709  Duration of awards.

    The term of a Federal assistance award made for a BRDI project shall 
not exceed 5 years. No-cost extensions of time beyond the maximum award 
terms will not be considered or granted.



   Subpart L_Capacity Building Grants for Non-Land Grant Colleges of 
                           Agriculture Program

    Authority: 7 U.S.C. 3316; Pub. L. 106-107 (31 U.S.C. 6101 note).

    Source: 81 FR 6416, Feb. 8, 2016, unless otherwise noted.



Sec. 3430.800  Applicability.

    The regulations in this subpart apply to the program authorized 
under section 1473F of the National Agricultural Research, Extension, 
and Teaching Policy Act of 1977 (NARETPA), as added by section 7138 of 
the Food, Conservation, and Energy Act of 2008, (7 U.S.C. 3319i).



Sec. 3430.801  Purpose.

    The purpose of this program is to make competitive grants to Non 
Land Grant Colleges of Agriculture (NLGCA) Institutions to assist the 
NLGCA Institutions in maintaining and expanding the capacity to conduct 
education, research, and outreach activities relating to agriculture, 
renewable resources, and other similar disciplines.



Sec. 3430.802  Definitions.

    The definitions applicable to the program under this subpart 
include:
    Capacity building means enhancing and strengthening the quality and 
depth of an institution's research and

[[Page 339]]

academic programs as evidenced by its: faculty expertise, scientific and 
technical resources, research environment, curriculum, student 
experiential learning opportunities, scientific instrumentation, library 
resources, academic standing and racial, ethnic, or gender diversity of 
its faculty and student body, faculty and student recruitment and 
retention programs, and organizational structures and reward systems for 
attracting and retaining first-rate research and teaching faculty or 
students.
    Citizen or national of the United States means:
    (1) A citizen or native resident of a State; or,
    (2) A person defined in the Immigration and Nationality Act, 8 
U.S.C. 1101(a) (22), who, though not a citizen of the United States, 
owes permanent allegiance to the United States.
    Eligible participant means an individual who is a citizen or 
national of the United States as defined in this section.
    Food and agricultural sciences means basic, applied, and 
developmental research, extension, and teaching activities in food and 
fiber, agricultural, renewable energy and natural resources, forestry, 
and physical and social sciences, including activities relating to the 
following:
    (1) Animal health, production, and well-being.
    (2) Plant health and production.
    (c) Animal and plant germ plasm collection and preservation.
    (3) Aquaculture.
    (4) Food safety.
    (5) Soil, water, and related resource conservation and improvement.
    (6) Forestry, horticulture, and range management.
    (7) Nutritional sciences and promotion.
    (8) Farm enhancement, including financial management, input 
efficiency, and profitability.
    (9) Home economics (Family and Consumer Sciences).
    (10) Rural human ecology.
    (11) Youth development and agricultural education, including 4-H 
clubs.
    (12) Expansion of domestic and international markets for 
agricultural commodities and products, including agricultural trade 
barrier identification and analysis.
    (13) Information management and technology transfer related to 
agriculture.
    (14) Biotechnology related to agriculture.
    (15) The processing, distributing, marketing, and utilization of 
food and agricultural products. (7 U.S.C. Section 3103).
    Joint project proposal means:
    (1) An application for a project:
    (i) Which will involve the applicant institution working in 
cooperation with one or more other entities not legally affiliated with 
the applicant institution, including other schools, colleges, 
universities, community colleges, junior colleges, units of State 
government, private sector organizations, or a consortium of 
institutions; and
    (ii) Where the applicant institution and each cooperating entity 
will assume a significant role in the conduct of the proposed project.
    (2) To demonstrate a substantial involvement with the project, the 
applicant institution/organization submitting a joint project proposal 
must retain at least 30 percent but not more than 70 percent of the 
awarded funds and no cooperating entity may receive less than 10 percent 
of awarded funds. Only the applicant institution must meet the 
definition of an eligible institution/organization as specified in this 
RFA; other entities participating in a joint project proposal are not 
required to meet the definition of an eligible institution/organization.
    Large-scale, Comprehensive Initiative (LCI) project proposal means:
    (1) An application for a project:
    (i) Which will involve the applicant institution/organization 
working in cooperation with two or more other entities not legally 
affiliated with the applicant institution, including other schools, 
colleges, universities, community colleges, junior colleges, units of 
State government, private sector organizations, or a consortium of 
institutions; and
    (ii) Where the applicant institution and each cooperating entity 
will assume a significant role in the conduct of the proposed project.

[[Page 340]]

    (2) To demonstrate a substantial involvement with the project, the 
applicant institution/organization submitting a LCI proposal must retain 
at least 30 percent but not more than 70 percent of the awarded funds 
and no cooperating entity may receive less than 10 percent of awarded 
funds. Only the applicant institution must meet the definition of an 
eligible institution as specified in this RFA; other entities 
participating in a joint project proposal are not required to meet the 
definition of an eligible institution. LCI Project Proposals must 
support a multi-partner approach to solving a major state or regional 
challenge in agricultural sciences education at the postsecondary level. 
LCI Project Proposals are characterized by multiple partners (each 
providing a specific expertise) organized and led by a strong applicant 
with documented project management ability to organize and carry out the 
initiative.
    Non-land-grant college of agriculture (NLGCA) means a public college 
or university offering a baccalaureate or higher degree in the study of 
agriculture or forestry. The terms ``NLGCA Institution'' and ``non-land-
grant college of agriculture'' do not include:
    (1) Hispanic-serving agricultural colleges and universities; or
    (2) Any institution designated under: a. the Act of July 2, 1862 
(commonly known as the ``First Morrill Act''; 7 U.S.C. 301 et seq., or 
the `1862 Land Grants');
    (3) The Act of August 30, 1890 (commonly known as the ``Second 
Morrill Act'') (7 U.S.C. 321 et seq., or the `1890 Land Grants');
    (4) The Equity in Educational Land-Grant Status Act of 1994 (Public 
Law 103-382; 7 U.S.C. 301 note, or the `1994 or Tribal Colleges Land 
Grants'); or
    (5) Public Law 87-788 (commonly known as the ``McIntire-Stennis 
Cooperative Forestry Act'') (16 U.S.C. 582a et seq.).
    Outcomes means specific, measurable project results and benefits 
that, when assessed and reported; indicate the project's plan of 
operation has been achieved. Measurable outcomes include:
    (1) Results are intended or unintended consequences of the project, 
(e.g., ``. . . additional course materials now available online to 
reinforce student learning during non-classroom hours'');
    (2) Products may be actual items or services acquired with funds, 
(e.g., ``. . . mechanisms and content to transition existing course(s) 
or elements of course(s) for Web-based access'' or ``created new and 
innovative prevention and intervention initiatives''); and
    (3) Impacts are a measure of the results by comparing what might 
have happened in the absence of the funded project, (e.g., ``. . . an 
observed, overall increase in student learning based upon 8% higher 
average test scores of those students who both attended class and used 
the supplemental, Web-based course materials''.)
    Regular project proposal means a proposal for a project:
    (1) Where the applicant institution will be the sole entity involved 
in the execution of the project; or
    (2) Which will involve the applicant institution and one or more 
other entities, but where the involvement of the other entity(ies) does 
not meet the requirements for a joint project proposal as defined in 
this section.
    Sustainable Agriculture means an integrated system of plant and 
animal production practices having a site-specific application that 
will, over the long-term--
    (1) Satisfy human food and fiber needs;
    (2) Enhance environmental quality and the natural resource base upon 
which the agriculture economy depends;
    (3) Make the most efficient use of nonrenewable resources and on-
farm resources and integrate, where appropriate, natural biological 
cycles and controls;
    (4) Sustain the economic viability of farm operations; and
    (5) Enhance the quality of life for farmers and society as a whole.
    Teaching and education mean formal classroom instruction, laboratory 
instruction, and practicum experience in the food and agricultural 
sciences and matters relating thereto (such as faculty development, 
student recruitment and services, curriculum development, instructional 
materials and equipment,

[[Page 341]]

and innovative teaching methodologies) conducted by colleges and 
universities offering baccalaureate or higher degrees.



Sec. 3430.803  Eligibility.

    (a) Institution eligibility. Applications may only be submitted by a 
NLGCA institution. For the purposes of this program, the individual 
branches of a State college or university that are separately accredited 
as degree-granting institutions are treated as separate institutions, 
and are therefore eligible to apply for NLGCA Program awards. Separate 
branches or campuses of a college or university that are not 
individually accredited as degree-granting institutions are not treated 
as separate institutions, and are therefore not eligible to submit an 
application. Accreditation must be conferred by an agency or association 
recognized by the Secretary of the U.S. Department of Education.
    (b) Teacher or student eligibility. A teacher or student recipient 
receiving Federal funds from this grants program must be an eligible 
participant. Where eligibility is claimed under 8 U.S.C. 1101(a)(22), 
documentary evidence from the Immigration and Naturalization Service as 
to such eligibility must be made available to NIFA upon request.



Sec. 3430.804  Project types and priorities.

    (a) For each RFA, NIFA may develop and include the appropriate 
project types and focus areas based on the critical needs identified 
through stakeholder input and deemed appropriate by NIFA.
    (b) The RFA will specify which of the following project types 
applicants may submit applications:
    (1) Regular project proposal (the applicant executes the project 
without the requirement of sharing grant funds with other project 
partners);
    (2) Conference/planning grant to facilitate strategic planning 
session(s);
    (3) Joint project proposal (the applicant executes the project with 
assistance from at least one additional partner and must share grant 
funds with the additional partner(s)); and
    (4) Large-scale (state or region) comprehensive initiatives (LCI) 
(Applicant + Two or more Partners).



Sec. 3430.805  Funding restrictions.

    (a) Prohibition against construction. Grant funds awarded under this 
authority may not be used for the renovation or refurbishment of 
research, education, or extension space; the purchase or installation of 
fixed equipment in such space; or the planning, repair, rehabilitation, 
acquisition, or construction of buildings or facilities.
    (b) Prohibition on tuition remission. Tuition remission, on-campus 
room and board, academic fees or other financial assistance 
(scholarships or fellowships) are not allowed.
    (c) Promotional items (e.g., T-shirts and other giveaways) and food 
functions (e.g., cookouts or other social or meal gatherings) are 
considered `entertainment' expenses, and are, therefore, also not 
allowed under this grants program.



Sec. 3430.806  Matching requirements.

    There are no matching requirements for grants under this subpart.



Sec. 3430.807  Duration of grant.

    The term of a Federal assistance award made for a NLGCA project 
shall not exceed 5 years. No-cost extensions of time beyond the maximum 
award terms will not be considered or granted.



      Subpart M_New Era Rural Technology Competitive Grants Program

    Source: 74 FR 45973, Sept. 4, 2009, unless otherwise noted.



Sec. 3430.900  Applicability of regulations.

    The regulations in this subpart apply to the program authorized 
under section 1473E of the National Agricultural Research, Extension, 
and Teaching Policy Act of 1977 (7 U.S.C. 3319e), as amended.



Sec. 3430.901  Purpose.

    The purpose of this program is to make grants available for 
technology development, applied research, and training, with a focus on 
rural communities, to aid in the development of workforces for 
bioenergy, pulp and

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paper manufacturing, and agriculture-based renewable energy workforce.



Sec. 3430.902  Definitions.

    The definitions applicable to the program under this subpart 
include:
    Advanced Technological Center refers to a post-secondary, degree-
granting institution that provides students with technology-based 
education and training, preparing them to work as technicians or at the 
semi-professional level, and aiding in the development of an 
agriculture-based renewable energy workforce. For this program, such 
Centers must be located within a rural area.
    Bioenergy means biomass used in the production of energy 
(electricity; liquid, solid, and gaseous fuels; and heat).
    Biomass means any organic matter that is available on a renewable or 
recurring basis, including agricultural crops and trees, wood and wood 
wastes and residues, plants (including aquatic plants), grasses, 
residues, fibers, and animal wastes, municipal wastes, and other waste 
materials.
    Community College means
    (1) An institution of higher education that:
    (i) Admits as regular students persons who are beyond the age of 
compulsory school attendance in the State in which the institution is 
located and who have the ability to benefit from the training offered by 
the institution;
    (ii) Does not provide an educational program for which the 
institution awards a bachelor's degree (or an equivalent degree); and
    (iii) (A) Provides an educational program of not less than 2 years 
in duration that is acceptable for full credit toward such a degree; or
    (B) Offers a 2-year program in engineering, mathematics, or the 
physical or biological sciences, designed to prepare a student to work 
as a technician or at the semi-professional level in engineering, 
scientific, or other technological fields requiring the understanding 
and application of basic engineering, scientific, or mathematical 
principles of knowledge (20 U.S.C. 1101a(a)(6)).
    (2) For this grants program, such Community Colleges must be located 
within a rural area.
    Conference/Planning Grants means the limited number of RTP grants 
that will fund strategic planning meetings necessary to establish and 
organize proposed technology development, applied research and/or 
training projects.
    Eligible institution/organization means a community college, or an 
advanced technological center, that meets eligibility criteria of this 
program, and is located in a rural area.
    Eligible participant means an individual who is a citizen or non-
citizen national of the United States, as defined in 7 CFR 3430.2, or 
lawful permanent resident of the United States.
    Fiscal agent means a third party designated by an authorized 
representative of an eligible institution/organization which would 
receive and assume financial stewardship of Federal grant funds and 
perform other activities as specified in the agreement between it and 
the eligible institution/organization.
    Joint project proposal means
    (1) An application for a project:
    (i) Which will involve the applicant institution/organization 
working in cooperation with one or more other entities not legally 
affiliated with the applicant institution/organization, including other 
schools, colleges, universities, community colleges, units of State 
government, private sector organizations, or a consortium of 
institutions; and
    (ii) Where the applicant institution/organization and each 
cooperating entity will assume a significant role in the conduct of the 
proposed project.
    (2) To demonstrate a substantial involvement with the project, the 
applicant institution/organization submitting a joint project proposal 
must retain at least 30 percent but not more than 70 percent of the 
awarded funds, and no cooperating entity may receive less than 10 
percent of awarded funds. Only the applicant institution/organization 
must meet the definition of an eligible institution/organization as 
specified in this RFA; other entities participating in a joint project 
proposal are not required to meet the definition of an eligible 
institution/organization.
    Outcomes means specific, measurable project results and benefits 
that, when

[[Page 343]]

assessed and reported, indicate the project's plan of operation has been 
achieved.
    Plan of Operation means a detailed, step-by-step description of how 
the applicant intends to accomplish the project's outcomes. At a 
minimum, the plan should include a timetable indicating how outcomes are 
achieved, a description of resources to be used or acquired, and the 
responsibilities expected of all project personnel.
    Regular project proposal means an application for a project:
    (1) Where the applicant institution/organization will be the sole 
entity involved in the execution of the project; or
    (2) Which will involve the applicant institution/organization and 
one or more other entities, but where the involvement of the other 
entity(ies) does not meet the requirements for a joint proposal as 
defined in this section.
    Rural Area means any area other than a city or town that has a 
population of 50,000 inhabitants and the urbanized area contiguous and 
adjacent to such a city or town.
    Technology Development means the practical application of knowledge 
to address specific State, regional, or community opportunities in the 
bioenergy, pulp and paper manufacturing, or agriculture-based renewable 
energy occupations.

    Note: In general, technology is more than the development of a 
single product, but is instead a system of related products, procedures 
and services to ensure a systems approach to address a specific issue.

    Training means the planned and systematic acquisition of practical 
knowledge, skills or competencies required for a trade, occupation or 
profession delivered by formal classroom instruction, laboratory 
instruction, or practicum experience.

[74 FR 45973, Sept. 4, 2009, as amended at 75 FR 59060, Sept. 27, 2010]



Sec. 3430.903  Eligibility.

    Applications may be submitted by either:
    (a) Public or private nonprofit community colleges, or
    (b) Advanced technological centers, either of which must:
    (1) Be located in a rural area (see definition in Sec. 3430.902);
    (2) Have been in existence as of June 18, 2008;
    (3) Participate in agricultural or bioenergy research and applied 
research;
    (4) Have a proven record of development and implementation of 
programs to meet the needs of students, educators, and business and 
industry to supply the agriculture-based, renewable energy or pulp and 
paper manufacturing fields with certified technicians, as determined by 
the Secretary; and
    (5) Have the ability to leverage existing partnerships and 
occupational outreach and training programs for secondary schools, 4-
year institutions, and relevant nonprofit organizations.



Sec. 3430.904  Project types and priorities.

    For each RFA, NIFA may develop and include the appropriate project 
types and focus areas based on the critical needs identified through 
stakeholder input and deemed appropriate by NIFA.
    (a) In addition, priority in funding shall be given to eligible 
entities working in partnerships to:
    (1) Improve information-sharing capacity;
    (2) Maximize the ability to meet the requirements of the RFA; and
    (3) To address the following two RTP goals:
    (i) To increase the number of students encouraged to pursue and 
complete a 2-year postsecondary degree, or a certificate of completion, 
within an occupational focus of this grant program; and
    (ii) To assist rural communities by helping students achieve their 
career goals to develop a viable workforce for bioenergy, pulp and paper 
manufacturing, or agriculture-based renewable energy.
    (b) Applicants may submit applications for one of the three project 
types:
    (1) Regular project proposal (the applicant executes the project 
without the requirement of sharing grant funds with other project 
partners);
    (2) Joint project proposal (the applicant executes the project with 
assistance from at least one additional partner and must share grant 
funds with the additional partner(s)); and

[[Page 344]]

    (3) Conference/planning grant to facilitate strategic planning 
session(s).



Sec. 3430.905  Funding restrictions.

    (a) Prohibition against construction. Grant funds awarded under this 
authority may not be used for the renovation or refurbishment of 
research, education, or extension space; the purchase or installation of 
fixed equipment in such space; or the planning, repair, rehabilitation, 
acquisition, or construction of buildings or facilities.
    (b) Prohibition on tuition remission. Tuition remission (e.g., 
scholarships, fellowships) is not allowed.
    (c) Indirect costs. Subject to Sec. 3430.54, indirect costs are 
allowable with the exception of indirect costs for Conference/Planning 
grants, which are not allowed.



Sec. 3430.906  Matching requirements.

    There are no matching requirements for grants under this subpart.



Sec. 3430.907  Stakeholder input.

    NIFA shall seek and obtain stakeholder input through a variety of 
forums (e.g., public meetings, requests for input and/or Web site), as 
well as through a notice in the Federal Register, from the following 
entities:
    (a) Community college(s).
    (b) Advanced technological center(s), located in rural area, for 
technology development, applied research, and/or training.



Sec. 3430.908  Review criteria.

    Evaluation criteria. NIFA shall evaluate project proposals according 
to the following factors:
    (a) Potential for Advancing Quality of Technology Development, 
Applied Research, and/or Training/Significance of the Program.
    (b) Proposed Approach and Cooperative Linkages.
    (c) Institution Organization Capability and Capacity Building.
    (d) Key Personnel.
    (e) Budget and Cost-Effectiveness.



Sec. 3430.909  Other considerations.

    (a) Amount of grants. An applicant for a regular project proposal 
(single institution/organization) under this subpart may request up to 
$125,000 (total project, not per year). An applicant for a joint project 
proposal (applicant plus one or more partners) under this subpart may 
request up to $300,000 (total project, not per year). A conference/
planning grant applicant may request up to $10,000 (total project/not 
per year).
    (b) Duration of grants. The term of a grant for a standard RTP 
project under this subpart shall not exceed 5 years. No-cost extensions 
of time beyond the maximum award terms will not be considered or 
granted.

Subpart N [Reserved]



                       Subpart O_Sun Grant Program

    Source: 75 FR 70580, Nov. 18, 2010, unless otherwise noted.



Sec. 3430.1000  Applicability of regulations.

    The regulations in this subpart apply to the Federal assistance 
awards made under the program authorized under section 7526 of the Food, 
Conservation, and Energy Act of 2008 (FCEA), Pub. L. 110-246 (7 U.S.C. 
8114).



Sec. 3430.1001  Purpose.

    In carrying out the program, NIFA is authorized to make awards under 
section 7526 of the FCEA to eligible entities (as designated in section 
7526(b)(1)(A)-(F) of the FCEA) to fund subgrants and activities that:
    (a) Enhance national energy security through the development, 
distribution, and implementation of biobased energy technologies;
    (b) Promote diversification in, and the environmental sustainability 
of, agricultural production in the United States through biobased energy 
and product technologies;
    (c) Promote economic diversification in rural areas of the United 
States through biobased energy and product technologies; and
    (d) Enhance the efficiency of bioenergy and biomass research and 
development programs through improved coordination and collaboration 
among the Department, other appropriate Federal agencies (as determined 
by the

[[Page 345]]

Secretary), and land-grant colleges and universities.

[75 FR 70580, Nov. 18, 2010, as amended at 81 FR 6418, Feb. 8, 2016]



Sec. 3430.1002  Definitions.

    The definitions specific to the Sun Grant Program are from the 
authorizing legislation, the National Program Leadership of NIFA, and 
the Department of Energy. The definitions applicable to the program 
under this subpart include:
    Biobased product means:
    (1) An industrial product (including chemicals, materials, and 
polymers) produced from biomass; or
    (2) A commercial or industrial product (including animal feed and 
electric power) derived in connection with the conversion of biomass to 
fuel.
    Bioenergy means power generated in the form of electricity or heat 
using biomass as a feedstock.
    Center means a Sun Grant Center identified in Sec. 3430.1003(a)(1) 
through (5).
    Subcenter means the Sun Grant Subcenter identified in Sec. 
3430.1003(a)(6).
    Technology development means the process of research and development 
of technology.
    Technology implementation means the introduction of new technologies 
to either an existing organization, or to a larger community, such as a 
type of business.

[75 FR 70580, Nov. 18, 2010, as amended at 81 FR 6418, Feb. 8, 2016]



Sec. 3430.1003  Eligibility.

    (a) Sun Grant Centers and Subcenter. NIFA will use amounts 
appropriated for the Sun Grant Program to provide grants to the 
following five Centers and one Subcenter:
    (1) A North-Central Center for the region composed of the States of 
Illinois, Indiana, Iowa, Minnesota, Montana, Nebraska, North Dakota, 
South Dakota, Wisconsin, and Wyoming;
    (2) A Southeastern Center for the region composed of the States of 
Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South 
Carolina, Tennessee, and Virginia, the Commonwealth of Puerto Rico, and 
the United States Virgin Islands;
    (3) A South-Central Center for the region composed of the States of 
Arkansas, Colorado, Kansas, Louisiana, Missouri, New Mexico, Oklahoma, 
and Texas;
    (4) A Northeastern Center for the region composed of the States of 
Connecticut, Delaware, Massachusetts, Maryland, Maine, Michigan, New 
Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, 
Vermont, and West Virginia;
    (5) A Western Center for the region composed of the States of 
Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, and 
Washington, and insular areas (other than the Commonwealth of Puerto 
Rico and the United States Virgin Islands); and
    (6) A Western Insular Pacific Subcenter (that receives Federal funds 
through the Western Center rather than directly from NIFA, in accordance 
with Sec. 3430.1004(b)) for the region of Alaska, Hawaii, Guam, 
American Samoa, the Commonwealth of the Northern Mariana Islands, the 
Federated States of Micronesia, the Republic of the Marshall Islands, 
and the Republic of Palau.
    (b) Subawardees of the Centers and Subcenter. To be eligible for a 
subaward from a Center or Subcenter pursuant to Sec. 3430.1004(a)(1), 
an applicant:
    (1) Must be located in the region covered by the applicable Center 
or Subcenter; and
    (2) Must be one of the following:
    (i) State agricultural experiment station;
    (ii) College or university;
    (iii) University research foundation;
    (iv) Other research institution or organization;
    (v) Federal agency;
    (vi) National laboratory;
    (vii) Private organization or corporation;
    (viii) Individual; or
    (ix) Any group consisting of 2 or more entities described in 
paragraphs (b)(2)(i) through (viii) of this section.
    (c) Ineligibility. A Center or Subcenter will be ineligible for 
funding under the Sun Grant Program if NIFA determines on the basis of 
an audit or a review of a report submitted under Sec. 3430.1009 that 
the Center or Subcenter

[[Page 346]]

has not complied with the requirements of section 7526 of the FCEA (7 
U.S.C. 8114). A Center or Subcenter determined to be ineligible pursuant 
to this paragraph will remain ineligible for such period of time as 
deemed appropriate by NIFA. This ineligibility requirement is in 
addition to the enforcement actions that NIFA may take pursuant to Sec. 
3430.60.

[75 FR 70580, Nov. 18, 2010, at 81 FR 6418, Feb. 8, 2016]



Sec. 3430.1004  Project types and priorities.

    (a) Project types. The Sun Grant Program provides funds for two 
distinct project types. Subject to paragraph (b), of the funds provided 
by NIFA to the Centers and Subcenter, the required use of funds by each 
of the Centers and the Subcenter is as follows:
    (1) Regional competitive research, extension, and education grant 
programs. Seventy-five percent must be used for regional competitively 
awarded research, extension, and education subgrants to eligible 
entities (described in Sec. 3430.1003(b)) to conduct, in a manner 
consistent with the purposes described in Sec. 3430.1001, multi-
institutional and integrated, multistate research, extension, and 
education programs on technology development and technology 
implementation. Regional competitive grants programs will target 
specific elements of the purposes described in Sec. 3430.1001, 
implementing national priorities in the context of regional scale 
biogeographic and climatic conditions.
    (i) Requests for applications. The Centers and Subcenter must 
develop regional requests for applications (RFAs) utilizing guidance 
from regional advisory panels created and administered by the Centers 
and Subcenter for purposes of addressing region-specific issues, and 
which include representation from academia, the national laboratories, 
Federal and State agencies, the private sector, and public interest 
groups. Advisory panel members will have appropriate expertise and 
experience in the areas of biomass and bioenergy.
    (ii) Peer review of proposals. Each region will announce RFAs and 
solicit proposals. These proposals must be peer reviewed by panels in a 
manner similar to the system of peer review required by section 103 of 
the Agricultural Research, Extension, and Education Reform Act of 1998 
(7 U.S.C. 7613), and may include representation from Federal and State 
laboratories, the national laboratories, and private and public interest 
groups, as appropriate. The Centers and Subcenter may use implementing 
regulations found in Sec. Sec. 3430.31 through 3430.37 as a guideline 
for appropriate peer review standards. Additional guidance may be 
provided by NIFA. To ensure consistency across the regions, prior to 
announcing the regional RFAs that will be used to solicit proposals, the 
Centers and Subcenter must provide NIFA the RFAs for approval by the 
designated NIFA program contact, as identified in the NIFA program 
solicitation. The Centers and Subcenter shall award subgrants on the 
basis of merit, quality, and relevance to advancing the purposes of the 
Sun Grant Program.
    (2) Research, extension, and education activities conducted at the 
Centers and Subcenter. Except for funds available for administrative 
expenses as provided in Sec. 3430.1005(b), the remainder of the funds 
must be used for multi-institutional and multistate research, extension, 
and education programs on technology development and multi-institutional 
and multistate integrated research, extension, and education programs on 
technology implementation, in a manner consistent with the purposes 
described in Sec. 3430.1001.
    (b) Special provisions for the Western Center and Western Insular 
Pacific Subcenter. Funds provided by NIFA to the Western Insular Pacific 
Subcenter shall come from an allocation of a portion of the funds 
received by the Western Center, as directed by NIFA in the program 
solicitation, rather than directly from NIFA. For the Center, the phrase 
``funds provided by NIFA'' in paragraph (a) of this section refers to 
those funds provided by NIFA for the Sun Grant Program that are not 
allocated to the Subcenter. For the Subcenter, the phrase ``funds 
provided by NIFA'' in paragraph (a) of this section refers to those 
funds that are allocated to the Subcenter.

[[Page 347]]

    (c) Priorities. For the regional competitive grants program under 
paragraph (a)(1) of this section, the Centers and Subcenter shall use 
the plan approved by NIFA under Sec. 3430.1007 in making subawards and 
shall give a higher priority to proposals that are consistent with the 
plan.

[75 FR 70580, Nov. 18, 2010, as amended at 81 FR 6418, Feb. 8, 2016]



Sec. 3430.1005  Funding restrictions.

    (a) Facility costs. Funds made available under the Sun Grant Program 
shall not be used for the construction of a new building or facility or 
the acquisition, expansion, remodeling, or alteration of an existing 
building or facility (including site grading and improvement, and 
architect fees).
    (b) Indirect cost provisions for regional competitive research, 
extension, and education grant programs. Funds provided by NIFA to the 
Centers and Subcenter for the regional competitive grants program under 
Sec. 3430.1004(a)(1) may not be used for the indirect costs of awarding 
the competitive grants. However, up to 4 percent of the total funds 
provided by NIFA to the Centers and the Subcenter under Sec. 3430.1004 
for the Sun Grant Program may be budgeted for administrative costs 
incurred in awarding the competitive grants.
    (c) Indirect cost provisions for research, extension, and education 
activities conducted at the Centers and Subcenter. Subject to Sec. 
3430.54, indirect costs are allowable for the funds provided by NIFA to 
the Centers and the Subcenter for the research, extension, and education 
programs under Sec. 3430.1004(a)(2).
    (d) Required allocations. Each Center and Subcenter must fund 
subgrants in a proportion that is a minimum 30 percent for conducting 
multi-institutional and multistate research, extension, and education 
programs on technology development; and a minimum 30 percent for 
conducting integrated multi-institutional and multistate research, 
extension, and education programs on technology implementation. Each Sun 
Grant Center must clearly demonstrate a common procedure for ensuring 
the required allocations are met, and for maintaining documentation of 
these required percentages for audit purposes.

[75 FR 70580, Nov. 18, 2010, as amended at 81 FR 6418, Feb. 8, 2016]



Sec. 3430.1006  Matching requirements.

    (a) Matching provisions for the Centers and Subcenter. The Centers 
and the Subcenter are not required to match Federal funds.
    (b) Matching provisions for subawards. For subawards made by the 
Centers or Subcenter through the competitive grants process, not less 
than 20 percent of the cost of an activity must be matched with funds, 
including in-kind contributions, from a non-Federal source, by the 
subawardee.
    (1) Exception for fundamental research. This matching requirement 
does not apply to fundamental research (as defined in Sec. 3430.2).
    (2) Special matching provisions for applied research. With prior 
approval by the NIFA authorized departmental officer (ADO), the Center 
or Subcenter may reduce or eliminate the matching requirement for 
applied research (as defined in Sec. 3430.2) if the Center or Subcenter 
determines that the reduction is necessary and appropriate pursuant to 
guidance issued by NIFA.



Sec. 3430.1007  Planning activities.

    (a) Required plan. The Centers and Subcenter shall jointly develop 
and submit to NIFA for approval a plan for addressing the bioenergy, 
biomass, and bioproducts research priorities of the Department and the 
other appropriate Federal agencies at the State and regional levels. 
Proposals submitted to the Sun Grant Program must be sufficiently 
detailed and of high enough quality and demonstrate adequate evidence of 
collaboration to meet this requirement. Funds available for 
administrative costs (see Sec. 3430.1005(b)) may be used to meet this 
requirement.
    (b) [Reserved]

[75 FR 70580, Nov. 18, 2010, as amended at 81 FR 6418, Feb. 8, 2016]



Sec. 3430.1008  Sun Grant Information Analysis Center.

    The Centers and Subcenter shall maintain, at the North-Central 
Center,

[[Page 348]]

a Sun Grant Information Analysis Center to provide the Centers and 
Subcenter with analysis and data management support. Each Center and 
Subcenter shall allocate a portion of the funds available for 
administrative or indirect costs under Sec. 3430.1005 to maintain the 
Sun Grant Information Analysis Center.



Sec. 3430.1009  Administrative duties.

    In addition to other reporting requirements agreed to in the terms 
and conditions of each award, not later than 90 days after the end of 
each Federal fiscal year, each Center and Subcenter shall submit to NIFA 
a report that describes the policies, priorities, and operations of the 
program carried out by the Center or Subcenter during the fiscal year, 
including the results of all peer and merit review procedures conducted 
as part of administering the regional competitive research, extension, 
and educational grant programs; and a description of progress made in 
facilitating the plan described in Sec. 3430.1007.



Sec. 3430.1010  Review criteria.

    Panel reviewers conducting merit reviews on proposals submitted by 
the Centers will be instructed to ensure that proposals adequately 
address the plan developed in accordance with Sec. 3430.1007 for 
consideration of the relevance and merit of proposals.



Sec. 3430.1011  Duration of awards.

    The term of a Federal assistance award made under the Sun Grant 
Program shall not exceed 5 years. No-cost extensions of time beyond the 
maximum award terms will not be considered or granted.



          Subpart P_Food Insecurity Nutrition Incentive Program

    Source: 80 FR 64310, Oct. 23, 2015, unless otherwise noted.



Sec. 3430.1100  Applicability of regulations.

    The regulations in this subpart apply to the Food Insecurity 
Nutrition Incentive (FINI) grants program authorized under section 4405 
of the Food, Conservation, and Energy Act of 2008 (7 U.S.C. 7517), as 
added by section 4208 of the Agricultural Act of 2014 (Pub. L. 113-79).



Sec. 3430.1101  Purpose.

    The primary goal of the FINI grants program is to fund and evaluate 
projects intended to increase the purchase of fruits and vegetables by 
low-income consumers participating in Supplemental Nutrition Assistance 
Program (SNAP) by providing incentives at the point of purchase.



Sec. 3430.1102  Definitions.

    The definitions applicable to the FINI grants program under this 
subpart include:
    Community food assessment means a collaborative and participatory 
process that systematically examines a broad range of community food 
issues and assets, so as to inform change actions to make the community 
more food secure.
    Emergency feeding organization means a public or nonprofit 
organization that administers activities and projects (including the 
activities and projects of a charitable institution, a food bank, a food 
pantry, a hunger relief center, a soup kitchen, or a similar public or 
private nonprofit eligible recipient agency) providing nutrition 
assistance to relieve situations of emergency and distress through the 
provision of food to needy persons, including low-income and unemployed 
persons. (See 7 U.S.C. 7501).
    Exemplary practices means high quality community food security work 
that emphasizes food security, nutritional quality, environmental 
stewardship, and economic and social equity.
    Expert reviewers means individuals selected from among those 
recognized as uniquely qualified by training and experience in their 
respective fields to give expert advice on the merit of grant 
applications in such fields who evaluate eligible proposals submitted to 
this program in their respective area(s) of expertise.
    Food security means access to affordable, nutritious, and culturally 
appropriate food for all people at all times.
    Fruits and vegetables means, for the purposes of the incentives 
provided

[[Page 349]]

under these grants, any variety of fresh, canned, dried, or frozen whole 
or cut fruits and vegetables without added sugars, fats or oils, and 
salt (i.e. sodium).
    Logic model means a systematic and visual way to present and share 
an understanding of the relationships among resources available to 
operate a program, and includes: Planned activities and anticipated 
results; and the presentation of the resources, inputs, activities, 
outputs, outcomes and impacts.
    Outcomes means the changes in the wellbeing of individuals that can 
be attributed to a particular project, program, or policy, or that a 
program hopes to achieve over time. They indicate a measurable change in 
participant knowledge, attitudes, or behaviors.
    Process evaluation means examining program activities in terms of:
    (1) The age, sex, race, occupation, or other demographic variables 
of the target population;
    (2) The program's organization, funding, and staffing; and
    (3) The program's location and timing. Process evaluation focuses on 
program activities rather than outcomes.
    PromiseZone refers to designated high-poverty communities ``where 
the federal government will partner with and invest in communities to 
create jobs, leverage private investment, increase economic activity, 
expand educational opportunities, and improve public safety.'' See 
https://www.hudexchange.info/programs/promise-zones/.
    Nonprofit organization means a special type of organizationthat has 
been organized to meet specific tax-exempt purposes. To qualify for 
nonprofit status, your organizationmust be formed to benefit:
    (1) The public;
    (2) A specific group of individuals; or
    (3) The membership of the nonprofit.
    StrikeForce means the ``USDA's StrikeForce Initiative for Rural 
Growth and Opportunity, which works to address the unique set of 
challenges faced by many of America's rural communities. Through 
StrikeForce, USDA is leveraging resources and collaborating with 
partners and stakeholders to improve economic opportunity and quality of 
life in these areas. See http://www.usda.gov/wps/portal/usda/
usdahome?navid=STRIKE_FORCE for more information.
    Supplemental Nutrition Assistance Program (SNAP) means the 
supplemental nutrition assistance program established under the Food and 
Nutrition Act of 2008 (7 U.S.C. 2011 et seq.).
    Value chain means adding value to a product, including production, 
marketing, and the provision of after-sales service and incorporating 
fair pricing to farms. It also involves keeping the final pricing to 
customers within competitive range. Value chain development, therefore, 
is a process of building relationships between supplier and buyer that 
are reciprocal and win-win; instead of always striving to buy at lowest 
cost.



Sec. 3430.1103  Eligibility.

    (a) In general. Eligibility to receive a grant under this subpart is 
limited to government agencies and nonprofit organizations. All 
applicants must demonstrate in their application that they are a 
government agency or nonprofit organization. Eligible government 
agencies and nonprofit organizations may include:
    (1) An emergency feeding organization;
    (2) An agricultural cooperative;
    (3) A producer network or association;
    (4) A community health organization;
    (5) A public benefit corporation;
    (6) An economic development corporation;
    (7) A farmers' market;
    (8) A community-supported agriculture program;
    (9) A buying club;
    (10) A SNAP-authorized retailer; and
    (11) A State, local, or tribal agency.
    (b) Further eligibility requirements--(1) Related to projects. To be 
eligible to receive a grant under this subpart, applicants must propose 
projects that:
    (i) Have the support of the State SNAP agency;
    (ii) Would increase the purchase of fruits and vegetables by low-
income consumers participating in SNAP by providing incentives at the 
point of purchase;

[[Page 350]]

    (iii) Operate through authorized SNAP retailers and comply with all 
relevant SNAP regulations and operating requirements;
    (iv) Agree to participate in the FINI comprehensive program 
evaluation;
    (v) Ensure that the same terms and conditions apply to purchases 
made by individuals with SNAP benefits and with incentives under the 
FINI grants program as apply to purchases made by individuals who are 
not members of households receiving benefits as provided in Sec. 
278.2(b) of this title; and
    (vi) Include effective and efficient technologies for benefit 
redemption systems that may be replicated in other States and 
communities.
    (2) Related to experience and other competencies. To be eligible to 
receive a grant under this subpart, applicants must meet the following 
requirements:
    (i) Have experience:
    (A) In efforts to reduce food insecurity in the community, including 
food distribution, improving access to services, or coordinating 
services and programs; or
    (B) With the SNAP program;
    (ii) Demonstrate competency to implement a project, provide fiscal 
accountability, collect data, and prepare reports and other necessary 
documentation;
    (iii) Secure the commitment of the State SNAP agency to cooperate 
with the project; and
    (iv) Possess a demonstrated willingness to share information with 
researchers, evaluators (including the independent evaluator for the 
program), practitioners, and other interested parties, including a plan 
for dissemination of results to stakeholders.
    (c) Other, non-eligibility considerations. Applicants are 
encouraged:
    (1) To propose projects that will provide employees with important 
job skills; and
    (2) To have experience the following areas:
    (i) Community food work, particularly concerning small and medium-
size farms, including the provision of food to people in low-income 
communities and the development of new markets in low-income communities 
for agricultural producers; and
    (ii) Job training and business development activities for food-
related activities in low-income communities.
    (d) Partnerships. Applicants for a grant under this subpart are 
encouraged to seek and create partnerships with public or private, 
nonprofit or for-profit entities, including links with academic 
institutions (including minority-serving colleges and universities) or 
other appropriate professionals; community-based organizations; local 
government entities; PromiseZone lead applicant/organization or 
implementation partners; and StrikeForce area coordinators or partnering 
entities for the purposes of providing additional Federal resources and 
strengthening under-resourced communities. Only the applicant must meet 
the requirements specified in this section for grant eligibility. 
Project partners and collaborators need not meet the eligibility 
requirements.



Sec. 3430.1104  Project types and priorities.

    (a) FINI Pilot Projects (FPP). FPPs are aimed at new entrants 
seeking funding for a project in the early stages of incentive program 
development.
    (b) FINI Projects (FP). FPs are aimed at mid-sized groups developing 
incentive programs at the local or State level.
    (c) FINI Large Scale Projects (FLSP). FLSPs are aimed at groups 
developing multi-county, State, and regional incentive programs with the 
largest target audience of all FINI projects.



Sec. 3430.1105  Funding restrictions.

    (a) Construction. Funds made available for grants under this subpart 
shall not be used for the construction of a new building or facility or 
the acquisition, expansion, remodeling, or alteration of an existing 
building or facility (including site grading and improvement, and 
architect fees).
    (b) Indirect costs. Subject to Sec. 3430.54, indirect costs are 
allowable.



Sec. 3430.1106  Matching requirements.

    (a) In general. Recipients of a grant under this subpart must 
provide matching contributions on a dollar-for-dollar basis for all 
Federal funds awarded.

[[Page 351]]

    (b) Source and type. The non-Federal share of the cost of a project 
funded by a grant under this subpart may be provided by a State or local 
government or a private source. The matching requirement in this section 
may be met through cash or in-kind contributions, including third-party 
in-kind contributions fairly evaluated, including facilities, equipment, 
or services.
    (c) Limitation. If an applicant partners with a for-profit entity, 
the non-Federal share that is required to be provided by the applicant 
may not include the services of an employee of that for-profit entity, 
including salaries paid or expenses covered by that employer.
    (d) Indirect costs. Use of indirect costs as in-kind matching 
contributions is subject to Sec. 3430.52(b).



Sec. 3430.1107  Program requirements.

    The term of a grant under this subpart may not exceed 5 years. No-
cost extensions of time beyond the maximum award terms will not be 
considered or granted.



Sec. 3430.1108  Priorities.

    (a) In general. Except as provided in paragraph (b) of this section, 
in awarding grants under this subpart, NIFA will give priority to 
projects that:
    (1) Maximize the share of funds used for direct incentives to 
participants;
    (2) Use direct-to-consumer sales marketing;
    (3) Demonstrate a track record of designing and implementing 
successful nutrition incentive programs that connect low-income 
consumers and agricultural producers;
    (4) Provide locally or regionally produced fruits and vegetables;
    (5) Are located in underserved communities; or
    (6) Address other criteria as established by NIFA and included in 
the requests for applications.
    (b) Exception. The priorities in paragraph (a) of this section that 
are given by NIFA will depend on the project type identified in Sec. 
3430.1104. Applicants should refer to the requests for applications to 
determine which priorities will be given to which project types.



               Subpart Q_Veterinary Services Grant Program

    Source: 82 FR 15114, Mar. 27, 2017, unless otherwise noted.



Sec. 3430.1200  Applicability of regulations.

    The regulations in this subpart apply to the Veterinary Services 
Grant Program authorized under section 7104 of the Agricultural Act of 
2014 (Pub. L. 113-79).



Sec. 3430.1201  Purpose.

    The purpose of VSGP is to administer a competitive grant program to 
develop, implement, and sustain veterinary services and relieve 
veterinarian shortage situations (see Sec. 3430.1202 for definition) in 
the U.S., which includes insular areas (see Sec. 3430.1202 for a 
definition of ``insular area''). A qualified entity may use funds 
provided by a grant awarded under this section to relieve veterinarian 
shortage situations and support veterinary services for any of the 
following purposes:
    (a) To promote recruitment (including for programs in secondary 
schools), placement, and retention of veterinarians, veterinary 
technicians, students of veterinary medicine, and students of veterinary 
technology.
    (b) To allow veterinary students, veterinary interns, externs, 
fellows, and residents, and veterinary technician students to cover 
expenses (other than the types of expenses described in 7 U.S.C. 
3151a(c)(5)) to attend training programs in food safety or food animal 
medicine.
    (c) To establish or expand accredited veterinary education programs 
(including faculty recruitment and retention), veterinary residency and 
fellowship programs, or veterinary internship and externship programs 
carried out in coordination with accredited colleges of veterinary 
medicine.
    (d) To provide continuing education and extension, including 
veterinary telemedicine and other distance-based education, for 
veterinarians, veterinary technicians, and other health professionals 
needed to strengthen veterinary programs and enhance food safety.

[[Page 352]]

    (e) To provide technical assistance for the preparation of 
applications submitted to the Secretary for designation as a 
veterinarian shortage situation under 7 U.S.C. 3151a.



Sec. 3430.1202  Definitions.

    The definitions applicable to the VSGP grants under this subpart 
include:
    Citizen or national of the United States which means:
    (1) A citizen or national of the United States, as defined in 8 
U.S.C. 1401; or,
    (2) A national of the United States, as defined in the Immigration 
and Nationality Act, 8 U.S.C. 1101(a)(22), who, though not a citizen of 
the United States, owes permanent allegiance to the United States.
    Practice of veterinary medicine means to diagnose, treat, correct, 
change, alleviate, or prevent animal disease, illness, pain, deformity, 
defect, injury, or other physical, dental, or mental conditions by any 
method or mode including:
    (1) The prescription, dispensing, administration, or application of 
any drug, medicine, biologic, apparatus, anesthetic, or other 
therapeutic or diagnostic substance or medical or surgical technique, or
    (2) The use of complementary, alternative, and integrative 
therapies, or
    (3) The use of any manual or mechanical procedure for reproductive 
management, or
    (4) The rendering of advice or recommendation by any means including 
telephonic and other electronic communications with regard to any of 
paragraphs (1), (2), (3), or (4) of this definition.
    Qualified entity means an eligible entity (see Sec. 3430.1203 for a 
list of eligible applicants for each project type) that carries out 
programs or activities that the Secretary determines will:
    (1) Substantially relieve veterinarian shortage situations;
    (2) Support or facilitate private veterinary practices engaged in 
public health activities; or
    (3) Support or facilitate the practices of veterinarians who are 
providing or have completed providing services under an agreement 
entered into with the Secretary under 7 U.S.C. 3151a(a)(2).
    Rural area is defined in section 343(a) of the Consolidated Farm and 
Rural Development Act (7 U.S.C. 1991(a)).
    Veterinarian means a U.S. citizen or national who has received a 
professional veterinary medicine degree from a college of veterinary 
medicine accredited by the AVMA Council on Education.
    Veterinarian Shortage Situation means any of the following 
situations in which the Secretary, in accordance with the process in 7 
CFR part 3431 subpart A, determines has a shortage of veterinarians:
    (1) Geographical areas that the Secretary determines have a shortage 
of food supply veterinarians; and
    (2) Areas of veterinary practice that the Secretary determines have 
a shortage of food supply veterinarians, such as food animal medicine, 
public health, animal health, epidemiology, and food safety.
    Veterinary medicine means all branches and specialties included 
within the practice of veterinary medicine.
    Veterinary Medicine Loan Repayment Program or VMLRP means the 
Veterinary Medicine Loan Repayment Program authorized by the National 
Veterinary Medical Service Act (7 U.S.C. 3151a).



Sec. 3430.1203  Eligibility.

    (a) For Education, Extension, and Training projects, eligible 
entities are:
    (1) A State, national, allied, or regional veterinary organization 
or specialty board recognized by the American Veterinary Medical 
Association;
    (2) A college or school of veterinary medicine accredited by the 
American Veterinary Medical Association;
    (3) A university research foundation or veterinary medical 
foundation;
    (4) A department of veterinary science or department of comparative 
medicine accredited by the Department of Education;
    (5) A State agricultural experiment station; or
    (6) A State, local, or tribal government agency.
    (b) For Rural Practice Enhancement projects, eligible entities are:

[[Page 353]]

    (1) A for-profit or nonprofit entity located in the United States 
that, or individual who, operates a veterinary clinic providing 
veterinary services, in a rural area, as defined in section 343(a) of 
the Consolidated Farm and Rural Development Act (7 U.S.C. 1991(a)), and 
in a veterinarian shortage situation designated under the VMLRP. 
Eligible veterinarian shortage situation years will be specified in the 
request for application (RFA).
    (2) [Reserved].



Sec. 3430.1204  Project types and priorities.

    (a) Education, Extension, and Training. The purpose of the proposed 
activities must be to substantially relieve rural veterinarian shortage 
situations, or facilitate or support veterinary practices engaged in 
public health activities, in the U.S.
    (b) Rural practice enhancement. The purpose will be to support the 
development and provision of veterinary services to substantially 
relieve designated rural veterinarian shortage situations in the U.S. 
Funds may be used to establish or expand veterinary practices, 
including:
    (1) Equipping veterinary offices;
    (2) Sharing in the reasonable overhead costs of such veterinary 
practices, as determined by the Secretary; or
    (3) Establishing mobile veterinary facilities in which a portion of 
the facilities will address education or extension needs.



Sec. 3430.1205  Funding restrictions.

    (a) Construction. Funds made available for grants under this subpart 
shall not be used for the construction of a new building or facility or 
the acquisition, expansion, remodeling, or alteration of an existing 
building or facility, including site grading and improvement, and 
architect fees.
    (b) Indirect costs. Subject to Sec. 3430.54, indirect costs are 
allowable for Education, Extension and Training grants. For Rural 
Practice Enhancement grants, indirect costs are not allowable; however, 
overhead costs may be requested, not to exceed 50 percent of the award.



Sec. 3430.1206  Matching requirements.

    There are no matching requirements for grants under this subpart.



Sec. 3430.1207  Coordination preference.

    In selecting recipients of Education, Extension and Training grants, 
preference will be given to applications providing documentation of 
coordination with other qualified entities.



Sec. 3430.1208  Special requirements for Rural Practice Enhancement grants.

    (a) Terms of service requirement. Regardless of award amount, Rural 
Practice Enhancement (RPE) grant recipients must commit to spending 
three years mitigating the veterinarian service shortage applied for, at 
the full time equivalent percentage described in the shortage nomination 
forms corresponding to each designated shortage situation. Except in 
certain extenuating circumstances which NIFA determines to be beyond a 
grant recipient's control, the three-year term of service must be 
completed in accordance with all terms and conditions of the award 
agreement. In the event a recipient feels extenuating circumstances are 
preventing, or will prevent, him/her from meeting the service 
obligation, the grantee must contact NIFA for guidance.
    (b) Breach. If a RPE grant recipient fails to complete the period of 
obligated service incurred under the service agreement, that recipient 
may be subject to repayment or partial repayment of the grant funds, 
with interest, to the United States.
    (c) Waiver. The Secretary may grant a waiver of the repayment 
obligation for breach of contract if the Secretary determines that such 
qualified entity demonstrates extreme hardship or extreme need.



Sec. 3430.1209  Duration of awards.

    The term of a grant under this subpart may not exceed 5 years. The 
duration of individual awards may vary as specified in the RFA and is 
subject to the availability of appropriations.

[[Page 354]]



PART 3431_VETERINARY MEDICINE LOAN REPAYMENT PROGRAM--Table of Contents



        Subpart A_Designation of Veterinarian Shortage Situations

Sec.
3431.1 Applicability of regulations.
3431.2 Purpose.
3431.3 Definitions and acronyms.
3431.4 Solicitation of stakeholder input.
3431.5 Solicitation of veterinarian shortage situations.
3431.6 Review of nominations.
3431.7 Notification and use of designated veterinarian shortage 
          situations.

   Subpart B_Administration of the Veterinary Medicine Loan Repayment 
                                 Program

3431.8 Purpose and scope.
3431.9 Eligibility to apply.
3431.10 Eligibility to participate.
3431.11 Application.
3431.12 Selection of applicants.
3431.13 Terms of loan repayment and length of service requirements.
3431.14 Priority.
3431.15 Qualifying loans.
3431.16 Certifications and verifications.
3431.17 VMLRP service agreement offer.
3431.18 Service agreement.
3431.19 Payment and tax liability.
3431.20 Administration.
3431.21 Breach.
3431.22 Waiver.
3431.23 Service to Federal government in emergency situations.
3431.24 Reporting requirements, monitoring, and close-out.

    Authority: 7 U.S.C. 3151a; Pub. L. 106-107 (31 U.S.C. 6101 note).

    Source: 75 FR 20243, Apr. 19, 2010, unless otherwise noted.



        Subpart A_Designation of Veterinarian Shortage Situations



Sec. 3431.1  Applicability of regulations.

    This part establishes the process and procedures for designating 
veterinarian shortage situations as well as the administrative 
provisions for the Veterinary Medicine Loan Repayment Program (VMLRP) 
authorized by the National Veterinary Medical Service Act (NVMSA), 7 
U.S.C. 3151a.



Sec. 3431.2  Purpose.

    The Secretary will follow the processes and procedures established 
in subpart A of this part to designate veterinarian shortage situations 
for the VMLRP. Applications for the VMLRP will be accepted from eligible 
veterinarians who agree to serve in one of the designated shortage 
situations in exchange for the repayment of an amount of the principal 
and interest of the veterinarian's qualifying educational loans. The 
administrative provisions for the VMLRP, including the application 
process, are established in subpart B of this part.



Sec. 3431.3  Definitions and acronyms.

    (a) General definitions. As used in this part:
    Act means the National Veterinary Medical Service Act, as amended.
    Agency or NIFA means the National Institute of Food and Agriculture.
    Department means the United States Department of Agriculture.
    Food animal means the following species: Bovine, porcine, ovine/
camelid, cervid, poultry, caprine, and any other species as determined 
by the Secretary.
    Food supply veterinary medicine means all aspects of veterinary 
medicine's involvement in food supply systems, from traditional 
agricultural production to consumption.
    Insular area means the Commonwealth of Puerto Rico, Guam, American 
Samoa, the Commonwealth of the Northern Mariana Islands, the Federated 
States of Micronesia, the Republic of the Marshall Islands, the Republic 
of Palau, and the Virgin Islands of the United States.
    NVMSA means the National Veterinary Medicine Service Act.
    Practice of food supply veterinary medicine includes corporate/
private practices devoted to food animal medicine, mixed animal medicine 
located in a rural area (at least 30 percent of practice devoted to food 
animal medicine), food safety, epidemiology, public health, animal 
health, and other public and private practices that contribute to the 
production of a safe and wholesome food supply.
    Practice of veterinary medicine means to diagnose, treat, correct, 
change, alleviate, or prevent animal disease, illness, pain, deformity, 
defect, injury, or other physical, dental, or mental conditions by any 
method or mode; including:

[[Page 355]]

    (1) The prescription, dispensing, administration, or application of 
any drug, medicine, biologic, apparatus, anesthetic, or other 
therapeutic or diagnostic substance or medical or surgical technique, or
    (2) The use of complementary, alternative, and integrative 
therapies, or
    (3) The use of any manual or mechanical procedure for reproductive 
management, or
    (4) The rendering of advice or recommendation by any means including 
telephonic and other electronic communications with regard to any of 
paragraphs (1), (2), (3), or (4) of this definition.
    Rural area means any area other than a city or town that has a 
population of 50,000 inhabitants and the urbanized area contiguous and 
adjacent to such a city or town.
    Secretary means the Secretary of Agriculture and any other officer 
or employee of the Department to whom the authority involved has been 
delegated.
    Service area means geographic area in which the veterinarian will be 
providing veterinary medical services.
    State means any one of the fifty States, the District of Columbia, 
and the insular areas of the United States.
    State animal health official or SAHO means the State veterinarian, 
or equivalent, who will be responsible for nominating and certifying 
veterinarian shortage situations within the State.
    Veterinarian means a person who has received a professional 
veterinary medicine degree from a college of veterinary medicine 
accredited by the AVMA Council on Education.
    Veterinarian shortage situation means any of the following 
situations in which the Secretary, in accordance with the process in 
subpart A of this part, determines has a shortage of veterinarians:
    (1) Geographical areas that the Secretary determines have a shortage 
of food supply veterinarians; and
    (2) Areas of veterinary practice that the Secretary determines have 
a shortage of food supply veterinarians, such as food animal medicine, 
public health, animal health, epidemiology, and food safety.
    Veterinary medicine means all branches and specialties included 
within the practice of veterinary medicine.
    Veterinary Medicine Loan Repayment Program or VMLRP means the 
Veterinary Medicine Loan Repayment Program authorized by the National 
Veterinary Medical Service Act.
    (b) Definitions applicable to Subpart B.
    Applicant means an individual who applies to and meets the 
eligibility criteria for the VMLRP.
    Breach of agreement results when a participant fails to complete the 
service agreement obligation required under the terms and conditions of 
the agreement and will be subject to assessment of monetary damages and 
penalties as determined in the service agreement, unless a waiver has 
been granted or an exception applies.
    Current payment status means that a qualified educational loan is 
not past due in its payment schedule as determined by the lending 
institution.
    Debt threshold means the minimum amount of qualified student debt an 
individual must have, on their program eligibility date, in order to be 
eligible for program benefits, as determined by the Secretary.
    Program eligibility date means the date on which an individual's 
VMLRP agreement is executed by the Secretary.
    Program participant means an individual whose application to the 
VMLRP has been approved and whose service agreement has been accepted 
and signed by the Secretary.
    Qualifying educational expenses means the costs of attendance of the 
applicant at a college of veterinary medicine accredited by the AVMA 
Council on Education, exclusive of the tuition and reasonable living 
expenses. Educational expenses may include fees, books, laboratory 
expenses and materials, as required by an accredited college or school 
of veterinary medicine as part of a Doctor of Veterinary Medicine degree 
program, or the equivalent. The program participant must submit 
sufficient documentation, as required by the Secretary, to substantiate 
the school requirement for the educational expenses incurred by the 
program participant.

[[Page 356]]

    Qualifying educational loans means loans that are issued by any 
Federal, State, or local government entity, accredited academic 
institution(s), and/or commercial lender(s) that are subject to 
examination and supervision in their capacity as lending institutions by 
an agency of the United States or the State in which the lender has its 
principal place of business. Loans must have been made for one or more 
of the following: School tuition, other qualifying educational expenses, 
or reasonable living expenses relating to the obtainment of a degree of 
Doctor of Veterinary Medicine from a college or school of veterinary 
medicine accredited by the AVMA Council on Education. Such loans must 
have documentation which is contemporaneous with the training received 
in a college or school of veterinary medicine. If qualifying educational 
loans are refinanced, the original documentation of the loan(s) will be 
required to be submitted to the Secretary to establish the 
contemporaneous nature of such loans.
    Reasonable living expenses means the ordinary living costs incurred 
by the program participant while attending the college of veterinary 
medicine, exclusive of tuition and educational expenses. Reasonable 
living expenses must be incurred during the period of attendance and may 
include food and lodging expenses, insurance, commuting and 
transportation costs. Reasonable living expenses must be equal to or 
less than the sum of the school's estimated standard student budgets for 
living expenses for the degree of veterinary medicine for the year(s) 
during which the program participant was enrolled in the school. 
However, if the school attended by the program participant did not have 
a standard student budget or if a program participant requests repayment 
for living expenses which are in excess of the standard student budgets 
described in the preceding sentence, the program participant must submit 
documentation, as required by the Secretary, to substantiate the 
reasonableness of living expenses incurred. To the extent that the 
Secretary determines, upon review of the program participant's 
documentation, that all or a portion of the living expenses are 
reasonable, these expenses will qualify for repayment.
    Service agreement means the agreement, which is signed by an 
applicant and the Secretary for the VMLRP wherein the applicant agrees 
to accept repayment of qualifying educational loans and to serve in 
accordance with the provisions of NVMSA for a prescribed period of 
obligated service.
    Termination means a waiver of the service obligation granted by the 
Secretary when compliance by the participant is impossible, would 
involve extreme hardship, or where enforcement with respect to the 
individual would be unconscionable (see breach of agreement).
    Withdrawal means a request by a participant for withdrawal from 
participation in the VMLRP after signing the service agreement, but 
prior to VMLRP making the first quarterly payment on behalf of the 
participant. A withdrawal is without penalty to the participant and 
without obligation to the Program.



Sec. 3431.4  Solicitation of stakeholder input.

    The Secretary will solicit stakeholder input on the process and 
procedures used to designate veterinarian shortage situations prior to 
the publication of the solicitation for nomination of veterinarian 
shortage situations. A notice may be published in the Federal Register, 
on the Agency's Web site, or other appropriate format or forum. This 
request for stakeholder input may include the solicitation of input on 
the administration of VMLRP and its impact on meeting critical 
veterinarian shortage situations. All comments will be made available 
and accessible to the public.



Sec. 3431.5  Solicitation of veterinarian shortage situations.

    (a) General. The Secretary will follow the procedures described in 
this part to solicit veterinarian shortage situations as the term is 
defined in Sec. 3431.3.
    (b) Solicitation. The Secretary will publish a solicitation for 
nomination of veterinarian shortage situations in the Federal Register, 
on the Agency's Web site, or other appropriate format or forum.

[[Page 357]]

    (c) Frequency. Contingent on the availability of funds, the 
Secretary will normally publish a solicitation on an annual basis. 
However, the Secretary reserves the right to solicit veterinarian 
shortage situations every two or three years, as appropriate.
    (d) Content. The solicitation will describe the nomination process, 
the review criteria and process, and include the form used to submit a 
nomination. The solicitation may specify the maximum number of 
nominations that may be submitted by each State animal health official.
    (e) Nominations. Nominations shall identify the veterinarian 
shortage situation and address the criteria in the nomination form which 
may include the objectives of the position, the activities of the 
position, and the risk posed if the position is not secured.
    (f) Nominating Official. The State animal health official in each 
State is the person responsible for submitting and certifying 
veterinarian shortage situations within the State to NIFA officials. It 
is strongly recommended that the State animal health official of each 
State involve the leading health animal experts in the State in the 
nomination process.



Sec. 3431.6  Review of nominations.

    (a) Peer panel. State shortage situations nominations will be 
evaluated by a peer panel of experts in animal health convened by the 
Secretary. The panel will evaluate nominations according to the criteria 
identified in the solicitation. The panel will consider the objectives 
and activities of the veterinarian position in the veterinary service 
shortage situation and the risks associated with not securing or 
retaining the position and make a recommendation regarding each 
nomination.
    (b) Agency review. The Secretary will evaluate the recommendations 
of the peer panel and designate shortage situations for the VMLRP.



Sec. 3431.7  Notification and use of designated veterinarian shortage situations.

    The Secretary will publish the designated veterinarian shortage 
situations on the Agency's Web site and will use the designated 
veterinarian shortage situations to solicit VMLRP loan repayment 
applications from individual veterinarians in accordance with subpart B 
of this part.



   Subpart B_Administration of the Veterinary Medicine Loan Repayment 
                                 Program



Sec. 3431.8  Purpose and scope.

    (a) Purpose. The regulations of this subpart apply to the award of 
veterinary medicine loan repayments under the Veterinary Medicine Loan 
Repayment Program (VMLRP) authorized by the National Veterinary Medicine 
Service Act, 7 U.S.C. 3151a.
    (b) Scope. Under the VMLRP, the Secretary enters into service 
agreements with veterinarians to pay principal and interest on education 
loans of veterinarians who agree to work in veterinary shortage 
situations for a prescribed period of time. In addition, program 
participants may enter into an agreement to provide services to the 
Federal government in emergency situations in exchange for salary, 
travel, per diem expenses, and additional amounts of loan repayment 
assistance. The purpose of the program is to assure an adequate supply 
of trained food animal veterinarians in shortage situations and provide 
USDA with a pool of veterinary specialists to assist in the control and 
eradication of animal disease outbreaks.



Sec. 3431.9  Eligibility to apply.

    (a) General. To be eligible to apply to the VMLRP an applicant must:
    (1) Have a degree of Doctor of Veterinary Medicine (DVM), or the 
equivalent, from a college of veterinary medicine accredited by the AVMA 
Council on Education;
    (2) Have qualifying educational loan debt as defined in Sec. 
3431.3;
    (3) Secure an offer of employment or establish and/or maintain a 
practice in a veterinary shortage situation, as determined by the 
Secretary in accordance with the procedures in subpart A of this part, 
within the time period specified in the VMLRP service agreement offer; 
and

[[Page 358]]

    (4) Provide certifications and verifications in accordance with 
Sec. 3431.16.
    (b) Non-eligibility. The following individuals are ineligible to 
apply to the VMLRP:
    (1) An individual who owes an obligation for veterinary service to 
the Federal government, a State, or other entity under an agreement with 
such Federal, State, or other entity are ineligible for the VMLRP unless 
such obligation will be completely satisfied prior to the beginning of 
service under the VMLRP;
    (2) An individual who has a Federal judgment lien against his/her 
property arising from Federal debt; and
    (3) An individual who has total qualified debt that does not meet 
the debt threshold.



Sec. 3431.10  Eligibility to participate.

    To be eligible to participate in the VMLRP, a participant must meet 
the following criteria:
    (a) Meet the eligibility criteria of Sec. 3431.9 for applying to 
the VMLRP;
    (b) Be selected for participation by the Secretary pursuant to Sec. 
3431.12.
    (c) Comply with all State and local regulations (including 
appropriate licensure where required) in the jurisdiction in which he or 
she proposes to practice;
    (d) Be a citizen, national, or permanent resident of the United 
States;
    (e) Sign a service agreement to provide veterinary services in one 
of the veterinarian shortage situations; and
    (f) Comply with the terms and conditions of the Service Agreement.



Sec. 3431.11  Application.

    Individuals who meet the eligibility criteria of Sec. 3431.9 may 
submit an online program application or any other application process 
provided by the Secretary.



Sec. 3431.12  Selection of applicants.

    (a) Review of applications. Upon receipt, applications for the VMLRP 
will be reviewed for eligibility and completeness by the appropriate 
staff as determined by the Secretary. Incomplete or ineligible 
applications will not be processed or reviewed.
    (b) Peer review. (1) Applications for the VMLRP that are deemed 
eligible and complete will be referred to the VMLRP peer panel for peer 
review. In evaluating the application, reviewers are directed to 
consider the following components, as well as any other criteria 
identified in the RFA, and how they relate to the likelihood that the 
applicant will meet the terms and conditions of the VMLRP agreement, 
continue to serve in a veterinary shortage situation, or pursue a career 
in food supply veterinary medicine:
    (i) Major or emphasis area(s) during formal post-secondary training 
(e.g., bachelors degree major, minor);
    (ii) Major or emphasis area(s) during formal training for DVM/VMD 
degree;
    (iii) Specialty training area/discipline (e.g., board certification 
or graduate degree);
    (iv) Non-degree/non-board certification training or certifications 
(e.g., animal agrosecurity coursework and certifications);
    (v) Applicant's personal statement;
    (vi) Awards;
    (vii) Letters or recommendation, if applicable; and
    (viii) Other documentation or criteria, as specified in the RFA.
    (2) Applicants will then be ranked based on their qualifications 
relative to the attributes of the shortage situation applied for.



Sec. 3431.13  Terms of loan repayment and length of service requirements.

    (a) Loan repayment. For each year of obligated service in a 
veterinary shortage situation, as determined by the Secretary, with a 
minimum of 3 years (and maximum of 4 years) of obligated service, the 
Secretary may pay:
    (1) An amount not exceeding $25,000 per year of a program 
participant's qualifying loans; and
    (2) An additional amount not exceeding $5,000 per year of a program 
participant's qualifying loans, if the program participant has already 
been selected for participation in the VMLRP and agrees to enter into a 
one-year agreement for each year of service to provide up to 60 days of 
obligated service to the Federal government in animal health emergency 
situations, as determined by the Secretary, provided the

[[Page 359]]

shortage situation in which the participant has agreed to serve has been 
designated as suitable for the Federal obligated service.
    (b) To maximize the number of agreements and to encourage qualified 
veterinarians to participate in the VMLRP, the Secretary may establish a 
loan repayment cap that differs from the cap established under paragraph 
(a)(1) and (a)(2) of this section when it is in the best interest of 
VMLRP. This will be identified in the RFA.
    (c) The Secretary will determine the debt threshold in the RFA.
    (d) Loan repayments will be made directly to the loan provider on a 
quarterly basis, starting with the end of the first quarter after the 
program eligibility date of the service agreement. Tax payments equal to 
39 percent of the loan repayments will be credited directly to the 
participant's IRS (Federal tax) account simultaneously with each loan 
repayment.
    (e) Once a service agreement has been signed by both parties, the 
Secretary will obligate such funds as will be necessary to ensure that 
sufficient funds will be available to make loan repayments and tax 
payments, as specified in the service agreement, for the duration of the 
period of obligated service. Reimbursements for tax liabilities in 
excess of the amount provided (not to exceed 39 percent of the amount of 
loan repayment or any other cap established by the Secretary) will be 
subject to the availability of funds. These additional tax payments, if 
available to the VMLRP participants, will be identified in the RFA and 
in the participant service agreement.
    (f) Participants are required to keep payments current on all 
qualifying VMLRP loans.
    (g) Travel expenditures. The VMLRP will not reimburse a program 
participant for expenses associated with traveling from the program 
participant's residence to the prospective practice site for the purpose 
of evaluating such site or the expenses of relocating from the program 
participant's temporary or permanent residence to a practice site.



Sec. 3431.14  Priority.

    Pursuant to NVMSA, the Secretary will give priority to agreements 
with veterinarians for the practice of food animal medicine in 
veterinarian shortage situations, as determined by the Secretary. The 
Secretary may establish additional criteria in the RFA for assigning 
priority levels to veterinarian shortage situations nominated for award.



Sec. 3431.15  Qualifying loans.

    (a) General. Loan repayments provided under the VMLRP may consist of 
payments on behalf of participating individuals of the principal and 
interest on qualifying educational loans received by the individual for 
attendance of the individual at an accredited college of veterinary 
medicine resulting in a degree of Doctor of Veterinary Medicine, or the 
equivalent, which loans were made for one or more of the following:
    (1) Tuition expenses;
    (2) All other reasonable educational expenses, as defined in this 
part and as determined by the Secretary; and
    (3) Reasonable living expenses, as defined in this part and as 
determined by the Secretary.
    (b) Non-eligible loans. The following loans are ineligible for 
repayment under the VMLRP:
    (1) Loans not obtained from a bank, credit union, savings and loan 
association, not-for-profit organization, insurance company, school, and 
other financial or credit institution which is subject to examination 
and supervision in its capacity as lending institution by an agency of 
the United States or of the State in which the lender has its principal 
place of business;
    (2) Loans for which supporting documentation is not available;
    (3) Loans that have been consolidated with loans of other 
individuals, such as spouses or children;
    (4) Loans or portions of loans obtained for educational or living 
expenses which exceed the standard of reasonableness as determined by 
the participant's standard school budget for the year in which the loan 
was made, and are not determined by the Secretary, to be reasonable 
based on

[[Page 360]]

additional documentation provided by the individual;
    (5) Loans, financial debts, or service obligations incurred under 
another loan repayment or scholarship program, or similar programs, 
which provide loans, scholarships, loan repayments, or other awards in 
exchange for a future service obligation;
    (6) Non-educational loans, including home equity loans; and
    (7) Any loan in default, delinquent, or not in a current payment 
status.



Sec. 3431.16  Certifications and verifications.

    (a) The application for the loan repayment program shall include a 
personal statement describing how the applicant would meet the 
requirements of:
    (1) The veterinary service shortage situations as defined in the 
RFA;
    (2) The eligibility criteria for application of section Sec. 3431.9 
of this part; and
    (3) The selection priority of Sec. 3431.14 of this part.
    (b) The applicant shall provide sufficient documentation to 
establish that the applicant has qualifying loans as described in Sec. 
3431.15 of this part.
    (c) The applicant shall provide sufficient documentation to 
establish that the applicant has the capacity to secure an offer of 
employment or establish and/or maintain a veterinary practice in a 
veterinary service shortage situation as defined in subpart A of this 
part.
    (d) The applicant shall provide, if applicable, sufficient 
documentation to establish that the applicant is licensed to practice 
veterinary medicine in the jurisdiction in which the applicant has an 
offer of employment.
    (e) The applicant shall provide, if applicable, the required 
documentation to establish whether the applicant receives payments under 
any other Federal, State, institutional, or private loan repayment 
programs.
    (f) The applicant shall provide the required documentation to show 
that he/she has completed, or is in the process of completing, the 
National Veterinary Accreditation Program (NVAP) if national 
accreditation is required for the veterinary shortage position for which 
the applicant has an offer of employment.
    (g) The applicant shall provide authorization to the appropriate 
staff as designated by the Secretary to obtain a copy of the 
participant's credit report.



Sec. 3431.17  VMLRP service agreement offer.

    The Secretary will make an offer to successful applicants to enter 
into an agreement with the Secretary to provide veterinary services 
under the VMLRP. As part of the offer, successful VMLRP applicants will 
be provided a specific period of time, as defined in the RFA, to secure 
an offer of employment or establish and/or maintain a veterinary 
practice in a veterinary shortage situation.



Sec. 3431.18  Service agreement.

    (a) The service agreement shall be signed by the program participant 
and the Secretary after acceptance of the terms and conditions of the 
loan repayment program by the program participant.
    (b) The service agreement shall specify the period of obligated 
service.
    (c) The service agreement shall specify the amount of loan repayment 
to be paid for each year of obligated service.
    (d) The service agreement shall contain a provision defining when a 
breach of the agreement by the program participant has occurred.
    (e) The service agreement shall provide remedies for the breach of a 
service agreement by a program participant, including repayment or 
partial repayment of financial assistance received, with interest.
    (f) The service agreement shall include provisions addressing the 
granting of a waiver by the Secretary in case of hardship.
    (g) Payments under the service agreement do not exempt a program 
participant from the responsibility and/or liability for any loan(s) for 
which he or she is obligated, as the Secretary is not obligated to the 
lender/note holder for its commitment to the program participant.
    (h) During the term of the service agreement, the program 
participant shall agree that the Secretary or the designated VMLRP 
service provider is

[[Page 361]]

authorized to verify the status of each loan for which the Secretary 
will be reimbursing the participant.
    (i) The service agreement shall contain certifications, as 
determined by the Secretary.
    (j) The service agreement shall contain provisions addressing the 
income tax liability of the program participant and the availability of 
reimbursement of taxes incurred as a result of an individual's 
participation in the VMLRP.
    (k) Renewal. The service agreement will indicate whether the 
existing service agreement may be renewed. However, renewal applications 
are subject to peer review and approval, acceptance is not guaranteed, 
and the position must still be considered a veterinarian shortage 
situation at the time of application for renewal. The Secretary may 
request additional documentation in connection with the review and 
approval of a renewal application. The Secretary reserves the right not 
to offer renewals. Any requests for renewal applications will be 
solicited via the RFA.
    (l) The service agreement shall contain participant reporting 
requirements (e.g., quarterly, annual, and/or close-out) to allow for 
program monitoring and evaluation.



Sec. 3431.19  Payment and tax liability.

    (a) Loan repayment. Loan repayments pursuant to a service agreement 
are made directly to a participant's lender(s) by the Secretary or the 
VMLRP service provider. If there is more than one outstanding qualified 
educational loan, the Secretary will repay the loans in the following 
order, unless the Secretary determines significant savings to the 
program would result from paying loans in a different order of priority:
    (1) Loans guaranteed by the U.S. Department of Education;
    (2) Loans made or guaranteed by a State;
    (3) Loans made by a School; and
    (4) Loans made by other entities, including commercial loans.
    (b) Tax Liability Payments. Tax payments equal to 39 percent of the 
total loan repayment amount will be credited directly to the 
participant's IRS (Federal tax) account simultaneously with each loan 
payment. The Secretary may make payments of an amount not to exceed 39 
percent of the actual annual loan repayments made in a calendar year for 
all or part of the increased Federal, State, and local tax liability 
resulting from loan repayments received under the VMLRP. However, the 
Secretary may increase the cap, if appropriate. Supplementary payments 
for increased tax liability may be made for the actual amount of tax 
liability associated with the receipt of loan repayments under the 
VMLRP. Availability of these additional tax liability payments (i.e., in 
excess of 39 percent or other approved cap) will be identified in the 
RFA and in the participant service agreement. Program participants 
wishing to receive tax liability payments will be required to submit 
their requests for such payments in a manner prescribed by the Secretary 
and must provide the Secretary with any documentation the Secretary 
determines is necessary to establish a program participant's increased 
tax liability. Tax liability payments in excess of 39 percent or other 
approved cap will be made on a reimbursement basis only.
    (c) Under Sec. 3431.19(a) and (b), the Secretary will make loan and 
tax liability payments to the extent appropriated funds are available 
for these purposes.



Sec. 3431.20  Administration.

    The VMLRP will be administered by NIFA. NIFA may carry out this 
program directly or enter into agreements with another Federal agency or 
other service provider to assist in the administration of the VMLRP. 
However, the determination of the veterinarian shortage areas, peer 
review of individual VMLRP applications, and the overall VMLRP oversight 
and coordination will reside with the Secretary.

[75 FR 20243, Apr. 19, 2010, as amended at 79 FR 76001, Dec. 19, 2014]



Sec. 3431.21  Breach.

    (a) General. If a program participant fails to complete the period 
of obligated service incurred under the service agreement, including 
failing to comply with the applicable terms and conditions of a waiver 
granted by the Secretary, the program participant

[[Page 362]]

must pay to the United States an amount as determined in the service 
agreement. Payment of this amount shall be made within 90 days of the 
date that the program participant failed to complete the period of 
obligated service, as determined by the Secretary.
    (b) Exceptions. (1) A termination of service for reasons that are 
beyond the control of the program participant will not be considered a 
breach.
    (2) A transfer of service from one shortage situation to another, if 
approved by the Secretary, will not be considered a breach.
    (3) A call or order to active duty will not be considered a breach.
    (c) The Secretary may renegotiate the terms of a participant's 
service agreement in the event of a transfer, termination or call to 
active duty pursuant to paragraph (b) of this section.
    (d) Amount of repayment. The service agreement shall provide the 
method for the calculation of the amount owed by a program participant 
who has breached a service agreement.
    (e) Debt Collection. Individuals in breach of a service agreement 
entered into under this part are considered to owe a debt to the United 
States for the amount of repayment. Any such debt will be collected 
pursuant to the Department's Debt Management regulations at 7 CFR part 
3.



Sec. 3431.22  Waiver.

    (a) A program participant may seek a waiver or suspension of the 
service or payment obligations incurred under this part by written 
request to the Secretary setting forth the bases, circumstances, and 
causes which support the requested action.
    (b) The Secretary may waive any service or payment obligation 
incurred by a program participant whenever compliance by the program 
participant is impossible or would involve extreme hardship to the 
program participant and if enforcement of the service or payment 
obligation would be against equity and good conscience.
    (1) Compliance by a program participant with a service or repayment 
obligation will be considered impossible if the Secretary determines, on 
the basis of information and documentation as may be required:
    (i) That the program participant suffers from a physical or mental 
disability resulting in the permanent inability of the program 
participant to perform the service or other activities which would be 
necessary to comply with the obligation; or
    (ii) That the employment of the program participant has been 
terminated involuntarily for reasons unrelated to job performance.
    (2) In determining whether compliance by a program participant with 
the terms of a service or repayment obligation imposes an extreme 
hardship, the Secretary may, on the basis of information and 
documentation as may be required, take into consideration the nature of 
the participant's personal problems and the extent to which these affect 
the participant's ability to perform the obligation.
    (c) All requests for waivers must be submitted to the Secretary in 
writing.
    (d) A program participant who is granted a waiver in accordance with 
this section will be notified by the Secretary in writing.
    (e) Any obligation of a program participant for service or payment 
will be canceled upon the death of the program participant.



Sec. 3431.23  Service to Federal government in emergency situations.

    (a) The Secretary may enter into agreements of 1 year duration with 
veterinarians who have service agreements for such veterinarians to 
provide services to the Federal Government in emergency situations, as 
determined by the Secretary, under terms and conditions specified in the 
agreement.
    (b) Pursuant to a service agreement under this section, the 
Secretary shall pay an amount, in addition to the amount paid, as 
determined by the Secretary and specified in the agreement, of the 
principal and interest of qualifying educational loans of the 
veterinarians. This amount will be provided in the RFA.
    (c) Agreements entered into under this paragraph shall include the 
following:

[[Page 363]]

    (1) A veterinarian shall not be required to serve more than 60 
working days per year of the agreement.
    (2) A veterinarian who provides service pursuant to the agreement 
shall receive a salary commensurate with the duties and shall be 
reimbursed for travel and per diem expenses as appropriate for the 
duration of the service.



Sec. 3431.24  Reporting requirements, monitoring, and close-out.

    VMLRP participants will be required to submit periodic reports per 
the terms and conditions of their service agreements. In addition, the 
Secretary is responsible for ensuring that a VMLRP participant is 
complying with the terms and conditions of their service agreement, 
including any additional reporting or close-out requirements.



PART 3434_HISPANIC-SERVING AGRICULTURAL COLLEGES AND UNIVERSITIES CERTIFICATION PROCESS--Table of Contents



Sec.
3434.1 Applicability of regulations.
3434.2 Purpose.
3434.3 Definitions.
3434.4 Eligibility.
3434.5 Agriculture-related fields.
3434.6 Certification.
3434.7 Duration of certification.
3434.8 Appeals.
3434.9 Recertification.
3434.10 Reporting requirements.

Appendix A to Part 3434--List of Agriculture-Related Fields
Appendix B to Part 3434--List of HSACU Institutions, 2021-2022

    Authority: 7 U.S.C. 3103.

    Source: 77 FR 25040, Apr. 27, 2012, unless otherwise noted.



Sec. 3434.1  Applicability of regulations.

    This part establishes the process to certify and designate a group 
of eligible educational institutions as Hispanic-Serving Agricultural 
Colleges and Universities, as authorized by Section 7101 of the Food, 
Conservation, and Energy Act of 2008 (FCEA), 7 U.S.C. 3103; Public Law 
110-246.



Sec. 3434.2  Purpose.

    The Secretary will follow the processes and criteria established in 
this regulation to certify and designate qualifying colleges and 
universities as HSACUs. Institutions designated as HSACUs will be 
eligible for five new programs authorized by Congress in section 7129 of 
the FCEA as well as for other ongoing NIFA programs for which HSACUs are 
now eligible (e.g., integrated programs authorized by section 406 of the 
Agricultural Research, Extension, and Education Reform Act of 1998). The 
five new programs include the HSACU Endowment Fund (formula-based), 
HSACU Institutional Capacity Building Grants Program (competitive), 
HSACU Extension Grants Program (competitive), HSACU Applied and 
Fundamental Research Grants Program (competitive), and HSACU Equity 
Grants Program (formula-based). The administrative provisions, including 
reporting requirements, for the HSACU Endowment Fund will be established 
in a separate part (7 CFR part 3437). The administrative provisions and 
reporting requirements for the other four new HSACU programs will be 
established as subparts in 7 CFR part 3430.



Sec. 3434.3  Definitions.

    As used in this part:
    Agency or NIFA means the National Institute of Food and Agriculture.
    Agriculture-related fields means a group of instructional programs 
that are determined to be agriculture-related fields of study for HSACU 
eligibility purposes by a panel of National Program Leaders at the 
National Institute of Food and Agriculture.
    Department means the United States Department of Agriculture.
    Hispanic-serving Institution means an institution of higher 
education that:
    (1) Is an eligible institution, as that term is defined at 20 U.S.C. 
1101a; and
    (2) Has an enrollment of undergraduate full-time equivalent students 
that is at least 25 percent Hispanic students, as reported to the U.S. 
Department of Education's Integrated Postsecondary Education Data System 
during the fall semester of the previous academic year.

[[Page 364]]

    Secretary means the Secretary of Agriculture and any other officer 
or employee of the Department to whom the authority involved has been 
delegated.



Sec. 3434.4  Eligibility.

    (a) General. To be eligible to receive designation as a HSACU, 
colleges and universities must:
    (1) Qualify as Hispanic-serving Institutions; and
    (2) Offer associate, bachelors, or other accredited degree programs 
in agriculture-related fields pursuant to Sec. 3434.5.
    (b) Non-eligibility. The following colleges and universities are 
ineligible for HSACU certification:
    (1) 1862 land-grant institutions, as defined in section 2 of the 
Agricultural Research, Extension, and Education Reform Act of 1998 (7 
U.S.C. 7601);
    (2) Institutions that appear in the Lists of Parties Excluded from 
Federal financial and nonfinancial assistance and benefits programs 
(Excluded Parties List System);
    (3) Institutions that are not accredited by a nationally recognized 
accredited agency or association; and
    (4) Institutions with Hispanic students receiving less than 15% of 
the degrees awarded in agriculture-related programs over the two most 
recent completed academic years.



Sec. 3434.5  Agriculture-related fields.

    (a) The Secretary shall use the Classification of Instructional 
Programs (CIP) coding system developed by the U.S. Department of 
Education's National Center for Education Statistics as the source of 
information for all existing instructional programs. This source is 
located at http://nces.ed.gov/ipeds/cipcode.
    (b) A complete list of instructional programs deemed to be 
agriculture-related fields by the Secretary is provided in Appendix A to 
this part. This list will include the full six-digit CIP code and 
program title (or major) for each agriculture-related instructional 
program.
    (c) The list of agriculture-related fields will be updated every 
five years starting in 2015. However, the Secretary reserves the right 
to make changes at any time, if deemed appropriate and necessary.
    (d) Any changes made in the CIP coding system by the U.S. Department 
of Education may result in a review or reevaluation of the list of 
agriculture-related fields by the Secretary.



Sec. 3434.6  Certification.

    (a) Except as provided in paragraph (c) of this section, 
institutions that meet the eligibility criteria set forth in Sec. 
3434.4 and offer agriculture-related programs in accordance to the 
criteria set forth in Sec. 3434.5 (see list in Appendix A to this part) 
shall be granted HSACU certification by the Secretary.
    (b) A complete list of institutions with HSACU certification shall 
be provided in Appendix B to this part and posted on the NIFA Web site 
at http://www.nifa.usda.gov.
    (c) Institutions with Hispanic students receiving less than 15% of 
degrees awarded in agriculture-related programs during the two most 
recent completed academic years shall not be granted HSACU certification 
by the Secretary.
    (d) The list of HSACU institutions will be updated annually. 
However, the Secretary reserves the right to make changes at any time, 
when deemed appropriate and necessary.



Sec. 3434.7  Duration of certification.

    (a) Except as provided in paragraphs (b) and (c) of this section, 
HSACU certification granted to an institution by the Secretary under 
this part shall remain valid for a period of one year.
    (b) Failure to maintain eligibility status at any time during the 
HSACU certification period shall result in an immediate revocation of 
HSACU certification.
    (c) Failure to remain in compliance with reporting requirements or 
adherence to any administrative or national policy requirements listed 
in award terms and conditions for any of the HSACU programs may result 
in a suspension or an immediate revocation of HSACU certification.



Sec. 3434.8  Appeals.

    (a) An institution not listed as a HSACU in Appendix B to this part 
may submit an appeal to address denial of a

[[Page 365]]

certification made pursuant to this part. Such appeals must be in 
writing and received by the HSACU Appeals Officer, Policy and Oversight 
Division, National Institute of Food and Agriculture, U.S. Department of 
Agriculture, 800 9th Street SW., Washington, DC 20024 within 30 days 
following an announcement of institutions designated for certification. 
The Appeals Officer will consider the record of the decision in 
question, any further written submissions by the institution, and other 
available information and shall provide the appellant a written decision 
as promptly as circumstances permit. Such appeals constitute an 
administrative review of the decision appealed from and are not 
conducted as an adjudicative proceeding.
    (b) Appeals involving an agriculture-related field of study must 
include the CIP code and program title of the field of study (or major).
    (c) Appeals from non-HSI schools will not be considered.
    (d) The NIFA Assistant Director of the Institute of Youth, Family, 
and Community shall serve as the Appeals Officer.
    (e) In considering such appeals or administrative reviews, the 
Appeals Officer shall take into account alleged errors in professional 
judgment or alleged prejudicial procedural errors by NIFA officials. The 
Appeals Officer's decision may:
    (1) Reverse the appealed decision;
    (2) Affirm the appealed decision;
    (3) Where appropriate, withhold a decision until additional 
materials are provided. The Appeals Officer may base his/her decision in 
whole or part on matters or factors not discussed in the decision 
appealed from.
    (f) If the NIFA decision on the appeal is adverse to the appellant 
or if an appellant's request for review is rejected, the appellant then 
has the option of submitting a request to the NIFA Deputy Director for 
Food and Community Resources for further review.
    (g) The request for further review must be submitted to Policy and 
Oversight Division, National Institute of Food and Agriculture, U.S. 
Department of Agriculture, 800 9th Street SW., Washington, DC 20024 
within 30 days following the Appeals Officer's decision.
    (h) No institution shall be considered to have exhausted its 
administrative remedies with respect to the certification or decision 
described in this part until the NIFA Deputy Director for Food and 
Community Resources has issued a final administrative decision pursuant 
to this section. The decision of the NIFA Deputy Director for Food and 
Community Resources is considered final.
    (i) Appellants shall be notified in writing of any decision made by 
NIFA in regards to the appeal.



Sec. 3434.9  Recertification.

    (a) The recertification process for a HSACU remains the same as the 
process outlined in Sec. 3434.6.
    (b) There is no limit to the number of times an institution may be 
recertified as a HSACU.
    (c) In the event an institution is not granted recertification due 
to noncompliance with reporting requirements for a HSACU program, the 
institution shall be notified in writing and given a period of 90 days 
from the date of notification to be in compliance.



Sec. 3434.10  Reporting requirements.

    (a) The certification process does not involve any reporting 
requirements.
    (b) Reporting requirements for HSACU programs (e.g., HSACU Endowment 
Fund) shall be established in separate parts.



    Sec. Appendix A to Part 3434--List of Agriculture-Related Fields

    The instructional programs listed in this appendix are observed to 
be agriculture-related fields for HSACU eligibility purposes. Programs 
are listed in numerical order by their six-digit CIP code followed by 
the full title of the instructional program, as listed by the U.S. 
Department of Education.

01.0000, Agriculture, General
01.0101, Agricultural Business and Management, General
01.0102, Agribusiness/Agricultural Business Operations
01.0103, Agricultural Economics
01.0104, Farm/Farm and Ranch Management
01.0105, Agricultural/Farm Supplies Retailing and Wholesaling
01.0106, Agricultural Business Technology
01.0199, Agricultural Business and Management, Other

[[Page 366]]

01.0201, Agricultural Mechanization, General
01.0204, Agricultural Power Machinery Operation
01.0205, Agricultural Mechanics and Equipment/Machine Technology
01.0299, Agricultural Mechanization, Other
01.0301, Agricultural Production Operations, General
01.0302, Animal/Livestock Husbandry and Production
01.0303, Aquaculture
01.0304, Crop Production
01.0306, Dairy Husbandry and Production
01.0307, Horse Husbandry/Equine Science and Management
01.0308, Agroecology and Sustainable Agriculture
01.0309, Viticulture and Enology
01.0399, Agricultural Production Operations, Other
01.0401, Agricultural and Food Products Processing
01.0504, Dog/Pet/Animal Grooming
01.0505, Animal Training
01.0507, Equestrian/Equine Studies
01.0508, Taxidermy/Taxidermist
01.0599, Agricultural and Domestic Animal Services, Other
01.0601, Applied Horticulture/Horticultural Operations, General
01.0603, Ornamental Horticulture
01.0604, Greenhouse Operations and Management
01.0605, Landscaping and Groundskeeping
01.0606, Plant Nursery Operations and Management
01.0607, Turf and Turfgrass Management
01.0608, Floriculture/Floristry Operations and Management
01.0699, Applied Horticulture/Horticultural Business Services, Other
01.0701, International Agriculture
01.0801, Agricultural and Extension Education Services
01.0802, Agricultural Communication/Journalism
01.0899, Agricultural Public Services, Other
01.0901, Animal Sciences, General
01.0902, Agricultural Animal Breeding
01.0903, Animal Health
01.0904, Animal Nutrition
01.0905, Dairy Science
01.0906, Livestock Management
01.0907, Poultry Science
01.0999, Animal Sciences, Other
01.1001, Food Science
01.1002, Food Technology and Processing
01.1099, Food Science and Technology, Other
01.1101, Plant Sciences, General
01.1102, Agronomy and Crop Science
01.1103, Horticultural Science
01.1104, Agricultural and Horticultural Plant Breeding
01.1105, Plant Protection and Integrated Pest Management
01.1106, Range Science and Management
01.1199, Plant Sciences, Other
01.1201, Soil Science and Agronomy, General
01.1202, Soil Chemistry and Physics
01.1203, Soil Microbiology
01.1299, Soil Sciences, Other
01.9999, Agriculture, Agriculture Operations, and Related Sciences, 
          Other
03.0101, Natural Resources/Conservation, General
03.0103, Environmental Studies
03.0104, Environmental Science
03.0199, Natural Resources Conservation and Research, Other
03.0201, Natural Resources Management and Policy
03.0204, Natural Resources Economics
03.0205, Water, Wetlands, and Marine Resources Management
03.0206, Land Use Planning and Management/Development
03.0207, Natural Resources Recreation and Tourism
03.0208, Natural Resources Law Enforcement and Protective Services
03.0299, Natural Resources Management and Policy, Other
03.0301, Fishing and Fisheries Sciences and Management
03.0501, Forestry, General
03.0502, Forest Sciences and Biology
03.0506, Forest Management/Forest Resources Management
03.0508, Urban Forestry
03.0509, Wood Science and Wood Products/Pulp and Paper Technology
03.0510, Forest Resources Production and Management
03.0511, Forest Technology/Technician
03.0599, Forestry, Other
03.0601, Wildlife and Wildlands Science and Management
03.9999, Natural Resources and Conservation, Other
13.1301, Agricultural Teacher Education
14.0301, Agricultural/Biological Engineering and Bioengineering
19.0501, Foods, Nutrition, and Wellness Studies, General
19.0504, Human Nutrition
19.0505, Foodservice Systems Administration/Management
19.0599, Foods, Nutrition, and Related Services, Other
30.1901, Nutrition Sciences
30.3301, Sustainability Studies
51.0808, Veterinary/Animal Health Technology/Technician and Veterinary 
          Assistant



   Sec. Appendix B to Part 3434--List of HSACU Institutions, 2021-2022

    The institutions listed in this appendix are granted HSACU 
certification by the Secretary and are eligible for HSACU programs for 
the period starting October 1, 2021 and ending September 30, 2022. 
Institutions are listed alphabetically under the State of the

[[Page 367]]

school's location, with the campus indicated where applicable.

                              Arkansas (1)

Cossatot Community College of the University of Arkansas

                              Arizona (10)

Arizona Western College
Central Arizona College
Cochise County Community College District
Glendale Community College
Mesa Community College
Northern Arizona University
Phoenix College
Pima Community College
Rio Salado College
South Mountain Community College

                             California (87)

Allan Hancock College
American River College
Antelope Valley College
Bakersfield College
Butte College
Cabrillo College
California Baptist University
California Lutheran University
California State Polytechnic University--Pomona
California State University--Bakersfield
California State University--Channel Islands
California State University--Chico
California State University--East Bay
California State University--Fresno
California State University--Fullerton
California State University--Long Beach
California State University--Los Angeles
California State University--Monterey Bay
California State University--Northridge
California State University--Sacramento
California State University--San Bernardino
California State University--San Marcos
California State University--Stanislaus
Canada College
Chaffey College
Citrus College
College of San Mateo
College of the Sequoias
Cosumnes River College
Cuesta College
Cuyamaca College
Cypress College
El Camino Community College District
Fresno City College
Fullerton College
Glendale Community College
Golden West College
Hartnell College
Humboldt State University
Imperial Valley College
Las Positas College
Lassen Community College
Long Beach City College
Los Angeles City College
Los Angeles Mission College
Los Angeles Pierce College
Merced College
MiraCosta College
Mission College
Modesto Junior College
Monterey Peninsula College
Moorpark College
Mt San Antonio College
Napa Valley College
Orange Coast College
Oxnard College
Palo Verde College
Palomar College
Porterville College
Reedley College
Riverside City College
Sacramento City College
Saddleback College
Saint Mary's College of California
San Bernardino Valley College
San Diego City College
San Diego Mesa College
San Diego State University
San Francisco State University
San Joaquin Delta College
San Jose State University
Santa Ana College
Santa Barbara City College
Santa Monica College
Santa Rosa Junior College
Sonoma State University
Southwestern College
University of California--Irvine
University of California--Riverside
University of California--Santa Barbara
University of California--Santa Cruz
University of Redlands
Ventura College
West Hills College--Coalinga
West Los Angeles College
Whittier College
Woodland Community College

                             Connecticut (1)

Gateway Community College

                              Colorado (5)

Colorado State University Pueblo
Community College of Denver
Metropolitan State University of Denver
Pueblo Community College
Trinidad State Junior College

                               Florida (9)

Broward College
Florida Atlantic University
Florida International University
Indian River State College
Miami Dade College
Nova Southeastern University
Palm Beach State College
University of Central Florida
Valencia College

                               Georgia (1)

Georgia Gwinnett College

[[Page 368]]

                              Illinois (6)

City Colleges of Chicago--Richard J Daley College
College of Lake County
Dominican University
North Park University
Northeastern Illinois University
University of Illinois Chicago

                               Kansas (1)

Seward County Community College

                            Massachusetts (1)

Bunker Hill Community College

                               Nevada (2)

College of Southern Nevada
University of Nevada--Las Vegas

                             New Jersey (8)

College of Saint Elizabeth
Essex County College
Hudson County Community College
Kean University
Montclair State University
Passaic County Community College
Rutgers University--Newark
William Paterson University of New Jersey

                             New Mexico (8)

Central New Mexico Community College
Eastern New Mexico University--Roswell Campus
New Mexico Highlands University
Northern New Mexico College
Santa Fe Community College
University of New Mexico--Los Alamos Campus
University of New Mexico--Main Campus
Western New Mexico University

                              New York (10)

CUNY Bronx Community College
CUNY City College
CUNY Hostos Community College
CUNY Hunter College
CUNY LaGuardia Community College
CUNY Lehman College
CUNY Queens College
Mercy College
Rockland Community College
SUNY Westchester Community College

                           North Carolina (1)

James Sprunt Community College

                            Puerto Rico (17)

Instituto Tecnologico de Puerto Rico--Recinto de Manati
Inter American University of Puerto Rico--Aguadilla
Inter American University of Puerto Rico--Bayamon
Inter American University of Puerto Rico--Guayama
Inter American University of Puerto Rico--Ponce
Inter American University of Puerto Rico--San German
Pontifical Catholic University of Puerto Rico--Arecibo
Pontifical Catholic University of Puerto Rico--Ponce
Universidad Ana G. Mendez--Carolina Campus
Universidad Ana G. Mendez--Cupey Campus
Universidad Ana G. Mendez--Gurabo Campus
Universidad Ana G. Mendez--Online Campus
University of Puerto Rico--Arecibo
University of Puerto Rico--Humacao
University of Puerto Rico--Medical Sciences
University of Puerto Rico--Rio Piedras
University of Puerto Rico--Utuado

                               Texas (33)

Amarillo College
Angelo State University
Austin Community College District
Cedar Valley College
Dallas College
Frank Phillips College
Lee College
Lone Star College System
Odessa College
Palo Alto College
Saint Edward's University
Sam Houston State University
San Antonio College
Southwest Texas Junior College
St. Mary's University
Sul Ross State University
Tarrant County College District
Texas A & M University--Corpus Christi
Texas A & M University--Kingsville
Texas State Technical College
Texas State University
Texas Woman's University
The University of Texas at Arlington
The University of Texas at Austin
The University of Texas at El Paso
The University of Texas at San Antonio
The University of Texas Rio Grande Valley
University of Houston
University of Houston--Clear Lake
University of the Incarnate Word
Wayland Baptist University
Western Texas College
Wharton County Junior College

                             Washington (4)

Big Bend Community College
Perry Technical Institute
Wenatchee Valley College
Yakima Valley College

                              Wisconsin (1)

Mount Mary University

[87 FR 42949, July 19, 2022]

                       PARTS 3435	3499 [RESERVED]

[[Page 369]]



     CHAPTER XXXV--RURAL HOUSING SERVICE, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3500-3549

 [Reserved]

3550            Direct single family housing loans and 
                    grants..................................         371
3555            Guaranteed Rural Housing Program............         417
3560            Direct multi-family housing loans and grants         458
3565            Guaranteed Rural Rental Housing Program.....         581
3570            Community programs..........................         612
3575-3599

 [Reserved]

[[Page 371]]

                       PARTS 3500	3549 [RESERVED]



PART 3550_DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS--Table of Contents



                            Subpart A_General

Sec.
3550.1 Applicability.
3550.2 Purpose.
3550.3 Civil rights.
3550.4 Reviews and appeals.
3550.5 Environmental requirements.
3550.6 State law or State supplement.
3550.7 Demonstration programs.
3550.8 Exception authority.
3550.9 Conflict of interest.
3550.10 Definitions.
3550.11 State Director assessment of homeownership education.
3550.12-3550.49 [Reserved]
3550.50 OMB control number.

                    Subpart B_Section 502 Origination

3550.51 Program objectives.
3550.52 Loan purposes.
3550.53 Eligibility requirements.
3550.54 Calculation of income and assets.
3550.55 Applications.
3550.56 Site requirements.
3550.57 Dwelling requirements.
3550.58 Ownership requirements.
3550.59 Security requirements.
3550.60 Escrow account.
3550.61 Insurance (loans only).
3550.62 Appraisals.
3550.63 Maximum loan amount.
3550.64 Down payment.
3550.65 [Reserved]
3550.66 Interest rate.
3550.67 Repayment period.
3550.68 Payment subsidies.
3550.69 Deferred mortgage payments.
3550.70 Conditional commitments.
3550.71 Special requirements for condominiums.
3550.72 Community land trusts.
3550.73 Manufactured homes.
3550.74 Nonprogram loans.
3550.75 Certified loan application packaging process.
3550.76-3550.99 [Reserved]
3550.100 OMB control number.

   Subpart C_Section 504 Origination and Section 306C Water and Waste 
                             Disposal Grants

3550.101 Program objectives.
3550.102 Grant and loan purposes.
3550.103 Eligibility requirements.
3550.104 Applications.
3550.105 Site requirements.
3550.106 Dwelling requirements.
3550.107 Ownership requirements.
3550.108 Security requirements (loans only).
3550.109 Escrow account (loans only).
3550.110 Insurance (loans only).
3550.111 Appraisals (loans only).
3550.112 Maximum loan and grant.
3550.113 Rates and terms (loans only).
3550.114 Repayment agreement (grants only).
3550.115 WWD grant program objectives.
3550.116 Definitions applicable to WWD grants only.
3550.117 WWD grant purposes.
3550.118 Grant restrictions.
3550.119 WWD eligibility requirements.
3550.120-3550.149 [Reserved]
3550.150 OMB control number.

                       Subpart D_Regular Servicing

3550.151 Servicing goals.
3550.152 Loan payments.
3550.153 Fees.
3550.154 Inspections.
3550.155 Escrow account.
3550.156 Borrower obligations.
3550.157 Payment subsidy.
3550.158 Active military duty.
3550.159 Borrower actions requiring RHS approval.
3550.160 Refinancing with private credit.
3550.161 Final payment.
3550.162 Recapture.
3550.163 Transfer of security and assumption of indebtedness.
3550.164 Unauthorized assistance.
3550.165-3550.199 [Reserved]
3550.200 OMB control number.

                       Subpart E_Special Servicing

3550.201 Purpose of special servicing actions.
3550.202 Past due accounts.
3550.203 General servicing actions.
3550.204 Payment assistance.
3550.205 Delinquency workout agreements.
3550.206 Protective advances.
3550.207 Payment moratorium.
3550.208 Reamortization using promissory note interest rate.
3550.209 [Reserved]
3550.210 Offsets.
3550.211 Liquidation.
3550.212-3550.249 [Reserved]
3550.250 OMB control number.

                    Subpart F_Post-Servicing Actions

3550.251 Property management and disposition.
3550.252 Debt settlement policies.
3550.253 Settlement of a debt by compromise or adjustment.
3550.254-3550.299 [Reserved]
3550.300 OMB control number.

    Authority: 5 U.S.C. 301; 42 U.S.C. 1480.

[[Page 372]]


    Source: 61 FR 59779, Nov. 22, 1996, unless otherwise noted.



                            Subpart A_General



Sec. 3550.1  Applicability.

    This part sets forth policies for the direct single family housing 
loan programs operated by the Rural Housing Service (RHS) of the U.S. 
Department of Agriculture (USDA). It addresses the requirements of 
sections 502 and 504 of the Housing Act of 1949, as amended, and 
includes policies regarding both loan and grant origination and 
servicing. Procedures for implementing these regulations can be found in 
program handbooks, available in any Rural Development office. Any 
provision on the expenditure of funds under this part is contingent upon 
the availability of funds.



Sec. 3550.2  Purpose.

    The purpose of the direct RHS single family housing loan programs is 
to provide low- and very low-income people who will live in rural areas 
with an opportunity to own adequate but modest, decent, safe, and 
sanitary dwellings and related facilities. The section 502 program 
offers persons who do not currently own adequate housing, and who cannot 
obtain other credit, the opportunity to acquire, build, rehabilitate, 
improve, or relocate dwellings in rural areas. The section 504 program 
offers loans to very low-income homeowners who cannot obtain other 
credit to repair or rehabilitate their properties. The section 504 
program also offers grants to homeowners age 62 or older who cannot 
obtain a loan to correct health and safety hazards or to make the unit 
accessible to household members with disabilities.



Sec. 3550.3  Civil rights.

    RHS will administer its programs fairly, and in accordance with both 
the letter and the spirit of all equal opportunity and fair housing 
legislation and applicable executive orders. Loans, grants, services, 
and benefits provided under this part shall not be denied to any person 
based on race, color, national origin, sex, religion, marital status, 
familial status, age, physical or mental disability, receipt of income 
from public assistance, or because the applicant has, in good faith, 
exercised any right under the Consumer Credit Protection Act (15 U.S.C. 
1601 et seq.). All activities under this part shall be accomplished in 
accordance with the Fair Housing Act (42 U.S.C. 3601-3620), Executive 
Order 11246, and Executive Order 11063, as amended by Executive Order 
12259, as applicable. The civil rights compliance requirements for RHS 
are in 7 CFR part 1901, subpart E.



Sec. 3550.4  Reviews and appeals.

    Whenever RHS makes a decision that is adverse to a participant, RHS 
will provide the participant with written notice of such adverse 
decision and the participant's rights to a USDA National Appeals 
Division hearing in accordance with 7 CFR part 11. Any adverse decision, 
whether appealable or non-appealable may be reviewed by the next-level 
RHS supervisor.



Sec. 3550.5  Environmental requirements.

    (a) Policy. RHS will consider environmental quality as equal with 
economic, social, and other relevant factors in program development and 
decision-making processes. RHS will take into account potential 
environmental impacts of proposed projects by working with RHS 
applicants, other federal agencies, Indian tribes, State and local 
governments, and interested citizens and organizations in order to 
formulate actions that advance the program's goals in a manner that will 
protect, enhance, and restore environmental quality.
    (b) Regulatory references. Processing or servicing actions taken 
under this part must comply with the environmental review requirements 
in accordance with 7 CFR part 1970, and 7 CFR part 1924, which addresses 
lead-based paint.

[61 FR 59779, Nov. 22, 1996, as amended at 81 FR 11048, Mar. 2, 2016]



Sec. 3550.6  State law or State supplement.

    State and local laws and regulations, and the laws of federally 
recognized Indian tribes, may affect RHS implementation of certain 
provisions of this regulation, for example, with respect to the 
treatment of liens, construction, or environmental policies. 
Supplemental

[[Page 373]]

guidance may be issued in the case of any conflict or significant 
differences.



Sec. 3550.7  Demonstration programs.

    From time to time, RHS may authorize limited demonstration programs. 
The purpose of these demonstration programs is to test new approaches to 
offering housing under the statutory authority granted to the Secretary. 
Therefore, such demonstration programs may not be consistent with some 
of the provisions contained in this part. However, any program 
requirements that are statutory will remain in effect. Demonstration 
programs will be clearly identified as such.



Sec. 3550.8  Exception authority.

    An RHS official may request, and the Administrator or designee may 
make, an exception to any requirement or provision of this part or 
address any omission of this part that is consistent with the applicable 
statute if the Administrator determines that application of the 
requirement or provision, or failure to take action in the case of an 
omission, would adversely affect the Government's interest.



Sec. 3550.9  Conflict of interest.

    (a) Objective. It is the objective of RHS to maintain the highest 
standards of honesty, integrity, and impartiality by employees. To 
reduce the potential for employee conflict of interest, all processing, 
approval, servicing, or review activity will be conducted in accordance 
with 7 CFR part 1900, subpart D by RHS employees who:
    (1) Are not themselves the applicant or borrower;
    (2) Are not members of the family or close known relatives of the 
applicant or borrower;
    (3) Do not have an immediate working relationship with the applicant 
or borrower, the employee related to the applicant or borrower, or the 
employee who would normally conduct the activity; or
    (4) Do not have a business or close personal association with the 
applicant or borrower.
    (b) Applicant or borrower responsibility. The applicant or borrower 
must disclose any known relationship or association with an RHS employee 
when such information is requested.
    (c) RHS employee responsibility. An RHS employee must disclose any 
known relationship or association with a recipient, regardless of 
whether the relationship or association is known to others. RHS 
employees or members of their families may not purchase a Real Estate 
Owned (REO) property, security property from a borrower, or security 
property at a foreclosure sale. Loan closing agents who have been 
involved with a particular property, as well as members of their 
families, are also precluded from purchasing such properties.

[61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. 11, 1996; 75 FR 59060, 
Sept. 27, 2010]



Sec. 3550.10  Definitions.

    Acceleration. Demand for immediate repayment of the entire balance 
of a debt if the security instruments are breached.
    Adjusted income. Used to determine whether an applicant is income-
eligible. Adjusted income provides for deductions to account for varying 
household circumstances and expenses. See Sec. 3550.54 for a complete 
description of adjusted income.
    Adjustment. An agreement to release a debtor from liability 
generally upon receipt of an initial lump sum representing the maximum 
amount the debtor can afford to pay and periodic additional payments 
over a period of up to 5 years.
    Agency-approved intermediary. An affordable housing nonprofit, 
public agency, or State Housing Finance Agency approved by RHS to 
perform quality assurance reviews on packages prepared by Agency-
certified loan application packagers through their qualified employers. 
See Sec. 3550.75 for further details.
    Agency-certified loan application packager. An individual certified 
by RHS under this subpart to package section 502 loan applications while 
employed (either as an employee or as an independent contractor) by a 
qualified employer. See Sec. 3550.75 for further details.
    Amortized payment. Equal monthly payments under a fully amortized 
mortgage loan that provides for the

[[Page 374]]

scheduled payment of interest and principal over the term of the loan.
    Applicant. An adult member of the household who will be responsible 
for repayment of the loan.
    Assumption. The procedure whereby the transferee becomes liable for 
all or part of the debt of the transferor.
    Borrower. A recipient who is indebted under the section 502 or 504 
programs.
    Cancellation. A decision to cease collection activities and release 
the debtor from personal liability for any remaining amounts owed.
    Compromise. An agreement to release a debtor from liability upon 
receipt of a specified lump sum that is less than the total amount due.
    Conditional commitment. A determination that a proposed dwelling 
will qualify as a program-eligible property. The conditional commitment 
does not reserve funds, nor does it ensure that a program-eligible 
applicant will be available to buy the dwelling.
    Cosigner. An individual or an entity that joins in the execution of 
a promissory note to compensate for any deficiency in the applicant's 
repayment ability. The cosigner becomes jointly liable to comply with 
the terms of the promissory note in the event of the borrower's default, 
but is not entitled to any interest in the security or borrower rights.
    Cross-collateralized loan. A situation in which a single property 
secures both RHS and Farm Service Agency loans.
    Custodial property. Borrower-owned real property that serves as 
security for a loan that has been taken into possession by the Agency to 
protect the Government's interest.
    Daily simple interest. A method of establishing borrower payments 
based on daily interest charged on the outstanding principal balance of 
the loan. Principal is reduced by the amount of payment in excess of the 
accrued interest.
    Dealer-contractor. A person, firm, partnership, or corporation in 
the business of selling and servicing manufactured homes and developing 
sites for manufactured homes. A person, firm, partnership, or 
corporation not capable of providing the complete service is not 
eligible to be a dealer-contractor.
    Debt instrument. A collective term encompassing obligating documents 
for a loan, including any applicable promissory note, assumption 
agreement, or grant agreement.
    Deferred mortgage payments. A subsidy available to eligible, very 
low-income borrowers of up to 25 percent of their principal and interest 
payments at 1 percent for up to 15 years. The deferred amounts are 
subject to recapture on sale or nonoccupancy.
    Deficient housing. A dwelling that lacks complete plumbing; lacks 
adequate heating; is dilapidated or structurally unsound; has an 
overcrowding situation that will be corrected with loan funds; or that 
is otherwise uninhabitable, unsafe, or poses a health or environmental 
threat to the occupant or others.
    Elderly family. An elderly family consists of one of the following:
    (1) A person who is the head, spouse, or sole member of a family and 
who is 62 years of age or older, or who is disabled, and is an applicant 
or borrower;
    (2) Two or more persons who are living together, at least 1 of whom 
is age 62 or older, or disabled, and who is an applicant or borrower; or
    (3) In the case of a family where the deceased borrower or spouse 
was at least 62 years old or disabled, the surviving household member 
shall continue to be classified as an elderly family for the purpose of 
determining adjusted income, even though the surviving members may not 
meet the definition of elderly family on their own, provided:
    (i) They occupied the dwelling with the deceased family member at 
the time of the death;
    (ii) If one of the surviving family members is the spouse of the 
deceased family member, the family shall be classified as an elderly 
family only until the remarriage of the surviving spouse; and
    (iii) At the time of the death of the deceased family member, the 
dwelling was financed under title V of the Housing Act of 1949, as 
amended.
    Escrow account. An account to which the borrower contributes monthly 
payments to cover the anticipated costs of

[[Page 375]]

real estate taxes, hazard and flood insurance premiums, and other 
related costs.
    Existing dwelling or unit. A dwelling or unit that has either been 
previously owner-occupied or has been completed for more than 1 year as 
evidenced by an occupancy permit, certificate of occupancy or similar 
document issued by the local authority.
    False information. Information that the recipient knew was incorrect 
or should have known was incorrect that was provided or omitted for the 
purposes of obtaining assistance for which the recipient was not 
eligible.
    Full-time student. A person who carries at least the minimum number 
of credit hours considered to be full-time by college or vocational 
school in which the person is enrolled.
    Hazard. A condition of the property that jeopardizes the health or 
safety of the occupants or members of the community, that does not make 
it unfit for habitation. (See also the definition of major hazard in 
this section.)
    Household. All persons expected to be living in the dwelling, except 
for live-in aids, foster children, and foster adults.
    Housing Act of 1949, as amended. The Act which provides the 
authority for the direct single family housing programs. It is codified 
at 42 U.S.C. 1471 et seq.
    HUD. The U.S. Department of Housing and Urban Development.
    Inaccurate information. Incorrect information inadvertently 
provided, used, or omitted without the intent to obtain benefits for 
which the recipient was not eligible.
    Indian reservation. All land located within the limits of any Indian 
reservation under the jurisdiction of the United States notwithstanding 
the issuance of any patent and including rights-of-way running through 
the reservation; trust or restricted land located within the boundaries 
of a former reservation of a federally recognized Indian tribe in the 
State of Oklahoma; or all Indian allotments, the titles to which have 
not been extinguished, if such allotments are subject to the 
jurisdiction of a federally recognized Indian tribe.
    Interest credit. A payment subsidy available to certain eligible 
section 502 borrowers that reduces the effective interest rate of a loan 
(see 3550.68(d)). Borrowers receiving interest credit will continue to 
receive it on all current and future loans for as long as they remain 
eligible for and continue to receive a subsidy. Borrowers who cease to 
be eligible for interest credit can never receive interest credit again, 
but may receive payment assistance if they again qualify for a payment 
subsidy.
    Junior lien. A security instrument or a judgment against the 
security property to which the RHS debt instrument is superior.
    Legal alien. For the purposes of this part, legal alien refers to 
any person lawfully admitted to the country who meets the criteria in 
section 214 of the Housing and Community Development Act of 1980, 42 
U.S.C. 1436a.
    Leveraged loan. An affordable housing product loan or grant to an 
Agency borrower property, closed simultaneously with an RHS loan. 
Affordable leveraged loans are characterized by long term (not less than 
30 years), amortized payments with a note interest rate equal to or less 
than 3 percent .
    Live-in aide. A person who lives with an elderly or disabled person 
and is essential to that person's care and well-being, not obligated for 
the person's support, and would not be living in the unit except to 
provide the support services.
    Low income. An adjusted income limit developed in consultation with 
HUD under 42 U.S.C. 1437a(b)(2)(D).
    Major hazard. A condition so severe that it makes the property unfit 
for habitation. (See also the definition of hazard in this section.)
    Manufactured home. A structure that is built to Federally 
Manufactured Home Construction and Safety Standard and RHS Thermal 
Performance Standards. It is transportable in 1 or more sections, which 
in the traveling mode is 10-body feet (3.048 meters) or more in width, 
and when erected on site is 400 or more square feet (37.16 square 
meters), and which is built on a permanent chassis and designed to be 
used as a dwelling with or without a permanent foundation when connected 
to the required utilities. It is designed

[[Page 376]]

and constructed for permanent occupancy by a single family and contains 
permanent eating, cooking, sleeping, and sanitary facilities. The 
plumbing, heating, and electrical systems are contained in the 
structure. A permanent foundation is required.
    Market value. The value of the property as determined by a current 
appraisal, RHS may authorize the use of a Broker's Price Opinion or 
similar instrument to determine market value in limited servicing 
situations.
    Mobile home. A manufactured unit often referred to as a ``trailer,'' 
designed to be used as a dwelling, but built prior to the enactment of 
the Housing and Community Development Act of 1980 (Pub. L. 96-399) 
enacted October 8, 1980.
    Moderate income. An adjusted income that does not exceed the 
moderate income limit for the guaranteed single family housing loan 
program authorized by Section 502(h) of the Housing Act of 1949, as 
amended.
    Modest housing. A property that is considered modest for the area, 
has a market value that does not exceed the applicable maximum loan 
limit as established by RHS in accordance with Sec. 3550.63, and is not 
designed for income producing activities. Existing properties with in-
ground pools may be considered modest; however, in-ground pools with new 
construction or with properties which are purchased new are prohibited.
    Modular or panelized home. Housing, constructed of one or more 
factory-built sections or panels, which, when completed, meets or 
exceeds the requirements of the recognized development standards (model 
building codes) for site built housing, and which is designed to be 
permanently connected to a site-built foundation.
    Moratorium. A period of up to 2 years during which scheduled 
payments are not required, but are subject to repayment at a later date.
    Mortgage. A form of security instrument or consensual lien on real 
property including a real estate mortgage or a deed of trust.
    National average area loan limit. Across the nation, the average 
area loan limit as specified in Sec. 3550.63(a). The national average 
is considered when determining the maximum packaging fee permitted under 
the certified loan application packaging process under the section 502 
program.
    Net family assets. The value of assets available to a household that 
could be used towards housing costs. Net family assets are considered in 
the calculation of annual income and are used to determine whether the 
household must make additional cash contributions to improve or purchase 
the property.
    Net recovery value. The market value of the security property minus 
anticipated expenses of liquidation, acquisition, and sale as determined 
by RHS.
    New dwelling or unit. A dwelling that is to be constructed, or a 
dwelling that is less than 1 year old as evidenced by an occupancy 
permit, certificate of occupancy or similar document issued by the local 
authority and has never been occupied.
    Nonprogram (NP) interest rate. The interest rate offered by RHS for 
loans made on NP terms.
    NP property. Property that does not meet the program eligibility 
requirements outlined in Sec. Sec. 3550.56 and 3550.57.
    NP terms. Credit terms available from RHS when the applicant or 
property is not program-eligible.
    Offset. Deductions to pay a debt owed to RHS from a borrower's 
retirement benefits, salary, income tax refund, or payments from other 
federal agencies to the borrower. Deductions from retirement benefits 
and salary generally apply only to current and former federal employees.
    Participant. For the purpose of reviews and appeals, a participant 
is any individual or entity who has applied for, or whose right to 
participate in or receive a payment, loan, or other benefit is affected 
by an RHS decision.
    Payment assistance. A payment subsidy available to eligible section 
502 borrowers that reduces the effective interest rate of a loan (see 
Sec. 3550.68(c)). Borrowers eligible for a payment subsidy receive 
payment assistance unless they are currently eligible for and receive 
interest credit. There are two methods of payment assistance. Payment 
assistance method 1 is found at 3550.68(c)(2). Payment assistance method 
2 is found at 3550.68(c)(1).

[[Page 377]]

    Payment subsidy. A general term for subsidies which reduce the 
borrower's scheduled payment. It refers to either payment assistance or 
interest credit.
    Person with disability. Any person who has a physical or mental 
impairment that substantially limits one or more major life activities, 
including functions such as caring for one's self, performing manual 
tasks, walking, seeing, hearing, speaking, breathing, learning and 
working, has a record of such an impairment, or is regarded as having 
such an impairment.
    PITI ratio. The amount paid by the borrower for principal, interest, 
taxes, and insurance (PITI), divided by repayment income.
    Principal reduction attributed to subsidy (PRAS). Accelerated 
principal reduction that can occur when a borrower receives a reduced 
interest rate through a payment subsidy.
    Principal residence. The home domicile physically occupied by the 
owner on a permanent basis (i.e., lives there for the majority of the 
year and is the address of record for such activities as Federal income 
tax reporting, voter registration, occupational licensing, etc.).
    Prior lien. A security instrument or a judgment against the security 
property that is superior to the RHS debt instrument.
    Program-eligible applicant. Any applicant meeting the eligibility 
requirements described in Sec. 3550.53.
    Program-eligible property. A property eligible to be financed under 
this part, as determined by the criteria listed in Sec. Sec. 3550.56 
through 3550.59.
    Program terms. Credit terms that are available only to program-
eligible applicants for program-eligible properties.
    Property. The land, dwelling, and related facilities for which the 
applicant will use RHS assistance.
    Protective advances. Costs incurred by the Agency to protect the 
security interest of the Government that are charged to the borrower's 
account.
    Qualified employer. An affordable housing nonprofit organization, 
public agency, tribal housing authority, or State Housing Finance Agency 
that meets the requirements outlined in Sec. 3550.75(b)(2) and is 
involved in the certified loan application packaging process under the 
section 502 program.
    Real estate taxes. Taxes and the annual portion of assessments 
estimated to be due and payable on the property, reduced by any 
available tax exemption.
    Recapture amount. An amount of subsidy to be repaid by the borrower 
upon disposition or nonoccupancy of the property.
    Recipient. Any applicant, borrower, or grant recipient who applies 
for or receives assistance under the section 502 or 504 programs.
    REO. The acronym for ``Real Estate Owned.'' It refers to property 
for which RHS holds title.
    Repayment income. Used to determine whether an applicant has the 
ability to make monthly loan payments. Repayment income includes amounts 
excluded for the purpose of determining adjusted income. See Sec. 
3550.54 for a complete description.
    RHS. The Rural Housing Service of the U.S. Department of 
Agriculture, or its successor agency, formerly the Rural Housing and 
Community Development Service (RHCDS), a successor agency to the Farmers 
Home Administration (FmHA).
    RHS employee. Any employee of RHS, or any employee of the Rural 
Development mission area who carries out grant or loan origination or 
servicing functions for the section 502 or 504 programs.
    RHS interest rate. The unsubsidized interest rate offered by RHS for 
loans made on program terms.
    Rural area. An area defined in section 520 of the Housing Act of 
1949, as amended.
    Rural Development. A mission area within USDA which includes RHS, 
Rural Utilities Service (RUS), and Rural Business-Cooperative Service 
(RBS).
    Scheduled payment. The monthly or annual installment on a promissory 
note plus escrow (if required), as modified by any payment subsidy 
agreement, delinquency workout agreement, other documented agreements 
between RHS and the borrower, or protective advances.
    Secured loan. A loan that is collateralized by property so that in

[[Page 378]]

the event of a default on the loan, the property may be sold to satisfy 
the debt.
    Security property. All the property that serves as collateral for an 
RHS loan.
    Subsidy. Interest credit, payment assistance, or deferred mortgage 
assistance received by a borrower under the section 502 or 504 programs.
    Total debt ratio. The amount paid by the borrower for PITI and any 
recurring monthly debt, divided by repayment income.
    Unauthorized assistance. Any loan, payment subsidy, deferred 
mortgage payment, or grant for which there was no regulatory 
authorization or for which the recipient was not eligible.
    U.S. citizen. An individual who resides as a citizen in any of the 
50 States, the District of Columbia, the Commonwealth of Puerto Rico, 
the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the 
Northern Marianas, the Federated States of Micronesia, the Republic of 
Palau, or the Republic of the Marshall Islands.
    USDA. The United States Department of Agriculture.
    Unsecured loan. A loan evidenced only by the borrower's promissory 
note.
    Value appreciation. The current market value of the property minus: 
the balance due prior lienholders, the unpaid balance of the RHS debt, 
unreimbursed closing costs (if any), principal reduction, the original 
equity (if any) of the borrower, and the value added by capital 
improvements.
    Very low-income. An adjusted income limit developed in consultation 
with HUD under 42 U.S.C. 1437a(b)(2)(D).
    Veterans' preference. A preference extended to a veteran applying 
for a loan or grant under this part, or the families of deceased 
servicemen, who meet the criteria in 42 U.S.C. 1477.

[61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. 11, 1996, as amended at 
67 FR 78329, Dec. 24, 2002; 70 FR 6552, Feb. 8, 2005; 72 FR 73255, Dec. 
27, 2007; 73 FR 49592, Aug. 22, 2008; 79 FR 74016, Dec. 15, 2014; 80 FR 
23678, Apr. 29, 2015; 84 FR 29038, June 21, 2019; 87 FR 6770, Feb. 7, 
2022]



Sec. 3550.11  State Director assessment of homeownership education.

    (a) State Directors will assess the availability of certified 
homeownership education in their respective states on an as-needed basis 
but at a minimum every three years and maintain an updated listing of 
providers and their reasonable costs.
    (b) The order of preference for homeownership education formats will 
be determined by the Agency based on factors such as industry practice 
and availability.
    (c) Homeownership education must include a letter or certificate of 
completion and be provided by homeownership education counselors that 
are certified by any of the following:
    (1) The Department of Housing and Urban Development (HUD);
    (2) NeighborWorks America (NWA);
    (3) The National Federation of Housing Counselors (NFHC);
    (4) National American Indian Housing Council (NAIHC); or
    (5) The State Housing Finance Agency or other qualified organization 
approved by the State Director.
    (d) The provider will issue a letter or certificate of completion to 
document that the borrower has satisfactory knowledge of these minimum 
topics:
    (1) Preparing for homeownership (evaluate readiness to go from 
rental to homeownership),
    (2) Budgeting (pre and post-purchase),
    (3) Credit counseling,
    (4) Shopping for a home,
    (5) Lender differences (predatory lending),
    (6) Obtaining a mortgage (mortgage process, different types of 
mortgages),
    (7) Loan closing (closing process, documentation, closing costs),
    (8) Post-occupancy counseling (delinquency and foreclosure 
prevention),
    (9) Life as a homeowner (homeowner warranties, maintenance and 
repairs),
    (e) The provider may tailor the homeownership education training to 
the needs of the borrower to ensure satisfactory knowledge of the topics 
listed in paragraph (d) of this section.

[72 FR 5156, Feb. 5, 2007, as amended at 87 FR 6770, Feb. 7, 2022]



Sec. Sec. 3550.12-3550.49  [Reserved]



Sec. 3550.50  OMB control number.

    The information collection requirements contained in this regulation

[[Page 379]]

have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0172. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. You are not required to respond 
to this collection of information unless it displays a currently valid 
OMB control number.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002]



                    Subpart B_Section 502 Origination



Sec. 3550.51  Program objectives.

    Section 502 of the Housing Act of 1949, as amended authorizes the 
Rural Housing Service (RHS) to provide financing to help low- and very 
low-income persons who cannot obtain credit from other sources obtain 
adequate housing in rural areas. Resources for the section 502 program 
are limited, and therefore, applicants are required to use section 502 
funds in conjunction with funding or financing from other sources, if 
feasible. Sections 3550.52 through 3550.73 set forth the requirements 
for originating loans on program terms. Section 3550.74 describes the 
differences for originating loans on nonprogram (NP) terms.



Sec. 3550.52  Loan purposes.

    Section 502 funds may be used to buy, build, rehabilitate, improve, 
or relocate an eligible dwelling and provide related facilities for use 
by the borrower as a permanent residence. In limited circumstances 
section 502 funds may be used to refinance existing debt.
    (a) Purchases from existing RHS borrowers. To purchase a property 
currently financed by an RHS loan, the new borrower will assume the 
existing RHS indebtedness or receive new loan funds as determined by the 
Agency. The Agency will periodically determine whether assumptions or 
new loans are appropriate on a program wide basis based on the best 
interest of the government, taking into account factors such as funding 
availability and staff resources. Regardless of the method, loan funds 
may be used for eligible costs as defined in paragraph (d) of this 
section or to permit a remaining borrower to purchase the equity of a 
departing co-borrower.
    (b) Refinancing non-RHS loans. Debt from an existing non-RHS loan 
may be refinanced if the existing debt is secured by a lien against the 
property, RHS will have a first lien position on the security property 
after refinancing, and:
    (1) In the case of loans for existing dwellings, if:
    (i) Due to circumstances beyond the applicant's control, the 
applicant is in danger of losing the property, the debt is over $5,000, 
and the debt was incurred for eligible program purposes prior to loan 
application or was a protective advance made by the mortgagee for items 
covered by the loan to be refinanced, including accrued interest, 
insurance premiums, real estate tax advances, or preliminary foreclosure 
costs; or
    (ii) If a loan of $5,000 or more is necessary for repairs to correct 
major deficiencies and make the dwelling decent, safe and sanitary and 
refinancing is necessary for the borrower to show repayment ability, 
regardless of the delinquency.
    (2) In the case of loans for a building site without a dwelling, if:
    (i) The debt to be refinanced was incurred for the sole purpose of 
purchasing the site;
    (ii) The applicant is unable to acquire adequate housing without 
refinancing; and
    (iii) The RHS loan will include funds to construct an appropriate 
dwelling on the site for the applicant's use.
    (3) Debts incurred after the date of RHS loan application but before 
closing may be refinanced if the costs are incurred for eligible loan 
purposes and any construction work conforms to the standards specified 
in this part.
    (c) Refinancing RHS debt. An existing RHS loan may be refinanced in 
accordance with Sec. 3550.204 to allow the borrower to receive payment 
assistance. In addition, depending on the availability of funds and 
program priorities

[[Page 380]]

as determined by RHS, an existing RHS loan and the related subsidy 
recapture may be refinanced as allowed under Sec. 3550.201.
    (d) Eligible costs. Improvements financed with loan funds must be on 
land which, after closing, is part of the security property. In addition 
to acquisition, construction, repairs, or the cost of relocating a 
dwelling, loan funds may be used to pay for:
    (1) Reasonable expenses related to obtaining the loan, including 
legal, architectural and engineering, technical, title clearance, and 
loan closing fees; and appraisal, surveying, environmental, tax 
monitoring, and other technical services; and personal liability 
insurance fees for Mutual Self-Help borrowers.
    (2) The cost of providing special design features or equipment when 
necessary because of a physical disability of the applicant or a member 
of the household.
    (3) Reasonable connection fees, assessments, or the pro rata 
installment costs for utilities such as water, sewer, electricity, and 
gas for which the borrower is liable and which are not paid from other 
funds.
    (4) Reasonable and customary lender charges and fees if the RHS loan 
is being made in combination with a leveraged loan.
    (5) Real estate taxes that are due and payable on the property at 
the time of closing and for the establishment of escrow accounts for 
real estate taxes, hazard and flood insurance premiums, and related 
costs.
    (6) Packaging fees resulting from the certified loan application 
packaging process outlined in Sec. 3550.75. The Agency will determine 
the limit, based on factors such as the level of service provided and 
the prevailing cost to provide the service, and such cap will not exceed 
two percent of the national average area loan limit. Nominal packaging 
fees not resulting from the certified loan application process are an 
eligible cost provided the fee does not exceed a limit determined by the 
Agency based on the level and cost of service factors, but no greater 
than one half percent of the national average area loan limit; the loan 
application packager is a nonprofit, tax exempt partner that received an 
exception to all or part of the requirements outlined in Sec. 3550.75 
from the applicable Rural Development State Director; and the packager 
gathers and submits the information needed for the Agency to determine 
if the applicant is eligible along with a fully completed and signed 
uniform residential loan application.
    (7) Purchasing and installing essential equipment in the dwelling, 
including ranges, refrigerators, washers or dryers, if these items are 
normally sold with dwellings in the area and if the purchase of these 
items is not the primary purpose of the loans.
    (8) Purchasing and installing approved energy savings measures and 
approved furnaces and space heaters that use fuel that is commonly used, 
economical, and dependably available.
    (9) Providing site preparation, including grading, foundation 
plantings, seeding or sodding, trees, walks, yard fences, and driveways 
to a building site.
    (10) Reasonable fees for homeownership education as determined by 
the State Director under Sec. 3550.11 of this subpart. Such fees may be 
added to the loan amount in excess of the area loan limit and appraised 
value of the house.
    (e) Loan restrictions. Loan funds may not be used to:
    (1) Purchase an existing manufactured home, or for any other 
purposes prohibited in Sec. 3550.73(b).
    (2) Purchase or improve income-producing land or buildings to be 
used principally for income-producing purposes.
    (3) Pay fees, commissions, or charges to for-profit entities related 
to loan packaging or referral of prospective applicants to RHS.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002; 
72 FR 5157, Feb. 5, 2007; 80 FR 23678, Apr. 29, 2015; 87 FR 6771, Feb. 
7, 2022]



Sec. 3550.53  Eligibility requirements.

    (a) Income eligibility. At the time of loan approval, the 
household's adjusted income must not exceed the applicable low-income 
limit for the area, and at closing, must not exceed the applicable 
moderate-income limit for the area (see Sec. 3550.54). When an existing 
RHS

[[Page 381]]

loan is being refinanced as a special servicing action under Sec. 
3550.201), the household's adjusted income must not exceed the 
applicable moderate-income limit for the area at the time of loan 
approval and closing.
    (b) Citizenship status. The applicant must be a United States 
citizen or a noncitizen who qualifies as a legal alien as defined in 
Sec. 3550.10.
    (c) Principal residence. Applicants must agree to and have the 
ability to occupy the dwelling in accordance with the definition found 
in Sec. 3550.10. If the dwelling is being constructed or renovated, an 
adult member of the household must be available to make inspections and 
authorize progress payments as the dwelling is constructed.
    (d) Eligibility of current homeowners. Current homeowners are not 
eligible for initial loans except as follows:
    (1) Current homeowners may receive RHS loan funds to:
    (i) Refinance an existing loan under the conditions outlined in 
Sec. 3550.52(b);
    (ii) Purchase a new dwelling if the current dwelling is deficient 
housing as defined in Sec. 3550.10; or
    (iii) Make necessary repairs to the property which is financed with 
an affordable non- RHS loan.
    (2) Current homeowners with an RHS loan may receive a subsequent 
loan.
    (e) Legal capacity. Applicants must have the legal capacity to incur 
the loan obligation, or have a court appointed guardian or conservator 
who is empowered to obligate the applicant in real estate matters.
    (f) Suspension or debarment. Applications from applicants who have 
been suspended or debarred from participation in Federal programs will 
be handled in accordance with 2 CFR parts 180 and 417.
    (g) Repayment ability. Repayment ability means applicants must 
demonstrate adequate and dependably available income. The determination 
of income dependability will include consideration of the applicant's 
history of annual income.
    (1) An applicant is considered to have repayment ability when the 
monthly amount required for payment of principal, interest, taxes, and 
insurance (PITI), does not exceed thirty-three percent of the 
applicant's repayment income (PITI ratio). In addition, the monthly 
amount required to pay PITI plus recurring monthly debts must not exceed 
forty-one percent of the applicant's repayment income (total debt 
ratio).
    (2) If the applicant's PITI ratio and total debt ratio exceed the 
percentages specified by the Agency by a minimal amount, compensating 
factors may be considered. Examples of compensating factors include 
payment history (if applicant has historically paid a greater share of 
income for housing with the same income and debt level), savings 
history, job prospects, and adjustments for nontaxable income.
    (3) If an applicant does not meet the repayment ability requirements 
in this paragraph (g), the applicant can have another party join the 
application as a cosigner, have other household members join the 
application, or both.
    (h) Credit qualifications. Applicants must be unable to secure the 
necessary credit from other sources on terms and conditions that the 
applicant could reasonably be expected to fulfill. Applicants must have 
a credit history that indicates reasonable ability and willingness to 
meet debt obligations. An applicant with an outstanding judgment 
obtained by the United States in a federal court, other than the United 
States Tax Court, is not eligible for a loan or grant from RHS.
    (1) Indicators of unacceptable credit include:
    (i) Payments on any account where the amount of the delinquency 
exceeded one installment for more than 30 days within the last 12 
months.
    (ii) Payments on any account which was delinquent for more than 30 
days on two or more occasions within a 12-month period.
    (iii) A foreclosure which has been completed within the last 36 
months.
    (iv) An outstanding Internal Revenue Service tax lien or any other 
outstanding tax liens with no satisfactory arrangement for payment.
    (v) A court-created or court-affirmed obligation or judgment caused 
by nonpayment that is currently outstanding or has been outstanding 
within the last 12 months, except for those excluded in paragraph (i)(2) 
of this section.

[[Page 382]]

    (vi) Two or more rent payments paid 30 or more days late within the 
last 2 years. If the applicant has experienced no other credit problems 
in the past 2 years, only 1 year of rent history will be evaluated. Rent 
payment history requirements may be waived if the RHS loan will reduce 
shelter costs significantly and contribute to an improved repayment 
ability.
    (vii) Outstanding collection accounts with a record of irregular 
payment with no satisfactory arrangements for repayment, or collection 
accounts that were paid in full within the last 6 months.
    (viii) Non-agency debts written off within the last 36 months unless 
paid in full at least 12 months ago.
    (ix) Agency debts that were debt settled within the last 36 months 
or are being considered for debt settlement.
    (x) Delinquency on a federal debt.
    (2) The following will not be considered indicators of unacceptable 
credit:
    (i) A bankruptcy in which debts were discharged more than 36 months 
prior to the date of application or where an applicant successfully 
completed a bankruptcy debt restructuring plan and has demonstrated a 
willingness to meeting obligations when due for the 12 months prior to 
the date of application.
    (ii) A judgment satisfied more than 12 months before the date of 
application.
    (3) When an application is rejected because of unacceptable credit, 
the applicant will be informed of the reason and source of information.
    (i) Homeownership education. Applicants who are first-time 
homebuyers must agree to provide documentation, in the form of a 
completion certificate or letter from the provider, that a homeownership 
education course from a certified provider under Sec. 3550.11 has been 
successfully completed as defined by the provider. Requests for 
exceptions to the homeownership education requirement in this paragraph 
(i) will be reviewed and granted on an individual case-by-case basis. 
The State Director may grant an exception to the homeownership education 
requirement for individuals in geographic areas within the State where 
the State Director verifies that certified homeownership education is 
not reasonably available in the local area in any of the formats listed 
in Sec. 3550.11(b).
    Whether such homeownership education is reasonably available will be 
determined based on factors including, but not limited to: Distance, 
travel time, geographic obstacles, and cost. On a case-by-case basis, 
the State Director also may grant an exception, provided the applicant 
borrower documents a special need, such as a disability, that would 
unduly impede completing a homeownership course in a reasonably 
available format.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002; 
72 FR 5157, Feb. 5, 2007; 84 FR 29038, June 21, 2019; 87 FR 6771, Feb. 
7, 2022]



Sec. 3550.54  Calculation of income and assets.

    (a) Repayment income. Repayment income is the annual amount of 
income from all sources that are expected to be received by those 
household members who are parties to the promissory note, except for any 
student financial aid received by these household members for tuition, 
fees, books, equipment, materials, and transportation. Repayment income 
is used to determine the household's ability to repay a loan.
    (b) Annual income. Annual income is the income of all household 
members from all sources except those listed in (b)(1) through (b)(12) 
of this section:
    (1) Earned income of persons under the age of 18 unless they are a 
borrower or a spouse of a member of the household;
    (2) Payments received for the care of foster children or foster 
adults;
    (3) Amounts granted for or in reimbursement of the cost of medical 
expenses;
    (4) Earnings of each full-time student 18 years of age or older, 
except the head of household or spouse, that are in excess of any amount 
determined pursuant to section 501(b)(5) of the Housing Act of 1949, as 
amended;
    (5) Temporary, nonrecurring, or sporadic income (including gifts);
    (6) Lump sum additions to family assets such as inheritances; 
capital gains;

[[Page 383]]

insurance payments under health, accident, or worker's compensation 
policies; settlements for personal or property losses; and deferred 
periodic payments of supplemental security income and Social Security 
benefits received in a lump sum;
    (7) Any earned income tax credit;
    (8) Adoption assistance in excess of any amount determined pursuant 
to section 501(b)(5) of the Housing Act of 1949, as amended;
    (9) Amounts received by the family in the form of refunds or rebates 
under State or local law for property taxes paid on the dwelling;
    (10) Amounts paid by a State agency to a family with a 
developmentally disabled family member living at home to offset the cost 
of services and equipment needed to keep the developmentally disabled 
family member at home;
    (11) The full amount of any student financial aid; and
    (12) Any other revenue exempted by a Federal statute; a list of 
which is available from any Rural Development office.
    (c) Adjusted income. Adjusted income is used to determine program 
eligibility for sections 502 and 504 and the amount of payment subsidy 
for which the household qualifies under section 502. Adjusted income is 
annual income as defined in paragraph (b) of this section less any of 
the following deductions for which the household is eligible.
    (1) For each household member, except the head of household or 
spouse, who is under 18 years of age, 18 years of age or older with a 
disability, or a full-time student, the amount determined pursuant to 
section 501(b)(5) of the Housing Act of 1949, as amended.
    (2) A deduction of reasonable expenses for the care of minor 12 
years of age or under that:
    (i) Enable a family member to work or to further a member's 
education;
    (ii) Are not reimbursed or paid by another source; and
    (iii) In the case of expenses to enable a family member to work do 
not exceed the amount of income earned by the family member enabled to 
work.
    (3) Expenses related to the care of household members with 
disabilities that:
    (i) Enable a family member to work;
    (ii) Are not reimbursed from insurance or another source; and
    (iii) Are in excess of three percent of the household's annual 
income.
    (4) For any elderly family, a deduction in the amount determined 
pursuant to section 501(b)(5) of the Housing Act of 1949, as amended.
    (5) For elderly households only, a deduction for household medical 
expenses that are not reimbursed from insurance or another source and 
which in combination with any expenses related to the care of household 
members with disabilities described in paragraph (c)(3) of this section, 
are in excess of three percent of the household's annual income.
    (d) Net family assets. Income from net family assets must be 
included in the calculation of annual income. Net family assets also are 
considered in determining whether a down payment is required.
    (1) Net family assets include, but are not limited to:
    (i) Equity in real property or other capital investments, other than 
the dwelling or site;
    (ii) Cash on hand and funds in savings or checking accounts;
    (iii) Amounts in trust accounts that are available to the household;
    (iv) Stocks, bonds, and other forms of capital investments that are 
accessible without retiring or terminating employment;
    (v) Lump sum receipts such as lottery winnings, capital gains, 
inheritances; and
    (vi) Personal property held as an investment.
    (2) Net family assets do not include:
    (i) Interest in American Indian restricted land;
    (ii) Cash on hand which will be used to reduce the amount of the 
loan;
    (iii) The value of necessary items of personal property;
    (iv) Assets that are part of the business, trade, or farming 
operation of any member of the household who is actively engaged in such 
operation;

[[Page 384]]

    (v) Amounts in voluntary retirement plans such as individual 
retirement accounts (IRAs), 401(k) plans, and Keogh accounts (except at 
the time interest assistance is initially granted);
    (vi) The value of an irrevocable trust fund or any other trust over 
which no member of the household has control;
    (vii) Cash value of life insurance policies;
    (viii) The value of tax advantaged college savings plans (529 plan, 
Coverdell Education Savings Account, etc.);
    (ix) The value of tax advantaged health or medical savings or 
spending accounts; and
    (x) Other amounts deemed by the Agency not to constitute net family 
assets.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002; 
84 FR 29038, June 21, 2019]



Sec. 3550.55  Applications.

    (a) Application submissions. All persons applying for RHS loans must 
file a complete written application in a format specified by RHS. 
Applications will be accepted even when funds are not available.
    (b) Application processing. (1) Incomplete applications will be 
returned to the applicant specifying in writing the additional 
information that is needed to make the application complete.
    (2) An applicant may voluntarily withdraw an application at any 
time.
    (3) RHS may periodically request in writing that applicants 
reconfirm their interest in obtaining a loan. RHS may withdraw the 
application of any applicant who does not respond within the specified 
timeframe.
    (4) Applicants who are eligible will be notified in writing. If 
additional information becomes available that indicates that the 
original eligibility determination may have been incorrect, or that 
circumstances have changed, RHS may reconsider the application and the 
applicant may be required to submit additional information.
    (5) Applicants who are ineligible will be notified in writing and 
provided with the specific reasons for the rejection.
    (c) Selection for processing and funding. Applications will be 
selected for processing using the priorities specified in this paragraph 
(c). Within priority categories, applications will be processed in the 
order that the completed applications are received. In the case of 
applications with equivalent priority status that are received on the 
same day, preference will first be extended to applicants qualifying for 
a veterans' preference. When funds are limited and eligible applicants 
will be placed on the waiting list, the priorities specified in this 
paragraph (c) will be used to determine the selection of applications 
for available funds.
    (1) First priority will be given to existing customers who request 
subsequent loans to correct health and safety hazards.
    (2) Second priority will be given to loans related to the sale of an 
REO property or the transfer of an exisiting RHS financed property.
    (3) Third priority will be given to applicants facing housing 
related hardships including applicants who have been living in deficient 
housing for more than 6 months, current homeowners in danger of losing a 
property through foreclosure, and other circumstances determined by RHS 
on a case-by-case basis to constitute a hardship.
    (4) Fourth priority will be given to applicants seeking loans for 
the construction of dwellings in an RHS-approved Mutual Self-Help 
project, loan application packages funneled through an Agency-approved 
intermediary under the certified loan application packaging process, and 
loans that will leverage funding or financing from other sources at a 
level published in the program handbook.
    (5) Applications from applicants who do not qualify for priority 
consideration in paragraph (c)(1), (2), (3), or (4) of this section will 
be selected for processing after all applications with priority status 
have been processed.
    (d) Applicant timeframe. RHS will specify a reasonable timeframe 
within which eligible applicants selected for processing must provide 
the information needed to underwrite the loan.

[61 FR 59779, Nov. 22, 1996, as amended at 80 FR 23678, Apr. 29, 2015; 
87 FR 6771, Feb. 7, 2022]

[[Page 385]]



Sec. 3550.56  Site requirements.

    (a) Rural areas. Loans may be made only in rural areas designated by 
RHS. If an area designation is changed to non-rural:
    (1) New conditional commitments will be made and existing 
conditional commitments will be honored only in conjunction with an 
applicant for a section 502 loan who applied for assistance before the 
area designation changed.
    (2) REO property sales and transfers with assumption may be 
processed.
    (3) Subsequent loans may be made either in conjunction with a 
transfer with assumption of an RHS loan or to repair properties that 
have RHS loans.
    (b) Site standards. Sites must be developed in accordance with 7 CFR 
part 1924, subpart C and any applicable standards imposed by a State or 
local government.
    (1) The site must not be large enough to subdivide into more than 
one site under existing local zoning ordinances and
    (2) The site must not include farm service buildings, though small 
outbuildings such as a storage shed may be included.

[61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6772, Feb. 7, 2022]



Sec. 3550.57  Dwelling requirements.

    (a) Modest dwelling. The property must be one that is considered 
modest for the area, must not be designed for income producing purposes, 
or have a market value in excess of the applicable maximum area loan 
limit, in accordance with Sec. 3550.63, unless RHS authorizes an 
exception under this paragraph (a). An exception may be granted on a 
case-by-case basis to accommodate the specific needs of an applicant, 
such as to serve exceptionally large households or to provide reasonable 
accommodation for a household member with a disability. Any additional 
loan amount approved must not exceed the amount required to address the 
specific need. Existing properties with in-ground swimming pools may be 
considered modest; however, in-ground swimming pools with new 
construction or with properties which are purchased new are prohibited.
    (1) Area-wide exception. Area-wide exceptions may be granted when 
RHS determines that the section 203(b) limit is too low to enable 
applicants to purchase adequate housing.
    (2) Individual exceptions. Individual exceptions may be granted to 
accommodate the specific needs of an applicant, such as to serve 
exceptionally large households or to provide reasonable accommodation 
for a household member with a disability. Any additional loan amount 
approved must not exceed the amount required to address the specific 
need.
    (b) New dwellings. Construction must meet the requirements in 7 CFR 
part 1924, subpart A.
    (c) Existing dwellings. Existing dwellings must be structurally 
sound; functionally adequate; in good repair, or to be placed in good 
repair with loan funds; have adequate electrical, heating, plumbing, 
water, and wastewater disposal systems; and be free of termites and 
other wood damaging pests and organisms.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002; 
72 FR 70222, Dec. 11, 2007; 87 FR 6772, Feb. 7, 2022]



Sec. 3550.58  Ownership requirements.

    After the loan is closed, the borrower must have an acceptable 
interest in the property as evidenced by one of the following.
    (a) Fee-simple ownership. Acceptable fee-simple ownership is 
evidenced by a fully marketable title with a deed vesting a fee-simple 
interest in the property to the borrower.
    (b) Secure leasehold interest. A written lease is required. To be 
acceptable, a leasehold interest must have an unexpired term that is at 
least 150 percent of the term of the mortgage, unless the loan is 
guaranteed, in which case the unexpired term of the lease must be at 
least 2 years longer than the loan term. In no case may the unexpired 
term be less than 25 years.
    (c) Life estate interest. To be acceptable a life estate interest 
must provide the borrower with rights of present possession, control, 
and beneficial use of the property. Generally, persons with any 
remainder interests must be signatories to the mortgage. All of the

[[Page 386]]

remainder interests need not be included in the mortgage to the extent 
that one or more of the persons holding remainder interests are not 
legally competent (and there is no representative who can legally 
consent to the mortgage), cannot be located, or if the remainder 
interests are divided among such a large number of people that it is not 
practical to obtain the signatures of all of the remainder interests. In 
such cases, the loan may not exceed the value of the property interests 
owned by the persons executing the mortgage.
    (d) Undivided interest. All legally competent co-owners will be 
required to sign the mortgage. When one or more of the co-owners are not 
legally competent (and there is no representative who can legally 
consent to the mortgage), cannot be located, or the ownership interests 
are divided among so large a number of co- owners that it is not 
practical for all of their interests to be mortgaged, their interests 
not exceeding 50 percent may be excluded from the security requirements. 
In such cases, the loan may not exceed the value of the property 
interests owned by the persons executing the mortgage.
    (e) Possessory rights. Acceptable forms of ownership include 
possessory rights on an American Indian reservation or State-owned land 
and the interest of an American Indian in land held in severalty under 
trust patents or deeds containing restrictions against alienation, 
provided that land in trust or restricted status will remain in trust or 
restricted status.



Sec. 3550.59  Security requirements.

    Before approving any loan, RHS will impose requirements to secure 
its interests.
    (a) Adequate security. A loan will be considered adequately secured 
only when all of the following requirements are met:
    (1) RHS obtains at closing a mortgage on all ownership interests in 
the security property or the requirements of Sec. 3550.58 are 
satisfied.
    (2) No liens prior to the RHS mortgage exist at the time of closing 
and no junior liens are likely to be taken immediately after or at the 
time of closing, unless the other liens are taken as part of a 
leveraging strategy or the RHS loan is essential for repairs. Any lien 
senior to the RHS lien must secure an affordable non-RHS loan. Liens 
junior to the RHS lien may be allowed at loan closing if the junior lien 
will not interfere with the purpose or repayment of the RHS loan. When 
the junior lien involves a grant or a forgivable affordable housing 
product, the total debt may exceed the market value provided:
    (i) The RHS loan is fully secured (with allowable exceptions for the 
tax service fee, appraisal fee, homebuyer education and initial escrow 
for taxes and insurance);
    (ii) The junior lien is for an authorized loan purpose identified in 
Sec. 3550.52; and
    (iii) The grant or forgivable affordable housing product comes from 
a recognized grant source such as a Community Development Block Grant or 
a HOME Investment Partnerships Program (HOME).
    (3) The provisions of 7 CFR part 1927, subpart B regarding title 
clearance and the use of legal services have been followed.
    (4) Existing and proposed property improvements are totally on the 
site and do not encroach on adjoining property.
    (b) Guaranteed payment. Mortgage insurance guaranteeing payment from 
a Government agency or Indian tribe is adequate security.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002; 
87 FR 6772, Feb. 7, 2022]



Sec. 3550.60  Escrow account.

    RHS may require that customers deposit into an escrow account 
amounts necessary to ensure that the account will contain sufficient 
funds to pay real estate taxes, hazard and flood insurance premiums, and 
other related costs when they are due in accordance with the Real Estate 
Settlement and Procedures Act of 1974 (RESPA) (12 U.S.C. 2601, et seq.) 
and section 501(e) of the Housing Act of 1949, as amended.



Sec. 3550.61  Insurance.

    (a) Borrower responsibility. Any borrower with a secured 
indebtedness in

[[Page 387]]

excess of $15,000 at the time of loan approval must furnish and 
continually maintain hazard insurance on the security property, with 
companies, in amounts, and on terms and conditions acceptable to RHS 
including a ``loss payable clause'' payable to RHS to protect the 
Government's interest.
    (b) Amount. The borrower is required to insure the dwelling and any 
other essential buildings in an amount equal to the insurable value of 
the dwelling and other essential buildings. However, in cases where the 
borrower's outstanding secured indebtedness is less than the insurable 
value of the dwelling and other essential buildings, the borrower may 
elect a lower coverage provided it is not less than the outstanding 
secured indebtedness. If the borrower fails, or is unable, to insure the 
secured property, RHS will force place insurance and charge the cost to 
the borrower's account. Force place insurance only provides insurance 
coverage to the Agency and does not provide any direct coverage or 
benefit to the borrower. The amount of the lender-placed coverage will 
generally be the property's last known insured value.
    (c) Flood insurance. Flood insurance must be obtained and maintained 
for the life of the loan for all property located in a Special Flood 
Hazard Area (SFHA) as determined by the Federal Emergency Management 
Agency (FEMA). RHS actions will be consistent with 7 CFR part 1806, 
subpart B which addressed flood insurance requirements. If flood 
insurance through FEMA's National Flood Insurance Program is not 
available in an SFHA, the property is not eligible for federal financial 
assistance.
    (d) Losses. (1) Loss deductible clauses for required insurance 
coverage may not exceed the generally accepted minimums based on current 
industry standards and local market conditions.
    (2) Customers must immediately notify RHS of any loss or damage to 
insured property and collect the amount of the loss from the insurance 
company.
    (3) Depending on the amount of the loss, RHS may require that loss 
payments be supervised. All repairs and replacements done by or under 
the direction of the borrower, or by contract, will be planned, 
performed, inspected, and paid for in accordance with 7 CFR part 1924, 
subpart A.
    (4) When insurance funds remain after all repairs, replacements, and 
other authorized disbursements have been made, the funds will be applied 
in the following order:
    (i) Prior liens, including delinquent property taxes.
    (ii) Past-due amounts.
    (iii) Protective advances due.
    (iv) Released to the customer if the RHS debt is adequately secured.
    (5) If a loss occurs when insurance is not in force, the borrower is 
responsible for making the needed repairs or replacements and ensuring 
that the insurance is reinstated on the property.
    (6) If the borrower is not financially able to make the repairs, RHS 
may take one of the following actions:
    (i) Make a subsequent loan for repairs.
    (ii) Subordinate the RHS lien to permit the borrower to obtain funds 
for needed repairs from another source.
    (iii) Permit the borrower to obtain funds secured by a junior lien 
from another source.
    (iv) Make a protective advance to protect the Government's interest.
    (v) Accelerate the account.

[61 FR 59779, Nov. 22, 1996, as amended at 70 FR 6552, Feb. 8, 2005; 73 
FR 49592, Aug. 22, 2008]



Sec. 3550.62  Appraisals.

    (a) Requirement. An appraisal is required when the debt to be 
secured exceeds $15,000 or whenever RHS determines that it is necessary 
to establish the adequacy of the security. Appraisals must be made in 
accordance with the Uniform Standards of Professional Appraisal 
Practices. When other real estate is taken as additional security, it 
will be appraised if it represents a substantial portion of the security 
for the loan.
    (b) Fees. RHS will charge a fee for each loan application that 
requires an appraisal, except the appraisal fee is not required on 
appraisals done for subsequent loans needed to make minimal, essential 
repairs or in cases where another party provides an appraisal

[[Page 388]]

which is acceptable to RHS. Fees collected in connection with a dwelling 
constructed under an approved conditional commitment will be paid to the 
contractor at closing to offset the cost of the real estate appraisal 
that is included in the conditional commitment fee.



Sec. 3550.63  Maximum loan amount.

    Total secured indebtedness must not exceed the area loan limit or 
market value limitations specified in paragraphs (a) or (b) of this 
section, whichever is lower. Any loan amount for the RHS appraisal, tax 
monitoring fee, and the charge to establish an escrow account for taxes 
and insurance will not be subject to the limitations specified below. 
This section does not apply to loans on NP terms.
    (a) Area loan limit. (1) The area loan limit is the maximum value of 
the property RHS will finance in a given locality. This limit is based 
on a percentage(s) of the applicable local HUD section 203(b) limit. The 
percentage(s) will be determined by the Agency and published in the 
program handbook. The area loan limits will be reviewed at least 
annually and posted to the Agency website.
    (2) The maximum loan limit calculated under paragraph (a)(1) will be 
reduced in the following situations:
    (i) When the applicant owns the site or is purchasing the site at a 
sales price below market value, the market value of the lot will be 
deducted from the maximum loan limit, and
    (ii) When an applicant is receiving a housing grant or other form of 
affordable housing assistance for purposes other than closing costs, the 
amount(s) of such grants and affordable housing assistance will be 
deducted from the maximum loan limit.
    (3) The maximum loan limit for self-help housing will be calculated 
by adding the total of the market value of the lot (including reasonable 
and typical costs of site development), the cost of construction, and 
the value of sweat equity. The total of these three factors cannot 
exceed the limit established in paragraph (a)(1) of this section.
    (b) Market value limitation. (1) The market value limitation is 100 
percent of market value for existing housing and for new dwellings for 
which RHS will receive adequate documentation of construction quality 
and the source of such documentation is acceptable to RHS.
    (2) The market value limitation is 90 percent of market value for 
new dwellings for which adequate documentation of construction quality 
is not available.
    (3) The market value limitation can be increased by:
    (i) Up to one percent, if RHS makes a subsequent loan for closing 
costs only, in conjunction with the sale of an REO property or an 
assumption.
    (ii) The amount necessary to make a subsequent loan for repairs 
necessary to protect the Government's interest, and reasonable closing 
costs.
    (iii) The amount necessary to refinance an existing borrower's RHS 
loans, plus closing costs associated with the new loan.

[61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. 11, 1996, as amended at 
67 FR 78330, Dec. 24, 2002; 84 FR 29038, June 21, 2019]



Sec. 3550.64  Down payment.

    Elderly families must use any net family assets in excess of $20,000 
towards a down payment on the property. Non-elderly families must use 
net family assets in excess of $15,000 towards a down payment on the 
property. Applicants may contribute assets in addition to the required 
down payment to further reduce the amount to be financed.

[73 FR 49593, Aug. 22, 2008]



Sec. 3550.65  [Reserved]



Sec. 3550.66  Interest rate.

    Loans will be written using the applicable RHS interest rate in 
effect at loan approval or loan closing, whichever is lower. Information 
about current interest rates is available in any Rural Development 
office.

[67 FR 78330, Dec. 24, 2002]



Sec. 3550.67  Repayment period.

    Loans will be scheduled for repayment over a period that does not 
exceed the expected useful life of the property as a dwelling. The loan 
repayment period will not exceed:

[[Page 389]]

    (a) Thirty-three years in all cases except as noted in paragraphs 
(b), (c), and (d) of this section.
    (b) Thirty-eight years:
    (1) For initial loans, or subsequent loans made in conjunction with 
an assumption, if the applicant's adjusted income does not exceed 60 
percent of the area adjusted median income and the longer term is 
necessary to show repayment ability.
    (2) For subsequent loans not made in conjunction with an assumption 
if the applicant's initial loan was for a period of 38 years, the 
applicant's adjusted income at the time the subsequent loan is approved 
does not exceed 60 percent of area adjusted median income, and the 
longer terms is necessary to show repayment ability.
    (c) Ten years for loans not exceeding an amount determined by the 
Agency based on factors such as the performance of unsecured loans in 
the Agency's portfolio and the Agency's budgetary needs, but not to 
exceed eight percent of the national average area loan limit.
    (d) Thirty years for manufactured homes.

[61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6772, Feb. 7, 2022]



Sec. 3550.68  Payment subsidies.

    RHS administers three types of payment subsidies: interest credit, 
payment assistance method 1, and payment assistance method 2. Payment 
subsidies are subject to recapture when the borrower transfers title or 
ceases to occupy the property.
    (a) Eligibility for payment subsidy. (1) Applicants or borrowers who 
receive loans on program terms are eligible to receive payment subsidy 
if they personally occupy the property and have adjusted income at or 
below the applicable moderate-income limit.
    (2) Payment subsidy may be granted for initial loans or subsequent 
loans made in conjunction with an assumption only if the term of the 
loan is 25 years or more.
    (3) Payment subsidy may be granted for subsequent loans not made in 
conjunction with an assumption if the initial loan was for a term of 25 
years or more.
    (b) Determining type of payment subsidy. (1) A borrower currently 
receiving interest credit will continue to receive it for the initial 
loan and for any subsequent loan for as long as the borrower is eligible 
for and remains on interest credit.
    (2) If a borrower receiving payment assistance using payment 
assistance method 1 receives a subsequent loan, payment assistance 
method 2 will be used to calculate the subsidy for the initial loan and 
subsequent loan.
    (3) A borrower who has never received payment subsidy, or who has 
stopped receiving interest credit or payment assistance method 1, and at 
a later date again qualifies for a payment subsidy, will receive payment 
assistance method 2.
    (4) A borrower may not opt to change payment assistance methods.
    (c) Calculation of payment assistance. Regardless of the method 
used, payment assistance may not exceed the amount necessary if the loan 
were amortized at an interest rate of one percent.
    (1) Payment Assistance Method 2. The amount of payment assistance 
granted is the lesser of the difference between:
    (i) The annualized promissory note installments for the combined RHS 
loan and eligible leveraged loans plus the cost of taxes and insurance 
less twenty-four percent of the borrower's adjusted income, or
    (ii) The annualized promissory note installment for the RHS loan 
less amount the borrower would pay if the loan were amortized at an 
interest rate of one percent.
    (2) Payment Assistance Method 1. The amount of payment assistance 
granted is the difference between the installment due on the promissory 
note and the greater of the payment amortized at the equivalent interest 
rate or the payment calculated based on the required floor payment. In 
leveraging situations, the equivalent interest rate will be used.
    (i) The floor payment, which is defined as a minimum percentage of 
adjusted income that the borrower must pay for PITI: 22 percent for very 
low-income borrowers, 24 percent for low-income borrowers with adjusted 
income below 65 percent of area adjusted

[[Page 390]]

median, and 26 percent for low-income borrowers with adjusted incomes 
between 65 and 80 percent of area adjusted median; or
    (ii) The annualized note rate installment and the payment at the 
equivalent interest rate, which is determined by a comparison of the 
borrower's adjusted income to the adjusted median income for the area in 
which the security property is located. The following chart is used to 
determine the equivalent interest rate.
    When the applicant's adjusted income is:

      Percentage of Median Income and the Equivalent Interest Rate
------------------------------------------------------------------------
                                                           THEN the
     Equal to or more than:         BUT less than:        equivalent
                                                       interest rate is*
------------------------------------------------------------------------
00%.............................  50.01 of adjusted   1%
                                   median income.
50.01%..........................  55 of adjusted      2%
                                   median income.
55%.............................  60 of adjusted      3%
                                   median income.
60%.............................  65 of adjusted      4%
                                   median income.
65%.............................  70 of adjusted      5%
                                   median income.
70%.............................  75 of adjusted      6%
                                   median income.
75%.............................  80.01 of adjusted   6.5%
                                   median income.
80.01%..........................  90 of adjusted      7.5%
                                   median income.
90%.............................  100 of adjusted     8.5%
                                   median income.
100%............................  110% of adjusted    9%
                                   median income.
110%............................  Or more than        9.5%
                                   adjusted median
                                   income.
------------------------------------------------------------------------
* Or note rate, whichever is less; in no case will the equivalent
  interest rate be less than one percent.

    (d) Calculation of interest credit. The amount of interest credit 
granted is the difference between the note rate installment as 
prescribed on the promissory note and the greater of:
    (1) Twenty percent of the borrower's adjusted income less the cost 
of real estate taxes and insurance, or
    (2) The amount the borrower would pay if the loan were amortized at 
an interest rate of 1 percent.
    (e) Annual review. The borrower's income will be reviewed annually 
to determine whether the borrower is eligible for continued payment 
subsidy. The borrower must notify RHS whenever an adult member of the 
household changes or obtains employment, there is a change in household 
composition, or if income increases by at least 10 percent so that RHS 
can determine whether a review of the borrower's circumstances is 
required.

[72 FR 73255, Dec. 27, 2007, as amended at 79 FR 28810, May 20, 2014; 84 
FR 29038, June 21, 2019]



Sec. 3550.69  Deferred mortgage payments.

    For qualified borrowers, RHS may defer up to 25 percent of the 
monthly principal and interest payment at 1 percent for up to 15 years. 
This assistance may be granted only at initial loan closing and is 
reviewed annually. Deferred mortgage payments are subject to recapture 
when the borrower transfers title or ceases to occupy the property.
    (a) Eligibility. In order to qualify for deferred mortgage payments, 
all of the following must be true:
    (1) The applicants adjusted income at the time of initial loan 
approval does not exceed the applicable very low-income limits.
    (2) The loan term is 38 years, or 30 years for a manufactured home.
    (3) The applicant's payments for principal and interest, calculated 
at a one percent interest rate for the maximum allowable term, plus 
estimated costs for taxes and insurance exceeds:
    (i) For applicants receiving payment assistance, 29 percent of the 
applicants repayment income by more than $10 per month; or
    (ii) For applicants receiving interest credit, 20 percent of 
adjusted income by more than $10 per month.
    (b) Amount and terms. (1) The amount of the mortgage payment to be 
deferred will be the difference between the applicants payment for 
principal and interest, calculated at one percent interest for the 
maximum allowable term, plus estimated costs for taxes and insurance 
and:
    (i) For applicants receiving payment assistance, 29 percent of the 
applicants repayment income.
    (ii) For applicants receiving interest credit, 20 percent of 
adjusted income.
    (2) Deferred mortgage payment agreements will be effective for a 12-
month period.
    (3) Deferred mortgage assistance may be continued for up to 15 years 
after

[[Page 391]]

loan closing. Once a borrower becomes ineligible for deferred mortgage 
assistance, the borrower can never again receive deferred mortgage 
assistance.
    (c) Annual review. The borrower's income, taxes, and insurance will 
be reviewed annually to determine eligibility for continued deferred 
mortgage assistance. The borrower must notify RHS whenever an adult 
member of the household changes or obtains employment or if income 
increases by at least 10 percent so that RHS can determine whether a 
review of the borrower's circumstances is required.



Sec. 3550.70  Conditional commitments.

    A conditional commitment is a determination by RHS that a dwelling 
offered for sale will be acceptable for purchase by a qualified RHS loan 
applicant if it is built or rehabilitated in accordance with RHS-
approved plans, specifications, and regulations and priced within the 
lesser of the property's appraised value or the applicable maximum load 
limit. The conditional commitment does not reserve funds, does not 
guarantee funding, and does not ensure that an eligible loan applicant 
will be available to buy the dwelling.
    (a) Eligibility. To be eligible to request a conditional commitment, 
the builder, dealer-contractor, or seller must:
    (1) Have an adequate ownership interest in the property, as defined 
in Sec. 3550.58, prior to the beginning of any planned construction;
    (2) Have the experience and ability to complete any proposed work in 
a competent and professional manner;
    (3) Have the legal capacity to enter into the required agreements;
    (4) Be financially responsible and have the ability to finance or 
obtain financing for any proposed construction or rehabilitation; and
    (5) Comply with the requirements of 7 CFR part 1901, subpart E and 
all applicable laws, regulations, and Executive Orders relating to equal 
opportunity. Anyone who receives 5 or more conditional commitments 
during a 12-month period must obtain RHS approval of an affirmative 
marketing plan.
    (b) Limitations. Conditional commitments for new or substantially 
rehabilitated dwellings will not be issued after construction has 
started. RHS may limit the total number of conditional commitments 
issued in any locality based on market demand.
    (c) Commitment period. A conditional commitment will be valid for 12 
months from the date of issuance. The commitment may be extended for up 
to an additional 6 months if there are unexpected delays in construction 
caused by such factors as bad weather, materials shortages, or marketing 
difficulties. Conditional commitments may be canceled if construction 
does not begin within 60 days after the commitment is issued.
    (d) Conditional commitments involving packaging of applications. A 
conditional commitment may be made to a seller, builder, or dealer-
contractor who packages an RHS loan application for a prospective 
purchaser. In cases where the dwelling is to be constructed for sale to 
a specific eligible applicant, all of the following conditions must be 
met:
    (1) The conditional commitment will not be approved until the 
applicant's loan has been approved;
    (2) Construction will not begin until loan funds are obligated for 
the loan. Exceptions may be made when it appears likely that funding 
will be forthcoming and as long as the RHS lien priority is not 
jeopardized. The sales agreement must indicate that the loan has been 
approved but not funded and must provide that if the loan is not closed 
within 90 days of the date of approval, the contractor may terminate the 
sales agreement and sell the property to another party. If the sales 
agreement is terminated, the conditional commitment will be honored for 
another eligible loan applicant for the remaining period of the 
commitment; and
    (3) The RHS loan will be closed only after the dwelling is 
constructed or the required rehabilitation completed and final 
inspection has been made.
    (e) Fees. An application for a conditional commitment must include 
payment of the conditional commitment fee. The fee will be refunded if 
for any reason preliminary inspection of the property or investigation 
of the conditional commitment applicant indicates that a conditional 
commitment will

[[Page 392]]

not be issued. Application fees will not be refunded for any property on 
which the required appraisal has been made.
    (f) Failure of conditional commitment applicant or dwelling to 
qualify. The conditional commitment applicant will be informed if the 
conditional commitment is denied. Conditional commitments will be 
canceled if the property does not meet program requirements.
    (g) Changes in plans, specifications, or commitment price. The 
holder of the conditional commitment must request approval for changes 
in plans, specifications, and commitment price. RHS may approve the 
changes if the following requirements are met:
    (1) The property price does not exceed the maximum loan limit and 
increases in costs are due to factors beyond the control of the 
commitment holder; and
    (2) The requested changes are justifiable and appropriate.
    (h) Builder's warranty. The builder or seller, as appropriate, must 
execute either an RHS-approved ``Builder's Warranty,'' or provide a 10-
year insured warranty when construction is completed or the loan is 
closed.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002]



Sec. 3550.71  Special requirements for condominiums.

    RHS loans may be made for condominium units under the following 
conditions:
    (a) The unit is in a project approved or accepted by U.S. Department 
of Housing and Urban Development (HUD), the Federal National Mortgage 
Association (Fannie Mae), or the Federal Home Loan Mortgage Corporation 
(Freddie Mac).
    (b) The condominium project complies with the requirements of the 
condominium enabling statute and all other applicable laws. Any right of 
first refusal in the condominium documents will not impair the rights of 
RHS to:
    (1) Foreclose or take title to a condominium unit pursuant to the 
remedies in the mortgage;
    (2) Accept a deed in lieu of foreclosure in the event of default by 
a mortgagor; and
    (3) Sell or lease a unit acquired by RHS.
    (c) If RHS obtains title to a condominium unit pursuant to the 
remedies in its mortgage or through foreclosure, RHS will not be liable 
for more than 6 months of the unit's unpaid regularly budgeted dues or 
charges accrued before acquisition of the title to the unit by RHS. The 
homeowners association's lien priority may include costs of collecting 
unpaid dues.
    (d) In case of condemnation or substantial loss to the units or 
common elements of the condominium project, unless at least two-thirds 
of the first mortgagees or unit owners of the individual condominium 
units have given their consent, the homeowners association may not:
    (1) By act or omission seek to abandon or terminate the condominium 
project;
    (2) Change the pro rata interest or obligations of any condominium 
unit in order to levy assessments or charges, allocate distribution of 
hazard insurance proceeds or condemnation awards, or determine the pro 
rata share of ownership of each condominium unit in the common elements;
    (3) Partition or subdivide any condominium unit;
    (4) Seek to abandon, partition, subdivide, encumber, sell, or 
transfer the common elements by act or omission (the granting of 
easements for public utilities or other public purposes consistent with 
the intended use of the common elements by the condominium project is 
not a transfer within the meaning of this clause); or
    (5) Use hazard insurance proceeds for losses to any condominium 
property (whether units or common elements) for other than the repair, 
replacement, or reconstruction of the condominium property.
    (e) All taxes, assessments, and charges that may become liens prior 
to the first mortgage under local law relate only to the individual 
condominium units and not to the condominium project as a whole.
    (f) No provision of the condominium documents gives a condominium 
unit owner or any other party priority over any rights of RHS as first 
or second mortgagee of the condominium unit

[[Page 393]]

pursuant to its mortgage in the case of a payment to the unit owner of 
insurance proceeds or condemnation awards for losses to or taking of 
condominium units or common elements.
    (g) If the condominium project is on a leasehold the underlying 
lease provides adequate security of tenure as described in Sec. 
3550.58(b).
    (h) At least 70 percent of the units have been sold. Multiple 
purchases of condominium units by one owner are counted as one sale when 
determining if the sales requirement has been met.
    (i) No more than 15 percent of the unit owners are more than 1 month 
delinquent in payment of homeowners association dues or assessments at 
the time the RHS loan is closed.



Sec. 3550.72  Community land trusts.

    Eligible dwellings located on land owned by a community land trust 
may be financed if:
    (a) The loan meets all the requirements of this subpart; and
    (b) Any restrictions, imposed by the community land trust on the 
property or applicant are:
    (1) Reviewed and accepted by RHS before loan closing; and
    (2) Automatically and permanently terminated upon foreclosure or 
acceptance by RHS of a deed in lieu of foreclosure.



Sec. 3550.73  Manufactured homes.

    With the exception of the restrictions and additional requirements 
contained in this section, section 502 loans on manufactured homes are 
subject to the same conditions as all other section 502 loans.
    (a) Eligible costs. In addition to the eligible costs described in 
Sec. 3550.52(d), RHS may finance the following activities related to 
manufactured homes when a real estate mortgage covers both the unit and 
the site:
    (1) Purchase of an eligible unit, transportation, and set-up costs, 
and purchase of an eligible site if not already owned by the applicant;
    (2) Site development work in accordance with 7 CFR part 1924, 
subpart A:
    (3) Subsequent loans in conjunction with an assumption or sale of an 
REO property; or
    (4) Subsequent loans for repairs of units financed under section 
502.
    (b) Loan restrictions. In addition to the loan restrictions 
described in Sec. 3550.52(e), RHS may not use loan funds to finance:
    (1) An existing unit and site unless it is already financed with a 
section 502 loan or is an RHS REO property.
    (2) The purchase of a site without also financing the unit.
    (3) Alteration or remodeling of the unit when the initial loan is 
made.
    (4) Furniture, including movable articles of personal property such 
as drapes, beds, bedding, chairs, sofas, divans, lamps, tables, 
televisions, radios, stereo sets, and other similar items of personal 
property. Furniture does not include wall-to-wall carpeting, 
refrigerators, ovens, ranges, washing machines, clothes dryers, heating 
or cooling equipment, or other similar items.
    (c) Dealer-contractors. No loans will be made on a manufactured home 
sold by any entity that is not an approved dealer-contractor that will 
provide complete sales, service, and site development services.
    (d) Loan term. The maximum term of a loan on a manufactured home is 
30 years.
    (e) Construction and development. Unit construction, site 
development and set-up must conform to the Federal Manufactured Home 
Construction and Safety Standards (FMHCSS) and 7 CFR part 1924, subpart 
A. Development under the Mutual Self-Help and borrower construction 
methods is not permitted for manufactured homes.
    (f) Contract requirements. The dealer-contractor must sign a 
construction contract, as specified in 7 CFR 1924.6 which will cover 
both the unit and site development work. The use of multi-contracts is 
prohibited. A dealer-contractor may use subcontractors if the dealer-
contractor is solely responsible for all work under the contract. 
Payment for all work will be in accordance with 7 CFR part 1924, subpart 
A, except no payment will be made for materials or property stored on 
site (e.g., payment for a unit will be made only after it is permanently 
attached to the foundation).
    (g) Lien release requirements. All persons furnishing materials or 
labor in

[[Page 394]]

connection with the contract except the manufacturer of the unit must 
sign a Release by Claimants document, as specified in 7 CFR part 1924, 
subpart A. The manufacturer of the unit must furnish an executed 
manufacturer's certificate of origin to verify that the unit is free and 
clear of all legal encumbrances.
    (h) Warranty requirements. The dealer-contractor must provide a 
warranty in accordance with the provisions of 7 CFR 1924.12. The 
warranty must identify the unit by serial number. The dealer-contractor 
must certify that the unit substantially complies with the plans and 
specifications and the manufactured home has sustained no hidden damage 
during transportation and, if manufactured in separate sections, that 
the sections were properly joined and sealed according to the 
manufacturer's specifications. The dealer-contractor will also furnish 
the applicant with a copy of all manufacturer's warranties.



Sec. 3550.74  Nonprogram loans.

    NP terms may be extended to applicants who do not qualify for 
program credit, or for properties that do not qualify as program 
properties, when it is in the best interest of the Government. NP loans 
are originated and serviced according to the requirements for program 
loans except as indicated in this section.
    (a) Purpose. NP terms may be offered to expedite:
    (1) Sale of an REO property.
    (2) Assumption of an existing program loan on new rates and terms. 
If additional funds are required to purchase the property, the applicant 
must obtain them from another source.
    (3) Conversion of a program loan that has received unauthorized 
assistance.
    (4) Continuation of a loan on a portion of a security property when 
the remainder is being transferred and the RHS debt is not paid in full.
    (b) Terms. (1) Rate and term:
    (i) For an applicant who intends to occupy the property, the term 
will not exceed 30 years.
    (ii) For other applicants, the term will not exceed 10 years. If 
more favorable terms are necessary to facilitate the sale, the loan may 
be amortized over a period of up to 20 years with payment in full due 
not later than 10 years from the date of closing.
    (iii) An applicant with an NP loan under paragraph (b)(1)(i) of this 
section who wishes to retain the property and purchase a new property 
with RHS credit must purchase the second property according to the terms 
of paragraph (b)(1)(ii) of this section, even if the new property will 
serve as the applicant's principal residence.
    (2) NP loans are written at the NP interest rate in effect at the 
time of loan approval.
    (3) NP borrowers are not eligible for payment assistance or a 
moratorium.
    (c) Additional requirements. (1) NP applicants other than public 
bodies and nonprofit organizations must pay a nonrefundable application 
fee.
    (2) NP applicants must make a down payment based upon the purchase 
price and whether the applicant intends to personally occupy the 
property or use it for other purposes.
    (3) NP applicants cannot finance loan closing costs or escrow, tax 
service, or appraisal fees.
    (d) Reduced restrictions. (1) NP applicants need not be unable to 
obtain other credit in order to receive an NP loan and are not required 
to refinance with private credit when they are able to do so.
    (2) NP applicants are not required to occupy the property.
    (3) NP applicants are not subject to leasing restrictions.
    (e) Waiver of costs. When the purpose of the loan is the conversion 
of a program loan that has received unauthorized assistance or 
continuation of a loan on a portion of a security property when the 
remainder is being transferred, the application fee, appraisal fee, and 
down payment may be waived.



Sec. 3550.75  Certified loan application packaging process.

    Persons interested in applying for a section 502 loan may, but are 
not required to, submit an application through the certified loan 
application packaging process.
    (a) General. The certified loan application packaging process 
involves individuals who have been designated as an

[[Page 395]]

Agency-certified loan application packager, their qualified employers, 
and, if required by the State Director, Agency-approved intermediaries.
    (b) Process requirements. To package section 502 loan applications 
under this process, each of the following conditions must be met:
    (1) Agency-certified loan application packager. An individual who 
wishes to acquire RHS certification as a loan application packager must 
meet all of the following conditions:
    (i) Have at least one year of affordable housing loan origination 
and/or affordable housing counseling experience;
    (ii) Be employed (either as an employee or as an independent 
contractor) by a qualified employer as outlined in paragraph (b)(2) of 
this section;
    (iii) Complete an Agency-approved loan application packaging course 
and successfully pass the corresponding test as specified in paragraph 
(c) of this section; and
    (iv) Submit applications to the Agency via an intermediary if 
determined necessary by a State Director.
    (2) Qualified employer. Individuals who have been designated as an 
Agency-certified loan application packager must be employed (either as 
an employee or as an independent contractor) by a qualified employer. To 
be considered a qualified employer, the packager's employer must meet 
each of the conditions specified in paragraphs (b)(2)(i) through (v) of 
this section. Tribal housing authorities and the States' Housing Finance 
Agencies are eligible and are exempt from the conditions specified in 
paragraphs (b)(2)(i) through (ii) of this section.
    (i) Be a nonprofit organization or public agency in good standing in 
the State(s) of its operation.
    (ii) Be tax exempt under the Internal Revenue Code and be engaged in 
affordable housing per their regulations, articles of incorporation, or 
bylaws.
    (iii) Notify the Agency and the applicant if they or their Agency-
certified packager(s) are the developer, builder, seller of, or have any 
other such financial interest in the property for which the application 
package is submitted. The Agency may disallow a particular qualified 
employer and/or Agency-certified packager from receiving part or all of 
a packaging fee if the Agency determines that the financial interest is 
improper or the qualified employer or Agency-certified packager has a 
history of improperly using its position when there has been a financial 
interest in the property.
    (iv) Prepare an affirmative fair housing marketing plan for Agency 
approval as outlined in RD Instruction 1901-E (or in any superseding 
guidance provided in the impending RD Instruction 1940-D).
    (v) Submit applications to the Agency via an intermediary if 
determined necessary by a State Director.
    (3) Agency-approved intermediaries. To become an Agency-approved 
intermediary, an interested party must apply and demonstrate to the 
Agency's satisfaction that they meet each of the conditions specified 
below. The States' Housing Finance Agencies, however, are exempt from 
the conditions specified in paragraphs (b)(3)(i) through (v). After the 
initial application process, the Agency may require intermediaries to 
periodically demonstrate that they still meet the following criteria.
    (i) Be a section 501(c)(3) nonprofit organization or public agency 
in good standing in the State(s) of its operation with the capacity to 
serve multiple qualified employers and their Agency-certified loan 
application packagers throughout an entire State or preferably 
throughout entire States and with the capacity to perform quality 
assurance reviews on a large volume of packaged loan applications within 
an acceptable period of time as determined by the Agency;
    (ii) Be engaged in affordable housing in accordance with their 
regulations, articles of incorporation, or bylaws;
    (iii) Be financially viable and demonstrate positive operating 
performance as evidenced by an independent audit paid for by the 
applicant seeking to be an intermediary;
    (iv) Have at least five years of verifiable experience with the 
Agency's direct single family housing loan programs;
    (v) Demonstrate that their quality assurance staff has experience 
with packaging, originating, or underwriting affordable housing loans.

[[Page 396]]

    (vi) Develop and implement quality control procedures designed to 
prevent submission of incomplete or ineligible application packages to 
the Agency;
    (vii) Ensure that their quality assurance staff complete an Agency-
approved loan application packaging course and successfully pass the 
corresponding test;
    (viii) Not be the developer, builder, seller of, or have any other 
such financial interest in the property for which the application 
package is submitted; and
    (ix) Provide supplemental training, technical assistance, and 
support to certified loan application packagers and qualified employers 
to promote quality standards and accountability; and to address areas 
for improvement and any changes in program guidance.
    (c) Loan application packaging courses. Prospective loan application 
packagers must successfully complete an Agency-approved course that 
covers the material identified in paragraph (c)(1) of this section. 
Prospective intermediaries must also successfully complete an Agency-
approved course as specified in paragraph (c)(2) of this section.
    (1) Loan application packagers. At a minimum, the certification 
course for individuals who wish to become Agency-certified loan 
application packagers will provide:
    (i) An in-depth review of the section 502 direct single family 
housing loan program and the regulations and laws that govern the 
program (including civil rights lending laws such as the Equal Credit 
Opportunity Act, Fair Housing Act, and Section 504 of the Rehabilitation 
Act of 1973);
    (ii) A detailed discussion on the program's application process and 
borrower/property eligibility requirements;
    (iii) An examination of the Agency's loan underwriting process which 
includes the use of payment subsidies; and
    (iv) The roles and responsibilities of a loan application packager 
and the Agency staff.
    (2) Intermediaries. The required course for an intermediary's 
quality assurance staff will cover the components described in paragraph 
(c)(1) of this section and other information relevant to undertaking 
quality assurance, technical assistance, and training functions in 
support of the qualified employers and their Agency-certified loan 
application packagers.
    (3) Non-Agency trainers. Prior to offering the required course to 
packagers and intermediaries, non-Agency trainers must obtain approval 
from designated Agency staff. Non-Agency trainers, who will generally be 
limited to housing nonprofit organizations but may in rare cases include 
public bodies such as public universities, must provide proof of 
relevant experience and resources for delivery; present evidence that 
their individual trainers are competent and knowledgeable on all subject 
areas; submit course materials for Agency review; agree to maintain 
attendance records, test results, and updated course materials; and bear 
the cost of providing the training though a reasonable tuition fee may 
be charged the course participants. The course content, schedule, and 
tuition must be approved by RHS and a designated Agency staff member 
will typically participate in each training session to ensure accuracy 
of the program information and to serve as a program resource. A list of 
eligible non-Agency trainers, which is subject to change based on non-
Agency trainers' performance, will be published by the Agency.
    (d) Confidentiality. The Agency-certified loan application packager, 
qualified employer, Agency-approved intermediary and their agents must 
safeguard each applicant's personal and financial information.
    (e) Retaining designation. The Agency will meet with the Agency-
certified loan application packager, their qualified employer, and 
Agency-approved intermediary (if applicable) at least annually to 
maintain open lines of communication; discuss their packaging 
activities; identify and resolve deficiencies in the packaging process; 
and stipulate any training requirements for retaining designation 
(including but not limited to civil rights refresher training).
    (f) Revocation. The designation as an Agency-certified loan 
application packager or Agency-approved intermediary

[[Page 397]]

is subject to revocation by the Agency under any of the following 
conditions:
    (1) The rate of submitted packaged loan applications that receive 
RHS approval is below the acceptable limit as determined by the Agency;
    (2) The rate of submitted packaged loan applications from very low-
income applicants is below the acceptable level as determined by the 
Agency;
    (3) Violation of applicable regulations, statutes and other 
guidance; or
    (4) No viable packaged loan applications are submitted to the Agency 
in any consecutive 12-month period.

[80 FR 23678, Apr. 29, 2015]



Sec. Sec. 3550.75-3550.99  [Reserved]



Sec. 3550.100  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0172. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. You are not required to respond 
to this collection of information unless it displays a currently valid 
OMB control number.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002]



   Subpart C_Section 504 Origination and Section 306C Water and Waste 
                             Disposal Grants



Sec. 3550.101  Program objectives.

    This subpart sets forth policies for administering loans and grants 
under section 504(a) of title V of the Housing Act of 1949, as amended. 
Section 504 loans and grants are intended to help very low-income owner-
occupants in rural areas repair their properties. This subpart also 
covers Water and Waste Disposal (WWD) Grants to individuals authorized 
by Section 306C(b) of the Consolidated Farm and Rural Development Act, 
(7 U.S.C. 1926c).

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002]



Sec. 3550.102  Grant and loan purposes.

    (a) Grant funds. Grant funds may be used only to pay costs for 
repairs and improvements that will remove identified health and safety 
hazards or to repair or remodel dwellings to make them accessible and 
useable for household members with disabilities. Unused grant funds must 
be returned to the Rural Housing Service (RHS).
    (b) Loan funds. Loan funds may be used to make general repairs and 
improvements to properties or to remove health and safety hazards, as 
long as the dwelling remains modest in size and design.
    (c) Eligibility of mobile and manufactured homes. Repairs necessary 
to remove health and safety hazards may be made to mobile or 
manufactured homes provided:
    (1) The applicant owns the home and site and has occupied the home 
prior to filing an application with RHS; and
    (2) The mobile or manufactured home is on a permanent foundation or 
will be put on a permanent foundation with section 504 funds.
    (d) Eligible costs. In addition to construction costs to make 
necessary repairs and improvements, loan and grant funds may be used 
for:
    (1) Reasonable expenses related to obtaining the loan or grant, 
including legal, architectural and engineering, title clearance, and 
loan closing fees; and appraisal, surveying, environmental, tax 
monitoring, and other technical services.
    (2) The cost of providing special design features or equipment when 
necessary because of a physical disability of the applicant or a member 
of the household.
    (3) Reasonable connection fees, assessments, or the pro rata 
installation costs for utilities such as water, sewer, electricity, and 
gas for which the borrower is liable and which are not paid from other 
funds.
    (4) Real estate taxes that are due and payable on the property at 
the time of closing and for the establishment of escrow accounts for 
real estate taxes,

[[Page 398]]

hazard and flood insurance premiums, and related costs.
    (5) Fees to public and private nonprofit organizations that are tax 
exempt under the Internal Revenue Code for the development and packaging 
of applications.
    (e) Restrictions on uses of loan or grant funds. Section 504 funds 
may not be used to:
    (1) Assist in the construction of a new dwelling.
    (2) Make repairs to a dwelling in such poor condition that when the 
repairs are completed, the dwelling will continue to have major hazards.
    (3) Move a mobile home or manufactured home from one site to 
another.
    (4) Pay for off-site improvements except for the necessary 
installation and assessment costs for utilities.
    (5) Refinance any debt or obligation of the applicant incurred 
before the date of application except for the installation and 
assessment costs of utilities; or subject to the availability of funds 
and program priorities as determined by RHS, refinance of an existing 
RHS loan in accordance with Sec. 3550.201 as a special servicing 
option, including but not limited to refinancing at the end of a 
moratorium.
    (6) Pay fees, commission, or charges to for-profit entities related 
to loan packaging or referral of prospective applicants to RHS.

[61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6772, Feb. 7, 2022]



Sec. 3550.103  Eligibility requirements.

    To be eligible, applicants must meet the following requirements:
    (a) Owner-occupant. Applicants must own, as described in Sec. 
3550.107, and occupy the dwelling.
    (b) Age (grant only). To be eligible for grant assistance, an 
applicant must be 62 years of age or older at the time of application.
    (c) Income eligibility. At the time of loan or grant approval, the 
household's adjusted income must not exceed the applicable very low-
income limit. Section 3550.54 provides a detailed discussion of the 
calculation of adjusted income.
    (d) Citizenship status. The applicant must be a U.S. citizen or a 
non-citizen who qualifies as a legal alien, as defined in Sec. 3550.10.
    (e) Need and use of personal resources. Applicants must be unable to 
obtain financial assistance at reasonable terms and conditions from non-
RHS credit or grant sources and lack the personal resources to meet 
their needs. Elderly families must use any net family assets in excess 
of $20,000 to reduce their section 504 request. Non-elderly families 
must use any net family assets in excess of $15,000 to reduce their 
section 504 request. Applicants may contribute assets in excess of the 
aforementioned amounts to further reduce their request for assistance. 
The definition of assets for the purpose of this paragraph (e) is net 
family assets as described in Sec. 3550.54, less the value of the 
dwelling and a minimum adequate site.
    (f) Legal capacity. The applicant must have the legal capacity to 
incur the loan obligation or have a court appointed guardian or 
conservator who is empowered to obligate the applicant in real estate 
matters.
    (g) Suspension or debarment. Applications from applicants who have 
been suspended or debarred from participation in federal programs will 
be handled in accordance with RD Instruction 1940-M (available in any 
Rural Development office).
    (h) Repayment ability (loans only). Applicants must demonstrate 
adequate repayment ability as supported by a budget.
    (1) If an applicant does not meet the repayment ability 
requirements, the applicant can have another party join the application 
as a cosigner.
    (2) If an applicant does not meet the repayment ability 
requirements, the applicant can have other household members join the 
application.
    (i) Credit qualifications. Applicants must be unable to secure the 
necessary credit from other sources under terms and conditions that the 
applicant could reasonably be expected to fulfill. Loan applicants must 
have a credit history that indicates reasonable ability and willingness 
to meet debt obligations. An applicant with an outstanding judgment 
obtained by the United States in a federal court, other than the United 
States Tax Court, is not eligible for a loan or grant from RHS.

[[Page 399]]

    (1) Indicators of unacceptable credit include:
    (i) Payments on any account where the amount of the delinquency 
exceeded one installment for more than 30 days within the last 12 
months.
    (ii) Payments on any account which was delinquent for more than 30 
days on two or more occasions within a 12-month period.
    (iii) Loss of security due to a foreclosure if the foreclosure has 
been completed within the last 36 months.
    (iv) An outstanding Internal Revenue Service tax lien or any other 
outstanding tax liens with no satisfactory arrangement for payment.
    (v) A court-created or court-affirmed obligation or judgment caused 
by nonpayment that is currently outstanding or has been outstanding 
within the last 12 months, except for those excluded by paragraphs 
(i)(2)(i) and (i)(2)(ii) of this section.
    (vi) Outstanding collection accounts with a record of irregular 
payment with no satisfactory arrangements for repayment, or collection 
accounts that were paid in full within the last 6 months.
    (vii) Non-agency debts written off within the last 36 months or paid 
in full at least 12 months ago.
    (viii) Agency debts that were debt settled within the last 36 months 
or are being considered for debt settlement.
    (ix) Delinquency on a federal debt.
    (2) The following will not be considered indicators of unacceptable 
credit:
    (i) A bankruptcy in which debts were discharged more than 36 months 
prior to the date of application or where an applicant successfully 
completed a bankruptcy debt restructuring plan and has demonstrated a 
willingness to meet obligations when due for the 12 months prior to the 
date of application.
    (ii) A non-foreclosure judgment satisfied more than 12 months before 
the date of application.
    (3) When an application is rejected because of unacceptable credit, 
the applicant will be informed of the reason and source of information.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002; 
73 FR 49593, Aug. 22, 2008; 80 FR 9911, Feb. 24, 2015; 87 FR 6772, Feb. 
7, 2022]



Sec. 3550.104  Applications.

    (a) Application submissions. All persons applying for section 504 
loans or grants must file a complete written application in a format 
specified by RHS. Applications will be accepted even when funds are not 
available.
    (b) Application processing. (1) Incomplete applications will be 
returned to the applicant specifying in writing the additional 
information that is needed to make the application complete.
    (2) An applicant may voluntarily withdraw an application at any 
time.
    (3) RHS may periodically request in writing that applicants 
reconfirm their interest in obtaining a loan or grant. RHS may withdraw 
the application of any applicant who does not respond within the 
specified timeframe.
    (4) Applicants who are eligible will be notified in writing. If 
additional information becomes available that indicates that the 
original eligibility determination may have been in error or that 
circumstances have changed, RHS may reconsider the application and the 
applicant may be required to submit additional information.
    (5) Applicants who are ineligible will be notified in writing and 
provided with the specific reasons for the rejection.
    (c) Processing priorities. When funding is not sufficient to serve 
all eligible applicants, applications for assistance to remove health 
and safety hazards will receive priority for funding. In the case of 
applications with equivalent priority status that are received on the 
same day, preference will be extended to applicants qualifying for a 
veterans' preference. After selection for processing, requests for 
assistance are funded on a first-come, first-served basis.

[61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6772, Feb. 7, 2022]



Sec. 3550.105  Site requirements.

    (a) Rural areas. Loans may be made only in rural areas designated by 
RHS. If an area designation is changed to nonrural an existing RHS 
borrower may receive 504 assistance.
    (b) Not subdividable. The site must not be large enough to subdivide 
into more than one site under existing local zoning ordinances.

[[Page 400]]



Sec. 3550.106  Dwelling requirements.

    (a) Modest dwelling. The property must be one that is considered 
modest for the area, must not be designed for income producing purposes, 
or have a market value in excess of the applicable maximum area loan 
limit, in accordance with Sec. 3550.63.
    (b) Post-repair condition. Dwellings repaired with section 504 funds 
need not be brought to the agency development standards of 7 CFR part 
1924, subpart A, nor must all existing hazards be removed. However, the 
dwelling may not continue to have major health or safety hazards.
    (c) Construction standards. All work must be completed in accordance 
with local construction codes and standards. When potentially hazardous 
equipment or materials are being installed, all materials and 
installations must be in accordance with the applicable standards in 7 
CFR part 1924, subpart A.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002; 
72 FR 70222, Dec. 11, 2007; 87 FR 6772, Feb. 7, 2022]



Sec. 3550.107  Ownership requirements.

    The applicant must have an acceptable ownership interest in the 
property as evidenced by one of the following:
    (a) Full fee ownership. Acceptable full fee ownership is evidenced 
by a fully marketable title with a deed vesting a fee interest in the 
property to the applicant.
    (b) Secure leasehold interest. A written lease is required. For 
loans, the unexpired portion of the lease must not be less than 2 years 
beyond the term of the promissory note. For grants, the remaining lease 
period must be at least 5 years. A leasehold for mutual help housing 
financed by U.S. Department of Housing and Urban Development (HUD) on 
Indian lands requires no minimum lease period and constitutes acceptable 
ownership.
    (c) Life estate interest. To be acceptable, a life estate interest 
must provide the applicant with rights of present possession, control, 
and beneficial use of the property. For secured loans, generally persons 
with any remainder interests must be signatories to the mortgage. All of 
the remainder interests need not be included in the mortgage to the 
extent that one or more of the persons holding remainder interests are 
not legally competent (and there is no representative who can legally 
consent to the mortgage), cannot be located, or if the remainder 
interests are divided among such a large number of people that it is not 
practical to obtain the signatures of all of the remainder interests. In 
such cases, the loan may not exceed the value of the property interests 
owned by the persons executing the mortgage.
    (d) Undivided interest. An undivided interest is acceptable if there 
is no reason to believe that the applicant's position as an owner-
occupant will be jeopardized as a result of the improvements to be made, 
and:
    (1) In the case of unsecured loans or grants, if any co-owners 
living or planning to live in the dwelling sign the repayment agreement.
    (2) In the case of a secured loan, when one or more of the co-owners 
are not legally competent (and there is no representative who can 
legally consent to the mortgage), cannot be located, or the ownership 
interests are divided among so large a number of co-owners that it is 
not practical for all of their interests to be mortgaged, their 
interests not exceeding 50 percent may be excluded from the security 
requirements. In such cases, the loan may not exceed the value of the 
property interests owned by the persons executing the mortgage.
    (e) Possessory rights. Acceptable forms of ownership include 
possessory right on an American Indian reservation or State-owned land 
and the interest of an American Indian in land held severalty under 
trust patents or deeds containing restrictions against alienation, 
provided that land in trust or restricted status will remain in trust or 
restricted status.
    (f) Land purchase contract. A land purchase contract is acceptable 
if the applicant is current on all payments, and there is a reasonable 
likelihood that the applicant will be able to continue meeting the 
financial obligations of the contract.
    (g) Alternative evidence of ownership. If evidence, as described in 
paragraphs (a)

[[Page 401]]

through (e) of this section, is not available, RHS may accept any of the 
following as evidence of ownership:
    (1) Records of the local taxing authority that show the applicant as 
owner and that demonstrate that real estate taxes for the property are 
paid by the applicant.
    (2) Affidavits by others in the community stating that the applicant 
has occupied the property as the apparent owner for a period of not less 
than 10 years, and is generally believed to be the owner.
    (3) Any instrument, whether or not recorded, which is commonly 
accepted as evidence of ownership.



Sec. 3550.108  Security requirements (loans only).

    When the total section 504 indebtedness is $7,500 or more, the 
property will be secured by a mortgage on the property, leasehold 
interest, or land purchase contract.
    (a) RHS does not require a first lien position, but the total of all 
debts on the secured property may not exceed the value of the security, 
except by the amount of any required contributions to an escrow account 
for taxes and insurance and any required appraisal fee.
    (b) Title clearance and the use of legal services generally must be 
conducted in accordance with 7 CFR part 1927, subpart B. These 
requirements need not be followed for:
    (1) Loans where the total section 504 indebtedness does not exceed 
an amount determined by the Agency based on factors such as average 
costs for title insurance and closing agents compared to average housing 
repair costs, but no greater than twenty percent of the national average 
area loan limit.
    (2) Subsequent loans made for minimal essential repairs necessary to 
protect the Government's interest.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002; 
87 FR 6772, Feb. 7, 2022]



Sec. 3550.109  Escrow account (loans only).

    RHS may require that borrowers deposit into an escrow account 
amounts necessary to ensure that the account will contain sufficient 
funds to pay real estate taxes, hazard and flood insurance premiums, and 
other related costs when they are due in accordance with the Real Estate 
Settlement and Procedures Act of 1974 (RESPA) and section 501(e) of the 
Housing Act of 1949, as amended.



Sec. 3550.110  Insurance (loans only).

    (a) Borrower responsibility. Any borrower with a secured 
indebtedness in excess of $15,000 at the time of loan approval must 
furnish and continually maintain hazard insurance on the security 
property, with companies, in amounts, and on terms and conditions 
acceptable to RHS including a ``loss payable clause'' payable to RHS to 
protect the Government's interest.
    (b) Amount. The borrower is required to insure the dwelling and any 
other essential buildings in an amount equal to the insurable value of 
the dwelling and other essential buildings. However, in cases where the 
borrower's outstanding secured indebtedness is less than the insurable 
value of the dwelling and other essential buildings, the borrower may 
elect a lower coverage provided it is not less than the outstanding 
secured indebtedness. If the borrower fails, or is unable to insure the 
secured property, RHS will force place insurance and charge the cost to 
the borrower's account. Force place insurance only provides insurance 
coverage to the Agency and does not provide any direct coverage or 
benefit to the borrower. The amount of the lender-placed coverage 
generally will be the property's last known insured value.
    (c) Flood insurance. Flood insurance must be obtained and maintained 
for the life of the loan for all property located in Special Flood 
Hazard Areas (SFHA) as determined by the Federal Emergency Management 
Agency (FEMA). RHS actions will be consistent with 7 CFR part 1806, 
subpart B which addresses flood insurance requirements. If flood 
insurance through FEMA's National Flood Insurance Program is not 
available in a SFHA, the property is not eligible for federal financial 
assistance.
    (d) Losses. (1) Loss deductible clauses for required insurance 
coverage may not exceed the generally accepted

[[Page 402]]

minimums based on current and local market conditions.
    (2) Borrowers must immediately notify RHS of any loss or damage to 
insured property and collect the amount of the loss from the insurance 
company.
    (3) RHS may require that loss payments be supervised. All repairs 
and replacements done by or under the direction of the borrower, or by 
contract, will be planned, performed, inspected, and paid for in 
accordance with 7 CFR part 1924, subpart A.
    (4) When insurance funds remain after all repairs, replacements, and 
other authorized disbursements have been made, the funds will be applied 
in the following order:
    (i) Prior liens, including delinquent property taxes.
    (ii) Delinquency on the account.
    (iii) Advances due for recoverable cost items.
    (iv) Released to the borrower if the RHS debt is adequately secured.
    (5) If a loss occurs when insurance is not in force, the borrower is 
responsible for making the needed repairs or replacements and ensuring 
that the insurance is reinstated on the property.
    (6) If the borrower is not financially able to make the repairs, RHS 
may take one of the following actions:
    (i) Make a subsequent loan for repairs.
    (ii) Subordinate the RHS lien to permit the borrower to obtain funds 
for needed repairs from another source.
    (iii) Permit the borrower to obtain funds secured by a junior lien 
from another source.
    (iv) Make a protective advance to protect the Government's interest.
    (v) Accelerate the account and demand payment in full.

[61 FR 59779, Nov. 22, 1996, as amended at 70 FR 6552, Feb. 8, 2005; 73 
FR 49593, Aug. 22, 2008]



Sec. 3550.111  Appraisals (loans only).

    An appraisal is required when the section 504 debt to be secured 
exceeds $15,000 or whenever RHS determines that it is necessary to 
establish the adequacy of the security. RHS may charge an appraisal fee. 
Appraisals must be made in accordance with the Uniform Standards of 
Professional Appraisal Practices. When other real estate is taken as 
additional security it will be appraised if it represents a substantial 
portion of the security for the loan.



Sec. 3550.112  Maximum loan and grant.

    (a) Maximum loan permitted. The sum of all outstanding section 504 
loans to one household for one dwelling may not exceed an amount 
determined by the Agency based on factors such as average loan amounts 
and repair costs, but no greater than twenty percent of the national 
average area loan limit.
    (1) Transferees who have assumed a section 504 loan and wish to 
obtain a subsequent section 504 loan are limited to the difference 
between the unpaid principal balance of the debt assumed and the maximum 
loan permitted.
    (2) For a secured loan, the total of all debts on the secured 
property may not exceed the value of the security, except by the amount 
of any required appraisal and tax monitoring fees, and the contributions 
to an escrow account for taxes and insurance.
    (b) Maximum loan based upon ability to pay. The maximum loan is 
limited to the principal balance that can be supported given the amount 
the applicant has available, as determined by RHS, to repay a loan at 1 
percent interest with a 20-year term.
    (c) Maximum grant. The lifetime total of the grant assistance to any 
one household or one dwelling may not exceed ten percent of the national 
average area loan limit.

[61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6772, Feb. 7, 2022]



Sec. 3550.113  Rates and terms (loans only).

    (a) Interest rate. The interest rate for all section 504 loans will 
be 1 percent.
    (b) Loan term. The repayment period for all section 504 loans will 
be 20 years.

[61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6773, Feb. 7, 2022]



Sec. 3550.114  Repayment agreement (grants only).

    Grant recipients are required to sign a repayment agreement which 
specifies that the full amount of the grant must

[[Page 403]]

be repaid if the property is sold in less than 3 years from the date the 
grant agreement was signed.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002]



Sec. 3550.115  WWD grant program objectives.

    The objective of the WWD individual grant program is to facilitate 
the use of community water and waste disposal systems by the residents 
of colonias along the border between the U.S. and Mexico. WWD grants are 
processed the same as Section 504 grants, except as specified in this 
subpart.

[67 FR 78331, Dec. 24, 2002]



Sec. 3550.116  Definitions applicable to WWD grants only.

    (a) Colonia. Any identifiable community designated in writing by the 
State or county in which it is located; determined to be a colonia on 
the basis of objective criteria including lack of a potable water 
supply, lack of adequate sewage systems, and lack of decent, safe, and 
sanitary housing, inadequate roads, and drainage; and existed and was 
generally recognized as a colonia before October 1, 1989.
    (b) Individual. Resident of a colonia located in a rural area.
    (c) Rural areas. Includes unincorporated areas and any city or town 
with a population not in excess of 10,000 inhabitants. The population 
figure is obtained from the most recent decennial Census of the United 
States (decennial Census). If the applicable population figure cannot be 
obtained from the most recent decennial Census, RD will determine the 
applicable population figure based on available population data.
    (d) System. A community or central water supply or waste disposal 
system.
    (e) WWD. Water and Waste Disposal grants to individuals.

[67 FR 78331, Dec. 24, 2002, as amended at 80 FR 9911, Feb. 24, 2015]



Sec. 3550.117  WWD grant purposes.

    Grant funds may be used to pay the reasonable costs for individuals 
to:
    (a) Extend service lines from the system to their residence.
    (b) Connect service lines to residence's plumbing.
    (c) Pay reasonable charges or fees for connecting to a system.
    (d) Pay for necessary installation of plumbing and related fixtures 
within dwellings lacking such facilities. This is limited to one 
bathtub, sink, commode, kitchen sink, water heater, and outside spigot.
    (e) Construction and/or partitioning off a portion of the dwelling 
for a bathroom, not to exceed 4.6 square meters (48 square feet) in 
size.
    (f) Pay reasonable costs for closing abandoned septic tanks and 
water wells when necessary to protect the health and safety of 
recipients of a grant for a purpose provided in paragraph (a) or (b) of 
this section and is required by local or State law.
    (g) Make improvements to individual's residence when needed to allow 
the use of the water and/or waste disposal system.

[67 FR 78331, Dec. 24, 2002]



Sec. 3550.118  Grant restrictions.

    (a) Maximum grant. Lifetime assistance to any individual for initial 
or subsequent Section 306C WWD grants may not exceed a cumulative total 
of $5,000.
    (b) Limitation on use of grant funds. WWD grant funds may not be 
used to:
    (1) Pay any debt or obligation of the grantees other than 
obligations incurred for purposes listed in Sec. 3550.117.
    (2) Pay individuals for their own labor.

[67 FR 78331, Dec. 24, 2002]



Sec. 3550.119  WWD eligibility requirements.

    In addition to the eligibility requirements of Sec. 3550.103, WWD 
applicants must meet the following requirements:
    (a) An applicant need not be 62 years of age or older.
    (b) Own and occupy a dwelling located in a colonia. Evidence of 
ownership will be presented as outlined in Sec. 3550.107.
    (c) Have a total taxable income from all individuals residing in the 
household that is below the most recent poverty income guidelines 
established by

[[Page 404]]

the Department of Health and Human Services.
    (d) Must not be delinquent on any Federal debt.
    (e) The household income must be verified at the time they apply for 
assistance through verification of employment and benefits. Federal tax 
returns are used as further verification of household income.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002]



Sec. Sec. 3550.120-3550.149  [Reserved]



Sec. 3550.150  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0172. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. You are not required to respond 
to this collection of information unless it displays a currently valid 
OMB control number.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002; 
80 FR 81738, Dec. 31, 2015]



                       Subpart D_Regular Servicing



Sec. 3550.151  Servicing goals.

    This subpart sets forth the Rural Housing Service (RHS) policies for 
managing the repayment of loans made under sections 502 and 504 of the 
Housing Act of 1949, as amended.



Sec. 3550.152  Loan payments.

    (a) Payment terms. Unless the loan documents specify other loan 
repayment terms, borrowers are required to make monthly payments. 
Borrowers with existing loans specifying annual payments may request 
conversion to monthly payments, and must convert to a monthly payment 
schedule before any subsequent loan or new payment assistance is 
approved. Suitable forms of payment are: check, money order, or bank 
draft. Borrowers who make cash payments will be assessed a fee to cover 
the cost of conversion to a money order.
    (b) Application of payments. If a borrower makes less than the 
scheduled payment, the payment is held in suspense and is not applied to 
the borrower's account. When subsequent payments are received in an 
amount sufficient to equal a scheduled payment, the amount will be 
applied in the following order:
    (1) Protective advances charged to the account.
    (2) Accrued interest due.
    (3) Principal due.
    (4) Escrow for taxes and insurance.
    (c) Multiple loans. When a borrower with multiple loans for the same 
property makes less than the scheduled payment on all loans, the payment 
will be applied to the oldest loan and then in declining order of age. 
Future remittances will be applied beginning with the oldest unpaid 
installment.
    (d) Application of excess payments. Borrowers can elect to make 
payments in excess of the scheduled amount to be applied to principal, 
provided there are no outstanding fees.



Sec. 3550.153  Fees.

    RHS may assess reasonable fees including a tax service fee, fees for 
late payments, and fees for checks returned for insufficient funds.



Sec. 3550.154  Inspections.

    RHS or its agent may make reasonable entries upon and inspections of 
any property used as security for an RHS loan as necessary to protect 
the interest of the Government. RHS will give the borrower notice at the 
time of or prior to an inspection.



Sec. 3550.155  Escrow account.

    Escrow accounts will be administered in accordance with RESPA and 
section 501(e) of the Housing Act of 1949, as amended.
    (a) Upon creation of the escrow account, RHS may require borrowers 
to deposit funds sufficient to pay taxes and insurance premiums 
applicable to the mortgage for the period since the

[[Page 405]]

last payments were made and to fund a cushion as permitted by RESPA.
    (b) Borrowers may elect to escrow at any time during the terms of 
the loan if the outstanding RHS loan balance is over $2,500.
    (c) RHS may require borrowers to escrow in conjunction with any 
special servicing action.



Sec. 3550.156  Borrower obligations.

    (a) After receiving a loan from RHS, borrowers are expected to meet 
a variety of obligations outlined in the loan documents. In addition to 
making timely payments, these obligations include:
    (1) Maintaining the security property; and
    (2) Maintaining an adequately funded escrow account, or paying real 
estate taxes, hazard and flood insurance, and other related costs when 
due.
    (b) If a borrower fails to fulfill these obligations, RHS may obtain 
the needed service and charge the cost to the borrowers account.



Sec. 3550.157  Payment subsidy.

    (a) Borrowers currently receiving payment subsidy. (1) RHS will 
review annually each borrower's eligibility for continued payment 
subsidy and determine the appropriate level of assistance. To be 
eligible for payment subsidy renewal, the borrower must also occupy the 
property.
    (2) If the renewal is not completed before the expiration date of 
the existing agreement, the effective date of the renewal will be either 
the expiration date of the previous agreement if RHS error caused the 
delay, or the next due date after the renewal is approved in all other 
cases.
    (3) The borrower must notify RHS whenever an adult member of the 
household becomes employed or changes employment, there is a change in 
household composition, or if income increases by at least 10 percent. 
The household may also report decreases in income. If the change in the 
household's income will cause the payment for principal and interest to 
change by at least 10 percent, the household's payment subsidy may be 
adjusted for a new 12-month period. The new agreement will be effective 
the due date following the date the borrower's information is verified 
by RHS.
    (b) Borrowers not currently receiving payment subsidy. Payment 
assistance may be granted to borrowers not currently receiving payment 
subsidy whose loans were approved on or after August 1, 1968, whose 
income does not exceed the applicable low-income limit for the area, are 
personally occupying the RHS financed property, and who meet the 
requirements of Sec. 3550.53(b), (e), and (f). In general, to receive 
payment assistance the term of the loan at closing must have been at 
least 25 years. If an account has been reamortized and the initial term 
of the loan was at least 25 years, payment assistance may be granted 
even though the term of the reamortized loan is less than 25 years. 
Payment assistance may be granted on a subsequent loan for repairs with 
a term of less than 25 years.
    (c) Cancellation of payment subsidy. RHS will cancel a payment 
subsidy if the borrower does not occupy the property, has sold or 
transferred title to the property, or is no longer eligible for payment 
subsidy.



Sec. 3550.158  Active military duty.

    The Soldiers and Sailors Relief Act requires that the interest rate 
charged a borrower who enters full-time active military duty after a 
loan is closed not exceed six percent. Active military duty does not 
include participation in a military reserve or the National Guard unless 
the borrower is called to active duty.
    (a) Amount of assistance. If a borrower qualifies for payment 
subsidy after reduction of the interest rate to six percent, the amount 
of payment subsidy received during the period of active military duty 
will be the difference between the amount due at the subsidized rate for 
principal and interest and the amount due at a six percent interest 
rate. The six percent interest rate will be effective with the first 
payment due after RHS confirms the active military status of the 
borrower.
    (b) Change of active military status. The borrower must notify RHS 
when he or she is no longer on active military duty. RHS will cancel the 
six percent interest rate and resume use of the promissory note interest 
rate. A new

[[Page 406]]

payment subsidy agreement may be processed if the borrower is eligible.



Sec. 3550.159  Borrower actions requiring RHS approval.

    (a) Mineral leases. Borrowers who wish to lease mineral rights to a 
security property must request authorization from RHS. RHS may consent 
to the lease of mineral rights and subordinate its liens to the lessee's 
rights and interests in the mineral activity if the security property 
will remain suitable as a residence and the Government's security 
interest will not be adversely affected. Subordination of RHS loans to a 
mineral lease does not entitle the leaseholder to any proceeds from the 
sale of the security property.
    (1) If the proposed activity is likely to decrease the value of the 
security property, RHS may consent to the lease only if the borrower 
assigns 100 percent of the income from the lease to RHS to be applied to 
reduce principal and the rent to be paid is at least equal to the 
estimated decrease in the market value of the security.
    (2) If the proposed activity is not likely to decrease the value of 
the security property, RHS may consent to the lease if the borrower 
agrees to use any damage compensation received from the lessee to repair 
damage to the site or dwelling, or to assign it to RHS to be applied to 
reduce principal.
    (b) Subordination. RHS may subordinate its interests to permit a 
borrower to defer recapture amounts and refinance the loan, or to obtain 
a subsequent loan with private credit.
    (1) When it is in the best interest of the Government, subordination 
will be permitted if:
    (i) The other lender will verify that the funds will be used for 
purposes for which an RHS loan could be made;
    (ii) The prior lien debt will be on terms and conditions that the 
borrower can reasonably be expected to meet without jeopardizing 
repayment of the RHS indebtedness;
    (iii) Any proposed development will be planned and performed in 
accordance with 7 CFR part 1924, subpart A or directed by the other 
lender in a manner which is consistent with that subpart; and
    (iv) An agreement is obtained in writing from the prior lienholder 
providing that at least 30 days prior written notice will be given to 
RHS before action to foreclose on the prior lien is initiated.
    (2) The total amount of debt permitted when RHS subordinates its 
interests depends on whether the borrower pays off the RHS loan.
    (i) For situations in which the borrower is obtaining a subsequent 
loan from another source and will not pay off the RHS debt, the prior 
lien debt plus the unpaid balance of all RHS loans, exclusive of 
recapture, will not exceed the market value of the security.
    (ii) For situations in which RHS is subordinating only a deferred 
recapture amount, the prior lien debt plus the deferred recapture amount 
will not exceed the market value of the security.
    (c) Partial release of security. RHS may consent to transactions 
affecting the security, such as sale or exchange of security property or 
granting of a right-of-way across the security property, and grant a 
partial release provided:
    (1) The compensation is:
    (i) For sale of the security property, cash in an amount equal to 
the value of the security being disposed of or rights granted.
    (ii) For exchange of security property, another parcel of property 
acquired in exchange with value equal to or greater than that being 
disposed of.
    (iii) For granting an easement or right-of-way, benefits derived 
that are equal to or greater than the value of the security property 
being disposed of.
    (2) An appraisal must be conducted if the latest appraisal is more 
than 1 year old or if it does not reflect market value and the amount of 
consideration exceeds $5,000. The appraisal fee will be charged to the 
borrower.
    (3) The security property, after the transaction is completed, will 
be an adequate but modest, decent, safe, and sanitary dwelling and 
related facilities.
    (4) Repayment of the RHS debt will not be jeopardized.
    (5) Environmental requirements are met and environmental 
documentation

[[Page 407]]

is submitted in accordance with 7 CFR part 1970.
    (6) When exchange of all or part of the security is involved, title 
clearance is obtained before release of the existing security.
    (7) Proceeds from the sale of a portion of the security property, 
granting an easement or right-of-way, damage compensation, and all 
similar transactions requiring RHS consent, will be used in the 
following order:
    (i) To pay customary and reasonable costs related to the transaction 
that must be paid by the borrower.
    (ii) To be applied on a prior lien debt, if any.
    (iii) To be applied to RHS indebtedness or used for improvements to 
the security property in keeping with purposes and limitations 
applicable for use of RHS loan funds. Proposed development will be 
planned and performed in accordance with 7 CFR part 1924, subpart A and 
supervised to ensure that the proceeds are used as planned.
    (d) Lease of security property. A borrower must notify RHS if they 
lease the property. If the lease is for a term of more than 3 years or 
contains an option to purchase, RHS may liquidate the loan. During the 
period of any lease, the borrower is not eligible for a payment subsidy 
or special servicing benefits.

[61 FR 59779, Nov. 22, 1996, as amended at 81 FR 11048, Mar. 2, 2016]



Sec. 3550.160  Refinancing with private credit.

    (a) Objective. RHS direct loan programs are not intended to supplant 
or compete with private credit sources. Therefore, borrowers are 
required to refinance RHS loans with private credit sources when RHS 
determines that the borrower meets RHS criteria.
    (b) Criteria for refinancing with private credit. Borrowers must 
refinance with private credit when RHS determines that the borrower has 
the ability to obtain other credit at reasonable rates and terms based 
on their income, assets, and credit history. Reasonable rates and terms 
are those commercial rates and terms that borrowers are expected to meet 
when borrowing for similar purposes. Differences in interest rates and 
terms between RHS and other lenders will not be an acceptable reason for 
a borrower to fail to refinance with private credit if the available 
rates and terms are within the borrower's ability to pay.
    (c) Notice of requirement to refinance with private credit. The 
financial status of all borrowers may be reviewed periodically to 
determine their ability to refinance with private credit. A borrower's 
financial status may be reviewed at any time if information becomes 
available to RHS that indicates that the borrower's circumstances have 
changed.
    (1) A borrower undergoing review is required to supply, within 30 
days of a request from RHS, sufficient financial information to enable 
RHS to determine the borrowers ability to refinance with private credit. 
Foreclosure action may be initiated against any borrower who fails to 
respond.
    (2) When RHS determines that a borrower has the ability to refinance 
with private credit, the borrower will be required to refinance within 
90 days.
    (3) Within 30 days after being notified of the requirement to 
refinance with private credit, a borrower may contest the RHS decision 
and provide additional financial information to document an inability to 
refinance with private credit.
    (d) Failure to refinance with private credit. (1) If the borrower is 
unable to secure private credit, the borrower must submit written 
statements and documentation to RHS showing:
    (i) The lenders contacted.
    (ii) The amount of the loan requested by the borrower and the 
amount, if any, offered by the lenders.
    (iii) The rates and terms offered by the lenders or the specific 
reasons why other credit is not available.
    (iv) The information provided by the borrower to the lenders 
regarding the purpose of the loan.
    (2) If RHS determines that the borrower's submission does not 
demonstrate the borrower's inability to refinance with private credit, 
or if the borrower fails to submit the required information, foreclosure 
may be initiated.
    (e) Subordination of recapture amount. RHS may subordinate its 
interest in

[[Page 408]]

any deferred recapture amount to permit a borrower to refinance with 
private credit. The amount to which the RHS debt will be subordinated 
may include:
    (1) The amount required to repay the RHS debt, exclusive of 
recapture;
    (2) Reasonable closing costs;
    (3) Up to one percent of the loan amount for loan servicing costs, 
if required by the lender; and
    (4) The cost of any necessary repairs or improvements to the 
security property.
    (f) Application for additional credit. A borrower who has been asked 
to refinance with private credit will not be considered for additional 
credit until the refinancing issue is resolved unless such additional 
credit is necessary to protect the Government's interest.



Sec. 3550.161  Final payment.

    (a) Payment in full. Full payment of a borrower's account includes 
repayment of principal and outstanding interest, unauthorized 
assistance, recapture amounts, and charges made to the borrower's 
account. Any supervised funds or funds remaining in a borrower's escrow 
account will be applied to the borrower's account or returned to the 
borrower.
    (b) Release of security instruments. RHS may release security 
instruments when full payment of all amounts owed has been received and 
verified. If RHS and the borrower agree to settle the account for less 
than the full amount owed, the security instruments may be released when 
all agreed-upon amounts are received and verified. Security instruments 
will not be released until any deferred recapture amount has been paid 
in full.
    (c) Payoff statements. At the borrower's request, RHS will provide a 
written statement indicating the amount required to pay the account in 
full. RHS may charge a fee for statements for the same account if more 
than 2 statements are requested in any 30 day period.
    (d) Suitable forms of payment. Suitable forms of payment are: check, 
money order, or bank draft. Borrowers who make cash payments will be 
assessed a fee to cover conversion to a money order.
    (e) Recording costs. Recording costs for the release of the mortgage 
will be the responsibility of the borrower, except where State law 
requires the mortgagee to record or file the satisfaction.



Sec. 3550.162  Recapture.

    (a) Recapture policy. Borrowers with loans approved or assumed on or 
after October 1, 1979, will be required to repay subsidy amounts 
received through payment subsidy (including the former interest credit 
program) or deferred mortgage assistance in accordance with paragraph 
(b) of this section. Amounts to be recaptured are due and payable when 
the borrower transfers title or ceases to occupy the property, including 
but not limited to, in the event of foreclosure or deed in lieu of 
foreclosure. Such recapture will include the amount of principal 
reduction attributed to subsidy (for loans subject to recapture that 
were approved, and received interest credit, between October 1, 1979, 
and December 31, 1989), except in cases of foreclosure and deed in lieu 
of foreclosure.
    (b) Amount to be recaptured--(1) General. The amount to be 
recaptured is determined by a calculation specified in the borrower's 
subsidy repayment agreement and is based on the borrower's equity in the 
property at the time of loan pay off. If there is no equity based on the 
recapture calculation, the amount of principal reduction attributed to 
subsidy is not collected. The recapture calculation includes the amount 
of principal reduction attributed to subsidy plus the lesser of:
    (i) The amount of subsidy received; or
    (ii) A portion of the value appreciation of the property subject to 
recapture. In order for the value appreciation to be calculated, the 
borrower will provide a current appraisal, including an appraisal for 
any capital improvements, or arm's length sales contract as evidence of 
market value upon Agency request. Appraisals must meet Agency standards 
under Sec. 3550.62.
    (2) Foreclosure or deed in lieu of foreclosure. Notwithstanding 
paragraph (b)(1) of this section, the amount to be recaptured in a 
foreclosure or deed in lieu of foreclosure is the amount of

[[Page 409]]

subsidy received, not including any principal reduction attributed to 
subsidy. Foreclosure actions will seek to recover such amounts only from 
the proceeds of the property. Liquidation proceeds (in the case of 
foreclosure) or the net recovery value (in the case of deed in lieu of 
foreclosure) will be applied or credited to the borrower's debt in 
accordance with the security agreement in the following order:
    (i) Recoverable costs (e.g. protective advances, foreclosure costs, 
late charges).
    (ii) Accrued interest.
    (iii) Principal.
    (iv) Subsidy.
    (3) Value appreciation. The value appreciation of property with a 
cross-collateralized loan is based on the market value of the dwelling 
and lot. If located on a farm, the lot size would be a typical lot for a 
single family housing property.
    (4) Interest reduced from the promissory note rate to six percent 
under the Servicemembers Civil Relief Act (SCRA) is not subject to 
recapture.
    (c) Deferral of recapture. If the borrower refinances or otherwise 
pays in full without transfer of title and continues to occupy the 
property, the amount of recapture will be calculated in accordance with 
paragraph (a) of this section but payment of recapture may be deferred, 
interest free, until the property is sold or vacated. If the recapture 
amount is deferred, the Agency mortgage can be subordinated when in the 
Government's best interest but will not be released nor the promissory 
note satisfied until the Agency is paid in full. In situations where 
deferral of recapture is an option, recapture will be discounted if paid 
in full at the time of settlement or timely paid after Agency 
notification to the borrower that recapture is due.
    (d) Assumed loans. (1) When a loan subject to recapture is assumed 
under new rates and terms, the recapture amount may be paid in full by 
the seller or included in the principal amount assumed by the buyer.
    (2) When a loan is assumed under the same rates and terms as the 
original promissory note, recapture amounts will not be due. When the 
new borrower transfers title or ceases to occupy the property, all 
subsidy subject to recapture before and after the assumption is due.
    (3) When a borrower has deferred payment of recapture amounts, the 
deferred recapture amount may be included in the principal amount of the 
new loan.

[77 FR 3378, Jan. 24, 2012, as amended at 87 FR 6773, Feb. 7, 2022]



Sec. 3550.163  Transfer of security and assumption of indebtedness.

    (a) General policy. RHS mortgages contain due-on-sale clauses that 
generally require RHS consent before title to a security property can be 
transferred with an assumption of the indebtedness. If it is in the best 
interest of the Government, RHS will approve the transfer of title and 
assumption of indebtedness on program or nonprogram (NP) terms, 
depending on the transferee's eligibility and the property's 
characteristics.
    (b) RHS approval of assumptions. (1) A borrower with a loan on 
program terms who wishes to transfer a security property restricted by a 
due-on-sale clause to a purchaser who wishes to assume the debt must 
receive prior authorization from RHS. If RHS authorizes the transfer and 
assumption, the account will be serviced in the purchaser's name and the 
purchaser will be liable for the loan under the terms of the security 
instrument.
    (2) If a borrower transfers title to the security property with a 
due-on-sale clause without obtaining RHS authorization, RHS will not 
approve assumption of the indebtedness, and the loan will be liquidated 
unless RHS determines that it is in the Government's best interest to 
continue the loan. If RHS decides to continue the loan, the account will 
be serviced in the original borrower's name and the original borrower 
will remain liable for the loan under the terms of the security 
instrument.
    (c) Exceptions to due-on-sale clauses. (1) Due-on-sale clauses are 
not triggered by the following types of transfers:
    (i) A transfer from the borrower to a spouse or children not 
resulting from the death of the borrower.

[[Page 410]]

    (ii) A transfer to a relative, joint tenant, or tenant by the 
entirety resulting from the death of the borrower.
    (iii) A transfer to a spouse or ex-spouse resulting from a divorce 
decree, legal separation agreement, or property settlement agreement.
    (iv) A transfer to a person other than a deceased borrower's spouse 
who wishes to assume the loan for the benefit of persons who were 
dependent on the deceased borrower at the time of death, if the dwelling 
will be occupied by one or more persons who were dependent on the 
borrower at the time of death, and there is a reasonable prospect of 
repayment.
    (v) A transfer into an inter vivos trust in which the borrower does 
not transfer rights of occupancy in the property.
    (2) A transferee who obtains property through one of the types of 
transfer listed in paragraph (c)(1) of this section:
    (i) Is not required to assume the loan, and RHS is not permitted to 
liquidate the loan, if the transferee continues to make scheduled 
payments and meet all other obligations of the loan. A transferee who 
does not assume the loan is not eligible for payment assistance or a 
moratorium.
    (ii) May assume the loan on the rates and terms contained in the 
promissory note, with no down payment. If the account is past due at the 
time an assumption is executed, the account may be brought current by 
using any of the servicing methods discussed in subpart E of this part.
    (iii) May assume the loan under new rates and terms if the 
transferee applies and is program-eligible.
    (3) Any subsequent transfer of title, except upon death of the 
inheritor or between inheritors to consolidate title, will be treated as 
a sale.
    (d) Requirements for an assumption. (1) Loans secured by program-
eligible properties to be assumed by program-eligible purchasers may be 
assumed on program terms. Loans secured by nonprogram properties and 
loans to be assumed by purchasers who are not eligible for program terms 
may be assumed on NP terms.
    (2) The amount the transferee will assume will be either the current 
market value less any prior liens and any required down payment, or the 
indebtedness, whichever is less.
    (3) For loans assumed on program terms, the interest rate charged by 
RHS will be the rate in effect at loan approval or loan closing, 
whichever is lower. For loans assumed on nonprogram terms, the interest 
rate will be the rate in effect at the time of loan approval.
    (4) If additional financing is required to purchase the property or 
to make repairs, RHS may approve a subsequent loan under subparts B or C 
of this part.
    (5) If an appraisal is required for an assumption on new terms, the 
purchaser is responsible for the appraisal fee.
    (6) If all or a portion of the borrower's account balance is 
assumed, the borrower and cosigner, if any, will be released from 
liability on the amount of the indebtedness assumed. If an account 
balance remains after the assumption, RHS may pursue debt settlement in 
accordance with subpart F of this part.
    (7) Unless it is in the Government's best interest, RHS will not 
approve an assumption of a secured loan if the seller fails to repay any 
unsecured RHS loan.
    (8) If a loan is secured by a property with a dwelling situated on 
more than a minimum adequate site and the excess property cannot be sold 
separately as a minimum adequate site for another dwelling, RHS may 
approve a transfer of the entire property. If the excess property can be 
sold separately as a minimum adequate site, RHS will approve assumption 
of only the dwelling and the minimum adequate site. If the value of the 
dwelling on the minimum adequate site is less than the amount of the 
outstanding RHS debt, the remaining debt will be secured by the excess 
property. The outstanding debt will be converted to an NP loan and 
reamortized over a period not to exceed 10 years or the final due date 
of the original promissory note, whichever is sooner.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]

[[Page 411]]



Sec. 3550.164  Unauthorized assistance.

    (a) Definition. Unauthorized assistance includes any loan, payment 
subsidy, deferred mortgage payment, or grant for which the recipient was 
not eligible.
    (b) Unauthorized assistance due to false information. (1) False 
information includes information that the recipient knew was incorrect 
or should have known was incorrect that was provided or omitted for the 
purposes of obtaining assistance for which the recipient was not 
eligible.
    (2) If the recipient receives an unauthorized loan due to false 
information, RHS will adjust the account using the NP interest rate that 
was in effect when the loan was approved. The recipient must pay the 
account in full within 30 days.
    (3) If the recipient receives unauthorized subsidy due to false 
information, RHS will require the recipient to repay it within 30 days. 
The account cannot be reamortized to include the unauthorized subsidy. 
If the recipient repays the unauthorized subsidy, the loan may be 
continued.
    (c) Unauthorized assistance due to inaccurate information. (1) 
Inaccurate information includes incorrect information inadvertently 
provided, used, or omitted without the intent to obtain benefits for 
which the recipient was not eligible.
    (2) RHS will permit a recipient who receives an unauthorized loan 
due to inaccurate information to retain the loan under the following 
conditions.
    (i) If the inaccurate information was related to the purpose of the 
loan or the recipient's eligibility, with the exception of income, or 
the income used was incorrect, but the recipient still qualified as 
income-eligible, RHS will allow the recipient to continue the loan on 
existing terms.
    (ii) If a section 502 recipient's income was above the moderate-
income level, RHS will convert the loan to an NP loan, using the 
nonprogram interest rate in effect on the date the loan was approved.
    (iii) If a section 504 recipient's income was above the very low-
income level, RHS will apply the applicable 502 or nonprogram interest 
rate in effect on the date the loan was approved.
    (iv) If an incorrect interest rate was used, RHS will adjust the 
account using the correct interest rate.
    (3) If the recipient receives unauthorized subsidy due to inaccurate 
information, RHS will require the recipient to repay it within 30 days. 
If the recipient cannot repay it within 30 days, the account may be 
reamortized. If the recipient repays the unauthorized subsidy or 
reamortizes the loan, the loan may be continued.
    (d) Unauthorized grants. Recipients may either repay the 
unauthorized assistance in a lump sum or execute a promissory note, 
regardless of whether the unauthorized assistance was due to false or 
inaccurate information. RHS may seek a judgment if the recipient refuses 
to repay the unauthorized assistance.
    (e) Account servicing. RHS will adjust all accounts retroactively to 
establish the amount of unauthorized assistance. If the recipient does 
not repay the unauthorized assistance within 30 days, RHS may accelerate 
the loan. If the unauthorized assistance is due to inaccurate 
information and the recipient is unable to repay within 30 days, RHS may 
reamortize the loan.
    (f) Accounts with no security. If an unauthorized loan or grant is 
unsecured, RHS may seek the best mortgage obtainable.



Sec. Sec. 3550.165-3550.199  [Reserved]



Sec. 3550.200  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0172. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. You are not required to respond 
to this collection of information unless it displays a currently valid 
OMB control number.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]

[[Page 412]]



                       Subpart E_Special Servicing



Sec. 3550.201  Purpose of special servicing actions.

    The Rural Housing Service (RHS) may approve special servicing 
actions to reduce the number of borrower failures that result in 
liquidation. Borrowers who have difficulty keeping their accounts 
current may be eligible for one or more available servicing options 
including: Payment assistance; delinquency workout agreements that 
temporarily modify payment terms; protective advances of funds for 
taxes, insurance, and other approved costs; and payment moratoriums. 
Subject to the availability of funds and Agency priorities, refinancing 
may be available as a special servicing option in accordance with Sec. 
3550.52(c).

[87 FR 6773, Feb. 7, 2022]



Sec. 3550.202  Past due accounts.

    An account is past due if the scheduled payment is not received by 
the due date, or as authorized by State law.
    (a) Late fee. A late fee will be assessed if the full scheduled 
payment is not received by the 15th day after the due date.
    (b) Liquidation--(1) For borrowers with monthly payments. The 
account may be accelerated without further servicing when at least 3 
scheduled payments are past due or an amount equal to at least 2 
scheduled payments is past due for at least 3 consecutive months. In 
such cases RHS may pursue voluntary liquidation and foreclosure.
    (2) For borrowers with annual payments. The account may be 
accelerated without further servicing when at least \3/12\ of 1 
scheduled payment has not been received by its due date. In such cases, 
RHS may pursue voluntary liquidation and foreclosure.
    (3) Subsidy recapture. Acceleration under this section will take 
into account any subsidy recapture due under Sec. 3550.162.

[61 FR 59779, Nov. 22, 1996, as amended at 77 FR 3379, Jan. 24, 2012]



Sec. 3550.203  General servicing actions.

    Whenever any of the servicing actions described in this subpart 
result in reamortization of the account RHS may:
    (a) Require a borrower who currently makes annual payments, but 
receives a monthly income, to convert to monthly payments.
    (b) Require the creation and funding of an escrow account for real 
estate taxes and insurance, if one does not already exist for any 
borrower with monthly payments.
    (c) Convert the method of calculating interest for any account being 
charged daily simple interest to an amortized payment schedule.



Sec. 3550.204  Payment assistance.

    Borrowers who are eligible may be offered payment assistance in 
accordance with subpart B of this part. Borrowers who are not eligible 
for payment assistance because the loan was approved before August 1, 
1968, or the loan was made on above-moderate or nonprogram (NP) terms, 
may refinance the loan in order to obtain payment assistance if:
    (a) The borrower is eligible to receive a loan with payment 
assistance;
    (b) Due to circumstances beyond the borrower's control, the borrower 
is in danger of losing the property; and
    (c) The property is program-eligible.



Sec. 3550.205  Delinquency workout agreements.

    Borrowers with past due accounts may be offered the opportunity to 
avoid liquidation by entering into a delinquency workout agreement that 
specifies a plan for bringing the account current. To receive a 
delinquency workout agreement, the following requirements apply:
    (a) A borrower who is able to do so will be required to pay the 
past-due amount in a single payment.
    (b) A borrower who is unable to pay the past-due amount in a single 
payment must pay monthly all scheduled payments plus an agreed upon 
additional amount that brings the account current within 2 years or the 
remaining term of the loan, whichever is shorter.
    (c) If a borrower becomes more than 30 days past due under the terms 
of a delinquency workout agreement, RHS may cancel the agreement.

[[Page 413]]



Sec. 3550.206  Protective advances.

    RHS may pay for fees or services and charge the cost against the 
borrower's account to protect the Governments interest.
    (a) Advances for taxes and insurance. RHS may advance funds to pay 
real estate taxes, hazard and flood insurance premiums, and other 
related costs, as well as amounts needed to fund the current escrow 
cycle.
    (b) Advances for costs other than taxes and insurance. Protective 
advances for costs other than taxes and insurance, such as emergency 
repairs, will be made only if the borrower cannot obtain a subsequent 
loan.
    (c) Repayment arrangements. (1) Advances for borrowers with multiple 
loans will be charged against the largest loan.
    (2) Amounts advanced will be due with the next scheduled payment. 
RHS may schedule repayment consistent with the borrowers ability to 
repay or reamortize the loan.
    (3) Advances will bear interest at the promissory note rate of the 
loan to which the advance was charged.



Sec. 3550.207  Payment moratorium.

    RHS may defer a borrowers scheduled payments for up to 2 years. NP 
borrowers are not eligible for a payment moratorium.
    (a) Borrower eligibility. For a borrower to be eligible for a 
moratorium, all of the following conditions must be met:
    (1) Due to circumstances beyond the borrower's control, the borrower 
is temporarily unable to continue making scheduled payments because:
    (i) The borrower's repayment income fell by at least 20 percent 
within the past 12 months;
    (ii) The borrower must pay unexpected and unreimbursed expenses 
resulting from the illness, injury, or death of the borrower or a family 
member; or
    (iii) The borrower must pay unexpected and unreimbursed expenses 
resulting from damage to the security property in cases where adequate 
hazard insurance was not available or was prohibitively expensive.
    (2) The borrower occupies the dwelling, unless RHS determines that 
it is uninhabitable.
    (3) The borrower's account is not currently accelerated.
    (b) Reviews of borrower eligibility. (1) Periodically RHS may 
require the borrower to submit financial information to demonstrate that 
the moratorium should be continued. The moratorium may be canceled if:
    (i) The borrower does not respond to a request for financial 
information;
    (ii) RHS receives information indicating that the moratorium is no 
longer required; or
    (iii) In the case of a moratorium granted to pay unexpected or 
unreimbursed expenses, the borrower cannot show that an amount at least 
equal to the deferred payments has been applied toward the expenses.
    (2) At least 30 days before the moratorium is scheduled to expire, 
the borrower must provide financial information needed to process the 
re-amortization of the loan(s).
    (c) Resumption of scheduled payments. When the moratorium expires or 
is cancelled, the loan will be re-amortized to include the amount 
deferred during the moratorium and the borrower will be required to 
escrow. If the new monthly payment, after consideration of the maximum 
amount of payment subsidy available to the borrower, exceeds the 
borrower's repayment ability, all or part of the interest that has 
accrued during the moratorium may be forgiven so that the new monthly 
payment optimizes both affordability to the borrower as well as the best 
interest of the Government.

[61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6773, Feb. 7, 2022]



Sec. 3550.208  Reamortization using promissory note interest rate.

    Reamortization using the promissory note interest rate may be 
authorized when RHS determines that reamortization is required to enable 
the borrower to meet scheduled obligations, and only if the Government's 
lien priority is not adversely affected.
    (a) Permitted uses. Reamortization at the promissory note interest 
rate may be used to accomplish a variety of servicing actions, including 
to:
    (1) Repay unauthorized assistance due to inaccurate information.

[[Page 414]]

    (2) Repay principal and interest accrued and advances made during a 
moratorium.
    (3) Bring current an account under a delinquency workout agreement 
after the borrower has demonstrated the willingness and ability to meet 
the terms of the loan and delinquency workout agreement and 
reamortization is in the borrower's and Government's best interests.
    (4) Bring a delinquent account current in the case of an assumption 
where the due on sale clause is not triggered as described in Sec. 
3550.163(c).
    (5) Cover the remaining debt when a portion of the security property 
is being transferred but the acquisition price does not cover the 
outstanding debt. The remaining balance will be reamortized for a period 
not to exceed 10 years or the final due date of the note being 
reamortized, whichever is sooner.
    (6) Bring an account current where the National Appeals Division 
(NAD) reverses an adverse action, the borrower has adequate repayment 
ability, and RHS determines the reamortization is in the best interests 
of the Government and the borrower.
    (b) Payment term of reamortized loan. Except as noted in paragraph 
(a)(5) of this section, the term of the reamortized loan may be extended 
to the maximum term for which the borrower was eligible at the time the 
loan was originally made, less the number of years the loan has been 
outstanding. In all cases, the term must not exceed the remaining 
security life of the property.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]



Sec. 3550.209  [Reserved]



Sec. 3550.210  Offsets.

    Any money that is or may become payable from the United States to an 
RHS borrower may be subject to administrative, salary, or Internal 
Revenue Service (IRS) offsets for the collection of a debt owed to RHS.
    (a) IRS offset. RHS may take action to effect offset of claims due 
RHS against tax refunds due to RHS debtors under 31 U.S.C. 3720a and 31 
CFR 285.2.
    (b) Salary offset. Offset of claims due to RHS may be collected 
pursuant to the salary offset provisions in 7 CFR part 3, subpart C for 
a federal employee or other persons covered in that subpart.
    (c) Administrative offset. RHS may take action to effect 
administrative offset to recover delinquent claims due to it in 
accordance with the procedures in 7 CFR part 3, subpart B.
    (d) Offset by other federal agencies. Escrow funds and loan and 
grant funds held or payable by RHS are not subject to offset by other 
federal agencies.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 69672, Nov. 19, 2002]



Sec. 3550.211  Liquidation.

    (a) Policy. When RHS determines that a borrower is unable or 
unwilling to meet loan obligations, RHS may accelerate the loan and, if 
necessary, acquire the security property. The borrower is responsible 
for all expenses associated with liquidation and acquisition. If the 
account is satisfied in full, the borrower will be released from 
liability. If the account is not satisfied in full, RHS may pursue any 
deficiency unless the borrower received a moratorium at any time during 
the life of the loan and faithfully tried to repay the loan.
    (b) Tribal allotted or trust land. Liquidations involving a security 
interest in tribal allotted or trust land shall only be pursued after 
offering to transfer the account to an eligible tribal member, the 
tribe, or the Indian Housing Authority. Forced liquidation of RHS 
security interests in Indian trust lands or on tribal allotted land will 
be recommended only after the State Director has determined it is in the 
best interest of the Government.
    (c) Acceleration and foreclosure. If RHS determines that foreclosure 
is in the best interest of the Government, RHS will send an acceleration 
notice to each borrower and any cosigner.
    (d) Voluntary liquidation. Borrowers may voluntarily liquidate 
through:
    (1) Refinancing or sale. The borrower may refinance or sell the 
security property for at least net recovery value and apply the proceeds 
to the account.
    (2) Deed in lieu of foreclosure. RHS may accept a deed in lieu of 
foreclosure to convey title to the security property

[[Page 415]]

only after the debt has been accelerated and when it is in the 
Government's best interest.
    (3) Offer by third party. If a junior lienholder or cosigner makes 
an offer in the amount of at least the net recovery value, RHS may 
assign the note and mortgage.
    (e) Bankruptcy. (1) When a petition in bankruptcy is filed by a 
borrower after acceleration, collection actions and foreclosure actions 
are suspended in accordance with the provisions of the Bankruptcy Code.
    (2) RHS may accept conveyance of security property by the trustee in 
bankruptcy if the Bankruptcy Court has approved the transaction, RHS 
determines the conveyance is in the best interest of the Government, and 
RHS will acquire title free of all liens and encumbrances except RHS 
liens.
    (3) Whenever possible in a Chapter 7 Bankruptcy, a reaffirmation 
agreement will be signed by the borrower and approved by the court prior 
to discharge, if RHS decides to continue with the borrower.
    (f) Junior lienholder foreclosure. When a junior lienholder 
foreclosure does not result in payment in full of the RHS debt but the 
property is sold subject to the RHS lien, RHS may liquidate the account 
unless the new owner is eligible to assume the RHS debt and actually 
assumes the RHS debt.
    (g) Payment subsidy. If the borrower is receiving payment subsidy, 
the payment subsidy agreement will not be canceled when the debt is 
accelerated, but will not be renewed unless the account is reinstated.
    (h) Eligibility for special servicing actions. A borrower is not 
eligible for special servicing actions once the account has been 
accelerated.
    (i) Reporting. RHS may report to IRS and credit reporting agencies 
any debt settled through liquidation.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]



Sec. Sec. 3550.212-3550.249  [Reserved]



Sec. 3550.250  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0172. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for reviewing insurrections, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. You are not required to respond 
to this collection of information unless it displays a currently valid 
OMB control number.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]



                    Subpart F_Post-Servicing Actions



Sec. 3550.251  Property management and disposition.

    (a) Policy. Rural Housing Service (RHS) will manage custodial 
property and Real Estate Owned (REO) property to protect the 
Government's interest, and may dispose of REO property through direct 
sales, sealed bid, or auction. RHS will follow affirmative fair housing 
marketing policies.
    (b) Custodial property. RHS may take custodial possession of 
security property that has been abandoned, or for other reasons 
necessary to protect the Government's security. After taking custodial 
possession of a security property, RHS may maintain and repair the 
security property as needed to protect the Government's interest, pay 
required real estate taxes and assessments, and secure personal property 
left on the premises. Expenses will be charged to the borrower's 
account. Custodial property may be leased when it is in the Government's 
best interest and in such cases the borrower's account will be credited 
for income from the security property.
    (c) REO property--(1) Classification. When RHS takes title to a 
security property, it is classified as either program or nonprogram (NP) 
property. An REO property that is eligible for financing under the 
section 502 program, or which could reasonably be repaired to be 
eligible, is classified as program property. An REO property that cannot 
reasonably be repaired to be eligible as section 502 property, and 
property that has been improved to a point that it

[[Page 416]]

will no longer qualify as modest under section 502, is classified as NP 
property.
    (2) Disclosing decent, safe, and sanitary defects. When RHS 
determines that an REO property to be sold is not decent, safe, and 
sanitary, or does not meet cost-effective energy conservation standards, 
it will disclose the reasons why. The deed by which such an REO property 
is conveyed will contain a covenant restricting it from residential use 
until it is decent, safe, and sanitary and meets the RHS cost-effective 
energy conservation standards. RHS will also notify any potential 
purchaser of any known lead-based paint hazards.
    (3) Property on Indian tribal allotted or trust land. REO property 
which is located on Indian tribal allotted or trust land, will be sold 
or otherwise disposed of only to a member of the particular tribe having 
jurisdiction over the allotted or tribal land, to the tribe, or to an 
Indian housing authority serving the tribe on a first-come, first-served 
basis.
    (4) Sale of program REO properties. For no less than 30 days after a 
program REO property is listed for sale, the property will be reserved 
for sale to eligible direct or guaranteed single family housing very-
low, low- or moderate income applicants under this part or part 3555 of 
this title, and for sale or lease to nonprofit organizations or public 
bodies providing transitional housing and turnkey housing for tenants of 
such transitional housing in accordance with 42 U.S.C. 11408a. Offers 
from eligible direct or guaranteed single family housing applicants are 
evaluated at the listed price, not the offering price. Priority of 
offers received the same day from eligible direct or guaranteed single 
family housing applicants will be given to applicants qualifying for 
veterans' preference, cash offers from highest to lowest, then credit 
offers from highest to lowest. Acceptable offers of equal priority 
received on the same business day are selected by lot. After the 
expiration of a reservation period, REO properties can be bought by any 
buyer.
    (5) Sale by sealed bid or auction. RHS may authorize the sale of an 
REO property by sealed bid or public auction when it is in the best 
interest of the Government.
    (d) Special purposes. (1) REO property may be purchased for 
conversion to multiple family housing.
    (2) RHS shall follow the standards and procedures in 42 U.S.C. 
11408a for the sale or lease of an REO property to a public agency or 
nonprofit organization. The terms of the sale and lease, and the entity 
seeking to purchase or lease the REO property, must meet the 
requirements in 42 U.S.C. 11408a.
    (3) REO property may be sold under special provisions to nonprofit 
organizations or public bodies for the purpose of providing affordable 
housing to very low- and low-income families.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002; 
87 FR 6773, Feb. 7, 2022]



Sec. 3550.252  Debt settlement policies.

    (a) Applicability. Debt settlement procedures may be initiated to 
collect any amounts due to RHS including:
    (1) Balances remaining on loan accounts after all liquidation 
proceeds or credits have been applied;
    (2) Subsidy recapture or grant amounts due; and
    (3) Unauthorized assistance due.
    (b) Judgment. RHS may seek a judgment whenever a judgment might 
enable RHS to collect all or a significant portion of an amount owed.
    (c) Multiple loans. RHS does not settle debts for one loan while 
other RHS loans on the same security property remain active.
    (d) Cosigners and claims against estates. RHS may use any and all 
remedies available under law to collect from any cosigner and from a 
deceased borrower's estate.
    (e) Reporting. RHS will report to the Internal Revenue Service and 
credit reporting agencies any debt settled through cancellation, 
compromise, or adjustment.
    (f) Settlement during legal or investigative action. Cases that are 
under investigation for fiscal irregularity or have been referred to the 
Office of the Inspector General, the Office of the General Counsel, or 
the U.S. Attorney will not be considered for debt settlement until final 
action by the investigating or prosecuting entity has been taken.

[[Page 417]]

    (g) Offsets. RHS may request offsets as described in Sec. 3550.210 
to collect amounts owed.
    (h) Escrow funds. At liquidation all funds held in escrow or 
unapplied funds will be applied against the debt.



Sec. 3550.253  Settlement of a debt by compromise or adjustment.

    Compromise or adjustment offers may be initiated by the debtor or by 
RHS. RHS will approve only those compromises and adjustments that are in 
the best interest of the Government.
    (a) Compromise. A compromise is an agreement by RHS to release a 
debtor from liability upon receipt of a specified lump sum that is less 
than the total amount due.
    (b) Adjustments. An adjustment is an agreement by RHS to release a 
debtor from liability generally upon receipt of an initial lump sum 
representing the maximum amount the debtor can afford to pay and 
periodic additional payments over a period of up to 5 years.
    (c) Timing of offers. (1) For a settlement offer to be considered, 
secured debts must be fully matured under the terms of the debt 
instrument or must have been accelerated by RHS.
    (2) Unsecured debts owed after the sale of the security property may 
be proposed for compromise or adjustment at any time. Debts that were 
never secured may be proposed for compromise or adjustment when they are 
due and payable.
    (d) Retention of security property. The debtor may retain the 
security property if the compromise payment is at least equal to the net 
recovery value, and it is in the best interest of the Government to 
allow the debtor to retain the security property.



Sec. Sec. 3550.254-3550.299  [Reserved]



Sec. 3550.300  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0172. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for review instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]



PART 3555_GUARANTEED RURAL HOUSING PROGRAM--Table of Contents



                            Subpart A_General

Sec.
3555.1 Applicability.
3555.2 Purpose.
3555.3 Civil rights.
3555.4 Mediation and appeals.
3555.5 Environmental requirements.
3555.6 State and local law.
3555.7 Exception authority.
3555.8 Conflict of interest.
3555.9 Enforcement.
3555.10 Definitions and abbreviations.
3555.11-3555.49 [Reserved]
3555.50 OMB control number.

                     Subpart B_Lender Participation

3555.51 Lender eligibility.
3555.52 Lender approval.
3555.53 Contracting for loan origination.
3555.54 Sale of loans to approved lenders.
3555.55-3555.99 [Reserved]
3555.100 OMB control number.

                       Subpart C_Loan Requirements

3555.101 Loan purposes.
3555.102 Loan restrictions.
3555.103 Maximum loan amount.
3555.104 Loan terms.
3555.105 Combination construction and permanent loans.
3555.106 [Reserved]
3555.107 Application for and issuance of the loan guarantee.
3555.108 Full faith and credit.
3555.109 Qualified mortgage.
3555.110-3555.149 [Reserved]
3555.150 OMB control number.

                  Subpart D_Underwriting the Applicant.

3555.151 Eligibility requirements.
3555.152 Calculation of income and assets.
3555.153-3555.199 [Reserved]
3555.200 OMB control number.

                   Subpart E_Underwriting the Property

3555.201 Site requirements.
3555.202 Dwelling requirements.
3555.203 Ownership requirements.
3555.204 Security requirements.

[[Page 418]]

3555.205 Special requirements for condominiums.
3555.206 Special requirements for community land trusts.
3555.207 Special requirements for Planned Unit Developments (PUDs).
3555.208 Special requirements for manufactured homes.
3555.209 Rural Energy Plus loans.
3555.210-3555.249 [Reserved]
3555.250 OMB control number.

                  Subpart F_Servicing Performing Loans

3555.251 Servicing responsibility.
3555.252 Required servicing actions.
3555.253 Late payment charges.
3555.254 Final payments.
3555.255 Borrower actions requiring lender approval.
3555.256 Transfer and assumptions.
3555.257 Unauthorized assistance.
3555.258-3555.299 [Reserved]
3555.300 OMB control number

                Subpart G_Servicing Non-Performing Loans

3555.301 General servicing techniques.
3555.302 Protective advances.
3555.303 Traditional servicing options.
3555.304 Special servicing options.
3555.305 Voluntary liquidation.
3555.306 Liquidation.
3555.307 Assistance in natural disasters.
3555.308-3555.349 [Reserved]
3555.350 OMB control number.

                 Subpart H_Collecting on the Guarantee.

3555.351 Loan guarantee limits.
3555.352 Loss covered by the guarantee.
3555.353 Net recovery value.
3554.354 Loss claim procedures.
3555.355 Reducing or denying the claim.
3555.356-3555.399 [Reserved]
3555.400 OMB control number.

    Authority: 5 U.S.C. 301; 42 U.S.C. 1471 et seq.

    Source: 78 FR 73941, December 9, 2013, unless otherwise noted.



                            Subpart A_General



Sec. 3555.1  Applicability.

    This part sets forth policies for the Single Family Housing 
Guaranteed Loan Program (SFHGLP) administered by USDA Rural Development. 
It addresses the requirements of section 502(h) of the Housing Act of 
1949, as amended, and includes policies regarding originating, 
servicing, holding and liquidating SFHGLP loans. Any provision regarding 
the expenditure of funds under this part is contingent upon the 
availability of funds.



Sec. 3555.2  Purpose.

    (a) General. The purpose of the SFHGLP is to provide low- and 
moderate-income persons who will live in rural areas with an opportunity 
to own decent, safe and sanitary dwellings and related facilities. The 
SFHGLP offers applicants without sufficient resources to provide the 
necessary housing on their own account, and unable to secure the credit 
necessary for such housing from other sources upon terms and conditions, 
which the applicant can reasonably be expected to fulfill without the 
guarantee, an opportunity to acquire, build, rehabilitate, improve, or 
relocate dwellings in rural areas.
    (b) Demonstration programs. Rural Development may authorize limited 
demonstration programs as allowed by law. The objective of these 
demonstration programs will be to test new approaches to offering 
housing under the statutory authority granted to the Secretary. 
Therefore, such demonstration programs may not be consistent with all of 
the provisions contained in this part. However, any statutory SFHGLP 
requirements will remain in effect.



Sec. 3555.3  Civil rights.

    Rural Development, lenders, and their agents must administer the 
program fairly, and in accordance with both the letter and the spirit of 
all equal opportunity, equal credit opportunity and fair housing 
legislation, and applicable executive orders. Loan guarantees, services, 
and benefits provided under this part shall not be denied to any person 
based on race, color, national origin, sex, religion, marital status, 
familial status, age (provided the applicant has the capacity to enter 
into a binding contract), handicap, receipt of income from public 
assistance, sexual orientation, or because the applicant has, in good 
faith, exercised any right under the Consumer Credit Protection Act (15 
U.S.C. 1601 et seq.). All activities under this part shall be 
accomplished in accordance with the Fair Housing Act (42 U.S.C. 3601-
3620),

[[Page 419]]

the Equal Credit Opportunity Act (15 U.S.C. 1691), and Executive Order 
11063 as amended by Executive Order 12259, as applicable. Rural 
Development's civil rights compliance requirements are provided in 7 CFR 
part 1901, subpart E.



Sec. 3555.4  Mediation and appeals.

    Whenever Rural Development makes a decision that will adversely 
affect a participant, the participant may proceed with alternative 
dispute resolution including mediation and a USDA National Appeals 
Division hearing in accordance with 7 CFR parts 1 and 11. The 
participant also may request an informal review of the adverse decision 
made by Rural Development. Except when the adverse decision applies to a 
loss claim, the applicant or borrower and the lender may participate in 
the appeal process. Adverse decisions made by the lender cannot be 
appealed unless concurrence by Rural Development was required by this 
subpart and obtained by the lender.



Sec. 3555.5  Environmental requirements.

    (a) Policy. Rural Development will consider environmental quality, 
economic, social, and other relevant factors in program development and 
decision-making processes. Rural Development will take into account 
potential environmental impacts of proposed projects by working with 
applicants, other Federal agencies, American Indian tribes, State and 
local governments, and interested citizens and organizations in order to 
formulate actions that advance the program's goals in a manner that will 
protect environmental quality.
    (b) Regulatory references. Loan processing or servicing actions 
taken under this part must comply with the environmental review 
requirements in accordance with 7 CFR part 1970, and 7 CFR part 1924, 
which addresses lead-based paint.
    (c) Agency responsibilities. Rural Development is responsible for 
compliance with all applicable environmental regulations and statutes.
    (d) Lender and loan applicant responsibilities. (1) Lenders must use 
due diligence in regard to potential environmental hazards to ensure the 
property is decent, safe and sanitary and of sufficient value to 
adequately secure the loan. The level of due diligence review to 
determine potential environmental hazards must be equivalent to the 
standards established by Fannie Mae, Freddie Mac, FHA, or the VA.
    (2) Mortgage loan transactions will be subject to the requirements 
of the 1994 National Flood Insurance Reform Act to determine if the 
dwelling is located in a Special Flood Hazard Area (SFHA).
    (3) On an as needed basis, lenders and loan applicants will assist 
Rural Development in obtaining such information as Rural Development 
needs to complete its environmental review and to cooperate in the 
resolution of environmental problems.
    (4) Lenders will become familiar with Agency environmental 
requirements, so they can advise applicants and reduce the probability 
of unacceptable applications being submitted to Rural Development.
    (5) The lender must comply with Federally mandated flood insurance 
purchase requirements. Existing dwellings in a SFHA are not eligible 
under the SFHGLP unless flood insurance through the FEMA National Flood 
Insurance Program (NFIP) is available for the community and flood 
insurance, whether NFIP, ``write your own,'' or private flood insurance, 
is purchased by the borrower. The lender will require the borrower to 
obtain, and maintain for the term of the mortgage, flood insurance for 
any property located in a SFHA, listing the lender as a loss payee. 
Purchase of existing structures within the federally regulated 
floodplain will not require consideration of alternatives to avoid 
adverse effects and incompatible development in floodplains;
    (6) The borrower must obtain, and continuously maintain for the life 
of the mortgage, flood insurance on the security property in an amount 
sufficient to protect the property securing the guaranteed loan. Flood 
insurance policies must be issued under the NFIP, or by a licensed 
property and casualty insurance company authorized to participate in 
NFIP's ``Write Your Own'' program or private flood insurance policy, as 
approved by the

[[Page 420]]

lender. Lenders are required to accept private flood insurance policies, 
when purchased by a borrower, that meet the requirements of 42 U.S.C. 
4012a (b)(1)(A). Lenders remain responsible to ensure a private flood 
insurance policy meets the requirements of 42 U.S.C. 4012a (b)(1)(A).
    (7) Rural Development will not guarantee loans for new or proposed 
homes in an SFHA unless the lender obtains a final Letter of Map 
Amendment (LOMA) or a final Letter of Map Revision (LOMR) that removes 
the property from the SFHA, or performs an alternatives analysis in 
compliance with the Agencies National Environmental Policy Act 
regulation and obtains a FEMA elevation certificate that shows that the 
lowest floor (including basement) of the dwelling and all related 
building improvements are built at or above the 100-year flood plain 
elevation in compliance with the NFIP.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6428, Feb. 8, 2016; 81 
FR 11048, Mar. 2, 2016]



Sec. 3555.6  State and local law.

    Lenders will comply with applicable State and local laws and 
regulations, including the laws of American Indian tribes. Supplemental 
guidance will be issued in the case of any conflict with or significant 
differences from provisions of this part.



Sec. 3555.7  Exception authority.

    The Administrator of the Agency, or a designee, may make an 
exception to any requirement or provision of this part or to address any 
omissions in this part, when the Administrator, or designee, determines 
that application of the requirement or failure to take action would 
adversely affect the Government's interest. Any exception must be 
consistent with the authorizing statute and other applicable laws.



Sec. 3555.8  Conflict of interest.

    (a) Applicant or borrower responsibility. The applicant or borrower 
must disclose to the lender any prohibited relationship or association 
with any Rural Development employee, and the lender must disclose that 
information to Rural Development.
    (b) Lender responsibility. The lender must disclose to Rural 
Development any prohibited relationship or association it, or any of its 
employees, has with any Rural Development employee.
    (c) Prohibited relationships and associations. Prohibited 
relationships and associations include the following:
    (1) Immediate family members, including parents and children, 
whether related by blood or marriage;
    (2) Close relatives, including grandmother, grandfather, aunt, 
uncle, sister, brother, niece, nephew, granddaughter, grandson, or first 
cousin, whether related by blood or marriage;
    (3) Any household residents;
    (4) Immediate working relationships, including coworkers in the same 
office, subordinates, and immediate supervisors; and
    (5) Close business associations, including business partnerships, 
joint ventures, or closely held corporations.
    (d) Result of disclosure. Disclosure of prohibited relationships and 
associations under this section will not necessarily result in 
applicant, borrower or lender ineligibility. Disclosures may result in 
reassignment with regard to the loan guarantee in question so that no 
prohibited relationships or associations exist between the Rural 
Development employees responsible for loan guarantee transactions and 
lenders, borrowers, or applicants.



Sec. 3555.9  Enforcement.

    Rural Development will take such actions as are appropriate and 
necessary to enforce the provisions of these regulations. Such actions 
will include, but not be limited to, reduction of the loss claim 
payment; termination of a lender's or servicer's participation in the 
SFHGLP; suspension and debarment of participation in this or other 
Federal programs; and, any other appropriate administrative, civil, or 
criminal actions as allowed by law. Rural Development may assess civil 
monetary penalties pursuant to Section 543 of the Housing Act of 1949, 
42 U.S.C. 1409s(b).



Sec. 3555.10  Definitions and abbreviations.

    The definitions and abbreviations in this section apply to this 
part.
    Acceleration. Demand for immediate repayment of the entire balance 
of a debt if the covenants in the promissory

[[Page 421]]

note, assumption agreement, or security instruments are breached.
    Adjusted annual income. Income from all household members who live 
or propose to live in the dwelling as their primary residence for all or 
part of the ensuing 12 months. Adjusted annual income is used to 
determine whether an applicant is income-eligible for a guaranteed loan, 
or interest assistance, if applicable. Adjusted annual income provides 
for deductions to account for varying household circumstances and 
expenses. See Sec. 3555.152(c) for a complete description of adjusted 
annual income.
    Agency. The Rural Housing Service of the U.S. Department of 
Agriculture, Rural Development.
    Agency employee. Any employee of the Rural Housing Service, or any 
employee of the Rural Development mission area who carries out SFHGLP 
functions.
    Alien. See ``Qualified alien.''
    Amortization. A gradual reduction of the mortgage debt through equal 
monthly principal and interest payments sufficient to fully repay the 
unpaid principal balance over the mortgage term.
    Amortized payment. Equal monthly payments under a fully amortized 
mortgage loan that provides for the scheduled payment of interest and 
principal over the term of the loan.
    Annual fee. A periodic amount that is based on the average annual 
scheduled unpaid principal balance of the loan and is paid by the 
servicing lender to Rural Development on an annual basis for issuance of 
a Loan Note Guarantee. The fee may be passed on to the borrower and 
included in the monthly mortgage payment of a borrower and is used when 
calculating payment ratios.
    Annual income. The income of all household members calculated 
according to Sec. 3555.152(b). Annual income is used to determine 
adjusted annual income in Sec. 3555.152(c) for program eligibility 
purposes.
    Applicant. An individual applying to a lender for a guaranteed loan.
    Area median income. The median income in a specific locality, 
typically a county or Metropolitan Statistical Area (MSA), as determined 
by the Department of Housing and Urban Development.
    Assumption. A method of selling real estate wherein the property 
purchaser accepts the liability for payment of an existing mortgage.
    Borrower. An individual obligated to repay the loan guaranteed under 
the Guaranteed Rural Housing loan program.
    Combination construction and permanent loan. A guaranteed loan on 
which the Rural Development guarantee becomes effective at the time 
construction of an eligible single family housing project begins.
    Community land trust. A private nonprofit community housing 
development organization that is established to acquire parcels of land, 
held in perpetuity, primarily for conveyance under long-term ground 
leases. See section 502(a)(3)(B) of the Housing Act of 1949, 42 U.S.C. 
1472(a)(3)(B), as amended.
    Conditional commitment. Rural Development's agreement that a 
proposed loan will be guaranteed if all conditions and requirements 
established by Rural Development are met.
    Condominium project. A real estate project in which each owner has 
title to a unit in a building, an undivided interest in the common areas 
of the project and sometimes the exclusive use of certain limited common 
areas. See Sec. 526(d) of the Housing Act of 1949, as amended.
    Debarment. An action taken under 2 CFR part 180 or 417 to exclude a 
person or entity from participating in Federal programs.
    Default. A loan is considered in default when a payment has not been 
paid after 30 days from the date it was due.
    Disability. See ``Person with a disability.''
    Dwelling. A house, manufactured home, or condominium unit, and 
related facilities, such as a garage or storage shed, used or to be used 
as the borrower's principal residence.
    Elderly family. An elderly family consists of one of the following:
    (1) A person who is the head, spouse, or sole member of a household 
and who is 62 years of age or older, or who is disabled, and is an 
applicant or borrower;

[[Page 422]]

    (2) Two or more persons who are living together, at least one of 
whom is age 62 or older, or disabled, and who is an applicant or 
borrower; or
    (3) Where the deceased borrower or spouse in a household was at 
least 62 years old or disabled, the surviving household member shall 
continue to be classified as an elderly household for the purpose of 
determining adjusted income, even though the surviving members may not 
meet the definition of an elderly family on their own, provided:
    (i) They occupied the dwelling with the deceased household member at 
the time of the death;
    (ii) If one of the surviving household members is the spouse of the 
deceased household member, the surviving household shall be classified 
as an elderly family only until the remarriage or death of the surviving 
spouse; and
    (iii) At the time of the death of the deceased household member the 
dwelling was financed with a Guaranteed Rural Housing loan.
    Escrow account. A trust account that is established by the lender or 
its servicing agent to hold funds collected from the borrower and 
allocated for the payment of real estate taxes, special assessments, 
hazard or flood insurance premiums, and other similar expenses.
    Existing dwelling. A dwelling that does not meet the definition of 
``new dwelling''.
    Extended-term loan modification. A loan modification authorized 
under Sec. 3555.304 of this part, in which the lender reduces the 
interest rate to a level at or below the maximum allowable interest rate 
and then extends the repayment term up to a maximum of 40 years from the 
date of loan modification, but only as long as is necessary to achieve 
the targeted mortgage payment to income ratio.
    Fannie Mae. A private, shareholder-owned company with a charter from 
Congress to support the housing finance system, formerly officially 
known as the Federal National Mortgage Association.
    FEMA. The United States Department of Homeland Security, Federal 
Emergency Management Agency.
    FHA. The Federal Housing Administration of the United States 
Department of Housing and Urban Development.
    FHLB. Federal Home Loan Bank.
    First-time homebuyer. Individuals who meet any one of the following 
three criteria are considered first-time homebuyers:
    (1) An individual who has had no ownership interest in a principal 
residence during the three-year period ending on the date of loan 
closing.
    (2) An individual who is a displaced homemaker and who, except for 
owning a home with a spouse, has had no ownership interest in a 
principal residence during the three-year period ending on the date of 
loan closing. Displaced homemakers include any individual who is:
    (i) An adult;
    (ii) Unemployed or underemployed;
    (iii) Experiencing difficulty in obtaining or upgrading employment; 
and
    (iv) In recent years has worked primarily without remuneration to 
care for the home and family, but has not worked full-time, full-year in 
the labor force.
    (3) An individual who is a single parent and who, except for owning 
a home with a spouse, has had no ownership interest in a principal 
residence during the three-year period ending on the date of loan 
closing. Single parents include any individual who is:
    (i) Unmarried or legally separated; and
    (ii) Has custody or joint custody of one or more children, or is 
pregnant.
    Forbearance agreement. An agreement between the lender and the 
borrower providing for temporary suspension of payments or a repayment 
plan that calls for periodic payments of less than the normal monthly 
payment, periodic payments at different intervals, etc. to bring the 
account current.
    Freddie Mac. A private, shareholder owned company with a charter 
from Congress to support the housing finance system, formerly officially 
known as the Federal Home Loan Mortgage Corporation.
    Funded buydown account. An escrow account funded by the lender, 
seller, or through a third party gift, from which monthly payments are 
released directly to the lender to reduce the amount of interest on a 
loan, thereby

[[Page 423]]

improving an applicant's repayment ability.
    Ginnie Mae. Government National Mortgage Association, a Government-
owned corporation within HUD.
    Household. All persons routinely living in the dwelling as principal 
residence, except for live-in aides, foster children, and foster adults.
    Housing Act of 1949. The Act which, in part, provides the authority 
for single family housing programs, codified at 42 U.S.C. 1471 et seq.
    HUD. The United States Department of Housing and Urban Development.
    Interest assistance. Agency assistance available to eligible 
borrowers that reduces the effective interest rate on the guaranteed 
loan. Interest assistance applied to borrowers whose loans were approved 
as a subsidized guaranteed loan between April 17, 1991, and September 
30, 1991, and who entered into interest assistance and shared equity 
agreements at loan closing.
    IRS. The Internal Revenue Service of the United States Department of 
the Treasury.
    Leasehold estate. The right to use and occupy real estate for a 
stated term and under conditions which have been conveyed by a lease.
    Lender. The entity making, holding, or servicing a loan that is 
guaranteed under the provisions of this part.
    Live-in aide. A person who:
    (1) Lives with an elderly person or a person with a disability and
    (2) Is essential to that person's care and well-being, and
    (3) Is not obligated for the person's support, and
    (4) Would not be living in the unit except to provide the support 
services.
    Loan modification. A written agreement that permanently changes an 
original note term, such as the interest rate, monthly payment, and/or 
the principal balance due to capitalization of interest or advances.
    Low-income. An adjusted income limit developed in consultation with 
HUD under 42 U.S.C. 1437a(b)(2)(D).
    Manufactured home. A structure that is built on a permanent 
foundation according to Federally Manufactured Home Construction and 
Safety Standards established by HUD and found at 24 CFR part 3280.
    Market value. The value of the property as determined by a current 
appraisal made in accordance with the Uniform Standards of Professional 
Appraisal Practices.
    Median income. The area median income, adjusted for family size, as 
established by HUD.
    Moderate income. The greater of:
    (1) 115 percent of the U.S. median family income,
    (2) The average of the state-wide and state non-metro median family 
income,
    (3) 115/80ths of the area low-income limit adjusted for household 
size for the county or MSA where the property is, or will be, located.
    Modest housing. For purposes of this part, ``modest housing'' is the 
housing that a low- or moderate-income borrower can afford based on 
their repayment ability.
    Mortgage. A form of security instrument or consensual lien on real 
property including a real estate mortgage and a deed of trust.
    Mortgage credit certificate. A certificate issued by an authorized 
State or local housing finance agency that documents a Federal income 
tax credit awarded to a first-time homebuyer and/or low- or moderate-
income homebuyer. The Federal income tax credit reduces the applicant's 
Federal income tax liability, which improves his or her repayment 
ability.
    Mortgage payment to income ratio. As used in Sec. 3555.304, this 
ratio is the monthly mortgage payment (principal, interest, taxes, and 
insurance) divided by the borrower's gross monthly income.
    Mortgage recovery advance. A mortgage recovery advance is funds 
advanced by the lender on behalf of a borrower to satisfy the borrower's 
arrearage, pay legal fees and foreclosure costs related to a cancelled 
foreclosure action, and reduce principal. Upon request, RHS will 
reimburse the lender for eligible mortgage recovery advances under Sec. 
3555.304.
    MSA (Metropolitan Statistical Area). A geographic entity defined by 
the United States Office of Management and Budget.

[[Page 424]]

    Net family assets. The value of assets available to a household, as 
contained in Sec. 3555.152(d).
    Net recovery value. The amount available to apply to the outstanding 
unpaid loan balance after considering the value of the security property 
and other amounts recovered, and deducting the costs associated with 
liquidation, acquisition and sale of the property. Net recovery value is 
calculated differently depending on the type of disposition, as 
contained in Sec. 3555.353.
    New dwelling. A dwelling that is to be built is under construction, 
or a dwelling that is less than one year old and has never been 
occupied. A manufactured home is considered a new unit if the 
manufacturer's date is within 12 months of the purchase contract and the 
unit has never been occupied or installed at any other location as 
otherwise provided by Rural Development.
    Participant. For the purpose of appeals, a participant is any 
individual or entity that has applied for, or whose right to participate 
in or receive a payment, loan guarantee, or other benefit, is affected 
by an Agency decision in accordance with 7 CFR 11.1.
    Person with a disability. Any person who has a physical or mental 
impairment that substantially limits one or more major life activities, 
including functions such as caring for one's self, performing manual 
tasks, walking, seeing, hearing, speaking, breathing, learning and 
working, has a record of such an impairment, or is regarded as having 
such an impairment.
    Planned Unit Development. For the purpose of this definition, a 
condominium is not a Planned Unit Development (PUD). A PUD is a 
development that has all of the following characteristics:
    (1) The individual unit owners own a parcel of land improved with a 
dwelling. This ownership is not in common with other unit owners;
    (2) The development is administered by a homeowners association that 
owns and is obligated to maintain property and improvements within the 
development (for example, greenbelts, recreation facilities and parking 
areas) for the common use and benefit of the unit owners; and
    (3) The unit owners have an automatic, non-severable interest in the 
homeowners association and pay mandatory assessments.
    Pre-foreclosure sale. A sale of property in which the lender and 
borrower agree to accept the proceeds of the sale to satisfy a defaulted 
mortgage, even though this may be less than the amount owed on the 
mortgage, in order to avoid foreclosing on the property.
    Primary residence. See ``Principal residence.''
    Principal residence. The home domicile physically occupied by the 
owner for the major portion of the year and the address of record for 
such activities as Federal income tax reporting, voter registration, 
occupational licensing, etc.
    Prior lien. A lien against the security property that is superior in 
right to the lender's debt instrument.
    Qualified alien. See the definition of the term under Section 401 of 
the Personal Responsibility and Work Opportunity Reconciliation Act of 
1996 (PRWORA) (8 U.S.C. 1641).
    Real estate taxes. Taxes and assessments estimated to be due and 
payable on the property.
    REO (Real Estate Owned). Property that formerly served as security 
for a guaranteed loan and for which the lender holds title.
    Repayment income. Used to determine whether an applicant has the 
ability to make monthly loan payments. Repayment income may include 
amounts excluded for the purpose of determining adjusted annual income. 
See Sec. 3555.152(a) for a complete description of repayment income.
    Rural area. The definition of ``rural area'' is found in section 520 
of the Housing Act of 1949, as amended.
    Rural Development. A mission area within USDA that includes the 
Rural Housing Service, the Rural Utilities Service, and the Rural 
Business-Cooperative Service.
    Scheduled payment. The monthly installment on a promissory note, as 
modified by an interest assistance agreement or forbearance agreement, 
plus escrow payments.
    Secured loan. A loan that is collateralized by property so that in 
the event of a default on the loan, the

[[Page 425]]

property may be sold to pay down the debt.
    Security instrument. The mortgage, or deed of trust, that secures 
the promissory note or assumption agreement.
    Security property. All the real property that serves as collateral 
for a guaranteed loan.
    Settlement date. The settlement date, for the purpose of loss 
calculation, is:
    (1) Actual foreclosure date;
    (2) The closing date, if sold to a third party at the foreclosure 
sale;
    (3) The date the borrower sells the property to a third party in 
order to avoid or cure a default situation, with prior approval of the 
lender; and
    (4) When title is acquired to the security following the expiration 
of any state-required redemption or confirmation period.
    (5) The date title is acquired upon recordation of a deed-in-lieu of 
foreclosure, with prior approval of the lender.
    SFHGLP. Single Family Housing Guaranteed Loan Program. The SFHGLP 
guarantees loans under section 502 of the Housing Act of 1949. Under the 
guarantee, the holder of the loan note may be reimbursed by Rural 
Development for all or part of a loss incurred if a borrower defaults on 
a loan.
    Short sale. A type of voluntary liquidation (also referred to as a 
preforeclosure sale or short payoff) where a borrower and the lender who 
holds the mortgage on the property agree to sell the property at fair 
market value, but for less than the current outstanding debt (including 
any missing payments, late fees, penalties, and advances for taxes and 
the like).
    Streamlined-assist refinance. A streamlined-assist refinance is an 
abbreviated method of refinancing which does not require a credit 
report, or the calculation of loan-to-value or debt-to-income ratios. 
Lenders must verify that the borrower has been current on their existing 
loan for the preceding 12 month period.
    Supplemental loan. A guaranteed loan made in conjunction with a 
transfer and assumption to provide funds to complete the transaction.
    Suspension. An action taken under 2 CFR parts 180 or 417 to exclude 
a person or entity from participation in Federal programs for a 
temporary period, pending completion of an investigation of wrongdoing.
    Total debt to income ratio. Total debt to income ratio is defined as 
the borrower's monthly mortgage payment plus all recurring monthly debt 
divided by the borrower's gross monthly income.
    Unauthorized assistance. Any guaranteed loan or interest assistance 
for which there was no regulatory or statutory authorization, or for 
which the borrower was not eligible.
    United States citizen. An individual who resides as a citizen in any 
of the 50 States, the District of Columbia, the Commonwealth of Puerto 
Rico, the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of 
the Northern Marianas, the Federated States of Micronesia, the Republic 
of Palau, or the Republic of the Marshall Islands.
    USDA. The United States Department of Agriculture.
    U.S. non-citizen national. A person born in American Samoa or Swains 
Island on or after the date the U.S. acquired American Samoa or Swains 
Island, or a person whose parents are U.S. non-citizen nationals.
    VA. United States Department of Veterans Affairs.
    Veterans' preference. A preference in loan processing extended to a 
SFHGLP loan applicant who served on active duty and has been discharged 
or released from the active forces on conditions other than dishonorable 
from the United States Army, Navy, Air Force, Marine Corps, or Coast 
Guard. The preference applies to the service person, or the family of a 
deceased serviceperson who died in service before the termination of 
such war or such period or era. The applicable timeframes are:
    (1) During the period of April 6, 1917, through March 31, 1921;
    (2) During the period of December 7, 1941, through December 31, 
1946;
    (3) During the period of June 27, 1950, through January 31, 1955;
    (4) For a period of more than 180 days, any part of which occurred 
after January 31, 1955, but on or before May 7, 1975;

[[Page 426]]

    (5) During the period beginning August 2, 1990, and ending January 
2, 1992, provided, of course, that the veteran is otherwise eligible; or
    (6) During any other period as prescribed by Presidential 
proclamation or law.
    Warehouse lender. A non-depository lender who utilizes short-term 
revolving lines of credit to finance loan origination and or 
construction financing.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 26464, May 3, 2016; 84 
FR 29038, June 21, 2019; 84 FR 35006, July 22, 2019; 84 FR 70886, Dec. 
26, 2019]



Sec. Sec. 3555.11-3555.49  [Reserved]



Sec. 3555.50  OMB control number.

    The report and recordkeeping requirements contained in this subpart 
have been approved by the Office of Management and Budget and have been 
assigned OMB control number 0575-0179.



                     Subpart B_Lender Participation



Sec. 3555.51  Lender eligibility.

    A lender must meet the requirements described in this section to be 
approved for participation in the SFHGLP.
    (a) Ability to underwrite and service loans. The lender must have a 
demonstrated ability to underwrite and service single-family home loans. 
A lender will be considered to have such a demonstrated ability if it 
qualifies as one of the following:
    (1) A State Housing Agency;
    (2) A lender approved as a supervised or nonsupervised mortgagee by 
HUD with direct endorsement authority for submission of applications for 
Federal Housing Mortgage Insurance;
    (3) A supervised or nonsupervised mortgagee with authority to close 
VA-guaranteed loans on the automatic basis;
    (4) A lender approved by Fannie Mae for single-family loans;
    (5) A lender approved by Freddie Mac for single-family loans;
    (6) A Farm Credit System institution that provides documentation of 
its ability to underwrite and service single-family loans. Lenders who 
are a Farm Credit System lender with direct lending authority meet 
demonstrated ability;
    (7) A lender participating in other Rural Development or Farm 
Service Agency guaranteed loan programs that provide documentation of 
its ability to underwrite and service single family loans. Documentation 
criteria for other Rural Development or Farm Service Agency guarantee 
loan programs require an active lender agreement; or
    (8) A Federally supervised lender that provides documentation of its 
ability to originate, underwrite, and service single-family loans. 
Acceptable sources of supervision include:
    (i) Being a member of the Federal Reserve System.
    (ii) The Federal Deposit Insurance Corporation (FDIC).
    (iii) The National Credit Union Administration (NCUA).
    (iv) The Office of the Comptroller of the Currency (OCC).
    (v) The Federal Housing Finance Board regulating lenders within the 
Federal Home-Loan Bank (FHLB) system.
    (9) If lenders cannot meet the requirements under paragraphs (a)(1) 
through (8) of this section, they may demonstrate its ability to 
originate and underwrite loans by submitting appropriate documentation, 
examples of which include, but are not limited to:
    (i) A summary of residential mortgage lending activity.
    (ii) Written criteria outlining the lender's policy and procedures 
for originating, underwriting and closing residential mortgage loans.
    (iii) Evidence of an experienced loan underwriter on staff.
    (iv) Certification the lender will contract with an Agency-approved 
lender meeting the criteria to participate in the program as a servicer.
    (10) A lender that proposes to service loans that cannot meet 
paragraphs (a)(1) through (8) of this section must demonstrate its 
ability by submitting appropriate documentation, examples of which 
include but are not limited to:
    (i) Evidence of a written plan when contracting for escrow services.
    (ii) Evidence the lender has serviced single-family residential 
mortgage

[[Page 427]]

loans in the year prior to request lender approval to participate in the 
SFHGLP.
    (11) The financial requirements for non-supervised lenders not 
covered in paragraph (a)(8), must have:
    (i) A minimum adjusted net worth of $250,000, or $50,000 in working 
capital plus one percent of the total volume in excess of $25 million in 
guaranteed loans originated, serviced, or purchased during the lender's 
prior fiscal year, up to a maximum required adjusted net worth of $2.5 
million, and
    (ii) One or more lines of credit with a minimum aggregate of one 
million dollars.
    (b) SFHGLP participation requirements. Lenders and their agents must 
comply with the following requirements:
    (1) Keep up to date, and comply with, all Agency regulations and 
handbooks, including all amendments and revisions of program 
requirements and policies. Lenders must also comply with all other 
applicable federal, state, and local laws, rules, and requirements, 
including those under the purview of the Consumer Financial Protection 
Bureau, such as the Real Estate Settlement Procedures Act and the Truth 
in Lending Act. Lenders who originate a minimal number loans, as 
determined by the Agency, in a 24 month time frame may be required to 
take updated training to ensure a lender's continued knowledge of the 
program;
    (2) Regularly check Rural Development's Web site for new issuances 
related to the program;
    (3) Underwrite loans according to Rural Development regulations and 
process and approve loans in accordance with program instructions;
    (4) Review loan applications for accuracy and completeness,
    (5) Ensure that applicant income limits are not exceeded;
    (6) Ensure that borrowers have adequate loan repayment ability and 
acceptable credit histories;
    (7) Ensure that loss claims include only supportable costs;
    (8) Cooperate fully with Agency reporting and monitoring 
requirements;
    (9) Comply with limitations on loan purposes, loan limitations, 
interest rates, and loan terms;
    (10) Inform Rural Development immediately after the sale, transfer, 
or change of servicers of any Agency guaranteed loan;
    (11) Maintain reasonable and prudent business practices consistent 
with generally accepted mortgage industry standards, such as maintaining 
fidelity bonding;
    (12) Remain responsible for servicing even if servicing has been 
contracted to a third party;
    (13) Use Rural Development, HUD, Fannie Mae, or Freddie Mac forms, 
unless otherwise approved by Rural Development;
    (14) Maintain eligibility under paragraph (a) of this section;
    (15) Notify Rural Development if there are any material changes in 
organization or practices;
    (16) Be neither debarred nor suspended from participation in Federal 
programs, not debarred, suspended or sanctioned under state licensing 
and certification laws and regulation;
    (17) Notify Rural Development in the event of its bankruptcy or 
insolvency;
    (18) Remain free from default and delinquency on any debt owed to 
the Federal government;
    (19) Allow Rural Development or its representative access to the 
lender's records, including, but not limited to, records necessary for 
on-site and desk reviews of the lender's operation and the operations of 
any of its agents to verify compliance with Agency regulations and 
guidelines;
    (20) Maintain adequate operational quality control and reporting 
procedures to prevent mortgage fraud;
    (21) Maintain complete loan files with all required documentation 
that is accessible by the Agency upon request for review; and
    (22) Execute a lender's agreement provided by Rural Development.
    (23) Provide documentation as required by the Agency to be reviewed 
every two years for lender participation and,
    (24) Provide evidence that principal officers have a minimum of two 
years

[[Page 428]]

of experience in originating or servicing guaranteed mortgage loans as 
recommended in OMB Circular A-129.

[78 FR 73941, Dec. 9, 2013, as amended at 84 FR 70886, Dec. 26, 2019; 87 
FR 53371, Aug. 31, 2022]



Sec. 3555.52  Lender approval.

    (a) Initial approval. The lender must apply for and receive approval 
from Rural Development to participate in the SFHGLP. Application forms 
are available from Rural Development.
    (b) Conditions of approval. The lender must provide evidence to 
support their ability to originate, underwrite and/or service SFHGLP 
loans as outlined in Sec. 3555.51(a), including evidence of the 
lender's internal loan criteria and quality control. New lenders will be 
subject to mandatory training prior to lender approval in accordance 
with Agency procedures.
    (c) Termination of approval. Lender approval may be terminated in 
any of the following situations:
    (1) Lapse of any eligibility requirement. In the event that a lender 
fails to meet any of the requirements described in Sec. 3555.51, the 
lender must notify Rural Development immediately. Rural Development may 
terminate the lender's approval upon written notice and in accordance 
with the lender's agreement. The Agency may take other appropriate 
corrective action due to non-compliance with any of the requirements in 
this part and the lender's agreement. A lender whose approval has been 
terminated must sell any SFHGLP loans it holds to an approved lender 
immediately, and in no event later than 6 months, after termination of 
approval.
    (2) Voluntary withdrawal. The lender may choose to end participation 
in the SFHGLP at any time. If the withdrawing lender has originated 
SFHGLP loans and obtained conditional commitments but has not closed the 
loans, or is holding or servicing SFHGLP loans, the lender must make 
arrangements prior to withdrawing for the transfer of such loans to 
lenders approved to participate in the SFHGLP.



Sec. 3555.53  Contracting for loan origination.

    Lenders may contract with mortgage brokers, non-approved lenders, or 
other entities for loan origination services, closing services, or both, 
provided the loan is transferred immediately after closing to an Agency 
approved lender to which the guarantee will be issued. The approved 
lender is responsible for ensuring that the loan is properly 
underwritten, obtaining the conditional commitment, ensuring that the 
loan is properly closed, and ensuring that all closing costs, financing, 
and settlement fees meet Agency program requirements.



Sec. 3555.54  Sale of loans to approved lenders.

    Lenders may sell SFHGLP loans only to other Agency-approved lenders, 
Fannie Mae, Freddie Mac, or the Federal Home Loan Banks. In such a sale, 
the purchasing lender acquires all rights of the selling lender under 
the Loan Note Guarantee, and assumes all of the selling lender's 
obligations contained in any note, security instrument, or Loan Note 
Guarantee in connection with the loan purchased. The purchasing lender 
may be subject to any defenses, claims, or offsets that Rural 
Development would have had against the selling lender if the selling 
lender had continued to hold the loan. The lender must notify Rural 
Development immediately upon the sale or transfer of servicing of a 
SFHGLP loan.



Sec. Sec. 3555.55-3555.99  [Reserved]



Sec. 3555.100  OMB control number.

    The report and recordkeeping requirements contained in this subpart 
have been approved by the Office of Management and Budget and have been 
assigned OMB control number 0575-0179.



                       Subpart C_Loan Requirements



Sec. 3555.101  Loan purposes.

    Loan funds must be used to acquire a new or existing dwelling to be 
used by the applicant as a principal residence.
    (a) Eligible purposes. Loan funds may be used for:

[[Page 429]]

    (1) The construction or purchase of a new dwelling;
    (2) The cost of acquisition of an existing dwelling;
    (3) The cost of repairs associated with the acquisition of an 
existing dwelling; or
    (4) Acquisition and relocation of an existing dwelling.
    (b) Eligible costs. Loan funds also may be used to pay for the 
following items associated with the acquisition of a dwelling:
    (1) Purchase and installation of essential household equipment in 
the dwelling such as wall-to-wall carpeting, ovens, ranges, 
refrigerators, washing machines, clothes dryers, heating and cooling 
equipment, and other similar items as long as the equipment is conveyed 
with the dwelling and such items are typically included in the purchase 
of similar dwellings in the area.
    (2) Purchase and installation of energy-saving measures.
    (3) Site preparation including grading, foundation, plantings, 
seeding or sodding, trees, walks, fences, and driveways to the home.
    (4) A supplemental loan to provide funds for seller equity or 
essential repairs when an existing guaranteed loan is assumed 
simultaneously.
    (5) Special design features or equipment when necessary because of a 
physical disability of the applicant or a member of the household.
    (6) Loan funds may be used to pay for reasonable and customary 
expenses related to obtaining the loan. Allowable loan expenses include:
    (i) Legal, architectural, and engineering fees;
    (ii) Title exam, title clearance and title insurance;
    (iii) Transfer taxes and recordation fees;
    (iv) Appraisal, property inspection, surveying, environmental, tax 
monitoring, and technical services;
    (v) Homeownership education.
    (vi) Reasonable and customary loan discount points to reduce the 
note interest rate from the rate authorized in Sec. 3555.104(a).
    (vii) Reasonable and customary non-recurring closing costs 
associated with the mortgage transaction that do not exceed those 
charged other applicants by the lender for similar transactions such as 
FHA-insured or VA-guaranteed first mortgage loans. If the lender does 
not participate in such programs, the loan closing costs may not exceed 
those charged other applicants by the lender for a similar loan program 
that requires conventional mortgage insurance or guarantee. Allowable 
closing costs include the actual cost of credit reports, the loan 
origination fee, settlement fee, deposit verification fees, document 
preparation fees (if performed by a third party not controlled by the 
lender), and other reasonable and customary costs as determined by Rural 
Development. Payment of finder's fees or placement fees for the referral 
of an applicant to the lender is prohibited.
    (viii) Reasonable connection fees, assessments, or the pro rata 
installment costs for utilities such as water, sewer, electricity and 
gas for which the borrower is responsible.
    (ix) The prorated portion of real estate taxes that is due and 
payable on the property at the time of closing and to establish escrow 
accounts for real estate taxes, hazard and flood insurance premiums, and 
related costs.
    (x) The amount of the loan up-front guarantee fee required by Sec. 
3555.107(g).
    (xi) The cost of establishing a cushion in the mortgage escrow 
account for payment of the annual fee required by Sec. 3555.107(h), not 
to exceed 2 months.
    (xii) If the seller or other third party pays any of the costs 
described in this section, the amount of the costs paid by the seller or 
other third party may not be included in the loan amount to be 
guaranteed.
    (c) Combination construction and permanent loan. Loan funds may be 
used and Rural Development will guarantee a ``combination construction 
and permanent loan'' as defined at Sec. 3555.10, during the term of 
construction and prior to the borrower occupying the property, subject 
to the conditions in Sec. 3555.105.
    (d) Refinancing. Refinancing is permitted only in the following 
situations:
    (1) The loan may be used for permanent financing when temporary 
financing to construct a new dwelling, or to purchase and improve an 
existing

[[Page 430]]

dwelling, is arranged as a part of the loan package.
    (2) In the case of loans for a site on which a dwelling is not 
constructed prior to issuance of the Loan Note Guarantee, refinancing is 
permitted if:
    (i) The site is free and clear of debt;
    (ii) The debt to be refinanced was incurred for the sole purpose of 
purchasing the site;
    (iii) The applicant is unable to acquire adequate housing without 
refinancing; and
    (iv) An appropriate dwelling will be constructed on the site.
    (3) The loan is a present Section 502 Direct or guaranteed loan, 
authorized under the Housing Act of 1949 subject to the following 
additional requirements:
    (i) Three options for refinancing may be offered: Streamlined, non-
streamlined, and streamlined-assist. Other than provided in this 
paragraph, no cash out is permitted for any refinance. Documentation 
costs and underwriting requirements of subparts D, E, and F of this part 
apply to streamlined and non-streamlined refinances.
    (A) Lenders may offer a streamlined refinance for existing Section 
502 Guaranteed loans, which does not require a new appraisal. The lender 
will pay off the balance of the existing Section 502 Guaranteed loan.
    (B) Lenders may offer non-streamlined refinancing for existing 
Section 502 Guaranteed or Direct loans, which requires a new and current 
market value appraisal. The amount of the new loan must be supported by 
sufficient equity in the property as determined by an appraisal. The 
appraised value may be exceeded by the amount of up-front guarantee fee 
financed, if any, when using the non-streamlined option.
    (C) A streamlined-assist refinance loan is a special refinance 
option available to existing Section 502 direct and guaranteed loan 
borrowers. Applicants must meet the income eligibility requirements of 
Sec. 3555.151(a), and must not have had any defaults during the 12 
month period prior to the refinance loan application. There are no debt-
to-income calculation requirements, no credit report requirements, no 
property inspection requirements, and no loan-to-value requirements. 
There is no appraisal requirement except for Section 502 direct loan 
borrowers who have received a subsidy.
    (ii) The interest rate of the new loan must be fixed and must not 
exceed the interest rate of the original loan being refinanced.
    (iii) Existing borrowers seeking to refinance must have demonstrated 
their ability to meet payment demands by maintaining a current account 
for the 180 days prior to application.
    (iv) The loan security must include the same property as the 
original loan and be owned and occupied by the borrowers as their 
principal residence.
    (v) The maximum loan amount cannot exceed the balance of the loan 
being refinanced including accrued interest, the guarantee fee, and 
reasonable and customary closing costs. When a direct loan is 
refinanced, any recapture amount owed may be included in the loan amount 
or deferred as long as the recapture amount takes a subordinate lien 
position to the new SFHGLP loan. A discount on the recapture amount may 
be offered if the borrower does not defer recapture or includes the 
recapture amount in the new loan.
    (vi) Two options for refinancing can be offered. Lenders may offer a 
streamlined refinance for existing Section 502 Guaranteed loans, which 
does not require a new appraisal. Streamlined financing may not be 
available for existing Section 502 Direct loans. The lender will pay off 
the principal balance of the existing Section 502 Guaranteed loan. The 
new loan amount cannot include any accrued interest, closing costs or 
lender fees. The refinance up-front guarantee fee as established by the 
Agency can be included in the loan to be refinanced to the extent 
financing does not exceed the original loan amount. Lenders may offer 
non-streamlined refinancing for existing Section 502 Guaranteed or 
Direct loans, which requires a new and current market value appraisal. 
The new loan may include the principal and interest of the existing 
Agency loan, reasonable closing costs and lenders fees to extent there 
is sufficient equity in the property as determined by an appraisal. The 
appraised value may be exceeded

[[Page 431]]

by the amount of up-front guarantee fee financed, if any, when using the 
non-streamlined option. Documentation, costs, and underwriting 
requirements of subparts D, E, and F of this part apply to refinances, 
unless otherwise provided by the Agency.
    (vii) Lenders may require property inspections and/or repairs as a 
condition to loan approval. Expenses related to property inspections and 
repairs required of the lender may not be financed into the new loan 
amount.
    (viii) The lender pays a guarantee fee as established by the Agency.
    (ix) The refinance loan may be subject to an annual fee as 
established by the Agency; and
    (x) The Agency may limit the number of guaranteed loans made for 
refinancing purposes based on market conditions and other appropriate 
factors.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6428, Feb. 8, 2016; 81 
FR 26464, May 3, 2016]



Sec. 3555.102  Loan restrictions.

    A guarantee will not be issued if loan funds are to be used for:
    (a) Existing manufactured homes. Purchase of an existing 
manufactured home, except as provided in Sec. 3555.208(b)(3);
    (b) Income producing land or buildings. Purchase or improvement of 
land or buildings that are typically used principally for income-
producing purposes;
    (c) Business or income-producing enterprise. Purchase or the 
construction of buildings which are largely or in part specifically 
designed to accommodate a business or income-producing enterprise;
    (d) Loan discount points. Loan discount points, except as provided 
in Sec. 3555.101(b)(6)(vi);
    (e) Refinancing. Refinancing, except as provided in Sec. 
3555.101(d);
    (f) Buydown. Establishing a buydown account;
    (g) Lease. Payments on a lease; or
    (h) Seller concessions. Purchasing a home if the seller, or other 
interested third party, contributes more than 6 percent, unless 
otherwise provided by the Agency, of the property's sales price toward 
the purchaser's mortgage financing costs, closing costs, escrow 
accounts, furniture or other giveaways.



Sec. 3555.103  Maximum loan amount.

    The amount of the loan must not exceed the lesser of:
    (a) Market value. The market value of the property as determined by 
an appraisal that meets Agency requirements plus the amount of the up-
front loan guarantee fee required by Sec. 3555.107(g), or
    (b) Purchase price and acquisition costs. The total of the purchase 
price and all eligible acquisition costs as permitted by Sec. 3555.101.
    (c) Newly constructed dwelling--limited to 90 percent. A newly 
constructed dwelling that does not meet the definition of an existing 
dwelling, as defined at Sec. 3555.10, and cannot meet the inspection 
and warranty requirements of Sec. 3555.202(a) of this subpart is 
limited to 90 percent of the present market value. The dwelling must 
meet or exceed the International Energy Conservation Code (IECC) in 
effect at the time of construction.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6428, Feb. 8, 2016]



Sec. 3555.104  Loan terms.

    (a) Interest rate. The loan must be written at an interest rate 
that:
    (1) Is fixed over the term of the loan;
    (2) Shall be negotiated between the lender and the borrower to allow 
the borrower to obtain the best available rate in compliance with all 
applicable laws.
    (3) If the interest rate increases between the time of the issuance 
of the conditional commitment and the loan closing, the lender will 
submit appropriate documentation and underwriting analysis to confirm 
that the applicant is still eligible.
    (4) The warehouse lender may charge an interest rate for interim 
construction financing that exceeds the underlying promissory note rate. 
After construction ends, the interest rate must revert to a rate that is 
no higher than the underlying promissory note rate. The Agency reserves 
the right to establish a maximum amount for the interim construction 
financing interest rate in the handbook, as necessary to further program 
goals and protect the best interests of the government.

[[Page 432]]

    (b) Repayment period. The term of the loan may not exceed 30 years. 
Adjustable rate mortgages, balloon term mortgages or mortgages requiring 
prepayment penalties are ineligible terms.
    (c) Repayment schedule. Amortized payments will be due and payable 
monthly.
    (d) Negative amortization. The loan note must not provide for 
interest on interest.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6428, Feb. 8, 2016; 84 
FR 35006, July 22, 2019]



Sec. 3555.105  Combination construction and permanent loans.

    Guarantees of combination construction and permanent loans are 
subject to the following conditions:
    (a) Lender requirements. In addition to other lender requirements of 
this part, lenders seeking guarantees of combination construction and 
permanent loans must:
    (1) Have two or more years experience making and administering 
construction loans.
    (2) Submit an executed construction contract with each loan 
application package.
    (3) Review and approve construction contractors or builders. The 
lender will conduct due diligence investigations to determine that the 
contractor or builder meets the minimum requirements in paragraph (b) of 
this section. Evidence of the contractor or builder's compliance must be 
made available by the lender upon request of the Agency.
    (4) Close the loan prior to the start of construction with proceeds 
disbursed to cover the cost of, or balance owed on, the land and the 
balance into escrow.
    (5) Pay out monies from escrow to the builder during construction. 
The lender must obtain written approval from the borrower before each 
draw payment is provided to the builder. The borrower and lender are 
jointly responsible for approving disbursements during the construction 
phase. The lender must ensure that the appropriate work has been 
completed prior to releasing each draw. The Agency may require the 
lender to submit a draw and disbursement ledger for any loan guarantee 
upon request.
    (6) Obtain documentation that confirms the construction of the 
subject property is complete.
    (b) Contractor or builder requirements. Contractors or builders of 
homes financed with guaranteed combination construction and permanent 
loans must at least have:
    (1) Two or more years experience building or constructing all 
aspects of single family dwellings similar to the type of project being 
proposed;
    (2) State-issued construction or contractor licenses, as required by 
State or local law;
    (3) Insurance for commercial general liability of at least $500,000;
    (4) Contractors or builders who are constructing their own residence 
are ineligible.
    (c) Use of loan funds. (1) The loan is to finance the purchase of 
real estate and construction of a single family dwelling or the purchase 
and required rehabilitation of an existing single family dwelling. 
Condominiums, including detached condominiums and site condominiums, are 
ineligible for combination construction and permanent loans.
    (2) The loan amount may include:
    (i) The price of the lot.
    (ii) Reasonable and customary construction costs related to the 
construction administration, such as architectural and engineering fees, 
building permits and fees, surveys, title updates, contingency reserves, 
not exceeding a percentage specified by the Agency of the cost of 
construction, draw control and inspection fees, builder's risk insurance 
or course of construction insurance, and landscaping costs;
    (iii) Reasonable and customary closing costs as defined at Sec. 
3555.101; and
    (iv) The costs of an interim construction financing interest rate 
and PITI reserve under Sec. 3555.104(e) and Sec. 3555.105(d)(7), 
respectively.
    (3) Funds remaining after full disbursement of construction costs 
will be applied by the lender as a principal payment. Borrowers are not 
to receive funds after closing except that the borrower may receive 
funds remaining from certain unused prepaid expenses if the borrower 
used personal, non-loan funds to pay those expenses.

[[Page 433]]

    (d) Terms. The following terms apply to guarantees of combination 
construction and permanent loans:
    (1) The interest rate for the construction and permanent loan will 
be established in accordance with Sec. 3555.104 at the time the rate is 
locked, which must occur prior to closing.
    (2) The fair market value as determined by a licensed or certified 
appraiser in accordance with regulation 3555.107(d) will be used to 
establish the maximum loan amount.
    (3) Annual fees will begin in the month immediately following loan 
closing and will not be affected by loan reamortization following the 
completion of construction. Lenders may fund a lender imposed escrow 
account for borrower payments of the annual fee in accordance with Sec. 
3555.101(b)(6)(xi), as an eligible loan purpose, provided the market 
value of the property is not exceeded.
    (4) Interest on the construction loan is payable monthly either 
directly from the borrower or indirectly drawn from an established 
interest reserve. Real estate taxes and property insurance due during 
the construction period may also be paid using the same draw process. 
The annual fee will be due and payable from the lender on the 1st of the 
month following the anniversary date the construction to permanent loan 
closed.
    (5) Initial payment of the regularly scheduled (amortized) principal 
and interest payment may be postponed up to one year, if necessary, 
based upon the construction period. Local conditions and the proposed 
construction contract may dictate the term.
    (6) The loan will be modified and re-amortized to achieve full 
repayment within its remaining term once construction is complete. 
Within a reasonable time, as specified by the Agency, after the final 
inspection, the borrower will begin making regularly scheduled 
(amortized) principal and interest payments once the loan is re-
amortized.
    (7) Lenders may fund a reserve account for up to 12 months of 
regularly scheduled (amortized) principal and interest payments along 
with taxes and insurance (PITI). In such cases, a loan modification is 
not required after construction is complete. Funds remaining in the PITI 
reserve after construction is complete will be applied by the lender as 
a principal payment.
    (e) Mortgage file documentation. Standard industry credit and 
verification documents may be utilized when processing and closing the 
loan and must be dated within a reasonable time, specified by the 
Agency, of the closing in order to be considered valid. In addition to 
documentation noted at Sec. 3555.202(a), lenders must obtain and retain 
evidence:
    (1) The actual cost to construct or rehabilitate the subject 
dwelling.
    (2) The acquisition, transfer of ownership, and/or ownership of 
land;
    (3) Certification of construction completion and that construction 
costs have been fully drawn;
    (4) Closing costs;
    (5) Certification that property is free and clear of all other liens 
after conversion to permanent loan;
    (6) Required inspections and warranties;
    (7) Loan modification agreement, once construction is complete, 
confirming the existence of a permanent loan and the amortizing interest 
rate on the loan; and
    (8) Evidence that all funds remaining in the construction escrow or 
PITI reserve accounts have been applied as a principal curtailment once 
construction or rehabilitation is complete.
    (f) Loan Note Guarantee. The Loan Note Guarantee will be issued 
after closing of the construction loan without waiting for complete 
construction of the subject property upon:
    (1) Request by the approved lender;
    (2) The lender's submission of the closing documentation acceptable 
to Rural Development demonstrating that the loan was properly closed;
    (3) Payment of the guarantee fee; and
    (4) The lender's compliance with other requirements under Sec. 
3555.107.
    (g) Unplanned changes during construction. Should an unplanned 
change occur with the borrower or contractor preventing completion of 
construction, the lender remains responsible for completion of 
improvements satisfactory to Rural Development. The loan will be 
serviced in accordance with subparts F and G of this part. Funds 
remaining in

[[Page 434]]

all PITI reserve and construction escrow accounts after full 
disbursement of construction costs will be applied by the lender as a 
principal payment.
    (h) Reservation of funding. Rural Development reserves the right to 
limit the number or amount of loans guaranteed under this section based 
on market conditions and other factors it considers appropriate, such as 
loan and portfolio performance.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6429, Feb. 8, 2016; 84 
FR 35006, July 22, 2019; 87 FR 53372, Aug. 31, 2022]



Sec. 3555.106  [Reserved]



Sec. 3555.107  Application for and issuance of the loan guarantee.

    (a) Processing of applications. Except as provided in this section, 
Rural Development will process loan guarantee applications in the order 
that completed applications are received. Application forms and 
instruction procedures are available at any Rural Development office.
    (1) If analysis of the utilization of funds during the fiscal year 
indicates that, at the rate of current utilization, funds may not be 
sufficient to sustain that level of activity for the remainder of the 
fiscal year, the Agency may determine a shortage of funds exists.
    (2) When there is a shortage of funds, the Agency will limit SFHGLP 
loans to first-time homebuyers or veterans. First-time homebuyers and 
veterans will be served in the order their applications are received.
    (b) Automated underwriting. Approved lenders are required to process 
SFHGLP loans using Rural Development's automated systems. The automated 
underwriting system is a tool to help evaluate credit risk but does not 
substitute or replace the careful judgment of experienced underwriters 
and shall not be the exclusive determination on extending credit. The 
lender must apply for and receive approval from Rural Development to 
utilize the automated underwriting system. Rural Development reserves 
the right to terminate the lender's use of the automated underwriting 
system.
    (1) Lenders are responsible for ensuring all data is true and 
accurately represented in the automated underwriting system.
    (2) Full documentation and verification, in accordance with Subparts 
C, D and E of this part, will be retained in the lender's permanent loan 
file and must confirm the applicant's eligibility, creditworthiness, 
repayment ability, eligible loan purpose, sufficient collateral, and all 
other regulatory requirements.
    (3) The use of Rural Development's automated underwriting system 
subjects the lender to indemnification requirements in accordance with 
Sec. 3555.108.
    (4) If a loan receives an ``Accept'' underwriting recommendation, 
the lender is generally permitted to submit minimal documentation 
including the appraisal, flood hazard determination and fully executed 
request for guarantee, unless the lender is instructed to provide other 
documentation.
    (5) Loan requests that receive a ``Refer'' or ``Refer with Caution'' 
underwriting recommendation require further review and manual 
underwriting by the lender to determine whether the applicant meets 
SFHGLP eligibility requirements.
    (6) Lenders will validate findings based on the output report of the 
automated underwriting system.
    (7) The final submission of the last scoring event must be retained 
in the lender's permanent loan file.
    (c) Manual underwriting. Loans requiring manual underwriting 
(manually underwritten loans) are described in paragraphs (c)(1) and (2) 
of this section. For manually underwritten loans, full documentation, 
and verification in accordance with subparts C, D, and E of this part 
will be submitted to Rural Development when requesting a guarantee and 
maintained in the lender's file. The documentation will confirm the 
applicant's eligibility, creditworthiness, repayment ability, eligible 
loan purpose, adequate collateral, and satisfaction of other regulatory 
requirements. The following types of loans require manual underwriting:
    (1) Loans downgraded by Rural Development's automated system. These 
loans are manually underwritten by the lender and submitted utilizing

[[Page 435]]

Rural Development's automated system.
    (2) Loans that are not supported by Rural Development's automated 
systems. These loans are manually underwritten by the lender and 
submitted by secure email or other electronic means approved by the 
Agency.
    (d) Appraisals. The lender must supply a current appraisal report of 
the property for which the guarantee is requested.
    (1) Appraisals must be conducted in accordance with the Uniform 
Standards of Professional Appraisal Practices.
    (2) Approved lenders are responsible for selecting a qualified 
appraiser and the integrity, accuracy and thoroughness of the appraisals 
used to support their loan guarantee request.
    (3) The appraiser must report all readily observable property 
deficiencies, potential environmental hazards, as well as any adverse 
conditions discovered performing the research involved in completing the 
appraisal.
    (4) The Agency will conduct reviews of the appraisals prior to 
issuance of the conditional commitment, and other reviews may be 
conducted to ensure overall quality of appraisals. The lender is 
responsible for correcting any appraisal deficiencies reported by the 
Agency.
    (5) The Agency may determine an appraiser ineligible to conduct 
appraisals for SFHGLP due to the failure to comply with applicable 
requirements and regulations. Appraisals from the ineligible appraisers 
will not be accepted.
    (6) Use of an alternative approach to value for appraisals performed 
in remote rural areas, on tribal lands, or where a lack of market 
activity exists may be accepted at the Agency's discretion.
    (7) The validity period of an appraisal will be 120 days, unless 
otherwise provided by the Agency.
    (e) Environmental requirements. The lender and Rural Development 
will meet all environmental responsibilities in accordance with Sec. 
3555.5.
    (f) Issuance of a conditional commitment. The lender must 
demonstrate that all the general loan, applicant, and site eligibility 
requirements of this part are met before Rural Development will issue a 
conditional commitment. The lender, however, may obtain any required 
property inspection reports, such as a well test or construction phase 
inspections, if applicable and not needed for environmental compliance, 
after the issuance of the conditional commitment, but prior to loan 
closing.
    (1) The conditional commitment will expire in 90 days from issuance, 
unless new construction is involved.
    (2) The expiration of a conditional commitment may coincide with 
projected completion of new construction.
    (3) An extension may be granted if the loan cannot be closed due to 
circumstances beyond the lender's control.
    (4) Lenders may accept or decline the conditional commitment, or 
submit requests for changes with adequate support and documentation to 
be reviewed by the Agency.
    (g) Loan guarantee fee. The lender must pay a nonrefundable up-front 
guarantee fee, the cost of which may be passed on to the borrower. The 
up-front guarantee fee will not exceed 3.5 percent of the principal 
obligation. The current guarantee fee is available at any Rural 
Development office and may change periodically. Notice of a change in 
fee will be published as authorized in Exhibit K of subpart A of part 
1810 of this chapter (RD Instruction 440.1, available in any Rural 
Development office) or online at: http://www.rurdev.usda.gov/
rd_instructions.html. Once the guarantee has been issued, the fee will 
not be refunded.
    (h) Annual fee. The Agency may impose an annual fee of the lender 
not to exceed 0.5 percent of the average annual scheduled unpaid 
principal balance of the loan for the life of the loan to allow the 
Agency to reduce the up-front guarantee in Sec. 3555.107(g). The annual 
fee will be applicable to purchase and refinance loan transactions. The 
annual fee may be passed on to the borrower by the lender. The Agency 
may assess a late charge to the lender if the annual fee is not paid by 
the due date, and the late charge may not be passed on to the borrower. 
Further administrative guidance is provided in the handbook.

[[Page 436]]

    (i) Proper closing and requesting the loan note guarantee. The 
lender must ensure that any loan to be guaranteed is properly closed 
using documents acceptable to Rural Development.
    (1) Within 30 days of loan closing, the lender must request issuance 
of a loan guarantee.
    (2) The lender will certify the loan was closed in accordance with 
the conditional commitment and that no major changes have taken place 
since issuance of a commitment, except any changes specifically approved 
by the Agency.
    (3) The lender will maintain evidence of hazard insurance and, if 
applicable, flood insurance.
    (4) For all loan submissions, evidence of documentation supporting 
the properly closed loan will be submitted using Rural Development's 
automated systems.
    (5) Lenders will submit full documentation supporting a closed loan 
or evidence of self-certification status, as described in this section. 
Self-certified lenders must still submit the settlement statement and 
promissory note. Lenders must obtain written authorization from the 
Agency prior to submitting evidence of self-certification in lieu of 
full documentation. Authorization for self-certification may be granted 
by the Agency if:
    (i) The lender has an active lender agreement.
    (ii) The lender is actively engaged in originating SFHGLP loans and 
has closed a minimum of 10 loans in the past 12 months.
    (iii) The lender has successfully submitted 10 consecutive loan 
closing to the Agency that were in compliance with loan closing 
requirements and procedures.
    (iv) The lender agrees to retain evidence of confirmed closing 
conditions in accordance with the issued conditional commitment in the 
lender's permanent loan file.
    (j) Issuance of the guarantee. The loan guarantee does not take 
effect until:
    (1) The lender transmits the required up-front guarantee fee, the 
lender certification form provided by Rural Development, and loan 
closing documents to Rural Development;
    (2) The lender meets all other conditions set out in the conditional 
commitment;
    (3) The loan is current at the time the lender requests the loan 
guarantee;
    (4) Any construction or rehabilitation, is complete except for 
development described in Sec. Sec. 3555.101(c) and 3555.202(c); and
    (5) Rural Development issues the loan guarantee document.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6429, Feb. 8, 2016; 87 
FR 6776, Feb. 7, 2022]



Sec. 3555.108  Full faith and credit.

    (a) General. The Loan Note Guarantee constitutes an obligation 
supported by the full faith and credit of the United States and is 
incontestable except for fraud or misrepresentation of which the lender 
has actual knowledge at the time it becomes such lender or which the 
lender participates in or condones. Misrepresentation includes negligent 
misrepresentation.
    (b) Interest. A note that provides for the payment of interest on 
interest, however, shall not be guaranteed. If the note to which the 
Loan Note Guarantee is attached or relates provides for the payment of 
interest on interest, then the Loan Note Guarantee is void. 
Notwithstanding the prohibition of interest on interest, interest may be 
capitalized in connection with re-amortization under subpart G of this 
part.
    (c) Violations. The Loan Note Guarantee will be unenforceable by the 
lender to the extent any loss is occasioned by violation of usury laws, 
civil rights laws, negligent servicing, failure to obtain the required 
security or use of loan funds for unauthorized purposes, regardless of 
the time at which Rural Development acquires knowledge of the foregoing. 
Negligent servicing is defined as servicing that is inconsistent with 
this subpart and includes the failure to perform those services which a 
reasonably prudent Lender would perform in servicing its own loan 
portfolio of loans that are not guaranteed. The term includes not only 
the concept of a failure to act, but also not acting in a timely manner 
or acting contrary to the manner in which a reasonably prudent Lender 
would act up to the time of loan maturity or until a final loss is paid.

[[Page 437]]

    (d) Indemnification. The loan note guarantee will remain in effect 
for any holder of the loan who acquired it from an originating lender. 
If the Agency determines that a lender did not originate a loan in 
accordance with the requirements in this part, and the Agency pays a 
claim under the loan guarantee, the Agency may revoke the originating 
lender's eligibility status in accordance with subpart B of this part 
and may also require the originating lender:
    (1) To indemnify the Agency for the loss, if the default leading to 
the payment of loss claim occurred within five (5) years of loan 
closing, when one or more of the following conditions is satisfied:
    (i) The originating lender utilized unsupported data or omitted 
material information when submitting the request for a conditional 
commitment to the Agency;
    (ii) The originating lender failed to properly verify and analyze 
the applicant's income and employment history in accordance with Agency 
guidelines;
    (iii) The originating lender failed to address property deficiencies 
identified in the appraisal or inspection report that affect the health 
and safety of the occupants or the structural integrity of the property;
    (iv) The originating lender used an appraiser that was not properly 
licensed or certified, as appropriate, to make residential real estate 
appraisal in accordance with Sec. 3555.103(a); or,
    (2) To indemnify the Agency for the loss regardless of how long ago 
the loan closed or the default occurred, if the Agency determines that 
fraud or misrepresentation was involved with the origination of the 
loan.
    (3) In addition, the Agency may use any other legal remedies it has 
against the originating lender.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6429, Feb. 8, 2016; 81 
FR 26464, May 3, 2016]



Sec. 3555.109  Qualified mortgage.

    A qualified mortgage is a guaranteed loan meeting the requirements 
of this part and applicable Agency guidance, as well as the requirements 
in 12 CFR 1026.43(e)(2)(i) through (iii) and 12 CFR 1026.43(e)(3). An 
extension of credit made pursuant to a program administered by a State 
Housing Finance Agency is exempt from this requirement as defined in 12 
CFR 1026.43(a)(3)(iv). Lenders will be allowed to cure unintentional 
errors and retain the qualified mortgage status if the conditions set in 
12 CFR 1026.31(h) are met.

[81 FR 26464, May 3, 2016]



Sec. Sec. 3555.110-3555.149  [Reserved]



Sec. 3555.150  OMB control number.

    The report and recordkeeping requirements contained in this subpart 
are currently with the Office of Management and Budget under review and 
awaiting approval.



                  Subpart D_Underwriting the Applicant



Sec. 3555.151  Eligibility requirements.

    (a) Income eligibility. At the time of loan approval, the 
household's adjusted income must not exceed the applicable moderate 
income limit. The lender is responsible for documenting the household's 
income to determine eligibility for the SFHGLP.
    (b) Citizenship status. Applicants must provide evidence acceptable 
to the Agency of their status as United States citizens, U.S. non-
citizen nationals, or qualified aliens, as defined in Sec. 3555.10.
    (c) Principal residence. Applicants must agree and have the ability 
to occupy the dwelling as their principal residence. The Agency may 
require evidence of this ability. Rural Development will not guarantee 
loans for investment properties, or temporary, short-term housing.
    (d) Adequate dwelling. The dwelling must be modest, decent, safe, 
and sanitary.
    (e) Eligibility of current homeowners. Current homeowners may be 
eligible for guaranteed home loans under this part if all the following 
conditions are met:
    (1) The applicants are not financially responsible for another 
Agency guaranteed or direct home loan by the time the guaranteed home 
loan is closed;
    (2) The current home no longer adequately meets the applicants' 
needs;

[[Page 438]]

    (3) The applicants will occupy the home financed with the SFHGLP 
loan as their primary residence;
    (4) The applicants are without sufficient resources or credit to 
obtain the dwelling on their own without the guarantee;
    (5) No more than one single family housing dwelling other than the 
one associated with the current loan request may be retained; and
    (6) The applicants must be financially qualified to own more than 
one home. In order for net rental income from the retained dwelling to 
be considered for the applicant's repayment ability, the consistency of 
the rental income must be demonstrated for at least the previous 24 
months, and the current lease must be for a term of at least 12 months 
after the loan is closed.
    (f) Legal capacity. Applicants must have the legal capacity to incur 
the loan obligation, or have a court-appointed guardian or conservator 
who is empowered to obligate the applicant in real estate matters.
    (g) Suspension or debarment. Applicants who are suspended or 
debarred from participation in Federal programs under 2 CFR parts 180 
and 417 are not eligible for loan guarantees.
    (h) Repayment ability. Applicants must demonstrate adequate 
repayment ability. Lenders must maintain documentation supporting the 
repayment ability analysis in the loan file. Refer to Sec. 3555.152(a) 
for further information.
    (1) A repayment ratio will be used to determine an applicant's 
ability to repay a loan. The Agency will utilize two ratios, principal, 
interest, taxes and insurance (PITI) ratio and total debt (TD) ratio, to 
determine adequate repayment for the requested loan. The Agency reserves 
the right to consider calculation of a single ratio in determining 
repayment for the requested loan.
    (i) An applicant is considered to have adequate repayment ability 
when the monthly amount required for payment of PITI, homeowners' 
association dues, the monthly calculation of an annual fee, as 
applicable, and other real estate assessments does not exceed 29 percent 
of the applicant's repayment income and the monthly amount of PITI plus 
recurring monthly debts (total debt) does not exceed 41 percent of the 
applicant's repayment income.
    (ii) For home purchases under the Rural Energy Plus provision of 
Sec. 3555.209, the Agency reserves the right to allow flexibility in 
the PITI and TD ratio. The handbook will define what flexibilities can 
be extended.
    (iii) Contributions to personal income taxes, retirement accounts 
(including the repayment of personal loans from those retirement 
accounts), savings (including repayment of loans secured by such funds), 
the cost to commute, membership fees in unions or like organizations, 
childcare or other voluntary obligations will not be considered in the 
TD ratio.
    (iv) Except for obligations specifically excluded by State law, the 
debts of non-purchasing spouse must be included in the applicant's 
repayment ratios if the applicant resides in a community property state.
    (2) The repayment ratio may exceed the percentage in paragraph 
(h)(1) of this section when certain compensating factors exist. The 
handbook, HB-1-3555, Appendix I, located at https://www.rd.usda.gov/
sites/default/files/hb-1-3555.pdf, will provide examples of when a debt 
ratio waiver may be granted. The automated underwriting system will 
consider any compensating factors in determining when the variance is 
appropriate. Loans downgraded in the automated underwriting system which 
must be manually underwritten will require the lender to document 
compensating factors. The presence of compensating factors does not 
strengthen a ratio exception when multiple layers of risk are present in 
the application. Acceptable compensating factors, supporting 
documentation, and maximum ratio thresholds, will be further defined and 
clarified in the handbook. Compensating factors include but are not 
limited to:
    (i) A credit score at an acceptable level of 680 or higher for any 
applicants, unless otherwise provided by the Agency. The Agency reserves 
the right to change the acceptable level of credit score.
    (ii) A minimal increase in housing expense, i.e. the current rent 
payment

[[Page 439]]

is comparable to the proposed mortgage loan payment PITI and if 
applicable, homeowner association dues.
    (iii) The demonstrated ability to accumulate savings and cash 
reserves post loan closing.
    (iv) Continuous employment with a current primary employer.
    (3) Loan ratio exceptions require written approval by Rural 
Development, or acceptance by an Agency approved automated underwriting 
system. Flexibilities surrounding loan ratio exceptions will be further 
clarified in the handbook. Lenders with loans accepted by an Agency 
approved automated underwriting system need not submit documentation for 
the need for a ratio waiver.
    (4) If an applicant does not meet the repayment ability 
requirements, the applicant can increase repayment ability by having 
other eligible household members join the application.
    (5) Mortgage Credit Certificates may be considered in determining an 
applicant's repayment ability.
    (6) Section 8 Homeownership Vouchers may be used in determining an 
applicant's repayment ability. The monthly subsidy may be treated as 
repayment income in accordance with Sec. 3555.152(a) or offset in the 
PITI.
    (7) A funded buydown account may be used to reduce the borrower's 
monthly mortgage payment during the early years of repayment when all of 
the following requirements are met:
    (i) The loan will be underwritten at the note rate.
    (ii) The interest rate may be bought down to no more than 2 
percentage points below the note rate.
    (iii) The interest rate paid by the borrower may increase no more 
frequently than annually.
    (iv) The interest rate paid by the borrower may increase no more 
than 1 percentage point annually.
    (v) Funds must be placed in an escrow account with monthly releases 
scheduled directly to the lender.
    (vi) Funds must be placed with a Federal- or state-regulated lender.
    (vii) The escrow account must be fully funded for the buydown 
period.
    (viii) The borrower is not permitted to use personal funds or funds 
borrowed from another source to establish the escrow account for the 
buydown.
    (ix) The borrower must not be required to borrow or repay the funds.
    (i) Credit qualifications. Applicants generally must have a 
verifiable credit history that indicates a reasonable ability and 
willingness to meet their debt obligations as evidenced by an acceptable 
credit score, a credit report from a recognized credit repository 
meeting the requirements of Fannie Mae, Freddie Mac, FHA or VA, and 
other credit qualifications satisfactory to Rural Development.
    (1) Except as provided in paragraph (i)(6) of this section, the 
applicant's credit history must demonstrate a past willingness and 
ability to meet credit obligations to enable the lender to evaluate each 
applicant and draw a logical conclusion about the applicant's commitment 
and ability to handling financial obligations successfully and ability 
to make payments on the new mortgage obligation.
    (2) A loan's acceptance by an Agency approved automated underwriting 
system eliminates the need for the lender to submit documentation of the 
credit qualification decision as loan approval requirements will be 
incorporated in the automated system.
    (3) For manually underwritten loans, lenders must submit 
documentation of the credit qualification decision. Lenders will use 
credit scores to manually underwrite loan mortgage requests. Lenders are 
required to validate the credit scores utilized in the underwriting 
determination. Indicators of significant derogatory credit will require 
further review and documentation of that review. Indicators of 
significant derogatory credit include, but are not limited to:
    (i) A foreclosure that has been completed in the 36 months prior to 
application by the applicant.
    (ii) A bankruptcy in which debts were discharged within 36 months 
prior to the date of application by the applicant. A lender may give 
favorable consideration to applicants who have entered into a bankruptcy 
debt restructuring plan who have completed 12 months of consecutive 
payments. The payment performance must have been

[[Page 440]]

satisfactory with all required payments made on time, and the Trustee or 
the Bankruptcy Judge must approve of the new credit.
    (iii) One rent or mortgage payment paid 30 or more days late within 
the last 12 months prior to application by the applicant.
    (iv) A previous Agency loan that resulted in a loss to the 
Government.
    (4) When evidence of significant derogatory credit is present, 
lenders may consider extenuating circumstances, including but not 
limited to, whether the problems were caused by factors temporary in 
nature, if the circumstances leading to the derogatory credit were 
beyond the control of the applicant, and if the loan would significantly 
reduce the applicant's housing expenses.
    (5) In all cases, the applicant cannot have an outstanding Federal 
judgment, other than a judgment obtained in the United States Tax Court, 
or a delinquent non-tax Federal debt that has not been paid in full or 
otherwise satisfied.
    (6) For applicants without an established credit history, 
alternative methods may be used to evidence an applicant's willingness 
to pay, such as a non-traditional mortgage credit report or multiple 
independent verifications of trade references.
    (7) A credit report for a non-purchasing spouse must be obtained in 
order to determine the debt-to-income ratio referenced at Sec. 
3555.151(h) if the applicant resides in a community property state.
    (8) Lenders are encouraged to offer or provide for home ownership 
counseling. Lenders may require first-time homebuyers to undergo such 
counseling if it is reasonably available in the local area. When home 
ownership counseling is provided or sponsored by Rural Development or 
another Federal agency in the local area, the Lender must require the 
borrower to successfully complete the course.
    (9) Applicants with delinquent child support payments subject to 
collection by administrative offset are ineligible unless the payments 
are brought current, the debt is paid in full, or otherwise satisfied.
    (j) Obtaining credit. The applicant must be unable to obtain 
traditional conventional mortgage credit, as defined by the Agency, for 
the subject loan.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6429, Feb. 8, 2016; 87 
FR 6776, Feb. 7, 2022; 87 FR 53372, Aug. 31, 2022]



Sec. 3555.152  Calculation of income and assets.

    The lender must obtain and maintain documentation in the loan file 
supporting the lender's determination of all income and assets described 
in this section.
    (a) Repayment income. Repayment income is the amount of adequate and 
stable income from all sources that parties to the promissory note are 
expected to receive. Repayment income is used to determine the 
applicant's ability to repay a loan.
    (1) The lender must examine the applicant's past income record for 
at least the past 2 years and any applicable training and/or education. 
The Agency may require additional information and documentation from 
self-employed applicants and applicants employed by businesses owned by 
family members.
    (2) The lender must establish an applicant's anticipated amount of 
repayment income and the likelihood of its continuance for at least the 
next 3 years to determine an applicant's capacity to repay a requested 
mortgage loan in accordance with Sec. 3555.151(h)(1).
    (3) Income may not be used in calculating an applicant's ratios if 
it is from any source that cannot be verified, is not stable, or is 
likely not to continue.
    (4) The following types of income are examples of income not 
included in repayment income:
    (i) Any student financial aid received by household members for 
tuition, fees, books, equipment, materials, and transportation;
    (ii) Amounts received that are specifically for, or in reimbursement 
of the cost of medical expenses for any family member;
    (iii) Temporary, nonrecurring, or sporadic income (including gifts);
    (iv) Lump sum additions to family assets such as inheritances, 
capital

[[Page 441]]

gains, insurance payments and personal or property settlements;
    (v) Payments for the care of foster children or adults; and
    (vi) Supplemental Nutrition Assistance Program payments.
    (b) Annual income. Annual income is the income of all household 
members, regardless of whether they will be parties to the promissory 
note.
    (1) Applicants must provide the income, expense and household 
information necessary to enable the lender to make income 
determinations.
    (2) Lenders must verify employment and income information provided 
by the applicant for all household members. Lenders will verify the 
income for each adult household member for the previous 2 years. Written 
or oral verifications provided by third-party sources or documents 
prepared by third-party sources are acceptable. Lenders must project the 
expected annual income for the next 12 months from the verified sources.
    (3) The lender remains responsible for the quality and accuracy of 
all information used to establish a household's eligibility.
    (4) Household income from all sources including, but not limited to, 
income from temporarily absent household members, allowances for tax-
exempt income and net family assets as defined in paragraph (d) of this 
section are to be considered in the calculation of annual income.
    (5) The following sources of income will not be considered in the 
calculation of annual income:
    (i) Earned income of persons under the age of 18 unless they are an 
applicant or a spouse of a member of the household;
    (ii) Payments received for the care of foster children or foster 
adults and incomes received by foster children or foster adults who live 
in the household;
    (iii) Amounts granted for, or in reimbursement of, the cost of 
medical expenses;
    (iv) Earnings of each full-time student 18 years of age or older, 
except the head of household or spouse, that are in excess of any amount 
determined pursuant to HUD definition of annual income at 24 CFR 
5.609(c);
    (v) Temporary, nonrecurring, or sporadic income (including gifts);
    (vi) Lump sum additions to family assets such as inheritances; 
capital gains; insurance payments under health, accident, or worker's 
compensation policies; settlements for personal or property losses; and 
deferred periodic payments of supplemental social security income and 
Social Security benefits received in a lump sum;
    (vii) Any earned income tax credit;
    (viii) Adoption assistance in excess of any amount determined 
pursuant to HUD's definition of annual income at 24 CFR 5.609(c);
    (ix) Amounts received by the family in the form of refunds or 
rebates under State or local law for property taxes paid on the 
dwelling;
    (x) Amounts paid by a State agency to a family with a 
developmentally disabled family member living at home to offset the cost 
of services and equipment needed to keep the developmentally disabled 
family member at home;
    (xi) The full amount of any student financial aid;
    (xii) Any other revenue exempted by a Federal statute, a list of 
which is available from any Rural Development office;
    (xiii) Income received by live-in aides, regardless of whether the 
live-in aide is paid by the family or a social service program;
    (ix) Employer-provided fringe benefit packages unless reported as 
taxable income; and
    (x) Amounts received through the Supplemental Nutrition Assistance 
Program.
    (c) Adjusted annual income. Adjusted annual income is used to 
determine program eligibility and is annual income as defined in 
paragraph (b) of this section, less any of the following verified 
deductions for which the household is eligible.
    (1) A reduction for each family member, except the head of household 
or spouse, who is under 18 years of age, 18 years of age or older with a 
disability, or a full-time student, the amount of which will be 
determined pursuant to HUD definition of adjusted income at 24 CFR 
5.611.

[[Page 442]]

    (2) A deduction of reasonable expenses for the care of a child 12 
years of age or under that:
    (i) Enables a family member to work, to actively seek work, or to 
further a member's education;
    (ii) Are not reimbursed or paid by another source; and
    (iii) In the case of expenses to enable a family member to work, do 
not exceed the amount of income, including the value of any health 
benefits, earned by the family member enabled to work. If the child care 
provider is a household member, the cost of the children's care cannot 
be deducted.
    (3) A deduction of reasonable expenses related to the care of 
household members with disabilities that:
    (i) Enable a family member or the individual with disabilities to 
work, to actively seek work, or to further a member's education;
    (ii) Are not reimbursed from insurance or another source; and
    (iii) Are in excess of 3 percent of the household's annual income 
and do not exceed the amount of earned income included in annual income 
by the person who is able to work as a result of the expenses.
    (4) For any elderly family, a deduction in the amount determined 
pursuant to HUD definition of adjusted income at 24 CFR 5.611.
    (5) For elderly and disabled families only, a deduction for 
household medical expenses that are not reimbursed from insurance or 
another source and which, in combination with any expenses related to 
the care of household members with disabilities described in paragraph 
(c)(3) of this section, are in excess of 3 percent of the household's 
annual income.
    (d) Net family assets. For the purpose of computing annual income, 
the net family assets of all household members must be included in the 
calculation of annual income. Lenders must document and verify assets of 
all household members.
    (1) Net family assets include, but are not limited to, the actual or 
imputed income from:
    (i) Equity in real property or other capital investments, other than 
the dwelling or site;
    (ii) Cash on hand and funds in savings or checking accounts;
    (iii) Amounts in trust accounts that are available to the household;
    (iv) Stocks, bonds, and other forms of capital investments that is 
accessible to the applicant without retiring or terminating employment;
    (v) Lump sum receipts such as lottery winnings, capital gains, and 
inheritances;
    (vi) Personal property held as an investment; and
    (vii) Any value, in excess of the consideration received, for any 
business or household assets disposed of for less than fair market value 
during the 2 years preceding the income determination. The value of 
assets disposed of for less than fair market value shall not be 
considered if they were disposed of as a result of foreclosure, 
bankruptcy, or a divorce or separation settlement.
    (2) Net family assets for the purpose of calculating annual income 
do not include:
    (i) Interest in American Indian restricted land;
    (ii) Cash on hand which will be used to reduce the amount of the 
loan;
    (iii) The value of necessary items of personal property;
    (iv) Assets that are part of the business, trade, or farming 
operation of any member of the household who is actively engaged in such 
operation;
    (v) Amounts in voluntary retirement plans such as individual 
retirement accounts (IRAs), 401(k) plans, and Keogh accounts (except at 
the time interest assistance is initially granted);
    (vi) The value of an irrevocable trust fund or any other trust over 
which no member of the household has control;
    (vii) Cash value of life insurance policies; and
    (viii) Other amounts deemed by the Agency not to constitute net 
family assets.



Sec. Sec. 3555.153-3555.199  [Reserved]



Sec. 3555.200  OMB control number.

    The report and recordkeeping requirements contained in this subpart 
are currently with the Office of Management and Budget under review and 
awaiting approval.

[[Page 443]]



                   Subpart E_Underwriting the Property



Sec. 3555.201  Site requirements.

    (a) Rural areas. Rural Development will only guarantee loans made in 
rural areas designated as rural by Rural Development. However, if a 
rural area designation is changed to nonrural:
    (1) Existing conditional commitments in the former rural area will 
be honored;
    (2) A supplemental loan may be made in accordance with Sec. 
3555.101 in conjunction with a transfer and assumption of a guaranteed 
loan;
    (3) Loan requests where the application and purchase contract was 
complete prior to the area designation change may be approved; and
    (4) REO property sales and transfers with assumption may be 
processed.
    (b) Site standards. Sites must be modest and developed in accordance 
with any standards imposed by a State or local government and must meet 
all of the following requirements.
    (1) The site size must be typical for the area.
    (2) The site must not include income-producing land or buildings to 
be used principally for income-producing purposes. Vacant land without 
eligible residential improvements, or property used primarily for 
agriculture, farming or commercial enterprise is ineligible for a loan 
guarantee.
    (3) The site must be contiguous to and have direct access from a 
street, road, or driveway. Streets and roads must be hard surfaced or 
all weather surfaced and legally enforceable arrangements must be in 
place to ensure that needed maintenance will be provided.
    (4) The site must be supported by adequate utilities and water and 
wastewater disposal systems. Certain water and wastewater systems that 
are privately-owned may be acceptable if the lender determines that the 
systems are adequate, safe, compliant with applicable codes and 
requirements, and the cost or feasibility to connect to a public or 
community system is not reasonable. Certain community-owned water and 
wastewater systems may be acceptable if the lender determines that the 
systems are adequate, safe, and compliance with applicable codes and 
requirements. The Agency may require inspections on individual, central, 
or privately-owned and operated water or waste systems.



Sec. 3555.202  Dwelling requirements.

    (a) New dwellings. New dwellings must be constructed in accordance 
with certified plans and specifications, and must meet or exceed the 
International Energy Conservation Code (IECC) in effect at the time of 
construction. The lender must obtain and retain evidence of construction 
costs, inspection reports, certifications, and builder warranties 
acceptable to Rural Development.
    (b) Existing dwellings. Existing dwellings are considered to meet 
the following criteria when inspected and certified as meeting HUD 
requirements for one-to-four unit dwellings in accordance with Agency 
guidelines:
    (1) Be structurally sound;
    (2) Be functionally adequate;
    (3) Be in good repair, or to be placed in good repair with loan 
funds; and
    (4) Have adequate and safe electrical, heating, plumbing, water, and 
wastewater disposal systems.
    (c) Escrow account for exterior or interior development. This 
paragraph does not apply if the development is related to a 
``combination construction and permanent loan'' under Sec. 3555.101(c). 
If a dwelling is complete with the exception of interior or exterior 
development work, Rural Development may issue the Loan Note Guarantee on 
the loan if the following conditions are met:
    (1) The incomplete work does not affect the habitability of the 
dwelling, nor the health or safety of the housing occupants.
    (2) The cost of any remaining interior or exterior work is not 
greater than 10 percent of the final loan amount.
    (3) An escrow account is funded in an amount sufficient to assure 
the completion of the remaining work. This figure must be at least 100 
percent of the cost of completion but may be higher if the lender 
determines a higher amount is needed.
    (4) The builder or a licensed contractor has executed a contract 
providing for completion of the planned

[[Page 444]]

development within 180 days of loan closing. If the borrower will be 
completing the planned development on an existing dwelling without the 
services of a contractor, the requirement for an executed contract is 
waived when all of the following conditions are met:
    (i) The estimated cost to complete the work is less than 10 percent 
of the total loan amount;
    (ii) The escrow amount is less than or equal to $10,000; and
    (iii) The lender has determined the borrower has the knowledge and 
skills necessary to complete the work.
    (5) The lender may release escrowed funds only after obtaining a 
final inspection report acknowledged by the borrower and indicating all 
planned development has been satisfactorily completed.
    (6) The lender remains responsible to ensure a final inspection is 
performed and required repairs are completed.
    (7) The settlement statement reflects the amounts escrowed.



Sec. 3555.203  Ownership requirements.

    After the loan is closed, the borrower must have an acceptable 
ownership interest in the property as evidenced by one of the following:
    (a) Fee-simple ownership. Acceptable fee-simple ownership is 
evidenced by a fully marketable title with a deed vesting a fee-simple 
interest in the property to the borrower.
    (b) Secured leasehold interest. Loans may be guaranteed on leasehold 
properties. If the conditions in this subsection are met:
    (1) The applicant is unable to obtain fee simple title to the 
property;
    (2) Such leaseholds are fully marketable in the area, except in the 
case of properties located on American Indian restricted land;
    (3) The lease has an unexpired term of at least 45 years from the 
date of loan closing, except in the case of properties located on 
American Indian restricted land where the lease must have an unexpired 
term at least equal to the term of the loan. Leases on American Indian 
restricted land for period of 25 years which are renewable for a second 
25 year period are permissible as are leases of a longer duration;
    (4) The mortgage must cover both the property improvements and the 
leasehold interest in the land;
    (5) The leasehold estate must constitute real property, be subject 
to the mortgage lien, be insured by a title policy, be assignable or 
transferable and cannot be terminated except for nonpayment of lease 
rents; and
    (6) The lease must be recorded in the appropriate local real estate 
records.



Sec. 3555.204  Security requirements.

    Rural Development will only guarantee loans that are adequately 
secured. A loan will be considered adequately secured only when all of 
the following requirements are met:
    (a) Recorded security document. The lender obtains at closing, a 
mortgage on all required ownership and leasehold interests in the 
security property and ensures that the loan is properly closed.
    (b) Prior liens. No liens prior to the guaranteed mortgage exist 
except in conjunction with a supplemental loan for transfer and 
assumption. The guaranteed loan must have first lien position at 
closing. Junior liens by other parties are permitted as long as the 
junior liens do not adversely affect repayment ability or the security 
for the guaranteed loan.
    (c) Adequate security. Existing and proposed property improvements 
are completely on the site and do not encroach on adjoining property.
    (d) Collateral. All collateral secures the entire loan.



Sec. 3555.205  Special requirements for condominiums.

    Loans may be guaranteed for condominium units in condominium 
projects that meet all the requirements of this part, as well as the 
standards for condominium standards established by HUD, Fannie Mae, VA, 
or Freddie Mac, including those related to self-certification, warranty, 
underwriting, and ineligible condominium projects.



Sec. 3555.206  Special requirements for community land trusts.

    A community land trust must meet the definition in accordance with 
Sec. 3555.10 and other requirements described in this subpart. Loans 
may be

[[Page 445]]

guaranteed for dwellings on land owned by a community land trust only 
if:
    (a) Rural Development review. Rural Development reviews and accepts 
any restrictions imposed by the community land trust on the property or 
applicant before loan closing. The Agency may place conditions on the 
approval of restrictions on resale price and rights of first refusal.
    (b) Foreclosure termination. The community land trust automatically 
and permanently terminates upon foreclosure or acceptance by the lender 
of a deed in lieu of foreclosure.
    (c) Organization. The organization must meet the definition of a 
community land trust as defined in the Housing Act of 1949 and the 
following requirements:
    (1) Be organized under State or local laws.
    (2) Members, founders, contributors or individuals cannot benefit 
from any part of net earnings of the organization.
    (3) The organization must be dedicated to decent affordable housing 
for low-and moderate-income people.
    (4) Comply with financial accountability.
    (d) Lender documentation. The lender's file must contains 
documentation that the community land trust has community support, local 
market acceptance and 2 years of prior experience in providing 
affordable housing.
    (e) Appraisals. A property located on a site owned by a community 
land trust must be appraised as leasehold interest and meet the 
provisions of Sec. 3555.203.



Sec. 3555.207  Special requirements for Planned Unit Developments (PUDs).

    Loans may be guaranteed for PUDs that meet all of the requirements 
of this part, as well as the criteria for PUDs established by HUD, VA, 
Fannie Mae, or Freddie Mac.



Sec. 3555.208  Special requirements for manufactured homes.

    Loans may be guaranteed for manufactured homes if all the 
requirements in this section are met.
    (a) Eligible costs. In addition to the loan purposes described in 
Sec. 3555.101, Rural Development may guarantee a loan used for the 
following purposes related to manufactured homes when a real estate 
mortgage covers both the unit and the site:
    (1) Purchase of a new manufactured home, transportation, permanent 
foundation, and installation costs of the manufactured home, and 
purchase of an eligible site if not already owned by the applicant; and
    (2) Site development work properly completed to HUD, state and local 
government standards, as well as the manufacturer's requirements for 
installation on a permanent foundation.
    (b) Loan restrictions. The following loan restrictions are in 
addition to the loan restrictions contained in Sec. 3555.102:
    (1) A loan will not be guaranteed if it is used to purchase a site 
without also financing a new unit.
    (2) A loan will not be guaranteed if it is used to purchase 
furniture, including but not limited to: movable articles of personal 
property such as drapes, beds, bedding, chairs, sofas, divans, lamps, 
tables, televisions, radios, and stereo sets. Furniture does not include 
wall-to-wall carpeting, refrigerators, ovens, ranges, washing machines, 
clothes dryers, heating or cooling equipment, or other similar items.
    (3) A loan will not be guaranteed to purchase an existing 
manufactured home and site unless:
    (i) The unit and site are already financed with an Agency direct 
single family or guaranteed loan;
    (ii) The unit and site are being sold by Rural Development as REO 
property;
    (iii) The unit and site are being sold from the lender's inventory, 
and the loan for which the unit and site served as security was a loan 
guaranteed by Rural Development; or
    (iv) The unit was installed on its initial installation site on a 
permanent foundation complying with the manufacturer's and HUD 
installation standards.
    (4) A loan will not be guaranteed for repairs to an existing unit, 
unless the unit meets the requirements of Sec. 3555.208(b)(3).
    (5) A loan will not be guaranteed for the purchase of an existing 
manufactured home that has been moved from another site.

[[Page 446]]

    (c) Construction and development. (1) To be an eligible unit, the 
new unit must have a floor space of not less than 400 square feet.
    (2) The unit must be properly installed on a permanent foundation 
according to HUD standards, and the manufacturer's requirements for 
installation on a permanent foundation. A certification of proper 
foundation is required.
    (3) All wheels, axles, towing hitches and running gear must be 
removed from the manufactured home.
    (4) Unit construction must conform to the Federal Manufactured Home 
Construction and Safety Standards (FMHCSS) and be constructed in 
compliance with the HUD heating and cooling requirements for the State 
in which the unit will be located. Any alterations, such as garage 
construction, as a new unit must comply with FMHCSS.
    (5) The site development, installation and set-up must conform to 
the HUD requirements and the manufacturer's requirements for a permanent 
installation.
    (6) The unit must meet or exceed the IECC in effect at the time of 
construction.
    (7) The lender must maintain documentation of construction plans and 
required certifications.
    (d) Warranty requirements. (1) The applicant must receive a warranty 
in accordance with HUD requirements for new manufactured homes on 
permanent foundations.
    (2) The warranty must identify the unit by serial number.
    (3) The lender and applicant must obtain certification that the 
manufactured home has sustained no hidden damage during transportation 
and, if manufactured in separate sections that the sections were 
properly joined and sealed according to the manufacturer's 
specifications.
    (4) The manufactured home must be affixed with a data plate, placed 
inside the unit, and a certification label, affixed to each 
transportable section at the tail-light end of each unit which indicates 
that the home was designed and built in accordance with HUD's 
construction and safety standards in effect on the date the home was 
manufactured.
    (5) The lender must retain a copy of all manufacturers' warranties 
in the lender file.
    (e) HUD requirements. The FMHCSS and HUD requirements may be found 
at http://www.access.gpo.gov/nara/cfr/waisidx_04/24cfr3280_04.html.
    (f) Title and lien requirements. To be eligible for the SFHGLP, the 
following conditions must be met and documented in the lender's file:
    (1) A manufactured home loan must be secured by a perfected lien on 
real property consisting of the manufactured home and the land;
    (2) The manufactured home must be taxed as real estate as applicable 
under State law, including relevant statutes, regulations, and judicial 
decisions;
    (3) The security instrument must be recorded in the land records and 
must identify the encumbered property as including both the home and the 
land;
    (4) If applicable State law so permits, any certificate of title to 
the manufactured home must be surrendered to the appropriate State 
government authority. If the certificate of title cannot be surrendered, 
the lender must indicate its lien on the certificate;
    (5) The mortgage must be covered by a standard real property title 
insurance policy and any other endorsement required in the applicable 
jurisdiction for manufactured home ensuring the manufactured home is 
part of the real property that secures the loan; and
    (6) The borrower must acknowledge the unit is a fixture and part of 
the real estate securing the mortgage.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6429, Feb. 8, 2016]



Sec. 3555.209  Rural Energy Plus loans.

    Loans guaranteed under Rural Energy Plus provisions are for the 
purchase of energy-efficient homes. Homes that meet the most current 
IECC standards including existing homes that are retrofitted to those 
standards are eligible. Energy-efficient homes result in lower utility 
bills, conserve energy, and thus, make more income available for monthly 
debt obligations. For loans guaranteed under this subpart, the lender 
will certify that the home meets the most current IECC

[[Page 447]]

standards. The Handbook will define what further flexibilities can be 
extended.



Sec. Sec. 3555.210-3555.249  [Reserved]



Sec. 3555.250  OMB control number.

    The report and recordkeeping requirements contained in this subpart 
are currently with the Office of Management and Budget under review and 
awaiting approval.



                  Subpart F_Servicing Performing Loans



Sec. 3555.251  Servicing responsibility.

    (a) Servicing action. Lenders must perform those servicing actions 
that a reasonable and prudent lender would perform in servicing its own 
portfolio of non-guaranteed loans.
    (b) Third party servicer. A lender may contract with a third party 
to service its loans, but the servicing lender of record remains 
responsible for the quality and completeness of the servicing.
    (c) Transfer of servicing. Rural Development may require a lender to 
transfer its loan servicing activities to an approved lender if Rural 
Development determines that the lender has failed to provide acceptable 
servicing.
    (d) Non-compliance. Lenders who fail to comply with Agency 
requirements or program guidelines may be subject to withdrawal of 
lender approval, denial and/or reduction in loss claims, withdrawal of 
the loan guarantee and/or indemnification in accordance with Sec. 
3555.108(d).



Sec. 3555.252  Required servicing actions.

    Lender servicing responsibility includes, but is not limited to, the 
following actions.
    (a) Collecting regularly scheduled payments. Lender must collect 
regularly scheduled loan payments and apply them to the borrower's 
account.
    (b) Payment of taxes and insurance. Lenders must ensure that real 
estate taxes, assessments, and flood and hazard insurance premiums for 
all property that secures a guaranteed loan are paid on schedule.
    (1) Establish escrow account. Lenders with the capacity to escrow 
funds must establish escrow accounts for all guaranteed loans for the 
payment of taxes and insurance. Escrow accounts must be administered in 
accordance with the Real Estate Settlement and Procedures Act (RESPA) of 
1974, and insured by the FDIC or the NCUA.
    (2) Plan and responsibility of lender to ensure payment. Lenders 
that do not have the capacity to escrow funds must implement procedures, 
subject to Agency approval, to ensure the borrower pays such obligations 
on a timely basis. In addition, such lenders must accept the 
responsibility for payment of taxes and insurance that comes due prior 
to liquidation. Rural Development will not include any taxes or 
insurance amounts that accrued prior to acceleration in any potential 
loss claim. Rural Development may revoke the acceptance of the lender's 
plan if loan performance indicates that delinquency and loss rates are 
being affected by the lender's inability to escrow for taxes, 
assessment, and insurance. This alternative is not available to lenders 
who contract for servicing.
    (c) Insurance. (1) Until the loan is paid in full, lenders must 
ensure that borrowers maintain hazard and flood insurance as required, 
on property securing guaranteed loans. The insurance must be issued by 
companies in amounts, and on terms and conditions, acceptable to Rural 
Development. Flood insurance through the National Flood Insurance 
Program must be maintained for all property located in special flood or 
mudslide areas identified by FEMA and must be consistent with mortgage 
industry standards, as determined by the Agency.
    (2) Lenders must ensure that borrowers immediately notify them of 
any loss or damage to insured property securing guaranteed loans and 
collect the amount of the loss from the insurance company. Unless the 
borrower pays off the guaranteed loan using the insurance proceeds, the 
following requirements must be met:
    (i) All repairs and replacements using the insurance proceeds must 
be planned, performed, and inspected in accordance with Agency 
construction requirements and procedures.

[[Page 448]]

    (ii) When insurance funds remain after payments for all repairs, 
replacements, and other authorized disbursements have been made, the 
funds must be applied in the following order: prior liens (including 
past-due property taxes); past-due amounts; protective advances; and 
released to the borrower if the lender's debt is adequately secured.
    (3) If the insurance claim is de minimis as determined by the 
Agency, the lender may release the funds directly to the borrower to 
advance funds to contractors, provided that the account is current and 
the borrower has a history of timely payments; the borrower occupies the 
property; and the borrower executes an affidavit agreeing to apply the 
funds for repairs or reconstruction of the dwelling.
    (d) Credit reporting. The lender must notify a credit repository of 
each new guaranteed loan, must identify the loan as guaranteed by Rural 
Development, and must report to that repository whenever any account 
becomes more than 30 calendar days past due.
    (e) Bankruptcy actions. The lender is responsible for monitoring and 
taking all appropriate and prudent actions during bankruptcy proceedings 
to protect the borrower and Government's interest, in accordance with 
Sec. 3555.306(d).



Sec. 3555.253  Late payment charges.

    Late payment charges will not be covered by the guarantee and cannot 
be added to the principal and interest due under any guaranteed note.
    (a) Maximum amount. Any late payment charge must be reasonable and 
customary for the area.
    (b) Loans with interest assistance. The lender must not charge a 
late fee if the only unpaid portion of the borrower's scheduled payment 
is interest assistance owed by Rural Development.



Sec. 3555.254  Final payments.

    Lenders may release security instruments only after payment for the 
satisfaction of the full debt, including any recapture, has been 
received and verified.

[81 FR 6429, Feb. 8, 2016]



Sec. 3555.255  Borrower actions requiring lender approval.

    (a) Mineral leases. A lender may consent to the lease of mineral 
rights and subordinate its lien to the lessee's rights and interests in 
the mineral activity if the security property will remain suitable as a 
residence, the lender's security interest will not be adversely 
affected, and Rural Development's environmental requirements are met. 
Concurrence by Rural Development prior to consenting to the lease of 
mineral rights is required, unless otherwise provided by the Agency. 
Subordination of guaranteed loans to a mineral lease does not entitle 
the leaseholder to any proceeds from the sale of the security property.
    (1) If the proposed activity is likely to decrease the value of the 
security property, the lender may consent to the lease only if the 
borrower assigns 100 percent of the income from the lease to the lender 
to be applied to reduce the principal balance, and the total rent to be 
paid is at least equal to the estimated decrease in the market value of 
the security property.
    (2) If the proposed activity is not likely to decrease the value of 
the security property, the lender may consent to the lease if the 
borrower agrees to use any damage compensation received from the lessee 
to repair damage to the site or dwelling, or to assign it to the lender 
to be applied to reduce the principal balance.
    (b) Partial release of security property. A lender may consent to 
transactions affecting a security property, such as selling or 
exchanging security property or granting of a right-of-way across the 
security property, and grant a partial release, provided that the 
following conditions are met.
    (1) The borrower will receive adequate compensation, and either make 
a reduction to the principal balance or make improvements to the 
security property, in order to maintain the current loan-to-value ratio 
for the guaranteed loan.
    (i) For sale of security property, the borrower must receive cash in 
an amount equal to or greater than the value of the security property 
being sold or interests being conveyed.

[[Page 449]]

    (ii) For exchange of security property, the borrower must receive 
another parcel of property with value equal to or greater than that 
being disposed of.
    (iii) For granting an easement or right-of-way, the borrower must 
receive benefits that are equal to or greater than the value of the 
security property being disposed of or interests being conveyed.
    (2) An appraisal of the security property will be conducted by the 
lender if the most current appraisal is more than 1 year old or if it 
does not reflect current market value.
    (3) The security property, after the transaction is completed, will 
continue to be an adequate, safe, and sanitary dwelling.
    (4) Repayment of the guaranteed debt will not be jeopardized.
    (5) When exchange of all or part of the security property is 
involved, title clearance will be obtained before release of the 
existing security.
    (6) Proceeds from the sale of a portion of the security property, 
granting an easement or right-of-way, damage compensation, and all 
similar transactions requiring the lender's consent, will be used in the 
following order:
    (i) To pay customary and reasonable costs related to the transaction 
that must be paid by the borrower.
    (ii) To be applied on a prior lien debt, if any.
    (iii) To be applied to the guaranteed indebtedness or used for 
improvements to the security property consistent with the purposes and 
limitations applicable for use of guaranteed loan funds. The lender must 
ensure that the proceeds are used as planned.
    (7) The lender will seek Agency concurrence, unless otherwise 
provided by the Agency, by submitting documentation supporting the 
borrower's reason for request, the proposed use of the land with 
supporting plans, specifications, cost estimates, surveys, disclosures 
of restrictions, legal description modification, title clearance related 
to the transaction request, as applicable, and any other documents 
necessary for the Agency to make a determination.



Sec. 3555.256  Transfer and assumptions.

    (a) Transfer without assumption. (1) The lender must notify Rural 
Development if the borrower transfers the security property and the 
transferee does not assume the debt.
    (2) Except as described in paragraph (d) of this section, if a 
security property is transferred with the lender's knowledge without 
assumption of the debt, Rural Development will void the guarantee.
    (b) Transfer with assumption. (1) The lender must obtain Agency 
approval before consenting to a transfer with an assumption of the 
outstanding debt.
    (2) Rural Development may approve a transfer with an assumption of 
the outstanding debt if the following conditions are met:
    (i) The transferee must assume the entire outstanding debt and 
acquire all property securing the guaranteed loan balance; however, the 
transferor must remain personally liable. The transferor must pay any 
recapture as a result of interest subsidy granted, if applicable, owed 
at the time of the transfer and assumption.
    (ii) The transferee must meet the eligibility requirements described 
in subpart D of this part.
    (iii) The property must meet the site and dwelling requirements 
described in subpart E of this part, or be brought to those standards 
prior to the transfer. Guaranteed loans secured by properties located in 
areas that have ceased to be rural may be assumed notwithstanding the 
fact that the property is located in a non-rural area.
    (iv) The priority of the existing lien securing the guaranteed loan 
must be maintained or improved.
    (v) Any new rates and terms must not exceed the rates and terms 
allowed for new loans under this part, and the interest rate must not 
exceed the interest rate on the initial loan.
    (vi) A new guarantee fee, calculated based on the remaining 
principal balance, must be paid to Rural Development in accordance with 
Sec. 3555.107(g).
    (vii) If additional financing is required to complete the transfer 
and assumption or to make needed repairs, Rural Development may approve 
a supplemental guaranteed loan provided adequate security exists.

[[Page 450]]

    (viii) The lender must verify and document their permanent file in 
accordance with subpart C of this part.
    (ix) A written request supported by the lender demonstrating the 
applicant's credit worthiness, income eligibility and underwriting 
analysis must be submitted to the Agency for approval of a transfer and 
assumption.
    (x) The lender may close the loan in accordance with Sec. 3555.107.
    (c) Transfer without approval. If a lender becomes aware that a 
borrower has transferred a property without approval, the lender must 
take one of the following actions:
    (1) Notify Rural Development and continue the loan without the 
guarantee; or
    (2) Obtain Agency approval for the transfer with assumption; or
    (3) Liquidate the guaranteed loan and submit a claim for any loss.
    (d) Transfer without triggering the due-on-sale clause. (1) The 
following types of transfers do not trigger due-on-sale clauses in 
security instruments:
    (i) A transfer from the borrower to a spouse or children not 
resulting from the death of the borrower;
    (ii) A transfer to a relative, joint tenant, or tenant by the 
entirety resulting from the death of the borrower;
    (iii) A transfer to a spouse or ex-spouse resulting from a divorce 
decree, legal separation agreement, or property settlement agreement;
    (iv) A transfer to a person other than a deceased borrower's spouse 
who wishes to assume the loan for the benefit of persons who were 
dependent on the deceased borrower at the time of death, if the dwelling 
will be occupied by one or more persons who were dependent on the 
borrower at the time of death, and there is a reasonable prospect of 
repayment; or
    (v) A transfer into an inter vivos trust in which the borrower does 
not transfer rights of occupancy in the property.
    (2) When a transferee obtains a property with a guaranteed loan 
through a transfer that does not trigger the due-on-sale clause:
    (i) The lender will notify Rural Development of the transfer;
    (ii) Rural Development will continue with the guarantee, whether or 
not the transferee assumes the guaranteed loan;
    (iii) The transferee may assume the guaranteed loan on the rates and 
terms contained in the promissory note. If the account is past due at 
the time an assumption agreement is executed, the loan may be re-
amortized to bring the account current;
    (iv) The transferee may assume the guaranteed loan under new rates 
and terms if the transferee applies and is eligible.
    (3) Any subsequent transfer of title, except upon the death of the 
inheritor or between inheritors to consolidate title, will trigger the 
due-on-sale clause.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6429, Feb. 8, 2016]



Sec. 3555.257  Unauthorized assistance.

    (a) Unauthorized assistance due to false information. (1) If the 
borrower receives a guaranteed loan based on false information provided 
by the borrower, Rural Development may require the lender to accelerate 
the guaranteed loan. After the lender accelerates the loan upon request, 
the lender may submit a claim for any loss. If the lender fails to 
accelerate the loan upon request, Rural Development may reduce or void 
the guarantee.
    (2) If the borrower receives a guaranteed loan based on false 
information provided by the lender, Rural Development may void the 
guarantee subject to the provisions of Sec. 3555.108.
    (3) If the borrower or lender provides false information, Rural 
Development may pursue criminal and civil false claim actions, 
suspension and/or debarment, and take all other appropriate action.
    (b) Unauthorized assistance due to inaccurate information. Rural 
Development will honor a guarantee for a loan made to an applicant who 
receives a guaranteed loan based on inaccurate information if the 
applicant was eligible to receive the guaranteed loan at the time it was 
made, and if the loan funds were used only for eligible loan purposes.

[[Page 451]]



Sec. Sec. 3555.258-3555.299  [Reserved]



Sec. 3555.300  OMB control number.

    The report and recordkeeping requirements contained in this subpart 
are currently with the Office of Management and Budget under review and 
awaiting approval.



                Subpart G_Servicing Non-Performing Loans



Sec. 3555.301  General servicing techniques.

    In accordance with industry standards and as provided by the Agency:
    (a) Prompt action. Lenders shall take prompt action to collect 
overdue amounts from borrowers to bring a delinquent loan current in as 
short a time as possible to avoid foreclosure to the extent possible and 
minimize losses.
    (b) Evaluation of borrower. Lenders must evaluate loans and take 
appropriate loss mitigation actions in an effort to resolve any 
repayment problems and provide borrowers with the maximum opportunity to 
become successful homeowners.
    (c) Prompt contact. In the event of default, the lender shall 
promptly contact the borrower within a timeframe specified by the 
Agency.
    (d) Determine ability to cure. The lender must make a reasonable 
effort to obtain from the borrower information regarding the reason for 
default, the borrower's current financial situation and any other 
necessary information to evaluate the borrower's ability to cure the 
default and determine a feasible plan for collection, and/or 
alternatives to foreclosure.
    (e) Communication. Before an account becomes 60 days past due and if 
there is no payment arrangement in place, the lender must send a 
certified letter to the borrower requesting an interview for the purpose 
of resolving the past due account.
    (f) Prior to liquidation. Before an account becomes 60 days past due 
or before initiating liquidation, the lender must assess the physical 
condition of the property, determine whether it is occupied, and take 
necessary steps to protect the property.
    (g) Maintain documentation. The lender must maintain documentation 
demonstrating that requirements in this subpart have been met and what 
steps have been taken to save a mortgage prior to making a decision to 
foreclose.
    (h) Formal servicing plan. The lender must report a formal servicing 
plan to the Agency utilizing a web-based automated system when a 
borrower's account is delinquent for 90 days or more and a method other 
than foreclosure is recommended to solve the delinquency.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6429, Feb. 8, 2016; 84 
FR 70886, Dec. 26, 2019]



Sec. 3555.302  Protective advances.

    Lenders may pay the following pre-liquidation expenses necessary to 
protect the security property and charge the cost against the borrower's 
account.
    (a) Advances for taxes and insurance. Without prior Agency 
concurrence, lenders may advance funds to pay past due real estate 
taxes, hazard and flood insurance premiums, and other related costs.
    (b) Advances for costs other than taxes and insurance. Protective 
advances for costs other than taxes and insurance, such as emergency 
repairs, can be made only if the borrower cannot, or will not, obtain an 
additional loan or reimbursement from an insurer or the borrower has 
abandoned the property. The lender must determine that any repairs 
funded by protective advances are cost effective. Repairs funded by 
protective advances must be planned, performed and inspected in 
accordance with Sec. 3555.202 and as further described by the Agency. 
The lender must obtain prior Agency concurrence before issuing 
protective advances under this paragraph of a significant amount as 
specified by the Agency.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6430, Feb. 8, 2016; 84 
FR 70886, Dec. 26, 2019]



Sec. 3555.303  Traditional servicing options.

    (a) Eligibility. To be eligible for traditional servicing, all the 
following conditions must be met:
    (1) The borrower presently occupies the property;

[[Page 452]]

    (2) The borrower is in default or facing imminent default for an 
involuntary reason. A borrower is ``facing imminent default'' if that 
borrower is current or less than 30 days past due on the mortgage 
obligation and is experiencing a significant reduction in income or some 
other hardship that will prevent him or her from making the next 
required payment on the mortgage during the month in which it is due. 
The borrower must be able to document the cause of the imminent default, 
which may include, but is not limited to, one or more of the following 
types of hardship:
    (i) A reduction in or loss of income that was supporting the 
mortgage loan;
    (ii) A change in household financial circumstances;
    (3) The borrower demonstrates a reasonable ability to support 
repayment of the debt in the future;
    (4) There are no adverse property conditions that inhibit the 
inhabitability or use of the property; and
    (5) The borrower has not received assistance due to the submission 
of false information by the borrower.
    (b) Servicing options. The lender must consider traditional 
servicing options in the following order to resolve the borrower's 
default or imminent default:
    (1) Repayment agreement. A repayment agreement is an informal plan 
lasting 3 months or less to cure short-term delinquencies.
    (2) Special forbearance agreement. A special forbearance agreement 
is a longer-term formal plan to cure a delinquency not to exceed the 
equivalent of 12 months of PITI. The agreement may gradually increase 
monthly payments in an amount sufficient to repay the arrearage over a 
reasonable amount of time and/or temporarily reduce or suspend payments 
for a short period. If the borrower is at least 3 months delinquent, the 
special forbearance agreement may resume normal payments for several 
months followed by a loan modification.
    (3) Loan modification plan. A loan modification is a permanent 
change in one or more of the terms of a loan that results in a payment 
the borrower can afford and allows the loan to be brought current. A 
loan modification must be a written agreement.
    (i) Loan modifications must be a fixed interest rate and cannot 
exceed the market interest rate at the time of modification.
    (ii) Loan modifications may capitalize all or a portion of the 
arrearage and/or reamortization of the balance due including foreclosure 
fees and costs, tax and insurance advances, and past due Agency annual 
fees imposed by the lender. Late charges and lender fees may not be 
capitalized.
    (iii) If necessary to demonstrate repayment ability, the loan term 
after reamortization may be extended for up to 30 years from the date of 
the loan modification.
    (iv) The lender's lien priority cannot be adversely affected by 
providing a loan modification.
    (v) Lenders may require that borrowers complete a trial payment plan 
prior to making scheduled payments amended by the traditional loan 
servicing loan modification.
    (c) Terms of loan note guarantee. Use of traditional servicing 
options does not change the terms of the loan note guarantee except when 
the traditional servicing option meets the requirements of Sec. 
3555.303(b)(3)(iv). The loan guarantee will apply to loan terms 
extending beyond the 30 year loan term from the date of origination when 
a loan modification meets the criteria set forth in Sec. 
3555.303(b)(3)(iv).

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6430, Feb. 8, 2016; 84 
FR 70886, Dec. 26, 2019]



Sec. 3555.304  Special servicing options.

    (a) General. (1) Lenders must exhaust traditional servicing options 
outlined in this part or have determined that use of traditional 
servicing options would not resolve the delinquency, prior to special 
servicing options. Lenders must exhaust special servicing options prior 
to liquidation in accordance with Sec. Sec. 3555.305 or 3555.306.
    (2) Use of special loan servicing does not change the terms of the 
loan note guarantee.
    (3) Special servicing options shall be used in the order established 
in this section to bring the borrower's mortgage payment to income ratio 
as close

[[Page 453]]

as possible to, but not less than, 31 percent.
    (4) If the borrower currently has a mortgage payment to income ratio 
of 31 percent or less, special servicing options can be utilized to cure 
the delinquency without modifying the note; otherwise, special servicing 
options shall be used in the order established in this section to bring 
the borrower's mortgage payment to income ratio as close as possible to, 
but not less than, 31 percent.
    (b) Conditions for special servicing options. In addition to the 
requirements in Sec. 3555.303(a), the following conditions apply to all 
special loan servicing:
    (1) The borrower's total debt to income ratio following the special 
loan servicing must not exceed 55 percent. Prior to servicing a 
borrower's account with special loan servicing, the lender must verify 
the borrower's income and total debt.
    (2) The borrower must successfully complete a trial payment plan of 
sufficient duration, as determined by the Agency, to demonstrate that 
the borrower will be able to make regularly scheduled payments as 
modified by the special loan servicing.
    (3) Expenses related to special loan servicing including, but not 
limited to, title search and recording fees shall not be charged to the 
borrower. However, if a foreclosure was initiated and canceled prior to 
special loan servicing, legal fees and costs for work performed in 
relation to the foreclosure costs before the cancellation date may be 
charged to the borrower.
    (4) Capitalization of late charges and lender fees is not permitted 
in the special loan servicing option.
    (c) Extended-term loan modification. The Lender may modify the loan 
by reducing the interest rate to a level at or below the maximum 
allowable interest rate and extending the repayment term up to a maximum 
of 40 years from the date of loan modification. The loan guarantee will 
apply to loan terms extending beyond the 30 year loan term from the date 
of origination when a loan modification meets the criteria set forth in 
this section.
    (1) Loan modifications may capitalize all or a portion of the 
arrearage and/or reamortization of the balance due including foreclosure 
fees and costs, tax and insurance advances, and past due Agency annual 
fees imposed by the lender. Late charges and lender fees may not be 
capitalized.
    (2) Loan modifications must be a fixed interest rate and cannot 
exceed the current market interest rate at the time of modification. 
When reducing the interest rate, the maximum rate is subject to 
paragraph (c)(3) of this section.
    (3) The term shall be extended only as long as is necessary to 
achieve the targeted mortgage payment to income ratio after the interest 
rate has been fixed at a level at or below the maximum allowable rate.
    (4) If the targeted mortgage payment to income ratio cannot be 
achieved using an extended-term loan modification alone, the lender may 
consider a mortgage recovery advance under this section in addition to 
the extended-term loan modification.
    (d) Mortgage recovery advance. (1) The maximum amount of a mortgage 
recovery advance is 30 percent of the unpaid principal balance as of the 
date of initial default. The Agency may change the maximum amount of 
mortgage recovery advance by publication in the Federal Register.
    (2) If the borrower's total monthly mortgage payment is less than 31 
percent of gross monthly income prior to an extended term loan 
modification, the mortgage recovery advance can be used to cure the 
borrower's delinquency without changing the terms of the promissory 
note.
    (3) The principal deferment amount for a specific case shall be 
limited to the amount that will bring the borrower's total monthly 
mortgage payment to 31 percent of gross monthly income.
    (4) The lender may file a claim pursuant to Subpart H of this part 
for reimbursement of reasonable title search and/or recording fees in 
connection with the promissory note and mortgage or deed-of-trust, not 
to exceed a maximum amount specified by the Agency.
    (5) Prior to making a mortgage recovery advance, the lender must 
perform an escrow analysis to ensure that the payment made on behalf of 
the borrower accurately reflects the escrow

[[Page 454]]

amount required for taxes and insurance.
    (6) The following terms apply to the repayment of mortgage recovery 
advances:
    (i) The mortgage recovery advance note and subordinate mortgage or 
deed-of-trust shall be interest-free.
    (ii) Borrowers are not required to make any monthly or periodic 
payments on the mortgage recovery advance note; however, borrowers may 
voluntarily submit partial payments without incurring any prepayment 
penalty.
    (iii) The due date for the mortgage recovery advance note shall be 
the due date of the guaranteed note held by the lender, as modified by 
the special loan servicing. Prior to the due date on the mortgage 
recovery advance note, payment in full under the note is due at the 
earlier of the following:
    (A) When the first lien mortgage and the guaranteed note are paid 
off; or
    (B) When the borrower transfers title to the property by voluntary 
or involuntary means.
    (iv) Repayment of all or part of the mortgage recovery advance must 
be remitted directly to the Agency by the borrower.
    (v) The Agency will collect this Federal debt from the borrower by 
any available means if the mortgage recovery advance is not repaid based 
on the terms outlined in the promissory note and mortgage or deed-of-
trust.
    (7) The lender may request reimbursement from the Agency for a 
mortgage recovery advance. A fully supported and documented claim for 
reimbursement must be submitted to the Agency within 60 days of the 
advance being executed by the borrower. The borrower must execute a 
promissory note payable to the Agency and a mortgage or deed-of-trust in 
recordable form perfecting a lien naming the Agency as the secured party 
for the amount of the mortgage recovery advance. The lender shall 
properly record the mortgage or deed-of-trust in the appropriate local 
real estate records and provide the original promissory note to the 
Agency.
    (8) A loss claim filed by a lender will be adjusted by any amount of 
mortgage recovery advance reimbursed to the lender by the Agency.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6430, Feb. 8, 2016; 84 
FR 70886, Dec. 26, 2019]



Sec. 3555.305  Voluntary liquidation.

    The lender must have exhausted the servicing options outlined in 
Sec. Sec. 3555.302 through 3555.304 to cure the delinquency before 
considering voluntary liquidation. The methods of voluntary liquidation 
of the security property outlined in this section may be used to protect 
the interests of the Government.
    (a) Eligibility. To be eligible for voluntary liquidation, the 
following conditions must be met:
    (1) The loan is at least 30 days delinquent or meets the imminent 
default definition as outlined in Sec. 3555.303(a)(2);
    (2) The default was caused by an involuntary reason; and
    (3) The borrower must presently occupy the property except in 
situations where the borrower does not occupy the property due to the 
same involuntary reason that led to the default.
    (b) Pre-foreclosure or short sale. The borrower may sell the 
security property for a price that represents its fair market value. The 
sale price, less any reasonable and customary sale or closing costs 
incurred by the borrower, must be applied to the borrower's account.
    (c) Deed in lieu of foreclosure. The lender may accept a deed in 
lieu of foreclosure if it will result in a lesser loss claim than if 
foreclosure occurs.
    (d) Offer by junior lienholder. If a junior lienholder makes an 
offer in the amount of at least the anticipated net recovery value, as 
calculated in accordance with Sec. 3555.353, the lender may assign the 
note and mortgage to the junior lienholder.
    (e) Other methods of voluntary liquidation. The lender may propose 
other methods of voluntary liquidation that are consistent with this 
section if the lender fully documents how the proposal will result in a 
savings to the Government.

[78 FR 73941, Dec. 9, 2013, as amended at 84 FR 70886, Dec. 26, 2019]

[[Page 455]]



Sec. 3555.306  Liquidation.

    (a) General. (1) When a lender determines that a borrower is unable 
or unwilling to meet loan obligations with servicing options under this 
subpart, the lender must accelerate the guaranteed loan and, if 
necessary, foreclose.
    (2) Prior to acceleration the lender must have advised the borrower, 
in writing, of available foreclosure avoidance options and the borrower 
must have failed to request such options.
    (3) The lender must accelerate the guaranteed loan, with a demand 
letter, when the account is three scheduled payments past due unless 
there is a reasonable prospect of resolving the delinquency through 
another method.
    (4) The borrower is responsible for all expenses associated with 
liquidation and acquisition.
    (b) Foreclosure. (1) The lender must initiate foreclosure within 90 
calendar days of the decision to liquidate unless Federal, State, or 
local law requires that foreclosure action be delayed. When there is a 
legal delay (such as bankruptcy), foreclosure must be initiated within 
90 calendar days after it becomes possible to do so. Foreclosure 
initiation begins with the first public action required by law such as 
filing a complaint or petition, recording a notice of default, or 
publication of a notice of sale.
    (2) Lenders must exercise due diligence in completing the 
liquidation process to ensure the foreclosure is cost effective, 
expeditious, and completed in an efficient manner, as otherwise provided 
by the Agency. The lender must choose the foreclosure method 
representing the best interest of the Federal Government.
    (3) The lender's decision to bid at foreclosure and any bid amount 
will be based upon the property value, whether the property value is 
sufficient to cover the existing debt and incurred costs, and any 
potential to recover a deficiency. The lender will encourage third party 
bidding at a foreclosure sale when the total debt, including the cost of 
acquiring, managing and disposing of the property, if acquired, is 
greater than the gross proceeds expected from a foreclosure sale at 
market value.
    (c) Unless State law imposes other requirements, the lender may 
reinstate an accelerated account if the borrower pays, or makes 
acceptable arrangements to pay, all past-due amounts, any protective 
advances, and any foreclosure-related costs incurred by the lender.
    (d) Bankruptcy. (1) When a borrower files a petition in bankruptcy, 
the lender must suspend collection and foreclosure actions in accordance 
with Title 11 of the United States Code.
    (2) The lender may accept conveyance of security property by the 
trustee in the bankruptcy, or the borrower, if the bankruptcy court has 
approved the transaction, and the lender will acquire title free of all 
liens and encumbrances except the lender's liens.
    (3) Whenever possible after the borrower has filed for protection 
under Chapter 7 of Title 11 of the United States Code, a reaffirmation 
agreement will be signed by the borrower and approved by the bankruptcy 
court prior to discharge, if the lender and the borrower decide to 
continue with the loan.
    (4) The lender must protect the guaranteed loan debt and all 
collateral securing the loan in bankruptcy proceedings.
    (5) The lender can include principal and interest lost as a result 
of bankruptcy proceedings in any claim filed in accordance with Sec. 
3555.354.
    (e) Maintain condition of security property. The lender must make 
reasonable and prudent efforts to ensure that the condition of the 
security property is maintained during any liquidation, acquisition, and 
sale of the property. These efforts include, but are not limited to, 
periodic inspections, performing necessary repairs, winterization, 
securing the property, removing debris, yard maintenance and ensuring 
the continuance of property insurance. The lender must identify, 
determine the cause, and document any environmental hazard affecting the 
value of the security property. The lender must retain a record of all 
efforts to maintain the condition of the security property.
    (f) Lender acquisition of title. If at liquidation, the title to the 
property is conveyed to the lender, the lender will submit a loss claim 
package, including

[[Page 456]]

a market value appraisal, within 60 days of the foreclosure sale date or 
the date the lender acquires title. If eviction action is required in 
order to obtain a market value appraisal, the lender must submit the 
loss claim package, including the market value appraisal, within 60 days 
of the date the occupants clear the premises. The lender must submit the 
loss claim request, including the market value appraisal, in accordance 
with subpart H.
    (g) Debt settlement reporting. The lender must report to the IRS and 
all national credit reporting repositories any debt settled through 
liquidation.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6430, Feb. 8, 2016; 81 
FR 31164, May 18, 2016; 84 FR 70886, Dec. 26, 2019]



Sec. 3555.307  Assistance in natural disasters.

    (a) Policy. Servicers must utilize general procedures available 
under this subpart for servicing borrowers affected by natural 
disasters, as supplemented by Rural Development, to minimize 
delinquencies and avoid foreclosure.
    (b) Evaluating the damage. Servicers are expected to inspect a 
security property whenever they have reason to believe the property has 
been damaged.
    (c) Special relief measures. The servicer must evaluate on an 
individual case-by-case basis a mortgage that is (or becomes) seriously 
delinquent as the result of the borrower's incurring extraordinary 
damages or expenses related to the natural disaster. The servicer should 
document its individual mortgage file regarding all servicing actions 
taken during this time period. The lender must consider all special 
relief alternatives for disaster assistance available to the borrower 
prior to suspending collection and foreclosure activities. The 
suspension of servicing actions will expire 90 days from the declaration 
date of the natural disaster, unless otherwise extended by the Agency.
    (d) Insurance claim settlements. Prior to release of hazard 
insurance proceeds because of damage caused by a natural disaster, 
servicers must complete a cost and benefit analysis on a case-by-case 
basis to determine if the property can be repaired or rebuilt. The 
servicer's actions must be based on the status of the mortgage, the 
amount of insurance proceeds, and the length of time required repairing 
or reconstructing the property, and the market conditions in the area. 
If the property will not be repaired or rebuilt, the insurance proceeds 
must be applied to the unpaid principal loan balance.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 6430, Feb. 8, 2016]



Sec. Sec. 3555.308-3555.349  [Reserved]



Sec. 3555.350  OMB control number.

    The report and recordkeeping requirements contained in this subpart 
are currently with the Office of Management and Budget under review and 
awaiting approval.



                  Subpart H_Collecting on the Guarantee



Sec. 3555.351  Loan guarantee limits.

    (a) Original loan amount. For the purposes of this section, the term 
``Original Loan Amount'' means the original promissory note amount minus 
any loans funds not actually disbursed to the borrower or on behalf of 
the borrower at the time the SFHGLP loan was made or thereafter.
    (b) Maximum loss payment. The maximum payment for a loss sustained 
by the lender under the SFHGLP is the lesser of:
    (1) 90 percent of the Original Loan Amount; or
    (2) 100 percent of any loss equal to or less than 35 percent of the 
Original Loan Amount plus 85 percent of any remaining loss up to 65 
percent of the Original Loan Amount.



Sec. 3555.352  Loss covered by the guarantee.

    Subject to Sec. 3555.351, the loss claim payment will be calculated 
as the difference between the Total Indebtedness on the loan and the Net 
Recovery Value calculated according to Sec. 3555.353. The Total 
Indebtedness on the loan includes:
    (a) Principal balance. The unpaid principal balance;
    (b) Accrued interest. Accrued interest at the guaranteed loan note 
rate from the last day interest was paid by the

[[Page 457]]

borrower to the settlement date, as defined at Sec. 3555.10;
    (c) Additional interest. Additional interest on the unsatisfied 
principal accrued from the settlement date to the date the claim is 
paid, but not more than 60 days from the settlement date;
    (d) Protective advances. Principal and interest for protective 
advances, as described in Sec. 3555.303; and
    (e) Liquidation costs. Reasonable and customary liquidation costs, 
such as attorney fees, market value appraisals, and foreclosure costs. 
Annual fees advanced by the lender to the Agency are ineligible for 
reimbursement when calculating the loss claim payment.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 31164, May 18, 2016; 84 
FR 70886, Dec. 26, 2019]



Sec. 3555.353  Net recovery value.

    The net recovery value of the property is determined differently for 
properties that have been sold than for properties that remain in the 
lender's inventory at the time the loss claim is filed.
    (a) For a property that has been sold. When a loss claim is filed on 
a property that was sold to a third party at the foreclosure sale or 
through an approved pre-foreclosure sale, net recovery value is 
calculated as follows:
    (1) The proceeds from the sale plus any other amounts recovered, 
minus
    (2) The amount of actual liquidation and disposition costs provided 
those costs are reasonable and customary for the area. Costs incurred by 
in-house staff may not be included.
    (b) For a property that has been acquired. When a loss claim is 
filed on a property acquired by the lender through a foreclosure sale or 
a deed-in-lieu of foreclosure, the net recovery value is based on an 
estimated sales price calculated using a market value appraisal along 
with holding and disposition costs calculated using the acquisition and 
management factor (also known as the VA Net Value Factor) published by 
the VA, and other factors as determined by the Agency. The lender must 
submit a loss claim package, including a market value appraisal, within 
60 days of the foreclosure sale date or the date the lender acquires 
title. If eviction action is required in order to obtain a market value 
appraisal, the lender must submit the loss claim package, including the 
market value appraisal, within 60 days of the date the occupants clear 
the premises and in accordance with other requirements of this subpart. 
with any loss claim request in accordance with subpart H.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 31165, May 18, 2016; 84 
FR 70887, Dec. 26, 2019]



Sec. 3555.354  Loss claim procedures.

    All lenders must use a web-based automated system designated by the 
Agency to submit all loss claim requests.
    (a) Sold property. For property that has been sold, the lender must 
submit a loss claim within 45 calendar days of the sale. Late claims 
made beyond this period of time may be rejected or reduced by Rural 
Development. Instructions and forms may be obtained from Rural 
Development.
    (b) REO. If at liquidation, the title to the property is conveyed to 
the lender, the lender will submit a loss claim package, including a 
market value appraisal, within 60 days of the foreclosure sale date or 
the date the lender acquires title. If eviction action is required in 
order to obtain a market value appraisal, the lender must submit the 
loss claim package within 60 days of the date the occupants clear the 
premises. The lender must order a market value appraisal and include the 
market value appraisal with the loss claim package. The Agency will use 
the market value appraisal, along with other Agency required 
documentation, to determine the property value for the basis of the loss 
claim. The Agency will apply an acquisition and management resale factor 
to estimate holding and disposition costs, based on the most current VA 
Management and Acquisition Factor found at https://www.benefits.va.gov/
HOMELOANS/servicers_valeri.asp.
    (c) Deficiency judgments. The lender must enforce any judgment for 
which there are current prospects of collection before submitting a loss 
claim, and amounts collected must be applied against the outstanding 
debt. Rural Development will process the loss

[[Page 458]]

claim if there are no current prospects for collection.

[78 FR 73941, Dec. 9, 2013, as amended at 81 FR 31165, May 18, 2016; 84 
FR 70887, Dec. 26, 2019]



Sec. 3555.355  Reducing or denying the claim.

    (a) Determination of loss payment. Subject to the requirements of 
Sec. 3555.108, if Rural Development determines that the amount of the 
loss was increased due to the lender's failure to comply with the 
conditions of the Loan Note Guarantee, the Agency may reduce or deny any 
loss claim by the portion of the loss determined was caused by the 
lender's action or failure to act. The circumstances under which loss 
claims may be denied or reduced include, but are not limited to, the 
following lender actions:
    (1) Failure to adhere to required servicing and liquidation 
procedures as set forth in Agency regulations and guidance, including 
the payment of real estate taxes or hazard insurance when due;
    (2) Failure to report defaulted loans to Rural Development within 
required timeframes;
    (3) Failure to ensure that the security property is adequately 
maintained during liquidation;
    (4) Delay in filing a loss claim;
    (5) Claiming unauthorized expenses;
    (6) Providing unauthorized assistance;
    (7) Failure to obtain the required security or maintain the security 
position;
    (8) Violating usury laws;
    (9) Negligence, gross negligence or misrepresentation; or
    (10) Committing fraud, or failing to report knowledge of fraud or 
false information.
    (b) Disputes. If the lender disputes the loss claim amount 
determined by Rural Development, Rural Development will pay the 
undisputed portion of the loss claim, and the lender may appeal the 
decision in accordance with Sec. 3555.4.



Sec. Sec. 3555.356-3555.399  [Reserved]



Sec. 3555.400  OMB control number.

    The report and recordkeeping requirements contained in this subpart 
are currently with the Office of Management and Budget under review and 
awaiting approval.



PART 3560_DIRECT MULTI-FAMILY HOUSING LOANS AND GRANTS--Table of Contents



              Subpart A_General Provisions and Definitions

Sec.
3560.1 Applicability and purpose.
3560.2 Civil rights.
3560.3 Environmental review requirements.
3560.4 Compliance with other Federal requirements.
3560.5 State, local or tribal laws.
3560.6 Borrower responsibility and requirements.
3560.7 Delegation of responsibility.
3560.8 Administrator's exception authority.
3560.9 Reviews and appeals.
3560.10 Conflict of interest.
3560.11 Definitions.
3560.12-3560.49 [Reserved]
3560.50 OMB control number.

               Subpart B_Direct Loan and Grant Origination

3560.51 General.
3560.52 Program objectives.
3560.53 Eligible use of funds.
3560.54 Restrictions on the use of funds.
3560.55 Applicant eligibility requirements.
3560.56 Processing section 515 housing proposals.
3560.57 Designated places for section 515 housing.
3560.58 Site requirements.
3560.59 Environmental review requirements.
3560.60 Design requirements.
3560.61 Loan security.
3560.62 Technical, legal, insurance, and other services.
3560.63 Loan limits.
3560.64 Initial operating capital contribution.
3560.65 Reserve account.
3560.66 Participation with other funding or financing sources.
3560.67 Rates and terms for section 515 loans.
3560.68 Permitted return on investment (ROI).
3560.69 Supplemental requirements for congregate housing and group 
          homes.
3560.70 Supplemental requirements for manufactured housing.
3560.71 Construction financing.
3560.72 Loan closing.
3560.73 Subsequent loans.
3560.74 Loan for final payments.
3560.75-3560.99 [Reserved]
3560.100 OMB control number.

[[Page 459]]

      Subpart C_Borrower Management and Operations Responsibilities

3560.101 General.
3560.102 Housing project management.
3560.103 Maintaining housing projects.
3560.104 Fair housing.
3560.105 Insurance and taxes.
3560.106-3560.149 [Reserved]
3560.150 OMB control number.

                Subpart D_Multi-Family Housing Occupancy

3560.151 General.
3560.152 Tenant eligibility.
3560.153 Calculation of household income and assets.
3560.154 Tenant selection.
3560.155 Assignment of rental units and occupancy policies.
3560.156 Lease requirements.
3560.157 Occupancy rules.
3560.158 Changes in tenant eligibility.
3560.159 Termination of occupancy.
3560.160 Tenant grievances.
3560.161-3560.199 [Reserved]
3560.200 OMB control number.

                             Subpart E_Rents

3560.201 General.
3560.202 Establishing rents and utility allowances.
3560.203 Tenant contributions.
3560.204 Security deposits and membership fees.
3560.205 Rent and utility allowance changes.
3560.206 Conversion to Plan II (Interest Credit).
3560.207 Annual adjustment factors for Section 8 units.
3560.208 Rents during eviction or failure to recertify.
3560.209 Rent collection.
3560.210 Special note rents (SNRs).
3560.211-3560.249 [Reserved]
3560.250 OMB control number.

                       Subpart F_Rental Subsidies

3560.251 General.
3560.252 Authorized rental subsidies.
3560.253 [Reserved]
3560.254 Eligibility for rental assistance.
3560.255 Requesting rental assistance.
3560.256 Rental assistance payments.
3560.257 Assigning rental assistance.
3560.258 Terms of agreement.
3560.259 Transferring rental assistance.
3560.260 Rental subsidies from non-Agency sources.
3560.261 Improperly advanced rental assistance.
3560.262-3560.299 [Reserved]
3560.300 OMB control number.

                     Subpart G_Financial Management

3560.301 General.
3560.302 Accounting, bookkeeping, budgeting, and financial management 
          systems.
3560.303 Housing project budgets.
3560.304 Initial operating capital.
3560.305 Return on investment.
3560.306 Reserve account.
3560.307 Reports.
3650.308 Annual financial reports.
3560.309 Advancement (loan) of funds to a RRH project by the owner, 
          member of the organization, or agent of the owner.
3560.310-3560.349 [Reserved]
3560.350 OMB control number.

                       Subpart H_Agency Monitoring

3560.351 General.
3560.352 Agency monitoring scope, purpose, and borrower 
          responsibilities.
3560.353 Scheduling of on-site monitoring reviews.
3560.354 Borrower response to monitoring review notifications.
3560.355-3560.399 [Reserved]
3560.400 OMB control number.

                           Subpart I_Servicing

3560.401 General.
3560.402 Loan payment processing.
3560.403 Account servicing.
3560.404 Final loan payments.
3560.405 Borrower organizational structure or ownership interest 
          changes.
3560.406 MFH ownership transfers or sales.
3560.407 Sales or other disposition of security property.
3560.408 Lease of security property.
3560.409 Subordinations or junior liens against security property.
3560.410 Consolidations.
3560.411-3560.449 [Reserved]
3560.450 OMB control number.

Subpart J_Special Servicing, Enforcement, Liquidation, and Other Actions

3560.451 General.
3560.452 Monetary and non-monetary defaults.
3560.453 Workout agreements.
3560.454 Special servicing actions related to housing operations.
3560.455 Special servicing actions related to loan accounts.
3560.456 Liquidation.
3560.457 Negotiated debt settlement.
3560.458 Special property circumstances.
3560.459 Special borrower circumstances.
3560.460 Double damages.
3560.461 Enforcement provisions.
3560.462 Money laundering.
3560.463 Obstruction of Federal audits.
3560.464-3560.499 [Reserved]

[[Page 460]]

3560.500 OMB control number.

    Subpart K_Management and Disposition of Real Estate Owned (REO) 
                               Properties

3560.501 General.
3560.502 Tenant notifications and assistance.
3560.503 Disposition of REO property.
3560.504 Sales price and bidding process.
3560.505 Agency loans to finance purchases of REO properties.
3560.506 Conversion of single family type REO property to MFH use.
3560.507-3560.549 [Reserved]
3560.550 OMB control number.

                    Subpart L_Off-Farm Labor Housing

3560.551 General.
3560.552 Program objectives.
3560.553 Loan and grant purposes.
3560.554 Use of funds restrictions.
3560.555 Eligibility requirements for off-farm labor housing loans and 
          grants.
3560.556 Application requirements and processing.
3560.557 [Reserved]
3560.558 Site requirements.
3560.559 Design and construction requirements.
3560.560 Security.
3560.561 Technical, legal, insurance and other services.
3560.562 Loan and grant limits.
3560.563 Initial operating capital.
3560.564 Reserve accounts.
3560.565 Participation with other funding or financing sources.
3560.566 Loan and grant rates and terms.
3560.567 Establishing the profit base on initial investment.
3560.568 Supplemental requirements for seasonal off-farm labor housing.
3560.569 Supplemental requirements for manufactured housing.
3560.570 Construction financing.
3560.571 Loan and grant closing.
3560.572 Subsequent loans.
3560.573 Rental assistance.
3560.574 Operating assistance.
3560.575 Rental structure and changes.
3560.576 Occupancy restrictions.
3560.577 Tenant priorities for labor housing.
3560.578 Financial management of labor housing.
3560.579 Servicing off-farm labor housing.
3560.580-3560.599 [Reserved]
3560.600 OMB control number.

                     Subpart M_On-Farm Labor Housing

3560.601 General.
3560.602 Program objectives.
3560.603 Loan purposes.
3560.604 Restrictions on use of funds.
3560.605 Eligibility requirements.
3560.606 Application requirements and processing.
3560.607 [Reserved]
3560.608 Site and construction requirements.
3560.609 [Reserved]
3560.610 Security.
3560.611 Technical, legal, insurance and other services.
3560.612 Loan limits.
3560.613 [Reserved]
3560.614 Reserve accounts.
3560.615 Participation with other funding sources.
3560.616 Rates and terms.
3560.617 [Reserved]
3560.618 Supplemental requirements for on-farm labor housing.
3560.619 Supplemental requirements for manufactured housing.
3560.620 Construction financing.
3560.621 Loan closing.
3560.622 Subsequent loans.
3560.623 Housing management and operations.
3560.624 Occupancy restrictions.
3560.625 Maintaining the physical asset.
3560.626 Affirmative Fair Housing Marketing Plan.
3560.627 Response to resident complaints.
3560.628 Establishing and modifying rental charges.
3560.629 Security deposits.
3560.630 Financial management.
3560.631 Agency monitoring.
3560.632-3560.649 [Reserved]
3560.650 OMB control number.

                     Subpart N_Housing Preservation

3560.651 General.
3560.652 Prepayment and restrictive-use categories.
3560.653 Prepayment requests.
3560.654 Tenant notification requirements.
3560.655 Agency requested extension.
3560.656 Incentives offers.
3560.657 Processing and closing incentive offers.
3560.658 Borrower rejection of the incentive offer.
3560.659 Sale or transfer to nonprofit organizations and public bodies.
3560.660 Acceptance of prepayments.
3560.661 Sale or transfers.
3560.662 Restrictive-use provisions and agreements.
3560.663 Post-payment responsibilities for loans subject to continued 
          restrictive-use provisions.
3560.664-3560.699 [Reserved]
3560.700 OMB control number.

                    Subpart O_Unauthorized Assistance

3560.701 General.
3560.702 Unauthorized assistance sources and situations.

[[Page 461]]

3560.703 Identification of unauthorized assistance.
3560.704 Unauthorized assistance determination notice.
3560.705 Recapture of unauthorized assistance.
3560.706 Offsets.
3560.707 Program participation and corrective actions.
3560.708 Unauthorized assistance received by tenants.
3560.709 Demand letter.
3560.710-3560.749 [Reserved]
3560.750 OMB control number.

                          Subpart P_Appraisals

3560.751 General.
3560.752 Appraisal use, request, review, and release.
3560.753 Agency appraisal standards and requirements.
3560.754-3560.799 [Reserved]
3560.800 OMB control number.

    Authority: 42 U.S.C. 1480.

    Source: 69 FR 69106, Nov. 26, 2004, unless otherwise noted.



              Subpart A_General Provisions and Definitions



Sec. 3560.1  Applicability and purpose.

    (a) This part sets forth requirements, policies, and procedures for 
multi-family housing (MFH) direct loan and grant programs to serve 
eligible very-low, low- and moderate income households. The programs 
covered by this part are authorized by title V of the Housing Act of 
1949 and are:
    (1) Section 515 Rural Rental Housing, which includes congregate 
housing, group homes, and Rural Cooperative Housing. Section 515 loans 
may be made to finance multi-family units in rural areas as defined in 
Sec. 3560.11.
    (2) Sections 514 and 516 Farm Labor Housing loans and grants. 
Housing under these programs may be built in any area with a need and 
demand for housing for farm workers.
    (3) Section 521 Rental Assistance. A project-based tenant rent 
subsidy which may be provided to Rural Rental Housing and Farm Labor 
Housing facilities.
    (b) The programs covered by this part provide economically designed 
and constructed rural rental, cooperative, and farm labor housing and 
related facilities operated and managed in an affordable, decent, safe, 
and sanitary manner.
    (c) Internal Agency procedures containing details for Agency 
processing under these regulations can be found in the program 
handbooks, available in any Rural Development office, or from the Rural 
Development Web site.



Sec. 3560.2  Civil rights.

    (a) As per the Fair Housing Act, as amended and section 504 of the 
Rehabilitation Act of 1973, all actions taken by recipients of loans and 
grants will be conducted without regard to race, color, religion, sex, 
familial status, national origin, age, or disability. These actions 
include any actions in the sale, rental, or advertising of the 
dwellings, in the provision of brokerage services, or in residential 
real estate transactions involving Rural Housing Service (RHS) 
assistance. It is unlawful for a borrower or grantee or an agent of a 
borrower or grantee:
    (1) To refuse to make reasonable accommodations in rules, policies, 
practices, or services that would provide a person with a disability an 
opportunity to use or continue to use a dwelling unit and all public and 
common use areas; or
    (2) To refuse to provide a reasonable accommodation at the 
borrower's expense that would not cause an undue financial or 
administrative burden, or to refuse to allow an individual with a 
disability to make reasonable modifications to the unit at their own 
expense with the understanding that the owner may require the tenant to 
return the unit to its original condition when the unit is vacated by 
the tenant making the modifications (see Sec. 3560.104(c)).
    (b) Borrowers and grantees must take reasonable steps to ensure that 
Limited English Proficiency (LEP) persons receive the language 
assistance necessary to afford them meaningful access to USDA programs 
and activities, free of charge. Failure to ensure that LEP persons can 
effectively participate in or benefit from federally-assisted programs 
and activities may violate the prohibition under Title VI of the Civil 
Rights Act of 1964, 42 U.S.C. 2000d and Title VI regulations against 
national origin discrimination. USDA has

[[Page 462]]

issued guidance to clarify the responsibilities of recipients and 
subrecipients who receive financial assistance from USDA and to assist 
them in fulfilling their responsibilities to LEP persons under Title VI 
of the Civil Rights Act, as amended, and implementing regulations.
    (c) Any tenant/member or prospective tenant seeking occupancy in or 
use of facilities financed by the Agency who believes he or she is being 
discriminated against because of race, color, religion, sex, familial 
status, national origin, or disability may file a complaint in person 
with, or by mail to the U. S. Department of Agriculture's Office of 
Civil Rights, Room 326-W, Whitten Building, 14th and Independence 
Avenue, Washington, DC 20410. Complaints received by Agency employees 
must be directed to the National Office Civil Rights staff through the 
State Civil Rights Manager/Coordinator.
    (d) Borrowers or grantees that fail to comply with the requirements 
of federal civil rights requirements are subject to sanctions authorized 
by law. The following are the major civil rights laws affecting 
multifamily housing loan and grant programs:
    (1) Equal Credit Opportunity Act (ECOA).
    (2) Title VI of the Civil Rights Act of 1964.
    (3) Title VIII of the Civil Rights Act of 1968.
    (4) Section 504 of the Rehabilitation Act of 1973.
    (5) Age Discrimination Act of 1975.
    (6) Title IX of the Education Amendments of 1972.



Sec. 3560.3  Environmental review requirements.

    RHS will consider environmental impacts of proposed housing as equal 
with economic, social, and other factors. By working with applicants, 
Federal agencies, Indian tribes, state and local governments, interested 
citizens, and organizations, RHS will formulate actions that advance 
program goals in a manner that protects, enhances, and restores 
environmental quality. Actions taken under this part must comply with 
the environmental review requirements in accordance with 7 CFR part 
1970. Servicing actions as defined in Sec. 1970.6 of this title are 
part of financial assistance already provided and do not require 
additional NEPA review. However, certain post-financial assistance 
actions that have the potential to have an effect on the environment, 
such as lien subordinations, sale or lease of Agency-owned real 
property, or approval of a substantial change in the scope of a project, 
as defined in Sec. 1970.8 of this title, are actions for the purposes 
of this part.

[81 FR 11049, Mar. 2, 2016]



Sec. 3560.4  Compliance with other Federal requirements.

    RHS is responsible for ensuring that the application is in 
compliance with all applicable Federal requirements, including the 
following specific requirements:
    (a) Intergovernmental review. 7 CFR part 3015, subpart V, or any 
successor regulation, including the Agency supplemental administrative 
instruction, RD Instruction 1970-I, `Intergovernmental Review,' 
available in any Agency office or on the Agency's Web site.
    (b) National flood insurance. The National Flood Insurance Act of 
1968, as amended by the Flood Disaster Protection Act of 1973; the 
National Flood Insurance Reform Act of 1994; and 7 CFR part 1806, 
subpart B, or any successor regulation.
    (c) Clean Air Act and Water Pollution Control Act Requirements. For 
any contract, all applicable standards, orders or requirements issued 
under section 306 of the Clean Air Act; section 508 of the Clean Water 
Act, Executive Order 11738, and 40 CFR part 32.
    (d) Historic preservation requirements. The provisions of 7 CFR part 
1901, subpart F or any successor regulation.
    (e) Lead-based paint requirements. The applicable provisions of 24 
CFR part 35, subparts A through D, J, and R, as published by the U.S. 
Department of Housing and Urban Development.

[69 FR 69106, Nov. 26, 2004, as amended at 76 FR 80731, Dec. 27, 2011]



Sec. 3560.5  State, local or tribal laws.

    Borrowers must comply with all applicable state and local laws, and 
laws of Federally-recognized Indian tribes

[[Page 463]]

to the extent they are not inconsistent with this part.



Sec. 3560.6  Borrower responsibility and requirements.

    (a) Borrower responsibilities and requirements specified in this 
part may be carried out by an individual or entity designated by the 
borrower to act on behalf of the borrower such as a resident manager or 
management agent. Ultimate accountability to the Agency, however, is 
with the borrower whether or not the borrower designated another person 
or entity to act on the borrower's behalf.
    (b) Borrowers who have not executed a loan agreement, and who were 
not required to execute a loan agreement by the regulations in effect at 
the time of their loan closing are exempt from the requirements of 
subparts D through G of this part, as long as the borrower is not in 
default of any applicable requirement, security instrument, payment, or 
any other agreement with the Agency. Such borrowers must provide 
evidence of tenant income eligibility in accordance with Sec. 
3560.152(a), except in Farm Labor Housing where the tenant is not paying 
shelter cost.



Sec. 3560.7  Delegation of responsibility.

    The RHS Administrator may delegate, on an individual or other basis, 
any decision-making responsibility for Agency programs, unless otherwise 
noted.



Sec. 3560.8  Administrator's exception authority.

    The RHS Administrator may make an exception to any provision of this 
part or address any omissions provided that the exception is consistent 
with the applicable statute, does not adversely affect the interest of 
the Federal Government, and does not adversely affect the accomplishment 
of the purposes of the MFH programs or application of the requirement 
would result in undue hardship on the tenants. Exception requests 
presented to the RHS Administrator must have the concurrence of a Rural 
Development Leadership Designee or a Deputy Administrator for MFH.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11279, Mar. 1, 2022]



Sec. 3560.9  Reviews and appeals.

    Rural Housing Service decisions may be appealed pursuant to 7 CFR 
part 11.



Sec. 3560.10  Conflict of interest.

    To reduce the potential for employee conflict of interest, all RHS 
activities will be conducted in accordance with 7 CFR part 1900, subpart 
D.



Sec. 3560.11  Definitions.

    Unless otherwise noted, terms listed in this part shall be defined 
as follows:
    Administrator. The head of the Rural Housing Service who reports 
directly to the Under Secretary for Rural Development in the U.S. 
Department of Agriculture.
    Agency. The Rural Housing Service within the Rural Development 
mission area of the U.S. Department of Agriculture.
    Amortization. Payment of debt in regular, periodic installments of 
principal and interest, as opposed to interest only payments.
    Applicant. An individual, partnership or limited partnership, 
consumer cooperative, trust, state or local public agency, corporation, 
limited liability company, nonprofit organization, Indian tribe, 
association, or other entity that will be the owner of the project for 
which an application for funding from the Agency is submitted.
    Appraisal. As used by the Agency, a written report developed by a 
qualified appraiser as established in subpart P that concludes an 
opinion of value(s) for a specific real property.
    Assistance. Financial assistance in the form of a loan, grant, 
interest credit, or rental assistance.
    Association of farmers. Two or more farmers acting as a single legal 
entity. Association members may include the individual members of 
farming partnerships or corporations.
    Borrower. An individual, partnership or limited partnership, 
consumer cooperative, trust, state or local public agency, corporation, 
limited liability company, nonprofit organization, Indian tribe, 
association, or other entity that has received a loan from the Agency.
    Capital Needs Assessment. A Capital Needs Assessment is designed to 
capture and report on the immediate and

[[Page 464]]

the long-range capital needs of an individual property. It includes 
attention to site features, mechanical and electrical systems, building 
exterior and common area systems, and dwelling unit interiors.
    Caretaker. An individual employed by a borrower or a management 
agent to handle routine interior and exterior maintenance and upkeep of 
a MFH project.
    Congregate housing. A housing program authorized by section 515 of 
the Housing Act of 1949 which provides housing for elderly persons, 
individuals with disabilities, and families who require some supervision 
and central services but are otherwise able to care for themselves. Such 
housing does not include any licensed healthcare facility.
    Consumer cooperative. A corporation organized under the cooperative 
laws of a state or Federally recognized Indian tribe that will own and 
operate the housing on a cooperative basis solely for the benefit of its 
members.
    Conventional rents for comparable units (CRCU). Market rents for 
comparable rental units in conventional housing located in the same 
geographic area as a particular Section 514, 515, or 516 project.
    Current appraisal. An appraisal with a report date that is no more 
than 1 year old.
    Daily Interest Accrual System (DIAS). A system where interest is 
charged daily on outstanding principal. Level loan payments are made by 
the borrower. The amount of interest due on any date is equal to the 
unpaid daily interest that has accrued.
    Default. Failure by a borrower to meet significant monetary or non-
monetary obligations or terms of a loan, grant, or other agreement with 
the Agency which remain unpaid or unperformed for more than 30 days 
after the date such obligation is due or required to be paid or 
performed, or within time periods specified in notices of compliance 
violations.
    Disability. The term disability is considered equivalent to the term 
handicap. Eligibility requirements for fully accessible units are 
contained in Sec. Sec. 3560.154(g)(1)(i) and 3560.155(b). A person is 
considered to have a disability if either of the following two 
situations occur:
    (1) As defined in section 501(b) of the Housing Act of 1949. The 
person is the head of household (or his or her spouse) and is determined 
to have an impairment which:
    (i) Is expected to be of long-continued and indefinite duration;
    (ii) Substantially impedes his or her ability to live independently; 
and
    (iii) Is of such a nature that such ability could be improved by 
more suitable housing conditions, or if such person has a developmental 
disability as defined in section 102(7) of the Developmental Disability 
and Bill of Rights Act (42 U.S.C. 6001(7)).
    (2) As defined in the Fair Housing Act; the Americans with 
Disabilities Act; and section 504 of the Rehabilitation Act of 1973. The 
person has a physical or mental impairment which substantially limits 
one or more of such person's major life activities; a record of such 
impairment; or being regarded as having such an impairment. The term 
does not include current, illegal use of or addiction to a controlled 
substance. As used in this definition, physical or mental impairment 
includes:
    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genito-urinary; hemic and lymphatic; skin; and endocrine;
    (ii) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term ``physical or mental 
impairment'' includes, but is not limited to, such diseases and 
conditions as orthopedic, visual, speech and hearing impairments, 
cerebral palsy, autism, epilepsy, muscular dystrophy, multiple 
sclerosis, cancer, heart disease, diabetes, Human Immunodeficiency Virus 
infection, mental retardation, emotional illness, drug addiction (other 
than addiction caused by current, illegal use of a controlled 
substance), and alcoholism;

[[Page 465]]

    (iii) Major life activities means functions such as caring for one's 
self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working;
    (iv) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities;
    (v) Is regarded as having an impairment means:
    (A) Has a physical or mental impairment that does not substantially 
limit one or more major life activities but that is treated by the 
borrower or management agent as constituting such a limitation;
    (B) Has a physical or mental impairment that substantially limits 
one or more major life activities only as a result of the attitudes of 
others toward such impairment; or
    (C) Has none of the impairments described in this definition but is 
treated by another person as having such an impairment.
    Disabled domestic farm laborer. An individual with a disability as 
separately defined in this paragraph and who was a domestic farm laborer 
at the time of becoming disabled.
    Domestic farm laborer. A person who, consistent with the 
requirements in Sec. 3560.576(b)(2), receives a substantial portion of 
his or her income from farm labor employment (not self-employed) in the 
United States, Puerto Rico, or the Virgin Islands and either is a 
citizen of the United States or resides in the United States, Puerto 
Rico, or the Virgin Islands after being legally admitted for permanent 
residence, or a person legally admitted to the United States and 
authorized to work in agriculture. This definition may include the 
immediate family members residing with such a person.
    Due diligence on hazardous substances. Due diligence is the process 
of inquiring into the environmental conditions of real estate, in the 
context of a real estate transaction to determine the presence of 
contamination from hazardous substances, and to determine the impact 
such contamination may have on the market value of the property.
    Elderly household or individual with a handicapped household. A 
household in which the tenant or co-tenant of the household is 62 years 
old or older or is an individual with a disability. An elderly household 
may include persons younger than 62 years old and the household of an 
individual with a handicap may include persons without disabilities.
    Elderly person. A person who is at least 62 years old. The term also 
means a person with a disability as separately defined in this 
paragraph, regardless of age.
    Familial status. One or more individuals (who have not attained the 
age of 18 years) being domiciled with a parent or another person having 
legal custody of such individual or individuals; or the designee of such 
parent or other person having such custody, with the written permission 
of such parent or other person. The protections afforded against 
discrimination on the basis of familial status shall apply to any person 
who is pregnant or is in the process of securing legal custody of any 
individual who has not attained the age of 18 years.
    Family farm corporation or partnership. A private corporation or 
partnership involved in agricultural production in which at least 90 
percent of the stock or interest is owned and controlled by persons 
related by blood, which shall include parents, siblings, and children, 
or law. If more than three separate households are supported by the 
farming operation, the family farm corporation or partnership must be:
    (1) Legally organized and authorized to own and operate a farm 
business within the state;
    (2) Legally able to carry out the purposes of the loan; and
    (3) Prohibited from the sale or transfer of 90 percent of the stock 
or interest to other than family members by either the articles of 
incorporation, bylaws or by agreement between the stockholders or 
partners and the corporation or partnership.
    Farm. A tract or tracts of land, improvements, and other 
appurtenances that are used or will be used in the production of crops, 
livestock, or aquaculture products for sale in sufficient quantities so 
that the property is recognized as a farm rather than a rural

[[Page 466]]

residence. The term ``farm'' also includes the term ``ranch.'' It may 
also include land and improvements and facilities used in a non-eligible 
enterprise or the residence that, although physically separate from the 
farm acreage, is ordinarily treated as part of the farm in the local 
community.
    Farmer. A person who is actually involved in day to day on-site 
operations of a farm and who devotes a substantial amount of time to 
personal participation in the conduct of the operation of a ``farm.''
    Farm labor. Services in connection with cultivating the soil, 
raising or harvesting any agriculture or aquaculture commodity; or in 
catching, netting, handling, planting, drying, packing, grading, 
storing, or preserving in the unprocessed stage, without respect to the 
source of employment (but not self-employed), any agriculture or 
aquaculture commodity; or delivering to storage, market, or a carrier 
for transportation to market or to processing any agricultural or 
aquacultural commodity in its unprocessed stage.
    Farm labor contractor. A person--other than an agricultural 
employer, a member of an agricultural association, or an employee of an 
agricultural employer or agricultural association--who recruits, 
solicits, hires, employs, furnishes, or transports any year-round or 
seasonal migrant farm laborer for money or other valuable consideration.
    Farm labor housing. On-farm or off-farm housing for farm laborers 
authorized by section 514 and section 516 of the Housing Act of 1949.
    Farm owner. A natural person, persons, or legal entity who are the 
owners of a ``farm'' as this term is further defined in this section.
    Foreclosure. A proceeding in or out of court to extinguish all 
rights, title, and interest of the owners of property in order to sell 
the property to satisfy a lien against it.
    General overhead. Includes general operation items necessary for the 
contractor to be in business. They may include, but are not limited to 
the following: tools and minor equipment; worker's compensation and 
employer's liability; unemployment tax; Social Security and Medicare; 
manager's, clerical, and estimator's salaries; pension and bonus plans; 
main office insurance, rental, utilities, miscellaneous expenses; 
general liability insurance; legal, accounting, and data processing; 
automotive and light truck expense; vehicle expenses; depreciation of 
overhead capital expenditures; and office equipment maintenance.
    General requirements. Includes items that are required in the 
construction contract for the contractor to provide for the specific 
project. They do not include items that pertain to a specific trade nor 
overhead expenses of the contractor's general operation. Items may 
include, but are not limited to, the following: Field supervision; field 
engineering such as field office, sheds, toilets, phone; performance and 
payment or latent defects bonds; cost certification; building permits; 
site security; temporary utilities; property insurance; and cleaning or 
rubbish removal.
    Grantee. An entity that has received a grant from the Agency.
    Group home. Housing that is occupied by elderly persons or 
individuals with disabilities who share living space within a rental 
unit and in which a resident assistant may be required.
    Household. The tenant or co-tenant and the persons or dependents 
living with a tenant or co-tenant, but not including a resident 
assistant.
    Household furnishings. Basic durable items such as stoves, 
refrigerators, drapes, drapery rods, tables, chairs, dressers and beds.
    Housing project. A property with two or more affordable, decent, 
safe and sanitary rental units and related facilities operated under one 
management plan and financed with funds appropriated under the authority 
of sections 515, 514, or 516 of the Housing Act of 1949.
    Identity-of-Interest (IOI). A relationship between applicants, 
borrowers, grantees, management agents, or suppliers of materials or 
services described under, but not limited to, any of the following 
conditions:
    (1) There is a financial interest between the applicant, borrower, 
grantee and a management agent or the supplying entity;
    (2) One or more of the officers, directors, stockholders or partners 
of the applicant, borrower, or management

[[Page 467]]

agent is also an officer, director, stockholder, or partner of the 
supplying entity;
    (3) An officer, director, stockholder, or partner of the applicant, 
borrower, or management agent has a 10 percent or more financial 
interest in the supplying entity;
    (4) The supplying entity has or will advance funds to an applicant, 
borrower, or management agent;
    (5) The supplying entity provides or pays on behalf of the 
applicant, borrower, or management agent the cost of any materials or 
services in connection with obligations under the management plan or 
management agreement;
    (6) The supplying entity takes stock or a financial interest in the 
applicant, borrower, or management agent as part of the consideration to 
be paid them; or
    (7) There exists or come into being any side deals, agreements, 
contracts or understandings entered into thereby altering, amending, or 
canceling any of the management plan, management agreement documents, 
organization documents, or other legal documents pertaining to the 
property, except as approved by the Agency.
    Indian tribe. The term ``Indian tribe'' means any Indian tribe, 
band, group, and nation, including Alaskan Indians, Aleuts, and Eskimos, 
and any Alaskan-Native Village, which is considered an eligible 
recipient under the Indian Self-Determination and Education Assistance 
Act (Public Law 93-638) or under the State and Local Fiscal Assistance 
Act of 1972 (Public Law 92-512).
    Interest credit. A form of assistance available to eligible 
borrowers that reduces the effective interest rate of the loan.
    Lease. A contract setting forth the rights and obligations of a 
tenant or cooperative member and a property owner, including charges and 
terms under which a tenant or cooperative member will occupy or use the 
housing or related facilities.
    Legal or qualified alien. Legal or qualified alien refers to any 
person lawfully admitted to the country who meets the criteria in 
section 214 of the Housing and Community Development Act of 1980, 42 
U.S.C. 1436a.
    Letter of Priority Entitlement (LOPE). A letter issued by the Agency 
providing a tenant with priority entitlement to rental units in other 
Agency-financed housing projects for 120 days from the date of the LOPE.
    Life cycle cost. The life cycle cost has 2 purposes: (1) To 
determine the expected usable life (utility) of a building component or 
furnishing and (2) to determine which building components or furnishings 
are the most cost efficient over the life of the building. Cost 
efficient is not to be construed to mean the least initial cost.
    Life cycle cost analysis. Life cycle cost analysis is the comparison 
of different materials to examine anticipated useful life and the cost 
of using a specific material or building component. The analysis has 
multiple uses, such as: (1) To conduct a cost efficiency comparison 
between products, (2) for developing component replacement time tables, 
and (3) for estimating future component replacement costs. Life cycle 
cost analysis can be accomplished through various methods, such as; 
insurance actuary tables or Agency documentation of a component's life 
expectancy. Life cycle cost analysis is conducted by a design 
professional. For Agency financed projects, a life cycle cost analysis 
is to be conducted for specific components: (1) drives and parking, (2) 
roofing system and roofing material, (3) exterior finishes, and (4) 
energy source items.
    Limited Liability Company (LLC). An unincorporated organization of 
one or more persons or entities established in accordance with 
applicable state laws and whose members may actively participate in the 
organization without being personally liable for the debts, obligations 
or liabilities of the organization.
    Limited partnership. An ownership arrangement consisting of general 
and limited partners; general partners manage the business, while 
limited partners are passive and liable only for their own capital 
contributions.
    Loan agreement. A written agreement between the Agency and the 
borrower that sets forth the borrower's responsibilities with respect to 
Agency financing.

[[Page 468]]

    Low-income household. A household that has an adjusted income that 
is greater than the Department of Housing and Urban Development's (HUD) 
established very-low income limit, but that does not exceed the HUD 
established low-income limit (generally 80 percent of median income 
adjusted for household size for the county where the property is or will 
be located).
    Low-Income Housing Tax Credit (LIHTC). A federal tax credit allowed 
for investment in qualified low-income housing administered by the 
Internal Revenue Service (IRS) under section 42 of the Internal Revenue 
Code.
    Management agent. A firm or individual employed or designated by a 
borrower to act on the borrower's behalf in accordance with a written 
management agreement.
    Management agreement. A written agreement between a borrower and an 
identity-of-interest (IOI) management agent or independent fee 
management agent setting forth the management agent's responsibilities 
and fees for management services.
    Management fee. The compensation provided to a management agent for 
services provided in accordance with an approved management 
certification, Form RD 3560-13, ``Multi-Family Project Borrower's/
Management Agent's Management Certification.''
    Management plan. A detailed description of the policies and 
procedures to be followed by the borrower in managing a MFH project.
    Manufactured housing. Housing, constructed of one or more factory-
built sections, which includes the plumbing, heating, and electrical 
systems contained therein, which is built to comply with the Federal 
Manufactured Home Construction and Safety Standards (FMHCSS), and which 
is designed to be used with a permanent foundation.
    Market area. The geographic or locational delineation of the market 
for a specific project, including outlaying areas that will be impacted 
by the project, i.e., the area in which alternative, similar properties 
effectively compete with the subject property.
    Market rent. The most probable rent that a property should bring in 
a competitive and open market reflecting all conditions and restrictions 
of the specified lease agreement, including term, rental adjustment and 
revaluation, permitted uses, use restrictions, and expense obligations; 
the lessee and lessor each acting prudently and knowledgeably, and 
assuming consummation of a lease contract as a specified date and the 
passing of the leasehold from lessor to lessee.
    Maximum debt limit. The maximum amount that the Agency will lend or 
grant for a MFH project based on the appraised value or total 
development cost excluding costs ineligible for payment from loan or 
grant funds, whichever is less, reduced by all funding available to the 
borrower from sources other than the Agency, multiplied by 95, 97, or 
102 percent depending upon the applicant entity and their use of the 
low-income housing tax credit, in accordance with Sec. 3560.63(b).
    Member or co-member. A stockholder or other person who has executed 
documents or stock pertaining to a cooperative housing type of living 
arrangement and has made a commitment to upholding the cooperative 
concept.
    Migrants or migrant agricultural laborer. A person (and the family 
of such person) who receives a substantial portion of his or her income 
from farm labor employment and who establishes a residence in a location 
on a seasonal or temporary basis, in an attempt to receive farm labor 
employment at one or more locations away from their home base state, 
excluding day-haul agricultural workers whose travels are limited to 
work areas within one day of their residence.
    Minor. An individual under 18 years of age who is a dependent of a 
tenant or an individual age 18 or older who is a full-time student and a 
dependent of a tenant.
    Moderate-income household. A household that has an adjusted income 
that is greater than the HUD-established low-income limit but does not 
exceed the low-income limit by more than $5,500.
    Mortgage or Deed of Trust. A form or security instrument or 
consensual lien on real property.
    Net recovery value. The value realized from the Government's 
acquisition of security property in a default situation

[[Page 469]]

after subtracting all costs, actual or anticipated, from acquiring, 
holding, and disposing of the security property.
    New construction. A MFH project being constructed to be occupied for 
the first time.
    Nonprofit organization. A private organization that:
    (1) Is organized under state or local laws;
    (2) Has no part of its net earnings inuring to the benefit of any 
member, founder, contributor, or individual; and
    (3) Is approved by the Secretary of Agriculture and considered to be 
financially responsible.
    Nonprofit organization for section 515 program (Prepayment or 
Purchase). To be eligible to purchase properties under the conditions of 
subpart N of this part, nonprofit organizations may not have among their 
officers or directorate any persons or parties with an identity-of-
interest (or any persons or parties related to any person with identity-
of-interest) in loans financed under section 515 that have been prepaid 
or have requested prepayment.
    Nonprofit organization of farm workers. A nonprofit organization, as 
defined in this section, whose membership is composed of at least 51 
percent farm workers.
    Notice of Funding Availability (NOFA). A ``Notice of Funding 
Availability'' issued by the Agency to inform interested parties of the 
availability of assistance and other matters pertinent to the program.
    Occupancy agreement. A contract establishing the rights and 
obligations of the cooperative member and the cooperative, including the 
amount of the monthly occupancy charge and the other terms under which 
the member will occupy the housing.
    Occupancy charge. The amount of money charged a cooperative member 
to cover their proportional share of the cooperative's operating costs 
and cash requirements.
    Off-farm labor housing. Housing for farm laborers in any location 
approved by the Agency but not on the farm where the laborer works.
    Office of the General Counsel (OGC). The USDA Office of the General 
Counsel, including the Regional Attorney, Associate Regional Attorney, 
or Assistant Regional Attorney.
    Office of the Inspector General (OIG). The USDA Office of the 
Inspector General.
    On-farm labor housing. Housing for farm laborers located on the farm 
where they work that is away from service buildings or in the nearby 
community.
    Overage. That portion of a tenant's net tenant contribution that 
exceeds basic rent up to note rent. Full overage is an amount equal to 
the difference between the note rent for a unit and the basic rent.
    Plan I. A type of interest subsidy available to borrowers prior to 
October 27, 1980. Budgets and rental rates developed for Plan I loans 
are based on a 3 percent loan amortization.
    Plan II. A type of interest subsidy available to borrowers operating 
on a limited profit basis. Budgets and rental rates developed for Plan 
II loans are based on both the loan being amortized at the interest rate 
shown on the promissory note and at a 1 percent subsidized rate.
    Predetermined Amortization Schedule System (PASS). A system where 
loan payments are applied based on an amortization schedule.
    Prepayment. Payment in full of the outstanding balance on an Agency 
loan prior to the note's originally scheduled maturity date.
    Program requirements. All provisions related to MFH contained in the 
loan document, grant agreement, statute, regulation, handbook, or 
administrative notice.
    Promissory note. A legal document containing conditions (interest 
rate and timing) for repayment of indebtedness.
    Real estate owned (REO) property. The real estate owned by the 
Agency acquired through voluntary conveyance, foreclosure or other 
action.
    Rehabilitation. Rehabilitation is when the remodeling of a property 
is of a complex nature involving structural repairs or when two or more 
of the life cycle cost components are included in the remodeling of a 
property.
    Related facilities. Facilities in a MFH project that are related to 
the housing and are in addition to rental units,

[[Page 470]]

(e.g., community rooms or buildings, cafeterias, dining halls, 
infirmaries, child care facilities, assembly halls, and essential 
service facilities such as central heating, sewerage, lighting systems, 
clothes washing facilities, trash disposal and safe domestic water 
supply).
    Rent. The amount established as a charge for occupancy in a rental 
unit of Agency-financed MFH. Rents must be established at the same rate 
for all similar units in the housing project. The following terms are 
used to describe rents for various program purposes.
    (1) Note rent is the rental charge established to cover expenses in 
the housing project's approved budget and the required loan payment set 
at the interest rate shown in the promissory note.
    (2) Basic rent is the rental charge established to cover expenses in 
the housing project's approved budget and the required loan payment 
contained in the promissory note reduced by the interest credit 
agreement.
    (3) HUD contract rent is the rental charge established for housing 
receiving project-based Section 8 rental subsidies in accordance with 24 
CFR part 880 or part 884, as applicable.
    (4) Low-income housing tax credit (LIHTC) rent is the rental charge 
established in accordance with LIHTC requirements.
    Rental assistance (RA). The portion of the approved shelter cost 
paid by the Agency to compensate a borrower for the difference between 
the approved shelter cost and the tenant contribution when such 
contribution is less than the basic rent.
    Rental assistance units. Dwelling units in a MFH project qualified 
for rental assistance. There are three types of rental assistance units.
    (1) New construction units are units provided in conjunction with 
initial loans for construction or substantial rehabilitation of the MFH 
projects.
    (2) Replacement units are Agency-funded rental assistance units 
which replace units with expiring rental assistance agreements or which 
replace Section 8 units which have expired under the Section 8 contract.
    (3) Servicing units are units provided to an operational MFH project 
as a part of the Agency's general loan servicing or preservation 
activities.
    Repair and replacement. Repair and replacement is the restoration of 
minor building materials, elements, components, equipment and fixtures. 
Examples include: Painting, carpeting, appliances, cabinets, and other 
fixtures.
    Resident assistant. A person residing in a rental unit who is 
essential to the well-being and care of an elderly person or an 
individual with a disability, but who:
    (1) Is not obligated for the tenant's financial support;
    (2) Would not be living in the unit except to provide the needed 
services;
    (3) May be a family member, but is not a dependent of the tenant for 
tax purposes;
    (4) Is not subject to the eligibility requirements of a tenant; and
    (5) Is not considered a household member in the determination of 
household income.
    Resident or site manager. The individual employed by the borrower 
and who is responsible for the day-to-day operations of the housing.
    Retired domestic farm laborer. An individual who is at least 55 
years of age and who has spent the last 5 years prior to retirement as a 
domestic farm laborer or spent the majority of the last 10 years prior 
to retirement as a domestic farm laborer.
    Return on Investment (ROI). The annual amount of profit an owner 
operating on a limited or full profit basis may withdraw from a project, 
as established in the loan agreement. The amount is calculated as a 
percentage of the owner's investment in the project.
    Rural area. An area classified as a rural area prior to October 1, 
1990, (even if within a Metropolitan Statistical Area), and any area 
deemed to be a `rural area' under any other provision of law at any time 
during the period beginning January 1, 2000, and ending December 31, 
2010, shall continue to be so classified until the receipt of data from 
the decennial census in the year 2020 if such area has a population 
exceeding 10,000, but not in excess of 35,000, is rural in character, 
and has a

[[Page 471]]

serious lack of mortgage credit for low- and moderate-income families.
    Rural Cooperative Housing (RCH). A housing program authorized under 
section 515 of the Housing Act of 1949, in which a consumer cooperative, 
organized and operating on a nonprofit basis, may own and operate a MFH 
development.
    Rural Housing Service (RHS). The Agency within the Rural Development 
mission area of the U.S. Department of Agriculture or its successor 
agency which administers programs authorized by sections 514, 515, 516, 
and 521 of the Housing Act of 1949, as amended.
    Rural Rental Housing (RRH). A housing program authorized by section 
515 of the Housing Act of 1949 to provide rental housing in rural areas 
for persons of very-low, low- and moderate income.
    Seasonal housing. Housing operated on a seasonal basis, typically 
for migrants or migrant agricultural laborers as opposed to year round.
    Security deposit. A one-time fee charged a tenant prior to occupancy 
of a unit to cover possible loss or damage to the housing unit caused by 
the tenant.
    Self-employed. A person who meets the IRS definition of self-
employed at 26 CFR 1.401-10.
    Service agreement. A written agreement between a borrower and a 
service provider establishing the specific service to be provided to a 
MFH project, the cost of the service, and the length of time the service 
will be provided.
    Service plan. A written plan describing how services will be 
provided to a MFH project and which, at a minimum, must specify the 
services to be provided, the frequency of the services, who will provide 
the services, how tenants will be advised of the availability of 
services, and the staff needed to provide the services.
    Service provider. A person who signs a written agreement with a 
borrower to provide services to a MFH project.
    Shelter costs. Basic or note rent plus the utility allowance, when 
used, or the occupancy charge plus the utility allowance. If the utility 
costs are included in the rent, the rent will equal shelter costs.
    Sources and Uses Comprehensive Evaluation (SAUCE). A computer 
software program used by the Agency to analyze the total funds provided 
to a MFH project to ensure that the Agency is not providing excess 
assistance.
    Special note rent (SNR). A rental rate charged at a Plan II project 
experiencing vacancies that is less than note rent but higher than basic 
rent.
    State consolidated plan. A planning document for an individual state 
that includes a housing and homeless needs assessment; a housing market 
analysis; a strategic plan for addressing the state's housing 
challenges; an Action Plan that is an annual description of the state's 
Federal and other resources that are expected to be available to address 
its priority housing needs and how the Federal funds will leverage other 
resources; certifications relating to fair housing, its antidisplacement 
and relocation plan, a drug-free workplace, and other statutory and 
program requirements; and a monitoring plan to ensure that the state is 
using its Federal funds appropriately and effectively.
    Tenant or co-tenant. An individual who signs a lease and occupies or 
will occupy a rental unit in a MFH project. The term tenant or co-tenant 
also refers to a member of cooperative housing occupying or planning to 
occupy a dwelling unit in cooperative housing.
    Tenant contribution. The portion of the approved shelter cost paid 
by the tenant household. The proportion of tenant income and adjusted 
income paid will vary according to the type of subsidy provided to the 
tenant household.
    Total development cost (TDC). The cost of constructing, purchasing, 
improving, altering, or repairing MFH and related facilities, buying 
household furnishings (for sections 514/516 only), and purchasing or 
improving the necessary land, including architectural, engineering, or 
legal fees, and charges and other technical and professional fees and 
charges, but excluding fees, charges, or commissions such as payments to 
brokers, negotiators, or other persons for the referral of prospective 
applicants or solicitations of loans. Although a developer's fee is part 
of the project's development cost, such fees

[[Page 472]]

are not eligible for payment from Agency loan or grant funds and are not 
included in determining the Agency authorized development cost.
    Utility allowance. An amount determined by a borrower as the amount 
to be considered a tenant's portion of utility cost in the calculation 
of a tenant's total shelter cost when utility costs are not included in 
the rent.
    Very low-income household. A household that has an adjusted income 
that does not exceed the HUD established very low-income limit 
(generally 50 percent of median income adjusted for household size in 
the county where the property is or will be located).
    Workout agreement. An agreement between a borrower and the Agency 
listing actions to be taken over a period of time to prevent or correct 
a compliance violation or to cure a monetary or non-monetary default.

[69 FR 69106, Nov. 26, 2004, as amended at 80 FR 9912, Feb. 24, 2015; 82 
FR 49285, Oct. 25, 2017; 87 FR 11279, Mar. 1, 2022]



Sec. Sec. 3560.12-3560.49  [Reserved]



Sec. 3560.50  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



               Subpart B_Direct Loan and Grant Origination



Sec. 3560.51  General.

    This subpart contains the Agency's loan origination requirements for 
multi-family housing (MFH) direct loans for Rural Rental Housing, Rural 
Cooperative Housing, and Farm Labor Housing. Additional requirements for 
farm labor housing loans and grants are contained in subpart L of this 
part for Off-Farm Labor Housing and subpart M of this part for On-Farm 
Labor Housing.



Sec. 3560.52  Program objectives.

    The Agency uses appropriated funds to finance the construction, 
rehabilitation of program properties, or purchase and rehabilitation of 
MFH and related facilities to serve eligible persons in rural areas. The 
Agency encourages the use of such financing in conjunction with funding 
or financing from other sources.



Sec. 3560.53  Eligible use of funds.

    Funds may be used for the following purposes.
    (a) Construct housing. Funds may be used to construct MFH.
    (b) Purchase and rehabilitate buildings. Funds may be used to 
purchase and rehabilitate buildings that have not been previously 
financed by the Agency.
    (1) Rehabilitation must meet the definition of either moderate or 
substantial rehabilitation as defined in 7 CFR part 1924, subpart A.
    (2) The building to be rehabilitated must be structurally sound and 
the improvements to the building must be necessary to meet the 
requirements of decent, safe, and sanitary living units.
    (3) The total development cost (TDC) for the purchase and 
rehabilitation of existing buildings must not be more than the estimated 
TDC for construction of a similar type and unit size property in the 
same area.
    (c) Subsequent loans. Funds may be used to provide subsequent loans 
in accordance with the provisions of Sec. 3560.73.
    (d) Purchase and improve sites. Funds may be used to purchase and 
improve the site on which MFH will be located, provided that the amount 
of loan funds used to purchase the site does not exceed the appraised 
market value of the site immediately prior to purchase.
    (e) Develop and install necessary systems. Funds may be used to 
install streets, a water supply, sewage disposal, heating and cooling 
systems, electric, gas, solar, or other power sources for lighting and 
other features necessary for the housing. If such facilities are located 
off-site, loan funds

[[Page 473]]

may only be used if the following additional requirements are met:
    (1) The loan applicant will hold title to the facility or have a 
legal right to use the facility in the form of an easement or other 
instrument acceptable to the Agency for a period of at least 50 percent 
longer than the term of the loan or grant and the title or right is 
transferable to any subsequent owner of the housing.
    (2) The facilities will either be provided for the exclusive use of 
the proposed housing project, or Agency funds are limited to the 
prorated part of the total cost of the facility according to the use and 
benefit to the MFH project. If entities other than the housing project 
financed by the Agency use the facilities on a reimbursable fee basis, 
the loan applicant must agree, in writing, to apply any fees collected 
in excess of operating expenses to their Agency loan account as an extra 
loan payment.
    (f) Landscaping and site development. Funds may be used to provide 
landscaping and site development related to a MFH project such as 
lighting, walks, fences, parking areas, and driveways.
    (g) Tenant-related facilities. Funds may be used to develop tenant-
related facilities appropriate to the size, economics, and prospective 
tenants of a MFH project, such as a community room, development of space 
for education and training purposes for tenants, central laundry 
facility, outdoor seating, space for passive recreation, tot lots, and a 
small emergency care infirmary. In congregate housing and group homes, 
funds may be used for central cooking and dining areas.
    (h) Management-related facilities. Funds may be used to develop 
management-related facilities appropriate to the size and economics of a 
MFH project such as a maintenance workshop, storage facilities, office, 
and living quarters for a resident manager and other personnel.
    (i) Purchase and install equipment and appliances. Funds may be used 
to purchase and install equipment and appliances affixed to the property 
as customary and appropriate for the area in which the housing is 
located.
    (j) Household furnishings (Section 514/516). For farm labor housing 
sections 514 and 516 only, funds may be used to purchase household 
furnishings.
    (k) Initial operating capital. Loan funds equal to 2 percent of 
total development cost or appraised value, whichever is less, may be 
used by a state or political subdivision thereof, Indian tribe, consumer 
cooperative, or any public or private nonprofit borrower who is not 
receiving low-income housing tax credits (LIHTC), to make the initial 
operating capital contribution required by Sec. 3560.64. Other 
borrowers must use their own resources to make the required initial 
operating capital contribution and may not use loan funds for that 
purpose.
    (l) Builder's profit, overhead and general requirements. Subject to 
the following limits, funds may be used for builder's profit, overhead 
and general requirements.
    (1) Up to 10 percent of the construction contract may be used for 
builder's profit.
    (2) Up to 4 percent of the construction contract may be used for 
general overhead.
    (3) Up to 7 percent of the construction contract may be used for 
general requirements.
    (m) Legal, technical and professional services. Funds may be used 
for the costs of legal, technical, and professional services related to 
the borrower's MFH project, including appraisals, environmental 
documentation, and construction plans and specifications.
    (n) Permit and application fees. Funds may be used for required MFH 
permits and application fees.
    (o) Reimbursement to nonprofit organizations and public bodies. 
Funds may be used to reimburse a nonprofit organization or public body 
for up to 2 percent of total development costs for section 515, or up to 
4 percent of total development costs for off-farm labor housing, for 
costs that are reasonable and typical for the area, including:
    (1) Development and packaging of a loan application and a MFH 
proposal; and
    (2) Legal, technical, and professional fees incurred in the 
formation of the loan application and MFH proposal; or

[[Page 474]]

    (3) Technical assistance from another nonprofit organization to 
assist in the organization's formation and in the development and 
packaging of a loan application and MFH proposal.
    (p) Educational programs. Funds may be used for educational programs 
related to owning and managing a cooperative housing project for the 
board of directors of a housing cooperative during the first year of the 
housing operation. Such funds will be available from the initial 
operating account. The amount of the funds disbursed will be subject to 
Agency approval and availability of financial resources from the 
project.
    (q) Interest and customary charges. Funds may be used for interest 
accrued and customary charges necessary to obtain interim financing.
    (r) Purchase housing from an interim lender. Funds may be used to 
purchase MFH from an interim lender that holds fee simple title to 
Agency-financed housing upon which construction commenced and a letter 
of commitment had been issued by the Agency but the original applicant 
for whom funds were obligated will not or cannot continue with 
construction of the housing. In order for the purchase to take place, 
there must be no outstanding unpaid obligations in connection with the 
housing.
    (s) Uniform Relocation Assistance and Real Property Acquisition Act 
of 1970. Funds may be used for necessary costs incurred to comply with 
the Uniform Relocation Assistance and Real Property Acquisition Act of 
1970.
    (t) Demonstration programs. With the RHS Administrator's approval, 
funds may be used to construct demonstration housing involving 
innovative units and systems which do not meet existing published 
standards, rules, regulations, or policies but meet the intent of 
providing affordable, decent, safe, and sanitary rural housing, and are 
consistent with the requirements of Title V of the Housing Act of 1949.
    (u) Conversion of section 502 properties. In accordance with Sec. 
3560.506, loan funds may be used to finance the conversion of real 
estate owned units originally financed under section 502 of the Housing 
Act of 1949, to MFH authorized by section 515 of the Housing Act of 
1949.



Sec. 3560.54  Restrictions on the use of funds.

    (a) Ineligible uses of funds. Funds may not be used for:
    (1) Housing intended to serve temporary and transient residents, 
with the exception of housing to serve migrant farm workers in 
accordance with Sec. 3560.554;
    (2) Special care facilities or institutional-type homes;
    (3) Facilities which are not in compliance with the design 
requirements specified in Sec. 3560.60;
    (4) Any costs associated with space in a housing project that is 
leased for commercial use or any commercial facilities except essential 
service-type facilities when otherwise not conveniently available;
    (5) Specialized equipment for training and therapy;
    (6) Operating capital for a central dining facility or any items 
which do not become affixed to the real estate security with the 
exception of household furnishings for farm labor housing units financed 
under sections 514 and 516;
    (7) Compensation to a loan applicant for value of land contributed 
in excess of the equity contribution requirements in Sec. 3560.63(c);
    (8) Refinancing of an applicant's debt except when the debt involves 
interim financing or when refinancing is necessary to obtain a release 
of an existing lien on land owned by a nonprofit organization;
    (9) Payment of any fee, charge, or commission to a broker or anyone 
else as a developer's fee or for referral of a prospective loan 
applicant or solicitation of a loan;
    (10) Payment to any officer, director, trustee, stockholder, member, 
or agent of an applicant; or
    (11) Purchasing land for a site in excess of what is needed, except 
when:
    (i) The applicant cannot acquire an alternate site or cannot acquire 
the needed land as a separate parcel;
    (ii) The applicant agrees to sell the excess land as soon as 
practical and to apply the proceeds to the loan; and
    (iii) Program site density requirements are met in accordance with 
the site requirements established under Sec. 3560.58.

[[Page 475]]

    (b) Obligations incurred before loan approval. Funds may not be used 
for expenses incurred by an applicant prior to approval except when all 
the following conditions are met:
    (1) The debts were incurred for eligible purposes;
    (2) Contracts, materials, construction, and any land purchased meet 
Agency standards and requirements;
    (3) Payment of the debts will remove any attached liens and any 
basis for liens that may attach to the property on account of such 
debts; and
    (4) The completion of environmental review requirements in 
accordance with 7 CFR part 1970.

[69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016]



Sec. 3560.55  Applicant eligibility requirements.

    Applicants for off-farm labor housing loans and grants should also 
refer to Sec. 3560.555, and applicants for on-farm labor housing loans 
should refer to Sec. 3560.605.
    (a) General. To be eligible for Agency assistance, applicants must 
meet the following requirements:
    (1) Be a U. S. citizen or qualified alien(s); a corporation; a state 
or local public Agency; an Indian tribe as defined in Sec. 3560.11; or 
a limited liability company (LLC), nonprofit organization, consumer 
cooperative, trust, partnership, or limited partnership in which the 
principals are U.S. citizens or qualified aliens;
    (2) Be unable to obtain similar credit elsewhere at rates that would 
allow for rents within the payment ability of eligible residents;
    (3) Possess the legal and financial capacity to carry out the 
obligations required for the loan or grant;
    (4) Be able to maintain, manage, and operate the housing for its 
intended purpose and in accordance with all Agency requirements;
    (5) With the exception of applicants who are a nonprofit 
organization, housing cooperative or public body, be able to provide the 
borrower contribution from their own resources (this contribution must 
be in the form of cash, or land, or a combination thereof);
    (6) Have or be able to obtain a minimum of 2 percent of the total 
development costs for use as initial operating capital (for nonprofit 
organizations, cooperatives, or public bodies, this amount may be 
financed through Agency funds); and
    (7) Not be suspended, debarred, or excluded based on the ``List of 
Parties Excluded from Federal Procurement and Nonprocurement Programs.'' 
The list is available to Federal agencies from the U.S. Government 
Printing Office. Non-federal parties should contact the Superintendent 
of Documents, U.S. Government Printing Office, Washington, DC 20402, 
(202) 512-1800.
    (8) Not delinquent on Federal debt or a Federal judgment debtor, 
with the exception of those debtors described in Sec. 3560.55 (b).
    (b) Additional requirement for applicants with prior debt. If an 
applicant or the managing general partner of a borrower, as well as any 
affiliated entity having a 10 percent or more ownership interest, has a 
prior or existing Agency debt, the following additional requirements 
must be met.
    (1) The applicant must be in compliance with any existing loan or 
grant agreements and with all legal and regulatory requirements or must 
have an Agency-approved workout agreement and be in compliance with the 
provisions of the workout agreement. The Agency may require that 
applicants with monetary or non-monetary deficiencies be in compliance 
with an Agency-approved workout agreement for a minimum of 6 consecutive 
months before becoming eligible for further assistance.
    (2) The applicant must be in compliance with the Title VI of the 
Civil Rights Act of 1964, section 504 of the Rehabilitation Act of 1973, 
and all other applicable civil rights laws.
    (c) Additional requirements for nonprofit organizations. In addition 
to the eligibility requirements of paragraphs (a) and (b) of this 
section, nonprofit organizations must meet the following criteria:
    (1) The applicant must have received a tax-exempt ruling from the 
IRS designating the applicant as a 501(c)(3) or 501(c)(4) organization.
    (2) The applicant must have in its charter the provision of 
affordable housing.

[[Page 476]]

    (3) No part of the applicant's earnings may benefit any of its 
members, founders, or contributors.
    (4) The applicant must be legally organized under state and local 
law.
    (5) In the case of off-farm labor housing loans and grants, 
nonprofit organizations must be ``broad-based'' nonprofit organizations 
(refer to Sec. 3560.555(a)(1)).
    (d) Additional requirements for limited partnerships. In addition to 
the applicant eligibility requirements of paragraphs (a) and (b) of this 
section, limited partnership loan applicants must meet the following 
criteria:
    (1) The general partners must be able to meet the borrower 
contribution requirements if the partnership is not able to do so at the 
time of loan request.
    (2) The general partners must maintain a minimum 5 percent financial 
interest in the residuals or refinancing proceeds in accordance with the 
partnership organizational documents.
    (3) The partnership must agree that new general partners can be 
brought into the organization only with the prior written consent of the 
Agency.
    (e) Additional requirements for Limited Liability Companies (LLCs). 
In addition to the applicant eligibility requirements of paragraphs (a) 
and (b) of this section, LLC loan applicants must meet the following 
criteria:
    (1) One member who holds at least a 5 percent financial interest in 
the LLC must be designated the authorized agent to act on the LLC's 
behalf to bind the LLC and carry out the management functions of the 
LLC.
    (2) No new members may be brought into the organization without 
prior consent of the Agency.
    (3) The members must commit to meet the equity contribution 
requirements if the LLC is not able to do so at the time of loan 
request.



Sec. 3560.56  Processing section 515 housing proposals.

    Processing requirements for farm labor housing proposals are found 
in subpart L of this part for Off-Farm and subpart M of this part for 
On-Farm.
    (a) Notice of Funding Availability (NOFA) responses. (1) The Agency 
will publish an annual NOFA with deadlines and other information related 
to submission of new construction MFH proposals, including expansion of 
existing MFH in designated places selected in accordance with Sec. 
3560.57.
    (2) To be eligible for funding consideration, MFH proposals must be 
submitted in accordance with the NOFA and must provide information 
requested in the NOFA for the Agency to score and rank the proposals.
    (3) MFH proposals needing rental subsidies must include requests for 
Agency rental assistance or a description of any non-Agency rental 
subsidy to be used with the proposal and must provide information 
required by Sec. 3560.260 (c).
    (4) The Agency will consider housing proposals requesting rental 
assistance in rank order to the extent rental assistance is available. 
When there is no rental assistance available, the Agency will consider 
only those housing proposals in rank order that do not require rental 
assistance.
    (b) Preliminary proposal assessment. The Agency will make a 
preliminary assessment of the application using the following criteria 
and will reject those applications which do not meet all of these 
criteria:
    (1) The proposal was received by the submission deadline specified 
in the NOFA,
    (2) The proposal is complete as specified in the NOFA,
    (3) The proposal is for an authorized purpose, and
    (4) The applicant meets Agency eligibility requirements.
    (c) Scoring and ranking project proposals. The Agency will score and 
rank each housing proposal that meets the criteria of paragraph (b) of 
this section.
    (1) The following criteria will be used to score housing proposals 
as more completely established in the NOFA:
    (i) The presence and extent of leveraged assistance in the proposal 
for the units that will serve tenants meeting Agency income limits at 
basic rents comparable to what the rent would be if the Agency provided 
full financing.
    (ii) The proposal will provide rental units in a colonia, tribal 
land, Rural Economic Area Partnership (REAP) community, Enterprise Zone 
or Empowerment Community (EZ/EC) or in a

[[Page 477]]

place identified in the state Consolidated Plan or a state needs 
assessment as a high need community for MFH.
    (iii) The proposal supports Agency initiatives announced in the 
NOFA.
    (iv) The proposal uses a donated site which meets the following 
conditions:
    (A) The site is donated by a state, unit of local government, public 
body or a nonprofit organization;
    (B) The site is suitable for the housing proposals and meets Agency 
requirements;
    (C) Site development costs do not exceed what they would be to 
purchase and develop an alternative site;
    (D) The overall cost of the MFH is reduced by the donation of the 
site; and
    (E) A return on investment is not paid to the borrower for the value 
of the donated site nor is the value of the site considered as part of 
the borrower's contribution.
    (2) The Agency will rank housing proposals based on their scoring.
    (i) When proposals have an equal score, preference will be given to 
Indian tribes as defined in Sec. 3560.11 and local nonprofit 
organizations or public bodies whose principal purposes include low-
income housing that meet the conditions of Sec. 3560.55(c) and the 
following conditions.
    (A) Is exempt from Federal income taxes under section 501(c)(3) or 
501(c)(4) of the Internal Revenue code;
    (B) Is not wholly or partially owned or controlled by a for-profit 
or limited-profit type entity;
    (C) Whose members, or the entity, do not share an identity of 
interest with a for-profit or limited-profit type entity;
    (D) Is not co-venturing with another entity; and
    (E) The entity or its members will not be receiving any direct or 
indirect benefits pursuant to LIHTC.
    (ii) A drawing will be held in the event of a tie score, first for 
proposals from applicants who meet the conditions of paragraph (c)(2)(i) 
of this section and next for proposals from applicants for which 
paragraph (c)(2)(i) of this section is not applicable. Each proposal 
will be numbered in the order in which it is drawn.
    (3) The Agency will request initial loan applications from parties 
who submitted the housing proposals with the highest ranking, taking 
into consideration available funds. The Agency will notify non-selected 
parties with the reasons for their non-selection, and the process that 
may be used to seek a review of the non-selection decision.
    (d) Processing initial loan applications. The Agency will review all 
initial loan applications submitted in accordance with Agency 
requirements to further evaluate the eligibility and feasibility of the 
housing proposals. This determination will include:
    (1) A review of the preliminary plans and cost estimates,
    (2) A market feasibility review,
    (3) An Agency site visit to gather preliminary environmental 
information and determine that the proposed site meets the site 
requirements of Sec. 3560.58,
    (4) A review of the Affirmative Fair Housing Marketing Plan,
    (5) An analysis of current credit reports,
    (6) A review of Civil Rights Impact Analysis in accordance with 7 
CFR part 2006, subpart P, and
    (7) Completion of environmental review requirements in accordance 
with 7 CFR part 1970.
    (e) Processing order of initial loan applications. The Agency will 
process initial loan applications in rank order, taking into account 
available funds. If any initial loan applications are withdrawn, 
rejected, or delayed for a period of time that will not permit funding 
in the current funding cycle, the Agency will process, in rank order, 
the next initial loan application as funding levels permit.
    (f) Other assistance. During each stage of loan application 
processing, loan applicants must notify the Agency of all other 
assistance, including other Federal Government assistance proposed or 
approved for use in connection with the loan application.
    (g) Proposal withdrawal or rejection. An applicant may withdraw a 
housing proposal, an initial loan application, or a final loan 
application at any time during the Agency review process with a written 
request. The Agency may reject a housing proposal, an initial loan 
application, or a final loan application at any time during the Agency 
review

[[Page 478]]

process when an applicant fails to provide information requested by the 
Agency within the time frame specified by the Agency.
    (h) Final applications. Applicants, with initial loan applications 
that are selected by the Agency for further processing, must submit a 
final application, with any additional information requested by the 
Agency, to confirm and document a housing proposal's eligibility and 
feasibility, including an affirmative fair housing marketing plan. The 
Agency will notify applicants with initial loan applications that are 
not selected for further processing of their non-selection, the reasons 
for their non-selection, and the process that may be used to seek a 
review of the non-selection decision.
    (i) Rural cooperative housing proposals. Rural cooperative housing 
loan proposals will be solicited through a NOFA and will be assessed and 
processed in the same manner described in paragraphs (a) through (h) of 
this section.

[69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016]



Sec. 3560.57  Designated places for section 515 housing.

    (a) Establish a list of designated places. The Agency will establish 
a list of designated places from which loan proposals will be accepted. 
The list is updated each fiscal year and is available when the NOFA is 
published. The NOFA provides information on obtaining the list. This 
list will be developed from a list of rural places which the Agency 
identifies as having the greatest need for multifamily housing based on 
the following factors:
    (1) Qualification as a rural area as defined in Sec. 3560.11,
    (2) Lack of mortgage credit, and
    (3) Demonstrated need for MFH based on:
    (i) The incidence of poverty,
    (ii) The existence of substandard housing,
    (iii) The lack of affordable housing, and
    (iv) The following high need areas:
    (A) Places identified in the state Consolidated Plan or similar 
state plan or needs assessment report,
    (B) Indian reservations or communities located within the boundaries 
of tribal allotted or trust land, and
    (C) EZ/EC or REAP communities.
    (b) Establishing partnership designated place list. The Agency, in 
states with an active leveraging program and formal partnership 
agreement with the state agency, may establish a partnership designated 
place list consisting of places identified by the partnership as high 
need areas based on criteria consistent with the Agency's and the 
state's authorizing statutes. The partnership agreement and partnership 
designated place list must have the concurrence of the Administrator.
    (c) Administrator's discretion. The Administrator may add to the 
list of designated places any place that is determined to have a 
compelling need for MFH, for example, a place that has had a substantial 
increase in population not reflected in the most recent decennial Census 
of the United States, or a place that has experienced a loss of 
affordable housing because of a natural disaster.
    (d) Restrictions on loans in certain designated places. (1) Initial 
loan applications will not be requested and final loan applications will 
not be closed for housing proposals in designated places where any of 
the following conditions exist:
    (i) The Agency has selected another MFH proposal in the designated 
place for processing.
    (ii) A previously funded Agency, the U.S. Department of Housing and 
Urban Development (HUD), low-income housing tax credit or other similar 
assisted MFH in the designated place has not been completed or has not 
reached projected occupancy levels.
    (iii) Existing assisted MFH in the designated place is experiencing 
high vacancy levels.
    (iv) A special note rent or other loan servicing tool is pending or 
in effect for other assisted housing in the designated place, or
    (v) The need in the market area is for additional rental assistance 
and not additional rental units.
    (2) Exceptions to the provisions in Sec. 3560.57(d)(1) may be made:
    (i) When a group home is proposed for persons with disabilities in 
an area

[[Page 479]]

where the existing MFH is insufficient or unavailable for their needs; 
or
    (ii) There is a compelling need for additional MFH, for example when 
the units that have been approved or are under development represent 
only a small portion of the total units needed in the community.

[69 FR 69106, Nov. 26, 2004, as amended at 80 FR 9912, Feb. 24, 2015]



Sec. 3560.58  Site requirements.

    (a) Location. (1) New construction section 515 loans will be made 
only in designated places selected by the Agency in accordance with the 
requirements of Sec. 3560.57.
    (2) Agency-financed MFH must be located in residential areas as part 
of established rural communities, except as permitted in Sec. 
3560.58(b), and for farm labor housing units financed under sections 514 
and 516, which may be developed in any area where a need for farm labor 
housing exists.
    (3) Communities in which Agency-financed MFH is located must have 
adequate facilities and services to support the needs of tenants.
    (4) Housing complexes will not be located in areas where there are 
undesirable influences such as high activity railroad tracks; adjacent 
to or near industrial sites; bordering sites or structures which are not 
decent, safe, or sanitary; or bordering sites which have potential 
environmental concerns such as processing plants. Sites which are not an 
integral part of a residential community and do not have reasonable 
access, either by location or terrain, to essential community facilities 
such as water, sewerage removal, schools, shopping, employment 
opportunities, medical facilities, may not be acceptable. Consistent 
with Federal law and Departmental Regulation, the Agency must conduct an 
environmental assessment and a civil rights impact analysis before a 
site can be accepted. Sites may be determined by the Agency to be 
unacceptable if any of the adverse conditions described in this 
paragraph exist.
    (b) Structures located in central business areas. The Agency will 
consider financing construction or the purchase and substantial 
rehabilitation of an existing structure located in the central business 
area of a rural community. With prior consent from the Agency, a portion 
of such a structure may be designated for commercial use on a lease 
basis. RHS funds may not be used to finance any cost associated with the 
commercial space.
    (c) Site development costs and standards. The cost of site 
development must be less than or comparable to the cost of site 
development at other available sites in the community and the site must 
be developed in accordance with 7 CFR part 1924, subpart C and any 
applicable standards imposed by a state or local government.
    (d) Densities. Allowable site densities will be determined based on 
the following criteria:
    (1) Compatibility and consistency with the community in which the 
MFH is located;
    (2) Impact on the total development costs; and
    (3) Size sufficient to accommodate necessary site features.
    (e) Flood or mudslide-prone areas. (1) The Agency will not approve 
sites subject to 100-year floods when non-floodplain sites exist. The 
environmental review process will assess the availability of a 
reasonable site outside the 100-year floodplain.
    (2) Sites located within the 100 year floodplain are not eligible 
for federal financial assistance unless flood insurance is available 
through the National Flood Insurance Program (NFIP). The Agency will 
complete Federal Emergency Management Agency (FEMA) Form 81-93, Standard 
Flood Hazard Determination, to document the site's location in relation 
to the floodplain and the availability of insurance under NFIP.



Sec. 3560.59  Environmental review requirements.

    Under the National Environmental Policy Act, the Agency is required 
to assess the potential impact of the proposed action on protected 
environmental resources. Measures to avoid or mitigate adverse impacts 
to protected resources may require a change in the site or project 
design. Therefore, a site cannot be approved until the Agency has 
completed the environmental review requirements in accordance with 7

[[Page 480]]

CFR part 1970. Likewise, the applicant should be informed that the 
environmental review must be completed and approved before the Agency 
can make a commitment of resources to the project.

[81 FR 11049, Mar. 2, 2016]



Sec. 3560.60  Design requirements.

    (a) Standards. All Agency-financed MFH will be constructed in 
accordance with 7 CFR part 1924, subpart A and will consist of two or 
more rental units plus appropriate related facilities. Single family 
structures may be used for group homes and cooperative housing. Also, 
manufactured homes may be used to create MFH and single family housing 
originally financed through section 502 of the Housing Act of 1949 may 
be converted to MFH. Maintenance requirements are listed in Sec. 
3560.103(a)(3).
    (b) Residential design. All MFH must be residential in character, 
except as provided for in Sec. 3560.58(b), and must meet the needs of 
eligible residents.
    (c) Economical construction, operation and maintenance. Taking into 
consideration life-cycle costs, all housing must be economical to 
construct, operate, and maintain and must not be of elaborate design or 
materials.
    (1) Economical construction means construction that results in 
housing of at least average quality with amenities that are reasonable 
and customary for the community and necessary to appropriately serve 
tenants.
    (2) Economical operating and maintenance means housing with 
operational and maintenance costs that allow a basic rent structure less 
than or consistent with conventional rents for comparable units in the 
community or in a similar community except that when determined 
necessary by the Agency to allow for decent, safe and sanitary housing 
to be provided in market areas where conventional rents are not 
sufficient to cover necessary operating, maintenance, and reserve costs. 
Basic rents may be allowed to exceed comparable rents for conventional 
units, but in no case may the rent exceed 150% of the comparable rent 
for conventional unit rent level.
    (3) In meeting the Agency objective of economical construction, 
operation and maintenance, housing proposals must:
    (i) Contain costs without jeopardizing the quality and marketability 
of the housing;
    (ii) Employ life-cycle cost analyses acceptable to the Agency to 
determine the types of materials which will reduce overall costs by 
lowering operation and maintenance costs, even though their initial 
costs may be higher; and
    (iii) Provide assurances that costs will be reduced when the Agency 
determines that housing costs are not economical. If assurances cannot 
be provided, funding may be withdrawn.
    (4) The housing proposal will give maximum consideration to energy 
conservation measures and practices.
    (d) Accessibility. All housing will meet the following accessibility 
requirements.
    (1) For new construction of MFH, at least 5 percent of the units 
(but not less than one) must be constructed as fully accessible units to 
persons with disabilities. The Uniform Federal Accessibility Standards 
(UFAS) will be followed. Individual copies of these standards are 
available from the Architectural and Transportation Barriers Compliance 
Board, 1331 F Street, NW, Suite 1000, Washington, DC 20004-1111, 
Telephone: (202) 272-0080, TTY: (202) 272-0082, e-mail address: 
[email protected]. When calculating how many accessible units are 
required, always round up to the next whole number to ensure the 5 
percent requirement is met.
    (2) For existing properties that do not have fully accessible units, 
the 5 percent requirement will apply when making substantial alterations 
as defined by UFAS. The UFAS defines substantial alteration as 
``alteration to any building or facility is to be considered substantial 
if the total cost for a twelve month period amounts to 50 percent or 
more of the full and fair cash value of the building * * *'' UFAS 
further defines full and fair cash value as ``the assessed valuation of 
a building or facility as recorded in the assessor's office of the 
municipality and as equalized at one hundred percent (100%) valuation, 
or the replacement cost, or the fair market value.'' The 5 percent

[[Page 481]]

rule will also apply to repair or renovation work on a single unit. For 
instance, if a unit is damaged by fire and extensive repair is 
necessary, to the extent possible the unit is to be converted to a fully 
accessible unit.
    (3) The variety of bedroom quantities of fully accessible units will 
be comparable to the variety of bedroom quantities of units which are 
not fully accessible. Borrowers will not, however, be required to exceed 
the 5 percent requirement simply to have an accessible unit of each 
bedroom quantity. In addition, accessible units should be distributed 
throughout the complex so not to concentrate the units in one location.
    (4) All MFH must meet:
    (i) The accessibility requirements as contained in section 504 of 
the Rehabilitation Act of 1973;
    (ii) The requirements of the Fair Housing Amendments Act of 1988;
    (iii) The requirements of the Americans with Disabilities Act of 
1990, as applicable; and
    (iv) All other Federal, State, and local requirements. When 
architectural standards differ, the most stringent standard will be 
followed.



Sec. 3560.61  Loan security.

    (a) General. Each loan made by the Agency will be secured in a 
manner that adequately protects the financial interest of the Federal 
Government throughout the period of the loan.
    (b) Lien position. (1) The Agency will seek a first or parity lien 
position on Agency-financed property in all instances. The Agency may 
accept a junior lien position if the Federal Government's interests are 
adequately secured.
    (2) The Agency will seek a first or parity lien on revenue from 
rent; Agency, HUD, state or private rental subsidy payments; chattels; 
assignments; and operating and reserve accounts. The Agency will accept 
a junior lien position if the Federal Government's interests are 
adequately secured.
    (c) Liability. Personal liability will be required of all individual 
borrowers. Personal liability will not be required for the members or 
stockholders of any corporation or trust or any partners in a limited 
partnership.
    (d) Housing and land ownership. Applicants must own the MFH and 
related land for which the loan is being requested, or become the owner 
when the loan is closed or have a leasehold interest in the land. If an 
applicant is not the owner of the housing and the related land, the 
following conditions must be met prior to or at loan closing.
    (1) A recorded mortgage on the improvements is given as collateral.
    (2) The amount of the loan against the collateral does not exceed 
its estimated security value.
    (3) The unexpired term of the lease on the date of loan closing is 
at least 50 percent longer than the term of the loan and rent charged 
for the lease does not exceed the rate being paid for similar leases in 
the area.
    (4) The applicant's leasehold interest is not subject to summary 
foreclosure or cancellation.
    (5) The lease permits:
    (i) The Agency to foreclose the mortgage and to transfer the lease;
    (ii) The Agency to bid at a foreclosure sale or to accept voluntary 
conveyance of the security in lieu of foreclosure;
    (iii) The Agency to occupy the property, sublet the property, or 
sell the leasehold for cash or credit if the leasehold is acquired 
through foreclosure, if the Agency accepts voluntary conveyance in lieu 
of foreclosure, or if the borrower abandons the property; and
    (iv) The applicant, in the event of default or inability to continue 
with the lease and the loan, to transfer the leasehold subject to the 
mortgage to a transferee that will assume the property ownership 
obligations.



Sec. 3560.62  Technical, legal, insurance, and other services.

    (a) Legal services. Applicants must have written contracts for any 
legal services that are to be paid out of Agency loan funds.
    (b) Title clearance. Applicants must obtain title clearance in 
accordance with the provisions of 7 CFR part 1927, subpart B applicable 
to title clearance, which would include title insurance or title 
opinion, unless the loan applicant is leasing the property or is an 
organization or an individual with special title or loan closing 
problems, in which

[[Page 482]]

case title clearance and related legal services will be obtained in 
accordance with procedures approved by the Agency.
    (c) Architectural services. Applicants must obtain a written 
contract for architectural services in accordance with the provisions of 
7 CFR part 1924, subpart A.
    (d) Insurance. Applicants must have property and liability coverage 
at loan closing as well as flood insurance, if needed. Fidelity coverage 
must be in force as soon as there are assets within the organization and 
it must be obtained before any loan funds or interim financing funds are 
made available to the borrower. At a minimum, applicants must meet the 
property, liability, flood, and fidelity insurance requirements in Sec. 
3560.105.
    (e) Surety bonding. Applicants must comply with the surety bonding 
provisions of 7 CFR part 1924, subpart A.



Sec. 3560.63  Loan limits.

    (a) Determining the security value. The security value for an Agency 
loan is the lesser of the total development cost (exclusive of any 
developer's fee as provided by paragraph (d)(2) of this section) or the 
housing project's security value as determined by an appraisal conducted 
in accordance with subpart P of this part, minus any prior or parity 
liens on the housing project. For purposes of determining security 
value:
    (1) Total development cost must be calculated excluding costs not 
considered allowable under Sec. 3560.54(a), and excluding costs related 
to compliance with the Uniform Relocation Assistance and Real Property 
Acquisition Act of 1970.
    (2) The appraisal, which will determine the market value, subject to 
restricted rents, will be obtained by the Agency and conducted in 
accordance with subpart P of this part.
    (b) Limitations on loan amounts. The Agency will not make any loans 
without adequate security. The following limitations will be set on loan 
amounts:
    (1) For all loan applicants who will receive benefits from the low-
income housing tax credit program, the amount of Agency financing for 
the housing will not exceed 95 percent of the security value available 
for the Agency loan.
    (2) For all loan applicants who will not receive low-income housing 
tax credit benefits and who are comprised solely of nonprofit 
organizations, consumer cooperatives, or state or local public agencies, 
the amount of the loan will be limited to the security value available 
for the Agency loan, plus the 2 percent initial operating capital and 
any necessary relocation costs incurred.
    (3) For all other loan applicants who will not receive low-income 
housing tax credit benefits, the loan amount will be limited to no more 
than 97 percent of the security value available for the Agency loan.
    (c) Equity contribution. Loan applicants, with the exception of 
nonprofit organizations, consumer cooperatives, or state or local public 
agencies who will not be receiving tax credits, must make an equity 
contribution from their own resources.
    (1) Loan applicants who will receive benefits from the low-income 
housing tax credit program must make an equity contribution in the 
amount of 5 percent of the Agency loan. The maximum Agency loan will be 
determined in accordance with Sec. 3560.63(b).
    (2) Loan applicants who will not receive benefits from the low-
income housing tax credit program and are not nonprofit organizations, 
consumer cooperatives, or state or local public agencies must make an 
equity contribution in the amount of 3 percent of the Agency loan. The 
maximum Agency loan will be determined in accordance with Sec. 
3560.63(b).
    (d) Review of assistance from multiple sources. The Agency will 
analyze Federal Government and other assistance provided to any MFH 
project to establish the maximum loan amount and to assure that the 
assistance is not more than the minimum necessary to make the housing 
affordable, decent, safe, and sanitary to potential tenants.
    (1) Determining minimum assistance. For purposes of determining 
minimum assistance, the total amount paid for builder's profit, 
overhead, and general

[[Page 483]]

requirements may not exceed 21 percent of the construction contract. 
Unless specified differently in a Memorandum of Understanding between 
the Agency and the state agency that allocates low-income housing tax 
credits, limits will be those specified in Sec. 3560.53(l).
    (2) Developer's fee. While, in accordance with Sec. 3560.54(a)(9), 
payment of a developer's fee is not an eligible use of Agency loan 
funds, the Agency will include in total development costs a developer's 
fee paid from other sources when analyzing the Federal Government 
assistance to the housing. The Agency may recognize a developer's fee 
paid from other sources on construction or rehabilitation of up to 15 
percent of the total development costs authorized for low-income housing 
tax credit purposes, or by another Federal Government program. Likewise 
for transfer proposals that include acquisition costs, the developer's 
fee on the acquisition cost may be recognized up to 8 percent of the 
acquisition costs only when authorized under a Federal Government 
program providing assistance. The developer's fee is not included in 
determining the Agency's maximum debt limit and loan amount.
    (e) Limits on equity loans. For equity loans to avert prepayment, 
the amount of the Agency equity loan will be limited to no more than the 
difference between 90 percent of market value of the property when 
appraised as conventional unsubsidized MFH and all current unpaid 
balances. For information on appraisal issues, refer to subpart P of 
this part.
    (f) Cost overruns. (1) All applicants must agree in writing to 
provide funds at no cost to the housing and without pledging the housing 
as security to pay any cost for completing planned construction after 
the maximum debt limit is reached.
    (2) After loan approval, the Agency will only approve cost increases 
for housing proposals involving new construction or major rehabilitation 
when the additional costs will not cause the limits specified in Sec. 
3560.53(l) or the maximum debt limit to be exceeded and the cost 
increases were caused by:
    (i) Unforeseen factors that are determined by the Agency to be 
beyond the borrower's control;
    (ii) Design changes required by the Agency, state, or the local 
government; or
    (iii) Financing changes approved by the Agency.



Sec. 3560.64  Initial operating capital contribution.

    Borrowers are required to make an initial operating capital 
contribution to the general operating account in the amount of at least 
2 percent of the total development cost or appraised value, whichever is 
less.
    (a) Borrowers that are nonprofit organizations, consumer 
cooperatives, or state or local public agencies and are not receiving 
low-income housing tax credits, may use loan funds for their initial 
operating capital contribution. All other borrowers must fund the 
initial operating capital contribution from their own resources.
    (b) Borrowers must provide to the Agency for approval a list of 
materials and equipment to be funded from the general operating account 
for initial operating expenses. As specified in Sec. 3560.304(b), 
initial operating capital may be used only to pay for approved budgeted 
expenses. If total initial operating expenses exceed 2 percent, the 
additional amount must be paid by the borrower from its own resources, 
except that borrowers meeting the provisions of Sec. 3560.64(a) who do 
not have sufficient resources for this purpose may request Agency 
assistance. Withdrawals from the reserve account will not be approved 
for such expenses.
    (c) Borrowers must provide the Agency with documentation of their 
initial operating capital contribution deposited into the general 
operating account prior to the start of construction or loan closing, 
whichever comes first, and such funds thereafter, may only be used for 
authorized budgeted purposes.
    (d) If the conditions specified in Sec. 3560.304(c) are met, funds 
contributed as initial operating capital may be returned to the 
borrower.



Sec. 3560.65  Reserve account.

    (a) For new construction, to meet major capital expenses of a 
housing

[[Page 484]]

project, applicants must establish and fund a reserve account that meets 
the requirements of Sec. 3560.306. The applicant must agree to make 
monthly contributions to the reserve account pursuant to a reserve 
account analysis which sets forth how the reserve account funds will 
meet the capital needs of the property over an acceptable 20-year 
period. The reserve account analysis is based on either a Capital Needs 
Assessment or life cycle cost analysis, provided and acceptable to Rural 
Development by the applicant. Adjustments may be made to the 
contribution amount at 5 or 10-year intervals, either through an updated 
Capital Needs Assessment or as part of the original life cycle cost 
analysis. The cost of conducting either a Capital Needs Assessment or 
life cycle cost analysis will be paid for by the applicant. The cost of 
the initial Capital Needs Assessment or life cycle cost analysis may be 
included in the loan financing.
    (b) For ownership transfers or sales, the requirements of Sec. 
3560.406(d)(5) will be met.
    (c) For other existing properties, at a minimum the borrower must 
agree to make monthly contributions to the reserve account at the rate 
of 1 percent annually of the amount of total development cost until the 
reserve account equals 10 percent of the total development cost.
    (d) The agency may establish an escrow account for the collection 
and disbursement of reserve account funds.

[77 FR 40255, July 9, 2012, as amended at 87 FR 11280, Mar. 1, 2022]



Sec. 3560.66  Participation with other funding or financing sources.

    (a) General requirements. The Agency encourages the use of funding 
or financing from other sources in conjunction with Agency loans. When 
the Agency is not the sole source of financing for MFH, the following 
conditions must be met.
    (1) The Agency will enter into a participation (or intercreditor) 
agreement with the other participants that clearly defines each party's 
relationship and responsibilities to the others.
    (2) The rental units that will serve tenants eligible for housing 
under the Agency's income standards must meet Agency standards and the 
number of units that will serve the Agency's tenants are at least equal 
to the units financed by the Agency.
    (3) All rental units must be operated and managed in compliance with 
the requirements of the Agency and the other sources. To the extent 
these requirements overlap, the most stringent requirement must be met. 
The Agency may negotiate the resolution of overlapping requirements on a 
case-by-case basis; however, at a minimum, Agency requirements must be 
met.
    (4) If the number of units subject to the LIHTC rent and income 
restrictions is greater than the number of units projected to receive 
Agency rental assistance (RA) or similar tenant subsidy, the market 
feasibility documentation must clearly reflect a need and demand by 
LIHTC income-eligible households financially able to afford the 
projected rents without such a subsidy for the units not receiving RA or 
similar tenant subsidy.
    (b) Rental assistance. The Agency may provide rental assistance with 
MFH loans participating with other sources of funding under the 
following conditions:
    (1) The Agency's loan equals at least 25 percent of the housing's 
total development cost.
    (2) The rental assistance is provided only to those rental units 
where the basic rents do not exceed what basic rents would have been had 
the Agency provided full financing.
    (3) The provisions of subpart F of this part are met.
    (c) Security requirements. The security requirements of Sec. 
3560.61 must be met for all Agency-financed MFH participating with other 
sources of funding.
    (d) Reserve requirements. Reserve account requirements will be 
determined on a case-by-case basis, taking into consideration the 
reserve requirements of the other participating lenders, so that the 
aggregate fully funded reserve account is consistent with the 
requirements of Sec. 3560.65. Reserve requirements and procedures for 
reserve account withdrawals must be agreed upon by all lenders and 
included in the intercreditor or participation agreement.

[[Page 485]]

    (e) Design requirements. Housing and related facilities must be 
planned and constructed in accordance with 7 CFR 1924, subparts A and C. 
If housing includes non-Agency financed common facilities, the following 
conditions must be met:
    (1) The non-Agency-financed common facility's operating and 
maintenance costs must be paid through collection of a user fee from 
residents who use the facility,
    (2) The non-Agency-financed common facility must be designed and 
operated with appropriate safeguards for the health and safety of 
tenants, and
    (3) The facility must be fully available and accessible to all 
tenants.



Sec. 3560.67  Rates and terms for section 515 loans.

    Rates and terms for farm labor housing loans are found in subpart L 
of this part for Off-Farm and subpart M of this part for On-Farm.
    (a) Interest. Loans will be closed at the lower of the interest rate 
in effect at the time of loan approval or the interest rate that is in 
effect at time of loan closing.
    (b) Interest credit. The Agency will provide interest credit to 
subsidize the interest on the Agency loan to a payment rate of 1 percent 
for all of the Agency's initial and subsequent loans.
    (c) Amortization period and term. (1) Except for manufactured 
housing, loans will be amortized over a period not to exceed the lesser 
of the economic life of the housing being financed or 50 years and paid 
over a term not to exceed 30 years from the date of loan. The Agency may 
make a loan to the borrower to finance the final payment of a loan in 
accordance with Sec. 3560.74.
    (2) Loans for manufactured housing will be amortized and paid over a 
term not to exceed 30 years as specified in Sec. 3560.70(c).



Sec. 3560.68  Permitted return on investment (ROI).

    (a) Permitted return. Borrowers operating on a limited profit basis 
will be permitted a return not to exceed 8 percent of their required 
initial investment determined at the time of loan approval in accordance 
with Sec. 3560.63(c).
    (b) Calculation of permitted return. The permitted return will be 
based on the borrower's contributions from their own resources, which, 
when added to the Agency loan amount and all sources of funding or 
financing, do not exceed the security value of the MFH project as 
specified in Sec. 3560.63(a).
    (1) Proceeds received by the borrower from the syndication of low-
income housing tax credit and contributed to the MFH project may be 
considered funds from the borrower's own resources for the portion of 
the proceeds which exceeds:
    (i) The allowable developer's fee determined by the state agency 
administering the low-income housing tax credit, and
    (ii) The borrower's expected contribution to the transaction, as 
determined by the state agency administering the low-income housing tax 
credit.
    (2) A building site contributed by the borrower will be appraised by 
the Agency to determine its market value. A return may not be allowed on 
the amount above the equity contribution required by Sec. 3560.63(c) if 
the market value as determined by the Agency, when added to the loan and 
grant amounts from all sources, exceeds the security value of the MFH 
project as specified in Sec. 3560.63(a).
    (c) Return on additional investment. The initial investment may 
exceed the equity contribution required by Sec. 3560.63(c) and a return 
allowed on the investment if the additional return does not increase 
basic rents and rental assistance costs above what basic rents and 
rental assistance costs would have been with the Agency financing 95 or 
97 percent of the total development cost.
    (d) Compensation to nonprofit organizations. Although nonprofit 
organizations are not eligible to take a return on investment, with 
prior Agency approval, cooperatives and nonprofit organizations may use 
housing project funds to pay asset management expenses directly 
attributable to ownership responsibilities, as described in Sec. 
3560.303(b)(1)(ii).

[[Page 486]]



Sec. 3560.69  Supplemental requirements for congregate housing and group homes.

    (a) General. Congregate housing and group homes must be planned and 
developed in accordance with 7 CFR part 1924, subparts A and C.
    (b) Design criteria. Congregate housing and group homes must be 
designed to accommodate all special services that will be provided.
    (c) Services. Congregate housing and group home loan applicants, as 
part of their loan request, must submit a plan to make affordable 
services available to residents to assist the residents in living 
independently. The plan must address the availability of this assistance 
from service providers throughout the term of the loan.
    (1) For congregate housing, the resident services plan must address 
how the following services will be provided or made available:
    (i) One cooked meal per day, seven days per week;
    (ii) Transportation to and from the property;
    (iii) Assistance in housekeeping;
    (iv) Personal services;
    (v) Recreational and social activities; and
    (vi) Access to medical services.
    (2) For group homes, the resident services plan must address how 
access to the following services will be provided or made available:
    (i) A common kitchen in which to prepare meals;
    (ii) Transportation;
    (iii) Nearby recreational and social activities which may be 
coordinated by the resident assistant, if applicable; and
    (iv) Medical services as necessary.
    (d) Necessary items. Borrowers must ensure items such as tables, 
chairs, and cookware necessary to furnish common areas are made 
available to congregate housing or group homes. The 2 percent initial 
operating capital may be used to purchase these items.
    (e) Association with other organizations. Congregate housing and 
group homes may coordinate services or training with another 
organization, such as a workshop for the developmentally disabled. 
However, the housing facility must be a separate entity and not 
dependent on the other organization.
    (f) Market feasibility documentation. Market feasibility 
documentation for congregate housing and group homes is subject to the 
following requirements:
    (1) Must address the need for housing with services and include 
information concerning alternative service providers;
    (2) Must contain demographic information pertaining to the 
population that is to be served by the congregate housing or group home 
project; and
    (3) May consider an expanded market area that includes nondesignated 
places, but the facility must be located in a designated place.
    (g) Rental assistance for group homes. A unit in a group home 
consists of a space occupied by a specific tenant household, which may 
be an apartment unit, a bedroom, or a part of a bedroom. Agency rental 
assistance will be made available to tenants sharing a unit so long as 
the total rent for the unit does not exceed conventional rents for 
comparable units in the area or a similar area.



Sec. 3560.70  Supplemental requirements for manufactured housing.

    (a) Design requirements. Manufactured housing must meet the 
requirements of 7 CFR part 1924, subpart A applicable to manufactured 
housing.
    (b) Eligible properties. The manufactured housing must include two 
or more housing units. The applicant will become the first owner 
purchasing the manufactured homes for purposes other than resale. The 
following exceptions may be made to this provision:
    (1) A housing proposal may include the purchase of the real property 
with existing manufactured housing which will be redeveloped with the 
placement of new manufactured homes.
    (2) A housing proposal may include the rehabilitation of existing 
manufactured housing only if the units to be rehabilitated are currently 
financed by the Agency. The proposal will include the results of the 
applicant's consultation with the manufacturer to determine if the 
proposed rehabilitation

[[Page 487]]

work will affect the structural integrity of the unit and, if so, the 
statement will include an explanation as to how.
    (c) Terms. The maximum loan amount will be determined in accordance 
with the requirements of Sec. 3560.63. The amortization period and term 
of loans for manufactured housing will not exceed the lesser of the 
economic life of the housing being financed or 30 years.
    (d) Security. A mortgage or deed of trust will be taken on the 
entire property purchased or improved with the loan. The encumbered 
property must be covered under a standard real estate title insurance 
policy or attorney's title opinion that identifies the housing as real 
property and insures or indemnifies against any loss if the manufactured 
home is determined not to be part of the real property. The property 
must be taxed as real estate by the jurisdiction where the housing is 
located if such taxation is permitted under applicable law when the loan 
is closed.
    (e) Special warranty requirements. The general contractor or dealer-
contractor, as applicable, must provide a warranty in accordance with 
the provisions of 7 CFR part 1924, subpart A.
    (1) The warranty must establish that the manufactured homes, 
foundations, positioning and anchoring of the units to their permanent 
foundations, and all contracted improvements, are constructed in 
conformity with applicable approved plans and specifications.
    (2) The warranty must include provisions that the manufactured homes 
sustained no hidden damage during transportation and, for double-wide 
units, that the sections were properly joined and sealed.
    (3) The general contractor or dealer contractor must warrant that 
the manufacturer's warranty is in addition to and does not diminish or 
limit all other warranties, rights, and remedies that the borrower or 
lender may have.
    (4) The seller of the manufactured homes must deliver to the 
borrower the manufacturer's warranty with an additional copy for RHS. 
The warranty must identify the units by serial number.



Sec. 3560.71  Construction financing.

    (a) Construction financing plan. Prior to loan approval, applicants 
must submit to the Agency for its concurrence a plan for the 
construction financing and securing of the loan.
    (b) Interim financing. Interim financing is required by the Agency 
for any construction, except as noted in paragraph (c) of this section.
    (1) The Agency reserves the right to review and approve the interim 
financing arrangements proposed by the applicant.
    (2) When interim financing is used, the Agency will obligate the 
funds and provide an interim financing letter to the lender that will 
confirm the procedures and conditions for the construction financing. 
The take-out loan will be closed and the interim lender paid off when 
the conditions of the interim financing letter have been met.
    (3) The applicable provisions of 7 CFR part 1924, subpart A will be 
used to monitor the construction.
    (4) An environmental review in accordance with 7 CFR part 1970 must 
be completed prior to issuance of the interim financing letter.
    (c) Multiple advances. When interim financing is not available or 
when it is in the best interest of the Federal Government, the Agency 
may provide for multiple advances of the funds to cover the cost of 
construction.
    (1) The Agency will review and approve the multiple advances 
proposed by the borrower.
    (2) When multiple advances are used, the Agency will close the loan 
prior to any advancement of funds and the relevant provisions of 7 CFR 
part 1924, subpart A will be used to monitor the construction.
    (3) The loan check will be handled in accordance with 7 CFR part 
1902, subpart A.

[69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016]



Sec. 3560.72  Loan closing.

    (a) Requirements. Loans will be closed in accordance with 7 CFR part 
1927, subpart B and any state supplements. In all cases, the borrower 
must:

[[Page 488]]

    (1) Provide evidence that an Agency-approved accounting system is in 
place;
    (2) Execute a restrictive-use contract acceptable to the Agency that 
establishes the borrower's obligation to operate the housing for program 
purposes for the term of the Agency loan;
    (i) For all section 514 loans, except as provided in Sec. 3560.621, 
made pursuant to a contract entered into on or after the effective date 
of this regulation, the following language will be included in the 
mortgage and deed of trust: ``The borrower and any successors in 
interest agree to use the housing for the purpose of housing people 
eligible for occupancy as provided in sections 514 and 516 of title V of 
the Housing Act of 1949, and Rural Housing Service regulations then in 
effect. The restrictions are applicable for a term of 20 years from the 
date on which the last loan was closed. No eligible person occupying the 
housing will be required to vacate nor any eligible person denied 
occupancy for housing prior to the close of such period because of a 
prohibited change in the use of the housing. A tenant or person wishing 
to occupy the housing may seek enforcement of this provision as well as 
the Government.''
    (ii) All other loans are subject to restrictive-use provisions as 
outlined in subpart N of this part.
    (3) Provide evidence that construction financing arrangements are 
adequate when interim financing is going to be used;
    (4) Provide evidence that all the funds from other sources as 
proposed in the application are available and that there have been no 
changes in the Sources and Uses Comprehensive Evaluation (SAUCE).
    (5) Provide evidence of the title to all security required by the 
Agency;
    (6) Provide a certification that all construction in the case of 
interim financing has been or, in the case of multiple advances, will be 
paid;
    (7) Provide, in the case of interim financing, a dated and signed 
statement from the owner's architect certifying to substantial 
completion of the housing project;
    (8) Provide a certification that all construction in the case of 
interim financing has been or, in the case of multiple advances, will be 
in accordance with the plans and specifications concurred in by the 
Agency;
    (9) Provide evidence, if applicable, that the conditions of the 
interim financing letter have been met; and
    (10) Attend a pre-occupancy conference with the Agency.
    (b) Cost certification. In all cases, the borrower must report 
actual construction costs. Whenever the Leadership Designee determines 
it appropriate, and in all situations where there is an identity of 
interest as defined in 7 CFR 1924.4 (i), the borrower, contractor and 
any subcontractor, material supplier, or equipment lessor having an 
identity of interest must each provide certification as to the actual 
cost of the work performed in connection with the construction contract 
in accordance with 7 CFR part 1924, subpart A. The construction costs 
must also be audited in accordance with Governmental Auditing Standards, 
by a Certified Public Accountant (CPA). In some cases, the Agency will 
contract directly with a CPA for the cost certification. Funds that were 
included in the loan for cost certification and which are ultimately not 
needed because Agency contracts for the cost certification will be 
returned on the loan. Agency personnel will utilize exhibit M of 7 CFR 
part 1924, subpart A to assist in the evaluation of the cost 
certification process.
    (c) Notification of loan cancellation. Loans may be canceled after 
approval and before loan closing. The Agency will notify all parties of 
the cancellation and the reasons for the cancellation in accordance with 
7 CFR part 1927, subpart B.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11280, Mar. 1, 2022]



Sec. 3560.73  Subsequent loans.

    (a) Applicability. The Agency may make a subsequent loan to a 
borrower to complete, improve, repair, or make modifications to MFH 
initially financed by the Agency or for equity for preservation 
purposes. Loan requests to add units to comply with accessibility 
requirements may be processed as a subsequent loan; however, loan 
requests to add units to meet market demand will be processed as an 
initial

[[Page 489]]

loan request and must compete under the NOFA.
    (b) Application requirements and processing. Upon receipt of a 
subsequent loan request, the Agency will inform the applicant what 
information is required based on the nature and purpose of the loan 
request. Subsequent loan requests do not have to compete for funding 
against initial loan proposals.
    (c) Amortization and payment period. Subsequent loans will be 
amortized over a period not to exceed the lesser of the economic life of 
the housing being financed or 50 years and paid over a term not to 
exceed the lesser of the economic life of the housing or 30 years from 
the date of the loan.
    (d) Equity contribution. Applicants for subsequent loans must make 
contributions on the loans in the same proportion as outlined in Sec. 
3560.63(c). Loan applicants will not be given consideration for any 
increased equity value that the property may have since the initial 
loan.
    (1) Excess initial investment on an initial loan may be credited 
toward the required investment on a subsequent loan.
    (2) An initial operating capital contribution to the general 
operating account as described in Sec. 3560.64 is required for a 
subsequent loan approved under the conditions set in Sec. 3560.63(f) to 
complete housing construction but is not required for a subsequent loan 
to repair or improve existing housing.
    (e) Environmental review requirements. Actions taken under this part 
must comply with the environmental review requirements in accordance 
with 7 CFR part 1970.
    (f) Design requirements. All improvements, repairs, and 
modifications will be in accordance with 7 CFR part 1924, subparts A and 
C.
    (g) Architectural services. The applicant must obtain architectural 
services when any of the following conditions exist:
    (1) Enclosed space is being added,
    (2) When required by state law, and
    (3) When the Agency determines that the work being proposed requires 
architectural services.
    (h) Restrictive-use requirements. Subsequent loans are subject to 
restrictive-use provisions as outlined in Sec. 3560.662(a) and 
borrowers must execute a restrictive-use contract in accordance with 
Sec. 3560.72(a)(2).
    (i) Designation changes from rural to nonrural. If the designation 
of an area changes from rural to nonrural after the initial loan is 
made, a subsequent loan may be made only to make necessary improvements 
and repairs to the property or for equity when needed to avert 
prepayment.
    (j) Agency's discretion. The Administrator may approve a subsequent 
loan in a place that is not on the list of designated places as a 
servicing action, for example, to replace units destroyed by a natural 
disaster.

[69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016]



Sec. 3560.74  Loan for final payments.

    (a) Use. The Agency may finance final payments for borrowers holding 
existing loans for which the Agency approved an amortization period that 
exceeded the term of the loan.
    (b) Requirements. The Agency may finance final payments if 
documentation regarding the market area shows that a need for low-income 
rental housing still exists for that area and one of the following 
conditions has been met.
    (1) It is more cost efficient and serves the tenant base more 
effectively to maintain existing MFH than to build another property in 
the same location; or
    (2) The MFH has been maintained to such an extent that it can be 
expected to continue providing affordable, decent, safe and sanitary 
housing for 20 years beyond the date of the loan to finance a final 
payment; and
    (3) Funds are available.
    (c) Term. The term of Agency loans to finance final payments will 
not exceed 20 years from the date of the initial loan final payment.



Sec. Sec. 3560.75-3560.99  [Reserved]



Sec. 3560.100  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden

[[Page 490]]

for this collection of information is estimated to vary from 15 minutes 
to 18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



      Subpart C_Borrower Management and Operations Responsibilities



Sec. 3560.101  General.

    This subpart sets forth borrower obligations regarding management 
and operations of multi-family housing (MFH) projects financed by the 
Agency. As noted in Sec. 3560.6, the borrower requirements listed in 
this subpart must be complied with by the borrower. The borrower may 
designate in writing a person to act as the borrower's authorized agent.



Sec. 3560.102  Housing project management.

    (a) General. Borrowers hold final responsibility for housing project 
management and must ensure that operations comply with the terms of all 
loan or grant documents, Agency requirements and applicable local, state 
and Federal laws and ordinances. Project operations shall be conducted 
to meet the actual needs and necessary expenses of the property or for 
any other purpose authorized under Agency regulations. Any party not 
meeting these responsibilities may be subject to penalties. It is 
expected that only typical and reasonable expenses be incurred for the 
services rendered. Consequently, methods to inflate, duplicate, obscure, 
or failure to disclose the true nature and cost of work performed for 
the services rendered will cause the Agency to deny budget requests for 
the services or issue a demand for recovery and reimbursement for 
unauthorized actions.
    (b) Management plan. Borrowers must develop and maintain a 
management plan for each housing project covered by their loan or grant. 
The management plan must establish the systems and procedures necessary 
to ensure that housing project operations comply with Agency 
requirements in this part. The management plan should describe whether 
administrative expenses are to be paid from management agent fees or 
project operations, including a task list of charges covered by the fee 
as outlined in paragraph (i)(3)(i)(A) of this section. The management 
plan must meet the standards set out in this part.
    (c) Management plan effective period. A management plan remains in 
effect as long as it accurately reflects housing project operations and 
the housing project is in compliance with the Agency requirements.
    (1) Borrowers must submit an updated management plan to the Agency 
if operations change or are no longer consistent with the management 
plan on file with the Agency.
    (2) When there are no changes in operations, borrowers must submit a 
certification to the Agency every 3 years stating that operations are 
consistent with the management plan and the plan is adequate to assure 
compliance with the loan and grant documents and Agency requirements or 
applicable local, state and Federal laws.
    (3) If the Agency determines that operations are in compliance with 
Agency requirements, loan or grant agreements, or applicable local, 
state, and Federal laws, but are not consistent with the management 
plan, the Agency will require the borrower to:
    (i) Revise the management plan to accurately reflect housing 
operations;
    (ii) Take actions to ensure the management plan is followed; or
    (iii) Advise the Agency in writing of the action taken.
    (4) When a housing project is being transferred from one borrower to 
another, the transferee must submit a management plan that addresses the 
required items identified in paragraph (b)(1) of this section in 
sufficient detail to enable the Agency to give final approval of the 
transfer.
    (d) Housing projects with compliance violations. Upon receiving 
notice of compliance violations in accordance with Sec. 3560.354, 
borrowers must submit to the Agency:

[[Page 491]]

    (1) Revisions to the management plan establishing the changes in 
housing operations that will be made to restore compliance;
    (2) If the borrower determines the compliance violations were due to 
a failure to follow the management plan, the borrower must certify to 
the Agency that the management plan is adequate to assure compliance 
with the applicable requirements of this part and submit a written 
description of the actions they will take to ensure the management plan 
is followed; or
    (3) If the Agency discovers continued discrepancies between a 
management plan and housing project operations or compliance violations, 
the Agency may require the borrower to install a different management 
agent acceptable to the Agency as described in paragraph (e) of this 
section.
    (e) Acceptable management agents. Borrowers must obtain Agency 
approval of the agent proposed to manage a housing project prior to 
entering into any formal agreement with the agent and prior to allowing 
the agent to assume responsibility for housing project operations. 
Borrowers that plan to self-manage a housing project also must receive 
Agency approval before assuming responsibility for housing operations.
    (1) Borrowers must submit a written request for Agency approval of 
the proposed management agent at least 45 days prior to the date the 
agent is to assume responsibility for operations. This request must 
include a profile of the proposed management agent that provides 
sufficient information to allow the Agency to evaluate whether the agent 
is acceptable.
    (2) The Agency will deny approval of any proposed management agent 
that cannot provide evidence of at least two years of experience and 
satisfactory performance in directing and overseeing the management of 
similar federally-assisted MFH.
    (3) The Agency may issue approval of a management agent that does 
not meet the requirements of Sec. 3560.102(e)(2) if the management 
agent can provide evidence that indicates the ability to successfully 
manage a MFH project in accordance with Agency requirements.
    (4) If a borrower enters into an agreement with a management agent 
or begins to self-manage prior to receiving Agency approval, the Agency 
will place the borrower in non-monetary default status and will require 
the borrower to immediately terminate the contract with the management 
agent.
    (f) Self-management. Borrowers may self-manage a housing project but 
must receive Agency approval before assuming responsibility for housing 
operations. Borrowers that plan to self-manage must meet all 
requirements of Sec. 3560.102, except for paragraph (h) of this 
section.
    (g) Identity-of-interest disclosure. Borrowers and management agents 
must disclose to the Agency all identity-of-interest relationships which 
they have with firms and must receive Agency approval to use such firms 
prior to entering into any contractual relationships with such entities 
that involve Agency funds.
    (1) This disclosure must include any identity-of-interest 
relationships between:
    (i) The borrower and the management agent;
    (ii) The borrower or management agent and the providers of supplies 
and services to the housing project;
    (iii) The borrower or the management agent and employees of anyone 
listed in paragraphs (g)(1)(i) and (ii) of this section;
    (iv) Any borrower's entity control, or interest held or possessed by 
a person's spouse, parent, child, grandchild, or sibling or other 
relation by blood or marriage is attributed to that person for the 
determination under this paragraph (g)(1).
    (2) Failure to disclose such relationships may subject the borrower, 
the management agent, and the other firms or employees found to have an 
identity of interest relationship to suspension, debarment, or other 
remedies available to the Agency.
    (3) After disclosure of an identity-of-interest relationship:
    (i) The borrower, management agent, and supplier of goods and 
services must provide documentation proving that use of identity-of-
interest firms is in the best interest of the housing project;
    (ii) Any supplier of goods and services must certify in writing to 
the

[[Page 492]]

Agency that the individual or organization has a viable, on-going trade 
or business qualified and licensed, if appropriate, to do the work for 
which a contract is being proposed;
    (iii) The borrower, management agent, and supplier of goods and 
services must agree, in writing, that all records related to the housing 
project will be made available to the Agency, Office of the Inspector 
General (OIG), General Accountability Office (GAO), or a representative 
of the Agency, upon request; and
    (iv) The Agency will deny the use of an identity-of-interest firm 
when the Agency determines such use is not in the best interest of the 
Federal Government or the tenants.
    (h) Management agreement. Borrowers contracting with a management 
agent must execute a management agreement that establishes:
    (1) The management agent's responsibility to comply with Agency 
requirements and local, state, and Federal laws;
    (2) That the management fee is payable out of the housing project's 
general operating account consistent with the requirements of paragraph 
(i) of this section; and
    (3) The Agency's authority to terminate the agreement for failure to 
operate the housing project in accordance with Agency requirements or 
local, state, or Federal laws.
    (i) Management fees. Management fees will be an allowable expense to 
be paid from the housing project's general operating account only if the 
fee is approved by the Agency as a reasonable cost to the housing 
project and documented on the management certification. Management fees 
must be developed in accordance with the following:
    (1) The management fee may compensate the management entity for the 
following costs and services:
    (i) Supervision by the management agent and its staff (time, 
knowledge, and expertise) of overall operations and capital improvements 
of the site.
    (ii) Hiring, supervision, and termination of on-site staff.
    (iii) General maintenance of project books and records (general 
ledger, accounts payable and receivable, payroll, etc.). Preparation and 
distribution of payroll for all on-site employees, including the costs 
of preparing and submitting all appropriate tax reports and deposits, 
unemployment and workers' compensation reports, and other IRS- or state-
required reports.
    (iv) In-house training provided to on-site staff by the management 
company.
    (v) Preparation and submission of proposed annual budgets and 
negotiation of approval with the Agency.
    (vi) Preparation and distribution of the Agency forms and routine 
financial reports to borrowers.
    (vii) Preparation and distribution of required year-end reports to 
the Agency.
    (viii) Preparation of requests for reserve withdrawals, rent 
increases, or other required adjustments.
    (ix) Arranging for preparation by outside contractors of utility 
allowance analysis.
    (x) Preparation and implementation of Affirmative Fair Housing 
Marketing Plans as well as general marketing plans and efforts.
    (xi) Review of tenant certifications and submission of monthly 
rental assistance requests, and overage. Submission of payments where 
required.
    (xii) Preparation, approval, and distribution of operating 
disbursements; oversight of project receipts; and reconciliation of 
deposits.
    (xiii) Overhead of management agent, including:
    (A) Establish, maintain, and control an accounting system sufficient 
to carry out accounting supervision responsibilities.
    (B) Maintain agent office arrangements, staff, equipment, furniture, 
and services necessary to communicate effectively with the properties, 
to include consultation and support to site-staff, the Agency and with 
the borrowers.
    (C) Postage expenses unrelated to site operation.
    (D) Expense of telephone and facsimile communication, unrelated to 
site operations.
    (E) Direct costs of insurance (fidelity bonds covering central 
office staff, computer and data coverage, general liability, etc.) 
directly related to protection of the funds and records of the

[[Page 493]]

borrower. Insurance coverage for agent's office and operations 
(Property, Auto, Liability, Errors and Omissions, Casualty, Workers 
Compensation, etc.).
    (F) Central office staff training and ongoing certifications.
    (G) Maintenance of all required profession and business licenses and 
permits. (This does not include project site office permits or 
licenses.)
    (H) Travel of agent staff to the properties for on-site inspection, 
training, or supervision activities.
    (I) Agent bookkeeping for their own business.
    (xiv) Attendance at meetings (including travel) with tenants, 
owners, and the Agency or other governmental agency.
    (xv) Development, preparation, and revision of management plans, 
agreements, and management certifications.
    (xvi) Directing the investment of project funds into required 
accounts.
    (xvii) Maintenance of bank accounts and monthly reconciliations.
    (xviii) Preparation, request for, and disbursement of borrower's 
initial operating capital (for new projects) as well as administration 
of annual owner's return on investment.
    (xix) Account maintenance, settlement, and disbursement of security 
deposits.
    (xx) Working with auditors for initial Agency annual financial 
reports.
    (xxi) Storage of records, to include electronic records, and 
adherence to records retention requirements.
    (xxii) Assist on-site staff with tenant relations and problems. 
Provide assistance to on-site staff in severe actions (eviction, death, 
insurance loss, etc.).
    (xxiii) Oversight of general and preventive maintenance procedures 
and policies.
    (xxiv) Development and oversight of asset replacement plans.
    (xxv) Oversight of preparation of section 504 reviews, development 
of plans, and implementation of improvements necessary to comply with 
plans and section 504 requirements.
    (2) Management fees may consist of a base per occupied revenue 
producing unit fee and add-on fees for specific housing project 
characteristics. Management entities may be eligible to receive the full 
base per occupied unit fee for any month or part of a month during which 
the unit is occupied.
    (i) Periodically, the Agency will develop a range of base per 
occupied unit fees that will be paid in each state. The Agency will 
develop the fees based on a review of housing industry data. The final 
base for occupied unit fees for each state will be made available to all 
borrowers.
    (ii) Periodically, the Agency will develop the amount and 
qualifications to receive add-on fees. The final set of qualifications 
will be made available to all borrowers.
    (3) Management plans and agreements must describe if administrative 
expenses are to be paid from the management fee or paid for as a project 
cost.
    (i) A task list should be used to identify which services are 
included in the management fee, which services are included in project 
operations, and which are pro-rated along with the methodology used to 
pro-rating of expenses between management agent fees and project 
operations. Some property responsibilities are completed at the property 
and some offsite. Agent responsibilities may be performed at the 
property, the management office, or at some other location.
    (ii) Disputes may arise as to who performs certain services. The 
management plan and job descriptions should normally provide sufficient 
clarity to avoid or resolve any such disputes; however, sometimes 
clarifications and supporting materials may be required to resolve 
disputes. The decision must be made based on the most complete 
evaluation of the facts presented.
    (j) Management certification. (1) As a condition of approval of 
project management, including borrowers who self-manage, borrower and 
management agents must execute an Agency-approved certification 
certifying that:
    (i) Borrowers and management agent agree to operate the housing 
project in accordance with the management plan;
    (ii) Borrowers and the management agent will comply with Agency 
requirements, loan or grant agreements, applicable local, State, Tribal, 
and Federal laws and ordinances, and contract obligations, will certify 
that no payments have been made to anyone in return for

[[Page 494]]

awarding the management contract to the management agent, and will agree 
that such payments will not be made in the future;
    (iii) Borrowers and the management agent will comply with Agency 
notices or other policy directives that relate to the management of the 
housing project;
    (iv) Management agreement between the borrower and management agent 
complies with the requirements of this section;
    (v) Allowable management fees are assessed and paid out of the 
housing projects' general operating account. Borrowers and management 
agents will comply with Agency requirements regarding management fees as 
specified in paragraph (i) of this section, and allocation of management 
costs between the management fee and the housing project financial 
accounts specified in Sec. 3560.302(c)(3);
    (vi) The borrower and the management agent will not purchase goods 
and services from entities that have an identity-of-interest (IOI) with 
the borrower or the management agent until the IOI relationship has been 
disclosed to the Agency according to paragraph (g) of this section, not 
denied by the Agency under paragraph (d)(3) of this section, and it has 
been determined that the costs are as low as or lower than arms-length, 
open-market purchases; and
    (vii) The borrower and the management agent agree that all records 
related to the housing project are the property of the housing project 
and that the Agency, OIG, or GAO may inspect the housing records and the 
records of the borrower, management agent, and suppliers of goods and 
services having an IOI with the borrower or with a management agent 
acting as an agent of the borrower upon demand.
    (2) A certification will be executed each time new management is 
proposed and/or a management agreement is executed or renewed. Any 
amendment to a management certification must be approved by the Agency 
and the borrower.
    (k) Procurement. The borrower and the agents of the borrower must 
obtain contracts, materials, supplies, utilities, and services at a 
reasonable cost and seek the most advantageous terms to the housing 
project. Any discounts, rebates, fees, proceeds, or commissions 
obtainable with respect to purchases, service contracts, or other 
transactions must be credited to the housing project.
    (l) Electronic Submission of Data to Agency. For properties with 
eight or more housing units, the Agency may specify that borrowers 
submit information required by this part electronically.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11280, Mar. 1, 2022]



Sec. 3560.103  Maintaining housing projects.

    (a) Physical maintenance. (1) The purposes of physical maintenance 
are the following:
    (i) Provide decent, safe, and sanitary housing; and
    (ii) Maintain the security of the property.
    (2) Borrowers are responsible for the long-term, cost-effective 
preservation of the housing project.
    (3) At all times, borrowers must maintain housing projects in 
compliance with local, state and federal laws and regulations and 
according to the following Agency requirements for affordable, decent, 
safe, and sanitary housing. Agency design requirements are discussed in 
Sec. 3560.60. The Agency acknowledges that property maintenance is an 
ongoing process and will not penalize borrowers for less than 100 
percent compliance as long as it is evident that the borrower is 
striving to achieve the standards listed in this paragraph. In addition, 
the Agency understands that although its multifamily housing portfolio 
is relatively homogeneous, no one standard is appropriate for all 
properties.
    (i) Utilities. The housing project must have an adequate and safe 
water supply, a functional and safe waste disposal system, and must be 
free of hazardous waste material.
    (ii) Drainage and erosion control. The housing project must have 
drainage that effectively protects the housing project from water damage 
from standing water and erosion. Units, basements, and crawl spaces must 
be free of water seepage.

[[Page 495]]

    (iii) Landscaping and grounds. The housing project must be 
landscaped attractively. Lawns, plants and shrubs must be maintained and 
must allow air to windows, vents, and sills. Recreation areas must be 
maintained in a safe and clean manner and trash collection areas must be 
adequately sized, screened, and maintained.
    (iv) Drives, parking services and walks. The housing project must 
have drives, parking lots, and walks that are free of holes and 
deterioration. Walks with changes in height between slabs of 
approximately \1/2\ inch or greater will be considered unacceptable.
    (v) Exterior signage. All signs at the housing project, including 
those related to the housing project name, buildings, parking spaces, 
unit numbers and other informational directions must be visible and 
well-kept. Sign requirements must conform to Sec. 3560.104(d).
    (vi) Fences and retaining walls. The housing project must have fence 
lines that are free of trash, weeds, vines, and other vegetation. Fences 
must be free of holes and damaged or loose sections. The bases of all 
retaining walls must be erosion free and drainage weep holes must be 
cleaned out to prevent excessive pressure behind the retaining wall.
    (vii) Debris and graffiti. The housing project, including common 
areas, must be free of trash, litter, and debris. Public walkways, walls 
of buildings and common areas must be free of graffiti.
    (viii) Lighting. The housing project must have functional exterior 
lighting and functional interior lighting in common areas which permits 
safe access and security.
    (ix) Foundation. The housing project must have a foundation that is 
free of evidence of structural failure, such as uneven settlement 
indicated by horizontal cracks or severe bowing of the foundation wall. 
Structural members must not have evidence of rot or insect or rodent 
infestation.
    (x) Exterior walls and siding. The housing project must have walls 
that are free from deterioration which allows elements to infiltrate the 
structure, eaves, gables, and window trim that are free from 
deterioration, exterior wall coverings that are intact, securely 
attached, and in good condition. Brick veneers must be free of missing 
mortar or bricks.
    (xi) Roofs, flashing, and gutters. The housing project must have 
gutters and downspouts, where appropriate for climatic conditions, that 
are securely attached, clean, and finished or painted properly with 
splash blocks or extenders that direct water flow away from the 
building. The housing project must have a roof that is free of leaks, 
defective covering, curled or missing shingles and which is not sagging 
or buckling. Fascia and soffits must be intact.
    (xii) Windows, doors, and exterior structures. The housing project 
must have screens that are free of tears, breaks and rips and windows 
that are unbroken. Window thermopane seals must be unbroken and caulking 
on the exterior of windows and doors must be continuous and free of 
cracks. Doors must be weather tight, free of holes, and provide security 
with functional locks. Porches, balconies, and exterior stairs must be 
free of broken, missing, or rotting components.
    (xiii) Common area accessibility. The housing project must have 
accessible, designated handicapped parking spaces with handicapped space 
signs properly posted. Common areas must be accessible through walks, 
ramps, porches, and thresholds. The laundry room must have accessible 
appliances and mailboxes must be at an accessible level. Elevators or 
mechanical lifts must be functional and kept in good repair.
    (xiv) Common area signage. The following must be posted in a 
conspicuous place in a common area: ``Justice for All'' poster, HUD 
equal housing opportunity poster including the Spanish version if there 
are Hispanic Limited English Proficiency tenants or applicants, current 
affirmative fair housing marketing plan, the tenant grievance and appeal 
procedure, housing project occupancy rules, office hours and phone 
number, and emergency hours and phone number.
    (xv) Flooring. If a housing project has carpeting, the carpet must 
be clean, without excessive wear, and seams that are secure and 
stretched properly. If the housing project has resilient flooring, the 
flooring must be clean, unstained, free of tears and breaks, and seams 
that are secure.

[[Page 496]]

    (xvi) Walls, floors, and ceilings. The housing project must have 
walls, floors, and ceilings that are free of holes, evidence of current 
water leaks, and free of material that appears in danger of falling. The 
housing project must have wallboard joints that are secure and free of 
cracks.
    (xvii) Doors and windows. The housing project must have doors that 
are free of holes, secure, unbroken and easily operable hardware, 
deadbolt locks which are in place and secure, and, if doors are metal, 
free of rust. The housing project must have windows which are easily 
operated, free of bent blinds or torn curtains, and window interiors 
must be free of evidence of moisture damage.
    (xviii) Electrical, air conditioning and heating. The housing 
project must have heating and cooling units that are free of bare wires 
and which are functioning properly, including thermostats. The housing 
project must not have uncovered outlets or other evident safety hazards, 
switches which work improperly, or light fixtures which are broken and 
inoperable.
    (xix) Water heaters. The housing project must have water heaters 
which are operating properly, free of leaks, supply adequate hot water, 
and are fitted with temperature and pressure relief valves.
    (xx) Smoke alarms. The housing project must have smoke alarms which 
are properly located according to local code and which operate properly.
    (xxi) Emergency call system. If a housing project has an emergency 
call system, the switches must be located in the bathroom and bedroom, 
furnished with a pull cord, with the down position set to ``ON'', and 
must operate properly.
    (xxii) Insect or vermin infestation. The housing project must have 
all units free of visible signs of insects or rodents and must be free 
of signs of insect or rodent damage.
    (xxiii) Range and range hood. The housing project must have range 
units in which all elements are operable, electrical connections are 
secure and insulated, doors and drawers which are secure, control knobs 
and handles which are in place and secure, and housing which is sound 
and the finish is free of chips, damage, or signs of rust. The range 
hood fan and light must be operable.
    (xxiv) Refrigerator. The housing project must have refrigerators in 
which the cooler and freezer are operating properly, the shelves and 
door containers are secure and free of rust, door gaskets are in good 
condition and functioning properly, and the housing is sound and the 
finish is free of chips, damage, or signs of rust.
    (xxv) Sinks. The housing project must have sinks in which the 
fittings work properly and are free of leaks, plumbing connections under 
the cabinet which are free of leaks, the finish is free of chips, 
damage, or signs of rust, the strainer is in good condition and in 
place, and which are secured to a wall, counter, or vanity top.
    (xxvi) Cabinets. The housing project must have cabinets and vanities 
which are secure to walls or floor and have faces, doors, and drawer 
fronts that are in good condition and free of breaks and peeling. 
Shelving must be in place, fastened securely, and free of warps. The 
housing project must have counter tops which are secure and free of burn 
marks or chips, bottoms under sinks which are free of evidence of 
warping, breaks, or being water soaked. Kitchen counter, vanity tops, 
and back splashes must be properly caulked.
    (xxvii) Water closets. The housing project must have the base of the 
water closets at the floor properly caulked. The tanks must be free of 
cracks or leaks and have a lid which fits and is in good condition. The 
seats must be secure and in good condition, and the flushing mechanisms 
must be in good condition and operating properly. The stools must be 
free of cracks and breaks and be securely fastened to the floor.
    (xviii) Bathtub and shower stalls. The housing project must have 
tubs or shower stalls which are free of cracks, breaks, and leaks, and a 
strainer in good condition and in place. The housing project must have 
walls and floors of the bathtubs which are properly caulked, tops and 
sides of shower stalls must be properly caulked, and the finish is free 
of chips, damage, or signs of rust.

[[Page 497]]

    (4) The Agency expects that upon discovery of a condition not in 
compliance with the standards listed in this section that the borrower 
will remedy the situation in a timeframe required by the Agency. The 
Borrower must provide documentation and justification for any failure to 
meet such timeframe. Properties with deficiencies in the process of 
being addressed will not be deemed to be out of compliance unless there 
are so many deficiencies that it would result in a declaration of 
substantial noncompliance and call into questions the viability of the 
property and the effectiveness of the borrower's maintenance program. 
Failure to make such corrections or repairs constitutes a non-monetary 
default under Sec. 3560.452(e).
    (b) Maintenance systems. Borrowers must establish the following 
maintenance systems and must describe these systems in their management 
plan.
    (1) A system for routine maintenance, including:
    (i) Regular maintenance tasks that can be prescheduled or planned; 
and
    (ii) Tasks performed on a regular basis to maintain compliance with 
the standards established in paragraph (a)(3) of this section.
    (2) A system for responsive maintenance including:
    (i) A process for responding to requests for maintenance from 
tenants;
    (ii) A process for responding to unexpected malfunctions of 
equipment or damages to building systems such as a furnace breakdown or 
a water leak; and
    (iii) A ``work order'' process for managing and tracking responses 
to maintenance requests and the performance of maintenance tasks.
    (3) A system for preventive maintenance including:
    (i) Maintenance of mechanical systems, building exteriors, 
elevators, and heating and cooling systems which require specially 
trained personnel; and
    (ii) Maintenance that supports energy-efficient operation of the 
housing project.
    (4) A system for correcting deficiencies identified by periodic 
inspections, which must include:
    (i) A move-in inspection;
    (ii) A move-out inspection; and
    (iii) An annual inspection of occupied units.
    (c) Capital budgeting and planning. (1) Borrowers must develop a 
capital budget as part of their annual housing project budget required 
under Sec. 3560.303. The capital budget must include anticipated 
expenditures on the long-term capital needs of the housing project to 
assure adequate maintenance and replacement of capital items.
    (2) If the borrower requests an increase in the project's reserve 
for replacement account, the borrower must have a capital needs 
assessment prepared and submitted to the Agency to reflect anticipated 
needs of the housing project for replacement of capital equipment and 
systems. The cost for preparation of a capital needs assessment will be 
approved by the Agency as an eligible housing project expense provided 
the capital needs assessment is reasonable in cost and meets Agency 
requirements.
    (3) [Reserved]
    (4) As a part of the annual budget process, borrowers may request an 
increase in the amount to be contributed and held in the housing project 
reserve account to fund the needs identified in an Agency-approved 
capital needs assessment.
    (5) At any time, borrowers may request and the Agency may approve 
amendments to loan or grant documents to increase the amount of funds to 
be contributed and held in a reserve account to cover the cost of 
capital improvements based on the needs identified in an Agency approved 
capital needs assessment. Borrowers must assure improvements are 
performed as specified in the capital needs assessment.



Sec. 3560.104  Fair housing.

    (a) General. Borrowers must comply with the requirements of the Fair 
Housing Amendments Act of 1988, and this section to meet their fair 
housing responsibilities.
    (b) Affirmative Fair Housing Marketing Plan. (1) Borrowers with 
housing projects that have five or more rental units must prepare and 
maintain an Affirmative Fair Housing Marketing

[[Page 498]]

Plan (AFHMP) as defined in 24 CFR part 200, subpart M.
    (2) Loan or grant applicants must submit an AFHMP for Agency 
approval prior to loan closing or grant approval. Plans must be updated 
by the borrower whenever components of the plan change.
    (3) Borrowers must post the approved AFHMP for public inspection at 
the housing project site, rental office, or at any other location where 
tenant applications for the project are received.
    (4) When developing the plan, the following items must be considered 
by the borrower:
    (i) Direction of marketing activities. The plan should be designed 
to attract applications for occupancy from all potentially eligible 
groups of people in the housing marketing area, regardless of race, 
color, religion, sex, age, familial status, national origin, or 
disability. The plan must show which efforts will be made to reach very 
low-income or low-income groups who would least likely be expected to 
apply without special outreach efforts.
    (ii) Marketing program. The applicant or borrower should determine 
which methods of marketing such as radio, newspaper, TV, signs, etc., 
are best suited to reach those very low-income or low-income groups who 
are in the market area but who are least likely to apply for occupancy. 
Marketing must not rely on ``word of mouth'' advertising.
    (A) Advertising. (1) Frequency. The borrower should advertise 
availability of housing units in advance of their availability to allow 
time to receive and process applications. Advertising by newsprint or 
electronic media must occur at least annually to promote project 
visibility, even if there is an adequate waiting list.
    (2) Posters, brochures, etc. Any radio, TV or newspaper 
advertisement, pamphlets, or brochures used must identify that the 
complex is operated on an equal housing opportunity basis. This must be 
done through the use of the equal housing opportunity statement, slogan, 
or logo type. Copies of the proposed material must be sent when 
requesting approval of the plan.
    (B) Community contacts. Community leaders and special interest 
groups such as community, public interest, religious organizations, and 
organizations for the disabled must be contacted. Owners and managers of 
projects with fully accessible apartments must adopt suitable means to 
ensure that information regarding the availability of accessible units 
reaches eligible persons with disabilities. In addition, owners and 
managers of elderly housing must ensure that information regarding 
eligibility reaches people who are less than 62 years old but who are 
eligible because they are disabled. Appropriate contacts are with 
physical rehabilitation centers, hospitals, workshops for the disabled, 
commissions on aging, and veterans organizations.
    (C) Rental staff. All staff persons responsible for renting the 
units must have had training provided on Federal, state, and local fair 
housing laws and regulations and in the requirements of fair housing 
marketing and in those actions necessary to carry out the marketing 
plan. Copies of instructions to the staff regarding fair housing and a 
summary of the training they have received must be attached to the plan 
when requesting approval.
    (iii) Marketing records. Records must be maintained by the borrower 
reflecting efforts to fulfill the plan. These records will be reviewed 
by the Agency during civil rights compliance reviews. Plans will be 
updated as needed.
    (c) Accommodations and communication. The borrower must take 
appropriate steps to ensure effective communication with applicants, 
tenants, and members of the public with disabilities. At a minimum, the 
following steps must be taken:
    (1) Furnish appropriate auxiliary aids (electronic, mechanical, or 
personal assistance) where necessary, to afford an individual with 
disabilities an equal opportunity to participate in and enjoy the 
benefits of Agency financed housing.
    (i) In determining what auxiliary aids are necessary, the borrower 
must give primary consideration to the requests of individuals with 
disabilities.
    (ii) The borrower is not required to provide individually prescribed 
devices, readers for personal use or study, or other devices of a 
personal nature.

[[Page 499]]

    (2) Where a borrower communicates with applicants and tenants by 
telephone, telecommunication devices for deaf persons or equally 
effective communication systems must be available for use.
    (3) The borrower must implement procedures to ensure that interested 
persons, including persons with impaired vision or hearing, can obtain 
information concerning the existence and location of accessible 
services, activities, and facilities in the housing project and 
community.
    (4) The borrower is required to provide reasonable accommodations at 
the project's expense unless doing so would result in undue financial or 
administrative burden on the project. Examples of reasonable 
accommodations may include such items as the installation of grab bars, 
ramps, and roll-in showers. Reasonable accommodations may also include 
the modification of rules or policies such as permitting a disabled 
tenant to have a two-bedroom unit to accommodate a resident assistant or 
to permit a disabled tenant to have a companion animal. The decision 
whether the requested accommodation is reasonable or unreasonable or 
whether to provide the accommodation would cause an undue financial or 
administrative burden lies with the borrower and would be for the 
borrower to defend should a complaint subsequently be filed. Borrowers 
may wish to consult with their legal counsel prior to denying a request. 
If the borrower takes the position that providing an accommodation would 
cause an undue financial or administrative burden, the borrower must 
permit the tenant to make reasonable modifications at the tenant's 
expense. Requests for reasonable accommodations must be handled in 
accordance with the management plan.
    (d) Housing sign requirements. (1) A permanent sign identifying the 
housing project is required for all housing projects approved on or 
after September 13, 1977. Permanent signs are recommended for all 
housing projects approved prior to September 13, 1977. The sign must 
meet the following requirements:
    (i) Must be located at the primary site entrance and be readable and 
recognizable from the roadside;
    (ii) Must be located near the site manager's office when the housing 
project has multiple sites and portable signs must be placed where 
vacancies exist at other site locations of a ``scattered site'' housing 
project;
    (iii) May be of any shape;
    (iv) Must be not less than 16 square feet of area for housing 
projects with 8 or more rental units (smaller housing projects may have 
smaller signs);
    (v) Must be made of durable material including its supports;
    (vi) Must include the housing project name;
    (vii) Must show rental contact information including but not limited 
to the office location of the housing project and a telephone number 
where applicant inquiries may be made;
    (viii) Must show either the equal housing opportunity logotype (the 
house and equal sign, with the words equal housing opportunity 
underneath the house); the equal housing opportunity slogan ``equal 
housing opportunity''; or the equal housing opportunity statement, ``We 
are pledged to the letter and spirit of U.S. policy for the achievement 
of equal housing opportunity throughout the nation. We encourage and 
support an affirmative advertising and marketing program in which there 
are no barriers to obtaining housing because of race, color, religion, 
sex, handicap, familial status, or national origin.'' If the logotype is 
used, the size of the logo must be no less than 5 percent of the total 
size of the project sign.
    (ix) May display the Agency or Department logotype; and
    (x) Must comply with state and local codes.
    (2) Accessible parking spaces must be reserved for individuals with 
disabilities by a sign showing the international symbol of 
accessibility. The sign must be mounted on a post at a height that is 
readily visible from an occupied vehicle. In snow areas, the sign must 
be visible above piled snow. If there is an office, the designated 
parking space must be van accessible.

[[Page 500]]

    (3) When the continuous unobstructed ingress or egress disabled 
accessibility route to a primary building entrance is other than the 
usual or obvious route, the alternate route for disabled accessibility 
must be clearly marked with international accessibility symbols and 
directional signs to aid a disabled person's ingress or egress to the 
building, through an accessible entrance, and to the accessible common 
use and public and living areas.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11281, Mar. 1, 2022]



Sec. 3560.105  Insurance and taxes.

    (a) General. Borrowers must purchase and maintain property insurance 
on all buildings included as security for an Agency loan. Also, 
borrowers must furnish fidelity coverage, liability insurance, and any 
other insurance coverage required by the Agency in accordance with this 
paragraph to protect the security of the asset. Failure to maintain 
adequate insurance coverage or pay taxes may lead to a non-monetary 
default under Sec. 3560.452(c).
    (b) General insurance requirements. All insurance policies must meet 
the requirements established by the loan documents and this section.
    (1) At loan closing, prior to loan approval, applicants must provide 
documentary evidence that insurance requirements have been met. The 
borrower must maintain insurance in accordance with requirements of 
their loan or grant documents and this section until the loan is repaid 
or the terms of the grant expire.
    (2) Insurance companies must meet the requirements of paragraph (e) 
of this section.
    (3) Insurance coverage amount, terms, and conditions must meet the 
requirements of paragraph (f) of this section.
    (4) The Agency must be named as loss co-payee on all property 
insurance policies where it holds first lien position. The Agency must 
be named as an additional insured if its lien position is other than 
first.
    (c) Borrower failure or inability to meet insurance requirements. 
The Agency will take the following actions in cases where a borrower is 
unwilling or unable to meet the Agency's insurance requirements:
    (1) The Agency will obtain insurance for Agency financed property if 
the borrower fails to do so. If borrowers refuse to pay the insurance 
premium, the Agency will pay the insurance premium and charge the 
premium payment amount to the borrower's Agency account and will place 
the borrower in default as described in Sec. 3560.452(c).
    (2) If borrowers habitually fail to pay premiums in a timely manner, 
the Agency will require borrowers to escrow amounts appropriate to pay 
insurance premiums.
    (3) If insurance that meets the Agency's specified requirements is 
not available (e.g., flood or hurricane insurance), the Agency may 
accept the insurance policy that most nearly conforms to established 
requirements.
    (4) If the best insurance policy a borrower can obtain at the time 
the borrower receives the loan or grant contains a loss deductible 
clause greater than that allowed by paragraph (f)(9) of this section, 
the insurance policy and an explanation of the reasons why more adequate 
insurance is not available must be submitted to the Agency prior to loan 
or grant approval.
    (d) Credits, refunds, or rebates. Borrowers must credit any refund 
or rebate from an insurance company to the project's general operating 
account or reserve account.
    (e) Insurance company requirements. All insurers, insurance agents, 
and brokers must meet the following requirements:
    (1) Be licensed or authorized to do business in the state or 
jurisdiction where the housing project is located; and
    (2) Be deemed reputable and financially sound as determined by the 
Agency.
    (f) Property insurance. The following conditions apply to property 
insurance purchased for Agency-financed housing projects.
    (1) At a minimum, borrowers must obtain the following types of 
property insurance:
    (i) Hazard insurance. A policy which generally covers loss or damage 
by fire, smoke, lightning, hail, explosion, riot, civil commotion, 
aircraft, and vehicles.

[[Page 501]]

These policies may also be known as ``Fire and Extended Coverage,'' 
``Homeowners,'' ``All Physical Loss,'' or ``Broad Form'' policies.
    (ii) Flood insurance. This coverage is required for properties 
located in Special Flood Hazard Areas (SFHA) as defined in 44 CFR part 
65, as determined by the Federal Emergency Management Agency (FEMA).
    (iii) Builder's risk insurance. A policy that insures dwellings 
under construction or rehabilitation.
    (iv) Elevators, boiler, and machinery coverage. This coverage is 
required for properties that operate elevators, steam boilers, turbines, 
engines, or other pressure vessels.
    (2) Other types of insurance that the Agency may require:
    (i) Windstorm Coverage.
    (ii) Earthquake Coverage.
    (iii) Sinkhole Insurance or Mine Subsidence Insurance.
    (3) For property insurance, the minimum coverage amount must equal 
the ``Total Estimated Reproduction Cost of New Improvements,'' as 
reflected in the housing project's most recent appraisal. At a minimum, 
property insurance coverage must be adequate to cover the lesser of the 
depreciated replacement value of essential buildings or the unpaid 
balance of all secured debt, unless such coverage is financially 
unfeasible for the housing project.
    (i) If the cost of the minimum level of property insurance coverage 
exceeds what the housing project can reasonably afford, the borrower, 
with Agency concurrence, must obtain the maximum amount of property 
insurance coverage that the housing project can afford.
    (ii) If the coverage amount is less than the depreciated replacement 
value of all essential buildings, borrowers must obtain coverage on one 
or more of the most essential buildings, as determined by the Agency.
    (iii) When required, the coverage amount for flood insurance must 
equal the outstanding loan balance or the maximum coverage allowed by 
FEMA's ``National Flood Insurance Program.''
    (4) Except for flood insurance, property insurance is not required 
if the housing project:
    (i) Has a depreciated replacement value of $2,500 or less; or
    (ii) Is in a condition which the Agency determines makes insurance 
coverage not economical.
    (5) Policies for several buildings or properties located on 
noncontiguous sites are acceptable if the insurer provides proof that 
each secured building or property related to the housing project is as 
fully protected as if a separate policy were issued.
    (6) Borrowers must notify the Agency and their insurance company 
agents of any loss or damage to insured property and collect the amount 
of the loss.
    (7) When the Agency is in the first lien position and an insurance 
settlement represents a satisfactory adjustment of a loss, the insurance 
settlement will be deposited in the housing project's general operating 
account unless the settlement exceeds $5,000. If the settlement exceeds 
$5,000, the funds will be placed in the reserve account for the housing 
project.
    (i) Insurance settlement funds which remain after all repairs, 
replacements, and other authorized disbursements have been made retain 
their status as housing project funds.
    (ii) If the indebtedness secured by the insured property has been 
paid in full or the insurance settlement is in payment for loss of 
property on which the Agency has no claim; a loss draft which includes 
the Agency as co-payee may be endorsed by the Agency without recourse 
and delivered to the borrower.
    (8) When the Agency is not in the first lien position and the 
insurance settlement represents satisfactory adjustment of the loss, the 
Agency will release the settlement funds to the primary mortgagee upon 
agreement of all parties to the provisions contained in agreements 
between the Agency and the primary lienholder.
    (9) Allowable deductible amounts are as follows:
    (i) Hazard/Property Insurance. (A) $1,000 on any housing project 
with an insurable value under $200,000; or
    (B) One-half of one percent (0.0050) of the insurable value, up to 
$10,000 on housing projects with insurance values over $200,000.

[[Page 502]]

    (ii) Flood Insurance. The Agency allows a maximum deductible of 
$5,000 per building.
    (iii) Windstorm Coverage. When windstorm coverage is excluded from 
the ``All Risk'' policy, the deductible must not exceed five percent of 
the total insured value.
    (iv) Earthquake Coverage. In the event that the borrower obtains 
earthquake coverage, the Agency is to be named as a loss payee. The 
deductible should be no more than 10 percent of the coverage amount.
    (v) Sinkhole Insurance or Mine Subsidence Insurance. The deductible 
for sinkhole insurance or mine subsidence insurance should be similar to 
what would be required for earthquake insurance.
    (10) Deductible amounts (excluding flood, windstorm, earthquake and 
sinkhole insurance, or mine subsidence insurance) must be accounted for 
in the replacement reserve account, unless the deductible does not 
exceed the maximum deductible allowable as indicated in paragraph 
(f)(9)(i) of this section. Borrowers who wish to increase the deductible 
amount must deposit an additional amount to the reserve account equal to 
the difference between the Agency's maximum deductible and the requested 
new deductible. The Borrower will be required to maintain this 
additional amount so long as the higher deductible is in force.
    (g) Liability insurance. The borrower must carry comprehensive 
general liability insurance with coverage amounts that meet or exceed 
Agency requirements. This coverage must insure all common areas, 
commercial space, and public ways in the security premises. Coverage may 
also include borrower exposure to certain risks such as errors and 
omissions, environmental damages, or protection against discrimination 
claims. The insurer's limit of liability per occurrence for personal 
injury, bodily injury, or property damage under the terms of coverage 
must be at least $1 million.
    (h) Fidelity coverage. Borrowers must provide fidelity coverage on 
any personnel entrusted with the receipt, custody, and disbursement of 
any housing monies, securities, or readily salable property other than 
money or securities. Borrowers must have fidelity coverage in force as 
soon as there are assets within the organization and it must be obtained 
before any loan funds or interim financing funds are made available to 
the borrower. In addition, the following conditions apply to fidelity 
insurance:
    (1) Fidelity insurance coverage must be documented on a bond form 
acceptable to the Agency.
    (2) Fidelity coverage policies must declare in the insuring 
agreements that the insurance company will provide protection to the 
insured against the loss of money, securities, and property other than 
money and securities, through any criminal or dishonest act or acts 
committed by any employee, whether acting alone or in collusion with 
others, not to exceed the amount of indemnity stated in the declaration 
of coverage.
    (i) The fidelity insurance policy, at a minimum, must include an 
insuring agreement that covers employee dishonesty.
    (ii) Fidelity coverage amounts and deductible:

------------------------------------------------------------------------
                                                              Deductible
                     Fidelity coverage                          level
------------------------------------------------------------------------
Under $50,000..............................................       $1,000
In the area of $100,000....................................        2,500
In the area of $250,000....................................        5,000
In the area of $500,000....................................       10,000
In the area of $1,000,000..................................       15,000
------------------------------------------------------------------------

    (3) Blanket crime insurance coverage or fidelity bonds are 
acceptable types of fidelity coverage.
    (4) At a minimum, borrowers must provide an endorsement, listing all 
of the borrower's Agency financed properties and their locations covered 
under the policy or bond as evidence of required fidelity insurance. The 
policy or bond may also include properties or operations other than 
Agency financed properties on separate endorsement listings.
    (5) Individual or organizational borrowers must have fidelity 
coverage when they have employees with access to the MFH complex assets. 
Borrowers who use a management agent with exclusive access to housing 
assets must require the agent to have fidelity coverage on all 
principals and employees

[[Page 503]]

with access to the housing assets. If active management reverts to the 
borrower, the borrower must obtain fidelity coverage, as a first course 
of business.
    (6) Fidelity coverage is not required under the following 
circumstances:
    (i) The borrower is an individual or a general partnership and the 
individual or general partner will be responsible for the financial 
activities of the housing project.
    (ii) In the case of a land trust where the beneficiary is 
responsible for management, the beneficiary will be treated as an 
individual.
    (iii) A limited partnership (or its general partners) unless one or 
more of its general partners perform financial acts within the scope of 
the usual duties of an ``employee.''
    (7) The premium for fidelity coverage of employees and general 
partners at a housing project is an eligible operating account expense.
    (i) The premium of a management agent's fidelity coverage for the 
agent's principals and employees will be the management agent's business 
expense (i.e., it is included within the management fee).
    (ii) When a housing project employee is covered under the 
``umbrella'' of the management agent's fidelity coverage, the premium 
may be prorated among the housing projects covered.
    (8) Borrowers must review fidelity coverage annually and adjust it 
as necessary to comply with the requirements of this section.
    (i) Taxes. The borrower is responsible for paying all taxes and 
assessments on a housing project before they become delinquent.
    (1) An exception to the above may be made if the borrower has 
formally contested the amount of the property assessment and escrowed 
the amount of taxes in question in a manner approved by the Agency.
    (2) Failure to pay taxes and assessments when due will be considered 
a default. If a borrower fails to pay outstanding taxes and assessments, 
the Agency will pay the outstanding balance and charge the tax or 
assessment amount, assessed penalties, and any additional incurred costs 
to the borrower's Agency account.
    (3) The Agency will require borrowers who have demonstrated an 
inability to pay taxes in a timely manner to escrow amounts sufficient 
to pay taxes.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11281, Mar. 1, 2022]



Sec. Sec. 3560.106-3560.149  [Reserved]



Sec. 3560.150  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                Subpart D_Multi-Family Housing Occupancy



Sec. 3560.151  General.

    (a) Applicability. This subpart contains borrower and tenant 
requirements and Agency responsibilities related to occupancy of Agency-
financed multi-family housing (MFH) projects. Occupancy eligibility 
requirements apply to the following:
    (1) Family housing projects, including farm labor housing;
    (2) Elderly housing projects; and
    (3) Congregate housing or group homes for persons with special 
needs.
    (b) Civil rights requirements. All occupancy policies must meet 
applicable civil rights requirements, as stated in Sec. 3560.2.



Sec. 3560.152  Tenant eligibility.

    (a) General requirements. Except as specified in paragraph (b) of 
this section, a tenant eligible for occupancy in Agency-financed housing 
must either:
    (1) Be a United States citizen or qualified alien, and
    (2) Qualify as a very low-, low-, or moderate-income household; or

[[Page 504]]

    (3) Be eligible under the requirements established to qualify for 
housing benefits provided by sources other than the Agency, such as U.S. 
Department of Housing and Urban Development (HUD) Section 8 assistance 
or Low Income Housing Tax Credit (LIHTC), when a tenant receives such 
housing benefits.
    (b) Exception. Households with incomes above the moderate-income 
level may occupy housing projects with an Agency loan approved prior to 
1968 with a loan agreement that does not restrict occupancy by income.
    (c) Requirements for elderly housing, congregate housing, and group 
homes. In addition to the requirements of paragraph (a) of this section, 
the following occupancy requirements apply to elderly housing and 
congregate housing or group homes:
    (1) For elderly housing and congregate housing, the following 
provisions apply:
    (i) Households must meet the definition of an elderly household in 
Sec. 3560.11 to be eligible for occupancy in elderly or congregate 
housing.
    (ii) If non-elderly persons are members of a household where the 
tenant or co-tenant is an elderly person, the non-elderly persons are 
eligible for occupancy in the tenant's or co-tenant's rental unit.
    (iii) Applicants who will agree to participate in the services 
provided by a congregate housing project may be given occupancy 
priority.
    (2) For group homes, the following provisions apply:
    (i) Occupancy may be limited to a specific group of tenants, such as 
elderly persons or persons with developmental disabilities, or mental 
impairments, if such an occupancy limitation is contained in the 
borrower's management plan.
    (ii) Tenants must be able to demonstrate a need for the special 
services provided by the group home.
    (iii) Tenants cannot be required to participate in an ongoing 
training or rehabilitation program.
    (iv) Tenants must be selected from the market area prior to 
considering applicants from other areas.
    (d) Ineligible tenant waiver. The Agency may authorize the borrower 
in writing, upon receiving the borrower's written request with the 
necessary documentation, to rent vacant units to ineligible persons for 
temporary periods to protect the financial interest of the Government. 
Likewise, this provision may extend to a cooperative. This authority 
will be for the entire project for periods not to exceed one year. 
Within the period of the lease, the tenant may not be required to move 
to allow an eligible applicant to obtain occupancy, should one become 
available. The Agency must make the following determinations:
    (1) There are no eligible persons on a waiting list.
    (2) The borrower provided documentation that a diligent but 
unsuccessful effort to rent any vacant units to an eligible tenant 
household has been made. Such documentation may consist of 
advertisements in appropriate publications, posting notices in several 
public places, including places where persons seeking rental housing 
would likely make contacts, holding open houses, making appropriate 
contacts with public housing agencies and organizations, Chambers of 
Commerce, and real estate agencies.
    (3) The borrower agrees to continue with aggressive efforts to 
locate eligible tenants and retain documentation of all marketing.
    (4) The borrower is temporarily unable to achieve or maintain a 
level of occupancy sufficient to prevent financial default and 
foreclosure. The Agency's approval of the waiver would then be for a 
limited duration.
    (5) The lease agreement will not be more than 12 months and at its 
expiration will convert to a month-to-month lease. The monthly lease 
will require that the unit be vacated upon 30 days notice when an 
eligible applicant is available.
    (6) Tenants residing in Rural Rental Housing (RRH) units who are 
ineligible because their adjusted annual income exceeds the maximum for 
the RRH project will be charged the Rural Housing Service (RHS) approved 
note rent for the size of unit occupied in a Plan II RRH project. In 
projects operated under Plan I, ineligible tenants will be charged a 
rental surcharge of 25 percent of the approved note rent.

[[Page 505]]

    (e) Tenant certification and verification. Tenants and borrowers 
must execute an Agency-approved tenant certification form establishing 
the tenant's eligibility prior to occupancy. In addition, tenant 
households must be recertified and must execute a tenant certification 
form at least annually or whenever a change in household income of $100 
or more per month occurs. Borrowers must recertify for changes of $50 
per month, if the tenant requests that such a change be made.
    (1) Tenant requirements. (i) Tenants must provide borrowers with the 
necessary income and other household information required by the Agency 
to determine eligibility.
    (ii) Tenants must authorize borrowers to verify information provided 
to establish their eligibility or determination of tenant contribution.
    (iii) Tenants must report all changes in household status that may 
affect their eligibility to borrowers.
    (iv) Tenants who fail to comply with tenant certification and 
recertification requirements will be considered ineligible for occupancy 
and will be subject to unauthorized assistance claims, if applicable, as 
specified in subpart O of this part.
    (2) Borrower requirements. (i) Borrowers must verify household 
income and other information necessary to establish tenant eligibility 
for the requested rental unit type, in a format approved by the Agency, 
prior to a tenant's initial occupancy and prior to annual or other 
recertifications.
    (ii) Borrowers must review all reported changes in household status 
and assess the impact of these changes on the tenant's eligibility or 
tenant contribution.
    (iii) Borrowers must submit initial or updated tenant certification 
forms to the Agency within 10 days of the effective date of an initial 
certification or any changes in a tenant's status. The effective date of 
an initial or updated tenant certification form will always be a first 
day of the month.
    (iv) Since tenant certifications are used to document interest 
credit and rental assistance eligibility and are a basic responsibility 
of the borrower under the loan documents, borrowers who fail to submit 
annual or updated tenant certification forms within the time period 
specified in paragraph (e)(2)(iii) of this section will be charged 
overage, as specified in Sec. 3560.203(c) and lost rental assistance. 
Unauthorized assistance, if any, will be handled in accordance with 
subpart O of this part.
    (v) Borrowers must submit tenant certification forms to the Agency 
using a format approved by the Agency.
    (vi) Borrowers must retain executed tenant certification forms and 
any supporting documentation in the tenant file for at least 3 years or 
until the next Agency monitoring visit or compliance review, whichever 
is longer.
    (3) The Agency maintains the right to independently verify tenant 
eligibility information.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11281, Mar. 1, 2022]

    Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in Sec. 
3560.152(a)(1), implementation of the words ``Be a United States citizen 
or qualified alien, and'' was delayed indefinitely.



Sec. 3560.153  Calculation of household income and assets.

    (a) Annual income will be calculated in accordance with 24 CFR 
5.609.
    (b) Adjusted income will be calculated in accordance with 24 CFR 
5.611.



Sec. 3560.154  Tenant selection.

    (a) Application for occupancy. Borrowers must use tenant application 
forms that collect sufficient information to properly determine 
household eligibility and to enable the Agency to monitor compliance 
with the Fair Housing Act, section 504 of the Rehabilitation Act of 
1973, and title VI of the Civil Rights Act of 1964 during compliance 
reviews. At a minimum, borrowers must use application forms that collect 
the following information:
    (1) Name of the applicant and present address;
    (2) Number of household members and their birthdates;
    (3) Annual income information calculated in accordance with Sec. 
3560.153(a);
    (4) Adjustments to income calculated in accordance with Sec. 
3560.153(b);
    (5) Net assets calculated in accordance with Sec. 3560.153(c);

[[Page 506]]

    (6) Indication of a need for a unit accessible to individuals with 
disabilities and any disability adjustments to income;
    (7) Certification by the applicant that the unit will serve as the 
household's primary residence, and a certification that the applicant is 
a U.S. citizen or a qualified alien as defined in Sec. 3560.11;
    (8) Signature of the applicant and date;
    (9) Race, ethnicity, and gender designation. The following 
disclosure notice shall be used:

    ``The information regarding race, ethnicity, and sex designation 
solicited on this application is requested in order to assure the 
Federal Government, acting through the Rural Housing Service, that the 
Federal laws prohibiting discrimination against tenant applications on 
the basis of race, color, national origin, religion, sex, familial 
status, age, and disability are complied with. You are not required to 
furnish this information, but are encouraged to do so. This information 
will not be used in evaluating your application or to discriminate 
against you in any way. However, if you choose not to furnish it, the 
owner is required to note the race, ethnicity, and sex of individual 
applicants on the basis of visual observation or surname,'' and

    (10) Social security number.
    (b) Additional information. Applicants are to be provided a list of 
any additional information that must be submitted with the application 
for the application to be considered complete (an application will be 
considered complete without verification of the applicant information). 
The list of information will be restricted to the same items for all 
Agency-assisted properties of a particular type, such as a family or 
elderly complex.
    (c) Application submission. Borrowers must establish when 
applications may be submitted. Information on the place and times for 
tenant application submission must be documented in the housing 
project's management plan and Affirmative Fair Housing Marketing Plan.
    (d) Selection of eligible applicants. (1) Applicants may be 
determined ineligible for occupancy based on selection criteria other 
than Agency requirements only if such criteria are contained in the 
borrower's management plan. Borrower established selection criteria may 
not contain arbitrary or discriminatory rejection criteria, but may 
consider an applicant's past rental and credit history and relations 
with other tenants.
    (2) Borrowers with projects receiving low-income housing tax credits 
(LIHTCs), may leave a housing unit vacant if they are required to rent 
the available unit to an LIHTC-eligible applicant, and none of the 
applicants on the waiting list meet the applicable LIHTC eligibility 
requirements.
    (e) Recordkeeping. Borrowers must retain all tenant application 
forms for at least 3 years. The Agency may require borrowers to submit 
application information for Agency review.
    (f) Waiting lists. (1) When an applicant has submitted an 
application form the borrower must place the applicant on the waiting 
list. All applications, whether complete, eligible, or ineligible, will 
be placed on the list. The waiting list will document the final 
disposition of all applications (rejected, withdrawn, or placed in a 
unit).
    (2) The date and time a complete application was submitted will be 
recorded on the waiting list and will establish priority for selection 
from the list. If an applicant submits an incomplete application (see 
paragraph (a) of this section), they must be notified in writing within 
10 days of the items that are needed for the application to be 
considered complete and that priority will not be established until the 
additional items are received.
    (3) The race and the ethnicity of each applicant shall be recorded 
on the waiting list. This information shall be collected for statistical 
purposes only and must not be used when making eligibility 
determinations or in any other discriminatory manner. The information 
shall be recorded using the race and ethnicity codes that are utilized 
on the Agency tenant certification form available in the servicing 
office.
    (4) Within 10 days of receipt of a complete application, the 
Borrower must notify the applicant in writing that he has been selected 
for immediate occupancy, placed on a waiting list, or rejected.

[[Page 507]]

    (5) Selections from the completed applications on the waiting list 
shall be made in the following priority order:
    (i) Very low-income applicants;
    (ii) Low-income applicants; and
    (iii) Moderate-income applicants.
    (g) Priorities and preferences for admission. (1) Eligible 
applicants that meet the following conditions must be given priority for 
occupancy over all other tenants regardless of income. Such applicants, 
however, will be ranked among themselves by income level, giving 
priority first to very low-income households, then to low-income 
households, and finally to moderate-income households.
    (i) Persons who require the special design features of a unit 
accessible to individuals with disabilities will have priority only for 
units with these features.
    (ii) In congregate housing facilities, persons who agree to use the 
services provided by the facility will have priority over other 
applicants.
    (2) Eligible applicants that meet any of the following conditions 
must be given priority over other applicants in their same income 
category.
    (i) The applicant has a Letter of Priority Entitlement (LOPE) issued 
in accordance with Sec. 3560.660(c).
    (ii) The applicant was displaced from Agency-financed housing but 
was not issued a LOPE.
    (iii) The applicant was displaced in a Federally declared disaster 
area.
    (3) Borrowers receiving Section 8 project-based assistance may 
establish preferences in accordance with U.S. Department of Housing and 
Urban Development (HUD) regulations. The use of such preferences must be 
documented in the project's management plan.
    (h) Notices of ineligibility or rejection. Borrowers must provide 
written notification to applicants who are determined to be ineligible 
or who are rejected for occupancy. Notices of ineligibility or rejection 
must give specific reasons for the ineligibility determination or 
rejection and, in accordance with Sec. 3560.160, the notice must advise 
the applicant of ``the right to respond to the notice within ten 
calendar days after receipt'' and of ``the right to a hearing in 
accordance with Sec. 3560.160 which is available upon request.'' When 
an applicant is rejected based on the information from a credit bureau 
report, the source of the credit bureau report must be revealed to the 
applicant in accordance with the Fair Credit Reporting Act.
    (i) Purging waiting list. Procedures used by borrowers to purge 
waiting list must be documented in the project's management plan and 
must be based on the length of the waiting list or the extent of time an 
applicant will be expected to wait for housing. At a minimum, borrowers 
must document removal of any names from the waiting list with the time 
and date of the removal. If an electronic waiting list is used, 
borrowers must periodically print out electronic waiting lists or 
preserve backup copies showing how the waiting list appeared before and 
after the removal of each name.
    (j) Criminal activity. Borrowers will deny admission for criminal 
activity or alcohol abuse by household members in accordance with the 
provisions of 24 CFR 5.854, 5.855, 5.856, and 5.857.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11281, Mar. 1, 2022]

    Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in Sec. 
3560.154(a)(7), implementation of the words ``* * * and a certification 
that the applicant is a U.S. citizen or a qualified alien as defined in 
Sec. 3560.11 * * *'' was delayed indefinitely.



Sec. 3560.155  Assignment of rental units and occupancy policies.

    (a) General. Available rental units are assigned in accordance with 
the requirements of this section and the priorities and preferences 
outlined in Sec. 3560.154.
    (b) Rental units accessible to individuals with disabilities. If a 
rental unit accessible to individuals with disabilities is available and 
there are no applicants that require the features of the unit, borrowers 
may rent the unit to a non-disabled tenant subject to the inclusion of a 
lease provision that requires the tenant to vacate the unit within 30 
days of notification from management that an eligible individual with 
disabilities requires the unit and provided the accessible unit has been 
marketed as an accessible unit, outreach has been made to organizations 
representing the disabled, and marketing of the unit as

[[Page 508]]

an accessible unit continues after it has been rented to a tenant who is 
not in need of the special design features.
    (c) Transfer of existing tenants within a housing project. When a 
rental unit becomes available for occupancy and an eligible tenant in 
the housing project is either over housed or under housed as provided 
for in paragraph (e) of this section, the borrower must use the 
available unit for the over housed or under housed tenant, if suitable, 
prior to selecting an eligible applicant from the waiting list.
    (d) Applicant placement. When a specific rental unit type becomes 
available for occupancy, borrowers must select eligible applicants 
suitable for the available unit according to the priorities established 
in Sec. 3560.154.
    (e) Occupancy policies. Borrowers must establish occupancy policies 
for each housing project. Households living in a rental unit with more 
bedrooms than persons in the household will be considered over housed 
and must be relocated in accordance with paragraph (c) of this section. 
Households under housed as defined by the project's occupancy standards 
must be relocated in accordance with paragraph (c) of this section. 
Borrowers with no one-bedroom units in a housing project may make an 
exception to this requirement in their occupancy policies. In addition, 
a borrower's occupancy policies must establish:
    (1) Reasonable standards for determining when a tenant household is 
considered under housed. The standards will describe the maximum number 
of persons that may occupy units of a given size based on occupancy 
guidelines provided by the Agency or another governmental source;
    (2) The order in which eligible applicants and existing tenants will 
be housed or re-housed; and
    (3) How fair housing requirements will be met, including how 
reasonable accommodations will be made for applicants and tenants with 
disabilities.
    (f) Agency concurrence. The Agency must concur with a borrower's 
occupancy rules prior to initial occupancy of the housing project. All 
modifications to occupancy rules must be posted for tenant comment in 
accordance with Sec. 3560.160 and receive Agency concurrence prior to 
implementation.



Sec. 3560.156  Lease requirements.

    (a) Agency approval. Borrowers must use a lease approved by the 
Agency. The lease must be consistent with Agency requirements and the 
requirements of all programs participating in the housing project. Prior 
to submitting the lease to the Agency for approval, borrowers must have 
their attorney certify that the lease complies with state and local 
laws, Agency requirements, and the requirements of all programs 
participating in the housing project. If there are conflicting 
requirements the borrower shall notify the Agency of the conflict and 
request guidance. Borrowers must execute their Agency approved lease 
with each tenant household prior to tenant occupancy of a rental unit.
    (b) Lease requirements. (1) All leases must be in writing.
    (2) Initial leases must be for a 1-year period.
    (3) If the tenant is not subject to occupancy termination according 
to Sec. 3560.158 and Sec. 3560.159, a renewal lease or lease extension 
must be for a 1-year period.
    (4) In areas with a concentration of non-English speaking 
populations, leases (including the occupancy rules) must be available in 
both English and the non-English language.
    (5) Leases must give the address of the management agent to which 
tenants may direct complaints.
    (6) Leases must include a statement of the terms and conditions for 
modifying the lease.
    (c) Required items and provisions. (1) Leases for tenants who hold a 
Letter of Priority Entitlement (LOPE) issued according to Sec. 
3560.660(c) and are temporarily occupying a unit for which they are not 
eligible must include a clause establishing the tenant's responsibility 
to move when a suitable unit becomes available in the housing project.
    (2) Leases must contain a clause permitting escalation in the tenant 
contribution when there is an Agency-approved change in basic or note 
rate rents prior to the expiration of the lease. The escalation clause 
also must specify that the tenant contribution

[[Page 509]]

may be changed prior to expiration of the lease if the change is due to 
changes in tenant status, as documented on the tenant certification 
form, or the tenant's failure to properly recertify.
    (3) Leases must specify that no change in the tenant contribution 
will occur due to monetary or non-monetary default or when rental 
assistance or interest credit, is suspended, canceled, or terminated due 
to the borrower's fault. For information on tenant contributions when a 
borrower prepays the Agency loan, refer to subpart N of this part.
    (4) Leases must contain a requirement that tenants make restitution 
when unauthorized assistance is received due to applicant or tenant 
fraud or misrepresentation and a statement advising tenants that 
submission of false information could result in legal action.
    (5) Leases must include a statement that the housing project is 
financed by the Agency and that the Agency has the right to further 
verify information provided by the applicant.
    (6) Leases must state that the housing project is subject to:
    (i) Title VI of the Civil Rights Act of 1964;
    (ii) Title VIII of the Fair Housing Act;
    (iii) Section 504 of the Rehabilitation Act of 1973;
    (iv) The Age Discrimination Act of 1975; and
    (v) The Violence Against Women Reauthorization Act of 2013 and any 
amendments thereto.
    (7) Leases must establish the tenant's responsibility according to 
the housing project's occupancy rules to move to the next available 
appropriately sized rental unit if the household becomes over housed or 
under housed in the unit they occupy.
    (8) Leases must include provisions that establish when a guest will 
be considered a member of the household and be required to be added to 
the tenant certification.
    (9) Leases must include a provision stating that tenancy continues 
until the tenant's possessions are removed from the housing either 
voluntarily or by legal means, subject to state and local law.
    (10) Leases must include a requirement that tenants who are no 
longer eligible for occupancy under the housing project's occupancy 
rules or do not meet the criteria set forth in Sec. 3560.155(c) and (e) 
must vacate the property within 30 days of being notified by the 
borrower that they are no longer eligible for occupancy or at the 
expiration of their lease, or whichever is greater, unless the 
conditions cited in Sec. 3560.158(c) exist;
    (11) Leases for rental units receiving rental assistance must 
include clauses that specify that the tenant's monthly tenant 
contribution and a description of the circumstances under which the 
tenant's contribution may change.
    (12) Leases must include a requirement that tenants notify borrowers 
when changes occur in their income or assets, their qualifications for 
adjustments to income, their citizenship status, or the number of 
persons living in the unit.
    (13) A requirement that tenants agree to fulfill the tenant income 
verification and certification requirements established under Sec. 
3560.152.
    (14) Leases for tenants living in Plan II interest credit rental 
units must include provisions establishing the net monthly tenant 
contribution.
    (15) Leases, including renewals, must include the following 
language:

    ``It is understood that the use, or possession, manufacture, sale, 
or distribution of an illegal controlled substance (as defined by local, 
State, Tribal or Federal law) while in or on any part of this apartment 
complex premises or cooperative is an illegal act. It is further 
understood that such action is a material lease violation. Such 
violations (hereafter called a ``drug violation'') may be evidenced upon 
the admission to or conviction of the use, possession, manufacture, 
sale, or distribution of a controlled substance (as defined by local, 
State, Tribal, or Federal law) in any local, State, Tribal or Federal 
court.
    The landlord may require any lessee or other adult member of the 
tenant household occupying the unit (or other adult or non-adult person 
outside the tenant household who is using the unit) who commits a drug 
violation to vacate the leased unit permanently, within timeframes set 
by the landlord, and not thereafter to enter upon the

[[Page 510]]

landlord's premises or the lessee's unit without the landlord's prior 
consent as a condition for continued occupancy by the remaining members 
of the tenant's household. The landlord may deny consent for entry 
unless the person agrees to not commit a drug violation in the future 
and is either actively participating in a counseling or recovery 
program, complying with court orders related to a drug violation, or has 
successfully completed a counseling or recovery program.
    The landlord may require any lessee to show evidence that any non-
adult member of the tenant household occupying the unit, who committed a 
drug violation, agrees not to commit a drug violation in the future, and 
to show evidence that the person is either actively seeking or receiving 
assistance through a counseling or recovery program, complying with 
court orders related to a drug violation, or has successfully completed 
a counseling or recovery program within timeframes specified by the 
landlord as a condition for continued occupancy in the unit.
    Should a further drug violation be committed by any non-adult person 
occupying the unit the landlord may require the person to be severed 
from tenancy as a condition for continued occupancy by the lessee.
    If a person vacating the unit, as a result of the above policies, is 
one of the lessees, the person shall be severed from the tenancy and the 
lease shall continue among any other remaining lessees and the landlord. 
The landlord may also, at the option of the landlord, permit another 
adult member of the household to be a lessee.
    Should any of the above provisions governing a drug violation be 
found to violate any of the laws of the land the remaining enforceable 
provisions shall remain in effect. The provisions set out above do not 
supplant any rights of tenants afforded by law.''

    (16) Leases for rental units accessible to individuals with 
disabilities occupied by those not needing the accessibility features 
must establish the tenant's responsibility to move to another unit 
within 30-days of written notification that the unit is needed by an 
eligible qualified person with disabilities who requires the 
accessibility features of the unit. Additionally, the lease clause must 
ensure that the household may remain in the rental unit with 
accessibility features until an appropriately sized vacant unit within 
the project becomes available and then must move or vacate within 30 
days of notification from borrower.
    (17) If loan prepayment occurs and the housing project is subject to 
restrictive use provisions, leases and renewals must be amended to 
include a clause specifying the tenant protections required under 
subpart N of this part.
    (18) All leases must contain the following information and 
provisions:
    (i) The name of the tenant, any co-tenants, and all members of the 
household residing in the rental unit;
    (ii) The identification of the rental unit;
    (iii) The amount and due date of monthly tenant contributions, any 
late payment penalties, and security deposit amounts;
    (iv) The utilities, services, and equipment to be provided for the 
tenant;
    (v) The tenant's utility payment responsibility;
    (vi) The certification process for determining tenant occupancy 
eligibility and contribution;
    (vii) The limitations of the tenant's right to use or occupancy of 
the dwelling;
    (viii) The tenant's responsibilities regarding maintenance and 
consequences if the tenant fails to fulfill these responsibilities;
    (ix) The agreement of the borrower to accept the tenant contribution 
toward rent charges prior to payment of other charges that the tenant 
owes and a statement that borrowers may seek legal remedy for collecting 
other charges accrued by the tenant;
    (x) The maintenance responsibilities of the borrower in buildings 
and common areas, according to state and local codes, Agency 
regulations, and Federal fair housing requirements;
    (xi) The responsibility of the borrowers at move-in and move-out to 
provide the tenant with a written statement of rental unit's condition 
and provisions for tenant participation in inspection;
    (xii) The provision for periodic inspections by the borrower and 
other circumstances under which the borrower may enter the premises 
while a tenant is renting;
    (xiii) The tenant's responsibility to notify the borrower of an 
extended absence;
    (xiv) A provision that tenants may not assign the lease or sublet 
the property;

[[Page 511]]

    (xv) A provision regarding transfer of the lease if the housing 
project is sold to an Agency-approved buyer;
    (xvi) The procedures that must be followed by the borrower and the 
tenant in giving notices required under terms of the lease including 
lease violation notices;
    (xvii) The good-cause circumstances under which the borrower may 
terminate the lease and the length of notice required;
    (xviii) The disposition of the lease if the housing project becomes 
uninhabitable due to fire or other disaster, including rights of the 
borrower to repair building or terminate the lease;
    (xix) The procedures for resolution of tenant grievances consistent 
with the requirements of Sec. 3560.160;
    (xx) The terms under which a tenant may, for good cause, terminate 
their lease, with 30 days notice, prior to lease expiration; and
    (xxi) The signature and date clause indicating that the lease has 
been executed by the borrower and the tenant.
    (d) Prohibited provisions. Borrowers are prohibited from including 
any of the following clauses in the lease:
    (1) Clauses prohibiting families with children under 18;
    (2) Clauses requiring prior consent by tenant to any lawsuit that 
borrowers may bring against the tenant in connection with the lease;
    (3) Clauses authorizing borrowers to hold any of a tenant's property 
until the tenant fulfills an obligation;
    (4) Clauses in which tenants agree not to hold borrowers liable for 
anything they may do or fail to do;
    (5) Clauses in which tenants agree that borrowers may institute suit 
without any notice to the tenant that the suit has been filed;
    (6) Clauses in which tenants agree that borrowers may evict the 
tenant or sell their possessions whenever borrowers determine that a 
breach or default has occurred;
    (7) Clauses authorizing the borrower's attorneys to appear in court 
on behalf of the tenant, and to waive the tenant's right to a trial by 
jury;
    (8) Clauses authorizing the borrower's attorneys to waive the 
tenant's right to appeal or to file suit; and
    (9) Clauses requiring the tenant to agree to pay legal fees and 
court costs whenever the borrower takes action against the tenant, even 
if the court finds in favor of the tenant.
    (e) Housing projects and units receiving HUD assistance. (1) In 
housing projects receiving Section 8 project-based assistance, borrowers 
may use the HUD model lease. The provisions of the HUD model lease will 
prevail, unless they conflict with Agency lease requirements in 
accordance with this section. If there is conflict between HUD 
requirements and Agency requirements, the provision that will be 
enforced will be the one that is most favorable to the tenant.
    (2) For units occupied by Section 8 certificate and voucher holders, 
borrowers may use:
    (i) A standard HUD-approved lease;
    (ii) A HUD-approved lease that includes a number of modifications 
from the standard HUD-approved lease; or
    (iii) An Agency-approved lease may be used if acceptable by HUD or 
the local housing authority.
    (f) State and local requirements. Borrowers must use a lease that is 
consistent with state and local requirements.
    (1) If any lease provision is in violation of state or local law, 
the lease may be modified to the extent needed to comply with the law, 
but any changes must be consistent with the provisions established in 
paragraph (c) of this section.
    (2) Leases must include a procedure for handling tenant's abandoned 
property, as provided by state or local law.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11282, Mar. 1, 2022]

    Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in Sec. 
3560.156(c)(12), implementation of the words ``* * * their citizenship 
status, * * *'' was delayed indefinitely.



Sec. 3560.157  Occupancy rules.

    (a) General. The purpose of a borrower's occupancy rules is to 
outline the basis for the tenant and management relationship. Prior to 
Agency approval of occupancy rules, borrowers must provide written 
certification from their attorney that the housing project's occupancy 
rules are consistent with applicable Federal, state,

[[Page 512]]

and local laws, as well as Agency requirements, and the requirements of 
all programs participating in the housing project. Borrowers must obtain 
Agency approval of the occupancy rules prior to initial occupancy and 
obtain Agency approval prior to the implementation date of any 
subsequent modifications to the rules.
    (b) Requirements. The occupancy rules must be in writing and posted 
for easy tenant access. A copy of these rules must be attached to the 
tenant's lease upon initial occupancy. At a minimum, the occupancy rules 
must address:
    (1) The tenant's rights and responsibilities under the lease or 
occupancy agreement;
    (2) The rent payment or occupancy charge policies;
    (3) The policies regarding periodic inspection of units;
    (4) The system for responding to tenant complaints;
    (5) The maintenance request and work order procedures;
    (6) The housing services and facilities available to tenants or 
members;
    (7) The office locations, hours, and emergency telephone numbers;
    (8) The restrictions on storage and prohibitions on non-functional 
vehicles in the housing project area;
    (9) Other requirements related to a subsidy provided to a tenant 
from non-Agency sources;
    (10) When a guest becomes a member of the tenant household; and
    (11) The procedures tenants must follow to request reasonable 
accommodations.
    (c) Modification of occupancy rules. The Agency must concur with any 
modification to the occupancy rules prior to implementation. Proper 
notice must be given to each tenant at least 30 days in advance of 
implementation of such rules in accordance with Sec. 3560.160.
    (d) Federal, state and local requirements. The occupancy rules must 
be consistent with Federal, state, and local law.
    (e) Pets/Assistance Animals. All housing projects should establish 
reasonable written pet rules. No rules may be promulgated that would 
prevent occupancy by a household member who requires a service or 
assistance animal. In elderly housing, borrowers must not prohibit 
tenants from keeping domestic animals in their rental units as pets.
    (f) Tenant organizations. Borrowers must not infringe on the rights 
of tenants to organize an association of tenants. Borrowers (or a 
designated management representative) should be available and willing to 
work with a tenant organization.
    (g) Community rooms. Borrowers may not place unreasonable 
restrictions on tenants that desire to use a community room.



Sec. 3560.158  Changes in tenant eligibility.

    (a) General requirements. Tenants must continue to meet the 
requirements of Sec. 3560.152 to remain eligible for occupancy.
    (b) Tenants no longer eligible. Tenants who are no longer eligible 
for occupancy under the housing project's occupancy rules or do not meet 
the criteria set forth in Sec. 3560.155(c) and (e) must vacate the 
property within 30 days of being notified by the borrower that they are 
no longer eligible for occupancy or at the expiration of their lease, 
whichever is greater, unless the conditions specified in paragraph (c) 
of this section exist.
    (c) Temporary continuation of tenancy. If conditions described in 
Sec. 3560.454(b) or the following conditions exist, borrowers may 
permit tenants who are no longer eligible for occupancy to continue to 
reside at the housing project with prior approval of the Agency.
    (1) The waiting list for the specific rental unit type has no 
eligible applicants; or
    (2) The required time period for vacating the rental unit would 
create a hardship on the tenant household.
    (d) Surviving and remaining household members. (1) Members of a 
household may continue to reside in a housing project after the 
departure or death of the tenant or co-tenant, provided that:
    (i) They are eligible with respect to adjusted income;
    (ii) They occupied a rental unit in the housing project at the time 
of the departure or death of the tenant or co-tenant;

[[Page 513]]

    (iii) They execute a tenant certification form establishing their 
own tenancy; and
    (iv) They have the legal ability to sign a lease for the rental 
unit, except where a legal guardian may sign when the tenant or member 
is otherwise eligible.
    (2) Surviving or remaining members of the household may remain in 
the housing project, taking into consideration the conditions of 
paragraph (d)(1) of this section, but must move to a suitably sized 
rental unit within 30 days of its availability.
    (3) After the death of a tenant or co-tenant in elderly housing, the 
surviving members of the household, regardless of age but taking into 
consideration the conditions of paragraph (d)(1) of this section, may 
remain in the rental unit in which they were residing at the time of the 
tenant's or co-tenant's death, even if the household is over housed 
according to the housing project's occupancy rules except as follows:
    (i) Continued occupancy of the rental unit will not be allowed when 
in either situation of paragraph (d)(1) or (d)(3) of this section, the 
rental unit has accessibility features for individuals with 
disabilities, the household no longer has a need for such accessibility 
features, and the housing project has a tenant application from an 
individual with a need for the accessibility features;
    (ii) If the housing project does not have a tenant application from 
an individual with a need for the accessibility features, the household 
may remain in the rental unit with such features until the housing 
project receives an application from an individual with a need for 
accessibility features. The household in the unit with accessibility 
features will be required to move within 30 days of the housing 
project's receipt of a tenant application requiring accessibility 
features if another suitably sized unit without accessibility features 
is available in the project. If a suitably sized unit is not available 
in the project within 30 days, the tenant may remain in the unit with 
accessibility features until the first available unit in the project 
becomes available and then must move within 30 days.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11282, Mar. 1, 2022]



Sec. 3560.159  Termination of occupancy.

    (a) Tenants in violation of lease. Borrowers, in accordance with 
lease agreements, may terminate or refuse to renew a tenant's lease only 
for material non-compliance with the lease provisions, material non-
compliance with the occupancy rules, or other good causes. Prior to 
terminating a lease, the borrower must give the tenant written notice of 
the violation and give the tenant an opportunity to correct the 
violation. Subsequently, termination may only occur when the incidences 
related to the termination are documented and there is documentation 
that the tenant was given notice prior to the initiation of the 
termination action that their activities would result in occupancy 
termination.
    (1) Material non-compliance with lease provisions or occupancy 
rules, for purposes of occupancy termination by a borrower, includes 
actions such as:
    (i) Violations of lease provisions or occupancy rules that are 
substantial and/or repeated;
    (ii) Non-payment or repeated late payment of rent or other financial 
obligations due under the lease or occupancy rules; or
    (iii) Admission to or conviction for use, attempted use, possession, 
manufacture, selling, or distribution of an illegal controlled substance 
when such activity occurred on the housing project's premises by the 
tenant, a member of the tenant's household, a guest of the tenant, or 
any other person under the tenant's control at the time of the activity.
    (2) Good causes, for purposes of occupancy terminations by a 
borrower, include actions such as:
    (i) Actions by the tenant or a member of the tenant's household 
which disrupt the livability of the housing by threatening the health 
and safety of other persons or the right of other persons to enjoyment 
of the premises and related facilities;
    (ii) Actions by the tenant or a member of the tenant's household 
which result in substantial physical damage

[[Page 514]]

causing an adverse financial effect on the housing or the property of 
other persons; or
    (iii) Actions prohibited by state and local laws.
    (b) Lease expiration or tenant eligibility. A tenant's occupancy in 
an Agency-financed housing project may not be terminated by a borrower 
when the lease agreement expires unless the tenant's actions meet the 
conditions described in paragraph (a) of this section, or the tenant is 
no longer eligible for occupancy in the housing. Borrowers must handle 
terminations of occupancy due to a change in tenant eligibility status 
in accordance with Sec. 3560.158. At a minimum, the occupancy 
termination notice must include the following information:
    (1) A specific date by which lease termination will occur;
    (2) A statement of the basis for lease termination with specific 
reference to the provisions of the lease or occupancy rules that, in the 
borrower's judgment, have been violated by the tenant in a manner 
constituting material non-compliance or good cause; and
    (3) A statement explaining the conditions under which the borrower 
may initiate judicial action to enforce the lease termination notice.
    (c) Other terminations. Should occupancy be terminated due to 
conditions which are beyond the control of the tenant, such as a 
condition related to required repair or rehabilitation of the building, 
or a natural disaster, and prior to expiration of the disaster 
declaration, the tenants who are affected by such a circumstance are 
entitled to benefits under the Uniform Relocation Act and may request a 
Letter of Priority Entitlement (LOPE) from the Agency. If tenants need 
additional time to secure replacement housing, the Agency may, at the 
tenant's request, extend the LOPE entitlement period.
    (d) Criminal activity. Borrowers may terminate tenancy for criminal 
activity or alcohol abuse by household members in accordance with the 
provisions of 24 CFR 5.858, 5.859, 5.860, and 5.861.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11282, Mar. 1, 2022]



Sec. 3560.160  Tenant grievances.

    (a) General. (1) The requirements established in this section are 
designed to ensure that there is a fair and equitable process for 
addressing tenant or prospective tenant concerns and to ensure fair 
treatment of tenants in the event that an action or inaction by a 
borrower, including anyone designated to act for a borrower, adversely 
affects the tenants of a housing project.
    (2) Any tenant/member or prospective tenant/member seeking occupancy 
in or use of Agency facilities who believes he or she is being 
discriminated against because of age, race, color, religion, sex, 
familial status, disability, or national origin may file a complaint in 
person with, or by mail to the U.S. Department of Agriculture's Office 
of Civil Rights, Room 326-W, Whitten Building, 14th and Independence 
Avenue, SW., Washington DC 20250-9410 or to the Office of Fair Housing 
and Equal Opportunity, U.S. Department of Housing and Urban Development 
(HUD), Washington, DC 20410. Complaints received by Agency employees 
must be directed to the National Office Civil Rights Staff through the 
State Civil Rights Manager/Coordinator.
    (b) Applicability. (1) The requirements of this section apply to a 
borrower action regarding housing project operations, or the failure to 
act, that adversely affects tenants or prospective tenants.
    (2) This section does not apply to the following situations:
    (i) Rent changes authorized by the Agency in accordance with the 
requirements of Sec. 3560.203(a);
    (ii) Complaints involving discrimination which must be handled in 
accordance with Sec. 3560.2(b) and paragraph (a)(2) of this section;
    (iii) Housing projects where an association of all tenants has been 
duly formed and the association and the borrower have agreed to an 
alternative method of settling grievances;
    (iv) Changes required by the Agency in occupancy rules or other 
operational or management practices in which proper notice and 
opportunity have been given according to law and the provisions of the 
lease;

[[Page 515]]

    (v) Lease violations by the tenant that would result in the 
termination of tenancy and eviction;
    (vi) Disputes between tenants not involving the borrower; and
    (vii) Displacement or other adverse actions against tenant as a 
result of loan prepayment handled according to subpart N of this part.
    (c) Borrower responsibilities. Borrowers must permanently post 
tenant grievance procedures that meet the requirements of this section 
in a conspicuous place at the housing project. Borrowers also must 
maintain copies of the tenant grievance procedure at the housing 
project's management office for inspection by the tenants and the Agency 
upon request. Each tenant must receive an Agency summary of tenant's 
rights when a lease agreement is signed. If a housing project is located 
in an area with a concentration of non-English speaking individuals, the 
borrower must provide grievance procedures in both English and the non-
English language. The notice must include the telephone number and 
address of USDA's Office of Civil Rights and the appropriate Regional 
Fair Housing and Enforcement Agency.
    (d) Reasons for grievance. Tenants or prospective tenants may file a 
grievance in writing with the borrower in response to a borrower action, 
or failure to act, in accordance with the lease or Agency regulations 
that results in a denial, significant reduction, or termination of 
benefits or when a tenant or prospective tenant contests a borrower's 
notice of proposed adverse action as provided in paragraph (e) of this 
section. Acceptable reasons for filing a grievance may include:
    (1) Failure to maintain the premises in such a manner that provides 
decent, safe, sanitary, and affordable housing in accordance with Sec. 
3560.103 and applicable state and local laws;
    (2) Borrower violation of lease provisions or occupancy rules;
    (3) Modification of the lease;
    (4) Occupancy rule changes;
    (5) Rent changes not authorized by the Agency according to Sec. 
3560.205; or
    (6) Denial of approval for occupancy.
    (e) Notice of adverse action. In the case of a proposed action that 
may have adverse consequences for tenants or prospective tenants such as 
denial of admission to occupancy and changes in the occupancy rules or 
lease, the borrower must notify the tenant or prospective tenant in 
writing. In the case of a Borrower's proposed adverse action including 
denial of admission to occupancy, the Borrower shall notify the 
applicant/tenant in writing. The notice must be delivered by certified 
mail return receipt requested, or a hand-delivered letter with a signed 
and dated acknowledgement of receipt from the applicant/tenant, The 
notice must give specific reasons for the proposed action. The notice 
must also advise the tenant or prospective tenant of ``the right to 
respond to the notice within ten calendar days after date of the 
notice'' and of ``the right to a hearing in accordance with Sec. 
3560.160 (f), which is available upon request.'' The notice must contain 
the information specified in paragraph (a)(2) of this section. For 
housing projects in areas with a concentration of non-English speaking 
individuals, the notice must be in English and the non-English language.
    (f) Grievances and responses to notice of adverse action. The 
following procedures must be followed by tenants, prospective tenants, 
or borrowers involved in a grievance or a response to an adverse action.
    (1) The tenant or prospective tenant must communicate to the 
borrower in writing any grievance or response to a notice within 10 
calendar days after occurrence of the adverse action or receipt of a 
notice of intent to take an adverse action.
    (2) Borrowers must offer to meet with tenants to discuss the 
grievance within 10 calendar days of receiving the grievance. The Agency 
encourages borrowers and tenants or prospective tenants to make an 
effort to reach a mutually satisfactory resolution to the grievance at 
the meeting.
    (3) If the grievance is not resolved during an informal meeting to 
the tenant or prospective tenant's satisfaction, the borrower must 
prepare a summary of the problem and submit the summary to the tenant or 
prospective

[[Page 516]]

tenant and the Agency within 10 calendar days The summary should 
include: The borrower's position; the applicant/tenant's position; and 
the result of the meeting. The tenant also may submit a summary of the 
problem to the Agency.
    (g) Hearing process. The following procedures apply to a hearing 
process.
    (1) Request for hearing. If the tenant or prospective tenant desires 
a hearing, a written request for a hearing must be submitted to the 
borrower within 10 calendar days after the receipt of the summary of any 
informal meeting.
    (2) Selection of hearing officer or hearing panel. In order to 
properly evaluate grievances and appeals, the borrower and tenant must 
select a hearing officer or hearing panel. If the borrower and the 
tenant cannot agree on a hearing officer, then they must each appoint a 
member to a hearing panel and the members selected must appoint a third 
member. If within 30 days from the date of the request for a hearing, 
the tenant and borrower have not agreed upon the selection of a hearing 
officer or hearing panel, the borrower must notify the Agency by mail of 
the situation. The Agency will appoint a person to serve as the sole 
hearing officer. The Agency may not appoint a hearing officer who was 
earlier considered by either the borrower or the tenant, in the interest 
of ensuring the integrity of the process.
    (3) Standing hearing panel. In lieu of the procedure contained in 
paragraph (g)(2) of this section for each grievance or appeal presented, 
a borrower may ask the Agency to approve a standing hearing panel for 
the housing project.
    (4) Examination of records. The borrower must allow the tenant the 
opportunity, at a reasonable time before a hearing and at the expense of 
the tenant, to examine or copy all documents, records, and policies of 
the borrower that the borrower intends to use at a hearing unless 
otherwise prohibited by law or confidentiality agreements.
    (5) Scheduling of hearing. If a standing hearing panel has been 
approved, a hearing will be scheduled within 15 calendar days after 
receipt of the tenant's or prospective tenant's request for a hearing. 
If a hearing officer or hearing panel must be selected, a hearing will 
be scheduled within 15 calendar days after the selection or appointment 
of a hearing panel or a hearing officer. All hearings will be held at a 
time and place mutually convenient to both parties. If the parties 
cannot agree on a meeting place or time, the hearing officer or hearing 
panel will designate the place and time.
    (6) Escrow deposits. If a grievance involves a rent increase not 
authorized by the Agency, or a situation where a borrower fails to 
maintain the property in a decent, safe, and sanitary manner, rental 
payments may be deposited by the tenant into an escrow account, provided 
the tenant's rental payments are otherwise current.
    (i) The escrow account deposits must continue until the complaint is 
resolved through informal discussion or by the hearing officer or panel.
    (ii) The escrow account must be in a Federally-insured institution 
or with a bonded independent agent.
    (iii) Failure to make timely rent payments into the escrow account 
will result in a termination of the tenant grievance and appeals 
procedure and all sums will immediately become due and payable under the 
lease.
    (iv) Receipts of escrow account deposits must be available for 
examination by the borrower.
    (7) Failure to request a hearing. If the tenant or prospective 
tenant does not request a hearing within the time provided by paragraph 
(f)(1) of this section, the borrower's disposition of the grievance or 
appeal will become final.
    (h) Requirements governing the hearing. The following requirements 
will govern the hearing process.
    (1) Subject to paragraph (f)(2) of this section, the hearing will 
proceed before a hearing officer or hearing panel at which evidence may 
be received without regard to whether that evidence could be used in 
judicial proceedings.
    (2) The hearing must be structured so as to provide basic due 
process safeguards for both the borrower and the tenants or prospective 
tenants, which must protect:
    (i) The right of both parties to be represented by counsel or 
another person chosen as their representative;

[[Page 517]]

    (ii) The right of the tenant or prospective tenant to a private 
hearing unless a public hearing is requested;
    (iii) The right of the tenant or prospective tenant to present oral 
or written evidence and arguments in support of their grievance or 
appeal and to cross-examine and refute the evidence of all witnesses on 
whose testimony or information the borrower relies; and
    (iv) The right of the borrower to present oral and written evidence 
and arguments in support of the decision, to refute evidence relied upon 
by the tenant or prospective tenant, and to confront and cross-examine 
all witnesses in whose testimony or information the tenant or 
prospective tenant relies.
    (3) At the hearing, the tenant or prospective tenant must present 
evidence that they are entitled to the relief sought, and the borrower 
must present evidence showing the basis for action or failure to act 
against that which the grievance or appeal is directed.
    (4) The hearing officer or hearing panel must require that the 
borrower, the tenant or prospective tenant, counsel, and other 
participants or spectators conduct themselves in an orderly manner. 
Failure to comply may result in exclusion from the proceedings or in a 
decision adverse to the interests of the disorderly party and granting 
or denial of the relief sought, as appropriate.
    (5) If either party or their representative fails to appear at a 
scheduled hearing, the hearing officer or hearing panel may make a 
determination to postpone the hearing for no more than five days or may 
make a determination that the absent party has waived their right to a 
hearing under this subpart. If the determination is made that the absent 
party has waived their rights, the hearing officer or hearing panel will 
make a decision on the grievance. Both the tenant or prospective tenant 
and the borrower must be notified in writing of the determination of the 
hearing officer or hearing panel.
    (i) Decision. Hearing decisions must be issued in accordance with 
the following requirements.
    (1) The hearing officer or hearing panel has the authority to affirm 
or reverse a borrower's decision.
    (2) The hearing officer or hearing panel must prepare a written 
decision, together with the reasons thereof based solely and exclusively 
upon the facts presented at the hearing within 10 calendar days after 
the hearing. The notice must state that the decision is not effective 
for 10 calendar days to allow time for an Agency review as specified in 
paragraphs (i)(3) and (i)(4) of this section.
    (3) The hearing officer or hearing panel must send a copy of the 
decision to the tenant, or prospective tenant, borrower, and the Agency.
    (4) The decision of the hearing officer or hearing panel shall be 
binding upon the parties to the hearing unless the parties to the 
hearing are notified within 10 calendar days by the Agency that the 
decision is not in compliance with Agency regulations.
    (5) Upon receipt of written notification from the hearing officer or 
hearing panel, the borrower and tenant must take the necessary action, 
or refrain from any actions, specified in the decision.



Sec. Sec. 3560.161-3560.199  [Reserved]



Sec. 3560.200  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                             Subpart E_Rents



Sec. 3560.201  General.

    This subpart sets forth the requirements for establishing and 
collecting rents charged to occupants of multi-family housing (MFH) 
projects financed by the Agency.

[[Page 518]]



Sec. 3560.202  Establishing rents and utility allowances.

    (a) General. Rents and utility allowances for rental units in 
Agency-financed housing projects are set by the borrower and must be 
based on the operating, management and maintenance expenses and other 
costs related to the housing project including loan payment amounts due 
to the Agency.
    (b) Agency approval. All rents and utility allowances set by 
borrowers are subject to Agency approval.
    (c) Rents. As applicable, borrowers must establish the following 
rents:
    (1) Note rent;
    (2) Basic rent;
    (3) U.S. Department of Housing and Urban Development (HUD) contract 
rents; and
    (4) Low-income housing tax credit (LIHTC) rents.
    (d) Utility allowances. In projects where tenants pay the utilities, 
borrowers must establish utility allowances for each size and type of 
rental unit in the housing project based on estimated utility costs. 
Borrowers must review utility allowances annually, adjust for accuracy, 
and submit any utility allowance changes to the Agency for approval. If 
no changes are needed, the borrower must notify the Agency that no 
changes were made. Documentation to justify utility allowances must be 
maintained in the housing project files.
    (e) Funds contributed to reduce rents. If borrowers use funds 
contributed from sources other than the Agency (e.g., state or local 
grants, private contributions) to reduce general operating and 
management expenses, housing project rents must be reduced to reflect 
the funding being used to offset housing project expenses. When funds 
contributed from sources other than the Agency are used for housing 
project expenses, the borrower must certify to the Agency, in writing, 
that the funds provided will not need to be repaid with Agency funds. 
Funds from borrower contributions or rehabilitation loans will not be 
counted towards reducing rents.
    (f) Rents for resident manager, caretaker, or owner-occupied unit. 
(1) If approved as a part of a management plan, a borrower may occupy a 
rental unit in a housing project when they are acting as a management 
agent or resident manager as specified in Sec. 3560.102(e).
    (2) If the rental unit being occupied by a borrower or resident 
manager is designated as a revenue-producing unit, borrowers must 
calculate the rental charge to the borrower or resident manager in the 
same manner as tenant contributions.
    (3) If the rental unit being occupied by a borrower or resident 
manager is designated as a non-revenue producing unit, borrowers must 
treat the cost of providing the unit the same as other non-revenue 
producing portions of the housing project.
    (g) LIHTC. Borrowers who receive LIHTCs may establish rents in 
accordance with LIHTC requirements. However, borrowers are obligated to 
ensure that sufficient annual funds are available to cover expenses in 
the housing project's approved budget, including the required payments 
on the borrower's Agency loan. Borrowers must not use housing project 
funds to make up any difference between rents required under Agency 
program requirements and the maximum allowed rents under the LIHTC 
program.



Sec. 3560.203  Tenant contributions.

    (a) Tenant contributions. A tenant's contribution to rent charged 
for a rental unit in an Agency financed housing project is based on the 
tenant's income, as calculated on the Agency's tenant certification 
forms, and the availability of Agency or non-Agency rental subsidies.
    (1) Tenant contributions. Borrowers must set tenant contributions to 
rent at the highest of the following standards but never more than the 
note rent:
    (i) Thirty percent of monthly adjusted income;
    (ii) Ten percent of gross monthly income;
    (iii) An amount equal to the portion of an assistance payment 
specifically designated to meet the household's shelter costs if the 
household is receiving assistance payments from a public agency; or
    (iv) The basic rent, unless RHS rental assistance is provided to the 
household.
    (2) Tenant contribution surcharge. Tenants in a Plan I housing 
project with

[[Page 519]]

incomes above the eligibility standards set in Sec. 3560.152(a)(1) must 
pay a 25 percent surcharge in addition to note rent.
    (b) Adjustment of tenant contribution. Borrowers must adjust the 
tenant contribution whenever there is a change in tenant household 
status or income sufficient to generate a revised tenant certification 
in accordance with Sec. 3560.152(e) or an Agency approved rent or 
utility allowance change that affects the tenant contribution amount.
    (c) Overage. If a tenant's tenant contribution is higher than basic 
rent, borrowers must remit to the Agency the rent collected in excess of 
the basic rent and up to the note rent.



Sec. 3560.204  Security deposits and membership fees.

    (a) General. Borrowers may collect security deposits when it is 
reasonable and customary for the area in which the housing is located. 
Borrowers must hold security deposits in a separate bank or bookkeeping 
account in accordance with Sec. 3560.302(c)(3).
    (b) Allowable amounts. Borrowers may charge security deposits that 
are typical for the area in which the housing is located, as long as the 
security deposit charged a tenant does not exceed that tenant's net 
contribution for one month's rent or basic rent, whichever is greater.
    (1) As noted in Sec. 3560.102(b)(1)(viii) and Sec. 
3560.156(c)(18)(iii), borrowers must specify in the housing project's 
management plan how the amount to be charged as a security deposit will 
be established and must specify the amount to be charged to individual 
tenants in the lease to be signed by the tenant.
    (2) Borrowers may charge security deposits to households receiving 
HUD assistance in accordance with HUD requirements.
    (3) Members of a cooperative shall be required to pay a membership 
fee no greater than one month's occupancy charge.
    (4) Additional security deposits for pets may be charged as long as 
the additional deposit is not greater than basic rent for 1 month. No 
additional security deposit for assistance animals is allowed where an 
assistance animal is necessary for the normal functioning of a household 
member with a disability.
    (5) Borrowers must not charge additional security deposits based on 
disabilities of tenants or other personal characteristics.
    (c) Payment plans. Borrowers must offer, for persons who are 
eligible for rental assistance or Section 8 assistance, the option of 
paying the security deposit on an installment payment plan. Should 
installments not be met, the total charge may become due and payable in 
full.
    (d) Charges for damage or loss. Borrowers may charge tenants for 
damage or loss caused or allowed by the tenant equal to the cost of the 
damage or loss.
    (1) Borrowers must consider expenses due for addressing normal wear 
and tear as normal operating expenses and must not charge tenants a fee 
or withhold security deposits to pay for such costs.
    (2) Borrowers may withhold security deposits and may charge tenants 
for damage or loss costs above security deposit amounts.
    (e) State and local security deposit requirements. Borrowers must 
follow all state and local laws and other requirements governing the 
handling and disposition of security deposits.
    (1) Resolution of any security deposit disputes must be handled in 
accordance with state and local law.
    (2) Any interest earned on security deposits will accrue in 
accordance with state law.
    (f) Unclaimed security deposits. Any funds in the housing project's 
security deposit account unclaimed by a tenant must be deposited into 
the housing project's general operating account.



Sec. 3560.205  Rent and utility allowance changes.

    (a) General. Borrowers must fully document that changes to rents and 
utility allowances are necessary to cover housing or utility costs 
allowed under the approved budget for the housing. Any changes must 
apply to all similar units in the housing project.
    (b) Agency approval. Borrowers must submit a fully documented 
request to the Agency to effect any rent or utility allowance change.

[[Page 520]]

    (1) Borrowers must obtain written consent or approval from the 
Agency as specified in paragraph (e) of this section before implementing 
any changes in the rents or utility allowances.
    (2) If a borrower implements an unauthorized rent or utility 
allowance charge, the Agency will require the borrower to roll back 
rents to the last authorized rent charge, and the borrower must 
reimburse tenants for any unauthorized rents collected.
    (c) Timing of request for changes. Borrowers must submit rent and 
utility allowance change requests in conjunction with the annual budget 
submission as required under Sec. 3560.303(d). The effective dates of 
any approved changes will coincide with the start of the housing 
project's fiscal year or the start of the season for seasonally occupied 
farm labor housing. However, the Agency will accept borrower requests 
for rent or utility allowance changes anytime during the year if a 
change is necessary to preserve the financial integrity of the housing 
complex and the financial distress is due to circumstances beyond the 
borrower's control.
    (d) Tenant notification. Borrowers must notify tenants and solicit 
their comments to proposed rent or utility allowance change requests 
that are submitted to the Agency at the same time that the initial 
request is made to the Agency.
    (1) Tenants will be given 20 calendar days to provide their comments 
to the Agency.
    (2) Borrowers must deliver the proposed rent or utility allowance 
change request notice to each tenant and post at least one copy of the 
notice at the housing project site in a visible location frequented by 
tenants.
    (e) Approval. If the Agency approves a rent or utility allowance 
increase request on which the comments were solicited, tenants or 
members receiving notice of a proposed rent or utility allowance change 
in accordance with paragraph (d)(2) of this section shall be notified of 
the rent or utility allowance change to be effective, at least 30 
calendar days from the date of the notification.
    (f) Denial of change request. The Agency may deny a rent or utility 
allowance increase request in the following circumstances.
    (1) The Agency determines that the borrower did not provide 
sufficient information to justify operating costs.
    (2) The borrower is out of compliance with Agency requirements 
including any corrective action requirements agreed to in a workout 
agreement developed according to subpart J of this part.
    (3) Sufficient funds are being collected under existing rents to 
meet approved expenses.
    (g) Notice of denial. If the rent change will not be approved as 
requested, the Agency will notify the borrower of the denial in 
accordance with Sec. 3560.303(d).

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11282, Mar. 1, 2022]



Sec. 3560.206  Conversion to Plan II (Interest Credit).

    The Agency encourages any borrower not on Plan II to convert to Plan 
II to provide more favorable rent costs to very-low, low, and moderate-
income households.



Sec. 3560.207  Annual adjustment factors for Section 8 units.

    (a) General. For rental units receiving project-based Section 8 
assistance, the Agency will review rents annually without regard to 
HUD's automatic annual adjustment.
    (b) Establishing rents in housing with HUD rent assistance. 
Borrowers will set basic, note, and HUD contract rents for housing 
receiving HUD project-based Section 8 assistance, as specified in Sec. 
3560.202(c).
    (c) Excess HUD rents. When permitted by the Agency interest credit 
agreement, the Agency may reduce or cancel the interest credit on the 
housing, if excess HUD rents deposited in the reserve account result in 
the reserve account being funded beyond the fully funded level approved 
by the Agency.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11282, Mar. 1, 2022]



Sec. 3560.208  Rents during eviction or failure to recertify.

    (a) Rents during eviction. If a tenant is appealing an eviction and 
the borrower refuses to accept rent payment during the appeal of the 
eviction, the tenant

[[Page 521]]

must escrow required rent payments to safeguard their occupancy, unless 
State or local laws specify otherwise.
    (b) Rents when tenants fail to recertify. If a borrower can document 
that a tenant received a notice specifying a tenant recertification date 
and the tenant fails to comply by the specified date or fails to 
cooperate with verification or other procedures related to the tenant's 
recertification so that the tenant recertification cannot be completed 
by the recertification date, the borrower, within 10 days of the 
recertification date, shall give the tenant and the Agency written 
notification that:
    (1) Termination proceedings are being initiated, in accordance with 
Sec. 3560.159; and
    (2) The tenant will be charged note rent until the tenant's lease is 
terminated.
    (c) Unauthorized assistance due to tenant recertification failure. 
Any unauthorized assistance received because of the tenant's failure to 
be recertified will be collected in accordance with the provisions of 
subpart O of this part.
    (d) Rents when borrowers fail to recertify tenants. If a borrower 
cannot document that a tenant received a recertification notice, and a 
tenant is not recertified within 12 months of the most recently executed 
tenant certification, tenants shall continue to make net tenant 
contributions to rent based on their most recent tenant certification 
and the borrower must remit to the Agency full overage as if the tenant 
was paying the note rent until the tenant is recertified.
    (e) Unauthorized assistance due to borrower recertification failure. 
Any unauthorized assistance received as a result of the borrower's 
failure to recertify a tenant will be collected from the borrower in 
accordance with the provisions of subpart O of this part and may not be 
paid from housing project funds or funds collected from the tenant.



Sec. 3560.209  Rent collection.

    (a) General. Borrowers must collect rents on a monthly basis and 
maintain a system for collecting and tracking rents.
    (b) Fees for late rent payments. Borrowers may adopt a late fee 
schedule for overdue rental payments. Late fee schedules must be 
submitted to the Agency for approval as part of the housing project's 
management plan, be in accordance with State and local law, and 
consistent with the following requirements:
    (1) A grace period of 10 days from the rental payment due date must 
be allowed for all tenants.
    (2) The late fee must not exceed the higher of $10 or an amount 
equal to 5 percent of the tenant's gross tenant contribution.
    (3) Tenants receiving housing benefits from sources other than the 
Agency may be subject to the late rent fee requirements of the other 
funding sources.
    (c) Improperly advanced rents. Improperly advanced interest credit 
or rental assistance is considered unauthorized assistance and is 
subject to recapture in accordance with subpart O of this part.



Sec. 3560.210  Special note rents (SNRs).

    When a Plan II housing project is experiencing severe vacancies due 
to market conditions, the Agency may allow the borrower to charge an 
SNR, which is less than note rent but higher than basic rent, to attract 
or retain tenants whose income level would require them to pay special 
note rent. The requirements for requesting and receiving an SNR are 
established under Sec. 3560.454.



Sec. Sec. 3560.211-3560.249  [Reserved]



Sec. 3560.250  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.

[[Page 522]]



                       Subpart F_Rental Subsidies



Sec. 3560.251  General.

    This subpart contains policies for borrower administration and 
tenant use of rental subsidies in Agency financed multi-family housing 
(MFH) projects.



Sec. 3560.252  Authorized rental subsidies.

    (a) General. The purpose of rental subsidies is to reduce amounts 
paid by tenants for rent. Rental subsidies equal the difference between 
the approved shelter costs and tenant contributions as calculated in 
accordance with Sec. 3560.203(a)(1).
    (b) Forms of rental subsidies. Rental subsidies may be in the form 
of:
    (1) Agency rental assistance;
    (2) Agency housing vouchers;
    (3) HUD section 8 assistance, including project-based and vouchers;
    (4) Private rental subsidies; or
    (5) State or local government rental subsidies.
    (c) Multiple rent subsidies. (1) Multiple types of rent subsidies 
may be used in the same MFH project.
    (2) Tenants with subsidies from sources other than the Agency may be 
eligible for Agency rental assistance if all the following conditions 
are met.
    (i) The tenant qualifies for Agency rental assistance.
    (ii) The rental subsidy the tenant is receiving is not a HUD 
voucher.
    (iii) The rental subsidy being received by the tenant is less than 
the full amount of Agency rental assistance for which the tenant would 
qualify. In such cases, the Agency may provide the difference between 
the subsidy received by the tenant and the amount of Agency rental 
assistance for which the tenant qualifies.
    (d) Agency rental assistance (RA). Agency RA is obligated to MFH 
projects on a rental unit basis. The obligation is composed of a number 
of rental units and associated dollar amounts of RA specified in a RA 
agreement with a borrower. The following types of Agency RA may be 
obligated to a housing project.
    (1) Renewal units. RA may be assigned to a housing project to 
replace existing rental unit obligations because funds associated with 
the units have been fully disbursed.
    (2) New construction units. RA may be provided in conjunction with 
initial Agency loans for construction or substantial rehabilitation of 
MFH projects.
    (3) Servicing units. Additional RA may be provided to operational 
MFH projects as a part of the Agency's general loan servicing or 
preservation activities.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11283, Mar. 1, 2022]



Sec. 3560.253  [Reserved]



Sec. 3560.254  Eligibility for rental assistance.

    (a) Eligible housing. Housing projects eligible for Agency RA 
include the following types of projects.
    (1) Housing projects that operate under an Interest Credit Plan II 
RA agreement.
    (2) Housing projects financed with an Agency off-farm labor housing 
loan or grant. On-farm labor housing is not eligible for rental 
assistance.
    (3) Housing projects financed with a direct or insured Rural Rental 
Housing loan approved prior to August 1, 1968, and operated under an 
interest credit agreement that identifies the housing project as a Plan 
RA project.
    (4) Housing projects financed from Agency and other sources if the 
conditions of Sec. 3560.66 are met.
    (b) Eligible units. Borrowers may not request RA for rental units 
that the Agency determines are not habitable in accordance with Sec. 
3560.103.
    (c) Eligible households. Households eligible for rental assistance 
are those:
    (1) With very low- or low-incomes who are eligible to live in MFH;
    (2) Whose net tenant contribution to rent determined in accordance 
with Sec. 3560.203(a)(1) is less than the basic rent for the unit;
    (3) Whose head of the household is a U.S. citizen or a legal alien 
as defined in Sec. 3560.11;
    (4) Who meet the occupancy rules/policies established by the 
borrower in accordance with Sec. 3560.155(e);
    (5) Who have a signed, unexpired tenant certification form on file 
with the borrower; and

[[Page 523]]

    (6) Who is not delinquent on any Agency unauthorized assistance 
repayment agreements.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11283, Mar. 1, 2022]

    Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in Sec. 
3560.254(c)(3), implementation of the words ``Whose head of the 
household is a U.S. citizen or a legal alien as defined in Sec. 
3560.11.'' was delayed indefinitely.



Sec. 3560.255  Requesting rental assistance.

    (a) Submitting requests. Borrowers seeking an allocation of rental 
assistance for MFH must request the rental assistance from the Agency as 
follows.
    (1) Renewal rental assistance. To the extent sufficient funds are 
available, the Agency will automatically renew expiring rental 
assistance agreements at the existing number of units.
    (2) New construction units. Loan applicants proposing to use Agency 
rental assistance must include their request for rental assistance in 
their loan proposal in accordance with Sec. 3560.56.
    (3) Servicing units. Borrowers requesting rental assistance must 
have tenants or eligible tenant applicants on a waiting list who are RA 
eligible.
    (b) Denial of requests. (1) If a rental assistance request is denied 
due to the loan applicant's or borrower's ineligibility, the Agency will 
send the loan applicant or borrower written notification of the decision 
with an explanation of the denial.
    (2) If a rental assistance request to renew expiring rental 
assistance agreements is denied because funding is not available, the 
Agency will notify the borrower and the borrower must notify the tenants 
of rent increases in accordance with their lease and state and local 
law. Tenants losing rental assistance due to a lack of Agency funding 
may quit the lease and vacate the housing without penalty in accordance 
with the terms of their lease.
    (3) Loan applicants or borrowers determined to be eligible for RA as 
a result of an appeal or funding review will receive RA, if RA funding 
is available, beginning with the month following the date of the appeal 
or funding review decision or beginning in the first month that RA 
funding becomes available.



Sec. 3560.256  Rental assistance payments.

    (a) Borrower submission requirements. The borrower must submit 
monthly requests for RA payments to the Agency based on occupancy as of 
the first day of the month previous to the month in which the request is 
being made.
    (b) Basis of RA requests. Borrower requests for RA payments must be 
based on the difference between the basic rent plus utility allowances 
for each rental unit eligible for RA and the net tenant contribution of 
the tenant.
    (c) Payments to borrower. Prior to making RA payments to a borrower, 
the Agency will deduct from the approved RA payment amount any unpaid 
loan payments, late fees, and other amounts which the borrower owes to 
the Agency.
    (d) Utility payments to tenants. The borrower must pay tenants the 
difference between the utility allowance and the tenant's net 
contribution to rent when a tenant receiving RA is billed directly for 
utilities and the utility allowance exceeds the net tenant contribution 
to rent. Such utility payments to tenants must be made on a monthly 
basis.
    (e) Administrative errors. Borrowers are responsible for correcting 
borrower errors made in regard to RA requests for payments. In 
accordance with subpart O of this part, borrowers will be required to 
repay the Agency for any unauthorized RA received or any unauthorized 
use of RA except in certain cases of tenant error or fraud.



Sec. 3560.257  Assigning rental assistance.

    (a) Priorities for rental assistance. (1) Borrowers must use the 
following priorities when assigning available rental assistance.
    (i) First priority is to eligible very low-income tenants paying the 
highest percentage of their adjusted annual income for Agency approved 
shelter costs.
    (ii) Second priority, if the housing project has vacant rental 
units, is to eligible very low-income applicants on the waiting list.
    (iii) Third priority is to eligible low-income tenants paying the 
highest percentage of their adjusted annual income for Agency approved 
shelter costs.

[[Page 524]]

    (iv) Fourth priority, if the housing project has vacant rental 
units, is to eligible low-income applicants on the waiting list.
    (v) Fifth priority is to households which are residing in a rental 
unit for which they do not qualify on the basis of an occupancy waiver 
or other special approval situations.
    (2) In order to provide rental assistance to the third, fourth, and 
fifth priority categories, a borrower must fully document either that 
there are no very low-income households on the housing project's waiting 
list or that occupancy by low-income households is limited as follows:
    (i) For housing occupied on or after November 30, 1983, no more than 
5 percent of the units in the housing are occupied by low-income 
households; or
    (ii) For housing occupied before November 30, 1983, no more than 25 
percent of the units in the housing are occupied by low-income 
households.
    (b) Continued eligibility. Tenants receiving rental assistance may 
continue to do so as long as they remain eligible for occupancy and for 
rental assistance under Sec. 3560.254(c), and as long as rental 
assistance units are available.
    (c) Assignment of rental assistance. Except as provided in Sec. 
3560.454(c) and using the priorities given in paragraph (a) of this 
section, borrowers must assign available rental assistance units as soon 
as rental assistance units become available.
    (1) When a rental assistance unit is assigned to an eligible 
existing tenant on a day other than the first day of a month, the Agency 
will not provide the borrower rental assistance for the newly assigned 
existing tenant and the tenant will not pay reduced rental charges until 
the first of the month following the assignment of the rental 
assistance.
    (2) When an eligible applicant moves into a rental assistance unit 
on a day other than the first day of a month, they will pay a prorated 
rent based on the number of days they occupy the rental assistance unit 
and the amount of rental assistance they will be receiving.
    (d) Incorrectly assigned rental assistance. Incorrectly assigned 
rental assistance is viewed as unauthorized assistance and handled in 
accordance with subpart O of this part.



Sec. 3560.258  Terms of agreement.

    (a) Term of agreement. Rental assistance agreements will have a term 
of the later of 12 months from the first disbursement of the obligation 
or when funds under the agreement are exhausted.
    (b) Replacing expiring obligations. Rental assistance agreements may 
be renewed in accordance with Sec. 3560.255(a)(1).

[87 FR 11283, Mar. 1, 2022]



Sec. 3560.259  Transferring rental assistance.

    (a) Agency authority. The Agency may transfer rental assistance in 
the following instances:
    (1) To accompany the transfer of a housing project to a different 
borrower;
    (2) After a voluntary conveyance or a foreclosure sale;
    (3) After a liquidation, prepayment, or natural maturity;
    (4) To the extent permitted by law, when any rental assistance units 
have not been used for a 6-month period (Section 515) or a 12-month 
period (Section 514 or 516); or
    (5) When the loan cannot be closed.
    (b) Agency review before transferring rental assistance. The Agency 
must perform a review to determine if all eligible tenants in the 
project are receiving rental assistance before the Agency transfers it 
to another project.
    (c) Transferring rental assistance for displaced tenants. The Agency 
may transfer rental assistance from one housing project to another 
eligible housing project for a tenant who is moving due to displacement 
as a result of prepayment, liquidation, or a natural disaster. The 
tenant must begin using the rental assistance within 4 months of the 
transfer or the RA will become available for use by the next rental 
assistance eligible tenant in the housing project.
    (d) Agency use of obligation balances. In lieu of transferring 
rental assistance units, the Agency may elect to utilize the remaining 
obligation balances of

[[Page 525]]

units identified in paragraphs (a)(2) and (3) of this section for 
renewal purposes.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11283, Mar. 1, 2022]



Sec. 3560.260  Rental subsidies from non-Agency sources.

    (a) General. The Agency may authorize the use of rental subsidies 
from sources other than the Agency in Agency financed housing projects. 
The Agency will make no commitment to providing Agency rental assistance 
at the expiration of the rental subsidies from other sources.
    (b) HUD vouchers. For tenants with HUD vouchers, the borrower must 
set the rental unit rent at the basic rent or the rent standard set by 
the public housing authority, whichever is less. The public housing 
authority distributing the HUD vouchers may set the utility allowance.
    (c) Loan proposals using non-Agency rental subsidy. Loan applicants 
or borrowers proposing to use rental subsidy from sources other than the 
Agency must provide:
    (1) Documentation demonstrating that a market exists for households 
eligible for the subsidy and the households are at income levels that 
would benefit from the amount of rental subsidy that will be provided;
    (2) A plan describing actions to be taken when the rental subsidy 
expires to minimize the impact on tenants losing the rental assistance 
and to avoid displacement; and
    (3) A copy of the project-based rental assistance agreement to be 
signed by the borrower and the provider of the rental assistance.
    (d) Rental subsidy agreement. The borrower and the provider of 
rental subsidies from sources other than the Agency must execute a 
rental subsidy agreement and submit a copy of the agreement to the 
Agency. At a minimum, the rental subsidy agreement between the borrower 
and the source of the rental subsidy must include the following 
provisions:
    (1) A description of how the subsidy will be paid. The rental 
subsidy payments may be paid directly to the tenants, to the borrower on 
behalf of the tenants, or deposited to a separate account established 
for the subsidy. The tenants must be advised of the amount and source of 
the subsidy through the lease or a supplement to the lease.
    (2) The life of a project-based rental subsidy agreement with a non-
Agency source must be similar to existing or current Agency rental 
assistance funding levels and sufficient funds must be set aside to 
assure availability of the rental subsidy for this term. The method of 
supplying the funds must be clearly established.



Sec. 3560.261  Improperly advanced rental assistance.

    Improperly advanced RHS rental assistance resulting from tenant or 
borrower error or fraud constitutes unauthorized assistance and the 
provisions of subpart O of this part apply.



Sec. Sec. 3560.262-3560.299  [Reserved]



Sec. 3560.300  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                     Subpart G_Financial Management



Sec. 3560.301  General.

    This subpart contains requirements for the financial management of 
Agency-financed multi-family housing (MFH) projects, including accounts, 
budgets, and reports. Financial management systems and procedures must 
cover all housing operations and provide adequate documentation to 
ensure that program objectives are met.

[82 FR 49285, Oct. 25, 2017]

[[Page 526]]



Sec. 3560.302  Accounting, bookkeeping, budgeting, and financial management systems.

    (a) General. Borrowers must establish the accounting, bookkeeping, 
budgeting and financial management procedures necessary to conduct 
housing project operations in a financially safe and sound manner. 
Borrowers must maintain records in a manner suitable for an audit, and 
must be able to report accurate operational results to the Agency from 
these accounts and records.
    (b) Acceptable methods of accounting. (1) Borrowers are required to 
use the accrual method of accounting in preparing annual financial 
reports, as identified in Sec. 3560.308.
    (2) Borrowers must describe their accounting, bookkeeping, budget 
preparation, and financial reporting procedures in their management 
plan.
    (3) Borrowers must notify the Agency of any changes in their 
accounting, bookkeeping, budget preparation, and financial management 
reporting systems through a revision of their management plan.
    (c) Account requirements. (1) As used in this paragraph, the term 
account is used interchangeably to mean a bookkeeping account (ledger) 
or a bank account.
    (2) At a minimum, borrowers must maintain the accounts required by 
their loan agreement or resolution.
    (3) The following list identifies the financial accounts that are 
required for each housing project. Additional accounts may be required 
by third-party lenders. Accounts are to be funded in the following 
priority order, except that paragraphs (c)(3)(iv), (v), and (vi) of this 
section are funded directly by tenant security deposits or patron 
capital receipts respectively:
    (i) General operating account;
    (ii) Real estate tax and insurance account (if not part of the 
general operating account or unless escrowed by the Agency);
    (iii) Reserve account (unless escrowed by the Agency in accordance 
with Sec. 3560.65);
    (iv) Tenant security deposit account;
    (v) Membership fee account for cooperative housing; and
    (vi) For cooperative housing only, a patron capital account.
    (4) Amounts escrowed for taxes and insurance may be kept in the 
general operating account as long as the accounting system reflects the 
amount escrowed.
    (5) Regardless of the number or types of accounts established, the 
borrower must meet the following requirements:
    (i) All housing project funds must be held only in financial 
institution accounts insured by an agency of the Federal Government or 
held in securities meeting the conditions in this subpart.
    (ii) Funds maintained in an institution may not exceed the limit 
established for Federal deposit insurance. Funds exceeding the Federally 
insured limit under a Tax ID Number must be moved to a different 
qualified banking institution that will ensure the funds unless the 
current financial institution provides additional surety such as a 
collateral pledge that may already be in place.
    (iii) All funds and proceeds in any account must be used only for 
authorized purposes as described in Agency's regulations, loan or grant 
documents. Use of funds for non-program purposes constitutes non-
monetary default as described in Sec. 3560.452(c).
    (iv) All funds received and held in any account, except the tenant 
security deposit, membership fee, and patron capital accounts, are 
considered assets of the property and must be held in trust by the 
borrower for the loan obligations until used and serve as security, 
through transfers or assumptions for the Agency loan or grant until all 
outstanding balances are satisfied.
    (v) Borrowers must be able to account for housing project funds with 
accounting methods or practices that maintain the proprietary identity 
of the funds for each project. A borrower may operate one account for 
multiple projects as long as the funds for each project themselves are 
accounted for separately.
    (vi) Each borrower must have access to at least one demand deposit 
or checking account.

[[Page 527]]

    (vii) Housing project funds may not be pledged as collateral for 
debts without Agency approval. If such a need arises for an eligible 
program purpose, the borrower must obtain prior Agency approval.
    (6) Tenant security deposit accounts or membership fee accounts and 
patron capital accounts must be maintained in a separate account in 
trust for the tenants or members and handled in a manner consistent with 
state and local laws.
    (d) Documentation of separate accountability. Housing project funds 
may be combined in one or more bank accounts for two or more housing 
projects as long as the borrower's accounting system segregates and 
tracks funds for each project separately.
    (1) When borrowers request Agency approval of an accounting system 
that combines funds from two or more housing projects, they must 
demonstrate to the Agency that the accounting systems are structured to 
segregate and maintain separate accountability for each housing project. 
Such demonstration must include a statement issued by a Certified Public 
Accountant (CPA) stating that the accounting system is structured to 
meet this principle of separate accountability.
    (2) The accounting system and management plan must document the 
method for prorating revenue and expenses that are not clearly 
identifiable as being associated with a particular housing project.
    (3) Funds for housing projects managed by the same management 
company must not be co-mingled.
    (e) Records. (1) Borrowers must retain all housing project financial 
records, books, and supporting material for at least three years after 
the issuance of their financial reports. Upon request, these materials 
will immediately be made available to the Agency, its representatives, 
the USDA Office of Inspector General (OIG), or the Government 
Accountability Office (GAO).
    (2) Borrower accounts and records will be kept or made available in 
a location with reasonable access for inspection, review, and copying by 
the Agency, other authorized representatives of the USDA, OIG, or GAO.
    (3) Automated records may be used if they meet the conditions of 
paragraph (f) of this section.
    (f) Forms generated by automated systems. (1) The forms and formats 
approved for use by borrowers may be prepared on automated systems when 
they meet the requirements of this paragraph.
    (2) Forms may be automated if they meet the following requirements:
    (i) The identical wording and nomenclature of an official form must 
be included in the automated version of the form, including the Office 
of Management and Budget (OMB) approval number.
    (ii) The logic or mathematical calculation of an official form must 
be the same in an automated version of the form.
    (iii) The name or logo of the source of the automated form must be 
visible on each output of the automated form.
    (iv) Output size must be 8\1/2\ x 11 inches.
    (v) Nominal spacing adjustment and colored paper are allowed.
    (g) Farm Labor Housing. Borrowers with on-farm labor housing units 
will be considered in compliance with this section by virtue of 
completing the record keeping and reporting requirements outlined in 
subpart M of this part.

[69 FR 69106, Nov. 26, 2004, as amended at 82 FR 49285, Oct. 25, 2017; 
87 FR 11283, Mar. 1, 2022]



Sec. 3560.303  Housing project budgets.

    (a) General requirements. (1) Using an Agency-approved format, 
borrowers must submit to the Agency for approval a proposed annual 
housing project budget prior to the start of the housing project's 
fiscal year. The capital budget section of the annual project budget 
must include anticipated expenditures on the project's long-term capital 
needs as specified in Sec. 3560.103(c) and will assist the Agency on 
utilization of the reserve account for current or future rent increase 
requests.
    (2) Budget projections regarding income, expenses, vacancies, and 
contingencies must be realistic given the housing project's history, 
current circumstances, and market conditions.

[[Page 528]]

    (3) Borrowers must document that the operating expenses included in 
the budget accurately reflect reasonable and necessary costs to operate 
the housing project in a manner consistent with the objectives of the 
loan and in accordance with the applicable Agency requirements in this 
part.
    (4) Borrower must submit supporting documentation to justify housing 
project utility allowances.
    (5) Upon Agency request, borrowers must submit any additional 
documentation necessary to establish that applicable Agency requirements 
in this part have been met.
    (b) Allowable and unallowable project expenses. Expenses charged to 
project operations, whether for management agent services or other 
expenses, must be reasonable, typical, necessary and show a clear 
benefit to the residents of the property. Services and expenses charged 
to the property must show value added and be for authorized purposes.
    (1) Allowable expenses. Allowable expenses include those expenses 
that are directly attributable to housing project operations and are 
necessary to carry out successful operations.
    (i) Housing project expenses must not duplicate expenses included in 
the management fee as defined in Sec. 3560.102(i).
    (ii) Actual costs for direct personnel costs of permanent and part-
time staff assigned directly to the project site. This includes 
managers, maintenance staff, and temporary help including their:
    (A) Gross salary;
    (B) Employer Federal Insurance Contributions Act (FICA) 
contribution;
    (C) Federal unemployment tax;
    (D) State unemployment tax;
    (E) Workers compensation insurance;
    (F) Health insurance premiums;
    (G) Cost of fidelity or comparable insurance;
    (H) Leasing, performance incentive, or annual bonuses that are 
clearly provided for by the site manager salary contract;
    (I) Direct costs of travel to off-site locations by on-site staff 
for property business or training; and/or
    (J) Retirement benefits.
    (iii) Legal fees directly related to the operation and management of 
the property including tenant lease enforcement actions, property tax 
appeals and suits, and the preparation of all legal documents.
    (iv) All outside account and auditing fees, if required by the 
Agency, directly related to the preparation of the annual audit, 
partnership tax returns, and 401-K's, as well as other outside reports 
and year-end reports to the Agency, or other governmental agency.
    (v) All repair and maintenance costs for the project including:
    (A) Maintenance staffing costs and related expenses.
    (B) Maintenance supplies.
    (C) Contract repairs to the projects (e.g., heating and air 
conditioning, painting, roofing).
    (D) Make ready expenses including painting and repairs, flooring 
replacement, and appliance replacement as well as drapery or mini-blind 
replacement. (Turnover maintenance.)
    (E) Preventive maintenance expenses including occupied unit repairs 
and maintenance as well as common area systems repairs and maintenance.
    (F) Snow removal.
    (G) Elevator repairs and maintenance contracts.
    (H) Section 504 and other Fair Housing compliance modifications and 
maintenance.
    (I) Landscaping maintenance, replacements, and seasonal plantings.
    (J) Pest control services.
    (K) Other related maintenance expenses.
    (vi) All operational costs related to the project including:
    (A) The costs of obtaining and receiving credit reports, police 
reports, and other checks related to tenant selection criteria for 
prospective residents.
    (B) Photocopying or printing expense related to actual production of 
project brochures, marketing pieces, forms, reports, notices, and 
newsletters are allowable project expenses no matter what location or 
point of origin the work is performed including outsourcing the work to 
a professional printer.
    (C) All bank charges related to the property including purchases of 
supplies (e.g., checks, deposit slips, returned check fees, service 
fees).

[[Page 529]]

    (D) Costs of site-based telephone including initial installation, 
basic services, directory listings, and long-distances charges.
    (E) All advertising costs related specifically to the operations of 
that project. This can include advertising for applicants or employees 
in newspapers, newsletters, social media, radio, cable TV, and telephone 
books.
    (F) Postage expense to mail out rental applications, third-party 
(asset income and adjustments to income) verifications, application 
processing correspondence (acceptance or denial letters), mailing 
project invoice payments, required correspondence, report submittals to 
various regulatory authorities for the managed property are allowable 
project expenses no matter what location or point of origin the mail is 
generated.
    (G) State taxes and other mandated Tribal, State, or local fees as 
well as other relevant expenses required for operation of the property 
by a third-party governmental unit. Costs of continuation financing 
statements and site license and permit costs.
    (H) Expenses related to site utilities.
    (I) Site office furniture and equipment including site-based 
computer and copiers. Service agreements and warranties for copiers, 
telephone systems and computers are also included (if approved by the 
Agency).
    (J) Real estate taxes (personal tangible property and real property 
taxes) and expenses related to controlling or reducing taxes.
    (K) All costs of insurance including property liability and casualty 
as well as fidelity or crime and dishonesty coverage for on-site 
employees and the owners.
    (L) All bookkeeping supplies and recordkeeping items related to 
costs of collecting rents on-site.
    (M) All office supplies and copies related to costs of preparing and 
maintaining tenant files and processing tenant certifications to include 
electronic storage.
    (N) Public relations expense relative to maintaining positive 
relationships between the local community and the tenants with the 
management staff and the borrowers. Chamber of Commerce dues, 
contributions to local charity events, and sponsorship of tenant 
activities, are examples.
    (O) Tax credit compliance monitoring fees imposed by Housing Finance 
Authorities (HFAs).
    (P) All insurance deductibles as well as adjuster expenses.
    (Q) Professional service contracts (audits, owner-certified 
submissions in accordance with Sec. 3560.308(a)(2), tax returns, energy 
audits, utility allowances, architectural, construction, rehabilitation 
and inspection contracts, capital needs assessments (CNA), etc.).
    (R) Association dues to be paid by the project should be related to 
training for site managers or management agents. To the extent that 
association dues can document training for site managers or management 
agents related to project activities by actual cost or pro-ration, a 
reasonable expense may be billed to the project.
    (S) Legal fees if found not guilty of civil lawsuits, commercially 
reasonable legal expenses and costs for defending or settling lawsuits.
    (vii) With prior Agency approval, cooperatives and nonprofit 
organizations may use housing project funds to reimburse actual and 
typical asset management expenses directly attributable to ownership 
responsibilities. Such expenses may include:
    (A) Errors and omissions insurance policy for the Board of 
Directors. The cost must be prorated if the policy covers multiple 
Agency housing properties.
    (B) Board of Directors review and approval of proposed Agency's 
annual operating budgets, including proposed repair and replacement 
outlays and accruals. The cost must be prorated if the policy covers 
multiple Agency housing properties.
    (C) Board of Directors review and approval of capital expenditures, 
financial statements, and consideration of any management comments 
noted. The cost must be prorated if the policy covers multiple Agency 
housing properties.
    (D) The cost must be prorated if the policy covers multiple Agency 
housing properties.
    (viii) Agency approved third party debt service for the project.

[[Page 530]]

    (2) Unallowable expenses. Housing project funds may not be used for 
any of the following:
    (i) Equity skimming as defined in 42 U.S.C. 543(a);
    (ii) Purposes unrelated to the housing project;
    (iii) Reimbursement of inaccurate or false claims;
    (iv) Court ordered settlement agreements, court ordered decrees, 
legal fees, or other costs that result from the filing of civil rights 
complaints or legal action alleging the borrower, or a representative of 
the borrower, has committed a civil rights violation. It is 
inappropriate to charge for legal services to represent any interest 
other than the borrower's interest (i.e., representing a general partner 
or limited partner to defend their individual owner interest is not 
allowable);
    (v) Fines, penalties, and legal fees where the borrower or a 
borrower's representative has been found guilty of violating laws, 
including, but not limited to, civil rights, and building codes. 
Charging for payment of penalties including opposition legal fees 
resulting from an award finding improper actions on the part of the 
owner or management agent is generally an inappropriate project expense. 
The party responsible generally pays such expenses for violating the 
standards or by their insurance carriers;
    (vi) Association dues unless related to training for site managers 
or management agents. To the extent that association dues can document 
training for site managers or management agents related to project 
activities by actual cost or pro-ration, a reasonable expense may be 
billed to the project;
    (vii) Pay for bonuses or monetary performance awards to site 
managers or management agents that are not clearly provided for by the 
site manager salary contract;
    (viii) Billing for parties or gifts to management agent staff;
    (ix) Billing for practices that are inefficient such as routine use 
of collect calls from a site manager to a management agent office;
    (x) Billing the project for computer hardware, some software, and 
internal connections that are beyond the scope and size reasonably 
needed for the services supplied (i.e., purchasing equipment or software 
for use by a site manager that is clearly beyond that needed to support 
project operations). Note that computer learning center activities 
benefiting tenants are not covered in this prohibition; or
    (xi) Costs of tenant services.
    (c) Priorities. The priority order of planned and actual budget 
expenditures will be:
    (1) Senior position lienholder, if any;
    (2) Operating and maintenance expenses, including taxes and 
insurance;
    (3) Agency debt payments;
    (4) Reserve account requirements;
    (5) All accounts payable;
    (6) Other authorized expenditures; and
    (7) Return on owner investment.
    (d) Determining if expenses are reasonable. Generally, expenses 
charged to project operations, whether for management agent services or 
other expenses, must be reasonable, typical, necessary and show a clear 
benefit to the residents of the property. Services and expenses charged 
to the property must show value added and be for authorized purposes. If 
such value is not apparent, the service or expense should be examined.
    (1) Administrative expenses for project operations exceeding 23 
percent, or those typical for the area, of gross potential basic rents 
and revenues (i.e., referred to as gross potential rents in industry 
publications) highlight a need for closer review for unnecessary 
expenditures. Budget approval is required, and project resources may not 
always permit an otherwise allowable expense to be incurred if it is not 
fiscally prudent in the market.
    (2) Excessive administrative expenses can result in inadequate funds 
to meet other essential project needs, including expenditures for repair 
and maintenance needed to keep the project in sound physical condition. 
Actions that are improper or not fiscally prudent may warrant budget 
denial and/or a demand for recovery action.
    (e) Agency review and approval. (1) The Agency will only approve 
housing project budgets that meet the requirements of paragraphs (a) 
through (d) of this section.

[[Page 531]]

    (2) If no rent change is requested, borrowers must submit budget 
documents for Agency approval 60 calendar days prior to the start of the 
housing project's fiscal year. The Agency will notify borrowers if the 
budget submission does not meet the requirements of paragraphs (a) 
through (d) of this section. The borrower will have 10 days to submit 
the additional material.
    (3) If a rent change is requested, the borrower must submit budget 
documents to the Agency and notify tenants of the requested rent change 
at least 90 calendar days prior to the start of the housing project's 
fiscal year.
    (i) The Agency will notify borrowers if the budget submission does 
not meet the requirements of paragraphs (a) through (d) of this section, 
or if the rent and utility allowance request has been denied in 
accordance with Sec. 3560.205(f). The borrower will have 10 days to 
submit the additional material to address any issues raised by the 
Agency.
    (ii) The rent change is not approved until the Agency issues a 
written approval. If there is no response from the Agency within the 30-
day period, the rent change is considered automatic. The following 
budgets are not eligible for automatic approval:
    (A) Budgets with rent increases above $25 per unit; and
    (B) Budgets that are submitted late or that miss other deadlines set 
by the Agency.
    (4) If the Agency denies the budget approval, the Agency will notify 
the borrower in writing.
    (5) If budget approval is denied, the borrower shall continue to 
operate the housing project based on the most recently approved budget.

[87 FR 11283, Mar. 1, 2022]



Sec. 3560.304  Initial operating capital.

    (a) Purpose. To provide a source of capital for start-up costs, such 
as the purchase of equipment, and paying operating, maintenance, and 
debt service expenses. Borrowers are required to make an initial 
operating capital contribution to the general operating account as 
described in Sec. 3560.64.
    (b) Authorized uses of initial operating capital. Initial operating 
capital may be used only to pay for approved budgeted expenses.
    (c) Withdrawal of initial operating capital. Initial operating 
capital funds may be withdrawn by a borrower if:
    (1) The initial operating capital was provided from the borrower's 
own funds;
    (2) The borrower requests the withdrawal after the second year of 
housing project operations and prior to the 7th year of operations;
    (3) The housing project has had a 90 percent occupancy rate for a 
period of 12 months prior to the withdrawal request;
    (4) The withdrawal will not affect the financial viability of the 
housing project;
    (5) Contributions to the reserve account are at authorized levels;
    (6) The withdrawal request will not result in rent increases; and
    (7) There are no outstanding deficiencies in management's physical 
maintenance of the housing project.



Sec. 3560.305  Return on investment.

    (a) Borrower's return on investment. Borrowers may receive a return 
on their investment (ROI) in accordance with the terms of their loan 
agreement and the following:
    (1) If there is a positive net cash flow in housing project 
operations, the ROI may be taken by the borrower after the housing 
project's fiscal year, provided that the balance of the reserve account 
is equal to or greater than required deposits minus authorized 
withdrawals. If the annual financial reports indicate that an ROI should 
not have been taken, borrowers will be required to return any 
unauthorized ROI.
    (2) If there is negative cash flow in housing project operations, 
the Agency may authorize the borrower to take the ROI only after the 
Agency has reviewed the housing project's annual financial reports and 
determines:
    (i) Surplus cash exists in either the general operating account as 
defined in Sec. 3560.306(d)(1) or the reserve account, if the balance 
is greater than the required deposits minus authorized withdrawals.
    (ii) The housing project has sufficient funds to address identified 
capital or operational needs.

[[Page 532]]

    (b) Unpaid return on investment. An earned, but unpaid ROI for the 
previous year only may be requested by the borrower and authorized by 
the Agency under the provisions of Sec. 3560.305(a)(2) provided the 
current year's ROI has been paid first and a rent increase is not 
required to generate funds to pay the unpaid ROI.



Sec. 3560.306  Reserve account.

    (a) Purpose. To meet the major capital expense needs of a housing 
project, borrowers must establish and maintain a reserve account, unless 
escrowed by the Agency.
    (b) Financial management of the reserve account. Unless otherwise 
approved by the Agency, borrower management of the reserve account is 
subject to the requirements of 7 CFR part 1902, subpart A, regarding 
supervised bank accounts.
    (c) Funding of the reserve account. Borrowers must make payments to 
the reserve account in the amount established in loan documents, 
beginning with the first loan payment or a date specified in loan 
documents.
    (d) Transfer of surplus general operating account funds. (1) The 
general operating account will be deemed to contain surplus funds when 
the balance at the end of the housing project's fiscal year, after all 
payables and priorities, exceeds 20 percent of the operating and 
maintenance expenses. If the borrower is escrowing taxes and insurance 
premiums, include the amount that should be escrowed by year end and 
subtract such tax and insurance premiums from operating and maintenance 
expenses used to calculate 20 percent of the operating and maintenance 
expenses.
    (2) If a housing project's general operating account has surplus 
funds at the end of the housing project's fiscal year as defined in 
paragraph (d)(1) of this section, the Agency will require the borrower 
to use the surplus funds to address capital needs, make a deposit in the 
housing project's reserve account, reduce the debt service on the 
borrower's loan, or reduce rents in the following year. At the end of 
the borrower's fiscal year, if the borrower is required to transfer 
surplus funds from the general operating account to the reserve account, 
the transfer does not change the future required contributions to the 
reserve account.
    (e) Account requirements. Borrowers must establish and maintain the 
reserve account according to Sec. 3560.65, Sec. 3560.302(c)(5), and 
the following requirements:
    (1) Reserve accounts must be deposited in interest-bearing accounts 
or securities; and
    (2) Reserve accounts must be supervised accounts that require the 
Agency to approve all withdrawals; except, this requirement is not 
applicable when loan funds guaranteed by the Section 538 GRRH program 
are used for the construction and/or rehabilitation of a direct MFH loan 
project. Direct MFH loan borrowers, who are exempted from the supervised 
account requirement, as described in this section, must follow Section 
538 GRRH program regulatory requirements pertaining to reserve accounts. 
In all cases, Section 538 lenders must get prior written approval from 
the Agency before reserve account funds involving a direct MFH loan 
project can be disbursed to the borrower.
    (f) Funds invested in securities. In addition to the requirements 
specified in paragraph (e) of this section, the following requirements 
apply when reserve funds are invested in securities:
    (1) The reserve account must be held either at a Federally insured 
domestic institution such as a bank, savings and loan association, 
credit union, or at a domestic institution authorized to sell 
securities.
    (2) The borrower must record the price actually paid for the 
securities. When designated as a reserve deposit, the price paid must 
equal the required contribution to reserves.
    (3) Borrowers must be knowledgeable about industry practices and 
consider the impact of typical fees and charges for purchases and sales 
and maintenance of an account when making investment decisions. Such 
fees may be paid for out of reserves, only with the consent of the 
Agency. Housing project funds may not be used to pay for a financial 
advisor.
    (g) Use of the reserve account. (1) Borrowers must request Agency 
approval of reserve account withdrawals prior to

[[Page 533]]

the withdrawal. Borrowers must inform the Agency of planned uses of 
reserve accounts in their annual capital budget if known at budget 
planning time. Any item on the approved capital budget does not require 
additional pre-approval by the Agency.
    (2) Borrowers should include any needed capital improvements based 
on the needs identified in an Agency approved Capital Needs Assessment 
(if obtained) are completed within a reasonable timeframe.
    (3) The Agency will indicate any conditions governing withdrawals 
from a reserve account at the time it approves the withdrawal.
    (4) In emergency situations, the Agency may specify special 
procedures to provide an expedited approval process for the use of the 
reserve account.
    (5) The Agency may approve the use of reserve funds for operating 
costs when circumstances that are determined by the Agency to be beyond 
the borrower's control have resulted in a shortfall in the housing 
project's general operating account.
    (6) Funds from the replacement reserve account cannot be used to pay 
any fees associated with the Section 538 GRRH loan guarantee, as 
determined by the Agency.
    (h) Allowable uses. Allowable uses of reserve funds include the 
following:
    (1) Major capital improvements and replacements.
    (2) Housing project operating expenses provided the requirement of 
paragraph (g)(4) of this section has been met, including:
    (i) Payments due on the loan, or
    (ii) Payment of a return on investment at the end of the borrower's 
fiscal year if such payment comes from surplus operating funds in the 
reserve account.
    (3) With Agency approval, borrowers operating on a for-profit or a 
limited profit basis may make an annual withdrawal from the reserve 
account, equal to no more than 25 percent of the interest earned on a 
reserve account during the prior year.
    (4) For other purposes, which in the judgment of the Agency will 
promote the loan purposes, strengthen the security or facilitate, 
improve, or maintain the housing and the orderly collection of the loan 
without jeopardizing the loan or impairing the adequacy of the security.
    (i) Records. Borrowers must maintain records documenting all 
expenses that were paid by withdrawals from the reserve account.
    (j) Changes to reserve requirements. (1) As projects age, the 
required reserve account level may be adjusted to meet anticipated 
``life-cycle'' needs, including equipment and facility replacement 
costs, by amending the loan agreement/resolution.
    (2) The Agency will allow for an annual adjustment to increase 
reserve account funding levels by Operating Cost Adjustment Factor 
(OCAF) as published by HUD annually. This will require a modification to 
the Loan agreement and the increase documented with budget submission as 
outlined in Sec. 3560.303.
    (3) The Agency may approve a change in the reserve account funding 
level based on the findings of an approved capital needs assessment. The 
approval to increase reserve account funding levels will take into 
consideration the housing project's approved budget and the housing 
project's ability to support increased reserve account deposits without 
causing basic rents to exceed conventional rents for comparable units in 
the area.
    (k) Excess reserves. Amounts in the reserve account which exceed the 
total required by the loan or grant agreement must be used, at the 
direction of the Agency, for any of the following:
    (1) Pay for expenses specified in a long-term capital plan;
    (2) Make payments and reamortize the Agency loan;
    (3) Reduce rents by a transfer to the general operating account;
    (4) Fund preservation incentives authorized in subpart N of this 
part; or
    (5) Cover other expenditures determined to be related to the purpose 
of the housing project and in the best interest of the Federal 
Government.
    (l) Procurement. The requirements of Sec. 3560.102(g), (j), and 
(k), and all other Agency requirements relating to procurement, bidding, 
identity-of-interest, cost-reasonableness, and construction management 
apply to any work or services paid out of reserve funds.

[[Page 534]]

Structural repairs and other significant work on major building systems 
such as heating or air conditioning must be done in accordance with the 
requirements of 7 CFR part 1924, subpart A.

[69 FR 69106, Nov. 26, 2004, as amended at 80 FR 34532, June 17, 2015; 
87 FR 11285, Mar. 1, 2022]



Sec. 3560.307  Reports.

    (a) Required reports. Borrowers must submit required reports using 
Agency-approved formats.
    (b) Quarterly and monthly reports. The Agency may require quarterly 
or monthly reports to monitor financial progress when closer supervision 
is warranted.



Sec. 3560.308  Annual financial reports.

    (a) General. (1) For-profit borrowers that receive $500,000 or more 
in combined Federal financial assistance must include an independent 
auditor's report that includes, financial statements and notes to the 
financial statements, supplemental information containing Agency 
approved forms for project budgets and borrower balance sheets, a report 
on internal control over financial reporting and on compliance and other 
matters based on an audit of financial statements in accordance with 
Government Auditing Standards; a report on compliance for each major 
program and internal control over compliance (if applicable). Federal 
Financial Assistance is defined in accordance with 2 CFR 200.40.
    (2) Non-profit borrowers that receive $750,000 or more in combined 
Federal financial assistance must meet the audit requirements set forth 
by OMB, Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards, found at 2 CFR parts 200 and 400. 
Borrowers must provide a copy of this audit to RHS in compliance with 
these financial reporting requirements.
    (3) Non-profit borrowers that receive less than $750,000, and for-
profit borrowers that receive less than $500,000in combined Federal 
financial assistance will submit annual owner certified prescribed forms 
on the accrual method of accounting in accordance with the Statements on 
Standards for Accounting and Review Services promulgated by the 
Accounting and Review Services Committee of the American Institute of 
Certified Public Accountants (AICPA). Borrowers may use a CPA to prepare 
this compilation report of the prescribed forms.
    (b) Performance standards. All Borrowers must certify that the 
housing meets the performance standards below:
    (1) Required accounts are properly maintained and tracked 
separately;
    (2) Payments from operating accounts are disclosed and accurately 
represented on financial reports;
    (3) The reserve amount is at the authorized level and there are no 
encumbrances;
    (4) Tenant security deposit accounts are fully-funded and are 
maintained in separate accounts and meet state and local requirements;
    (5) Amount of payment of owner return was consistent with the terms 
of the applicable loan agreement;
    (6) The borrower has maintained proper insurance in accordance with 
the requirements of Sec. 3560.105(b); and
    (7) All financial records are adequate and suitable for examination.
    (8) There have been no changes in project ownership other than those 
approved by the Agency and identified in the certification.
    (9) Real estate taxes are paid in accordance with state and/or local 
requirements and are current.
    (10) Replacement Reserve accounts have been used for only authorized 
purposes.
    (c) Other financial reports. (1) Non-profit and public borrower 
entities subject to OMB Uniform Guidance: Cost Principles, Audit, and 
Administrative Requirements for Federal Awards, must submit audits in 
accordance with 2 CFR parts 200 and 400.
    (2) The Agency may require additional opinions of financial 
condition and compliance, such as audits, to assure the security of the 
asset, determine whether the housing project is being operated at a 
reasonable cost, or to detect fraud, waste, or abuse.

[[Page 535]]

    (3) Any audits independently obtained by the borrower also must be 
submitted to the Agency.

[69 FR 69106, Nov. 26, 2004, as amended at 82 FR 49286, Oct. 25, 2017]



Sec. 3560.309  Advancement (loan) of funds to a RRH project by the owner, member of the organization, or agent of the owner.

    (a) Prior written approval by the Servicing Office is required. Such 
advances may be authorized when justified by unusual short-term 
conditions. When conditions are not short-term in nature, a servicing 
plan may be developed and advances may be approved in accordance with 
the provisions set out in Sec. 3560.453 of this part. Justification 
will be based on the following:
    (1) A review of the documented circumstances and the project 
operating budget before any funds are advanced (loaned). The financial 
position of the project must not be jeopardized.
    (2) Funds are not immediately available from any of the following 
sources:
    (i) Reserve funds;
    (ii) Initial operating capital; and
    (iii) An imminent rent increase.
    (b) The funds will be applied to ordinary project operating and 
maintenance expenses.
    (c) Interest may be charged or paid on the loan from project income; 
however, interest must be reasonable. The proposal may be denied if 
Rural Development financing can be provided to resolve the problem in a 
more cost-effective manner.
    (d) No lien in connection with the loan will be filed against the 
property securing the Rural Development loan or against project income. 
The advance may show as an unsecured project liability on financial 
statements prepared for year-end reports until such time as it is 
authorized to be repaid.
    (e) The payback of the advance (loan) may be permitted by the 
Servicing Official provided the terms and conditions were mutually 
agreed to by the borrower and Rural Development at the time of the 
advance and the financial position of the project will not be 
jeopardized. Payback should only be permitted on the advance when the 
Rural Development debt is current and the reserve requirements are being 
maintained at the authorized levels.



Sec. Sec. 3560.310-3560.349  [Reserved]



Sec. 3560.350  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                       Subpart H_Agency Monitoring



Sec. 3560.351  General.

    This subpart contains policies for Agency monitoring of operations 
and management at multi-family housing (MFH) projects.



Sec. 3560.352  Agency monitoring scope, purpose, and borrower responsibilities.

    (a) Scope of Agency monitoring activities. The Agency will review 
reports, records, and other materials related to the housing project, 
including borrower financial reports, housing project records, and other 
communications. The Agency also will review material related to a 
housing project submitted by a tenant or other source. To assess 
conditions such as a housing project's physical condition, record 
keeping procedures, and operations and management activities, including 
borrower compliance with Federal, state, and local laws and Agency 
requirements, the Agency will conduct periodic on-site monitoring 
reviews of a housing project.
    (b) Purpose of Agency monitoring activities. Agency monitoring 
activities are designed to assess borrower and tenant compliance with 
Agency requirements, and to:

[[Page 536]]

    (1) Ensure housing projects are managed in accordance with the goals 
and objectives of the Agency's MFH programs and are maintained in 
accordance with Agency requirements for affordable, decent, safe, and 
sanitary housing;
    (2) Preserve the value of the Agency-financed housing projects;
    (3) Detect waste, fraud, and abuse in housing project operations or 
management and to ensure the cost of operations and management are 
necessary and reasonable;
    (4) Verify compliance with Affirmative Fair Housing Marketing 
requirements, Title VI of the Civil Rights Act of 1964, Title VIII of 
the Civil Rights Act of 1968, as amended, section 504 of the 
Rehabilitation Act of 1973, the Age Discrimination Act of 1975, 
Americans with Disabilities Act of 1990, other applicable Federal laws, 
and Agency requirements related to occupancy and tenant eligibility.
    (c) Borrower responsibilities. The borrower is responsible for 
cooperating fully and promptly with Agency monitoring activities. Agency 
monitoring activities do not diminish borrower operation and management 
responsibilities and do not relieve borrowers from any Agency 
requirements including, but not limited to, borrower requirements to 
comply with:
    (1) The terms of all agreements with the Agency, including the loan 
or grant agreement, assurance agreement, loan resolution, promissory 
note, mortgage, interest credit agreement, rental assistance agreement, 
mitigation measures contained in the environmental review document, and 
workout agreement;
    (2) The requirements contained in this part;
    (3) The requirements of Title VI of the Civil Rights Act of 1964, 
Title VIII of the Civil Rights Act of 1968, as amended; section 504 of 
the Rehabilitation Act of 1973, the Age Discrimination Act of 1975, 
Americans with Disabilities Act of 1990; and
    (4) Applicable Federal, state, and local laws.



Sec. 3560.353  Scheduling of on-site monitoring reviews.

    Generally, the Agency will provide the borrower prior notice of an 
on-site monitoring review and will conduct the on-site monitoring review 
in the presence of the borrower. However, the Agency may visit a housing 
project, without prior notice, to observe physical conditions, 
operations and management activities, or other borrower or tenant 
activities. In addition, the Agency may conduct on-site reviews without 
the presence of the borrower, the management agent, or other designated 
representative of the borrower.



Sec. 3560.354  Borrower response to monitoring review notifications.

    The Agency will notify borrowers, in writing, whenever Agency 
monitoring activities result in deficiency findings or compliance 
violations. The monitoring review notification will describe the 
deficiencies findings or compliance violations and will specify a time 
period by which corrective action must be taken by the borrower. The 
notification will offer borrowers an opportunity to discuss the reported 
deficiency findings or compliance violations with the Agency and will 
explain enforcement actions that the Agency may take if corrective 
action is not taken within the time period specified in the monitoring 
review notification. When civil rights non-compliance is found, the 
State Civil Rights Coordinator or Manager (SCRC/M) will be notified. If 
voluntary compliance cannot be obtained, appropriate enforcement or 
remedial action will be taken.



Sec. Sec. 3560.355-3560.399  [Reserved]



Sec. 3560.400  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of

[[Page 537]]

information. A person is not required to respond to a collection of 
information unless it displays a currently valid OMB control number.



                           Subpart I_Servicing



Sec. 3560.401  General.

    (a) Purpose. This subpart contains actions the Agency may take to 
service and collect loans or other debts owed by multi-family housing 
(MFH) borrowers. The loan servicing and other actions set forth are 
designed to protect Agency and tenant interests and assist borrowers in 
meeting program objectives.
    (b) General servicing policies. Borrowers must repay loans or other 
amounts due to the Agency according to provisions specified in 
promissory notes, loan agreements and resolutions, mortgages, deeds-of-
trust, assumption agreements, reamortization agreements, or other 
agreements executed between the borrower and the Agency.
    (c) Special servicing actions. The Agency will not agree to any 
proposal for loan servicing or debt collection action other than actions 
consistent with this section, debt instruments, and other agreements. 
When payments due to the Agency from a borrower remain unpaid for more 
than 30 days after the due date, past due, after the Agency may initiate 
the special servicing actions described in subpart J of this part.



Sec. 3560.402  Loan payment processing.

    (a) Predetermined Amortization Schedule System (PASS) requirements. 
All loans, except the loans specified in paragraph (c) of this section, 
must be closed and serviced using the PASS.
    (b) Required conversion to PASS. Borrowers with Daily Interest 
Accrual System (DIAS) accounts must convert to PASS with any loan 
servicing action.
    (c) Exceptions. Seasonal farm labor housing loans and on-farm labor 
housing loans may be closed on DIAS, monthly, or annual payment 
schedules.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11286, Mar. 1, 2022]



Sec. 3560.403  Account servicing.

    (a) Payment due dates. Loan or other payments due to the Agency are 
due on the first day of each month unless otherwise established in the 
debt instrument or other agreement executed with the Agency.
    (b) Payment application order. Loan payments will be applied to the 
borrower's account in the following order of priority:
    (1) Amortized audit receivables. (i.e., amounts due to the Agency, 
over a period of time, as a result of a finding from an audit or other 
monitoring activity.)
    (2) Unamortized audit receivables. (i.e., amounts due to the Agency, 
in a lump sum payment, as a result of a finding from an audit or other 
monitoring activity.)
    (3) Late fees. (i.e., amounts due to the Agency as a result of late 
payments.)
    (4) Amortized recoverable costs. (i.e., amounts due to the Agency, 
over a period of time, as a result of Agency payments made on behalf of 
a borrower for housing project related expenses such as taxes or 
insurance premiums.)
    (5) Unamortized recoverable costs. (i.e., amounts due to the Agency, 
in a lump sum payment, as a result of Agency payments made on behalf of 
a borrower for housing project related expenses such as taxes or 
insurance premiums.)
    (6) Overage. (i.e., amounts due to the Agency as a result of a 
tenant's tenant contribution being higher than basic rent.)
    (7) Interest. (i.e., amounts due to the Agency as a result of 
scheduled interest on a loan and as a result of interest charged on 
unpaid delinquent principal amounts.)
    (8) Principal. (i.e., amounts due to the Agency as the loan 
principal.)
    (9) Advance payments. (Any funds remaining after disbursement of a 
payment to all other payment priorities will be applied to the 
borrower's account as an advance regular payment unless a borrower 
specifically designates, in writing, another application.)
    (c) Late fees. If payments on a borrower's account, under PASS, are 
more than $15 delinquent after the close of

[[Page 538]]

business on the 10th day after the payment due date, a late fee will be 
charged to the borrower's account.
    (1) Late fees charged to a borrower's account will equal 6 percent 
of the total regular payments due as specified in any promissory notes, 
assumption agreements, or reamortization agreements related to the 
borrower's account.
    (2) Late fees are a borrower expense and must not be paid from 
housing project funds.
    (3) The Agency may waive late fees for circumstances beyond a 
borrower's control and when a waiver is determined by the Agency to be 
in the best financial interest of the Federal Government.
    (d) Interest on unpaid overdue principal. On the first day of the 
month following a payment due date, the Agency will charge interest at 
the note rate on any unpaid principal payment due according to the 
loan's amortization schedule (i.e., interest will be charged on 
delinquent principal). The interest charged on the unpaid principal 
payment due will be charged to the borrower in addition to the scheduled 
interest due on payments according to the loan's amortization schedule.



Sec. 3560.404  Final loan payments.

    (a) Payoff statements. At the borrower's request, the Agency will 
provide a statement indicating the pay off amount necessary to pay the 
borrower's account in full.
    (b) Final payments. A borrower's final loan payment must include 
repayment of all outstanding obligations to the Agency.
    (1) Any supervised funds being held by the Agency will be applied to 
the borrower's account or, at the borrower's option, will be returned to 
the borrower following acceptance of final payment on all outstanding 
obligations.
    (2) If a balance due remains on a borrower's account after Agency 
acceptance of a final payment, due to borrower error or fraud or Agency 
error, the Agency will initiate collection action in accordance with the 
unauthorized assistance collection procedures described in subpart O of 
this part.
    (c) Final payment loans. Borrowers with loans for which the Agency 
approved an amortization period that exceeded the term of the loan may 
request a loan to finance the final payment in accordance with the 
requirements of Sec. 3560.74.
    (d) Loan prepayment requests. If prepayment of an Agency loan is 
requested, the applicable preservation requirements of subpart N of this 
part, including the execution of any appropriate restrictive-use 
agreements, must be met prior to the Agency's acceptance of a final loan 
payment under the prepayment request.
    (e) Payment forms. Final payments may be made by cashier's check, 
certified check, money order, bank draft, or other withdrawal 
instruments approved by the Agency.
    (1) If borrowers use forms of payment requiring special handling, 
the borrower is responsible for the cost of the special handling.
    (2) When payment is provided in a form that is not the equivalent of 
cash, the Agency will consider the payment to be received at the time 
the payment has been converted to cash and funds have been transferred 
to the Agency.
    (f) Release of security instruments. The Agency will release 
security instruments, subject to applicable restrictive-use agreements 
referenced in subpart N of this part, when full payment of all 
outstanding obligations to the Agency has been received, accepted, and 
the funds have been transferred to the Agency.
    (1) If the Agency and the borrower agree to settle an account for 
less than the full amount owed, the Agency will release security 
instruments when the borrower has paid in full all agreed upon 
obligations.
    (2) Recording costs for the release of the security instruments will 
be the responsibility of the borrower, except where state law requires 
the mortgagee to record or file the satisfaction.
    (g) Special circumstances--Refund of entire principal. If the entire 
principal of the loan is refunded after the loan is closed, the borrower 
must pay interest from the date of the note to the date of receipt of 
the refund.

[[Page 539]]



Sec. 3560.405  Borrower organizational structure or ownership interest changes.

    (a) General. The requirements of this section apply to changes in a 
borrower entity's organizational structure or to a change in a borrower 
entity's controlling interest. If 100 percent of a borrower entity's 
ownership interest is transferred, within a 12-month period, the change 
will be considered a housing project transfer and the provisions of 
Sec. 3560.406, which covers transfers or sales of housing projects, 
will apply.
    (b) Agency requirements. Borrowers must notify the Agency prior to 
the implementation of any changes in a borrower entity's organizational 
structure. The Agency must give its consent prior to the implementation 
of changes in a borrower entity's controlling interest.
    (1) Borrowers must submit written requests for Agency consent to the 
Agency at least 45 days prior to the anticipated effective date of the 
proposed organizational change. The request must document that the 
proposed changes will not adversely affect the program purposes or 
security interest of the Agency and will not adversely affect tenants.
    (2) If the controlling interest change involves a transfer of 
interest to an entity not previously holding an ownership interest in 
the borrower entity, the request for consent must include a written 
certification, executed by the party receiving the ownership interest, 
certifying that the recipient of the ownership interest agrees to assume 
responsibilities and obligations required of a borrower as established 
in Agency program requirements including requirements in the promissory 
note, loan agreement, or other document related to Agency loans held by 
the borrower entity.
    (3) The Agency will not take a consent request for a controlling 
interest change under consideration if the borrower's request fails to 
meet the requirements specified in paragraph (b)(2) of this section.
    (c) Documentation of organizational structures and ownership 
interest. Borrowers must annually document their organizational 
structure and ownership.
    (1) Documentation must be submitted with the annual financial 
reports required by Sec. 3560.308 and must reflect any changes made 
during the 12-month period preceding the submission of the annual 
financial reports.
    (2) If no changes in a borrower entity's organizational structure or 
ownership were made during the 12-month period prior to submission of 
the annual financial reports, borrowers are not required to submit 
documentation, but must submit a statement certifying that no changes 
have been made in the documents on file with the Agency.
    (3) Organizational structure and ownership documentation must 
include the following items:
    (i) A current organization description reflecting all approved 
changes in the organizational structure of the borrower entity and 
listing the names, addresses, and tax identification numbers of all 
parties with an ownership interest in the borrower entity; and
    (ii) A written statement by the borrower certifying that the changes 
in the borrower entity's organizational structure or ownership interests 
were completed in compliance with state and local laws and in accordance 
with organizational requirements of the borrower entity.



Sec. 3560.406  MFH ownership transfers or sales.

    (a) General. The provisions of this section apply to ownership 
transfers or sales (e.g., title transfers) involving an Agency financed 
housing project. The provisions cover situations where Agency loans are 
being assumed as a part of a housing project transfer or sale.
    (b) Agency consent requirements. Agency consent must be obtained 
prior to an ownership transfer or sale and Agency consent will only be 
given when the transfer or sale is in the best interest of the Federal 
Government. Any ownership transfer or sale without the consent of the 
Agency will be considered a default and will be handled in accordance 
with subpart J of this part.
    (1) Priority consideration will be given to ownership transfers or 
sales needed to remove a hardship to the

[[Page 540]]

borrower that was caused by circumstances beyond the borrower's control.
    (2) Ownership transfers or sales with an assumption of debt at an 
amount less than the borrower's debt amount will only be approved by the 
Agency when all persons in the borrower entity who are transferring 
their ownership interest or are involved in the selling of the property 
are not part of the transferee organization.
    (c) Consent request requirements. Borrowers must submit written 
requests for Agency consent to an ownership transfer or sale of a 
housing project to the Agency at least 45 days prior to proposed 
ownership transfer or sale date. The consent request must document that 
the proposed transfer or sale meets the requirements of paragraph (d) of 
this section and must include the following items:
    (1) A statement disclosing any identity-of-interest between the 
borrower and the party to which the housing project ownership is being 
transferred or sold.
    (2) A statement certifying that the housing project's financial 
accounts are funded at required levels, less authorized withdrawals, and 
that payments due for operation and maintenance expenses, tax 
assessments, insurance premiums, any required tenant security deposit 
accounts, and other obligations incurred as a part of the housing 
project operations are paid in full with no overdue balances or a 
statement explaining the housing project's financial situation and the 
reasons for overdue payments or under funded accounts.
    (3) A proposed housing project budget covering the partial year, if 
applicable, and first full year operation following the ownership 
transfer or housing project sale.
    (4) A written statement, signed by the proposed transferee or buyer, 
certifying that the transferee or buyer will assume the borrower 
responsibilities and obligations specified in Agency program 
requirements including requirements in a promissory note, loan agreement 
or other documents related to Agency loans held by the borrower entity.
    (5) A certification from the borrower and the proposed transferee or 
buyer that the borrower does not and will not have a reversionary 
interest in the housing project.
    (d) Requirements for ownership transfers or sales. An ownership 
transfer or sale of a housing project with an assumption of Agency loans 
by the transferee or buyer must comply with the following conditions:
    (1) The transferee or buyer must be an eligible borrower under the 
requirements established by subpart B of this part;
    (2) The transferee or buyer must agree to set basic rents at the 
housing project covered by the assumed loans at levels that do no exceed 
conventional rents for comparable units in the area, except that when 
determined necessary by the Agency to allow for decent, safe and 
sanitary housing to be provided in market areas where conventional rents 
are not sufficient to cover necessary operating, maintenance, and 
reserve costs. Basic rents may be allowed to exceed comparable rents for 
conventional units, but in no case by more than 150% of the comparable 
rent for conventional unit rent level; and
    (3) The value of the housing project covered by the loans to be 
assumed, at the time of an ownership transfer or sale, must be 
sufficient to ensure that all Agency loans being assumed and all 
subsequent loans being offered as a part of the transfer or sale can be 
secured to a level that fully protects the Agency's interest. Loans from 
third-party sources that are not dependent on project revenue for 
payment will not be included in this determination.
    (i) If the total value of the loans being offered as a part of an 
ownership transfer or sale is $100,000 or less, the security value of 
the housing project may be determined through either: An Agency review 
of monitoring reports conducted in accordance with the requirements in 
subpart H of this part or an appraisal paid for by the borrower and 
conducted in accordance with subpart P of this part.
    (ii) If the total value of the loans being offered as a part of an 
ownership transfer or sale exceeds $100,000, the security value of the 
housing project

[[Page 541]]

must be determined through an appraisal obtained by the Agency and 
conducted in accordance with subpart P of this part.
    (iii) The Agency may approve a loan write-down, in accordance with 
Sec. 3560.455, prior to an ownership transfer or sale to reduce the 
amount of debt being assumed by the transferee or buyer.
    (4) Prior to Agency approval of an ownership transfer or sale, the 
appropriate level of environmental review in accordance with 7 CFR part 
1970 must be completed by the Agency on all property related to the 
ownership transfer or sale. If releases of or contamination from 
hazardous substances or petroleum products is found on the property, the 
finding must be disclosed to the Agency and the transferee or buyer and 
must be taken into consideration in the determination of the housing 
project's value.
    (5) All immediate and long-term repair and rehabilitation needs must 
be identified by a capital needs assessment. The reserve requirements 
for the housing project will be reviewed by the Agency and adjusted, if 
necessary, to adequately cover the cost of addressing the property's 
capital needs. The Agency may approve the release of the current reserve 
amount to the transferor provided the transferee agrees to deposit the 
amount to cover the project's immediate needs into the reserve account 
at closing.
    (6) The borrower and transferee must disclose to the Agency all 
terms, conditions, or other considerations related to the ownership 
transfer or sale. All side or other agreements must be disclosed and all 
sources and uses of funds related to the ownership transfer or sale must 
be disclosed.
    (7) An agreement must be signed between the borrower and the 
transferee listing all repairs known by the borrower to be necessary to 
bring the housing project into compliance with Agency requirements for 
decent, safe, and sanitary housing as listed in subpart C of this part.
    (i) The agreement must include repairs required to correct 
compliance violations cited in a compliance violation notice issued by 
the Agency.
    (ii) The agreement must specify whether each repair listed will be 
completed by the borrower prior to the ownership transfer or by the 
transferee in accordance with a workout agreement developed in 
accordance with the requirements of Sec. 3560.453 and executed between 
the transferee or buyer and the Agency.
    (8) A civil rights compliance review, as required by 7 CFR part 
1901, subpart E, will be conducted by the Agency prior to the ownership 
transfer or sale.
    (9) During or immediately after the transfer, a review of the 
property must be conducted to ensure that it complies with or will 
comply with section 504(c) of the Americans with Disabilities Act (ADA), 
which covers accessibility requirements, and the Title VI of the Fair 
Housing Act of 1968.
    (10) A transferee must ensure that tenant certifications in 
compliance with subpart D of this part for all occupied rental units are 
on file with the Agency.
    (11) A transferee must comply with insurance and bonding 
requirements established in subpart C of this part at the time of the 
transfer.
    (12) A transferee must agree to submit financial reports to the 
Agency according to subpart G of this part.
    (13) A transferee must establish that there are no liens, judgments, 
or other claims against the housing project other than those by the 
Agency and those to which the Agency has previously agreed.
    (14) A limited profit Rural Rental Housing transferee's initial 
investment and return on investment will remain the same as that 
originally provided to the transferor unless:
    (i) The property is transferred to a non-profit entity and the 
return on investment is eliminated; or
    (ii) The transferee contributes additional funds for repair or 
rehabilitation and the Agency agrees to recognize a higher initial 
investment.
    (e) Equity payments. The Agency will withhold any equity payment due 
to the borrower, as part of an ownership transfer or sale, if any of the 
following conditions exist:
    (1) The borrower's indebtedness to the Agency has not been paid in 
full or is not being assumed by the transferee.

[[Page 542]]

The Agency will require that all or part of an equity payment be applied 
against other Agency loans owed by the borrower if payments on the other 
loans are not current.
    (2) Any non-Agency prior liens against a housing project are not 
paid in full.
    (3) Any housing project financial accounts are not funded at 
required levels, less authorized withdrawals, or any payments due for 
operation and maintenance expenses, tax assessments, insurance premiums, 
tenant security deposits or other obligations incurred as a part of 
housing project operations are not paid in full.
    (4) Any management deficiencies cited in a compliance violation 
notice issued by the Agency to the borrower have not been corrected or 
the housing project is not operating under an approved management plan 
or, if applicable, an approved management agreement.
    (5) Any operation and maintenance deficiencies cited in compliance 
violation notices issued by the Agency have not been corrected or are 
not scheduled for correction in a workout agreement developed in 
accordance with the requirements of Sec. 3560.453.
    (6) The borrower entity is, at the time of the ownership transfer or 
sale, cited by the Agency or other Federal, state, or local agencies for 
violations of Fair Housing or Equal Opportunity requirements.
    (7) The borrower entity is, at the time of the ownership transfer or 
sale, cited by the Agency or any other entity involved in the financing 
of the housing project for misappropriation of funds.
    (f) Equity payment funding sources. Equity may be provided in cash 
or through a loan. If a full equity payment to the transferor is not 
paid at the time of the ownership transfer or sale or has not been paid 
through an Agency equity loan or third-party equity loan approved by the 
Agency to the borrower, the transferee must certify that equity payments 
due to the borrower will be paid from sources other than housing 
project's funds and must identify the sources of such payments.
    (g) Restrictive-use requirement. Transferees assuming Agency loans, 
including loans approved prior to December 21, 1979, will be required to 
execute a restrictive-use agreement that contains the language specified 
in Sec. 3560.662. The restrictive-use agreement will require the 
housing project to be used for program purposes for a specified period 
of time beyond the date that the ownership transfer or sale is closed. 
When an equity loan is involved at the time of transfer, the 
restrictions will be for 30 years.
    (h) Subsequent loans. The Agency may approve a subsequent loan or 
permit a loan from a third-party source in conjunction with an ownership 
transfer or sale of a housing project. The subsequent loan may be in the 
form of a junior or parity lien.
    (1) Subsequent loans on a housing project proposed in conjunction 
with an ownership transfer or sale must be requested and processed in 
accordance with the Agency loan origination requirements in subpart B of 
this part.
    (2) The Agency may amortize the subsequent loan over a period not to 
exceed the remaining economic life of the housing or 50 years, whichever 
is less.
    (3) The Agency may extend the term of the existing loan to a period 
not to exceed 30 years or the remaining economic life of the housing, 
whichever is less.
    (i) Loan assumption interest rates. The interest rate for Agency 
loans assumed in conjunction with an ownership transfer or sale will be 
determined as follows:
    (1) The interest rate for all loans, except farm labor housing 
loans, will be set at the lower of:
    (i) The note rate of the existing Agency loan;
    (ii) The Agency note rate on the day the transfer is approved;
    (iii) The Agency note rate on the day the transfer is closed; or
    (iv) If the rents are increased due to a transfer, the transfer will 
be done under new rates and terms when the Agency determines that it is 
in the best interest of the government. Subsequent loan may be in the 
form of a senior, junior or parity lien or soft second.

[[Page 543]]

    (2) The interest rate on farm labor housing loans will be the rate 
specified in the note, except that loans transferred to public bodies, 
nonprofit organizations of farm workers, and broadly-based nonprofit 
corporations for farm labor housing purposes may be at a one percent 
interest rate regardless of the rate specified in the note if the Agency 
determines that such a reduction is necessary to maintain affordable 
rental rates for tenants.
    (j) Loan assumption terms. The amount of the loan balance that may 
be assumed through an ownership transfer or sale must not exceed the 
security value of the housing project determined according to Sec. 
3560.406(d)(3)(i).
    (1) The Agency may reamortize a loan assumed through an ownership 
transfer or sale over a period not to exceed the remaining economic life 
of the housing or 50 years, whichever is less.
    (2) The Agency may extend the term of the loan to a period not to 
exceed 30 years or the remaining economic life of the housing, whichever 
is less.
    (3) When loans assumed through an ownership transfer or sale are 
amortized on an annual payment basis, the loans will be converted, at 
the time of the transfer or sale, to a monthly payment amortization and 
will be made subject to PASS. When on- or off-farm labor housing 
projects are involved in an ownership transfer or sale, the related 
loans may be transferred on a DIAS basis or converted to PASS if the 
Agency determines that such a conversion will not be detrimental to the 
operation of the farm labor housing.
    (k) Processing ownership transfers or sales. (1) At the time of the 
transfer, the Agency will require the borrower to transfer all 
equipment, related facilities, and housing project financial accounts to 
the transferee including the operation and maintenance account, reserve 
account, tenant security deposit account, tax and insurance escrow 
accounts.
    (i) Any funds remaining in a rental assistance contract not 
dispersed by the transferor will be assigned to the transferee unless 
the rental assistance is not needed for tenants or another form of 
rental subsidy is to be used.
    (ii) Any rental assistance determined to be unnecessary will be 
reassigned to other housing projects in accordance with the provisions 
of subpart F of this part.
    (2) The Agency will require that appropriate loan documents are 
executed by the transferee. The Agency may require such documents to be 
referenced in security instruments (e.g., mortgage or deed of trust).
    (3) If all of a borrower's outstanding Agency debt is not assumed or 
paid off at the time of the transfer or sale, the Agency will not 
release a borrower from liability unless the Agency determines that the 
borrower is unable to pay the remaining debt from assets taken as 
security through the debt settlement procedure in accordance with Sec. 
3560.457.
    (l) Ownership transfers or sales under special rates, terms, and 
conditions. Housing projects may be transferred or sold to entities that 
do not meet borrower eligibility requirements for the type of loans 
being assumed. However, such a transfer or sale will only be considered 
when it is determined by the Agency to be in the best interest of the 
Federal Government and the objectives of the original loan can no longer 
be met. The following special rates, terms, and conditions will apply to 
such situations.
    (1) The transferee makes a down payment of at least 10 percent of 
the remaining loan balance to be assumed.
    (2) The transferee has the ability to pay the Agency debt.
    (3) Monthly or annual installments will be amortized over the term 
of the loan and the interest rate will be at a rate of interest at least 
one percent higher than the interest rate offered to eligible borrowers 
as specified in paragraphs (i)(1) or (2) of this section.

[69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016]



Sec. 3560.407  Sales or other disposition of security property.

    (a) General. Borrowers must obtain Agency approval prior to selling 
or exchanging all or a part of, or an interest in, property serving as 
security for Agency loans. Agency approval also must be requested and 
received prior to the granting or conveyance of rights-of-way through 
property serving as security property. Agency approvals of

[[Page 544]]

sales or other dispositions of security property are not subject to the 
requirements outlined in 7 CFR part 1970.
    (b) Request requirements. Requests for Agency approval of 
transactions related to security property must document that the 
following conditions will be met.
    (1) The borrower's ability to repay the Agency debt will not be 
impaired;
    (2) The transaction will not interfere with the successful operation 
of the housing project or prevent the borrower from carrying out the 
purpose for which the loan was made.
    (3) The monetary or other consideration offered in the transaction 
is equal to or greater than the market value of the security property 
being disposed of or the rights being granted, except that right-of-way 
easements may be granted or conveyed with minimal or no consideration 
being offered if:
    (i) The value of the security property will not be reduced;
    (ii) The suitability of the security property for the intended 
purpose will not be impaired; and
    (iii) The easement is granted to allow the borrower to develop 
additional lots or units that will be integrated into the housing 
project or for enhancement of streets, utilities or other services 
provided by a public body.
    (4) The property that will remain as security for Agency loans, 
after any transaction related to security property, will fully secure 
the borrower's debt to the Agency.
    (5) Borrowers must report to the Agency the total of all proceeds 
derived from the sale or other disposition of property serving as 
security for Agency loans. The proceeds from the disposition of the 
security property will be used for purposes approved by the Agency.

[69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016]



Sec. 3560.408  Lease of security property.

    (a) General. Borrowers must obtain Agency approval prior to entering 
into a lease agreement related to any property serving as security for 
Agency loans. Agency approvals of lease agreements are considered loan 
servicing actions under 7 CFR part 1970, and as such do not require 
additional NEPA analysis and documentation.
    (b) Leases to public housing authorities. Borrowers may not lease 
all or part of their housing facilities to a housing authority. Lease 
agreements in place prior to the effective date of this regulation may 
be continued provided that leases are in a form acceptable to the 
housing authority and are on terms that will enable the borrower to 
comply with Agency program requirements, to meet Agency program 
objectives, and make loan and other required payments to the Agency on 
an Agency approved schedule.
    (c) Lease of a portion of the security property. The Agency may, 
subject to the applicable provisions governing loan purposes found in of 
Sec. 3560.53, Sec. 3560.553 and Sec. 3560.603, approve the leasing of 
facilities related to a housing project (e.g., central kitchens, 
recreation facilities, laundry rooms, and community rooms) when the 
borrower will continue to operate the facilities for the purposes for 
which the loan was made. Agency approval is not required for leases with 
a term of less than 30 days. The Agency will only approve a lease with a 
term over 30 days if the following conditions are met:
    (1) The lease is in the best interest of the borrower, the tenants, 
and the Federal Government.
    (2) The amount of the consideration agreed to in the lease is 
adequate to pay all prorated operating and maintenance expenses, a 
prorated share of the annual reserve deposit, and the prorated part of 
the loan amortization at the note rate of interest.
    (3) All compensation and considerations, whether payments, a share 
of proceeds, or improvements to the property paid for by the lessee, 
must be disclosed to the Agency. No payments or compensation for 
entering into a lease shall flow to the borrower or any identity-of-
interest related to the borrower.
    (4) The lease provides at its termination for the restoration of the 
leased space to its original condition or a condition acceptable to the 
owner and the Federal Government.

[[Page 545]]

    (5) Consent to the lease will not exceed 3 years at a time unless 
the Agency determines that a longer lease is advantageous to the 
borrower, the tenants, and the Federal Government.
    (6) When another lienholder's mortgage requires that lienholder's 
consent to a lease, the borrower must obtain written consent from the 
lienholder before the Agency will consider approving the lease.
    (d) Mineral leases. Mineral leases will be handled according to 7 
CFR 3550.159 except that all references to County Supervisor will be 
construed to mean District Director when applied to the MFH Programs.

[69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016]



Sec. 3560.409  Subordinations or junior liens against security property.

    (a) General. Borrowers must obtain Agency consent prior to entering 
into any financial transaction that will require a subordination of the 
Agency security interest in the property, or lien subordination, (i.e., 
granting of a prior interest to another lender.) Prior to Agency 
consent, environmental review requirements must be completed in 
accordance with 7 CFR part 1970. Borrowers must use an Agency approved 
lien subordination agreement.
    (1) If a lien is placed against property serving as security for an 
Agency loan without prior Agency consent, the Agency will declare the 
borrower to be in default and will pursue liquidation of the borrower's 
loans in accordance with the procedures specified in Sec. 3560.457, 
unless an agreement can be reached between the borrower and the Agency 
to work out removal of the lien or post approve the lien.
    (2) Subordinations or junior liens need not encompass the entire 
site, (e.g., a subordination or junior lien requested to permit an 
interim lender to advance construction funds may only cover the portion 
of the site proposed for construction.)
    (3) The subordination or junior lien must be for a specific amount.
    (4) The subordination or junior lien must not adversely impact the 
Agency's ability to service the loan according to the requirements of 
this part.
    (b) Consent request requirements. Borrowers proposing to have the 
Agency subordinate its interest to another lender or to give a creditor 
a junior lien against property serving as security for an Agency loan 
must submit a consent request to the Agency. The consent request must 
document the following:
    (1) The action will enable the borrower to obtain financial 
resources for improvements or repairs on the security property that are 
consistent with the purposes of the Agency loan secured by the property.
    (2) The action will not adversely impact the borrower's financial 
condition and the borrower's ability to repay the Agency loan being 
secured by the property.
    (3) The action will not result in basic rents at the security 
property that exceed conventional rents for comparable units in the 
area.
    (4) The terms and conditions of the credit to be secured by the 
subordination or junior lien are not expected to adversely affect the 
borrowers ability to meet the terms and conditions of the Agency loan 
secured by the property.
    (5) The proposed use of the funds obtained through the granting of a 
subordination or junior lien will not adversely affect the borrower's 
ability to meet Agency program requirements or to operate and manage the 
housing project in a manner consistent with program objectives.
    (6) The creditor receiving the ``subordination'' of interest in the 
property or the junior lien will agree that a foreclosure or acceptance 
of a deed-in-lieu of foreclosure will not be initiated without at least 
30 days prior notice to the Agency.
    (7) The subordination or junior lien is not being secured with any 
funding from housing project financial accounts.
    (8) The ``subordination'' of interest or junior lien will not cause 
the debt from all sources to exceed the value of the security property.
    (9) The transaction related to the placement of a ``subordination'' 
of interest or junior lien against the property serving as security for 
an Agency

[[Page 546]]

loan is in the best interest of the Federal Government.
    (c) Required conditions for subordinations and junior liens. 
Subordinations of interest in or junior liens against property serving 
as security for an Agency loan may be approved by the Agency only if 
they improve a borrower's financial condition and allow for improvements 
or repairs that are consistent with the purposes of the Agency loan 
secured by the property.
    (1) Farm Labor Housing loans on farm tracts may be subordinated for 
essential farm improvements and operations.
    (2) Any proposed development must be planned and performed according 
to 7 CFR part 1924, subpart A, or in a manner directed by the other 
lienholder that meets the objectives of 7 CFR part 1924, subpart A.
    (d) Other liens against a property or other assets. (1) Borrowers 
must not enter into any agreements to place a lien on a housing project 
or any equipment related to a housing project without prior Agency 
approval and unless the following conditions are met:
    (i) The transaction will not adversely affect the Agency's security 
position;
    (ii) The lien is not related to a non-program eligible action;
    (iii) The items to be acquired by the funding related to the lien is 
needed for the operation of the property; and
    (iv) The financing arrangements are otherwise sound.
    (2) In cases where the above criteria are met, borrowers must 
complete and provide the Agency a copy of the financing statement, loan 
document, or contract, as applicable, as well as a security agreement 
acceptable to the Agency.

[69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016]



Sec. 3560.410  Consolidations.

    (a) General. With Agency approval, loans, loan agreements, or loan 
resolutions may be consolidated to reduce the administrative burden 
(i.e., record keeping, budgeting), to improve the cost effectiveness and 
efficiencies of housing project operations, and to effectively utilize 
facilities common to housing projects.
    (b) Loan consolidations. Loan consolidations will only be considered 
when:
    (1) Multiple loans to the one borrower entity are being transferred 
to a different borrower entity in accordance with Sec. 3560.406, or
    (2) One borrower entity has an initial loan and one or more 
subsequent loans for the same housing project and all the loans were 
closed on the same date and with the same rates and terms.
    (c) Loan agreement or loan resolution consolidations. Loan 
agreements or loan resolutions may be consolidated, even if the loans 
related to the agreement or resolution are not consolidated, to allow 
borrowers to comply with reporting, accounting, and other Agency 
requirements as a single housing project.
    (1) The loan agreements or loan resolutions may only be consolidated 
when they are related to loans made for the same purposes, to the same 
borrower, and operating under the same type of interest credit, if 
applicable.
    (2) All of a borrower's loan accounts must be current after the loan 
agreement or loan resolution consolidation is processed, unless 
otherwise approved by the Agency.



Sec. Sec. 3560.411-3560.449  [Reserved]



Sec. 3560.450  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



Subpart J_Special Servicing, Enforcement, Liquidation, and Other Actions



Sec. 3560.451  General.

    This subpart contains special servicing, enforcement, liquidation, 
and

[[Page 547]]

other actions that the borrower may request or the Agency may implement 
when compliance violations, monetary defaults, or non-monetary defaults 
cannot be resolved through regular servicing.
    (a) Agency obligations. The Agency is under no obligation to offer 
or agree to any special servicing actions.
    (b) Relationship to workout agreements. Special servicing actions 
may be implemented either as a part of a workout agreement, developed in 
accordance with Sec. 3560.453, or as an action approved by the Agency 
separate from a workout agreement unless indicated otherwise in this 
subpart.



Sec. 3560.452  Monetary and non-monetary defaults.

    (a) General. Borrowers are in default when they have received a 
compliance violation notice, issued in accordance with Sec. 3560.354, 
and have failed to correct the compliance violation identified in the 
compliance violation notice within the time period specified in the 
notice. Compliance violations include, but are not limited to, 
violations of promissory note provisions, loan or grant agreement 
provisions, regulatory, or other Agency requirements, including 
requirements imposed on a borrower through a workout agreement developed 
in accordance with Sec. 3560.453.
    (b) Monetary defaults. A monetary default exists when any amount due 
to the Agency or a third party (such as real estate taxes and insurance) 
under a promissory note, loan or grant agreement, workout agreement, or 
other agreement remains due more than 30 days after the due date.
    (c) Nonmonetary defaults. A nonmonetary default exists when a 
borrower fails to correct a compliance violation, other than a monetary 
amount past due, within the time period specified in a compliance 
violation notice issued in accordance with Sec. 3560.354. Nonmonetary 
defaults include, but are not limited to, failure to:
    (1) Operate and manage a housing project in accordance with the 
Agency approved management plan or Agency requirements;
    (2) Maintain the physical condition of a housing project in a 
decent, safe, and sanitary manner and in accordance with Agency 
requirements;
    (3) Keep general operating expense, reserve, and other financial 
accounts related to a housing project at required funding levels;
    (4) Occupy rental units with eligible tenants, unless granted an 
exception by the Agency;
    (5) Charge correct rents or to correctly calculate net tenant 
contributions, utility allowances, or rental assistance payments or to 
properly administer the Agency rental assistance assigned to the housing 
project;
    (6) Submit required annual financial reports to the Agency within 
time periods specified in Sec. 3560.308;
    (7) Submit management plans, leases, occupancy rules, and other 
required materials to the Agency in accordance with Agency requirements; 
and,
    (8) Comply with applicable Federal laws including laws related to 
civil rights, fair housing, disabilities, and environmental conditions.
    (d) Default notice. When borrowers are in default, the Agency will 
notify borrowers, in writing, that they are in default. The default 
notice will identify the compliance violation that led to the default, 
will specify actions necessary to cure the default, and will establish a 
date by which the default must be cured to preclude Agency initiation of 
enforcement actions, liquidation, or other actions.
    (e) Agency action. If a borrower fails to cure a default within the 
time period specified in the default notice, the Agency may initiate the 
enforcement actions described in Sec. 3560.461 or liquidation as 
described in Sec. 3560.456. Also, Agency compliance violation notices 
and related default notices may be referred to Federal, state, and local 
agencies with jurisdictions related to the violations for handling, in 
accordance with their requirements.



Sec. 3560.453  Workout agreements.

    (a) General. (1) Prevention or resolution of compliance violations 
or default cures are a borrower's responsibility.
    (2) A borrower may develop and submit to the Agency for approval a 
workout agreement that proposes actions to

[[Page 548]]

be taken over a period of time to prevent or correct a compliance 
violation or to cure a monetary or non-monetary default.
    (3) A borrower developed workout agreement may propose, but is not 
limited to, the following actions:
    (i) A combination of one or more of the special servicing actions 
outlined in Sec. Sec. 3560.454 and 3560.455;
    (ii) A change in operations and management at a housing project; or
    (iii) A commitment of additional financial resources to the housing 
project with the amount and source of the additional resources to be 
committed to the housing project specifically identified.
    (b) Workout agreement approval. (1) The Agency is under no 
obligation to approve a workout agreement as submitted by a borrower or 
to act with forbearance when a housing project is in monetary or non-
monetary default.
    (2) Borrower developed workout agreements may not be implemented 
until the borrower receives written approval from the Agency.
    (3) The Agency will only approve a workout agreement if the Agency 
determines that the actions proposed are likely to prevent or correct 
compliance violations or cure a default and approval is in the best 
interest of the Federal Government and tenants.
    (4) The Agency will only approve a workout agreement if the proposed 
actions are consistent with the borrower's management plan. If proposed 
actions are not consistent with the borrower's management plan, 
applicable revisions to the borrower's management plan must be made 
before approval of the workout agreement is given.
    (c) Workout agreement required content. (1) Workout agreements 
submitted to the Agency for approval must be in writing and signed by 
the borrower. Workout agreements must describe proposed actions in 
sufficient detail to demonstrate the likelihood of the actions to 
prevent or correct compliance violations or cure defaults.
    (2) At a minimum, workout agreements must include the following.
    (i) The name and address of the housing project, project number, 
borrower's tax identification number, and other information necessary to 
identify the housing project.
    (ii) A description of the potential or actual compliance violation 
or default situation, including an explanation of related causes, such 
as cash flow concerns, budget revisions, deferred maintenance, 
vacancies, or violations of statutes.
    (iii) A definition and description of the housing project's market 
area, including information on housing availability, rents, and vacancy 
rates in the market area.
    (iv) A description of the proposed actions to prevent or correct 
compliance violations or to cure defaults along with a date specific 
schedule indicating when interim and final actions will be taken to 
correct the compliance violation or cure the default.
    (v) A description of financial and other resources necessary to 
prevent or correct the compliance violation or cure the default 
including an identification of the sources for such resources.
    (d) Workout agreement budgets. Budget revisions submitted as a part 
of a workout agreement for a housing project experiencing cash flow 
problems must prioritize cash disbursements in the following order:
    (1) Prior lienholder, if any;
    (2) Critical operating and maintenance expenses, including taxes and 
insurance;
    (3) Agency debt payments;
    (4) Reserve account requirements; and
    (5) Other authorized expenditures.
    (e) Workout agreement terms and cancellation. (1) Workout agreements 
shall be in effect for no longer than a 2-year time period, beginning on 
the date of Agency approval. If an approved workout agreement calls for 
actions that extend beyond a 2-year period, borrowers must submit an 
updated and, if necessary, revised workout agreement to the Agency for 
approval. The updated workout agreement must be submitted to the Agency, 
30 days prior to the expiration of the workout agreement in effect.
    (2) The Agency may cancel a workout agreement at any time if the 
borrower fails to comply with the terms of the agreement. The Agency 
will provide

[[Page 549]]

notice to the borrower upon cancellation of the workout agreement.



Sec. 3560.454  Special servicing actions related to housing operations.

    (a) Changing rents or revising budgets. The Agency may approve a 
borrower request for a rent change, rent incentives, or a revised 
budget, at any time during a housing project's fiscal year.
    (b) Occupancy waivers. If the Agency determines that a housing 
project with high vacancies could be kept operationally and financially 
viable by allowing the borrower to accept as tenants persons with 
incomes above the income eligibility standards specified in Sec. 
3560.152(a), the Agency, in writing, may grant the borrower an occupancy 
waiver to allow such persons as tenants. Occupancy waivers will be in 
effect only during the time period specified by the Agency when the 
waiver is granted. In addition, borrowers must rent to all eligible 
applicants on the housing projects waiting list prior to accepting 
persons with incomes above the Agency standards as tenants.
    (c) Additional rental assistance (RA). If the Agency determines that 
a housing project with high vacancies could be kept operationally and 
financially viable by increasing the amount of RA allocated to the 
housing project, the Agency, subject to available funds, may offer the 
housing project RA as a means of preventing or correcting a compliance 
violation or curing a default.
    (d) Special note rents. When a Plan II housing project is 
experiencing severe vacancies due to market conditions, the Agency may 
approve a rent less than the note rent to attract and keep tenants whose 
incomes, according to the formula in Sec. 3560.203, would require them 
to pay the note rent. The reduced rent is called a Special Note Rent 
(SNR) and, as noted in Sec. 3560.210, approval of an SNR may affect 
approvals of loan proposals submitted to the Agency for the market area 
where the SNR is in effect.
    (1) An SNR rent may only be requested as a part of a proposed 
workout agreement and must include documentation of market conditions, 
the housing project's vacancy rates, evidence of marketing efforts, and 
other concerns necessitating the request for an SNR.
    (2) Borrowers must forego the annual return to owner for each 
housing project's fiscal year that an SNR is in effect for all or part 
of a fiscal year at a housing project.
    (3) SNR's may be increased, decreased, or terminated any time during 
a housing project's fiscal year when market conditions, vacancy rates, 
or other concerns that necessitated the SNR warrant a change.
    (4) In addition to any state lease law requirements that might be 
related to the implementation of an SNR, the borrower must notify each 
tenant of any change in rents or utility allowances that result from 
approval of an SNR, in accordance with Sec. 3560.205(c) and must submit 
the appropriate budget changes to the Agency for approval.
    (e) Termination of management agreement. If the Agency determines 
that a compliance violation or loan default was caused, in full or in 
part, by actions or inactions of the housing project's management agent, 
the Agency will require the borrower to terminate the management 
agreement with that agent, or in the case of a borrower managed housing 
project, to enter an agreement with a third-party non-identity of 
interest management agent, unless the borrower and the Agency agree on a 
written plan to prevent reoccurrence of the violation. Housing project 
funds may not be used to pay a management fee to a management agent 
after the Agency has directed the borrower to terminate a management 
agreement with that agent, except during an Agency approved transition 
period.



Sec. 3560.455  Special servicing actions related to loan accounts.

    (a) General. To prevent or correct a compliance violation or to 
prevent or cure a default in a situation that cannot be resolved through 
regular servicing, the Agency may approve a deferral of loan payments or 
a loan restructuring. Nothing herein precludes the Agency from 
initiating appropriate legal action to correct a compliance violation if 
the Agency determines such action is more in the Government's interest 
than entering into a

[[Page 550]]

special servicing agreement as provided for in this section. Procedures 
for debt collection are discussed in Sec. 3560.460. As part of a 
workout agreement, the Agency may agree to accept less than full monthly 
payment installments due on an Agency loan for a specified period of 
time, not to exceed the effective period of the workout agreement.
    (b) Loan reamortizations. A loan reamortization is a restructuring 
of loan terms and conditions over a period of time that does not exceed 
the remaining useful life of the housing project.
    (1) Loan reamortizations will only be approved when they are in the 
best interest of the Federal Government and tenants and when the 
following conditions are met.
    (i) The Agency determines that the borrower will be unable to meet 
their obligations without a reduction in monthly payment installments; 
and
    (ii) The Agency is satisfied that the security, including the 
potential income for debt service, will be adequate to protect the 
Agency's interest over the term of the reamortization and that the 
reamortization will not adversely affect the Federal Government's lien 
priority.
    (2) If the Agency approves a reamortization of a loan under this 
section, it will be at the existing note rate, or the current interest 
rate at the time of reamortization closing or approval, whichever is 
less.
    (3) Loan reamortization may be used to:
    (i) Restructure loan repayments to prevent or correct a compliance 
violation or cure a default caused by circumstances beyond the 
borrower's control in situations where the borrower is otherwise in 
compliance with Agency requirements;
    (ii) Repay principal, outstanding interest, overage, and advances 
made by the Agency for recoverable cost items when less than full 
payments were authorized under the provisions of an Agency approved 
workout agreement;
    (iii) Restructure a borrower's loan payments in conjunction with an 
incentive package developed in accordance with Sec. 3560.656 to prevent 
prepayment of the loan;
    (iv) Restructure an existing loan in conjunction with a subsequent 
loan for rehabilitation; or
    (v) Restructure remaining debt when a portion of the property 
serving as loan security is sold and there is a need to reestablish the 
financial stability of the housing project.
    (c) Loan writedowns. A loan writedown is a reduction of a borrower's 
debt approved by the Agency.
    (1) Loan writedowns will only be approved when they are in the best 
interest of the Federal Government and when the following conditions 
exist:
    (i) Sound management of the housing project is evident or sound 
management practices are proposed for correction in accordance with an 
Agency approved workout agreement; and
    (ii) The housing project's financial stability is being affected by 
conditions beyond the borrower's control, such as market weaknesses, 
unforeseen site problems, or natural disasters.
    (2) Prior to Agency approval for a loan writedown, the borrower must 
obtain an appraisal of the housing project that concludes the `` `as-is' 
market value,'' subject to restricted rents, conducted in accordance 
with subpart P of this part. The Agency will not approve a loan write-
down unless the appraisal indicates the Federal Government's interests 
are secured at the proposed writedown level.
    (3) Any writedown will be conditioned on a finding that the borrower 
does not have the ability to pay a higher loan payment, even if the loan 
is reamortized.
    (4) Loan writedowns may be used to allow for a loan transfer and 
assumption for less than the total amount of outstanding debt.



Sec. 3560.456  Liquidation.

    Prior to any servicing action which might lead to the acquisition of 
real property by the Agency, the Agency must complete a due diligence 
report to assess any potential contamination of the property from 
hazardous substances, hazardous wastes, or petroleum products. The 
borrower must cooperate with the Agency in the development of this 
report.
    (a) Before acceleration. Before accelerating a project loan, the 
Agency will

[[Page 551]]

consider the possibility that the borrower is forcing an acceleration to 
circumvent the prepayment process. If it is found that this is the 
borrower's motivation, the Agency will consider alternatives to 
acceleration, such as suing for specific performance under loan and 
management documents.
    (b) Acceleration. When a borrower is in monetary or non-monetary 
default, the Agency will accelerate the loan unless the Agency decides 
other enforcement measures are more appropriate.
    (1) If the borrower does not pay the full account balance and meet 
the other terms of the acceleration notice within the time period set 
forth in the acceleration notice, the Agency will foreclose or acquire 
the security property through deed in lieu of foreclosure.
    (2) The Agency will suspend interest credit and rental assistance.
    (3) The Agency will not accept partial payment of an accelerated 
loan unless required by state law.
    (c) Voluntary liquidation. After acceleration, borrowers may 
voluntarily liquidate through either of the following mechanisms:
    (1) Deed in lieu of foreclosure. RHS may accept a deed in lieu of 
foreclosure to convey title to the security property only after the debt 
has been accelerated and when it is in the Government's best interest.
    (2) Offer by third party. If a junior lienholder or cosigner makes 
an offer in the amount of at least the net recovery value, RHS may 
assign the note and mortgage after all appeal rights have expired.
    (d) Foreclosure. (1) The Agency will initiate foreclosure when a 
borrower is in monetary or non-monetary default and foreclosure is in 
the best interest of the Federal Government.
    (2) When a junior lienholder foreclosure does not result in payment 
in full of the Agency debt but the property is sold subject to the 
Agency lien, the Agency will liquidate the account.
    (e) Acquisition of chattel properties. (1) The Agency will accept 
voluntary conveyance of chattel property only when the borrower can 
convey ownership free of other liens and the Agency has agreed to 
release the borrower from further liability on the account.
    (2) If the Agency decides to accept an offer of voluntary conveyance 
of chattel property, the borrower must provide an itemized listing of 
each chattel property item being conveyed and provide title to vehicles 
or other equipment, where applicable.



Sec. 3560.457  Negotiated debt settlement.

    (a) Borrower proposals to settle debt. A borrower who cannot pay the 
full amount of loan payments may propose an offer to settle an 
outstanding debt for less than the full amount of that debt. The Agency 
may approve a negotiated debt settlement only in cases where a default 
is evident and doing so is in the best interest of the Federal 
Government and tenants.
    (b) Required information. Borrowers requesting debt settlement must 
submit complete and accurate information from which a full determination 
of financial condition can be made. Debt settlement offers will not be 
approved by the Agency unless the financial information submitted by the 
borrower indicates that the borrower will be able to make the debt 
settlement payments as proposed.
    (c) Effective date of approval. Debt settlement offers will not be 
accepted until the borrower receives written approval from the Agency.
    (d) Appraisal requirement. No debt settlement offer will be accepted 
for less than the net recovery value of the security as determined by a 
licensed appraiser or other qualified official, and concurred in by the 
Agency's qualified appraisal review official or other qualified 
official.
    (e) Disposition of security prior to offer. Borrowers are not 
required to dispose of security prior to making a debt settlement offer. 
However, if a borrower has disposed of security prior to making a debt 
settlement offer, the proceeds from the disposed security must be 
applied to the borrower's account prior to any negotiations on the debt 
settlement offer.
    (f) Final release condition. Upon full payment of the approved debt 
settlement, the Agency will release the borrower from liability.

[[Page 552]]



Sec. 3560.458  Special property circumstances.

    (a) Abandonment. When the Agency determines that a borrower has 
abandoned security for a loan under this part, the Agency will take the 
steps necessary to protect the Federal Government's interest in the 
security. Costs associated with managing abandoned property are the 
responsibility of the borrower and will be charged to the borrower's 
account until liquidation is completed.
    (b) Other security. The Agency will service security such as 
collateral assignments, assignments of rents, Housing Assistance 
Payments Contracts, and notices of lienholder interest according to 
acceptable practices in the respective states.
    (c) Taking of additional security to protect Agency interests. The 
Agency may require borrowers to provide additional security in the form 
of real estate, cash reserves, letters of credit, or other security when 
needed to improve the chances that the Agency will not suffer a loss, 
and when:
    (1) The account is in default; or
    (2) The property has not been properly managed or maintained.
    (d) Due diligence. When the Agency has completed an environmental 
site assessment in accordance with 7 CFR part 1970, and decides not to 
acquire security property through liquidation action or chooses to 
abandon its security interest in real property, whether due in whole or 
in part, to releases of or the presence of contamination from hazardous 
substances, hazardous wastes, or petroleum products, the Agency will 
provide the appropriate environmental authorities with a copy of its 
environmental site assessment.

[69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016]



Sec. 3560.459  Special borrower circumstances.

    (a) Deceased borrower, bankruptcy, insolvency, and divorce actions. 
The Agency will address borrower accounts affected by special 
circumstances such as death, bankruptcy, insolvency, and divorce on a 
case-by-case basis. The Agency will make servicing decisions in such 
cases on the basis of best interest to the Federal Government and 
tenants. The Agency will bring a legal action to establish the legal 
capacity of the borrower to administer the project if found necessary to 
protect the government's interests. In order for the Agency to make 
servicing decisions in such cases, the borrower or the borrower's 
representative will provide to the Agency:
    (1) On the part of the heirs or executor of the borrower's estate, 
evidence of legal action due to a will or court actions that establish 
who is to become the owner;
    (2) The financial status of the borrower and any member pledging 
additional security for the debt;
    (3) The status of the security property; and
    (4) The impact of the identified actions on the operation of the 
project.
    (b) Membership liability agreements. If a borrower's note is 
endorsed by individuals other than the borrower or a borrower has 
security agreements with members of the organization for the purchase of 
shares of stock or for the payment of a pro rata share of the loan in 
the event of default, or has individual liability agreements, which are 
usually assigned to and held by the Agency as additional security for 
the loan, the security and liability agreements must be adequate to 
protect the Agency's interest.
    (c) Security issues in participation loans. When a multi-family 
housing (MFH) project is receiving financing or a subsidy from sources 
other than the Agency, the Agency will service the account in accordance 
with the participation agreements made with the Agency and the other 
funding sources under Sec. 3560.65.



Sec. 3560.460  Double damages.

    (a) Action to recover assets or income. (1) The Agency may request 
to the Attorney General to bring an action in a United States district 
court to recover any assets or income used by any person in violation of 
the provisions of a loan made by the Agency under this section or in 
violation of any applicable statute or regulation.
    (2) For the purposes of this section, a use of assets or income in 
violation of the applicable loan, statute, or regulation includes any 
use for which the

[[Page 553]]

documentation in the books and accounts does not establish that the use 
was made for a reasonable operating expense or necessary repair of the 
project or for which the documentation has not been maintained in 
accordance with the requirements of the Agency and in reasonable 
condition for proper audit.
    (3) For the purposes of this section, the term ``person'' means:
    (i) Any individual or entity that borrows funds in accordance with 
programs authorized by this section;
    (ii) Any individual or entity holding 25 percent or more interest in 
any entity that the Agency funds in accordance with programs authorized 
by this section; and
    (iii) Any officer, director, or partner of an entity that borrows 
funds in accordance with programs authorized by this section.
    (b) Amount recoverable. (1) In any judgment favorable to the United 
States entered under this section, the Attorney General may recover 
double the value of the assets and income of the project that the court 
determines to have been used in violation of the provisions of a loan 
made by the Agency under this section or any applicable statute or 
regulation, plus all costs related to the actions, including reasonable 
attorney and auditing fees.
    (2) Notwithstanding any other provisions of law, the Agency may use 
amounts recovered under this section for activities authorized under 
this section and such funds must remain available for such use until 
expended.
    (c) Time limitation. Notwithstanding any other provisions of law, an 
action under this section may be commenced at any time during the six-
year period beginning on the date that the Agency discovered or should 
have discovered the violation of the provisions of this section or any 
related statutes or regulations.
    (d) Continued availability of other remedies. The remedy provided in 
this section is in addition to and not in substitution of any other 
remedies available to the Agency or the United States.



Sec. 3560.461  Enforcement provisions.

    (a) Equity skimming--(1) Criminal penalty. Whoever, as an owner, 
agent, employee, or manager, or is otherwise in custody, control, or 
possession of property that is security for a loan made under this 
title, willfully uses, or authorizes the use, of any part of the rents, 
assets, proceeds, income, or other funds derived from such property, for 
any purpose other than to meet actual, reasonable, and necessary 
expenses of the property, or for any other purpose not authorized by 
this title or the regulations adopted pursuant to this title, must be 
fined under title 18, United States Code, or imprisoned not more than 
five years, or both.
    (2) Civil sanctions. An entity or individual who as an owner, 
operator, employee, or manager, or who acts as an agency for a property 
that is security for a loan made under this title where any part of the 
rents, assets, proceeds, income, or other funds derived from such 
property are used for any purpose other than to meet actual, reasonable, 
and necessary expenses of the property, or for any other purpose not 
authorized by this title of the regulations adopted pursuant to this 
title, must be subject to a fine of not more than $25,000 per violation. 
The sanctions provided in this paragraph may be imposed in addition to 
any other civil sanctions or civil monetary penalties authorized by law.
    (b) Civil monetary penalties--(1) When civil monetary penalties may 
be imposed. The Agency may, after notice and opportunity for a hearing, 
impose a civil monetary penalty in accordance with this section against 
any individual or entity, including its owners, officers, general 
partners, limited partners, or employees, who knowingly and materially 
violate, or participate in the violation of, the provisions of this 
title, the regulation issued by the Agency pursuant to this title, or 
agreements made in accordance to this title by:
    (i) Submitting information to the Agency that is false.
    (ii) Providing the Agency with false certifications.
    (iii) Failing to submit information requested by the Agency in a 
timely manner.
    (iv) Failing to maintain the property subject to loans made under 
this title in good repair and condition, as determined by the Agency.

[[Page 554]]

    (v) Failing to provide management for a project that received a loan 
made under this title that is acceptable to the Agency.
    (vi) Failing to comply with the provisions of applicable civil 
rights statutes and regulations.
    (2) Amount. Civil penalties shall be assessed in accordance with 7 
CFR part 3, subpart I. In determining the amount of a civil monetary 
penalty under this section, the Agency must take into consideration:
    (i) The gravity of the offense;
    (ii) Any history of prior offenses by the violator (including 
offenses occurring prior to the enactment of this section);
    (iii) Any injury to tenants;
    (iv) Any injury to the public;
    (v) Any benefits received by the violator as a result of the 
violation;
    (vi) Deterrence of future violations; and
    (vii) Such other factors as the Agency may establish by regulation.
    (3) Payment of penalties. No payment of a penalty assessed under 
this section may be made from funds provided under this title or from 
funds of a project which serve as security for a loan made under this 
title.
    (4) Hearings under this part shall be conducted in accordance with 
the procedures applicable to hearings in accordance with 7 CFR part 1, 
subpart H.
    (c) Conditions for renewal extension. The Agency may require that 
expiring loan or assistance agreements entered into under this title 
must not be renewed or extended unless the owner executes an agreement 
to comply with additional conditions prescribed by the Agency, or 
executes a new loan or assistance agreement in the form prescribed by 
the Agency.

[69 FR 69106, Nov. 26, 2004, as amended at 81 FR 57442, Aug. 23, 2016]



Sec. 3560.462  Money laundering.

    The Agency will act in accordance with U.S. Code Title 18, part I, 
chapter 95, section 1956(c)(7)(D).



Sec. 3560.463  Obstruction of Federal audits.

    The Agency will act in accordance with U.S. Code Title 18, part I, 
chapter 73, section 1516(a).



Sec. Sec. 3560.464-3560.499  [Reserved]



Sec. 3560.500  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



    Subpart K_Management and Disposition of Real Estate Owned (REO) 
                               Properties



Sec. 3560.501  General.

    This subpart contains Agency procedures and other policies related 
to the management and disposition of multi-family housing (MFH) projects 
in the Agency's inventory (Real Estate Owned (REO) property). Housing 
projects will not be accepted into the Agency's inventory unless one of 
the following has occurred:
    (a) The borrower has abandoned the housing project and the Agency 
has performed the required steps to take the housing project into 
custody.
    (b) The housing project title has been transferred to the Agency as 
a result of foreclosure, voluntary conveyance, redemption, or other 
action.



Sec. 3560.502  Tenant notifications and assistance.

    Each tenant in an REO property designated to be sold as a non-
program property will be notified by the Agency, in writing, of the 
housing projects' non-program designation and will be given an 
opportunity to obtain a Letter Of Priority Entitlement (LOPE) as 
specified in Sec. 3560.159(c).

[[Page 555]]



Sec. 3560.503  Disposition of REO property.

    (a) Preference will be given to offers from bidders who are 
determined eligible by the Agency to purchase REO property designated to 
be sold as program property. It is the Agency's priority that property 
previously operated as program property prior to becoming REO inventory 
property be sold as program property. However, REO property may be sold 
under whatever Agency program is most appropriate for the property and 
the community needs regardless of the program under which the property 
was originally financed or whether the property was being used to secure 
loans under more than one Agency program.
    (b) When the Agency determines that the REO property to be sold is 
not decent, safe, and sanitary and/or does not meet cost effective 
energy conservation standards, it will disclose the basis for this 
determination to prospective purchasers. The deed by which such an REO 
property is conveyed will contain a covenant restricting it from 
residential use until it is decent, safe, and sanitary, and meets the 
Agency's cost effective conservation standards. The Agency will also 
notify any potential purchaser of any known lead based paint hazards.



Sec. 3560.504  Sales price and bidding process.

    (a) The loan documents related to REO property sold for program 
purposes must contain the restrictive-use language specified in Sec. 
3560.662(a).
    (b) Entities bidding on REO property designated to be sold as 
program property must submit a loan application package that meets the 
requirements specified in subpart B of this part.
    (1) Bidders on REO property designated to be sold as program 
property must meet the eligibility requirements established under Sec. 
3560.55.
    (2) Bidders determined by the Agency to be ineligible to purchase 
REO property designated to be sold as program property will be notified 
in writing. The bidding process will continue regardless of pending 
appeals.
    (3) All offers from bidders determined to be eligible to purchase 
REO property designated to be sold as program property will be 
considered in the bidding process and must provide evidence of financial 
stability and credit worthiness.
    (c) The Agency will determine the successful bidder on REO property 
designated to be sold as program property by conducting a drawing of 
sealed bids.
    (1) The Agency may authorize the sale of an REO property by sealed 
bid or public auction when it is in the best interest of the Government. 
The Agency will publicly solicit requests for sealed bids and publicize 
auctions. If the highest bid is lower than the minimum acceptable bid 
established by the Agency, or if no acceptable bids are received, the 
Agency may negotiate a sale without further public notice.
    (2) Bidders who desire to withdraw their bids must do so prior to 
the drawing date.
    (d) Property designated to be sold as non-program property may be 
sold to entities that do not meet the Agency's eligible borrower 
requirements specified in Sec. 3560.55, and must be sold for cash or on 
terms approved by the Agency. Cash sales will be given first preference 
and will be drawn before any sales on terms.



Sec. 3560.505  Agency loans to finance purchases of REO properties.

    (a) Agency loans to finance the purchase of REO property designated 
to be sold as program property must meet the same requirements as 
specified in subparts A and B of this part. In addition, the following 
provisions apply.
    (1) At the borrower's option, the interest rate will be the 
prevailing rate at the time of loan approval or the prevailing rate at 
loan closing.
    (2) Purchasers may pay closing costs from their own funds or, if 
allowable under subparts B, L, or M of this part, as applicable, may 
finance such costs as part of the Agency loan.
    (b) Agency loans to finance the purchase of REO property designated 
to be sold as non-program property must meet the following terms.
    (1) A down payment of not less than 10 percent of the purchase price 
is required at closing.
    (2) The interest rate will equal the lesser of the prevailing 
interest rate at

[[Page 556]]

the time of loan approval or loan closing for MFH loans plus one-half 
percent.
    (3) The note amount will be amortized over a period not to exceed 10 
years. If the Agency determines that more favorable terms are necessary 
to facilitate the sale, the note amount may be amortized using a 30-year 
factor with payment in full due no later than 10 years from the date of 
closing (balloon payment). In no case will the term be longer than the 
useful life of the property.
    (4) Agency loans to finance the purchase of non-program REO property 
are subject to the availability of funds.
    (c) Loan limits and allowable uses of loan funds specified in 
subparts B, L, and M of this part, as applicable, are applicable to any 
Agency-financed (credit) sale of REO property.
    (d) Title clearance and loan closing for an Agency financed sale and 
any subsequent loan to be closed simultaneously with the sale must meet 
the requirements in subpart B of this part for an initial loan, with the 
following exceptions:
    (1) A ``Quit Claim'' or other non-warranty deed will be used; and
    (2) The buyer must pay attorney's fees, insurance costs, recording 
fees and other customary fees unless they are included in a subsequent 
loan and the subsequent loan is for purposes other than closing costs 
and fees.
    (e) After approval of an Agency-financed sale of occupied REO 
property designated to be sold as program property, but prior to 
closing, the purchaser must prepare a budget for housing operations in 
accordance with subpart B of this part. If a rent increase is necessary, 
procedures specified in subparts E and F of this part for calculating 
rents, net tenant contributions, and rental assistance will be followed 
by the borrower.



Sec. 3560.506  Conversion of single family type REO property to MFH use.

    Single family type REO property may be sold for conversion to MFH 
program use under the following conditions:
    (a) The Agency will allow nonprofit organizations, public bodies, or 
for-profit entities to purchase single family type REO property for 
conversion to MFH program use. When the Agency finances the sale of 
single family-type REO property for conversion to rural rental housing 
program use (i.e., MFH including group homes and homes for the elderly 
or disabled, farm labor housing, or rural cooperative housing), the sale 
price will be the lesser of the Federal Government's investment or an 
amount based on the ``as-is'' market value of the housing project as 
determined by an appraisal conducted in accordance with subpart P of 
this part.
    (b) The Agency will only accept written offers to purchase two or 
more single family type REO properties for conversion to rural rental 
housing from nonprofit organizations, public bodies, or for-profit 
entities with a good record of providing housing under the Agency's MFH 
programs. The single family type properties are not required to be 
contiguous, however, they must be located in close enough proximity so 
that management capabilities are not diminished because of distance.



Sec. Sec. 3560.507-3560.549  [Reserved]



Sec. 3560.550  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                    Subpart L_Off-Farm Labor Housing



Sec. 3560.551  General.

    This subpart establishes the requirements for making loans and 
grants for off-farm labor housing and for ongoing operations of this 
housing. Unless otherwise specified in this subpart, the requirements of 
subparts A through K, N,

[[Page 557]]

O, and P of this part will apply in addition to the requirements in this 
subpart.



Sec. 3560.552  Program objectives.

    (a) In addition to the objectives stated in Sec. 3560.52, off-farm 
labor housing loan and grant funds will be used to increase:
    (1) The supply of affordable housing for farm labor; and
    (2) The ability of communities to attract farm labor by providing 
housing which is affordable, decent, safe and sanitary.
    (b) Under section 516(i) of the Housing Act of 1949 (42 U.S.C. 
1486(i)), the Agency may award technical assistance grants to encourage 
the development of farm labor housing.



Sec. 3560.553  Loan and grant purposes.

    (a) In addition to the purposes stated in Sec. 3560.53, off-farm 
labor housing loan and grant funds may be used to provide facilities for 
seasonal or temporary residential use with appropriate furnishings and 
equipment. A temporary residence is a dwelling which is used for 
occupancy, usually for a short period of time, but is not the legal 
domicile for the occupant.
    (b) The Agency may award technical assistance grants to eligible 
private and public nonprofit agencies. These grant recipients will, in 
turn, assist other organizations to obtain loans and grants for the 
construction of farm labor housing.
    (c) Technical assistance services may not be used to reimburse a 
nonprofit or public body applicant for technical services provided by a 
nonprofit organization, with housing and/or community development 
experience, to assist the nonprofit applicant entity in the development 
and packaging of its loan/grant docket and project. In addition, 
technical assistance will not be funded by the Agency when an identity 
of interest exists between the technical assistance provider and the 
loan or grant applicant.



Sec. 3560.554  Use of funds restrictions.

    Off-farm labor housing loan and grant funds may not be used for any 
purpose prohibited by Sec. 3560.54 except Sec. 3560.54(a)(1). Off-farm 
labor housing may be used to serve migrant farmworkers.



Sec. 3560.555  Eligibility requirements for off-farm labor housing loans and grants.

    (a) Eligibility for loans. Applicants for off-farm labor housing 
loans must be:
    (1) A broad-based nonprofit organization, a nonprofit organization 
of farmworkers, a federally recognized Indian tribe, a community 
organization, or an agency or political subdivision of State or local 
government, and must meet the requirements of Sec. 3560.55, excluding 
Sec. 3560.55(a)(6). A broad-based nonprofit organization is a nonprofit 
organization that has a membership that reflects a variety of interests 
in the area where the housing will be located; or
    (2) A limited partnership with a non-profit general partner which 
meets the requirements of Sec. 3560.55(d).
    (b) Eligibility for grants. To be eligible for off-farm labor 
housing grants, applicants must:
    (1) Meet the requirements in Sec. 3560.555(a)(1); and
    (2) Be able to contribute at least one-tenth of the total farm labor 
housing development cost from its own or other resources. The 
applicant's contribution must be available at the time of grant closing. 
An off-farm labor housing loan financed by RHS may be used to meet this 
requirement.
    (c) Limitation. Limited partnerships eligible under paragraph (a)(2) 
of this section are not eligible for farm labor housing grants.



Sec. 3560.556  Application requirements and processing.

    Off-farm loans and grants will be available under a Notice of 
Funding Availability (NOFA) that will be published in the Federal 
Register each fiscal year.



Sec. 3560.557  [Reserved]



Sec. 3560.558  Site requirements.

    The requirements established in Sec. 3560.58 apply to all 
applications for off-farm labor housing loans and grants except that 
off-farm labor housing are not limited to rural areas.

[[Page 558]]



Sec. 3560.559  Design and construction requirements.

    (a) General. The requirements established in Sec. 3560.60 apply to 
all applications for off-farm labor housing loans and grants except that 
seasonal off-farm labor housing that will be occupied for eight months 
or less per year by migrant farmworkers while they are away from their 
residence, may be constructed in accordance with Exhibit I of 7 CFR part 
1924, subpart A.
    (b) Additional requirements. In addition to the requirements 
established in Sec. 3560.60, it is encouraged that the design of off-
farm labor housing incorporate outdoor shower, boot washing station, 
and/or hose bibb facilities as necessary to protect the resident and the 
asset from excess dirt and chemical exposure.
    (c) Davis-Bacon wage requirements. Construction financed with the 
assistance of a Section 516 grant will be subject to the provisions of 
the Davis-Bacon Act (40 U.S.C. 276(a)-276(a)(7)), and the implementing 
regulations published by the Department of Labor at 29 CFR parts 1, 3, 
and 5.



Sec. 3560.560  Security.

    The security requirements established in Sec. 3560.61 will apply to 
all applications for off-farm labor housing loans.



Sec. 3560.561  Technical, legal, insurance and other services.

    The requirements established under Sec. 3560.62 apply to all 
applications for off-farm labor housing loans and grants.



Sec. 3560.562  Loan and grant limits.

    (a) Determining the security value. The requirements established 
under Sec. 3560.63(a) apply to off-farm labor housing loans.
    (b) Maximum amount of loan. The requirements established in Sec. 
3560.63(c)(1) and (2), regarding borrower equity contribution apply to 
all applications for off-farm labor housing loans. (For applicants 
eligible under Sec. 3560.555(a)(2), the amount of Agency financing for 
the housing will not exceed 95 percent of the total development cost or 
95 percent of the security value available for the Agency loan, 
whichever is lower.) In determining the amount of the loan, the Agency 
will also review the capacity of the applicant to amortize such loan, 
considering any rental assistance provided for use in the housing, and 
any rents anticipated to be paid by farmworkers expected to occupy the 
housing.
    (c) Maximum amount of grant. The amount of any off-farm labor 
housing grant must not exceed the lesser of:
    (1) Ninety percent of the total development cost, or
    (2) That portion of the total development cost which exceeds the sum 
of any amount provided by the applicant from their own resources plus 
the amount of any loans approved for the applicant, considering the 
capacity of the applicant to amortize the loan.



Sec. 3560.563  Initial operating capital.

    The requirements for Sec. 3560.64 apply to all applications for 
off-farm labor housing loans and grants.



Sec. 3560.564  Reserve accounts.

    The requirements for Sec. 3560.65 apply to all applications for 
off-farm labor housing loans and grants.



Sec. 3560.565  Participation with other funding or financing sources.

    The requirements established in Sec. 3560.66 apply to all 
applications for off-farm labor housing loans and grants, except that 
the 25 percent requirements stated in paragraph Sec. 3560.66(b)(1) may 
consist of loan and/or grant funds.



Sec. 3560.566  Loan and grant rates and terms.

    (a) Amortization period. The loan will be amortized over a period 
not to exceed 33 years. The amortization schedule will take into account 
the depreciation of the security and ensure that the loan will be 
adequately secured.
    (b) Interest rate. The effective interest rate will be 1 percent.
    (c) Term of grant agreement. The grant agreement will remain in 
effect for so long as there is a need for farm labor housing.

[[Page 559]]



Sec. 3560.567  Establishing the profit base on initial investment.

    The requirements established under Sec. 3560.68 apply to applicants 
eligible under Sec. 3560.555(a)(2) and operating as a limited 
partnership with a nonprofit general partner.



Sec. 3560.568  Supplemental requirements for seasonal off-farm labor housing.

    For off-farm labor housing operating on a seasonal basis, the 
management plan must establish specific opening and closing dates. 
During the off-season, off-farm labor housing may be used as defined in 
subpart A of this part under short-term lease provisions. Where rents 
are charged on a per-unit basis and family income qualifies the 
household for rental assistance, rental assistance may be used.



Sec. 3560.569  Supplemental requirements for manufactured housing.

    The requirements established in Sec. 3560.70 apply to all 
applications for off-farm labor housing loans and grants.



Sec. 3560.570  Construction financing.

    The requirements established in Sec. 3560.71 apply to all 
applications involving off-farm labor housing loans and grants. In 
addition, the following requirements apply.
    (a) Equity contributions being made by a borrower or grantee must be 
contributed and disbursed prior to any disbursement of interim loan 
funds and any loan or grant funds from the Agency.
    (b) If the Agency is providing both loan and grant funds, loan funds 
must be fully released and expended prior to the release of grant funds 
by the Agency.
    (c) If construction is financed with a Labor Housing grant, it is 
subject to the provisions of the Davis-Bacon Act (published in the 
Department of Labor regulations 29 CFR parts 1, 2, and 5).



Sec. 3560.571  Loan and grant closing.

    The requirements established in Sec. 3560.72 apply to all 
applications for off-farm labor housing loans and grants. In addition, 
the following requirements apply.
    (a) A nonprofit organization will have its Board of Directors adopt 
an Agency-approved loan and/or grant resolution, which is required as 
part of the loan docket before loan and/or grant approval. All other 
loan applicants will execute an Agency-approved loan agreement.
    (b) For grants, an Agency approved grant agreement, must be executed 
by the applicant on the date of grant closing.
    (c) The obligations incurred by the applicant, as a condition of 
accepting the grant, will be in accordance with the off-farm labor 
housing grant agreement.
    (d) Off-farm labor housing loans used to build or acquire new units 
made pursuant to a contract entered into on or after the effective date 
of this regulation, will be subject to the restrictive-use provision 
stated in Sec. 3560.72(a)(2)(ii). All other off-farm labor housing 
loans are subject to the restrictive-use provisions contained in their 
loan documents and as outlined in subpart N of this regulation. Such 
restrictions must be included in the mortgage and deed of trust.



Sec. 3560.572  Subsequent loans.

    The requirements established in Sec. 3560.73 will apply to all 
applications for subsequent off-farm labor housing loans.



Sec. 3560.573  Rental assistance.

    (a) Rental assistance may be provided to income eligible tenants 
living in off-farm labor housing in accordance with subpart F of this 
part. The requirements established in Sec. 3560.252 apply to all 
tenants receiving rental assistance.
    (b) For dormitory style facilities operating on a per bed basis, 
rental assistance will be made available to the housing on a per unit 
basis, but may be pro-rated to tenants on a per bed basis. However, 
total rent charged for a unit must not exceed conventional rent for 
comparable units in the area or a similar area and per bed rents must be 
comparable to per bed rents in the market.



Sec. 3560.574  Operating assistance.

    Operating assistance may be used in lieu of tenant-specific rental 
assistance

[[Page 560]]

in off-farm labor housing projects financed under section 514 or section 
516(i) of the Housing Act of 1949 (U.S.C. 1486(i)) that serve migrant 
farmworkers. Owners of eligible projects may choose tenant-specific 
rental assistance as described in Sec. 3560.573 or operating 
assistance, or a combination of both, however, any tenant or unit 
assisted under this section may not receive rental assistance under 
Sec. 3560.572. The objective of this program is to provide assistance 
toward the cost of operating the project so that rents may be set at 
rates that are affordable to very low and low-income migrant 
farmworkers.
    (a) Project eligibility requirements. To be eligible for the 
operating assistance program, projects must be:
    (1) Off-farm labor housing projects financed under section 514 or 
section 516 with units that are for migrant farmworkers. Housing units 
for year-round farmworker households are ineligible; and
    (2) Eligible for the Agency's rental assistance program as defined 
in Sec. 3560.573.
    (b) Operating assistance limits. The amount of operating assistance 
requested by the owner must be based on the project's actual income and 
expenses and must be approved by the Agency. In the case of a mixed 
project, the amount of operating assistance must be based on the portion 
of actual income and expenses that are attributable to the units that 
are for migrant farmworkers. In no instance may the annual amount of 
operating assistance exceed 90 percent of the annual operating costs 
that are attributable to the migrant units.
    (c) Owner responsibilities--(1) Requesting for operating assistance 
program. Owners of off-farm labor housing projects with units for 
migrant farmworkers may request operating assistance by submitting a 
request to the Agency, which must include a budget. The budget must 
include:
    (i) Estimated operating costs for the migrant units, including 
authorized expenditures such as reserve deposits;
    (ii) Proposed rental rates for the migrant units to generate 
sufficient funds for operating costs of those units, taking into 
consideration all other sources of project income; and
    (iii) Estimated rental income from tenants, based on a tenant 
contribution of 30 percent of the average adjusted monthly income of 
migrant farmworker households in the area.
    (2) Requesting operating assistance payments. Each month, the owner 
will submit a request for operating assistance to the Agency.
    (3) Verifying tenant income eligibility. Owners are responsible for 
verifying tenant income eligibility. Only very low or low-income 
households are eligible for the operating assistance rents. Households 
with incomes above the low-income limits must pay the full rent.
    (4) Reporting requirements. (i) Owners will complete and submit to 
the Agency tenant certifications to document tenant income and 
eligibility.
    (ii) Owners will complete and submit monthly to the Agency a project 
worksheet for operating assistance.
    (iii) Owners must submit an annual planning budget to the Agency 
prior to the project's fiscal year.



Sec. 3560.575  Rental structure and changes.

    Off-farm labor housing is subject to the tenant contribution and 
rental unit rent requirements for Plan II housing established under 
subpart E of this part, except where seasonal housing will be occupied 
for less than a 3-month period. In such instances the best available and 
practical income verification methods may be used with prior approval of 
the Agency.



Sec. 3560.576  Occupancy restrictions.

    (a) Restrictions on conditions of occupancy. (1) No borrower or 
grantee will be permitted to require that an occupant work on any 
particular farm or for any particular owner or interest as a condition 
of occupancy of the housing.
    (2) Tenant selection should be in accordance with the loan 
agreement, subpart D of this part and Sec. 3560.577.
    (3) No borrower or grantee will discriminate, or permit 
discrimination by any agent, lessee, or other operator in the use or 
occupancy of the housing or related facilities because of race, color,

[[Page 561]]

religion, sex, age, disability, familial status, or national origin.
    (b) Eligible households. To be eligible for occupancy in off-farm 
labor housing, households must meet the following requirements.
    (1) Occupational. An eligible household must include a domestic 
tenant or co-tenant farm laborer, a retired domestic farm laborer, or a 
disabled domestic farm laborer.
    (2) Income. The household must meet the definition of income 
eligible as established in Sec. 3560.152 and the tenant or co-tenant 
must receive a substantial portion of income from farm labor employment. 
To determine if a substantial portion of income is from farm labor 
employment, the following measures will be used.
    (i) For housing rented to farm laborers and owned by public bodies, 
public or private nonprofit organizations, and limited partnerships when 
charging rent.
    (A) Actual dollars earned from farm labor by domestic farm laborers 
other than migrant farmworkers must equal at least 65 percent of the 
annual income limits indicated for the Standard Federal regions as 
published by the Agency for their particular region of the country. For 
migrant farmworkers living in seasonal housing the actual dollars earned 
from farm labor by a domestic farm laborer must equal at least 50 
percent of annual income limits indicated for the Standard Federal 
regions, as published by the Agency.
    (B) An alternate measure for determining substantial portion of 
income when actual earnings are not available may be the duration of 
time a farm laborer worked on a farm or other farming enterprise as a 
domestic farmworker during the preceding 12 months. In order to be 
considered as substantial the farm laborer must have worked at least 110 
whole days in farm work. For purposes of this section one whole day is 
the equivalent of at least 7 hours. When using a period of more than 1 
year, a yearly average must amount to at least 110 days per year.
    (ii) For housing owned by a farmer, family-farm partnership, family-
farm corporation, or an association of farmers which was initially 
provided on a non-rental basis, a substantial portion of income is 
earned when housing is provided by the owner as part of employment 
compensation for farm labor.
    (iii) When a natural disaster has occurred, such as a drought, 
flood, freeze, etc., figures for the 12 months preceding such disaster 
will be used to determine substantial portion of income under paragraph 
(b)(2) of this section.
    (iv) The tenant who qualifies as a domestic farm laborer residing in 
a property with a nonrestrictive farm labor clause in the mortgage 
covenants must not have adjusted income which exceeds the moderate 
income limit for the appropriate household size and appropriate 
geographical area.
    (3) Occupancy. The household must remain in compliance with the 
borrower's occupancy policy as established in Sec. 3560.155.
    (c) Tenant eligibility requirements for operating assistance rents. 
To be eligible for operating assistance rents, tenants must meet the 
rental assistance eligibility requirements described in Sec. 3560.573 
and in Sec. 3560.252.
    (d) Ineligible tenants. Tenants who, at any time, fail to meet all 
the requirements in paragraph (b) of this section will be deemed 
ineligible for occupancy in off-farm labor housing. Ineligible tenants 
in off-farm labor housing will be addressed in accordance with the 
requirements of Sec. 3560.158.
    (e) Non-farm laborer tenants. When there is a diminished need for 
housing for persons or families in the above categories, units in off-
farm labor housing complexes may be made available to persons or 
families eligible for occupancy under Sec. 3560.152. Eligible tenants 
under this section may occupy the labor housing until such time the 
units are again needed by persons or families eligible under paragraph 
(b) of this section. As the basis for Agency approval or disapproval of 
the borrower's determination of diminished need, the borrower must 
submit a current analysis of need and demand to the Agency, identical to 
the market analysis that is required of loan applicants in the loan 
origination process. The borrower's determination and the MFH Leadership 
Designee's recommendation should be forwarded to the National Office for 
concurrence. The procedures specified

[[Page 562]]

in Sec. 3560.158 shall be followed when tenants are required to vacate 
housing to allow for occupancy by persons eligible under paragraph (b) 
of this section.

[69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11286, Mar. 1, 2022]



Sec. 3560.577  Tenant priorities for labor housing.

    Tenant occupancy in off-farm labor housing is based on eligible farm 
labor certified through the income certification process required by 
Sec. 3560.152 and is prioritized in the following order.
    (a) First priority is to be given to eligible active farm laborer 
households with first priority going to very low-income households, next 
priority to low-income households, and last to moderate-income 
households.
    (b) Second priority is given to retired domestic farm laborer 
households and disabled domestic farm laborer households who were active 
in the local farm labor market area at the time of retiring or becoming 
disabled. Occupancy priority will be given in accordance with paragraph 
(a) of this section.
    (c) Third priority is to be given to retired domestic farm laborer 
households and disabled domestic farm laborer households who were not 
active in the local farm labor market at the time of retiring or 
becoming disabled. Occupancy priority will be given in accordance with 
paragraph (a) of this section.



Sec. 3560.578  Financial management of labor housing.

    The requirements established in subpart G of this part will apply to 
all off-farm labor housing.



Sec. 3560.579  Servicing off-farm labor housing.

    The requirements established in subparts I and J of this part will 
apply to all off-farm labor housing. Servicing according to subparts I 
and J of this part shall apply throughout the term of the loan or grant, 
whichever is longer.



Sec. Sec. 3560.580-3560.599  [Reserved]



Sec. 3560.600  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                     Subpart M_On-Farm Labor Housing



Sec. 3560.601  General.

    This subpart contains the requirements for making loans for on-farm 
labor housing and for ongoing operation and management of on-farm labor 
housing. Unless otherwise specified in this subpart, the requirements of 
subparts A through K, N, O, and P of this part will apply in addition to 
requirements given in this subpart.



Sec. 3560.602  Program objectives.

    In addition to the objectives stated in Sec. 3560.52, on-farm labor 
housing funds will be used to increase:
    (a) The supply of affordable housing for farm labor; and
    (b) The ability of the farmer to provide affordable, decent, safe 
and sanitary housing for farm workers.



Sec. 3560.603  Loan purposes.

    On-farm labor housing loans may be made only for the purposes 
established in Sec. 3560.553. Grants are not available for on-farm 
labor housing.



Sec. 3560.604  Restrictions on use of funds.

    On-farm labor housing loans may not be used for any purpose 
prohibited by Sec. 3560.54 except Sec. 3560.54(a)(1). On-farm labor 
housing may be used to serve migrant workers. In addition, on-farm labor 
housing loan funds may not be used to provide housing for members of the 
immediate family of the applicant when the applicant is an individual 
farm owner, family farm corporation, family farm partnership, or a 
member

[[Page 563]]

of an association of farmers. Immediate family includes mother, father, 
brothers, sisters, sons, and daughters of the applicant and spouse.



Sec. 3560.605  Eligibility requirements.

    (a) To be eligible for an on-farm labor housing loan, the applicant 
must meet the requirements of Sec. 3560.55(a) with the exception of 
Sec. 3560.55(a)(1), (5), and (6) and the following requirements.
    (1) The applicant must be a farm owner, family farm partnership, 
family farm corporation, or an association of farmers engaged in 
agricultural or aquacultural farming operations whose farming operations 
demonstrate a need for on-farm labor housing and who will own the 
housing and operate it on a nonprofit basis.
    (2) The applicant must agree to use the labor housing to engage in 
the farming operations of the individual farm owner applicant, or in the 
farming operations of its members if it is a family farm corporation or 
partnership, or an association of farmers.
    (3) The applicant must, as determined by the Agency, be unable to 
provide the necessary housing from the applicant's own resources and be 
unable to obtain credit from any other source upon terms and conditions 
which the applicant could reasonably be expected to fulfill. If the 
applicant is an association of farmers or family farm corporation or 
partnership, the individual members, individually and jointly, must be 
unable to provide the necessary housing by utilizing their own resources 
and be unable, by pledging their personal liability, to obtain other 
credit that would enable them to provide housing for farm workers at 
rental rates they can afford to pay. The individual resources of family 
farm corporation or partnership members with less than a 10 percent 
corporate or partnership interest should not be considered when 
determining if the applicant can obtain credit elsewhere.
    (b) The Agency may make an exception to the requirement that an 
individual farm owner, family farm corporation, family farm partnership 
or an association of farmers be unable to obtain the necessary credit 
elsewhere when all of the following conditions exist:
    (1) There is a housing need in the area for domestic farmworkers who 
are migrants and the applicant will provide such housing; and
    (2) There are no qualified state or political subdivisions or public 
or private nonprofit organizations available, or likely to become 
available within 12 months of the application, that are willing and able 
to provide the housing.
    (c) When an applicant is determined eligible under paragraph (b) of 
this section, the interest rate for such loans will be determined in 
accordance with 7 CFR part 1810, subpart A.
    (d) On-farm labor housing that consists of buildings with less than 
three units is not subject to the requirement that five percent of the 
units be constructed as fully accessible units, as described in Sec. 
3560.60(d).



Sec. 3560.606  Application requirements and processing.

    (a) On-farm labor housing loan applications will be processed 
according to 7 CFR part 1940, subpart L. Applicants must submit an 
application in an Agency-approved format that adequately documents the 
need for the housing and the eligibility of the applicant.
    (b) The applicant must certify that the farm workers for which the 
housing is intended are or will be involved in the applicant's 
agricultural or aquacultural farming operations.
    (c) The applicant must certify that housing operations will be 
conducted in a non-profit manner such that income from the housing does 
not exceed eligible expenses associated with the housing. Eligible 
expenditures for the housing include, but are not limited to housing 
repairs and upkeep, payment of installments on the loan, taxes, 
insurance and reserves and other essential uses needed for success of 
the operations.



Sec. 3560.607  [Reserved]



Sec. 3560.608  Site and construction requirements.

    (a) General. Cost and development standards for on-farm labor 
housing will be consistent with the requirements, standards, and cost 
limits specified in subpart B of this part, if the

[[Page 564]]

housing is a multi-family housing type structure, or consistent with 
section 502 of the Housing Act of 1949, if the housing is a single 
family type structure.
    (b) Permanent units. On-farm labor housing occupied for 8 months or 
more of the year will be required to meet the following requirements.
    (1) Housing may be multi-family or single family in type and may be 
located on the farm away from farm service buildings, or in the nearby 
community. Single-family type housing is defined as an individual or a 
group of individual single family detached dwelling units. All sites and 
housing shall be planned and constructed in accordance with 7 CFR part 
1924, subparts A and C.
    (2) Sites must be accessible from a public road, when feasible.
    (c) Seasonal units. On-farm labor housing occupied for less than 8 
months of the year will be considered seasonal housing. Such housing 
must meet the following requirements.
    (1) Housing designed for seasonal occupancy may be either single 
family or multi-family.
    (2) Seasonal housing may be constructed in accordance with exhibit I 
of 7 CFR part 1924, subpart A. If constructed in accordance with exhibit 
I, the housing must be suitable to allow for conversion to full-year 
occupancy if the need for migrant farmworkers in the area declines.
    (d) Accessibility. On-farm labor housing that consists of buildings 
with less than three units, need not meet the requirement that five 
percent of the units be constructed as fully accessible units, as 
described in Sec. 3560.60(d). This does not, however, eliminate any 
other accessibility requirements.



Sec. 3560.609  [Reserved]



Sec. 3560.610  Security.

    (a) Security instruments must meet the requirements established 
under Sec. 3560.560.
    (b) When feasible, the on-farm labor housing will be located on a 
tract of land that is surveyed such that, for security purposes, it is 
considered separate and distinct from the farm. The security for the 
loan must include a lien on the tract of land where the on-farm labor 
housing is located and the security must have adequate value to protect 
the Federal government's interest. The Agency will seek a first or 
parity lien position on Agency-financed property in all instances, 
however, the Agency may accept a junior lien position if the Federal 
government's interests are adequately secured.
    (c) The Agency will determine the value of the security for the loan 
in accordance with 7 CFR part 1922, subpart B if the farm is used as 
security or in accordance with section 502 of the Housing Act of 1949, 
if only the on-farm labor housing and related land is used for security.
    (d) If necessary to provide adequate security for the loan, the 
Agency may require that any household furnishings purchased with loan 
funds also be secured.
    (e) Personal liability and recourse will be required of all 
borrowers, including the individual members, stockholders or partners of 
an association of farmers, family farm corporations or partnerships, 
respectively.



Sec. 3560.611  Technical, legal, insurance and other services.

    When technical, legal, insurance, or services are required for 
development of on-farm labor housing, applicants must comply with the 
applicable requirements of Sec. 3560.62. Regarding insurance coverage, 
the requirements of Sec. 3560.62(d) apply to on-farm labor housing.



Sec. 3560.612  Loan limits.

    The maximum loan amount will be 100 percent of the allowable total 
development costs of on-farm labor housing and related facilities 
subject to Sec. Sec. 3560.603, 3560.604 and 3560.608.



Sec. 3560.613  [Reserved]



Sec. 3560.614  Reserve accounts.

    When on-farm labor housing operations include 12 or more units, the 
Agency will require such properties to comply with the reserve account 
requirements in Sec. 3560.65.

[[Page 565]]



Sec. 3560.615  Participation with other funding sources.

    The Agency encourages the use of other funding sources in 
conjunction with on-farm labor housing loans. Use of such financing in 
conjunction with an on-farm labor housing loan is subject to the 
approval of the Agency and must comply with the requirements of Sec. 
3560.66.



Sec. 3560.616  Rates and terms.

    (a) The interest rate for on-farm labor housing loans will be 1 
percent.
    (b) The term of the on-farm labor housing loan will not exceed 33 
years.
    (c) Loan amortization for on-farm labor housing may be on a monthly 
or an annual basis.



Sec. 3560.617  [Reserved]



Sec. 3560.618  Supplemental requirements for on-farm labor housing.

    The management plan for on-farm labor housing operated on a seasonal 
basis must have specific opening and closing dates. During the off-
season, on-farm labor housing may be used under short-term lease 
provisions.



Sec. 3560.619  Supplemental requirements for manufactured housing.

    On-farm labor housing loan funds used for manufactured housing must 
comply with Sec. 3560.70. Manufactured housing located on-farm may 
consist of individual units.



Sec. 3560.620  Construction financing.

    The requirements established in Sec. 3560.71 apply to all 
applications involving on-farm labor housing loans.



Sec. 3560.621  Loan closing.

    Applicants for on-farm labor housing loans must execute an Agency-
approved loan agreement. In addition, if determined appropriate by the 
Agency, on-farm labor housing loans made on or after the effective date 
of this regulation may be subject to the restrictive-use provisions as 
stated in Sec. 3560.72(a)(2)(ii). All other on-farm labor housing loans 
are subject to the restrictive-use provisions contained in their loan 
documents and as outlined in subpart N of this regulation.



Sec. 3560.622  Subsequent loans.

    The requirements established in Sec. 3560.572 apply to all 
applications for on-farm labor housing subsequent loans.



Sec. 3560.623  Housing management and operations.

    Borrowers with on-farm labor housing loans must:
    (a) Develop and submit to the Agency a management plan in a format 
specified by the Agency. At a minimum, the management plan will detail 
the borrower's operational and occupancy policies, how the borrower will 
deal with resident complaints, and how repairs will be completed; and
    (b) Maintain a lease or employment contract with each tenant 
specifying employment with the borrower as a condition for continued 
occupancy.



Sec. 3560.624  Occupancy restrictions.

    (a) The immediate relatives of the borrowers are ineligible 
occupants for on-farm labor housing.
    (b) Occupants must meet the definition of a domestic farm laborer, 
as defined in Sec. 3560.11.
    (a) Occupancy of on-farm labor housing is restricted to employees of 
the borrower unless otherwise approved by the Agency.
    (d) With prior written permission of the Agency, on-farm labor 
housing may be occupied by ineligible tenants on a short-term basis. The 
permission of the Agency must also be for a limited duration.



Sec. 3560.625  Maintaining the physical asset.

    On-farm labor housing must meet state and local building and 
occupancy codes.



Sec. 3560.626  Affirmative Fair Housing Marketing Plan.

    On-farm labor housing must meet the requirements of Sec. 3560.104.



Sec. 3560.627  Response to resident complaints.

    The management plan submitted in accordance with Sec. 3560.623 (a) 
will include a provision for dealing with resident complaints.

[[Page 566]]



Sec. 3560.628  Establishing and modifying rental charges.

    If it becomes necessary to establish or modify a shelter cost, the 
borrower must obtain Agency approval as specified in subpart E of this 
part.



Sec. 3560.629  Security deposits.

    Borrowers that require security deposits to be paid by the tenants 
will be required to comply with the requirements of Sec. 3560.204.



Sec. 3560.630  Financial management.

    Financial information must be submitted in an Agency-approved format 
and will show operation of the housing in a non-profit manner.



Sec. 3560.631  Agency monitoring.

    A compliance review and physical inspection will be conducted by the 
Agency at least once every 3 years. The purpose of this review will be 
to inspect:
    (a) Tenant eligibility documentation;
    (b) Financial information on the operation and management of the 
labor housing, including relevant borrower financial materials;
    (c) Payment of taxes, insurance and hazard insurance;
    (d) Compliance with the security deposit requirements;
    (e) Compliance with the operating plan;
    (f) Compliance with the loan agreement;
    (g) Compliance with Agency requirements for affordable, decent, 
safe, and sanitary housing; and
    (h) Compliance with civil rights requirements.



Sec. Sec. 3560.632-3560.649  [Reserved]



Sec. 3560.650  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                     Subpart N_Housing Preservation



Sec. 3560.651  General.

    (a) This subpart contains the Agency's housing preservation 
requirements as related to prepayment requests and restrictive-use 
provisions (RUPs). The requirements of this subpart support the Agency's 
commitment to the preservation of decent, safe, sanitary, and affordable 
multi-family housing (MFH) for very low-, low-, and moderate-income 
households.
    (b) The Agency will coordinate, direct, and monitor the Agency's MFH 
preservation activities from the National Office level.



Sec. 3560.652  Prepayment and restrictive-use categories.

    (a) Loans with prepayment prohibitions include:
    (1) Initial section 515 loans made on or after December 15, 1989, 
and
    (2) Subsequent loans made on or after December 15, 1989, for 
additional rental units.
    (b) Loans without prepayment prohibitions but with restrictive-use 
provisions include:
    (1) All loans made after December 21, 1979, but prior to December 
15, 1989;
    (2) Subsequent loans made on or after December 15, 1989, for 
purposes other than additional rental units; or
    (3) Loans subsequently restricted by servicing actions including 
transfers.
    (c) Loans without prepayment prohibitions or restrictive-use 
provisions include all loans made on or before December 21, 1979 or 
loans that had restrictive-use provisions that have expired. Such loans 
are eligible to receive incentives subject to the provisions of this 
subpart.
    (d) Loans may be prepaid if another loan or grant from the Agency 
imposes the same or more stringent restrictive-use provisions on the 
housing project covered by the loan being prepaid.

[[Page 567]]



Sec. 3560.653  Prepayment requests.

    (a) Borrowers seeking to prepay an Agency loan must submit a written 
prepayment request to the Agency at least 180 days in advance of the 
anticipated prepayment date and must obtain Agency approval before the 
Agency will accept prepayment.
    (b) Prior to submitting a prepayment request, borrowers must take 
whatever actions are necessary to provide the following items:
    (1) A clear description of the loan to be prepaid, the housing 
project covered by the loan being prepaid, and the requested date of 
prepayment.
    (2) A statement documenting the borrower's ability to prepay under 
the terms specified.
    (3) A certification that the borrower will comply with any federal, 
state, or local laws or regulations which may relate to the prepayment 
request and a statement of actions needed to assure such compliance.
    (4) A copy of lease language to be used during the period between 
the submission date and the final resolution of the prepayment request 
notifying tenant applicants that the owner of the housing project has 
submitted a prepayment request to the Agency and explaining the 
potential effect of the request on the lease.
    (5) Borrowers are required to submit a signed release of information 
form along with the prepayment request. The Agency will notify nonprofit 
organizations and public bodies involved in providing affordable housing 
or financial assistance to tenants of the receipt of a borrower's 
request to prepay their loan(s). Additionally, the Agency is to notify 
nonprofit organizations and public bodies whenever a borrower, who has 
requested prepayment, is required or elects to offer their property for 
sale to a nonprofit or public body.
    (6) A certification that the borrower has notified all governmental 
entities involved in providing affordable housing or financial 
assistance to tenants in the project and that the borrower has provided 
a statement specifying how long financial assistance from such parties 
will be provided to tenants after prepayment.
    (7) A statement affirming that units in the property applying for 
prepayment will continue to be available for rent by eligible residents 
during the prepayment process.
    (c) The Agency will review complete requests to determine if:
    (1) The loan is eligible for prepayment under Sec. 3560.652(b);
    (2) The borrower has the ability to prepay; and
    (3) The borrower has complied or has the ability to comply with 
applicable Federal, state, and local laws related to the prepayment 
request.
    (d) If a prepayment request lacks full and complete information on 
any item, the Agency will return the prepayment request to the borrower 
with a letter citing the deficiencies in the prepayment request. The 
Agency will offer borrowers an opportunity, within 30 days following the 
date of the return, to address the reasons given by the Agency for the 
return of the prepayment request and will allow the borrower to submit a 
revised prepayment request.
    (e) If the Agency determines that the prepayment request 
appropriately satisfies all the conditions listed in paragraph (d) of 
this section, the Agency will process the prepayment request and make a 
reasonable effort to enter into a new restrictive-use agreement with the 
borrower in accordance with Sec. 3560.662 or Sec. 3560.655. If the 
Agency determines that a loan is ineligible for prepayment or the 
borrower does not have the ability to prepay, the Agency will return the 
prepayment request to the borrower with a written explanation of the 
Agency's determinations.

[69 FR 69106, Nov. 26, 2004, as amended at 73 FR 65506, Nov. 4, 2008]



Sec. 3560.654  Tenant notification requirements.

    (a) Within 30 calendar days of receiving a complete prepayment 
request, the Agency will send a prepayment request notice to each tenant 
in the housing project. Borrowers must post the Agency's prepayment 
request notice in public areas throughout the housing project from the 
date of the notice until the final resolution of the prepayment request. 
The prepayment request notice will establish a date and place where 
tenants may meet with the

[[Page 568]]

Agency to discuss the prepayment request and will advise tenants that:
    (1) They may review all information submitted with the prepayment 
request except financial information regarding the borrower entity, 
which the Agency will withhold from tenant review unless given written 
permission for the release of the information from the borrower; and,
    (2) They have 30 days from the date of the prepayment request notice 
to give the Agency comments on the prepayment request.
    (b) Borrowers may provide a prepayment request notice of their own 
directly to tenants and may establish a date and place where tenants may 
meet with the borrower to discuss the prepayment request. The Agency and 
other providers of housing assistance for very-low, low, and moderate-
income households may attend a borrower's prepayment request meeting 
with tenants.
    (c) If the Agency agrees to accept prepayment on a loan, the Agency 
will send a prepayment acceptance notice to each tenant in the housing 
project at least 60 days prior to the prepayment date. Borrowers must 
post copies of the Agency's prepayment acceptance notice in public areas 
throughout the housing project until prepayment is made. If the 
prepayment acceptance was based on a borrower's agreement to comply with 
restrictive-use provisions, the notice will describe the restrictive-use 
provisions that will apply to the housing project after prepayment and 
the tenant's rights to enforcement of the provisions.
    (d) If the borrower withdraws the prepayment request, the Agency 
will provide a prepayment request cancellation notice to each tenant in 
the housing project. Borrowers must post copies of the prepayment 
request cancellation notice in the public areas throughout the housing 
project for a period of 60 days following the date of the prepayment 
request cancellation notice.
    (e) If the borrower agrees to accept incentives and restrictive-use 
provisions, the Agency will notify each tenant, in writing, of the 
agreement and provide a description of the restrictive-use provision.
    (f) If a borrower agrees to sell a housing project involved in a 
prepayment request to a nonprofit organization or public body, the 
Agency will notify each tenant, in writing, of the proposed sale to a 
nonprofit organization or public body and will explain the timeframes 
involved with the proposed sale, any potential impact on tenants, and 
the actions tenants may take to alleviate any adverse impact. Borrowers 
must post copies of the Agency's proposed sale notice in public areas 
throughout the housing project until the housing project is sold or the 
offer to sell is withdrawn.
    (g) If a tenant applicant signs a lease in a housing project for 
which a prepayment request has been submitted, the borrower must provide 
the tenant with copies of all notifications provided to tenants by the 
Agency or the borrower prior to the tenant's occupancy in the housing 
project.
    (h) If a borrower is unable to sell a housing project involved in a 
prepayment request to a nonprofit organization or public body within 180 
days as specified in Sec. 3560.659, the Agency will send a notice to 
each tenant in the housing project explaining the potential impact of 
the borrower's inability to sell the housing project on tenants and the 
actions tenants may take to alleviate any adverse impact. Borrowers must 
post the Agency's notice in public areas throughout the housing project 
for a period of 60 days following the date of the notice.



Sec. 3560.655  Agency requested extension.

    Before accepting an offer to prepay from a borrower with a 
restricted loan, the Agency must first make a reasonable effort to enter 
into a new restrictive-use agreement with the borrower. Under this 
agreement, the borrower would make a binding commitment to extend the 
low-income use of the housing and related facilities for 20 years for 
loans with interest credit, beginning on the date on which the new 
agreement is executed. If the borrower is unwilling to enter into a new 
restrictive-use provisions and restrictive-use agreement, the Agency 
should proceed to take the actions described in Sec. 3560.658.

[[Page 569]]



Sec. 3560.656  Incentives offers.

    (a) The Agency may offer a borrower, who submits a prepayment 
request meeting the conditions of Sec. 3560.653(d), incentives to agree 
to the restrictive-use period in Sec. 3560.662 if the following 
conditions are met:
    (1) The market value of the housing project is determined by the 
Agency, based on an appraisal conducted in accordance with subpart P of 
this part.
    (2) There are no restrictive-use agreements or prepayment 
prohibitions in effect.
    (b) Specific incentives offered will be based on the Agency's 
assessment of:
    (1) The value of the housing project as determined by the Agency 
based on an ``as-is'' market value appraisal conducted in accordance 
with subpart P of this part;
    (2) An incentive amount that will provide a fair return to the 
borrower;
    (3) An incentive amount that will not cause basic rents at the 
housing project to exceed conventional rents for comparable units; 
except that when determined necessary by the Agency to allow for decent, 
safe and sanitary housing to be provided in market areas where 
conventional rents are not sufficient to cover necessary operating, 
maintenance, and reserve costs. Basic rents may be allowed to exceed 
comparable rents for conventional units, but in no case by more than 
150% of the comparable rent for conventional unit rent level; and
    (4) An incentive amount that will be the least costly alternative 
for the Federal Government while being consistent with the Agency's 
commitment to the preservation of housing for very-low, low, and 
moderate income households in rural areas.
    (c) The Agency may offer the following incentives:
    (1) The Agency may increase the borrower's annual return on equity 
by one of the following two methods. The actual withdrawal of the return 
remains subject to the procedures and conditions for withdrawal 
specified in subpart G of this part.
    (i) The Agency may recognize the borrower's current equity in the 
housing project. The equity will be determined using an Agency accepted 
appraisal based on the housing project's value as unsubsidized 
conventional housing.
    (ii) When a current appraisal indicates an equity loan can not be 
made, the Agency may recognize the borrower's current equity in the 
housing project at the higher of the original rate of return or the 
current 15-year Treasury bond rate plus 2 percent rounded to the nearest 
one-quarter percent. The equity will be determined using the most recent 
Agency accepted appraisal of the housing project prior to receiving the 
prepayment request.
    (2) The Agency may agree to convert projects without interest credit 
or with Plan I interest credit to Plan II interest credit or increase 
the interest credit subsidy for loans with Section 8 assistance to lower 
the interest rate on the loan and make basic rents more financially 
feasible.
    (3) The Agency may offer additional rental assistance, or an 
increase in assistance provided under existing contracts under 
Sec. Sec. 521(a)(2), 521(a)(5) of the Housing Act of 1949 (42 U.S.C. 
1490a(a)(2)) or section 8 of the United States Housing Act of 1937 (42 
U.S.C. Sec. 1437f).
    (4) The Agency may make an equity loan to the borrower. The equity 
loan must not adversely affect the borrower's ability to repay other 
Agency loans held by the borrower and must be made in conformance with 
the following requirements:
    (i) The equity loan must not exceed the difference between the 
current unpaid loan balance and 90 percent of the housing project's 
value as determined by an ``as-is'' market value appraisal conducted in 
accordance with subpart P of this part.
    (ii) Borrowers with farm labor housing loans are not eligible to 
receive equity loans as incentives.
    (iii) If an incentive offer for an equity loan is accepted, the 
equity loan may be processed and closed with the borrower or any 
eligible transferee.
    (iv) Excess reserve funds will be used to reduce the amount of an 
equity loan offered to a borrower.
    (v) Equity loans may not be offered unless the Agency determines 
that other incentives are not adequate to provide a fair return on the 
investment of the borrower to prevent prepayment

[[Page 570]]

of the loan or to prevent displacement of project tenants.
    (5) The Agency will offer rental assistance to protect tenants from 
rent overburden caused by any rent increase as a result of a borrower's 
acceptance of an incentive offer or tenants who are currently 
overburdened.
    (6) In housing projects with project-based section 8 assistance, the 
Agency may permit the borrower to receive rents in excess of the amounts 
determined necessary by the Agency to defray the cost of long-term 
repair or maintenance of such a project.
    (d) The Agency must determine that the combination of assistance 
provided is necessary to provide a fair return on the investment of the 
borrower and is the least costly alternative for the Federal Government.
    (e) At the time a specific incentive offer is developed, the Agency 
must take into consideration the costs of any deferred maintenance, 
items in the housing project's operating budget, and any expected long-
term repair or replacement costs based on a capital needs assessment 
developed in accordance with Sec. 3560.103(c). Deferred maintenance may 
include specific items identified in previous Agency inspections where 
the borrower has had the opportunity and resources available to take 
corrective actions and did not.
    (1) Deferred maintenance does not include routine repair and 
replacement that results from normal wear and tear of the physical 
asset. The amount required for the reserve account to be considered 
fully funded will be adjusted accordingly. To determine if basic rents 
exceed conventional rents for comparable units in the area, monthly 
contributions necessary to obtain the adjusted fully funded reserve 
account will be included in the calculation of basic rents.
    (2) Deferred maintenance including any deficiencies identified in 
project compliance with section 504 of the Rehabilitation Act of 1973 
must be addressed as part of the development of the incentive and must 
be completed as part of an acceptance agreement of any incentive.
    (f) Existing loans must be consolidated, provided consolidation 
retains the Agency's lien position, and reamortized in accordance with 
subparts I and J of this part, provided it maintains feasibility of the 
housing for the tenants or reduces the debt service or the level of 
monthly rental assistance.
    (g) The borrower must accept or reject the incentive offer within 30 
days. If no answer to the offer is received within 30 days, the Agency 
may consider the incentive offer to be rejected.
    (1) If the borrower accepts the incentive offer, procedures outlined 
in Sec. 3560.657 must be followed.
    (2) If the borrower rejects the incentive offer, the borrower must 
comply with requirements listed in Sec. 3560.658.

[69 FR 69106, Nov. 26, 2004, as amended at 73 FR 65506, Nov. 4, 2008; 87 
FR 11286, Mar. 1, 2022]



Sec. 3560.657  Processing and closing incentive offers.

    (a) Borrower responsibilities. If a borrower accepts the Agency's 
offer of incentives, the borrower must complete the following actions:
    (1) Subject to the Agency's approval, the borrower must legally 
restrict the use of the project in accordance with and for the number of 
years stated in Sec. 3560.662.
    (2) If the incentive offer accepted includes an equity loan, the 
borrower must complete an application for the equity loan, and the 
borrower must continue to qualify as an eligible borrower or transferee 
in accordance with subpart B of this part.
    (3) If the incentive offer accepted includes rent increases, the 
borrower must follow the rent increase requirements established in 
subpart E of this part.
    (b) Waiting lists. If funds for components of incentive offers are 
limited, the Agency will establish a waiting list of accepted incentive 
offers for funding in the date order that the complete prepayment 
request was received.
    (c) Unfunded incentive offers. If the borrower accepts the incentive 
offer but the Agency is unable to fund the incentive within 15 months, 
the borrower may choose one of the following actions:
    (1) The borrower may offer to sell the housing project in accordance 
with Sec. 3650.659. In this case the borrower will

[[Page 571]]

be removed from the list of borrowers awaiting incentives.
    (2) The borrower may stay on the list of borrowers awaiting 
incentives until the borrower's incentive offer is funded. The Agency 
will not negotiate the incentive offer; but, at a borrower's request, 
may adjust the incentive amount to reflect an updated appraisal, loan 
balance, and terms of third party financing.
    (3) The borrower may withdraw the prepayment request and be removed 
from the list of borrowers awaiting incentives and either continue 
operating the housing project for program purposes and in accordance 
with Agency requirements or continue processing their prepayment process 
in accordance with Sec. 3560.658. If the borrower chooses to withdraw 
their request, the borrower may resubmit an updated prepayment request, 
at any time, and repeat the prepayment process in accordance with this 
subpart.
    (4) The borrower may elect to obtain a third-party equity loan 
provided rents will not exceed comparable rents in the market area.



Sec. 3560.658  Borrower rejection of the incentive offer.

    (a) If a borrower rejects the incentive package offered by the 
Agency or an Agency request to extended restrictive-use provisions, made 
in accordance with Sec. 3560.662, the loan will only be prepaid if the 
borrower elects to agree to the following:
    (1) The borrower agrees to sign restrictive-use provisions to extend 
restrictive-use by 10 years from the date of prepayment, and at the end 
of the restrictive-use period offer to sell the housing to a qualified 
nonprofit organization or public body in accordance with Sec. 3560.659.
    (2) If housing opportunities for minorities would be lost as a 
result of prepayment, the borrower will offer to sell the housing to a 
qualified nonprofit organization or public body in accordance with Sec. 
3560.659.
    (b) If the borrower does not elect or agree to enter an agreement in 
accordance with paragraph (a) of this section, then the Agency will 
assess the impact of prepayment on two factors: housing opportunities 
for minorities and the supply of decent, safe, sanitary, and affordable 
housing in the market area. The Agency will review relevant information 
to determine the availability of comparable affordable housing for 
existing tenants in the market area and if minorities in the project, on 
the waiting list or in the market area will be disproportionately 
adversely affected by the loss of the affordable rental housing units.
    (1) If restrictive-use provisions are in place, the borrower will 
agree to sign the restrictive-use provisions, as determined by the 
Agency, and at the end of the restrictive-use period, offer to sell the 
housing to a qualified nonprofit organization or public body in 
accordance with Sec. 3560.659.
    (2) If the Agency determines that prepayment will have an adverse 
impact on minorities, then the borrower must offer to sell to a 
qualified nonprofit organization or public body in accordance with the 
provisions of paragraph (a) of this section.
    (3) If the Agency determines that the prepayment will not have an 
adverse effect on housing opportunities for minorities but there is not 
an adequate supply of decent, safe, and sanitary rental housing 
affordable to program eligible tenant households in the market area, the 
loan may be prepaid only if the borrower agrees to sign restrictive-use 
provisions, as determined by the Agency, to protect tenants at the time 
of prepayment.
    (4) If the Agency determines that there is no adverse impact on 
minorities and there is an adequate supply of decent, safe, and sanitary 
rental housing affordable to program eligible tenant households in the 
market area the prepayment will be accepted with no further restriction.
    (c) If the borrower agrees to the restrictive-use provisions, as 
determined by the Agency, the applicable language must be included in 
the release documents and the borrower must execute a restrictive-use 
agreement acceptable to the Agency and a deed restriction.
    (d) If the borrower will not agree to applicable restrictive-use 
provisions, as determined by the Agency, the borrower must offer to sell 
to a nonprofit or public body in accordance with

[[Page 572]]

Sec. 3560.659 or withdraw their prepayment request.

[69 FR 69106, Nov. 26, 2004, as amended at 73 FR 65506, Nov. 4, 2008]



Sec. 3560.659  Sale or transfer to nonprofit organizations and public bodies.

    (a) Sales price. For the purposes of establishing a sales price when 
a borrower is required or elects to sell a housing project to a 
nonprofit organization or public body, two independent appraisals will 
be ordered, one by the Agency and one by the borrower. Both appraisals 
will conclude market value and be in accordance with subpart P of this 
part. If the borrower's assessment of the Agency's appraised market 
value indicates that no further appraisal is needed, the borrower may 
agree to accept the Agency's appraisal.
    (1) The expense of the borrower's appraisal shall be borne by the 
borrower. The appraiser selected may not have an identity of interest 
with the borrower.
    (2) If the two appraisers fail to agree on the market value, the 
Agency and the borrower will jointly select an appraiser whose appraisal 
will be binding on the Agency and the borrower. The Agency and the 
borrower shall jointly fund the cost of the appraisal.
    (b) Marketing to nonprofit organizations and public bodies. If a 
borrower must offer the property for sale to a nonprofit organization or 
public body under this paragraph, the borrower must take the following 
actions to inform appropriate entities of the sale:
    (1) The borrower must advertise and offer to sell the project for a 
minimum of 180 days. The borrower may choose to suspend advertising and 
other sales efforts while eligibility of an interested purchaser is 
determined. If the purchaser is determined to be ineligible, the 
borrower must resume advertising for the balance of the required 180 
days.
    (2) The Agency will assist the borrower in initially notifying 
nonprofit organizations and public bodies.
    (3) The borrower must provide the nonprofit organizations and public 
bodies contacted with sufficient information regarding the housing 
project and its operations for interested purchasers to make an informed 
decision. The information provided must include the minimum value of the 
housing project based on the market value determined in accordance with 
paragraph (a) of this section.
    (4) If an interested purchaser requests additional information 
concerning the housing project, the borrower must promptly provide the 
requested materials.
    (c) Preference for local nonprofit and public bodies. Local 
nonprofit organizations and public bodies have priority over regional 
and national nonprofit organizations and public bodies. The Agency may 
determine that no local nonprofit organizations or public bodies are 
available to purchase the housing project. After this determination, the 
borrower may accept an offer from a regional or national nonprofit 
organization or public body.
    (d) Eligible nonprofit organizations. To be eligible to purchase 
properties under the conditions of this subpart, nonprofit organizations 
may not have among its officers or directorate any persons or parties 
with an identity-of-interest (or any persons or parties related to any 
person with identity-of-interest) in loans financed under section 515 
that have been prepaid. In addition to local nonprofit organizations, 
eligible nonprofit organizations include regional or national nonprofit 
organizations or public bodies provided no part of the net earnings of 
which accrue to the benefit of any member, founder, contributor or 
individual.
    (e) Requirements for nonprofit organizations and public bodies. To 
purchase and operate a housing project, a nonprofit organization or 
public body must meet the following requirements:
    (1) The purchaser must agree to maintain the housing project for 
very low- and low-income families or persons for the remaining useful 
life of the housing and related facilities. However, currently eligible 
moderate-income tenants will not be required to move.
    (2) The purchaser must agree that no subsequent transfer of the 
housing project will be permitted for the remaining useful life of the 
housing project unless the Agency determines that the transfer will 
further the provision of housing for low-income households, or there is 
no longer a need for

[[Page 573]]

the housing project. Language to be included in the deed, conveyance 
instrument, loan resolution, and assumption agreement (as applicable) is 
provided in Sec. 3560.662.
    (3) The purchaser must demonstrate financial feasibility of the 
housing project including anticipated funding.
    (4) The purchaser must certify to the Agency that no identity-of-
interest relationships in accordance with Sec. 3560.102(g). The 
purchaser must not have any identity of interest with the seller or any 
borrower that has previously prepaid or requested prepayment of an 
Agency MFH loan.
    (5) The purchaser must complete an Agency-approved application and 
obtain Agency approval in accordance with subpart B of this part.
    (6) The purchaser must make a ;good faith offer taking into 
consideration the value of the housing project as determined in 
accordance with paragraph (a) of this section.
    (f) Selection priorities. If more than one qualified nonprofit 
organization or public body submits an offer to purchase the project at 
the same time, priority will be given to local nonprofit organizations 
and public bodies over regional and national nonprofit organizations or 
public bodies. When selecting between offers equally meeting all other 
criteria, the borrower will first consider the success of the nonprofit 
organization's or public body's previous experience in developing and 
maintaining subsidized housing, with preference given to the most 
successful. If the offers continue to be equal, the borrower will then 
consider the number of years experience that the nonprofit organization 
or public body has had in developing and maintaining subsidized housing, 
with preference given to the greater number of years.
    (g) Loans made by the Agency or other sources to nonprofit 
organizations and public bodies. Agency loans to nonprofit organizations 
or public bodies may be made for the purposes described in this 
paragraph. Agency loans will be processed in accordance with subpart B 
of this part. Loans from other sources will be approved by the Agency in 
accordance with subpart I of this part.
    (1) Agency loans to nonprofit organizations or public bodies for the 
purchase of a housing project will be based on the appraised value 
determined in accordance with paragraph (a) of this section.
    (2) With proper justification, an Agency loan may be made to help 
the nonprofit organization or public body meet the housing project's 
first year operating expenses if there are insufficient funds in the 
housing project's general operating and expense account to meet such 
expenses. An Agency loan, for the purpose of covering first year 
operating expenses, may not exceed 2 percent of the housing project's 
appraised value determined in accordance with paragraph (c) of this 
section.
    (h) Advances for nonprofit organizations and public bodies. The 
Agency may make advances, in accordance with section 502(c)(5)(c)(i), 
not in excess of limits established by Congress to nonprofit 
organizations or public bodies that are purchasing housing under this 
subpart. Grant funds may be used to cover any direct costs other than 
the purchase price, incurred by nonprofit organizations or public bodies 
in purchasing and assuming responsibility for the housing project.
    (i) Waiting list. If funds for sales to nonprofit organizations and 
public bodies are limited, the Agency will add the funding requests to 
the waiting list for incentives and follow the process established in 
Sec. 3560.657(b) and (c).
    (j) Withdrawal from sales process. A borrower may withdraw the 
prepayment request at any time prior to the sale of the property. The 
borrower will be responsible for any damages associated with breaking a 
sales contract established with a nonprofit organization or public body.
    (k) When no offer to purchase is received. Prepayment with no 
further restriction may be accepted by the Agency when the borrower 
agrees to offer the housing project for sale to a nonprofit organization 
or public body in accordance with Sec. 3560.659 and no good faith offer 
is received within 180 days from the date that the housing project was 
advertised for sale to a nonprofit organization or public body, or a 
good faith offer was received within 180 days from the advertisement 
date but the offeror was unable to fulfill the terms of the offer within 
24 months of the

[[Page 574]]

offer date, provided the owner cooperated with the potential purchaser.

[69 FR 69106, Nov. 26, 2004, as amended at 73 FR 65506, Nov. 4, 2008]



Sec. 3560.660  Acceptance of prepayments.

    (a) When the Agency agrees to accept prepayment, the Agency will 
notify borrowers, in writing, of the conditions under which the Agency 
will accept prepayment including the specific restrictive-use provisions 
to which the borrower has agreed and the date by which the borrower must 
make the prepayment.
    (1) Prepayment must be made 180 days from the date of the Agency's 
prepayment acceptance notice to the borrower.
    (2) If the borrower's prepayment is not received within 180 days of 
the prepayment acceptance notice and the Agency has not agreed to an 
alternative date based on a written request from the borrower, the 
Agency may cancel the prepayment acceptance agreement.
    (b) Tenants will be notified of the prepayment acceptance agreement 
in accordance with Sec. 3560.654(c). If a prepayment is anticipated to 
result in increased net tenant contributions, displacements or 
involuntary relocations, the tenants, who are affected by such a 
circumstance, may request a Letter Of Priority Entitlement (LOPE) in 
accordance with Sec. 3560.159(c). Tenants must request a LOPE within 
one year of the prepayment acceptance notice date.
    (c) Owners will provide certification stating that they will meet 
state and local laws prior to prepayment acceptance.



Sec. 3560.661  Sale or transfers.

    (a) If a sale or transfer is to take place in conjunction with the 
Agency incentive offer, the sale or transfer must comply with the 
processing provisions of subpart I of this part.
    (b) If a proposed transferee is determined not to be eligible for 
the transfer and assumption, the borrower will be given an additional 45 
days to find another transferee.
    (c) In cases where the existing owner is in program non-compliance 
or default, the Agency may make an offer of incentives contingent on the 
successful transfer of the housing to an acceptable purchaser. The 
Agency may offer a smaller incentive or no incentive if the borrower 
does not agree to transfer the project to an acceptable purchaser, or if 
the transfer does not take place.



Sec. 3560.662  Restrictive-use provisions and agreements.

    All restrictions require Agency approval and must be in accordance 
with the following restrictions:
    (a) The undersigned, and any successors in interest, agree to use 
the property (described herein) in compliance with 42 U.S.C. 1484 or 
1485, whichever is applicable, and applicable regulations and the 
subsequent amendments, for the purpose of housing:
    (1) Very low-, or low-income households when required by Sec. 
3560.658(a)(2), or
    (2) Very low-, low-, or moderate-income households.
    (b) The period of the restriction will be inserted in accordance 
with the following:
    (1) 10 years if required by Sec. 3560.658(a)(1);
    (2) The last existing tenant (that occupied the property on the date 
of prepayment) voluntarily vacates if required by Sec. 3560.658(b)(3);
    (3) 30 years if required by Sec. 3560.406(g);
    (4) Remaining period of existing restrictive-use provisions and any 
agreed extension if required by Sec. 3560.655 or Sec. 3560.658 (b)(1);
    (5) The remaining useful life of the housing and related facilities 
if required by Sec. 3560.658(a)(2); and
    (6) 20 years in all other cases.
    (c) When required by Sec. 3560.658(a)(1) or (a)(2), the undersigned 
agrees that at the end of the expiration of the period described in 
paragraph (b) of this section, the property will be offered for sale to 
a qualified nonprofit organization or public body, in accordance with 
previously cited statutes and regulations.
    (d) The Agency and eligible tenants or applicants may enforce these 
restrictions.
    (e) The undersigned also agrees to:
    (1) To set rents, other charges, and conditions of occupancy in a 
manner to meet these restrictions;

[[Page 575]]

    (2) To post an Agency approved notice of this restriction for the 
tenants of the property;
    (3) To adhere to applicable local, state, and Federal laws; and
    (4) To obtain Agency concurrence for any rental procedures that 
deviate from those approved at the time of prepayment, prior to 
implementation.
    (f) The undersigned will be released from these obligations before 
the termination period in paragraph (b) of this section only when the 
Agency determines that there is no longer a need for the housing or that 
financial assistance provided the residents of the housing will no 
longer be provided due to no fault, action or lack of action on the part 
of the borrower.

[69 FR 69106, Nov. 26, 2004, as amended at 73 FR 65506, Nov. 4, 2008]



Sec. 3560.663  Post-payment responsibilities for loans subject to continued restrictive-use provisions.

    (a) If a borrower prepays a loan and the housing project remains 
subject to restrictive-use provisions, the requirements of this section 
apply after prepayment.
    (b) Owners of prepaid housing projects will be responsible for 
ensuring that the restrictive-use provisions agreed to as a condition of 
prepayment are observed.
    (c) Owners must maintain appropriate documentation to demonstrate 
compliance with the restrictive-use provisions and must make the 
documentation and the housing project site available for Federal 
Government inspection upon request.
    (1) Owners must document rent increases in accordance with subpart G 
of this part.
    (2) Owners must document tenant eligibility in accordance with Sec. 
3560.152.
    (3) In an Agency approved format, owners must provide the agency 
with a signed and dated certification within 30 days of the beginning of 
each calendar year for the full period of the restrictive-use provisions 
establishing that the restrictive-use provisions are being met.
    (d) Owners must observe Agency policies on tenant grievances as 
described in Sec. 3560.160. The Agency may enforce restrictive-use 
provisions through administrative and legal actions. Tenants may enforce 
the restrictive-use provisions by contacting the Agency or through legal 
action. The Agency will release the restrictive-use provisions when the 
Agency conditions have been met.



Sec. Sec. 3560.664-3560.699  [Reserved]



Sec. 3560.700  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                    Subpart O_Unauthorized Assistance



Sec. 3560.701  General.

    (a) This subpart contains the policies for recapturing unauthorized 
assistance when the Agency determines that a borrower or tenant was 
ineligible for, or improperly used, assistance received from the Agency.
    (b) The Agency may seek repayment of any unauthorized assistance 
provided to a borrower or tenant, plus the cost of collection, 
regardless of whether the unauthorized assistance was due to errors by 
the Agency, the borrower, or the tenant.



Sec. 3560.702  Unauthorized assistance sources and situations.

    (a) Unauthorized assistance can be received by a borrower or tenant 
in the form of loans, grants, interest credit, rental assistance, or 
other assistance provided by the Agency including assistance received as 
a result of an incorrect interest rate being applied to an Agency loan. 
Agency officials may pursue identification and recapture of

[[Page 576]]

unauthorized assistance through any legal remedies available.
    (b) Unauthorized assistance may result from situations such as:
    (1) Assistance being provided to an ineligible borrower or tenant;
    (2) Assistance to an eligible borrower or tenant being used for an 
unauthorized purpose;
    (3) Assistance being obtained as a result of inaccurate, incomplete, 
or fraudulent information provided by a borrower or tenant; or
    (4) Assistance being obtained as a result of errors by the Agency, 
borrower, or tenant.



Sec. 3560.703  Identification of unauthorized assistance.

    (a) The Agency will use all available means to identify unauthorized 
assistance, including Agency monitoring activities, OIG reports, GAO 
reports, and reports from any source, if the information provided can be 
substantiated by the Agency.
    (b) Borrowers have the primary responsibility for identifying 
repayment of unauthorized assistance received by tenants.



Sec. 3560.704  Unauthorized assistance determination notice.

    (a) The Agency will notify borrowers, in writing, when a 
determination has been made that unauthorized assistance was received by 
the borrower. Borrowers will notify tenants, in writing, when a 
determination is made that unauthorized assistance was received by the 
tenant and will simultaneously send the Agency of copy of the written 
notice to the tenant.
    (b) The unauthorized assistance determination notice is a 
preliminary notice, not a demand letter. The unauthorized assistance 
determination notice will:
    (1) Specify the reasons the assistance was determined to be 
unauthorized;
    (2) State the amount of unauthorized assistance to be repaid and 
specify the party responsible for repayment of the unauthorized 
assistance (i.e., the tenant or borrower) according to the provision of 
Sec. 3560.708;
    (3) Establish a place and time when the person receiving the 
unauthorized assistance determination notice may meet with the Agency 
or, in the case of tenants, may meet with the borrower, to discuss 
issues related to the unauthorized assistance notice such as the 
establishment of a repayment schedule; and
    (4) Advise the borrower or tenant that they may present facts, 
figures, written records, or other information within a specified period 
of time which might alter the determination that the assistance received 
was unauthorized.
    (c) Upon request, the Agency or borrower, in the case of tenants, 
will grant additional time for discussions related to an unauthorized 
assistance determination notice. Borrowers must notify the Agency of 
schedule revisions when additional time is granted to a tenant in 
unauthorized assistance claims.



Sec. 3560.705  Recapture of unauthorized assistance.

    (a) The Agency will seek repayment of all unauthorized assistance 
received by a borrower or tenant, plus the cost of collection, to the 
fullest extent permitted by law. Agency efforts to collect unauthorized 
assistance may include offsets, the use of private or public collection 
agents, and any other remedies available. Agency findings related to 
unauthorized assistance determinations will be referred to credit 
reporting bureaus and other federal, state, or local agencies with 
jurisdictions related to the unauthorized assistance findings for 
suspension, debarment, civil or criminal action to the fullest extent 
permitted by law.
    (b) If a borrower or tenant agrees to repay unauthorized assistance, 
the amount due will be the amount stated in the unauthorized assistance 
determination notice unless another amount has been approved by the 
Agency.
    (c) Repayment may be made either with a lump sum payment or through 
payments made over a period of time. If a borrower or tenant agrees to 
repay unauthorized assistance, the borrower or tenant proposed repayment 
schedule must be approved by Agency prior to implementation. Agency 
approval of a repayment schedule will take into consideration the best 
interest of the borrower, the tenant, and the Federal Government.

[[Page 577]]

    (d) Borrowers must retain copies of all correspondence and a record 
of all conversations between the borrower and a tenant regarding 
unauthorized assistance received by a tenant.
    (e) When a tenant, who has received unauthorized assistance due to 
tenant error or fraud as determined by the Agency, moves out of a 
housing project, the borrower is no longer responsible for recapturing 
the unauthorized assistance provided that the borrower notifies the 
Agency of the tenant's move and transfers all records related to the 
tenant's unauthorized assistance to the Agency within 30 days of the 
tenant's move. The Agency will pursue collection of the unauthorized 
assistance from the tenant.
    (f) If a borrower refuses to enter into an unauthorized assistance 
repayment schedule with the Agency, the Agency will initiate liquidation 
procedures, in accordance with Sec. 3560.456, or other enforcement 
actions, such as suspension, debarment, civil, or criminal penalties, in 
accordance with Sec. 3560.461. If a tenant refuses to enter into an 
unauthorized assistance repayment schedule, the Agency will initiate 
recovery actions against the tenant.
    (g) Borrowers may not use housing project funds to pay amounts due 
to the Agency as a result of unauthorized assistance due to borrower 
fraud.



Sec. 3560.706  Offsets.

    Offsets and any other available remedies may be used by the Agency 
to recapture unauthorized assistance. Guidance concerning use of offsets 
can be found at 7 CFR 3550.210.



Sec. 3560.707  Program participation and corrective actions.

    (a) With Agency approval, a borrower or tenant, who has received 
unauthorized assistance, may continue to participate in the project if 
they have the legal and financial capabilities to do so. Approval 
considerations for such forbearance and repayment are in Sec. 3560.705.
    (b) A borrower or tenant who was responsible for the circumstances 
causing the unauthorized assistance must take appropriate action to 
correct the problem within 90 days of the unauthorized assistance 
determination notice date, unless an alternative date is agreed to by 
the Agency.
    (c) When the interest rate shown in a debt instrument resulted in 
the receipt of unauthorized assistance, the debt instrument will be 
modified to the correct interest rate. All payments made by the borrower 
at the incorrect interest rate will be reapplied at the correct interest 
rate, and remaining payments due on the loan will be recalculated on the 
basis of the correct interest rate, plus any amounts due to the Agency 
as a result of the use of an incorrect interest rate, unless the Agency 
agrees to a separate repayment process.



Sec. 3560.708  Unauthorized assistance received by tenants.

    (a) Tenant actions that require tenant repayment of unauthorized 
assistance received by tenants include, but are not limited to:
    (1) Knowingly or mistakenly misrepresenting income, assets, 
adjustments to income, or household status to the borrower as required 
under subpart D of this part; or
    (2) Failure to properly report changes in income, assets, 
adjustments to income, or household status to the borrower as required 
in subpart D of this part.
    (b) Borrower actions that require borrower repayment of unauthorized 
assistance received by tenants include, but are not limited to:
    (1) Incorrect determination of tenant income or household status by 
the borrower, resulting in rental assistance or interest credit that is 
not allowable under the provisions of subparts D, E, or F of this part, 
as applicable; or
    (2) Assignment of rental assistance to a household that is 
ineligible under the requirements of subpart F of this part.
    (c) When it is determined that a tenant has received unauthorized 
assistance, the borrower shall notify the tenant and the Agency through 
the procedure specified in Sec. 3560.704.
    (d) Borrowers may not charge tenants to pay amounts due to the 
Agency as a result of unauthorized assistance to tenants through 
borrower error.
    (e) Borrowers must notify the Agency of all collections from tenants 
as repayments for unauthorized assistance and must remit or credit the 
amounts

[[Page 578]]

collected to applicable housing project accounts.
    (f) When rental assistance was improperly assigned to a tenant, for 
any reason, the rental assistance benefit must be canceled and 
reassigned.
    (1) Before a borrower notifies a tenant of rental assistance 
cancellation, the borrower must request Agency approval. If the Agency 
determines that the unauthorized rental assistance was received by the 
tenant due to borrower fraud or error, the borrower must give the tenant 
30 days notice, in writing, that the unit was assigned in error and that 
the rental assistance benefit will be canceled effective on date that 
the next monthly rental payment is due after the end of the 30-day 
notice period.
    (2) Tenants also must be notified, in writing, that they may cancel 
their lease without penalty at the time the rental assistance is 
canceled. Tenants must be offered an opportunity to meet with a borrower 
to discuss the rental assistance cancellation.



Sec. 3560.709  Demand letter.

    (a) If a borrower fails to respond to an unauthorized assistance 
determination notice or fails to agree to a repayment schedule, the 
Agency will send the borrower a demand letter specifying:
    (1) The amount of unauthorized assistance to be repaid and the basis 
for the unauthorized assistance determination; and
    (2) The actions to be taken by the Agency if repayment is not made 
by a specified date.
    (b) If a tenant fails to respond to the unauthorized assistance 
determination notice or fails to agree to a repayment schedule, the 
borrower will send the tenant a demand letter specifying:
    (1) The amount of unauthorized assistance to be repaid and the basis 
for the unauthorized assistance determination;
    (2) The actions to be taken if repayment is not made by a specified 
date, including termination of tenancy; and
    (3) The appeal rights of the tenant as specified in Sec. 3560.160.
    (c) A demand letter may be sent to a borrower or tenant, in lieu of 
an unauthorized assistance determination notice, when the evidence 
documenting the unauthorized assistance determination is deemed to be 
conclusive by the Agency or borrower sending the letter.



Sec. Sec. 3560.710-3560.749  [Reserved]



Sec. 3560.750  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                          Subpart P_Appraisals



Sec. 3560.751  General.

    This subpart sets forth appraisal policies for Agency-financed 
multi-family housing (MFH) projects consisting of five or more rental 
units. Agency-financed housing projects with fewer than five rental 
units may be appraised in accordance with the Agency's single family 
housing appraisal policies established under 7 CFR 3550.62.



Sec. 3560.752  Appraisal use, request, review, and release.

    (a) Appraisal uses. The Agency will use appraisals to determine 
whether the security offered by an applicant or borrower is adequate to 
secure a loan or determine appropriate servicing or preservation 
decisions. Appraisals used for Agency decision-making must be current, 
unless the Agency and the applicant, or borrower, mutually agree to the 
use of an appraisal that is not current. A current appraisal is an 
appraisal with a report date that is not more than one year old.
    (b) Appraisal requests. Appraisal requests must be in writing and 
must specify the client and other intended users, the intended use, the 
purpose,

[[Page 579]]

and the scope of work of the appraisal, including the type and 
definition of the value(s) to be developed.
    (1) Type of Value. The appraisal request must indicate whether the 
``market value'', the ``market value, subject to restricted rents'', or 
any other type of value of the housing project and related facilities is 
to be concluded.
    (i) A request for ``market value, subject to restricted rents'' 
means the appraisal will take into consideration any rent limits, rent 
subsidies, expense abatements, or restrictive-use conditions that will 
affect the property as a result of an agreement with the Agency or any 
other financing source. Each type of financing involved, including, but 
not limited to, interest credit subsidy, low-interest loans from other 
sources, tax-exempt bond financing, tax credits, and grants, must be 
valued separately in the appraisal.
    (ii) A request for ``market value'' means the appraisal will take 
into consideration the most probable price which a property should bring 
in a competitive and open market under all conditions requisite to a 
fair sale, the buyer and seller each acting prudently and knowledgeably, 
and assuming the price is not affected by undue stimulus. Implicit in 
this definition is the consummation of a sale as of a specified date and 
the passing of title from seller to buyer under conditions whereby:
    (A) Buyer and seller are typically motivated;
    (B) Both parties are well informed or well advised and acting in 
what they consider their best interests;
    (C) A reasonable time is allowed for exposure in the open market;
    (D) Payment is made in terms of cash in United States dollars or in 
terms of financial arrangements comparable thereto; and
    (E) The price represents the normal consideration for the property 
sold unaffected by special or creative financing or sales concessions 
granted by anyone associated with the sale.
    (2) `` `As-is' Value'' or ``Prospective Value''. The appraisal 
request must indicate whether the ```as-is' value'' or ``prospective 
value'' of the housing is to be concluded.
    (i) `` `As-is' value'' means the value of the housing and related 
facilities as of the effective date of the appraisal. It relates to what 
physically exists and is legally permissible at the time of the 
appraisal and excludes all hypothetical conditions.
    (ii) ``Prospective value'' means the forecasted value of the housing 
and related facilities as of a specified future date. For Agency 
appraisals, this date will typically be the projected completion date of 
proposed new construction or rehabilitation.
    (3) Section 8 project-based assistance. Depending on the intended 
use of the appraisal, the Agency will specify whether or not section 8 
project-based assistance will be considered in the valuation of the 
housing. The remaining term of the section 8 contract and the 
probability of subsequent renewal terms being authorized will be taken 
into consideration when making this determination.
    (4) Low-Income Housing Tax Credit (LIHTC) and other financing 
sources. Depending on the intended use of the appraisal, the Agency will 
specify whether or not tax credits and other financing sources involved 
in the housing will be considered in the valuation of the housing.
    (c) Appraisal review. All MFH appraisals that were not written by an 
Agency appraiser will be reviewed by an Agency appraiser, who will write 
and file a technical review report that complies with the Uniform 
Standards of Professional Appraisal Practice (USPAP) and Agency 
requirements.
    (d) Release of appraisals. MFH appraisals procured by the Agency 
will be released to owners/applicants, from their own files, upon their 
request.



Sec. 3560.753  Agency appraisal standards and requirements.

    (a) General. The Agency recognizes USPAP as the basic standards for 
appraisals. Appraisals used by the Agency must comply with USPAP and 
this subpart.
    (b) Appraisers. MFH appraisals prepared for the Agency will be 
written by Agency appraisers or independent fee appraisers who are state 
certified general appraisers, certified in the state

[[Page 580]]

where the property is located. Technical review reports will be written 
by Agency state certified general appraisers.
    (c) Appraisal report. The appraisal report format may be a form 
appraisal or a narrative appraisal. The Agency will specify the 
appraisal format that is most appropriate for the scope of work involved 
when the appraisal is requested.
    (1) Form appraisal reports. The Agency will accept appraisal report 
forms that meet generally accepted industry standards, comply with 
USPAP, and have been approved by the Agency.
    (2) Narrative appraisal reports. Narrative appraisal reports must, 
at a minimum, contain the following items:
    (i) Transmittal letter;
    (ii) Factual information about the property;
    (iii) Regional and neighborhood data;
    (iv) Description of the subject property;
    (v) Description of existing and planned improvements;
    (vi) A highest and best use analysis;
    (vii) A statement regarding any environmental issues, such as 
potential contamination of the property from hazardous substances, 
hazardous wastes, or petroleum products;
    (viii) A cost approach analysis (if applicable);
    (ix) A sales comparison approach analysis (if applicable);
    (x) An income approach analysis (if applicable);
    (xi) A reconciliation of the value indications derived from the 
included approaches to value; and
    (xii) A signed and dated certification of value.
    (3) At the time an appraisal is requested, the Agency will specify 
either a complete or a limited appraisal and one of the following types 
of appraisal reports, based upon the complexity of the appraisal 
assignment.
    (i) A self-contained report that comprehensively describes all 
information significant to the solution of the appraisal problem;
    (ii) A summary report that summarizes all information significant to 
the solution of the appraisal problem; or
    (iii) A restricted use report, intended for Agency use only, that 
briefly states all information significant to the solution of the 
appraisal problem.
    (d) Highest and best use statement and analysis. The highest and 
best use is to be concluded for the subject site as though it was 
vacant, and for the subject property as improved, if improvements have 
been made. If the highest and best use of a subject property is for 
something other than MFH, the appraisal report must provide this 
information to the Agency for consideration in the loan process. In 
addition to being reasonably probable and appropriately supported, the 
highest and best use of both the land as though vacant and the property 
as improved must meet four implicit criteria. The highest and best use 
must be:
    (1) Physically possible;
    (2) Legally permissible;
    (3) Financially feasible; and
    (4) Maximally productive.
    (e) Valuation methods and variances. The final opinion of value 
presented in an appraisal report must have considered a cost approach, a 
sales comparison approach, and an income approach. If one of these 
standard approaches is not used, the reconciliation narrative will 
provide a full and complete explanation of the reasons the approach was 
excluded. The reconciliation will fully discuss and reconcile variances 
in the value indications concluded by each approach.
    (f) Real estate history. Appraisals must contain a 5-year ownership 
and sales history for the housing project being appraised.
    (g) Reserve accounts. Funds in the housing project's reserve account 
will not be considered in the valuation of the housing project.
    (h) Escrow accounts. Short-term prepaid escrow accounts for general 
operating expenses, such as taxes and insurance, shall not be considered 
in the valuation of the housing project.
    (i) Rental rates comparison. The appraisal report must document 
whether the housing project's basic rents are less than, equal to, or 
greater than market rents for comparable conventional, or non-
subsidized, units in the area where the housing is located.
    (j) Description of housing and property rights. The appraisal report 
must identify and describe both the real estate,

[[Page 581]]

which is the land and improvements, and the real property, or property 
rights, being appraised.
    (k) Exclusion of rental units from valuation. The Agency will 
provide appraisers with instructions and supporting information on any 
rental units that do not produce rental income at the time of the 
appraisal.
    (l) Non-contiguous sites. When a housing project has real property 
located on non-contiguous sites, a separate appraisal must be developed 
for each site.



Sec. Sec. 3560.754-3560.799  [Reserved]



Sec. 3560.800  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 hours per response, including time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



PART 3565_GUARANTEED RURAL RENTAL HOUSING PROGRAM--Table of Contents



                      Subpart A_General Provisions

Sec.
3565.1 Purpose.
3565.2 Applicability and authority.
3565.3 Definitions.
3565.4 Availability of assistance.
3565.5 Ranking and selection criteria.
3565.6 Inclusion of tax-exempt debt.
3565.7 Environmental review requirements.
3565.8 Civil rights compliance.
3565.9 Compliance with federal requirements.
3565.10 Conflict of interest.
3565.11-3565.12 [Reserved]
3565.13 Exception authority.
3565.14 Review and appeals.
3565.15 Oversight and monitoring.
3565.16 [Reserved]
3565.17 Demonstration programs.
3565.18-3565.49 [Reserved]
3565.50 OMB control number.

                    Subpart B_Guarantee Requirements

3565.51 Eligible loans and advances.
3565.52 Conditions of guarantee.
3565.53 Guarantee fees.
3565.54 Transferability of the guarantee.
3565.55 Participation loans.
3565.56 Suspension or termination of loan guarantee agreement.
3565.57 Modification, extension, reinstatement of loan guarantee.
3565.58-3565.99 [Reserved]
3565.100 OMB control number.

                      Subpart C_Lender Requirements

3565.101 Responsibility of lenders.
3565.102 Lender eligibility.
3565.103 Approval requirements.
3565.104 Application requirements.
3565.105 Lender compliance.
3565.106 Construction lender requirements.
3565.107 [Reserved]
3565.108 Responsibility for actions of agents and mortgage brokers.
3565.109 Minimum loan prohibition.
3565.110 Insolvency of lender.
3565.111 Lobbying activities.
3565.112-3565.149 [Reserved]
3565.150 OMB control number.

               Subpart D_Borrower Eligibility Requirements

3565.151 Eligible borrowers.
3565.152 Control of land.
3565.153 Experience and capacity of borrower.
3565.154 Previous participation in state and federal programs.
3565.155 Identity of interest.
3565.156 Certification of compliance with federal, state, and local laws 
          and with Agency requirements.
3565.157-3565.199 [Reserved]
3565.200 OMB control number.

                       Subpart E_Loan Requirements

3565.201 General.
3565.202 Tenant eligibility.
3565.203 Restrictions on rents.
3565.204 Maximum loan amount.
3565.205 Eligible uses of loan proceeds.
3565.206 Ineligible uses of loan proceeds.
3565.207 Form of lien.
3565.208 Maximum loan term.
3565.209 Loan amortization.
3565.210 Maximum interest rate.
3565.211 Interest credit.
3565.212 Multiple guaranteed loans.
3565.213 Geographic distribution.
3565.214 [Reserved]
3565.215 Special conditions.
3565.216-3565.249 [Reserved]
3565.250 OMB control number.

[[Page 582]]

                     Subpart F_Property Requirements

3565.251 Eligible property.
3565.252 Housing types.
3565.253 Form of ownership.
3565.254 Property standards.
3565.255 Environmental review requirements.
3565.256 Architectural services.
3565.257 Procurement actions.
3565.258-3565.299 [Reserved]
3565.300 OMB control number.

                    Subpart G_Processing Requirements

3565.301 Loan standards.
3565.302 Allowable fees.
3565.303 Issuance of loan guarantee.
3565.304 Lender loan processing responsibilities.
3565.305 Mortgage and closing requirements.
3565.306-3565.349 [Reserved]
3565.350 OMB control number.

                      Subpart H_Project Management

3565.351 Project management.
3565.352 Preservation of affordable housing.
3565.353 Affirmative fair housing marketing.
3565.354 Fair housing accommodations.
3565.355 Changes in ownership.
3565.356-3565.399 [Reserved]
3565.400 OMB control number.

                    Subpart I_Servicing Requirements

3565.401 Servicing objectives.
3565.402 Servicing responsibilities.
3565.403 Special servicing.
3565.404 Transfer of loans or mortgage servicing.
3565.405 Repurchase of guaranteed loans.
3565.406-3565.449 [Reserved]
3565.450 OMB control number.

              Subpart J_Assignment, Conveyance, and Claims

3565.451 Preclaim requirements.
3565.452 Decision to liquidate.
3565.453 Disposition of the property.
3565.454 [Reserved]
3565.455 Alternative disposition methods.
3565.456 Filing a claim.
3565.457 Determination of claim amount.
3565.458 Withdrawal of claim.
3565.459-3565.499 [Reserved]
3565.500 OMB control number.

   Subpart K_Agency Guaranteed Loans That Back Ginnie Mae Guaranteed 
                               Securities

3565.501 Applicability.
3565.502 Incontestability.
3565.503 Repurchase.
3565.504 Transfers.
3565.505 Liability.
3565.506-3565.549 [Reserved]
3565.550 OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

    Source: 63 FR 39458, July 22, 1998, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 3565.1  Purpose.

    The purpose of the Guaranteed Rural Rental Housing Program (GRRHP) 
is to increase the supply of affordable rural rental housing, through 
the use of loan guarantees that encourage partnerships between the Rural 
Housing Service, private lenders and public agencies.



Sec. 3565.2  Applicability and authority.

    The regulation prescribes the policies, authorizations, and 
procedures for the guarantee of multifamily loans under section 538 of 
the Housing Act of 1949.



Sec. 3565.3  Definitions.

    Administrator. The Administrator of the Rural Housing Service, or 
his or her designee.
    Agency. The Rural Housing Service, or a successor agency.
    Allowable claim amount. The total losses incurred by the lender, as 
calculated pursuant to subpart J of this part.
    Applicable Federal Rate (AFR). The interest rate set by the federal 
government for federal financing programs pursuant to section 42 of the 
Internal Revenue Code.
    Approved lender. An eligible lender who has been authorized by the 
Agency to originate and service guaranteed multifamily loans under the 
program.
    Assignment. The delivery by a lender to the Agency of the note and 
any other security instruments securing the guaranteed loan; and any and 
all liens, interest, or claims the lender may have against the borrower.
    Assistance. Financial assistance in the form of a loan guarantee or 
interest credit received from the Agency.
    Borrower. The individuals or entities responsible for repaying the 
loans.
    Claim. The presentation to the Agency of a demand for payment for 
losses

[[Page 583]]

incurred on a loan guaranteed under the program.
    Conditional commitment. The written commitment by the Agency to 
guarantee a loan subject to the stated terms and conditions.
    Construction and permanent loan. A loan which provides advances 
during the construction period and remains in place as a permanent loan 
at the completion of construction.
    Construction contingency reserve. A cash reserve of at least two 
percent of the construction contract, inclusive of the contractor's fee 
and all hard and soft costs that must be set up and fully funded by the 
closing of the construction loan. This reserve will be held by the 
lender, and funds will only be disbursed for change order requests 
approved by the Agency and the lender. Unused funds from the 
construction contingency reserve will be held in the operating and 
maintenance reserve and cannot be released to the borrower until the 
project reaches an occupancy of 90% for 90 consecutive days. In addition 
the reserve accounts established in the conditional commitment must be 
fully funded prior to the release of the construction contingency 
reserve. These requirements remain in effect regardless of whether the 
lender has established a lease-up reserve in lieu of the occupancy 
requirement.
    Correspondent relationship. A contractual relationship between an 
approved lender and a non-approved lender or mortgage broker in which 
the correspondent performs certain origination, underwriting or 
servicing functions for the approved lender.
    Default. Failure by a borrower to meet any obligation or term of a 
loan, grant, or regulatory agreement, or any program requirement.
    Delinquency. Failure to make a timely payment under the terms of the 
promissory note or regulatory agreement.
    Department of Housing and Urban Development (HUD). A federal agency 
which may be a partner in some of the Agency guarantees.
    Due diligence. The process of evaluating real estate in the context 
of a real estate transaction for the presence of contamination from 
release of hazardous substances, petroleum products, or other 
environmental hazards and determining what effect, if any, the 
contamination has on the regulatory status or security value of the 
property.
    Eligible borrower. A borrower who meets the requirements of subpart 
D of this part.
    Eligible lender. A lender who meets the requirements of subpart C of 
this part or any successor regulation.
    Eligible loan. A loan that meets the requirements of subpart E of 
this part or any successor regulation.
    Eligible rural area. An eligible rural area is an area which meets 
the requirements of part 3550 of this chapter or any successor 
regulation.
    Fannie Mae. A Federally chartered, publicly owned enterprise created 
by Congress to purchase, sell or otherwise facilitate the purchase or 
sale of mortgages in the secondary mortgage market.
    Federal Home Loan Bank System. A system of member savings and loans, 
banks and other lenders whose primary business is the making of housing 
loans.
    Final claim payment. The amount due to the lender (or the Agency) 
after disposition of the collateral is complete and the proceeds from 
liquidation, as well as any other claim payments, are applied against 
the allowable claim amount.
    Foreclosure. The process by which the ownership interest of a 
borrower in a mortgaged property is extinguished and the security is 
liquidated with the proceeds applied to the loan.
    Freddie Mac. A Federally chartered, publicly owned enterprise 
created to purchase, sell or otherwise facilitate the purchase or sale 
of mortgages in the secondary mortgage market.
    Ginnie Mae. Ginnie Mae is a reference to the Government National 
Mortgage Association.
    Government National Mortgage Association. The Government National 
Mortgage Association (Ginnie Mae) is a government corporation within the 
Department of Housing and Urban Development. Ginnie Mae guarantees 
privately issued securities backed by mortgages or loans which are 
insured or guaranteed by the Federal Housing Administration (FHA), the 
Department of Veterans Affairs (VA), or the Rural

[[Page 584]]

Housing Service (RHS) and certain other loans or mortgages guaranteed or 
insured by the Government.
    GRRHP. Guaranteed Rural Rental Housing Program.
    Guarantee fees. The fees paid by the lender to the Agency for the 
loan guarantee.
    (1) An initial guarantee fee is due at the time the guarantee is 
issued.
    (2) An annual guarantee fee is due at the beginning of each year 
that the guarantee remains in effect.
    Guaranteed loan. Any loan for which the Agency provides a loan 
guarantee.
    Holder. A person or entity, other than the lender, who owns all or 
part of the guaranteed portion of the loan with no servicing 
responsibilities. When the single note option is used and the lender 
assigns a part or all of the guaranteed note to an assignee, the 
assignee becomes a Holder only when the Agency receives notice and the 
transaction is completed through use of an assignment guarantee 
agreement form approved by the Agency.
    Housing Finance Agency (HFA). A state or local government 
instrumentality authorized to issue housing bonds or otherwise provide 
financing for housing. Identity of interest. With respect to a project, 
an actual or apparent financial interest of any type, that exists or 
will exist among the borrower, contractor, lender, syndicator, 
management agent, suppliers of materials or services, including 
professional services, or vendors (including servicing and property 
disposal), in any combination of relationships which may result in an 
actual or perceived conflict of interest
    Income eligibility. A determination that the income of a tenant at 
initial occupancy does not exceed 115 percent of the area median income 
as such area median income is defined by HUD or a successor agency.
    Indian tribe. Any Indian tribe, band, nation, or other organized 
group or community of Indians, including any Alaska Native village or 
regional or village corporation, as defined by or established pursuant 
to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.), 
that is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians pursuant to the Indian Self-Determination and Education 
Assistance Act of 1975 (25 U.S.C. 450 et seq.); or any entity 
established by the governing body of an Indian tribe, as described in 
this definition, for the purpose of financing economic development.
    Interest credit. A subsidy available to eligible borrowers that 
reduces the effective interest rate of the loan to the Applicable Long 
Term Monthly AFR.
    Land lease. A written agreement between a landowner and a borrower 
for the possession and use of real property for a specified period of 
time.
    Lease. A contract containing the rights and obligations of a tenant 
or cooperative member and a borrower, including the amount of the 
monthly occupancy charge and other terms under which the tenant will 
occupy the housing.
    Lease-up period. The period of time that begins when the first unit 
in the project receives a certificate of occupancy until the time that 
occupancy of 90% of the units for a minimum of 90 consecutive days is 
achieved.
    Lease-up reserve. A cash deposit which is available to a property to 
help pay operating costs and debt service at the initiation of 
operations while units are being leased to their initial occupants.
    Lender. A bank or other financial institution, including a housing 
finance agency, that originates or services the guaranteed loan.
    Lender agreement. The written agreement between the Agency and the 
lender containing the requirements the lender must meet on a continuing 
basis to participate in the program.
    Loan. A mechanism by which a lender funds the acquisition and 
development of a multifamily project. A loan in this context is secured 
by a mortgage executed by the lender and borrower.
    Loan guarantee. A pledge to pay part of the loss incurred by a 
lender in the event of default by the borrower.
    Loan guarantee agreement. The written agreement between the Agency 
and the lender containing the terms and conditions of the guarantee with 
respect to an individual loan.
    Loan participation. A loan made by more than one lender wherein each

[[Page 585]]

lender funds an individual portion of the loan.
    Loan-to-cost ratio. The amount of the loan divided by the total cost 
to develop the project.
    Loan-to-value ratio. The amount of the loan divided by the appraised 
market value of the project.
    Maximum guarantee payment. The maximum payment by the Agency under 
the guarantee agreement computed by applying the guarantee percentage 
times the allowable claim amount, but not to exceed original principal 
amount.
    Mortgage. A written instrument evidencing or creating a lien against 
real property for the purpose of providing collateral to secure the 
repayment of a loan. For program purposes, this may include a deed of 
trust or any similar document.
    Multifamily project. A project designed with five or more living 
units.
    Negligent servicing or origination. Negligent servicing or 
origination is a failure to perform those services which a reasonably 
prudent lender would perform in servicing or originating its own 
portfolio and includes not only the failure to act but also the failure 
to act in a timely manner.
    Non-monetary default. A default that does not involve the payment of 
money.
    Note. Any note, bond, assumption agreement, or other evidence of 
indebtedness pertaining to a guaranteed loan.
    Office of Inspector General (OIG). The agency of USDA established 
under the Inspector General Act.
    Operating and maintenance reserve. A cash reserve required of all 
projects of at least two percent of the loan amount held by the lender 
that is used for the up-keep of the project.
    Payment effective date. For the month payment is due, the day of the 
month on which payment will be effectively applied to the account by the 
lender, regardless of the date payment is received.
    Permanent loan. A permanent loan is defined as a mortgage loan 
usually covering development costs, interim loans, construction loans, 
financing expenses, marketing, administrative, legal, and other Agency 
approved costs. This loan differs from the construction loan in that 
financing goes into place after the project is completely constructed 
and open for occupancy. It is a long-term obligation, generally for a 
period of no less than 25 years and no more than 40 years.
    Prepayment. The payment of the outstanding balance on a loan prior 
to the note's maturity date.
    Project. The total number of rental housing units and related 
facilities subject to a guaranteed loan that are operated under one 
management plan and one Regulatory Agreement.
    Program requirements. Any requirements contained in any loan 
document, guarantee agreement, statute, regulation, handbook, or 
administrative notice.
    Promissory note. See ``Note''.
    Qualified alien. For the purposes of this part, qualified alien 
refers to any person lawfully admitted into the country who meets the 
criteria of 42 U.S.C. 1436a.
    Real estate owned. Denotes real estate that has been acquired by the 
lender or the Agency (often known as ``inventory property'').
    Recourse. The lender's right to seek satisfaction from the 
borrower's personal financial resources or other resources for monetary 
default.
    Regulatory agreement. The agreement that establishes the 
relationship among the Agency, the lender, and the borrower; and 
contains the borrower's responsibilities with respect to all aspects of 
the management and operation of the project.
    RHS. The Rural Housing Service within the Rural Development mission 
area, or a successor agency, which administers section 538 guarantees.
    Rural area. A geographic area as defined in section 520 of the 
Housing Act of 1949.
    Rural Development. A mission area within USDA which includes RHS, 
Rural Utilities Service, and Rural Business-Cooperative Service.
    Servicing. The broad scope of activities undertaken to manage the 
performance of a loan throughout its term and to assure compliance with 
the program requirements.
    Single asset ownership. A borrower who owns only one project.

[[Page 586]]

    Surplus cash. The borrower's remaining funds at the project's fiscal 
year end, after making all required payments, excluding required 
reserves and escrows.
    Tenant. The individual that holds the right to occupy a unit in 
accordance with the terms of a lease executed with the project owner.
    U.S. citizen. An individual who resides as a citizen in any of the 
50 States, the District of Columbia, the Commonwealth of Puerto Rico, 
the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the 
Northern Marinas, the Federated States of Micronesia, the Republic of 
Palau, or the Republic of the Marshall Islands.
    USDA. The United States Department of Agriculture.

[63 FR 39458, July 22, 1998, as amended at 67 FR 16970, Apr. 9, 2002; 70 
FR 2930, Jan. 19, 2005; 76 FR 3, Jan. 3, 2011; 84 FR 55035, Oct. 15, 
2019]



Sec. 3565.4  Availability of assistance.

    The Agency's authority to enter into commitments, guarantee loans, 
or provide interest credits is limited to the extent that appropriations 
are available to cover the cost of the assistance. The Agency will 
notify the public of the availability of assistance, changes in 
application requirements, or changes in the fee structure.

[84 FR 55035, Oct. 15, 2019]



Sec. 3565.5  Ranking and selection criteria.

    (a) Threshold criteria. Applications for loan guarantee submitted by 
lenders must include a loan request for a project that meets all of the 
following threshold criteria:
    (1) The project must involve an owner and a development team with 
qualifications and experience sufficient to carry out development, 
management, and ownership responsibilities, and the owner and 
development team must not be under investigation or suspension from any 
government programs;
    (2) The project must involve the financing of a property located in 
an eligible rural area;
    (3) Demonstrate a readiness, for the project to proceed, including 
submission of a complete application for a loan guarantee and evidence 
of financing;
    (4) Demonstrate market and financial feasibility; and
    (5) Include evidence that the credit risk is reasonable, taking into 
account conventional lending practices, and factors related to 
concentration of risk in a given market and with a given borrower.
    (b) Priority projects. Priority will be given to projects: In 
smaller rural communities, in the neediest communities having the 
highest percentage of leveraging, having the lowest interest rate, 
having the highest ratio of 3-5-bedroom units to total units, or on 
tribal lands. In addition, the Agency may, at its sole discretion, set-
aside assistance for or rank projects that meet important program goals. 
Assistance will include both loan guarantees and interest credits. 
Priority projects must compete for set-aside funds.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32371, June 16, 1999; 
84 FR 55036, Oct. 15, 2019]



Sec. 3565.6  Inclusion of tax-exempt debt.

    Tax-exempt financing can be used a source of capital for the 
guaranteed loan.

[64 FR 32371, June 16, 1999]



Sec. 3565.7  Environmental review requirements.

    The Agency will take into account potential environmental impacts of 
proposed projects by working with applicants, other federal agencies, 
Indian tribes, State and local governments, and interested citizens and 
organizations in order to formulate actions that advance the program 
goals in a manner that will protect, enhance, and restore environmental 
quality. Actions taken under this part must comply with the 
environmental review requirements in accordance with 7 CFR part 1970.

[81 FR 11050, Mar. 2, 2016]



Sec. 3565.8  Civil rights compliance.

    (a) All actions taken by the Agency, or on behalf of the Agency, by 
a lender will be conducted without regard to race, color, religion, 
national origin, sex, marital status, age, income from

[[Page 587]]

public assistance or having exercised their right under the Consumer 
Credit Protection Act, and in accordance with the Equal Credit 
Opportunity Act (ECOA).
    (b) Any action related to the sale, rental or advertising of 
dwellings; in the provision of brokerage services; or in making 
available residential real estate transactions involving Agency 
assistance, must be in accordance with the Fair Housing Act, which 
prohibits discrimination on the basis of race, color, religion, sex, 
national origin, familial status or handicap. It is unlawful for a 
lender or borrower participating in the program to:
    (1) Refuse to make accommodations in rules, policies, practices, or 
services if such accommodations are necessary to provide a person with a 
disability an opportunity to use or continue to use a dwelling unit and 
all public and common use areas; and
    (2) Refuse to allow an individual with a disability to make 
reasonable modifications to a unit at his or her expense, if such 
modifications may be necessary to afford the individual full enjoyment 
of the unit.
    (c) Any resident or prospective resident seeking occupancy or use of 
a unit, property or related facility for which a loan guarantee has been 
provided, and who believes that he or she is being discriminated against 
may file a complaint with the lender, the Agency or the Department of 
Housing and Urban Development. A written complaint should be sent to the 
Secretary of Agriculture or of the Department of Housing and Urban 
Development in Washington, DC.
    (d) Lenders and borrowers that fail to comply with the requirements 
of title VIII of the Civil Rights Act of 1968, as amended (the Fair 
Housing Act), are liable for those sanctions authorized by law.
    (e) For guaranteed loans with ``interest credit,'' the following 
additional civil rights laws will apply and be enforced by the agency 
delivering this guarantee program: title VI of the Civil Rights Act of 
1964, section 504 of the Rehabilitation Act of 1973, the Americans with 
Disabilities Act, Age Discrimination Act of 1975, and title IX of the 
Education Amendments of 1972.
    (f) In accordance with title VI, borrowers will be subjected to 
compliance reviews for projects that receive interest credit.

[64 FR 32371, June 16, 1999]



Sec. 3565.9  Compliance with federal requirements.

    The Agency and the lender are responsible for ensuring that the 
application is in compliance with all applicable federal requirements, 
including the following specific statutory requirements:
    (a) Intergovernmental review. 7 CFR part 3015, subpart V, 
``Intergovernmental Review of Department of Agriculture Programs and 
Activities'', or successor regulation, including the Agency supplemental 
administrative instruction, RD Instruction 1970-I, `Intergovernmental 
Review,' available in any Agency office or on the Agency's Web site.
    (b) National flood insurance. The National Flood Insurance Act of 
1968, as amended by the Flood Disaster Protection Act of 1973; the 
National Flood Insurance Reform Act of 1994; and 7 CFR part 1806, 
subpart B, or successor regulation.
    (c) Clean Air Act and Water Pollution Control Act Requirements. For 
any contract, all applicable standards, orders or requirements issued 
under section 306 of the Clean Air Act; section 508 of the Clean Water 
Act; Executive Order 11738; and EPA regulations at part 32, of title 40.
    (d) Historic preservation requirements. The provisions of 7 CFR part 
1901, subpart F or successor regulation.
    (e) Lead-based paint requirements. The provisions of 7 CFR part 
1924, subpart A, or successor regulation.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999; 
76 FR 80731, Dec. 27, 2011]



Sec. 3565.10  Conflict of interest.

    (a) Objective. It is the objective within the Rural Development 
mission area to maintain the highest standards of honesty, integrity, 
and impartiality by employees.
    (b) Rural Development requirement. To reduce the potential for 
employee conflict of interest, all Rural Development

[[Page 588]]

activities will be conducted in accordance with 7 CFR part 1900, subpart 
D, or successor regulation by Rural Development employees who:
    (1) Are not themselves a beneficiary;
    (2) Are not family members or known relatives of any beneficiary; 
and
    (3) Do not have any business or personal relationship with any 
beneficiary or any employee of a beneficiary.
    (c) Rural Development employee responsibility. Rural Development 
employees must disclose any known relationship or association with a 
lender or borrower or their agents, regardless of whether the 
relationship or association is known to others. Rural Development 
employees or members of their families may not purchase a Real Estate 
Owned property, security property from a borrower, or security property 
at a foreclosure sale.
    (d) Loan closing agent responsibility. Loan closing agents (or 
members of their families) who have been involved with a particular 
property are precluded from purchasing such properties.
    (e) Lender and borrower responsibility. Lenders, borrowers, and 
their agents must identify any known relationship or association with a 
Rural Development employee.



Sec. Sec. 3565.11-3565.12  [Reserved]



Sec. 3565.13  Exception authority.

    An Agency official may request and the Administrator or designee may 
make an exception to any requirement or provision, or address any 
omission of this part, if the Administrator determines that application 
of the requirement or provision, or failure to take action, would 
adversely affect the government's interest or the program objectives, 
and provided that such an exception is not inconsistent with any 
applicable law or statutory requirement.

[64 FR 32372, June 16, 1999]



Sec. 3565.14  Review and appeals.

    Whenever RHS makes a decision that is adverse to a lender or a 
borrower, RHS will provide written notice of such adverse decision and 
of the right to a USDA National Appeals Division hearing in accordance 
with 7 CFR part 11 or successor regulations. The lender or borrower may 
request an informal review with the decision maker and the use of 
available alternative dispute resolution or mediation programs as a 
means of resolution of the adverse decision. Any adverse decision, 
whether appealable or non-appealable may also be reviewed by the next 
level RHS supervisor. Adverse decisions affecting project tenants or 
applicants for tenancy will be handled in accordance with 7 CFR part 
1944, subpart L or successor regulations.



Sec. 3565.15  Oversight and monitoring.

    The lender, borrower, and all parties involved in any manner with 
any guarantee under this program must cooperate fully with all oversight 
and monitoring efforts of the Agency, Office of Inspector General, the 
U.S. General Accounting Office, and the U.S. Department of Justice or 
their representatives including making available any records concerning 
this transaction. This includes the annual eligibility audit and any 
other oversight or monitoring activities. If the Agency implements a 
requirement for an electronic transfer of information, the lender and 
borrower must cooperate fully.



Sec. 3565.16  [Reserved]



Sec. 3565.17  Demonstration programs.

    To test ways to expand the availability or enhance the effectiveness 
of the guarantee program, or for similar purposes, the Agency may, from 
time to time, propose demonstration programs that use loan guarantees or 
interest credit. Toward this end, the Agency may enter into special 
partnerships with lenders, financial intermediaries, or others to carry 
out one or more elements of a demonstration program. Demonstration 
programs will be publicized by notices in the Federal Register.



Sec. Sec. 3565.18-3565.49  [Reserved]



Sec. 3565.50  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control

[[Page 589]]

number. The valid OMB control number for this information collection is 
0575-0174.



                    Subpart B_Guarantee Requirements



Sec. 3565.51  Eligible loans and advances.

    Upon approval of an application from an eligible or approved lender, 
the Agency will commit to providing a guarantee for a permanent loan or 
a construction and permanent loan, subject to the availability of funds.

[76 FR 3, Jan. 3, 2011]



Sec. 3565.52  Conditions of guarantee.

    A loan guarantee under this part will be evidenced by a Loan Note 
Guarantee issued by the Agency. Each lender will execute a Lender's 
Agreement. If a valid Lender's Agreement already exists, it is not 
necessary to execute a new Lender's Agreement with each loan guarantee.
    (a) Rights and liabilities. A guarantee under this part is backed by 
the full faith and credit of the United States and is incontestable 
except for fraud or misrepresentation of which the lender had knowledge 
at the time the lender acquired the guarantee or assigned the loan, or 
in which a lender participates or condones. The guarantee will be 
unenforceable by the lender to the extent any loss is occasioned by a 
violation of usury laws, negligent servicing or origination by the 
lender, including a failure to acquire required security, or as a result 
of a use of loan funds for purposes other than those authorized by the 
Agency. The acts in the previous sentence constitute grounds for the 
refusal to make full payment under the guarantee to the lender, and will 
not be taken until the Agency gives the lender notice of the acts or 
omissions that it considers to constitute such grounds, specifying the 
applicable provisions of the Statute, Regulations, Loan Note Guarantee, 
or Lender's Agreement; the lender has not cured the acts or omissions 
within 90 calendar days after such notice; and the acts or omissions can 
reasonably be expected to have a material adverse effect on the credit 
quality of the guaranteed mortgage or the physical condition of the 
property securing the guaranteed mortgage. If such acts or omissions 
cannot be cured within a 90 calendar day period, the 90 calendar day 
cure period automatically shall be extended so long as curative 
activities are commenced during the 90 calendar day period. At no time 
shall the curative period extend more than 270 calendar days from the 
expiration of the original 90 calendar day cure period. When a 
guaranteed portion of a loan is sold to a Holder, the Holder shall 
succeed to all rights of the lender under the Loan Note Guarantee to the 
extent of the portion purchased. The lender will remain bound to all 
obligations under the Loan Note Guarantee, Lender's Agreement, and the 
Agency program regulations.
    (b) Liability of the Holder. The Holder shall not be liable for the 
actions of the lender including, but not limited to, negligence, fraud, 
abuse, misrepresentation or misuse of funds, and its rights under the 
guarantee shall be fully enforceable notwithstanding the actions of the 
lender, unless the Holder has knowledge of fraud, misrepresentation or 
misuse of funds when it becomes the Holder or condones or participates 
in such actions.
    (c) Types of guarantees. The Agency may provide a lesser guarantee 
based upon its evaluation of the credit quality of the loan. Penalties 
incurred as a result of default are not covered by the guarantee. The 
Agency liability under any guarantee will decrease or increase, in 
proportion to any increase or decrease in the amount of the unpaid 
portion of the loan, up to the maximum amount specified in the Loan Note 
Guarantee. The Agency will not guarantee construction loans only. The 
Agency offers the following types of guarantees:
    (1) Option One. The Agency may guarantee permanent loans subject to 
the conditions specified in Sec. 3565.303(d). The maximum guarantee for 
a permanent loan will be 90 percent [unless the Agency establishes a 
different percent and announces this different percent through a Notice 
in the Federal Register] of the unpaid principal and interest up to 
default and accrued interest 90 calendar days from the date the

[[Page 590]]

liquidation plan is approved by the Agency, as defined in Sec. 
3565.452.
    (2) Option Two. The Agency may provide a guarantee which will cover 
construction loan advances (advances) during construction. The maximum 
guarantee of construction advances related to a construction and 
permanent loan will not at any time exceed the lesser of 90 percent [or 
the percent established by the Agency and announced through a Notice in 
the Federal Register] of the amount of principal and accrued interest up 
to default for amounts which exceed the original advance if for eligible 
uses of loan proceeds or 90 percent of the original principal amount and 
accrued interest up to default of the loan. The Agency's guarantee will 
cover losses to the extent aforementioned once all sureties/insurances 
and/or performance and payment bonds have fully performed their 
contractual obligations. A construction contingency reserve is required. 
This guarantee will be enforceable during the construction period but 
will cease to be enforceable once construction is completed unless and 
until the requirements for the continuation of the guarantee contained 
in the Conditional Commitment and this part are completed and approved 
by the Agency by the date stated in the Conditional Commitment and any 
Agency approved extension(s). The Agency will provide written 
confirmation to the lender when all of the requirements for continuation 
of the guarantee to cover the permanent loan have been satisfied. Any 
losses sustained while the guarantee is unenforceable (after the end of 
the construction period and, if applicable, before the continuation of 
the guarantee) are not covered by the guarantee. For purposes of this 
guarantee, the construction period will end on the earlier of:
    (i) Twenty-four months from the closing of the construction loan, if 
the certificates of occupancy for all units in the project have not been 
issued by then, or
    (ii) The date of the issuance of the last certificate of occupancy, 
if the certificates of occupancy for all units in the project are issued 
on or before 24 months from the closing of the construction loan.
    (3) Option Three. The Agency may provide a single, continuous 
guarantee for construction and permanent loans. Only projects that have 
low loan-to-cost ratios, which will be defined by the Agency in a Notice 
published periodically in the Federal Register, are eligible for this 
type of guarantee. A construction contingency reserve is required. The 
Agency may require that a lease-up reserve, in an amount established by 
the Agency and announced through a Notice in the Federal Register, be 
set-aside prior to closing the construction loan. This lease-up reserve 
is an additional amount, over and above the required initial operating 
and maintenance contribution. The maximum guarantee of construction 
advances will not at any time exceed the lesser of 90 percent [or the 
percent established by the Agency and announced through a Notice in the 
Federal Register] of the amount of principal and interest up to default 
advanced for eligible uses of loan proceeds or 90 percent of the 
original principal amount and interest up to default.
    (d) Maximum loss payment. The maximum loss payment to a lender or 
holder is as follows:
    (1) To any holder, 100 percent of any loss sustained by the holder 
on the guaranteed portion of the loan and on interest due on such 
portion.
    (2) To the lender, the lesser of:
    (i) Any loss sustained by the lender on the guaranteed portion, 
including principal and up to 90 days of accrued interest as evidenced 
by the notes or assumption agreements and secured advances for 
protection and preservation of collateral made with the Agency's 
authorization; or
    (ii) The guaranteed principal advanced to or assumed by the borrower 
and any interest and accrued interest up to 90 days due thereon.
    (e) Funding of reserves. For each Option under paragraph (c) of this 
section, the lender must require an operating and maintenance reserve 
and provide the Agency adequate evidence of the funding of all required 
reserves.
    (1) For Option 1 under paragraph (c) of this section, the funding 
schedule for the lease-up reserve and the operating

[[Page 591]]

and maintenance reserve must be included in the Agency-approved 
construction budget and be fully funded before the issuance of the 
permanent guarantee.
    (2) For Option 2 under paragraph (c) of this section, the funding 
schedule for the lease-up reserve and the operating and maintenance 
reserve must be included in the Agency-approved construction budget and 
be fully funded before the issuance of the permanent guarantee.
    (3) For Option 3 under paragraph (c) of this section, the operating 
and maintenance reserve must be fully funded before the issuance of the 
guarantee. The lease-up reserve must be funded 30 days before the first 
Certificate of Occupancy is anticipated.

[70 FR 2930, Jan. 19, 2005, as amended at 76 FR 3, Jan. 3, 2011]



Sec. 3565.53  Guarantee fees.

    As a condition of receiving a loan guarantee, the Agency will charge 
the following guarantee fees to the lender. Changes to the initial and 
annual guarantee fees will be established by the Agency and will be 
published in a notice in the Federal Register.
    (a) Initial guarantee fee. The Agency will establish and charge an 
initial guarantee fee of up to one percent of the guarantee amount. For 
purposes of calculating this fee, the guarantee amount is the product of 
the percentage of the guarantee times the initial principal amount of 
the guaranteed loan.
    (b) Annual guarantee fee. An annual guarantee fee will be charged, 
as established by the Agency, each year or portion of a year that the 
guarantee is in effect. This fee is due no later than February 28, of 
each calendar year.
    (c) Surcharge for guarantees on construction advances. The Agency 
may, at its sole discretion, charge an additional fee on the portion of 
the loan advanced during construction. If applicable, this fee will be 
charged in advance at the start of construction.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999; 
73 FR 11812, Mar. 5, 2008; 84 FR 55036, Oct. 15, 2019; 85 FR 77986, Dec. 
3, 2020]



Sec. 3565.54  Transferability of the guarantee.

    A lender must receive the Agency's approval prior to any sale or 
transfer of the loan guarantee.



Sec. 3565.55  Participation loans.

    Loans involving multiple lenders are eligible for a guarantee when 
one of the lenders is an approved lender and agrees to act as the lead 
lender with responsibility for the loan under the loan guarantee 
agreement.



Sec. 3565.56  Suspension or termination of loan guarantee agreement.

    A guarantee agreement will terminate when one of the following 
actions occurs: (In accordance with subpart H of this part, use 
restrictions on the property will remain if the following actions take 
place prior to the term of the loan and RHS determines the restrictions 
apply.)
    (a) Voluntary termination. A lender and borrower voluntarily request 
the termination of the loan guarantee.
    (b) Agency withdrawal of guarantee. The Agency withdraws the loan 
guarantee in the event of fraud, misrepresentation, abuse, negligence, 
or failure to meet the program requirements.
    (c) Mortgage pay-off. The loan is paid.
    (d) Settlement of claim. Final settlement of the claim.



Sec. 3565.57  Modification, extension, reinstatement of loan guarantee.

    To protect its interest or further the objectives of the program, 
the Agency may, at its sole discretion, modify, extend, or reinstate a 
loan guarantee. In making this decision the Agency will consider 
potential losses under the program, impact on the tenants and the public 
reaction that may be received regarding the action. Further, the Agency 
may authorize a guarantee on a new loan that is originated as a part of 
a workout agreement.



Sec. Sec. 3565.58-3565.99  [Reserved]



Sec. 3565.100  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control

[[Page 592]]

number. The valid OMB control number for this information collection is 
0575-0174.



                      Subpart C_Lender Requirements



Sec. 3565.101  Responsibility of lenders.

    A participating lender must originate and service a guaranteed loan 
in accordance with the regulation and program requirements throughout 
the life of a loan or guarantee, whichever is less. When it is in the 
best interests of the Agency, the Agency may permit the transfer of 
servicing from the originating lender to a servicer.



Sec. 3565.102  Lender eligibility.

    An eligible lender must be a licensed business entity or HFA in good 
standing in the state or states where it conducts business; be approved 
by the Agency; and meet at least one of the criteria contained below. 
Lenders who are not eligible may participate in the program if they 
maintain a correspondent relationship with a lender who is eligible. An 
eligible lender must:
    (a) Meet the qualifications of, and be approved by, the Secretary of 
HUD to make multifamily housing loans that are to be insured under the 
National Housing Act;
    (b) Meet the qualifications and be approved by Fannie Mae, Freddie 
Mac or Ginnie Mae to make multifamily housing loans that are to be sold 
to or securitized by such corporations;
    (c) Be a state or local HFA, or a member of the Federal Home Loan 
Bank system, with a demonstrated ability to underwrite, originate, 
process, close, service, manage, and dispose of multifamily housing 
loans in a prudent manner;
    (d) Be a lender who meets the requirements for Agency approval 
contained in this subpart and has a demonstrated ability to underwrite, 
originate, process, close, service, manage, and dispose of multifamily 
housing loans in a prudent manner; or
    (e) Be a lender who meets the following requirements in addition to 
the other requirements of this subpart and of subpart I of this part:
    (1) Have qualified staff to perform multifamily housing servicing 
and asset management;
    (2) Have facilities and systems that support servicing and asset 
management functions; and
    (3) Have documented procedures for carrying out servicing and asset 
management responsibilities.

[63 FR 39458, July 22, 1998, as amended at 70 FR 2931, Jan. 19, 2005]



Sec. 3565.103  Approval requirements.

    The Agency will establish and maintain a ``list of approved 
lenders''. To be an approved lender, eligible lenders must meet the 
following requirements and maintain them on a continuing basis at a 
level consistent with the nature and size of their portfolio of 
guaranteed loans.
    (a) Commitment. A lender must have a commitment for a guaranteed 
loan or an agreement to purchase a guaranteed loan.
    (b) Audited statement. A lender must provide the Agency with an 
annual audited financial statement conducted in accordance with 
generally accepted government auditing standards.
    (c) Previous participation. A lender may not be delinquent on a 
federal debt or have an outstanding finding of deficiency in a federal 
housing program.
    (d) Ongoing requirements. A lender must meet the following 
requirements at initial application and on a continuing basis 
thereafter:
    (1) Overall financial strength, including capital, liquidity, and 
loan loss reserves, to have an acceptable level of financial soundness 
as determined by a lender rating service (such as Sheshunoff, Inc.); or 
to be an approved Fannie Mae, Freddie Mac, Ginnie Mae or HUD Federal 
Housing Administration multifamily lender; or, if a state housing 
finance agency, to have a top tier rating by a rating agency (such as 
Standard and Poor's Corporation);
    (2) Bonding and insurance to cover business related losses, 
including directors and officers insurance, business income loss 
insurance, and bonding to secure cash management operations;
    (3) A minimum of two years experience in originating and servicing 
multifamily loans;

[[Page 593]]

    (4) A positive record of past performance when participating in RHS 
or other federal loan programs;
    (5) Adequate staffing and training to perform the program 
obligations; the head underwriter must have 3 years of experience and 
all staff must receive annual multifamily training;
    (6) Demonstrated overall financial stability of the business over 
the past five years;
    (7) Evidence of reasonable and prudent business practices for 
management of the program; and
    (8) No negative information on Dunn & Bradstreet or similar type 
report.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999; 
70 FR 2931, Jan. 19, 2005; 76 FR 4, Jan. 3, 2011]



Sec. 3565.104  Application requirements.

    Eligible lenders must submit a lender approval application, in a 
format prescribed by the Agency. The lender approval application 
submission must occur at the time the lender submits its first 
application for a loan guarantee, or its first application to purchase a 
guaranteed loan. The application must include documentation of lender 
compliance with Sec. 3565.103. A non-refundable application fee will be 
charged for each review of a lender's application.

[63 FR 39458, July 22, 1998, as amended at 84 FR 55036, Oct. 15, 2019]



Sec. 3565.105  Lender compliance.

    A lender will remain an approved lender unless terminated by the 
Agency. To maintain approval, the lender must comply with the following 
requirements.
    (a) Maintain eligibility in accordance with Sec. Sec. 3565.102 and 
3565.103;
    (b) Comply with all applicable statutes, regulations, and 
procedures;
    (c) Inform the Agency of any material change in the lender's 
staffing, policies and procedures, or corporate structure;
    (d) Cooperate fully with all program or Agency monitoring and 
auditing policies and procedures, including the Agency's annual audit of 
approved lenders; and
    (e) Maintain active participation in the multifamily guaranteed loan 
program by initiating a new loan guarantee or holding a loan guaranteed 
under this program.



Sec. 3565.106  Construction lender requirements.

    A lender making a construction loan, as part of a construction and 
permanent loan, must demonstrate an ability to originate and service 
construction loans, in addition to meeting the other requirements of 
this subpart.

[63 FR 39458, July 22, 1998, as amended at 76 FR 4, Jan. 3, 2011]



Sec. 3565.107  [Reserved]



Sec. 3565.108  Responsibility for actions of agents and mortgage brokers.

    An approved lender is responsible for the actions of its agents and 
mortgage brokers.



Sec. 3565.109  Minimum loan prohibition.

    A lender must not establish a minimum loan amount for loans under 
this program.



Sec. 3565.110  Insolvency of lender.

    The Agency may require a lender to transfer a guaranteed loan or 
loans to another approved lender prior to a determination of insolvency 
by the lender. If the lender fails to transfer a loan when required, the 
guarantee will be considered null and void.



Sec. 3565.111  Lobbying activities.

    An approved lender must comply with RD Instruction 1940-Q (available 
in any Rural Development Office) regarding lobbying activities.



Sec. Sec. 3565.112-3565.149  [Reserved]



Sec. 3565.150  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.

[[Page 594]]



               Subpart D_Borrower Eligibility Requirements



Sec. 3565.151  Eligible borrowers.

    Guaranteed loans must be made to an eligible borrower whose 
intention is to provide and maintain rural rental housing. The ownership 
entity must be a valid entity in good standing under the laws of the 
jurisdiction in which it is organized. Eligible borrowers shall include 
individuals, corporations, state or local public agencies or an 
instrumentality thereof, partnerships, limited liability companies, 
trusts, Indian tribes, or any organization deemed eligible by the 
Agency. Eligible borrowers must be U.S. citizens or permanent legal 
residents; a U.S. owned corporation, or a limited liability company, or 
partnership in which the principals are U.S. citizens or permanent legal 
residents.



Sec. 3565.152  Control of land.

    At time of application, the lender must have evidence of site 
control by the borrower (option to purchase, lease, deed or other 
evidence acceptable to the Agency). At the time of loan closing, the 
lender's closing docket must provide documentary evidence that the 
borrower owns or has a long-term lease on the land on which the housing 
is or will be located. The form of ownership or the leasehold agreement 
must meet Agency requirements. Notwithstanding any investment in the 
site, the site may not be accepted based on the Agency's environmental 
assessment.



Sec. 3565.153  Experience and capacity of borrower.

    At the time of application, the lender must certify that the 
borrower:
    (a) Has the ability and experience to construct or rehabilitate 
multifamily housing that meets the requirements established by the 
Agency, the lender and the loan agreement;
    (b) Has the legal and financial capacity to meet all of the 
obligations of the loan; and
    (c) Has the ability and experience to meet the property management 
requirements established by the Agency, the lender, and the loan 
agreement.



Sec. 3565.154  Previous participation in state and federal programs.

    Loans to borrowers who are delinquent on a federal debt may not be 
guaranteed. Furthermore, borrowers or principals thereof who have 
defaulted on state or local government loans will not be eligible for a 
guarantee unless the Agency determines that the default was beyond the 
borrower's control, and that the identifiable reasons for the default no 
longer exist. At the time of application, the lender must obtain from 
the borrower a certification that the borrower is not under any state or 
federal order suspending or debarring participation in state or federal 
loan programs and that the borrower is not delinquent on any non-tax 
obligation to the United States.



Sec. 3565.155  Identity of interest.

    At the time of application, the lender must certify that it has 
disclosed any and all identity of interest relationships and preexisting 
conditions with respect to its relationships and that of the borrower, 
or that no identity of interest relationships exists. Identity of 
interest relationships include any financial or other relationship that 
exists or will exist between a lender, borrower, management agent, 
supplier, or any agent of any of these entities, that could influence, 
give the appearance of influencing or have the potential to influence 
the actions of the parties in carrying out their responsibilities under 
the program. Disclosure will be in a form and manner established by the 
Agency.



Sec. 3565.156  Certification of compliance with federal, state, and local laws and with Agency requirements.

    At the time of application, the lender must obtain from the borrower 
a certification of compliance with all applicable federal, state, and 
local laws, and with Agency requirements regarding discrimination and 
equal opportunity in housing, including title VIII of the Civil Rights 
Act of 1968, and the Fair Housing Amendments Act of 1988. The borrower 
must also certify that it is not the subject of any federal, state, or 
local sanction or punitive action.

[[Page 595]]



Sec. Sec. 3565.157-3565.199  [Reserved]



Sec. 3565.200  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                       Subpart E_Loan Requirements



Sec. 3565.201  General.

    To be eligible for a guarantee, a loan must comply with the 
provisions of this subpart and be originated by an approved lender.



Sec. 3565.202  Tenant eligibility.

    (a) Limits on income of tenants. The housing units subject to a 
guaranteed loan must be available for occupancy only by low or moderate-
income families or individuals whose incomes at the time of initial 
occupancy do not exceed 115 percent of the area median income. After 
initial occupancy, a tenant's income may exceed these limits.
    (b) Citizenship status. A tenant must be a United States citizen or 
a noncitizen who is a qualified alien as defined in Sec. 3565.3.



Sec. 3565.203  Restrictions on rents.

    The rent for any individual housing unit, including any tenant-paid 
utilities, must not exceed an amount equal to 30 percent of 115 percent 
of area median income, adjusted for family size. In addition, on an 
annual basis, the average rent for a project, taking into account all 
individual unit rents, must not exceed 30 percent of 100 percent of area 
median income, adjusted for family size.



Sec. 3565.204  Maximum loan amount.

    (a) Section 207(c) limits and exceptions. For that part of the 
property that is attributable to dwelling use, the principal obligation 
of each guaranteed loan must not exceed the applicable maximum per-unit 
limitations under section 207(c) of the National Housing Act.
    (b) Loan-to-value limits. (1) In the case of a borrower that is a 
nonprofit organization or an agency or body of any State, local or 
tribal government, each guaranteed loan must involve a principal 
obligation that does not exceed the lesser of 97 percent of:
    (i) The development costs of the housing and related facilities, or
    (ii) The lender's determination of value not to exceed the appraised 
value of the housing and facilities.
    (2) In the case of a borrower that is a for-profit entity or other 
entity not referred to in paragraph (b)(1) of this section, each 
guaranteed loan must involve a principal obligation that does not exceed 
the lesser of 90 percent of:
    (i) The development costs of the housing and related facilities, or
    (ii) The lender's determination of value not to exceed the appraised 
value of the housing and facilities.
    (3) To protect the interest of the Agency or to further the 
objectives of the program, the Agency may establish lower loan-to-value 
limits or further restrict the statutory maximum limits based upon its 
evaluation of the credit quality of the loan.
    (c) Necessary assistance review. (1) A lender requesting a loan 
guarantee must review all loans to determine the appropriate amount of 
assistance necessary to complete and maintain the project. The lender 
shall recommend to the Agency an adjustment in the loan amount if 
appropriate as a result of this review.
    (2) Where the project financing combines a guaranteed loan with Low-
Income Housing Tax Credits or other Federal assistance, the project must 
conform to the policies regarding necessary assistance in 7 CFR 3560.63 
(d) or successor provision.

[63 FR 39458, July 22, 1998, as amended at 69 FR 69176, Nov. 26, 2004]



Sec. 3565.205  Eligible uses of loan proceeds.

    Eligible uses of loan proceeds must conform with standards and 
conditions for housing and facilities contained in 7 CFR part 1924, 
subpart A or successor provision, except that the Agency, at its sole 
discretion, may approve, in advance, a higher level of amenities, 
construction, and fees for projects proposed for a guaranteed loan 
provided the costs and features are reasonable

[[Page 596]]

and customary for similar housing in the market area.
    (a) Use of loan proceeds. The proceeds of a guaranteed loan may be 
used for the following purposes relating to the project.
    (1) New construction costs of the project;
    (2) Moderate or substantial rehabilitation of buildings and 
acquisition costs when related to the rehabilitation of a building as 
described in paragraph (b) of this section;
    (3) Acquisition of existing buildings, when approved by the Agency, 
for projects that serve a special housing need;
    (4) Acquisition and improvement of land on which housing will be 
located;
    (5) Development of on-site and off-site improvements essential to 
the use of the property;
    (6) Development of related facilities such as community space, 
recreation, storage or maintenance structures, except that any high cost 
recreational facility, such as swimming pools and exercise clubs or 
similar facilities, must be specifically approved in advance by the 
Agency;
    (7) Construction of on-site management or maintenance offices and 
living quarters for operating personnel for the property being financed;
    (8) Purchase and installation of appliances and certain approved 
decorating items, such as window blinds, shades, or wallpaper;
    (9) Development of the surrounding grounds, including parking, 
signs, landscaping and fencing;
    (10) Costs associated with commercial space provided that:
    (i) The project is designed primarily for residential use;
    (ii) The commercial use consists of essential tenant service type 
facilities, such as laundry rooms, that are not otherwise conveniently 
available;
    (iii) The commercial space does not exceed 10 percent of the gross 
floor area of the residential units and common areas, unless a higher 
level is specifically approved in writing by the Agency; and
    (iv) The commercial activity is compatible with the use of the 
project and that the income is not more than 10 percent of the total 
annual operating income of the project.
    (11) Costs for feasibility determination, loan application fees, 
appraisals, environmental documentation, professional fees or other fees 
determined by the Agency to be necessary to the development of the 
project;
    (12) Technical assistance to and by non-profit entities to assist in 
the formation, development, and packaging of a project, or formation or 
incorporation of a borrower entity;
    (13) Education programs for a board of directors, both before and 
after incorporation of a cooperative that will serve as the borrower;
    (14) Construction interest accrued on the construction loan;
    (15) Relocation assistance in the case of rehabilitation projects;
    (16) Developers' fees; and
    (17) Repaying applicant debts in the following cases:
    (i) When the Agency authorizes in writing in advance the use of loan 
funds to pay debts for work, materials, land purchase, or other fees and 
charges before the loan is closed; or
    (ii) When the Agency concurs in writing with a determination by the 
lender that costs for work, fees and charges incurred prior to loan 
application are integral to development of the guarantee application and 
project.
    (b) Rehabilitation requirements. Rehabilitation work must be 
classified as either moderate or substantial as defined in exhibit K of 
7 CFR part 1924, subpart A or a successor document. In all cases, the 
building or project must be structurally sound, and improvements must be 
necessary to meet the requirements of decent, safe, and sanitary living 
units. Applications must include a structural analysis, along with plans 
and specifications describing the type and amount of planned 
rehabilitation. The project as rehabilitated must meet the applicable 
development standards contained in 7 CFR part 1924, subpart A, as well 
as any applicable historic preservation and environmental review 
requirements in accordance with 7 CFR part 1970.

[63 FR 39458, July 22, 1998, as amended at 81 FR 11050, Mar. 2, 2016]

[[Page 597]]



Sec. 3565.206  Ineligible uses of loan proceeds.

    Loan proceeds must not be used for the following:
    (a) Specialized equipment for training and therapy;
    (b) Housing in military impact areas;
    (c) Housing that serves primarily temporary and transient residents;
    (d) Nursing homes, special care facilities and institutional type 
homes that require licensing as a medical care facility;
    (e) Operating capital for central dining facilities or for any items 
not affixed to the real estate, such as special portable equipment, 
furnishings, kitchen ware, dining ware, eating utensils, movable tables 
and chairs, etc.;
    (f) Payment of fees, salaries and commissions or compensation to 
borrowers (except developers' fees); or
    (g) Refinancing of an outstanding debt, except in the case of an 
existing guaranteed loan where the Agency determines that the 
refinancing is in the government's interest or furthers the objectives 
of the program. The term and amount of any loan for refinancing must not 
exceed the maximum loan amount or term limits.



Sec. 3565.207  Form of lien.

    The loan originated by the lender for a guarantee must be secured by 
a first lien against the property.



Sec. 3565.208  Maximum loan term.

    (a) Statutory term limit. The lender may set the term of the loan, 
but in no instance may the term of a guaranteed loan exceed the lesser 
of 40 years or the remaining economic life of the project.
    (b) Prepayment of loans. A guaranteed loan may be prepaid in whole 
or in part at the determination of the lender, and upon the lender's 
written notice to the Agency at least 30 days prior to the expected date 
of prepayment. The Agency will not pay any lockout or prepayment penalty 
assessed by the lender. The lender must certify the following in the 
notice of prepayment:
    (1) The lease documents used by the borrower or its agent prohibit 
the abrogation of tenant leases in the event of prepayment; and
    (2) The borrower has notified tenants of the request to prepay the 
loan, including notice of the prohibition against abrogation of the 
lease and the policy and procedure for handling complaints regarding 
compliance with the long-term use restriction as contained in subpart H 
of this part.



Sec. 3565.209  Loan amortization.

    Each guaranteed loan shall be made for a period of not less than 25 
nor greater than 40 years from the date the loan was made and may 
provide for amortization of the loan over a period of not to exceed 40 
years with a final payment of the balance due at the end of the loan 
term.

[67 FR 16970, Apr. 9, 2002]



Sec. 3565.210  Maximum interest rate.

    The interest rate for a guaranteed loan must not exceed the maximum 
allowable rate specified by the Agency. This interest rate must be fixed 
over the term of the loan.

[84 FR 55036, Oct. 15, 2019]



Sec. 3565.211  Interest credit.

    (a) Limitation. For at least 20 percent of the loans made during 
each fiscal year, the Agency will provide assistance in the form of 
interest credit, to the extent necessary to reduce the agreed-upon rate 
of interest to the AFR as such term is used in section 42(I)(2)(D) of 
the Internal Revenue Code of 1986, 26 U.S.C. 7805, Sec. 1.42-1T.
    (b) Selection criteria. The Agency will select projects to receive 
interest credits using any of such criteria as the Agency may establish 
for priority projects as contained in subpart A of this part.



Sec. 3565.212  Multiple guaranteed loans.

    The Agency may guarantee more than one loan on any project if all 
guaranteed loans, in the aggregate, comply with these regulations, 
including without limitation:
    (a) In the aggregate, loans do not exceed the maximum guaranteed 
loan amount and loan-to-value limits, as contained in Sec. 3565.204;
    (b) In the aggregate, loans are all to be secured equally by a first 
lien as the Agency may, at its sole discretion, determine necessary to 
ensure repayment of the loans; and

[[Page 598]]

    (c) If different lenders originate the loans, each lender has 
executed an intercreditor agreement in form and substance acceptable to 
the Agency.

[63 FR 39458, July 22, 1998, as amended at 70 FR 2931, Jan. 19, 2005]



Sec. 3565.213  Geographic distribution.

    The Agency may refuse to guarantee a loan in an area where there is 
undue risk due to a concentration in the market of properties subject to 
a Agency guaranteed loan. The Agency will consider the credit quality of 
the loan and overall market conditions in making a determination of 
undue risk. If any of the Agency guaranteed loans in the market are 
experiencing vacancy rates in excess of 15% and the vacancy is due to 
market conditions, the Agency will invoke this provision and not 
guarantee the loan.



Sec. 3565.214  [Reserved]



Sec. 3565.215  Special conditions.

    (a) Use of third party funds. As a condition of receiving a 
guaranteed loan, the Agency, or the lender if designated by the Agency, 
must review the terms and conditions of any secondary financing or 
funding of projects, including loans, capital grants or rental 
assistance.
    (b) Recourse. If required by the lender, loans guaranteed under this 
program may be made on a recourse or nonrecourse basis, or with any 
personal or special borrower guarantees on collateralization.



Sec. Sec. 3565.216-3565.249  [Reserved]



Sec. 3565.250  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                     Subpart F_Property Requirements



Sec. 3565.251  Eligible property.

    To be eligible for a guaranteed loan, a property must be used 
primarily for residential dwelling purposes and must meet the following 
requirements or the requirements of this subpart:
    (a) Property location. All the property must be located in a rural 
area.
    (b) Minimum size of development. The property must consist of at 
least five rental dwelling units.
    (c) Non-contiguous sites. For a loan secured by two or more non-
contiguous parcels of land, all sites must meet each of the following 
requirements:
    (1) Located in one market area;
    (2) Managed under one management plan with one loan agreement or 
resolution for all of the sites; and
    (3) Consist of single asset ownership.
    (d) Compliance with statutes. All properties must comply with the 
applicable requirements in section 504 of the Rehabilitation Act of 
1973, the Fair Housing Act, the Americans with Disabilities Act, and 
other applicable statutes.



Sec. 3565.252  Housing types.

    The property may include new construction or rehabilitation of 
existing structures. The units may be attached, detached, semi-detached, 
row houses, modular or manufactured houses, or multifamily structures. 
Manufactured housing must meet Agency requirements contained in 7 CFR 
part 1924, subpart A. The Agency will guarantee proposals for new 
construction or acquisition with moderate or substantial rehabilitation 
of at least $6,500 per dwelling unit. The portion of guaranteed funds 
available for acquisition with rehabilitation may be limited.

[84 FR 55036, Oct. 15, 2019]



Sec. 3565.253  Form of ownership.

    The property must be owned in fee simple or be subject to a ground 
lease or other legal right in land acceptable to the Agency.



Sec. 3565.254  Property standards.

    (a) Housing quality and site and neighborhood standards. The 
property must meet the site and neighborhood requirements established by 
the state or locality, and those standards contained under 7 CFR part 
1924, subparts A and C or any successor regulations.
    (b) Third party assessments. As part of the application for a 
guaranteed loan, the lender must provide documentation

[[Page 599]]

of qualified third parties' assessments of the property's physical 
condition and any environmental conditions or hazards which may have a 
bearing on the market value of the property. These assessments must 
include:
    (1) An acceptable property appraisal.
    (2) A Phase I Environmental Site Assessment (American Society of 
Testing and Materials).
    (3) A Standard Flood Hazard Determination.
    (4) In the case of the purchase of an existing structure, 
rehabilitation or refinancing, a physical needs assessment.



Sec. 3565.255  Environmental review requirements.

    Under the National Environmental Policy Act, the Agency is required 
to assess the potential impact of the proposed actions on protected 
environmental resources. Measures to avoid or mitigate adverse impacts 
to protected resources may require a change in site or project design. A 
site will not be approved by the Agency until the Agency has completed 
the environmental review process in accordance with 7 CFR part 1970.

[81 FR 11050, Mar. 2, 2016]



Sec. 3565.256  Architectural services.

    Architectural services must be provided for the project in 
accordance with 7 CFR part 1924, subpart A or successor regulation, 
including plan certifications.



Sec. 3565.257  Procurement actions.

    All construction procurement actions, whether by sealed bid or by 
negotiation, must be conducted in a manner that provides maximum open 
and free competition.



Sec. Sec. 3565.258-3565.299  [Reserved]



Sec. 3565.300  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                    Subpart G_Processing Requirements



Sec. 3565.301  Loan standards.

    An approved lender must originate and underwrite the loan and 
appraise the subject property in accordance with prudent lending 
practices and Agency criteria addressing the following factors:
    (a) Borrower qualifications and creditworthiness;
    (b) Property, vacancy, market vacancy or collection loss;
    (c) Rental concessions and rent levels;
    (d) Tenant demand and housing supply;
    (e) Property operating and maintenance expense;
    (f) Property requirements as contained in subpart F of this part;
    (g) Debt coverage ratio;
    (h) Operating and long-term capital requirements;
    (i) Loan-to-value ratio;
    (j) Return on borrower equity; and
    (k) Estimated long-term marketability of the project.



Sec. 3565.302  Allowable fees.

    (a) Lender fees. The lender is authorized to charge reasonable and 
necessary fees in connection with a borrower's application for a 
guaranteed loan.
    (b) Agency fees. The Agency will charge one or more types of fees 
deemed appropriate as reimbursement for reasonable and necessary costs 
incurred in connection with applications received from lenders. Agency 
fees may include, but are not limited to, the following:
    (1) Site assessment and market analysis or preliminary feasibility 
fee. A fee for review of an application for a determination of 
preliminary feasibility.
    (2) Application fee. A fee submitted in conjunction with the 
application for a loan guarantee.
    (3) Inspection fee. A fee for inspection of the property in 
conjunction with a loan guarantee.
    (4) Transfer fee. A fee in connection with a request for approval of 
a transfer of physical assets or a change in the composition of the 
ownership entity.

[[Page 600]]

    (5) Extension or reopening fees. A fee to extend the guarantee 
commitment or to reopen an application when a commitment has expired.

[63 FR 39458, July 22, 1998, as amended at 84 FR 55036, Oct. 15, 2019]



Sec. 3565.303  Issuance of loan guarantee.

    (a) Preliminary feasibility review. During the initial processing of 
a loan, the lender may request a preliminary feasibility review by the 
Agency when required loan documentation is submitted.
    (b) Conditional commitment to guarantee a loan. The Agency will 
issue a conditional commitment to guarantee a loan. This commitment will 
be good for such time frame as the Agency deems appropriate based on 
project requirements. The commitment to guarantee a loan, will specify 
any conditions necessary to obtain a determination by the Agency that 
all program requirements have been met. A conditional commitment can be 
issued, subject to the availability of funds, after:
    (1) Completion of environmental review requirements in accordance 
with 7 CFR part 1970; and
    (2) Selection of the proposed project for funding by the Agency in 
accordance with ranking and selection criteria.
    (c) Guarantee during construction. When requesting a guarantee on 
construction loan advances under Sec. 3565.52(c)(2) and (c)(3), Options 
2 and 3, the Agency will only issue a guarantee to an approved lender 
that the Agency determines is eligible under Sec. 3565.106 of this 
part.
    (1) This guarantee will be subject to the limits contained in 
subpart B of this part and in the loan closing documentation.
    (2) In all cases, the lender must obtain one of the following 
protections:
    (i) Surety bonding or performance and payment bonding acceptable to 
the Agency;
    (ii) An irrevocable letter of credit acceptable to the Agency; or
    (iii) A pledge to the lender of collateral that is acceptable to the 
Agency.
    (3) The lender must verify amounts expended prior to each payment 
for completed work and certify that an independent inspector has 
inspected the property and found it to be in conformance with Agency 
standards. The lender must provide verification that all subcontractors 
have been paid and no liens have been filed against the property.
    (d) Permanent loan guarantee. The guarantee of a permanent loan 
provided under Sec. 3565.52(c)(1) or (c)(2) will be issued once the 
following items have been submitted to and approved by the Agency:
    (1) Certification from the lender stating that the lender or its 
qualified representative inspected the property and found that the 
construction meets the Government's requirements for the standards and 
conditions for housing and facilities in 7 CFR part 1924, subpart A and 
the standards for site development in 7 CFR part 1924, subpart C, or its 
successor regulations;
    (2) Cash flow certification--the lender certifies, in writing, the 
project's cash flow assumptions are still valid and depict compliance 
with the section 538 program's debt service coverage ratio requirement 
of at least 1.15, based on the lender's analysis of current market 
conditions and comparable properties in the project's market area;
    (3) Documentation that either:
    (i) The project has attained a minimum level of acceptable occupancy 
of 90% for 90 continuous days within the 120-day period immediately 
preceding the issuance of the permanent guarantee, or
    (ii) Additional funds, supplementing the funds required under Sec. 
3565.303(d), have been added to the lease-up reserve in an amount the 
Agency determines is necessary to cover projected shortfalls.
    (4) A new appraisal based upon completion of construction. Upon a 
lender's written request, the Agency may exempt a project from this 
requirement if requested by the lender and the project meets the 
following criteria:
    (i) Original appraisal--the original appraisal that meets the 
Agency's appraisal requirements with a valuation date no older than 36 
months;
    (ii) Valuation--the appraisal's lowest valuation, regardless of 
valuation approach and rent restrictions considered, is greater than the 
section 538 guaranteed loan amount; and

[[Page 601]]

    (iii) Guaranteed loan balance--the Agency's guaranteed loan's 
principal balance does not exceed 50 percent [unless a different percent 
has been announced in a Notice published in the Federal Register] of the 
project's total development costs.
    (5) A certificate of substantial completion;
    (6) A certificate of occupancy or similar evidence of local 
approval;
    (7) A final inspection conducted by a qualified Agency 
representative;
    (8) A final cost certification in a form acceptable to the Agency;
    (9) A submission to the Agency of the complete closing docket;
    (10) A certification by the lender that the project has reached an 
acceptable minimum level occupancy;
    (11) An executed regulatory agreement;
    (12) The Lender certifies that it has approved the borrower's 
management plan and assures that the borrower is in compliance with 
Agency standards regarding property management contained in subparts E 
and F of this part;
    (13) Necessary information to complete an updated necessary 
assistance review by the Agency under Sec. 3565.204(c); and
    (14) Compliance with all conditions contained in the conditional 
commitment for guarantee.
    (e) Modification of guarantee amount after commitment. The Agency 
may modify the guarantee amount or decline to issue a loan guarantee 
when a lender fails to honor obligations or to fulfill representations 
made under the guarantee commitment.
    (f) Continuous Guarantee Compliance. The continuous guarantee will 
remain in effect once construction is completed. In order to remain in 
compliance with 7 CFR part 3565, the following items must be submitted 
to and approved by the Agency. These items will be submitted to the 
Agency by the date stated in the Conditional Commitment and any Agency 
approved extension(s).
    (1) Certification from the lender stating that the lender or its 
qualified representative inspected the property and found that the 
construction meets the Government's requirements for the standards and 
conditions for housing and facilities in 7 CFR part 1924, subpart A and 
the standards for site development in 7 CFR part 1924, subpart C, or its 
successor regulations;
    (2) Cash flow certification--the lender certifies in writing the 
project's cash flow assumptions are still valid and depict compliance 
with the section 538 program's debt service coverage ratio requirement 
of at least 1.15, based on the lender's analysis of current market 
conditions and comparable properties in the project's market area;
    (3) Documentation that either:
    (i) The project has attained a minimum level of acceptable occupancy 
of 90% for 90 continuous days within the 120-day period immediately 
preceding the issuance of the permanent guarantee, or
    (ii) Additional funds, supplementing the funds required under Sec. 
3565.303(d), have been added to the lease-up reserve in an amount the 
Agency determines is necessary to cover projected shortfalls.
    (4) An appraisal of the property;
    (5) A certificate of substantial completion;
    (6) A certificate of occupancy or similar evidence of local 
approval;
    (7) A final inspection conducted by a qualified Agency 
representative;
    (8) A final cost certification in a form acceptable to the Agency;
    (9) A submission to the Agency of the complete closing docket;
    (10) A certification by the lender that the project has reached an 
acceptable minimum level occupancy;
    (11) An executed regulatory agreement;
    (12) The Lender certifies that it has approved the borrower's 
management plan and assures that the borrower is in compliance with 
Agency standards regarding property management contained in subparts E 
and F of this part;
    (13) Necessary information to complete an updated necessary 
assistance review by the Agency under Sec. 3565.204(c); and
    (14) Compliance with all conditions contained in the conditional 
commitment for guarantee.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999; 
76 FR 4, Jan. 3, 2011; 81 FR 11050, Mar. 2, 2016]

[[Page 602]]



Sec. 3565.304  Lender loan processing responsibilities.

    (a) Application. The lender will be responsible for submitting an 
application for a loan guarantee in a format prescribed by the Agency. 
Lenders may submit an application at the feasibility stage or when they 
request a conditional commitment.
    (b) Project servicing, management and disposition. Unless otherwise 
permitted by the Agency, the originating lender must perform all loan 
functions during the period of the guarantee. These functions include 
servicing, asset management, and, if necessary, property disposition. 
The lender must maintain and service the loan in accordance with the 
provisions of subpart I of this part and Agency servicing procedures.



Sec. 3565.305  Mortgage and closing requirements.

    It is the lender's responsibility to ensure that the loan closing 
statement and required loan documents are in a form acceptable to the 
Agency and included in the closing docket. The lender is responsible for 
resolving any underwriting and loan closing deficiencies that are found. 
The Agency's review of the lender's loan closing documentation does not 
constitute a waiver of fraud, misrepresentation, or failure of judgment 
by the lender.



Sec. Sec. 3565.306-3565.349  [Reserved]



Sec. 3565.350  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                      Subpart H_Project Management



Sec. 3565.351  Project management.

    As a condition of the guarantee, the lender is to obtain borrower 
certification that the project is in compliance with local, state, 
federal laws and program requirements.
    (a) Regulatory agreement. A regulatory agreement between the 
borrower and lender must be executed at the time of loan closing and 
contain the following covenants:
    (1) That it is binding upon the borrower and any of its successors 
and assigns, as well as upon the lender and any of its successors and 
assigns, for the duration of the guaranteed loan;
    (2) That the borrower makes all payments due under the note and to 
the required escrow and reserve accounts;
    (3) That the borrower maintains the project as affordable housing in 
accordance with the purposes and for the duration defined in the 
statute;
    (4) That the borrower maintains the project in good physical and 
financial condition at all times;
    (5) That the borrower obtains and maintains property insurance and 
any other insurance coverage required to protect the security;
    (6) That the borrower maintains complete project books and financial 
records, and provides the Agency and the lender with an annual audited 
financial statement after the end of each fiscal year;
    (7) That the borrower makes project books and records available for 
review by the Office of Inspector General, Rural Development staff, 
General Accounting Office, and the Department of Justice, or their 
representatives or successors upon appropriate notification;
    (8) That the borrower prepares and complies with the Affirmative 
Fair Housing Marketing Plan and all other Fair Housing requirements;
    (9) That the borrower operates as a single asset ownership entity, 
unless otherwise approved by the Agency;
    (10) That the borrower complies with applicable federal, state and 
local laws; and
    (11) That the borrower provides management satisfactory to the 
lender and to the Agency and complies with an approved management plan 
for the project.
    (b) Management plan. The lender must approve the borrower's 
management plan and assure that the borrower is in compliance with 
Agency standards regarding property management, including the 
requirements contained in subparts E and F of this part.
    (c) Tenant protection and grievance procedures. Tenants in 
properties subject to a guaranteed loan are entitled

[[Page 603]]

to the grievance and appeal rights contained in 7 CFR part 3560, subpart 
D or successor regulation. The borrower must inform tenants in writing 
of these rights.
    (d) Financial management--(1) Borrower reporting requirements. At a 
minimum, the lender must obtain, on an annual basis, an audited annual 
financial statement conducted in accordance with generally accepted 
government auditing standards.
    (2) Lender reporting requirements. The lender must review the 
financial reports to assure that the property is in sound fiscal 
condition and the borrower is in compliance with financial requirements. 
The lender must report findings to the Agency as follows:
    (i) Annual reports. The lender must submit to the Agency a copy of 
the annual financial audit of the project and must report on the nature 
and status of any findings. To the extent that outstanding findings or 
issues remain, the lender must submit to the Agency a copy of a plan of 
action for any unresolved findings.
    (ii) Monthly reports. The lender must submit monthly reports to the 
Agency on all loans that are either in default, delinquent, or not in 
compliance with program requirements. This report must provide 
information on the financial condition of each loan, the physical 
condition of the property, the amount of delinquency, any other non-
compliance with program requirements and the proposed actions and 
timetable to resolve the delinquency, default or non-compliance.
    (3) Reserve releases. The lender is responsible for approving or 
disapproving all borrower requests for release of funds from the reserve 
and escrow accounts. Security deposit accounts will not be considered a 
reserve or escrow account.
    (4) Insurance requirements. At loan closing, the borrower will 
provide the lender with documentary evidence that Agency insurance 
requirements have been met. The borrower must maintain insurance in 
accordance with Agency requirements until the loan is repaid and the 
lender must be named as the insurance policy's beneficiary. The lender 
must obtain insurance on the secured property if the borrower is unable 
or unwilling to do so and charge the cost as an advance.
    (5) Distribution of surplus cash. Prior to the distribution of 
surplus cash to the owner, the lender must certify that the property is 
in good financial and physical condition and in compliance with the 
regulatory agreement. Such compliance includes payment of outstanding 
obligations, debt service, and required funding of reserve and escrow 
accounts.
    (e) Physical maintenance. The lender must annually inspect the 
property to ensure that it is in compliance with state and local codes 
and program requirements. The lender must certify to the Agency that a 
property is in such compliance, or report to the Agency on any non-
compliance items and proposed actions and timetable for resolution. 
Failure to provide responsive corrective action can result in reduction 
or cancellation of the guarantee by the Agency.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999; 
69 FR 69176, Nov. 26, 2004]



Sec. 3565.352  Preservation of affordable housing.

    (a) Original purpose. During the period of the guarantee, owners are 
prohibited from using the housing or related facilities for any purpose 
other than an approved program purpose.
    (b) Use restriction. For the original term of the guaranteed loan, 
the housing must remain available for occupancy by low and moderate 
income households, in accordance with subpart E of this part. This 
requirement will be included in a deed restriction or other instrument 
acceptable to the Agency. The restriction will apply unless the housing 
is acquired by foreclosure or an instrument in lieu of foreclosure, or 
the Agency waives the applicability of this requirement after 
determining that each of the following three circumstances exist.
    (1) There is no longer a need for low-and moderate-income housing in 
the market area in which the housing is located;
    (2) Housing opportunities for low-income households and minorities 
will not be reduced as a result of the waiver; and

[[Page 604]]

    (3) Additional federal assistance will not be necessary as a result 
of the waiver.



Sec. 3565.353  Affirmative fair housing marketing.

    As a condition of the guarantee, the lender must ensure that the 
lender and borrower are in compliance with the approved Affirmative Fair 
Housing Marketing Plan. This plan must be reviewed annually by the 
lender to ensure that the borrower remains in compliance and to 
recommend modifications, as necessary.



Sec. 3565.354  Fair housing accommodations.

    The lender must ensure that the borrower is in compliance with the 
applicable fair housing laws in the development of the property, the 
selection of applicants for housing, and ongoing management. See subpart 
A of this part.



Sec. 3565.355  Changes in ownership.

    Any change in ownership, in whole or in part, must be approved by 
the lender and the Agency before such change takes effect.



Sec. Sec. 3565.356-3565.399  [Reserved]



Sec. 3565.400  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                    Subpart I_Servicing Requirements



Sec. 3565.401  Servicing objectives.

    The participating lender is responsible for servicing the guaranteed 
loan throughout the term of the loan or guarantee, whichever is less. In 
all cases, the lender remains responsible for liquidation of the 
property in accordance with the Loan Note Agreement, unless otherwise 
determined by the Agency. A lender-servicing plan must be designed and 
implemented to achieve the following objectives.
    (a) To preserve the value of the loan and the real estate;
    (b) To avoid a loss to the lender or the Agency and to limit 
exposure to potential loss;
    (c) To protect the interests of the tenants; and
    (d) To further program objectives.



Sec. 3565.402  Servicing responsibilities.

    The lender must service the loan in accordance with this subpart and 
perform the services contained in this section in a reasonable and 
prudent manner. The lender is responsible for the actions of its agents 
and representatives.
    (a) Funds management. The lender must have a funds management system 
to receive and process borrower payments, including the following.
    (1) All principal and interest (P&I) funds and guarantee fees 
collected and deposited into the appropriate custodial accounts.
    (2) Payments to custodial escrow accounts for taxes and insurance 
premiums, assessments that might impair the security (such as ground 
rent), and reserve accounts for repair and capital improvement of the 
property.
    (b) Asset management. The lender must ensure that the property 
securing the guaranteed loan remains in good physical and financial 
condition, in accordance with project management requirements contained 
in subpart H of this part.
    (c) Management of delinquencies and defaults. Each month the lender 
must report to the Agency any delinquencies and defaults in accordance 
with subpart H of this part.



Sec. 3565.403  Special servicing.

    Special servicing must be initiated when regular servicing actions 
are insufficient to resolve borrower default or property deficiencies.
    (a) Repurchase from Holder. For securitized loans, the Holder may 
require the lender or Government to repurchase the security in 
accordance with the provisions of Sec. 3565.405.
    (b) Responsibility of lender. It is the lender's responsibility 
during special servicing to make a special effort to ensure that 
maintenance of the property meets Agency requirements and the tenants' 
rights are protected, until

[[Page 605]]

such time that the property is liquidated by the lender, the loan is 
paid in full, or the loan is assigned to the Agency. The lender must 
update the Agency monthly until the default is cured or a claim is 
filed. The lender must maintain adequate records of any and all efforts 
to cure the default or to foreclose.
    (c) Initiating special servicing. When special servicing is 
initiated, the lender must submit for Agency review a special servicing 
plan that includes proposed actions to cure the deficiencies and a 
timeframe for completion. The special servicing plan will specify the 
proposed terms of any workout agreement recommended by the lender. The 
lender must obtain Agency approval of the terms of any workout agreement 
with the borrower. The workout agreement may include a loan 
modification, transfer of physical assets, or partial payment of claim 
and reamortization of the loan. Failure to comply with terms contained 
in the executed workout agreement will be considered a default of the 
guaranteed loan.
    (1) Loan modification. The borrower and lender may agree to a loan 
modification when such action will improve the financial viability of 
the project and its operations, and when a circumstance exists that is 
beyond the borrower's control. The Agency must approve in advance any 
loan modification that extends the life of the loan or requires an 
increase in the amount of the guarantee. All changes must be within the 
requirements of section 538 of the Housing Act of 1949.
    (2) Change in ownership and transfer of physical assets. A default 
or delinquency may be resolved by a change of the ownership entity in 
whole or in part. The Agency must approve all changes in ownership prior 
to the effective date of the transfer, and may require additional 
resources from the lender or borrower to resolve project deficiencies.
    (3) Partial payment of claims. The lender may request a partial 
payment of claim as a result of a loss experienced by the lender as a 
means to work out a troubled loan. The Agency will accept such claim if 
it determines that it is in the best interest of the government. In 
applying the partial payment, the lender must assign the obligation 
covered by the partial payment to the Agency, and, if required by the 
Agency, reamortize the obligation using the amount of the remaining 
obligation over an agreed-upon term.
    (d) Claims processing. In the event of a loss, the lender must 
submit claims under the guarantee in accordance with subpart J of this 
part. Prior to submitting a claim, the lender must exhaust all 
possibilities of collection on the loan.
    (e) Displacement prevention. The actions of the lender must not harm 
the property's tenants through displacement.

[63 FR 39458, July 22, 1998, as amended at 67 FR 16971, Apr. 9, 2002; 70 
FR 2931, Jan. 19, 2005]



Sec. 3565.404  Transfer of loans or mortgage servicing.

    Transfer of servicing is prohibited unless the Agency determines 
that circumstances warrant such action, the proposed lender is an 
eligible lender approved by the Agency, and the transfer of servicing is 
approved by the Agency in advance.



Sec. 3565.405  Repurchase of guaranteed loans.

    (a) Repurchase by lender. The Holder may make written demand on the 
lender to repurchase the unpaid guaranteed portion of the loan when the 
borrower is in default not less than 60 calendar days on principal or 
interest due on the loan; or the lender has failed to remit to the 
Holder its pro rata share of any payment made by the borrower within 30 
calendar days of receipt by the lender. The Holder must concurrently 
send a copy of the demand letter to the Agency. The lender will notify 
the Holder and the Agency of its decision to repurchase within 10 
business days from the date of the written demand letter by the Holder. 
The lender may agree to repurchase the unpaid portion of the entire loan 
from the Holder, even though the guarantee does not cover any 
unguaranteed portion of the loan held by the Holder. If the lender 
decides to repurchase, the lender has 30 calendar days from the date of 
the Holder's written demand letter to do

[[Page 606]]

so. The guarantee does not cover any unguaranteed portion of the loan or 
the note interest to the Holder on the guaranteed loan accruing after 90 
calendar days from the date of the Holder's demand letter to the lender 
requesting the repurchase. The lender may deduct the lender's servicing 
fee from the repurchase amount. The lender will accept an assignment 
without recourse from the Holder upon repurchase. The lender is 
encouraged to repurchase the loan to facilitate the accounting of funds, 
resolve problems, and to prevent default where and when reasonable.
    (b) Repurchase by Agency. (1) If the lender does not repurchase the 
loan as provided in paragraph (a) of this section, the Agency will 
purchase from the Holder the unpaid principal balance of the guaranteed 
portion together with accrued interest to date of repurchase, less the 
lender's servicing fee, within 30 calendar days after written demand to 
the Agency from the Holder. The guarantee will not cover the note 
interest to the Holder on the guaranteed loan accruing after 90 calendar 
days from the date of the original demand letter of the Holder to the 
lender requesting the repurchase. Holders of Loan Note Guarantees that 
have been issued prior to the effective date of this final rule may opt 
to adhere to the terms and conditions of the Loan Note Guarantee then in 
effect. In case of loan default, the Holder of a Loan Note Guarantee 
issued prior to the effective date of this final rule will stipulate, in 
a written demand for repurchase, its preference for repurchase in 
accordance with the Loan Note Guarantee issued prior to the effective 
date of this final rule. If the demand for repurchase does not stipulate 
a preference for repurchase in accordance with the Loan Note Guarantee 
issued prior to the effective date of this final rule, the Agency will 
process the demand for repurchase as stated in this final rule. The 
Holder must stipulate a preference for repurchase in accordance with the 
Loan Note Guarantee issued prior to the effective date of this final 
rule in the first demand for repurchase. The Holder of the Loan Note 
Guarantee issued prior to the effective date of this final rule cannot 
make a subsequent demand for repurchase changing the preference 
stipulated in the original demand for repurchase.
    (2) The Holder's demand to the Agency must include a copy of the 
written demand made to the lender. The Holder must also include evidence 
of its right to require payment from the Agency. Such evidence will 
consist of either the original of the Loan Note Guarantee properly 
endorsed to the Agency or the original of an Agency approved assignment 
guarantee agreement, properly assigned to the Agency without recourse 
including all rights, title, and interest in the loan. The Holder must 
include in its demand the amount due including unpaid principal, unpaid 
interest to date of demand, and interest subsequently accruing from date 
of demand to proposed payment date. The Agency will be subrogated to all 
rights of the Holder.
    (3) The Agency will notify the lender of its receipt of the Holder's 
demand for payment. The lender must provide the Agency with the 
information necessary for the Agency to determine the appropriate amount 
due the Holder within 10 business days from the date of the written 
demand letter to the lender from the Holder requesting repurchase of the 
guaranteed portion. The lender will furnish a current statement 
certified by an appropriate authorized officer of the lender stating the 
unpaid principal and interest then owed by the borrower on the loan and 
the amount then owed to any Holder. Any discrepancy between the amount 
claimed by the Holder and the information submitted by the lender must 
be resolved between the lender and the Holder before payment will be 
approved. The Agency will coordinate the resolution of the discrepancy. 
Such conflict will suspend the running of the 30 calendar day payment 
requirement.
    (4) Purchase by the Agency does not change, alter, or modify any of 
the lender's obligations to the Agency arising from the loan or 
guarantee nor does it waive any of the Agency's rights against the 
lender. As Holder, the Agency will have the right to set-off any 
payments the Agency owes the lender.

[70 FR 2931, Jan. 19, 2005]

[[Page 607]]



Sec. Sec. 3565.406-3565.449  [Reserved]



Sec. 3565.450  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



              Subpart J_Assignment, Conveyance, and Claims



Sec. 3565.451  Preclaim requirements.

    (a) Lender certifications. After borrower default and before filing 
a claim or assignment of the loan to the Agency, the lender must make 
every reasonable and prudent effort to resolve the default. The lender 
must provide the Agency with an accounting of all proposed and actual 
actions taken to cure the default. The lender must certify that all 
reasonable efforts to cure the default have been exhausted. Where the 
lender fails to comply with the terms of the loan guarantee agreement 
and the corresponding regulations and guidance with regard to 
liquidating the property, the Agency, at its option, may take possession 
of the security collateral and dispose of the property.
    (b) Due diligence by lender. For all loan servicing actions where a 
market, net recovery or liquidation value determination is required, 
guaranteed lenders shall perform due diligence in conjunction with the 
appraisal and submit it to the Agency for review. The Phase I 
Environmental Site Assessment published by the American Society of 
Testing and Materials is considered an acceptable format for due 
diligence.
    (c) Environmental review. The Agency is required to complete an 
environmental review under the National Environmental Policy Act, in 
accordance with 7 CFR part 1970. Servicing actions as defined in Sec. 
1970.6 are part of financial assistance already provided and do not 
require additional NEPA review. However, certain post-financial 
assistance actions that have the potential to have an effect on the 
environment, such as lien subordinations, sale or lease of Agency-owned 
real property, or approval of a substantial change in the scope of a 
project, as defined in Sec. 1970.8, are subject to a NEPA analysis in 
accordance with 7 CFR part 1970.

[63 FR 39458, July 22, 1998, as amended at 81 FR 11050, Mar. 2, 2016]



Sec. 3565.452  Decision to liquidate.

    (a) A decision to liquidate shall be made when it is determined that 
the default cannot be cured through actions contained in Sec. 3565.403 
or it has been determined that it is in the best interest of the Agency 
and the lender to liquidate. For interest accrual purposes, interest 
will accrue for 90 calendar days after the date the liquidation plan is 
approved by the Agency. If within 20 calendar days of the Agency's 
receipt of the liquidation plan, the Agency fails to respond to the 
lender's proposal or advise the lender to make revisions to the plan 
that was submitted, the liquidation plan will be approved by default, 
and the 90 calendar day period for interest accrual will commence.
    (b) In the event of a default involving a loan to an Indian tribe or 
tribal corporation made under this section which is secured by an 
interest in land within such tribe's reservation (as determined by the 
Secretary of the Interior), including a community in Alaska incorporated 
by the Secretary of the Interior pursuant to the Indian Reorganization 
Act (25 U.S.C. 461 et seq.), the lender shall only pursue liquidation 
after offering to transfer the account to an eligible tribal member, the 
tribe, or the Indian housing authority serving the tribe. If the lender 
subsequently proceeds to liquidate the account, the lender shall not 
sell, transfer, or otherwise dispose of or alienate the property except 
to one of the entities described in the preceding sentence.

[67 FR 16971, Apr. 9, 2002, as amended at 70 FR 2932, Jan. 19, 2005]



Sec. 3565.453  Disposition of the property.

    (a) Submission of the liquidation plan. The lender will, within 30 
calendar days after a decision to liquidate, submit to the Agency in 
writing, its proposed detailed plan of liquidation. The Agency will 
inform the lender, in writing, whether the Agency concurs in the 
lender's liquidation plan. Should the Agency and the lender

[[Page 608]]

not agree on the liquidation plan, negotiations will take place between 
the Agency and the lender to resolve the disagreement. When the 
liquidation plan is approved by the Agency, the lender will proceed 
expeditiously with liquidation. The liquidation plan submitted to the 
Agency by the lender shall include:
    (1) Satisfactory proof of the lender's ownership of the guaranteed 
loan promissory note and related security instruments.
    (2) A copy of the payment ledger or equivalent which reflects the 
current loan balance and accrued interest to date and the method of 
computing the interest.
    (3) A full and complete list of all collateral including any 
personal and corporate guarantees.
    (4) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including recommended actions for:
    (i) Obtaining an appraisal of the collateral;
    (ii) Acquiring and disposing of all collateral;
    (iii) Collecting from guarantors;
    (iv) Setting the proposed date of foreclosure; and
    (v) Setting the proposed date of liquidation.
    (5) Necessary steps for protection of the tenants and preservation 
of the collateral.
    (6) Copies of the borrower's latest available financial statements.
    (7) Copies of the guarantor's latest available financial statements.
    (8) An itemized list of estimated liquidation expenses expected to 
be incurred along with justification for each expense.
    (9) A schedule to periodically report to the Agency on the progress 
of liquidation.
    (10) Estimated protective advance amounts with justification.
    (11) Proposed protective bid amounts on collateral to be sold at 
auction and a breakdown to show how the amounts were determined.
    (12) If a voluntary conveyance is considered, the proposed amount to 
be credited to the guaranteed debt.
    (13) Any legal opinions supporting the decision to liquidate.
    (14) The lender will obtain a complete appraisal report on all 
collateral securing the loan, which will reflect the fair market value 
and potential liquidation value, and an examination of the title on the 
collateral. In order to formulate a liquidation plan, which maximizes 
recovery, collateral must be evaluated for hazardous substances, 
petroleum products, or other environmental hazards, which may adversely 
impact the market value of the collateral.
    (b) A transfer and assumption of the borrower's operation can be 
accomplished before or after the loan goes into liquidation. However, if 
the collateral has been purchased through foreclosure or the borrower 
has conveyed title to the lender, no transfer and assumption is 
permitted.
    (c) A protective bid may be made by the lender, with prior Agency 
written approval, at a foreclosure sale to protect the lender's and the 
Agency's interest. The protective bid will not exceed the amount of the 
loan, including expenses of foreclosure, and should be based on the 
liquidation value considering estimated expenses for holding and 
reselling the property. These expenses include, but are not limited to, 
expenses for resale, interest accrual, length of weatherization, and 
prior liens.
    (d) Filing an estimated loss claim. When the lender is conducting 
the liquidation and owns any or all of the guaranteed portion of the 
loan, the lender will file an estimated loss claim with the liquidation 
plan if the lender expects liquidation to exceed 90 calendar days. The 
estimated loss payment will be based on the outstanding loan amount 
minus the liquidation value of the collateral. For the purpose of 
reporting and loss claim computation, the loss claim will be promptly 
processed in accordance with applicable Agency regulations, as set forth 
in this section. The loss claim calculation will include 90 calendar 
days of interest accrual on the defaulted loan at the time the estimated 
loss claim is paid by the Agency. If the lender estimates that there 
will be no loss after considering the costs of liquidation, the lender 
submits an estimated loss claim of

[[Page 609]]

zero. Interest accrual will cease 90 calendar days after the date the 
liquidation plan is approved by the Agency.
    (e) Property disposition. Once the liquidation plan has Agency 
approval, the lender must make every effort to liquidate the property in 
a manner that will yield the highest market value consistent with the 
protections afforded to tenants in 7 CFR part 1944, subpart L or 
successor regulation.
    (f) Accounting and reports. When the lender conducts liquidation, 
the lender will account for funds during the period of liquidation and 
provide the Agency with reports at least quarterly on the progress of 
liquidation, including disposition of collateral, resulting costs, and 
additional procedures necessary for successful completion of the 
liquidation.
    (g) Transmitting payments and proceeds to the Agency. When the 
Agency is the Holder of a portion of the guaranteed loan, the lender 
will transmit to the Agency its pro rata share of any payments received 
from the borrower, liquidation, or elsewhere.

[70 FR 2932, Jan. 19, 2005]



Sec. 3565.454  [Reserved]



Sec. 3565.455  Alternative disposition methods.

    The Agency, in its sole discretion, may choose to obtain an 
assignment of the loan from the lender or conveyance of title obtained 
by the lender through foreclosure or a deed-in-lieu of foreclosure.
    (a) Assignment. In the case of an assignment of the loan, the 
assignment of the security instruments or the security must be in 
written and recordable form. Completion of the assignment will occur 
once the following transactions are completed to the Agency's 
satisfaction.
    (1) Conveyance to the Agency of all the lender's rights and 
interests arising under the loan.
    (2) Assignment to the Agency of all claims against the borrower or 
others arising out of the loan transactions, including:
    (i) All collateral agreements affecting financing, construction, use 
or operation of the property; and
    (ii) All insurance or surety bonds, or other guarantees, and all 
claims under them.
    (3) Certification that the collateral has been evaluated for the 
presence of contamination from the release of hazardous substances, 
petroleum products or other environmental hazards which may adversely 
impact the market value of the property and the results of that 
evaluation.
    (b) Conveyance of title. In the case of a conveyance of title to the 
property, the lender must inform the Agency in advance of how it plans 
to acquire title and a timetable for doing so. The Agency will accept 
the conveyance upon receipt of an assignment to the Agency of all claims 
of the lender against the property and assignment of the lender's rights 
to any operating funds and any reserves or escrows established for the 
maintenance of the property or the payment of property taxes and 
insurance.



Sec. 3565.456  Filing a claim.

    Once the lender has disposed of the property or the Agency has 
agreed to accept an assignment of the loan or conveyance of title to the 
property, the lender may file a claim for the guaranteed portion of 
allowable losses. All claim amounts must be calculated in accordance 
with this subpart and be approved by the Agency.



Sec. 3565.457  Determination of claim amount.

    In all liquidation cases, final settlement will be made with the 
lender after the collateral is liquidated, unless otherwise designated 
as a future recovery or after settlement and compromise of all parties 
has been completed.
    (a) Report of loss form. An Agency approved form will be used for 
calculations of all estimated and final loss determinations. Estimated 
loss payments will only be paid by the Agency after it has approved a 
liquidation plan.
    (b) Estimated loss. An estimated loss claim based on liquidation 
appraisal value will be prepared and submitted by the lender.
    (1) The estimated loss payment shall be applied as of the date of 
such payment. The total amount of the loss

[[Page 610]]

payment paid by the Agency will be applied by the lender on the loan 
debt. Such application does not release the borrower from liability.
    (2) The Government's written authorization is required for all 
protective advances in excess of $5,000. Protective advances include, 
but are not limited to, advances made for property taxes, annual 
assessments, ground rent, hazard or flood insurance premiums affecting 
the collateral, and other expenses necessary to preserve or protect the 
security. Attorney fees are not a protective advance. A protective 
advance claim will be paid only at the time of the final report of loss 
payment except in certain transfer and assumption situations with Agency 
approval.
    (c) Final loss. Within 30 calendar days after liquidation of all 
collateral, except for certain unsecured personal or corporate 
guarantees (as provided for in this section) is completed, a final 
report of loss on a form approved by the Agency must be prepared and 
submitted by the lender to the Agency. Before approval by the Agency of 
any final loss report, the lender must account for all funds during the 
period of liquidation, disposition of the collateral, all costs 
incurred, and any other information necessary for the successful 
completion of liquidation. Upon receipt of the final accounting and 
report of loss, the Agency may audit all applicable documentation to 
determine the final loss. The lender will make its records available and 
otherwise assist the Agency in making any investigation. The 
documentation accompanying the report of loss must support the amounts 
shown on the report of loss form.
    (1) A determination must be made regarding the collectability of 
unsecured personal and corporate guarantees. If reasonably possible, 
such guarantees should be promptly collected prior to completion of the 
final loss report. However, in the event that collection from the 
guarantors appears unlikely or will require a prolonged period of time, 
the report of loss will be filed when all other collateral has been 
liquidated, and unsecured personal or corporate guarantees will be 
treated as a future recovery with the net proceeds to be shared on a pro 
rata basis by the lender and the Agency.
    (2) The lender must document that all of the collateral has been 
accounted for and properly liquidated and that liquidation proceeds have 
been properly accounted for and applied correctly to the loan.
    (3) The lender will show a breakdown of any protective advance 
amount as to the payee, purpose of the expenditure, date paid, and 
evidence that the amount expended was proper and that payment was 
actually made.
    (4) The lender will show a breakdown of liquidation expenses as to 
the payee, purpose of the expenditure, date paid, and evidence that the 
amount expended was proper and that payment was actually made. 
Liquidation expenses are recoverable only from collateral proceeds.
    (5) Accrued interest will be supported by documentation as to how 
the amount was accrued.
    (6) Loss payments will be paid by the Agency within 60 calendar days 
after the receipt of the final loss report and accounting of the 
collateral.
    (7) Should there be a circumstance where the lender cannot or will 
not sign a final report of loss, the State Director may complete the 
final report of loss and submit it to the Finance Office without the 
lender's signature. Before this action can be taken, all collateral must 
be disposed of or accounted for; there must be no evidence of fraud, 
misrepresentation, or negligent servicing by the lender; and all efforts 
to obtain the cooperation of the lender must have been exhausted and 
documented.
    (d) Maximum guarantee payment. The maximum guarantee payment will 
not exceed the amount of guarantee percentage as contained in the 
guarantee agreement (but in no event more than 90%) times the allowable 
loss amount.
    (e) Rent. Any net rental or other income that has been received by 
the lender from the collateral will be applied on the guaranteed loan 
debt after paying operating expenses of the property.
    (f) Liquidation costs. Liquidation costs will be deducted from the 
proceeds of the disposition of primary collateral. If

[[Page 611]]

changed circumstances after submission of the liquidation plan require a 
substantial revision of liquidation costs, the lender will procure the 
Agency's written concurrence prior to proceeding with the proposed 
changes.
    (g) Payment. When the Agency finds the final report of loss to be 
proper in all respects, it will approve the form and proceed as follows:
    (1) If the loss is greater than any estimated loss payment, the 
Agency will pay the additional amount owed by the Agency to the lender.
    (2) If the loss is less than the estimated loss payment, the lender 
will reimburse the Agency for the overpayment.
    (3) If the Agency determines that it is in the Government's best 
interest to take assignment of the loan and conduct liquidation, as 
stipulated in 42 U.S.C. 1490(i)(3), Assignment by Secretary, the Agency 
will pay the lender in accordance with the Loan Note Guarantee.
    (h) Date of loss. The date of loss is the date on which the 
collateral will be liquidated in the liquidation plan, unless an 
alternative date is approved by the Agency. Where the Agency chooses to 
accept an assignment of the loan or conveyance of title, the date of 
loss will be the date on which the Agency accepts assignment of the loan 
or conveyance of title.
    (i) Allowable claim amount. The allowable claim amount must be 
calculated by:
    (1) Adding to the unpaid principal and interest on the date of loss, 
an amount approved by the Agency for payments made by the lender for 
amounts due and owning on the property, including:
    (i) Property taxes and other protective advances as approved by the 
Agency;
    (ii) Water and sewer charges and other special assessments that are 
liens prior to the guaranteed loan;
    (iii) Insurance of the property; and
    (iv) Reasonable liquidation expenses.
    (2) And by deducting the following items:
    (i) Any amount received by the lender on the account of the 
guaranteed loan after the date of default;
    (ii) Any net income received by the lender from the secured property 
after the date of default; and
    (iii) Any cash items retained by the lender, except any amount 
representing a balance of the guaranteed loan not advanced to the 
borrower. Any loan amount not advanced will be applied by the lender to 
reduce the outstanding principal on the loan.
    (j) Lender certification. The lender must certify that all 
possibilities of collection have been exhausted and that all of the 
items specified in paragraph (c) of this section have been identified 
and reported to the Agency as a condition for payment of claim.

[70 FR 2933, Jan. 19, 2005, as amended at 76 FR 5, Jan. 3, 2011]



Sec. 3565.458  Withdrawal of claim.

    If the lender provides timely written notice to the Agency of 
withdrawal of the claim, the guarantee will continue as if the default 
had not occurred if the borrower cures the default prior to foreclosure 
or prior to acceptance of a deed-in-lieu of foreclosure.



Sec. Sec. 3565.459-3565.499  [Reserved]



Sec. 3565.500  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



   Subpart K_Agency Guaranteed Loans That Back Ginnie Mae Guaranteed 
                               Securities

    Source: 70 FR 2934, Jan. 19, 2005, unless otherwise noted.



Sec. 3565.501  Applicability.

    The provisions of this subpart apply when Agency guaranteed loans 
are used to back Ginnie Mae securities. In instances where this subpart 
applies, the provisions of this subpart prevail over any other 
provisions of this part.

[[Page 612]]



Sec. 3565.502  Incontestability.

    In the case of loans that back Ginnie Mae securities or loans that 
are acquired by Ginnie Mae as a consequence of its guaranty, the Agency 
guarantee under this part is incontestable except that the guarantee may 
not be enforced by a lender who commits fraud or misrepresentation or by 
a lender who had knowledge of the fraud or misrepresentation at the time 
such a lender acquired the guarantee or was assigned the loan.



Sec. 3565.503  Repurchase.

    Lenders and security Holders must comply with Ginnie Mae 
requirements regarding the repurchase of loans from pools backing Ginnie 
Mae guaranteed securities.



Sec. 3565.504  Transfers.

    (a) Loans and/or mortgage servicing on loans backing Ginnie Mae 
guaranteed securities may only be transferred to a Ginnie Mae issuer and 
may only be transferred with prior Ginnie Mae approval.
    (b) Agency approval shall not be required for transfer of the 
servicing on the guaranteed mortgages to Ginnie Mae.



Sec. 3565.505  Liability.

    (a) Ginnie Mae shall not be liable for the actions of the lender 
including, but not limited to, negligence, fraud, abuse, 
misrepresentation or misuse of funds, property condition, or violations 
of usury laws.
    (b) Ginnie Mae's rights under the guarantee shall be fully 
enforceable notwithstanding the actions of the lender.



Sec. Sec. 3565.506-3565.549  [Reserved]



Sec. 3565.550  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



PART 3570_COMMUNITY PROGRAMS--Table of Contents



Subpart A [Reserved]

              Subpart B_Community Facilities Grant Program

Sec.
3570.51 General.
3570.52 Purpose.
3570.53 Definitions.
3570.54-3570.60 [Reserved]
3570.61 Eligibility for grant assistance.
3570.62 Use of grant funds.
3570.63 Grant limitations.
3570.64 Applications determined ineligible.
3570.65 Processing preapplications and applications.
3570.66 Determining the maximum grant assistance.
3570.67 Project selection priorities.
3570.68 Selection process.
3570.69 Environmental review requirements, intergovernmental review, and 
          public notification.
3570.70 Other considerations.
3570.71 Strategic economic and community development.
3570.72-3570.74 [Reserved]
3570.75 Grantee contracts.
3570.76 Planning, bidding, contracting, and construction.
3570.77-3570.79 [Reserved]
3570.80 Grant closing and delivery of funds.
3570.81-3570.82 [Reserved]
3570.83 Audits.
3570.84 Grant servicing.
3570.85 Programmatic changes.
3570.86 [Reserved]
3570.87 Grant suspension, termination, and cancellation.
3570.88 Management assistance.
3570.89 [Reserved]
3570.90 Exception authority.
3570.91 Regulations.
3570.92 Grant agreement.
3570.93 Regional Commission grants.
3570.94-3570.99 [Reserved]
3570.100 OMB control number.

Subparts C-E [Reserved]

 Subpart F_Community Facilities Technical Assistance and Training Grants

3570.251 Purpose.
3570.252 Definitions and abbreviations.
3570.253 Compliance with Federal and State requirements.
3570.254 Source of funds.
3570.255 Matching funds.
3570.256 Allocation of funds.
3570.257 Statute and regulation references.
3570.258-3570.260 [Reserved]
3570.261 Environmental and intergovernmental review.

[[Page 613]]

3570.262 Applicant eligibility requirements.
3570.263 Eligible project purposes.
3570.264 Ineligible project purposes.
3570.265-3570.266 [Reserved]
3570.267 Applications.
3570.268-3570.271 [Reserved]
3570.272 Grant processing.
3570.273 Scoring.
3570.274 Fund disbursement.
3570.275 Grant cancellation or major changes.
3570.276 Reporting.
3570.277 Audit or financial statement.
3570.278-3570.280 [Reserved]
3570.281 Grant servicing.
3570.282 [Reserved]
3570.283 Exception authority.
3570.284 Review or appeal rights.
3570.285-3570.299 [Reserved]
3570.300 OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989.

    Source: 62 FR 16469, Apr. 7, 1997, unless otherwise noted.

Subpart A [Reserved]



              Subpart B_Community Facilities Grant Program

    Source: 64 FR 32388, June 17, 1999, unless otherwise noted.



Sec. 3570.51  General.

    (a) This subpart contains Rural Housing Service (RHS) policies and 
authorizations and establishes procedures for making essential Community 
Facilities Grants (CFG) authorized under section 306(a)(19) of the 
Consolidated Farm and Rural Development Act (7 U.S.C. 1926(a)(19)).
    (b) Funds allocated for use in accordance with this subpart are also 
to be considered for use by federally recognized Indian tribes within a 
State regardless of whether State development strategies include Indian 
reservations within the State's boundaries. Indian tribes must have 
equal opportunity along with other rural residents to participate in the 
benefits of this program.
    (c) Federal statutes provide for extending RHS financial assistance 
without regard to race, color, religion, sex, national origin, age, 
disability, and marital or familial status. To file a complaint, write 
the Secretary of Agriculture, U.S. Department of Agriculture, Washington 
DC 20250, or call 1-800-245-6340 (voice) or (202) 730-1127 (TDD). 
Persons with disabilities who require alternative means for 
communication of program information (Braille, large print, audiotape, 
etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and 
TDD).
    (d) Any processing or servicing activity conducted pursuant to this 
subpart involving authorized assistance to Agency employees, members of 
their families, close relatives, or business or close personal 
associates is subject to the provisions of 7 CFR part 1900, subpart D. 
Applications for assistance are required to identify any relationship or 
association with an RHS employee.
    (e) Copies of all forms referenced in this subpart are available in 
the Agency's National Office or any Rural Development field office.
    (f) An outstanding judgment obtained against an applicant by the 
United States in a Federal Court (other than in the United States Tax 
Court), shall cause the applicant to be ineligible to receive any grant 
or loan until the judgment is paid in full or otherwise satisfied. Grant 
funds may not be used to satisfy the judgment.
    (g) Grants made under this subpart will be administered under, and 
are subject to, 2 CFR part 200 as adopted by USDA through 2 CFR part 
400, as appropriate.
    (h) The income data used to determine median household income must 
be that which accurately reflects the income of the population to be 
served by the proposed facility. The median household income of the 
service area and the nonmetropolitan median household income for the 
State will be determined using 5-year income data from the American 
Community Survey (ACS) or, if needed, other Census Bureau data. If there 
is reason to believe that the ACS or other Census Bureau data does not 
accurately represent the median household income within the area to be 
served, this will be documented and the applicant may furnish, or RD may 
obtain, additional information regarding such median household income 
data. Information must consist of reliable data from local, regional, 
State, or Federal sources or from a survey conducted by a reliable 
impartial source.

[[Page 614]]

    (i) CFG funds can be used for up to 75 percent of the cost to 
develop the facility, notwithstanding that other contributions may be 
from other Federal sources.
    (j) The Office of Management and Budget (OMB) issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR part 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Departments' policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.

[64 FR 32388, June 17, 1999, as amended at 79 FR 76012, Dec. 19, 2014; 
80 FR 9912, Feb. 24, 2015]



Sec. 3570.52  Purpose.

    The purpose of CFG program is to assist in the development of 
essential community facilities in rural areas. The Agency will authorize 
grant funds on a graduated basis. Eligible applicants located in smaller 
communities with lower populations and lower median household incomes 
may receive a higher percentage of grant funds. The amount of CFG funds 
provided for a facility shall not exceed 75 percent of the cost of 
developing the facility.



Sec. 3570.53  Definitions.

    Agency. The Rural Housing Service (RHS), an agency of the U.S. 
Department of Agriculture, or a successor agency.
    Approval official. An official who has been delegated loan or grant 
approval authorities within applicable programs, subject to certain 
dollar limitations.
    CF. Community Facilities.
    CFG. Community Facilities Grant.
    Essential community facilities. Those public improvements requisite 
to the beneficial and orderly development of a community that is 
operated on a nonprofit basis. (See Sec. 3570.62(a)(1)). An essential 
community facility must:
    (1) Serve a function customarily provided by a local unit of 
government;
    (2) Be a public improvement needed for the orderly development of a 
rural community;
    (3) Not include private affairs or commercial or business 
undertakings (except for limited authority for industrial parks) unless 
it is a minor part of the total facility;
    (4) Be within the area of jurisdiction or operation for the public 
bodies eligible to receive assistance or a similar local rural service 
area of a not-for-profit corporation; and
    (5) Be located in a rural area.
    Facility. The physical structure financed by the Agency or the 
resulting service provided to rural residents.
    Grantee. An entity with whom the Agency has entered into a grant 
agreement under this program.
    Instructions. Agency internal procedures available in any Rural 
Development office and variously referred to as Rural Development 
Instructions, RD Instructions.
    Minor part. No more than 15 percent of the total floor space of the 
proposed facility.
    Nonprofit corporations. Any corporation that is not organized or 
maintained for the making of a profit and that meets the eligibility 
requirements for RHS financial assistance in accordance with Sec. 
3570.61(a)(2).
    Processing office. The office designated by the State program 
official to accept and process applications for CF projects.
    Project cost. The cost of completing the proposed facility. 
(Facilities previously constructed will not be considered in determining 
project costs.) Total project cost will include only those costs 
eligible for CFG assistance.
    Poverty line. The level of income for a family of four as defined by 
section 673(2) of the Community Services Block Grant Act (42 U.S.C. 
9902(2)).
    Public body. Any State, county, city, township, incorporated town or 
village, borough, authority, district, economic development authority, 
or federally recognized Indian tribe in rural areas.
    Reasonable rates and terms. The rates and terms customarily charged 
public and nonprofit type borrowers in similar circumstances in the 
ordinary course

[[Page 615]]

of business and subject to Agency review.
    RHS. The Rural Housing Service, an agency of the United States 
Department of Agriculture, or a successor agency.
    Rural and rural area. The terms ``rural'' and ``rural area'' mean a 
city, town, or unincorporated area that has a population of 20,000 
inhabitants or less and which excludes certain populations pursuant to 7 
U.S.C. 1991(a)(13)(H) and (I). The population figures are obtained from 
the most recent decennial Census of the United States (decennial 
Census).
    Rural Development. A mission area within USDA which includes Rural 
Housing Service, Rural Utilities Service, and Rural Business-Cooperative 
Service.
    RUS. The Rural Utilities Service, an agency of USDA or a successor 
agency.
    Service area. The area reasonably expected to be served by the 
facility.
    State. The term ``State'' means each of the 50 States, the 
Commonwealth of Puerto Rico, Guam, the Virgin Islands of the United 
States, American Samoa, the Commonwealth of the Northern Mariana 
Islands, the Marshall Islands, the Republic of Palau, and the Federated 
States of Micronesia.
    State Director. The term ``State Director'' means, with respect to a 
State, the Director of the Rural Development State Office.
    State nonmetropolitan median household income. The median household 
income of the State's nonmetropolitan counties and portions of 
metropolitan counties outside of cities, towns or places of 50,000 or 
more population.
    State strategic plan. A plan developed by each State for Rural 
Development initiatives and the type of assistance required. Plans shall 
identify goals, methods, and benchmarks for measuring success.

[64 FR 32388, June 17, 1999, as amended at 69 FR 65519, Nov. 15, 2004; 
80 FR 9912, Feb. 24, 2015; 87 FR 38644, June 29, 2022]



Sec. Sec. 3570.54-3570.60  [Reserved]



Sec. 3570.61  Eligibility for grant assistance

    The essential community facility must primarily serve rural areas, 
be located in a rural area, and the median household income of the 
population to be served by the proposed facility must be below the 
higher of the poverty line or the eligible percentage (60, 70, 80, or 
90) of the State nonmetropolitan median household income (see Sec. 
3570.63(b)).
    (a) Eligible applicant. An applicant must be a:
    (1) Public body, such as a municipality, county, district, 
authority, or other political subdivision of a State;
    (2) Nonprofit corporation or association. Applicants, other than 
nonprofit utility applicants, must have significant ties with the local 
rural community. Such ties are necessary to ensure to the greatest 
extent possible that a facility under private control will carry out a 
public purpose and continue to primarily serve rural areas. Ties may be 
evidenced by items such as:
    (i) Association with, or controlled by, a local public body or 
bodies, or broadly based ownership and control by members of the 
community; or
    (ii) Substantial public funding through taxes, revenue bonds, or 
other local government sources or substantial voluntary community 
funding, such as would be obtained through a community-wide funding 
campaign.
    (3) Federally recognized Indian tribe in a rural area.
    (b) Eligible facilities. Essential community facilities must be:
    (1) Located in rural areas, except for utility-type services, such 
as telecommunications or hydroelectric, serving both rural and non-rural 
areas. In such cases, RHS funds may be used to finance only that portion 
serving rural areas, regardless of facility location.
    (2) Necessary for orderly community development and consistent with 
the State Strategic Plan.
    (c) Credit elsewhere. The approval official must determine that the 
applicant is unable to finance the proposed project from its own 
resources, or through commercial credit at reasonable rates and terms, 
or other funding sources without grant assistance under this subpart. 
The applicant must certify to such status in writing.
    (d) Economic feasibility. All projects financed under the provisions 
of this section must be based on satisfactory

[[Page 616]]

sources of revenues as outlined in 7 CFR 1942.17(h) and 1942.116. The 
amount of CFG assistance must be the minimum amount sufficient for 
feasibility which will provide for facility operation and maintenance, 
reasonable reserves, and debt repayment. The applicant's available 
excess funds must be used to supplement eligible project costs.
    (e) Legal authority and responsibility. Each applicant must have, or 
will obtain, prior to the grant award, the legal authority necessary to 
own, construct, operate, and maintain the proposed facility. The 
applicant shall be responsible for operating, maintaining, and managing 
the facility and providing for its continued availability and use at 
reasonable rates and terms. This responsibility shall be the applicant's 
even though the facility may be operated, maintained, or managed by a 
third party under contract or management agreement. If an applicant does 
not have the authority to borrow funds, but owns, operates, and 
maintains the facility, the applicant is eligible for CFG funds.
    (f) Facilities for public use. All facilities shall be for the 
benefit of the public at large without discrimination as to race, color, 
religion, sex, national origin, disability, and marital or familial 
status.



Sec. 3570.62  Use of grant funds.

    Grants of up to 75 percent of the cost of developing essential 
community facilities may be used to supplement financial assistance 
authorized in accordance with 7 CFR parts 1942, subparts A and C, and 
3575, subpart A. Eligible CFG purposes are those listed in paragraphs 
(a), (b), (c), and (d) of this section. Funding for the balance of the 
project may consist of other CF financial assistance, applicant 
contributions, or loans and grants from other sources. CFGs may be used 
to:
    (a) Construct, enlarge, extend, or otherwise improve essential 
community facilities providing essential service primarily to rural 
residents and rural businesses. Rural businesses include facilities such 
as educational and other publicly owned facilities.
    (1) ``Essential community facilities'' are those public improvements 
requisite to the beneficial and orderly development of a community 
operated on a nonprofit basis including, but not limited to:
    (i) Fire, rescue, and public safety;
    (ii) Health services;
    (iii) Community, social, or cultural services;
    (iv) Transportation facilities such as streets, roads, and bridges;
    (v) Hydroelectric generating facilities and related connecting 
systems and appurtenances, when not eligible for RUS financing;
    (vi) Telecommunications equipment as it relates to medical and 
educational telecommunications links;
    (vii) Supplemental and supporting structures for other rural 
electrification or telephone systems (including facilities such as 
headquarters and office buildings, storage facilities, and maintenance 
shops) when not eligible for RUS financing;
    (viii) Natural gas distribution systems; and
    (ix) Industrial park sites, but only to the extent of land 
acquisition and necessary site preparation, including access ways and 
utility extensions to and throughout the site. Funds may not be used in 
connection with industrial parks to finance on-site utility systems, or 
business and industrial buildings.
    (2) ``Otherwise improve'' includes, but is not limited to, the 
following:
    (i) The purchase of major equipment (such as solid waste collection 
trucks, telecommunication equipment, necessary maintenance equipment, 
fire service equipment, X-ray machines) which will in themselves provide 
an essential service to rural residents; and
    (ii) The purchase of existing facilities when it is necessary either 
to improve or to prevent a loss of service.
    (iii) A borrower is permitted to use up to 10 percent of the amount 
provided under this subpart to construct, improve, or acquire broadband 
infrastructure related to the project financed, subject to the 
requirements of 7 CFR part 1980, subpart M.
    (b) Construct or relocate public buildings, roads, bridges, fences, 
or utilities and to make other public improvements necessary to the 
successful

[[Page 617]]

operation or protection of facilities authorized in paragraph (a) of 
this section.
    (c) Relocate private buildings, roads, bridges, fences, or 
utilities, and other private improvements necessary to the successful 
operation or protection of facilities authorized in paragraph (a) of 
this section.
    (d) Pay the following expenses, but only when such expenses are a 
necessary part of a project to finance facilities authorized in 
paragraphs (a), (b), and (c) of this section:
    (1) Reasonable fees and costs such as legal, engineering, 
architectural, fiscal advisory, recording, environmental impact 
analyses, archeological surveys and possible salvage or other mitigation 
measures, planning, establishing or acquiring rights.
    (2) Costs of acquiring interest in land; rights, such as water 
rights, leases, permits, and rights-of-way; and other evidence of land 
or water control necessary for development of the facility.
    (3) Purchasing or renting equipment necessary to install, maintain, 
extend, protect, operate, or utilize facilities.
    (4) Obligations for construction incurred before grant approval. 
Construction work should not be started and obligations for such work or 
materials should not be incurred before the grant is approved. However, 
if there are compelling reasons for proceeding with construction before 
grant approval, applicants may request Agency approval to pay such 
obligations. Such requests may be approved if the Agency determines 
that:
    (i) Compelling reasons exist for incurring obligations before grant 
approval;
    (ii) The obligations will be incurred for authorized grant purposes;
    (iii) Contract documents have been approved by the Agency;
    (iv) All environmental requirements applicable to the Agency and the 
applicant have been met; and
    (v) The applicant has the legal authority to incur the obligations 
at the time proposed, and payment of the debts will remove any basis for 
any mechanic's, material, or other liens that may attach to the security 
property.

The Agency may authorize payment of such obligations at the time of 
grant closing. The Agency's authorization to pay such obligations, 
however, is on the condition that it is not committed to make the grant; 
it assumes no responsibility for any obligations incurred by the 
applicant; and the applicant must subsequently meet all grant approval 
requirements. The applicant's request and the Agency's authorization for 
paying such obligations shall be in writing.

[64 FR 32388, June 17, 1999, as amended at 85 FR 57084, Sept. 15, 2020]



Sec. 3570.63  Grant limitations.

    (a) Grant funds may not be used to:
    (1) Pay initial operating expenses or annual recurring costs, 
including purchases or rentals that are generally considered to be 
operating and maintenance expenses (unless a CF loan is part of the 
funding package);
    (2) Construct or repair electric generating plants, electric 
transmission lines, or gas distribution lines to provide services for 
commercial sale;
    (3) Refinance existing indebtedness;
    (4) Pay interest;
    (5) Pay for facilities located in nonrural areas, except as noted in 
Sec. 3570.61(b)(1).
    (6) Pay any costs of a project when the median household income of 
the population to be served by the proposed facility is above the higher 
of the poverty line or eligible percent (60, 70, 80, or 90) of the State 
nonmetropolitan median household income (see Sec. 3570.63(b));
    (7) Pay project costs when other loan funding for the project is not 
at reasonable rates and terms;
    (8) Pay an amount greater than 75 percent of the cost to develop the 
facility;
    (9) Pay costs to construct facilities to be used for commercial 
rental unless it is a minor part of the total facility;
    (10) Construct facilities primarily for the purpose of housing 
State, Federal, or quasi-Federal agencies; and
    (11) Pay for any purposes restricted by 7 CFR 1942.17(d)(2).
    (b) Grant assistance will be provided on a graduated scale with 
smaller communities with the lowest median household incomes being 
eligible for

[[Page 618]]

projects with a higher proportion of grant funds. Grant assistance is 
limited to the following percentages of eligible project costs:
    (1) 75 percent when the proposed project is:
    (i) Located in a rural community having a population of 5,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 60 
percent of the State nonmetropolitan median household income.
    (2) 55 percent when the proposed project is:
    (i) Located in a rural community having a population of 12,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 70 
percent of the State nonmetropolitan median household income.
    (3) 35 percent when the proposed project is:
    (i) Located in a rural community having a population of 20,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 80 
percent of the State nonmetropolitan median household income.
    (4) 15 percent when the proposed project is:
    (i) Located in a rural community having a population of 50,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 90 
percent of the State nonmetropolitan median household income.
    (5) 60 percent when the proposed project is:
    (i) Located in a rural community having a population of 20,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 90 
percent of the State non-metropolitan median household income. The 60 
percent grants are only available to communities impacted by a disaster 
that has resulted in a loss of 60 percent of the community's population 
and is located in a rural community designated as a major disaster area 
by the President.
    (6) Grant assistance cannot exceed the higher of the applicable 
percentages contained in this section which the applicant is eligible to 
receive and may be further limited due to availability of funds or by 
the maximum grant assistance allowable determined in accordance with 
Sec. 3570.66.

[64 FR 32388, June 17, 1999, as amended at 73 FR 14173, Mar. 17, 2008]



Sec. 3570.64  Applications determined ineligible.

    If, at any time, an application is determined ineligible, the 
processing office will notify the applicant in writing of the reasons. 
The applicant will be advised that it may appeal the decision. (See 7 
CFR part 11.)



Sec. 3570.65  Processing preapplications and applications.

    For combination proposals for loan and grant funds, only one 
preapplication package and one application package should be prepared 
and submitted. Preapplications and applications for grants will be 
developed in accordance with applicable portions of 7 CFR 1942.2, 
1942.104, and 3575.52.
    (a) Preapplications. Applicants will file an original and one copy 
of ``Application for Federal Assistance (For Construction),'' with the 
appropriate Agency office. This form is available in all Agency offices. 
The preapplication and supporting documentation are used to determine 
applicant eligibility and priority for funding.
    (1) All preapplications shall be accompanied by:
    (i) Evidence of applicant's legal existence and authority; and
    (ii) Appropriate clearinghouse agency comments.
    (b) Application processing. Upon notification on ``Notice of 
Preapplication Review Action'' that the applicant is eligible for CFG 
funding, the applicant will be provided forms and instructions for 
filing a complete application. The forms required for a complete 
application, including the following, will be

[[Page 619]]

submitted to the processing office by the applicant:
    (1) Updated ``Application for Federal Assistance (For 
Construction).''
    (2) Financial feasibility report.
    (c) Discontinuing the processing of the application. If the 
applicant fails to submit the application and related material by the 
date shown on ``Notice of Preapplication Review Action'' (normally 60 
days from the date of this form), the Agency will discontinue 
consideration of the application.



Sec. 3570.66  Determining the maximum grant assistance.

    (a) Responsibility. State Directors are responsible for determining 
the applicant's eligibility for grant assistance.
    (b) Maximum grant assistance. Grant assistance cannot exceed the 
lower of:
    (1) Qualifying percentage of eligible project cost determined in 
accordance with Sec. 3570.63(b);
    (2) Minimum amount sufficient to provide for economic feasibility as 
determined in accordance with Sec. 3570.61(d); or
    (3) Either 50 percent of the annual State allocation or $50,000, 
whichever is greater, unless an exception is made by the RHS 
Administrator in accordance with Sec. 3570.90.



Sec. 3570.67  Project selection priorities.

    Applications are scored on a priority basis. Points will be 
distributed as follows:
    (a) Population priorities. The proposed project is located in a 
rural community having a population of:
    (1) 5,000 or less--30 points;
    (2) Between 5,001 and 12,000, inclusive--20 points;
    (3) Between 12,001 and 20,000, inclusive--10 points; or
    (4) Between 20,001 and 50,000, inclusive, when applicable--5 points.
    (b) Income priorities. The median household income of the population 
to be served by the proposed project is below the higher of the poverty 
line or:
    (1) 60 percent of the State nonmetropolitan median household 
income--30 points;
    (2) 70 percent of the State nonmetropolitan median household 
income--20 points;
    (3) 80 percent of the State nonmetropolitan median household 
income--10 points; or
    (4) 90 percent of the State nonmetropolitan median household 
income--5 points.
    (c) Other priorities. Points will be assigned for one or more of the 
following initiatives:
    (1) Project is consistent with, and is reflected in, the State 
Strategic Plan--10 points;
    (2) Project is for health care--10 points; or
    (3) Project is for public safety--10 points.
    (d) Discretionary. (1) The State Director may assign up to 15 points 
to a project in addition to those that may be scored under paragraphs 
(a) through (c) of this section. These points are to address unforeseen 
exigencies or emergencies, such as the loss of a community facility due 
to an accident or natural disaster or the loss of joint financing if 
Agency funds are not committed in a timely fashion. In addition, the 
points will be awarded to projects benefiting from the leveraging of 
funds in order to improve compatibility and coordination between the 
Agency and other agencies' selection systems and for those projects that 
are the most cost effective.
    (2) In selecting projects for funding at the National Office level, 
additional points will be awarded based on the priority assigned to the 
project by the State Office. These points will be awarded in the manner 
shown below. Only the three highest priority projects for a State will 
be awarded points. The Administrator may assign up to 30 additional 
points to account for geographic distribution of funds, emergency 
conditions caused by economic problems, natural disasters, or leveraging 
of funds.

------------------------------------------------------------------------
                          Priority                              Points
------------------------------------------------------------------------
1..........................................................            5
2..........................................................            3
3..........................................................            1
------------------------------------------------------------------------



Sec. 3570.68  Selection process.

    Each request for grant assistance will be carefully scored and 
prioritized to determine which projects should be

[[Page 620]]

selected for further development and funding.
    (a) Selection of applications for further processing. The approval 
official will, subject to paragraph (b) of this section, authorize 
grants for those eligible preapplications with the highest priority 
score. When selecting projects, the following circumstances must be 
considered:
    (1) Scoring of project and scores of other applications on hand;
    (2) Funds available in the State allocation; and
    (3) If other Community Facilities financial assistance is needed for 
the project, the availability of other funding sources.
    (b) Lower scoring projects. (1) In cases when preliminary cost 
estimates indicate that an eligible, high-scoring application is not 
feasible, or would require grant assistance exceeding 50 percent of a 
State's current annual allocation, or an amount greater than that 
remaining in the State's allocation, the approval official may instead 
select the next lower-scoring application for further processing 
provided the high-scoring applicant is notified of this action and given 
an opportunity to review the proposal and resubmit it prior to selection 
of the next application.
    (2) If it is found that there is no effective way to reduce costs, 
the approval official, after consultation with the applicant, may 
request an additional allocation of funds from the National office.



Sec. 3570.69  Environmental review requirements, intergovernmental review, and public notification.

    Grants awarded under this subpart, including grant-only awards, must 
be in compliance with the environmental review requirements in 
accordance with 7 CFR part 1970, to the intergovernmental review 
requirements of 7 CFR 3015, subpart V and RD Instruction 1970-I, 
``Intergovernmental Review,'' and the public information process in 7 
CFR 1942.17(j)(9).

[81 FR 11050, Mar. 2, 2016]



Sec. 3570.70  Other considerations.

    Each application must contain the comments, necessary 
certifications, and recommendations of appropriate Federal or State 
regulatory or other agency or institution having expertise in the 
planning, operation, and management of similar facilities as required by 
7 CFR parts 1942, subparts A and C, and 3575, subpart A. Proposals for 
facilities financed in whole or in part with Agency funds will be 
coordinated with appropriate Federal, State, and local agencies as 
required by the following:
    (a) Grants under this subpart are subject to the provisions of 7 CFR 
1942.17(k) which include title VI of the Civil Rights Act of 1964, 
section 504 of the Rehabilitation Act of 1973, Americans with Disability 
Act of 1990, and the regulations issued thereto. Certain housing-related 
projects, such as nursing homes, group homes, or assisted-living 
facilities, must comply with the requirements of the Fair Housing Act.
    (b) Governmentwide debarment and suspension (nonprocurement) and 
requirements for drug-free workplace are applicable to CFG grants and 
grantees. See 2 CFR part 180, as implemented by USDA through 2 CFR part 
417, and RD Instruction 1940-M for further guidance.
    (c) Restrictions on lobbying. Grantees must comply with the lobbying 
restrictions set forth in 2 CFR part 418 subpart A.
    (d) Civil Rights Impact Analysis, RD Instruction 2006-P (available 
in any Rural Development office), and ``Civil Rights Impact Analysis 
Certification.''

[62 FR 16469, Apr. 7, 1997, as amended at 79 FR 76013, Dec. 19, 2014]



Sec. 3570.71  Strategic economic and community development.

    Applicants with projects that support the implementation of 
Strategic Community Investment Plans are encouraged to review and 
consider 7 CFR part 1980, subpart K, which contains provisions for 
providing priority to projects that support the implementation of 
Strategic Community Investment Plans on a multi-jurisdictional and 
multi-sectoral basis.

[85 FR 59395, Sept. 22, 2020]

[[Page 621]]



Sec. Sec. 3570.72-3570.74  [Reserved]



Sec. 3570.75  Grantee contracts.

    The requirements of 7 CFR 1942.4, 1942.17(e), 1942.17(l), 1942.118, 
and 1942.119 will be applicable when agreements between grantees and 
third parties are involved.



Sec. 3570.76  Planning, bidding, contracting, and construction.

    Planning, bidding, contracting, and construction will be handled in 
accordance with 7 CFR 1942.9, 1942.18, and 1942.126.



Sec. Sec. 3570.77-3570.79  [Reserved]



Sec. 3570.80  Grant closing and delivery of funds.

    (a) ``Community Facilities Grant Agreement'' will be used as the 
grant agreement between the Agency and the grantee and will be signed by 
the grantee before grant funds are advanced.
    (b) Approval officials may require applicants to record liens or 
other appropriate notices of record to indicate that personal or real 
property has been acquired or improved with Federal grant funds and that 
use and disposition conditions apply to the property as provided by 7 
CFR parts 3015, 3016, or 3019, as subsequently modified.
    (c) Approval officials may require applicants to record liens or 
other appropriate notices of record to indicate that personal or real 
property has been acquired or improved with Federal grant funds and that 
use and disposition conditions apply to the property as provided by 2 
CFR part 200 as adopted by USDA through 2 CFR part 400 as subsequently 
modified.
    (d) Grant funds will not be disbursed until they are actually needed 
by the applicant and all borrower, Agency, or other funds are expended, 
except when:
    (1) Interim financing of the total estimated amount of loan funds 
needed during construction is arranged,
    (2) All interim funds have been disbursed, and
    (3) Agency grant funds are needed before RHS or other loans can be 
closed.
    (e) If grant funds are available from other agencies and are 
transferred for disbursement by RHS, these grant funds will be disbursed 
in accordance with the agreement governing such other agencies' 
participation in the project.

[62 FR 16469, Apr. 7, 1997, as amended at 79 FR 76013, Dec. 19, 2014]



Sec. Sec. 3570.81-3570.82  [Reserved]



Sec. 3570.83  Audits.

    (a) An audit will be conducted in accordance with 2 CFR part 200 
subpart F, as adopted by USDA through 2 CFR part 400, except as provided 
in this section. The audit requirements apply only to the years in which 
grant funds are expended.
    (b) Grantees who are not required to submit an audit report will, 
within 60 days following the end of the fiscal year in which any grant 
funds were expended, furnish RHS with annual financial statements, 
consisting of a verification of the organization's balance sheet and 
statement of income and expense report signed by an appropriate official 
of the organization or other documentation as determined appropriate by 
the approval official.

[62 FR 16469, Apr. 7, 1997, as amended at 79 FR 76013, Dec. 19, 2014]



Sec. 3570.84  Grant servicing.

    Grants will be serviced in accordance with RD Instructions 1951-E 
and 1951-O and 2 CFR part 200 as applicable.

[79 FR 76013, Dec. 19, 2014]



Sec. 3570.85  Programmatic changes.

    The grantee shall obtain prior Agency approval for any change to the 
objectives of the approved project. (For construction projects, a 
material change in approved space utilization or functional layout shall 
be considered such a change.) Failure to obtain prior approval of 
changes to the approved project or budget may result in suspension, 
refund, or termination of grant funds.

[[Page 622]]



Sec. 3570.86  [Reserved]



Sec. 3570.87  Grant suspension, termination, and cancellation.

    Grants may be suspended or terminated for cause or convenience in 
accordance with 2 CFR part 200 as adopted by USDA through 2 CFR part 
400, as applicable.

[79 FR 76013, Dec. 19, 2014]



Sec. 3570.88  Management assistance.

    Grant recipients will be supervised to the extent necessary to 
ensure that facilities are constructed in accordance with approved plans 
and specifications and to ensure that funds are expended for approved 
purposes.



Sec. 3570.89  [Reserved]



Sec. 3570.90  Exception authority.

    An RHS official may request, and the Administrator or designee may 
make, in individual cases, an exception to any requirement or provision 
of this subpart or address any omission of this subpart if the 
Administrator determines that application of the requirement or 
provision, or failure to take action in the case of an omission, would 
adversely affect the Government's interest.



Sec. 3570.91  Regulations.

    Grants under this part will be in accordance with 2 CFR part 200 as 
adopted by USDA through 2 CFR part 400, as applicable, and any conflicts 
between those parts and this part will be resolved in favor of 
applicable 2 CFR part 200 as adopted by USDA through 2 CFR part 400.

[79 FR 76013, Dec. 19, 2014]



Sec. 3570.92  Grant agreement.

    Form RD 3570-3 is a Grant Agreement which contains the procedures 
for making and servicing grants made under this part. Any property 
acquired or improved with CFG funds may have use and disposition 
conditions which apply to the property as provided by 2 CFR 200 as 
adopted by USDA through 2 CFR part 400 in effect at this time and as may 
be subsequently modified.

[79 FR 76013, Dec. 19, 2014]



Sec. 3570.93  Regional Commission grants.

    (a) Grants are sometimes made by Federal Regional Commissions 
(designated under Title V of the Public Works and Economic Development 
Act of 1965) for projects eligible for RHS assistance. RHS has agreed to 
administer such funds in a manner similar to administering RHS 
assistance.
    (b) The transfer of funds from a Federal Regional Commission to RHS 
will be based on specific applications determined to be eligible for an 
authorized purpose in accordance with the requirements of RHS and the 
Federal Regional Commission.
    (c) The Appalachian Regional Commission (ARC) is authorized under 
the Appalachian Regional Development Act of 1965 to serve the 
Appalachian region. ARC grants are handled in accordance with the ARC 
Agreement which applies to all ARC grants administered by Rural 
Development. Therefore, a separate Project Management Agreement between 
RHS and ARC is not needed for each ARC grant.
    (d) Grants by other Federal Regional Commissions are handled in 
accordance with a separate Project Management Agreement between the 
respective Federal Regional Commission and RHS for each Commission grant 
or class of grants administered by RHS.
    (e) When the Agency has funds in the project, no charge will be made 
for administering Federal Regional Commission grant funds.
    (f) When RHS has no loan or grant funds in the project, an 
administrative charge will be made pursuant to the Economy Act (31 
U.S.C. 1535).



Sec. Sec. 3570.94-3570.99  [Reserved]



Sec. 3570.100  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0173. You are not required to 
respond to this collection of information unless it displays a valid OMB 
control number.

Subparts C-E [Reserved]

[[Page 623]]



 Subpart F_Community Facilities Technical Assistance and Training Grants

    Source: 81 FR 1866, Jan. 14, 2016, unless otherwise noted.



Sec. 3570.251  Purpose.

    This subpart contains the provisions and procedures by which the 
Agency will administer the Essential Community Facilities Technical 
Assistance and Training Program. The purpose of the program is to 
provide technical assistance and training with respect to essential 
community facilities programs. To meet this purpose, the Agency will 
make grants to public bodies and private nonprofit corporations, (such 
as States, counties, cities, townships, and incorporated towns and 
villages, boroughs, authorities, districts, and Indian tribes on Federal 
and State reservations) to provide associations Technical Assistance 
and/or training with respect to essential community facilities programs. 
The Technical Assistance and/or training will assist communities, Indian 
Tribes, and Nonprofit Corporations to identify and plan for community 
facility needs that exist in their area. Once those needs have been 
identified, the Grantee can assist in identifying public and private 
resources to finance those identified community facility needs.



Sec. 3570.252  Definitions and abbreviations.

    The definitions and abbreviations in Sec. 3570.53 apply to this 
subpart unless otherwise provided. In addition, these definitions and 
abbreviations are used in this subpart:
    Actual capacity. The demonstrated ability of the Technical 
Assistance Provider to develop the capacity of Ultimate Recipients in 
the areas of developing applications for the Community Facilities 
program, improving the management capabilities of their community 
facilities, and providing training.
    Administrator. The Administrator of the Rural Housing Service (RHS).
    Applicant. Public bodies and private nonprofit corporations, (such 
as States, counties, cities, townships, and incorporated towns and 
villages, boroughs, authorities, districts, and Indian tribes on Federal 
and State reservations) that has applied for, or intends to apply for, a 
Technical Assistance and Training Grant under this subpart. The 
applicant must be either a Technical Assistance Provider or an Ultimate 
Recipient.
    Audit. An examination of an organization's financial Statements by 
an independent Certified Public Accountant (CPA), for the purpose of 
expressing an opinion on the fairness with which the Statements present 
the financial position, results of operations, and changes in cash flows 
in conformity with Generally Accepted Accounting Principles (GAAP) and 
for determining whether the Applicant or Ultimate Recipient of Federal 
government funding has complied with the applicable laws, regulations, 
and contract for those events reflected in the financial Statements. All 
audits must meet the requirements of 2 CFR 200.500-200.518.
    Community ties. The significant ties to the Rural Area that need to 
be demonstrated by a Nonprofit corporation who is an Ultimate Recipient, 
by either substantial public funding through taxes, revenue bonds or 
other local Government sources, and/or substantial voluntary community 
funding; and, a broadly-based ownership and control by members of the 
community. It can also be demonstrated by local membership and control 
characteristics.
    CONACT. The Consolidated Farm and Rural Development Act (7 U.S.C. 
1926 et seq).
    Conflict of interest. A situation in which a person or entity has 
competing personal, professional, or financial interests that make it 
difficult for the person or business to act impartially. Regarding use 
of both grant and matching funds, Federal procurement standards prohibit 
transactions that involve a real or apparent conflict of interest for 
owners, employees, officers, agents, or their immediate family members 
having a financial or other interest in the outcome of the Project; or 
that restrict open and free competition for unrestrained trade. 
Specifically, Project funds may not be used

[[Page 624]]

for services or goods going to, or coming from, a person or entity with 
a real or apparent Conflict of Interest, including, but not limited to, 
owner(s) and their immediate family members. An example of Conflict of 
Interest occurs when the Grantee's employees, board of directors, or the 
immediate family of either, have the appearance of a professional or 
personal financial interest in the Applicant receiving the benefits or 
services of the grant.
    DUNS. A Data Universal Numbering System (DUNS) which is obtained 
from Dun and Bradstreet and is used when applying for Federal financial 
assistance.
    Generally Accepted Accounting Principles (GAAP). A widely accepted 
set of rules, conventions, standards and procedures for reporting 
financial information, as established by the Financial Accounting 
Standards Board.
    Indian Tribe. Any Indian Tribe, band, nation, or other organized 
group or community, including Alaska Native village or regional or 
village corporation as defined in or established pursuant to the Alaska 
Native Claims Settlement Act (85 Stat. 688) [43 U.S.C. 1601 et seq.], 
which is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians.
    Jurisdiction. A unit of government or other entity with similar 
powers. Examples include, but are not limited to: City, county, 
district, special purpose district, township, town, borough, village, 
and State.
    Letter of Conditions. A legal document presented to the Applicant 
selected for funding that outlines all conditions that must be agreed to 
and accepted before final grant approval.
    Low income. A median household income (MHI) that does not exceed the 
State Non-Metropolitan Median Household Income (SNMHI) or the Poverty 
Line, whichever is higher.
    Multi-jurisdictional. Concerning two or more Jurisdictions.
    Professional services. Services provided by a person or entity 
having specialized knowledge and skills to plan, design, prepare 
procurement, construction, or other technical support documents, 
administer construction contracts, and/or other related services for a 
Project.
    Project. The Technical Assistance that an Applicant is currently 
planning as described in the Project description in the application, to 
be financed in whole or in part with Agency assistance.
    Secretary. The Secretary of Agriculture.
    Technical Assistance. A function such as supervision, oversight, 
training, or professional consultation related to an Essential Community 
Facility that is performed for the benefit of an Ultimate Recipient or 
proposed Ultimate Recipient, which is a problem solving activity, as 
determined by the Agency.
    Technical Assistance Provider. Grantee who will provide technical 
assistance to Ultimate Recipients.
    Ultimate Recipient. Entity receiving assistance from the Grantee. If 
a Nonprofit corporation is either applying for funding as an Ultimate 
Recipient or is benefitting from the TAT Grant as the Ultimate 
Recipient, it must demonstrate Community Ties to the Rural Area. These 
ties may be demonstrated by:
    (1) Obtaining substantial public funding through taxes revenue 
bonds, or other local Government sources, and/or substantial voluntary 
community funding, or
    (2) Having a broadly-based ownership and control by members of the 
community, or
    (3) Demonstrating all of the following characteristics:
    (i) Members of the organization are primarily from the local rural 
community,
    (ii) Membership is open to all adults in the local rural community,
    (iii) Members of the organization have ultimate control of the 
proposed community facility; and
    (iv) The organization receives the majority of its funding from its 
members or their volunteer efforts. Public bodies and Indian Tribes that 
are applying for funding as Ultimate Recipients or are the benefitting 
from TAT grant funds as the Ultimate Recipient are not required to 
further demonstrate Community ties to the local Rural Areas.

[[Page 625]]



Sec. 3570.253  Compliance with Federal and State requirements.

    (a) Federal statutory requirements. Applicants must comply with, all 
applicable Federal laws and Executive Order requirements including, but 
not limited to:
    (1) Section 504 of the Rehabilitation Act of 1973.
    (2) Civil Rights Act of 1964.
    (3) The American with Disabilities Act (ADA) of 1990.
    (4) Executive Order 12549 Debarment and Suspension and 2 CFR parts 
180 and 417.
    (5) Section 319 of Public Law 101-121 on Lobbying.
    (6) Age Discrimination Act of 1975.
    (7) Fair Housing Act of 1968.
    (8) Executive Order 11246 Equal Employment Opportunity.
    (9) Title IX of the Education Amendments of 1972.
    (10) 2 CFR parts 200 and 400 ``Uniform Administrative Requirements, 
Cost Principles, and Audit Requirements for Federal Awards''.
    (b) State laws, local laws, regulatory commission regulations. 
Applicants must comply with all applicable state and local laws and 
regulatory commission regulations. If there are conflicts between this 
subpart and State or local laws or regulations, the provisions of this 
subpart will control.



Sec. 3570.254  Source of funds.

    The Agency will reserve 5 percent of any funds annually appropriated 
to carry out each of the Essential Community Facilities grant, loan and 
loan guarantee programs unless otherwise noted in the annual Notice 
published in the Federal Register. TAT reserved grant funds not 
obligated by July 31 of each fiscal year will be used to fund Essential 
Community Facilities grant, loan, and/or loan guarantee programs.



Sec. 3570.255  Matching funds.

    Any matching funds must comply with the requirements outlined at 2 
CFR 200.306.



Sec. 3570.256  Allocation of funds.

    The Agency will administer these grant funds and will award them on 
a competitive basis.



Sec. 3570.257  Statute and regulation references.

    All references to statutes and regulations are to include any and 
all successor statutes and regulations.



Sec. Sec. 3570.258-3570.260  [Reserved]



Sec. 3570.261  Environmental and intergovernmental review.

    All grants awarded under this subpart are subject to the 
environmental requirements of 7 CFR part 1940, subpart G. Technical 
Assistance under this program is categorically excluded unless 
extraordinary circumstances exist.



Sec. 3570.262  Applicant eligibility requirements.

    There are two types of Applicants. The applicant must be either a 
Technical Assistance Provider or an Ultimate Recipient, and must meet 
eligibility requirements before being considered for Agency assistance.
    (a) Applicants applying as Technical Assistance Providers must:
    (1) Be a public body or a private nonprofit corporation, (such as 
States, counties, cities, townships, and incorporated towns and 
villages, boroughs, authorities, districts, and Indian tribes on Federal 
and State reservations);
    (2) Be legally established and located within one of the following:
    (i) A State as defined Sec. 3570.252; or
    (ii) The District of Columbia; and
    (3) Have the proven ability, background, experience (as evidenced by 
the organization's satisfactory completion of Project(s) similar to 
those proposed), legal authority and actual capacity to provide 
Technical Assistance and/or training to Ultimate Recipients as provided 
in Sec. 3570.252. To meet the requirement of actual capacity, an 
Applicant must either:
    (i) Have the necessary resources to provide Technical Assistance 
and/or training to associations in Rural Areas through its staff,
    (ii) Be assisted by an affiliate or member organization which has 
such background and experience and which agrees, in writing, that it 
will provide the technical assistance, or
    (iii) May contract with a nonaffiliated organization for not more 
than 49 percent of the awarded grant to

[[Page 626]]

provide the proposed technical assistance.
    (4) Nonprofits applying as Technical Assistance Providers must be 
designated tax exempt by the Internal Revenue Service.
    (b) Applicants applying as Ultimate Recipients must be:
    (1) A public body,
    (2) An Indian Tribe, or
    (3) A Nonprofit corporation that demonstrates Community ties to the 
Rural Area by:
    (i) Obtaining substantial public funding through taxes revenue 
bonds, or other local Government sources, and/or substantial voluntary 
community funding,
    (ii) Having a broadly-based ownership and control by members of the 
community, or
    (iii) Demonstrating all of the following characteristics:
    (A) Members of the organization are primarily from the local rural 
community,
    (B) Membership is open to all adults in the local rural community,
    (C) Members of the organization have ultimate control of the 
proposed community facility; and
    (D) The organization receives the majority of its funding from its 
members or their volunteer efforts.



Sec. 3570.263  Eligible project purposes.

    (a) Grant funds and any matching funds may be used by Technical 
Assistance Providers to:
    (1) Assist communities in identifying and planning for community 
facility needs;
    (2) Identify resources to finance community facility needs from 
public and private sources;
    (3) Prepare reports and surveys necessary to request financial 
assistance to develop community facilities;
    (4) Prepare applications for Agency financial assistance;
    (5) Improve the management, including financial management, related 
to the operation of community facilities; or
    (6) Assist with other areas of need identified by the Secretary.
    (b) Grant Funds and any matching funds may be used by Ultimate 
Recipients only to prepare reports and surveys necessary to request 
financial assistance to develop community facilities. Applicants 
applying as Ultimate Recipients will be limited to this purpose.



Sec. 3570.264  Ineligible project purposes.

    Ineligible purposes for grant funds and any matching funds include, 
but are not limited to:
    (a) Duplicate services, such as those previously performed by an 
association's consultant in developing a Project, including feasibility, 
design, Professional Services, and cost estimates prior to receiving the 
grant award.
    (b) Purchase real estate or vehicles, improve or renovate office 
space, or repair and maintain privately owned property.
    (c) Pay the costs for construction, improvement, rehabilitation, 
modification, or operation and maintenance of an Essential Community 
Facility.
    (d) Procure applications for the Agency's community facilities or 
other loan or grant program. Grant funds cannot be used to generate new 
applications; however, as stated in Sec. 3570.263(a)(4) funds can be 
used to assist with application preparation for Agency programs.
    (e) Pay for other costs that are not allowed under 2 CFR part 200.
    (f) Pay an outstanding judgment obtained by the U.S. in a Federal 
Court (other than in the United States Tax Court), which has been 
recorded. An Applicant will be ineligible to receive a grant until the 
judgment is paid in full or otherwise satisfied.
    (g) Intervene in Federal or adjudicatory proceedings.
    (h) Fund political or lobbying activities.
    (i) Conduct an income survey associated with developing a complete 
application for a potential Applicant.
    (j) Pay for indirect or administrative costs in excess of 10% of the 
amount of grant.
    (k) [Reserved]
    (l) Provide assistance to an Ultimate Recipient, or a Project, that 
is not located in a Rural Area.
    (m) Pay for expenses incurred more than three years after the date 
of the grant agreement.

[[Page 627]]

    (n) Provide assistance to a Project that primarily serves an area 
that is not considered Low Income.
    (o) Fund a project where a Conflict of Interest exists.

[81 FR 1866, Jan. 14, 2016, as amended at 81 FR 27295, May 6, 2016]



Sec. Sec. 3570.265-3570.266  [Reserved]



Sec. 3570.267  Applications.

    (a) Filing period. The Agency will publish an annual notice in the 
Federal Register stating the filing period, where to file, and all other 
applicable information necessary to submit a complete application.
    (b) Application requirements. To file an application, an 
organization must provide their DUNS number. An organization may obtain 
a DUNS number from Dun and Bradstreet by calling (1-866-705-5711). To 
file a complete application the following information must be submitted:
    (1) ``Application for Federal Assistance (For Non-Construction)
    (2) ``Budget Information--Non-Construction Programs.''
    (3) ``Certification Regarding Debarment, Suspension, and Other 
Responsibility Matters--Primary Covered Transaction.''
    (4) ``Certification Regarding Drug-Free Workplace Requirements 
(Grants) Alternative 1--For Grantees Other Than Individuals.''
    (5) ``Certification Regarding Debarment.''
    (6) Attachment regarding assistance provided to Agency Employees as 
required by RD Instruction 1900-D (1900.153(a)), as applicable.
    (7) ``Equal Opportunity Agreement.''
    (8) ``Assurance Agreement.''
    (9) Indirect Cost Rate Agreement (if applicable, Applicant must 
include approved cost agreement rate schedule).
    (10) Statement of Compliance with Title VI of the Civil Rights Act 
of 1964.
    (11) ``Disclosure of Lobbying Activities'' (include only if grant 
exceeds $100,000).
    (c) Supporting information. All applications shall be accompanied by 
the following supporting information:
    (1) For Nonprofit Corporations,
    (i) Certified copies of current organizational documents including 
Certificate of Incorporation, bylaws, and Certificate of Good Standing,
    (ii) Evidence of tax exempt status from the Internal Revenue Service 
if applying as a Technical Assistance Provider, and
    (iii) Evidence of Community Ties to a Rural Area if a Nonprofit 
Corporation applying as an Ultimate Recipient.
    (2) For applicants applying as a Technical Assistance Provider, a 
narrative of their experience in providing services similar to those 
proposed. The narrative will provide a brief description of successfully 
completed Projects including the need that was identified and objectives 
accomplished.
    (3) Latest financial information to show the Applicant's financial 
capacity to carry out proposed work. A current Audit is preferred; 
however, Applicants may submit a balance sheet and an income Statement 
in lieu of an Audit report.
    (4) Documentation of cash matching funds, if applicable.
    (5) List of proposed services to be provided.
    (6) For Applicants applying as Technical Assistance Providers who 
have not identified the Ultimate Recipients, a narrative explaining how 
they will select Ultimate Recipients to be assisted with grant funds.
    (7) Estimated breakdown of costs (direct and indirect) including 
those to be funded by Grantee as well as matching funds and other 
sources. Sufficient detail will be provided to permit the Agency to 
determine if the costs are allowed, reasonable, and applicable.
    (8) Evidence that a Financial Management System used to track 
Project costs is in place or proposed.
    (9) Documentation relevant to scoring criteria including, but not 
limited to:
    (i) List of Ultimate Recipients to be served and the county, State 
or States where assistance will be provided. Identify Ultimate 
Recipients by name, or other characteristics such as size, income, 
location, and provide MHI and population data.
    (ii) Description of type of Technical Assistance and/or training to 
be provided and the tasks to be contracted.
    (iii) Description of how the Project will be evaluated, clearly 
stated goals,

[[Page 628]]

and the method proposed to measure results.
    (iv) Documentation of the need for the proposed service. Provide 
detailed explanation of how the proposed service differs from other 
similar services being provided in same area.
    (v) Personnel on staff or to be contracted to provide services and 
their experience with similar Projects.
    (vi) Statement indicating the number of months it will take to 
complete the Project or service, and
    (vii) Documentation on cost effectiveness of Project. Provide the 
cost per Ultimate Recipient to be served or the proposed cost of 
personnel to provide assistance.



Sec. Sec. 3570.268-3570.271  [Reserved]



Sec. 3570.272  Grant processing.

    (a)-(c) [Reserved]
    (d) Applications that are not selected for funding due to low rating 
will be notified by the Agency. Applications that cannot be funded in 
the fiscal year that the application was received will not be retained 
for consideration in the following fiscal year.
    (e) Applicants selected for funding will need to accept the 
conditions set forth in the Letter of Conditions, meet all such 
conditions, and complete a grant agreement which outlines the terms and 
conditions of the grant award before grant funds will be disbursed.



Sec. 3570.273  Scoring.

    The Agency will score each application using the following scoring 
factors unless otherwise provided in an annual Notice in the Federal 
Register:
    (a) Experience: Applicant Experience at developing and implementing 
successful technical assistance and/or training programs:
    (1) More than 10 years--40 points.
    (2) More than 5 years to 10 years--25 points.
    (3) 3 to 5 years--10 points.
    (b) No prior grants received:
    (1) Applicant has never received a TAT Grant--5 points.
    (2) [Reserved]
    (c) Population: The average population of proposed area(s) to be 
served:
    (1) 2,500 or less--15 points.
    (2) 2,501 to 5,000--10 points.
    (3) 5,001 to 10,000--5 points.
    (d) MHI: The average median household income (MHI) of proposed area 
to be served is below the higher of the poverty line or:
    (1) 60 percent of the State's MHI--15 points.
    (2) 70 percent of the State MHI--10 points.
    (3) 90 percent of the State's MHI--5 points.
    (e) Multi-jurisdictional: The proposed technical assistance or 
training project a part of a Multi-jurisdictional project comprised of:
    (1) More than 10 jurisdictions--15 points.
    (2) More than 5 to 10 jurisdictions--10 points.
    (3) 3 to 5 jurisdictions--5 points.
    (f) Soundness of approach: Up to 10 points.
    (1) Needs assessment: The problem/issue being addressed is clearly 
defined, supported by data, and addresses the needs;
    (2) Goals & objectives are clearly defined, tied to the need as 
defined in the work plan, and are measurable;
    (3) Work plan clearly articulates a well thought out approach to 
accomplishing objectives & clearly identifies who will be served by the 
project;
    (4) The proposed activities are needed in order for a complete 
Community Facilities loan and/or grant application.
    (g) Matching funds:
    (1) There is evidence of the commitment of other cash funds of 20% 
of the total project costs 10 points.
    (2) There is evidence of the commitment of other cash funds of 10% 
of the total project costs 5 points.
    (h) State Director discretionary points. The State Director may 
award up to 10 discretionary points for the highest priority project in 
each state, up to 7 points for the second highest priority project in 
each state and up to 5 points for the third highest priority project 
that address unforeseen exigencies or emergencies, such as the loss of a 
community facility due to an accident or natural disaster, or other 
areas of need in their particular state. The State Director will place 
written documentation in the project file each time the

[[Page 629]]

State Director assigns these points--Up to 10 points.
    (i) Administrator discretionary points. The Administrator may award 
up to 20 discretionary points for projects to address geographic 
distribution of funds, emergency conditions caused by economic problems, 
natural disasters and other initiatives identified by the Secretary--Up 
to 20 points.



Sec. 3570.274  Fund disbursement.

    The Agency will make payments under this agreement in accordance 
with 2 CFR 200.305. All requests for advances or reimbursements must be 
in compliance with 2 CFR 200.306 and include any required matching fund 
usage.



Sec. 3570.275  Grant cancellation or major changes.

    Any change in the scope of the Project, budget adjustments of more 
than 10 percent of the total budget, and any other significant change in 
the Project must be in compliance with 2 CFR 200.308 and 200.339. The 
changes must be requested in writing and approved by the Agency in 
writing. Any change not approved may be cause for termination of the 
grant.



Sec. 3570.276  Reporting.

    (a) The Grantee must provide periodic reports as required by the 
Agency. A financial status report, SF 425 ``Federal Financial Report,'', 
and a project performance report will be required as provided in the 
grant agreement. The financial status report must show how grant funds 
and matching funds have been used to date. A final report may serve as 
the last report. Grantees shall constantly monitor performance to ensure 
that time schedules are being met and projected goals by time periods 
are being accomplished. The Project performance reports shall include, 
but are not limited to, the following:
    (1) A description of the activities that the funds reflected in the 
financial status report were used for;
    (2) A comparison of actual accomplishments to the objectives for 
that period;
    (3) Reasons why established objectives were not met, if applicable;
    (4) Problems, delays, or adverse conditions which will affect 
attainment of overall program objectives, prevent meeting time schedules 
or objectives, or preclude the attainment of particular objectives 
during established time periods. This disclosure shall be accomplished 
by a Statement of the action taken or planned to resolve the situation;
    (5) Objectives and timetables established for the next reporting 
period;
    (6) A summary of the race, sex, and national origin of the Ultimate 
Recipients;
    (7) The final report will also address the following:
    (i) What have been the most challenging or unexpected aspects of 
this grant?
    (ii) What advice would you give to other organizations planning a 
similar grant? What are the strengths and limitations of this grant? If 
you had the opportunity, what would you have done differently?
    (iii) Are there any post-grant plans for this Project? If yes, how 
will they be financed?
    (b) [Reserved]



Sec. 3570.277  Audit or financial statement.

    The Grantee will provide an Audit report or financial Statement in 
accordance with 2 CFR 200.500-200.517 and as follows:
    (a) Grantees expending $750,000 or more Federal funds per fiscal 
year will submit an Audit conducted in accordance with 2 CFR parts 200, 
215, 220, 225, 230 and 400, ``Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards.''
    (b) Grantees expending less than $750,000 will provide annual 
financial Statements covering the grant period, consisting of the 
organization's statement of income and expense and balance sheet signed 
by an appropriate Official of the organization. Financial statements 
will be submitted within 90 days after the Grantee's fiscal year.

[[Page 630]]



Sec. Sec. 3570.278-3570.280  [Reserved]



Sec. 3570.281  Grant servicing.

    Grants will be serviced in accordance with 7 CFR part 1951, subpart 
E.



Sec. 3570.282  [Reserved]



Sec. 3570.283  Exception authority.

    The Administrator may make an exception to any requirement or 
provision of this subpart, if such an exception is necessary to 
implement the intent of the authorizing statutes in a time of national 
emergency or in accordance with a Presidentially-declared disaster, or 
on a case-by-case basis, when such an exception is in the best financial 
interest of the Federal Government and is otherwise not in conflict with 
applicable laws. No exceptions, however, will be granted for Applicant, 
Ultimate Recipient, or Project eligibility.



Sec. 3570.284  Review or appeal rights.

    A person may seek a review of an Agency decision under this subpart 
from the appropriate Agency official that oversees the program in 
question or appeal to the USDA National Appeals Division in accordance 
with 7 CFR part 11.



Sec. Sec. 3570.285-3570.299  [Reserved]



Sec. 3570.300  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been submitted to the Office of Management and Budget 
(OMB) for approval.

                       PARTS 3575	3599 [RESERVED]

[[Page 631]]



 CHAPTER XXXVI--NATIONAL AGRICULTURAL STATISTICS SERVICE, DEPARTMENT OF 
                               AGRICULTURE




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3600            Organization and functions..................         633
3601            Public information..........................         635
3602-3699

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[[Page 633]]



PART 3600_ORGANIZATION AND FUNCTIONS--Table of Contents



Sec.
3600.1 General.
3600.2 Organization.
3600.3 Functions.
3600.4 Authority to act for the Administrator.

Appendix A to Part 3600--List of State Statistical Offices

    Authority: 5 U.S.C. 301 and 552: and 7 CFR 2.85.

    Source: 60 FR 57534, Nov. 16, 1995, unless otherwise noted.



Sec. 3600.1  General.

    The National Agricultural Statistics Service (NASS) was established 
on April 17, 1986, by Secretary's Memorandum 1020-24, which renamed the 
Statistical Reporting Service concurrent with an internal restructuring. 
Primary NASS responsibilities are development and dissemination of 
national and State agricultural statistics, statistical research, and 
coordination of Department statistical programs.



Sec. 3600.2  Organization.

    The headquarters organization consists of: The Administrator and 
Associate Administrator; Deputy Administrator for Field Operations; Four 
Divisions: Estimates, Survey Management, Research, and Systems and 
Information; and the Agricultural Statistics Board. In the field, each 
of the 45 State Statistical Offices, serving the 50 States, is under a 
State Statistician.



Sec. 3600.3  Functions.

    (a) Administrator. The Administrator is responsible for the 
formulation of current, intermediate, and long-range policies and plans 
to carry out a broad statistical program for the agricultural sector and 
Departmental functions and activities assigned to NASS. Specific 
functions are:
    (1) Administering an agricultural statistics program which includes 
estimates of production, marketings, inventories, and selected economic 
characteristics of the U.S. agricultural and rural economy.
    (2) Administering a methodological research program to improve 
agricultural data collection and processing, data management, 
estimation, and forecasting.
    (3) Administering programs to conduct surveys for other agencies, 
improve statistics through statistical standards for the Department, and 
coordinate statistical methods and techniques within the Federal 
Government.
    (4) Administering statistical programs jointly developed through 
cooperative agreements with State agencies, universities, private 
groups, and other Federal agencies.
    (5) Administering selected international agricultural statistics 
programs which provide foreign technical assistance, training on 
statistical methodology for developing countries, and exchange of 
information.
    (b) Associate Administrator. The Associate Administrator is 
responsible for advising and counseling the Administrator and high-level 
policy officials on matters related to programs of NASS. Major functions 
include:
    (1) Chairing Agricultural Statistics Board activities, designating 
Board membership, presiding at Board sessions, and formulating specific 
procedures.
    (2) Chairing the NASS Strategic Planning Council which coordinates 
long-range planning, information resources management, and research 
reviews.
    (3) Chairing the Resource Management Council which coordinates NASS 
hiring, promotion, and training activities.
    (c) Deputy Administrator for Field Operations. The Deputy 
Administrator manages and coordinates data collection and estimating 
programs carried out by State Statistical Offices. This includes 
supervision of statistical programs with cooperating State and private 
groups, universities, and other Federal agencies. Major functions 
include:
    (1) Formulating policies and programs that relate to functions and 
responsibilities of State Statistical Offices.

[[Page 634]]

    (2) Directing agricultural statistics programs established through 
cooperative agreements with State Departments of Agriculture, Land-Grant 
colleges and universities, or appropriate private organizations.
    (3) Establishing and maintaining relationships with respondents, 
producers, commodity groups, data users, and other interested groups to 
gain cooperation in providing useful, timely, and reliable information.
    (d) Director, Estimates Division. The Director is responsible for 
NASS estimating and forecasting programs. Major functions include:
    (1) Defining input and output requirements, estimators and variances 
to be utilized, statistical standards, editing and summarization 
requirements, and analytic procedures.
    (2) Collaborating with the Chairperson of the Agricultural 
Statistics Board to establish the annual programs of statistical 
reports.
    (3) Developing appropriate systems parameters; processing, 
summarizing, and presenting current survey and related historical data 
for Agricultural Statistics Board analysis; and preparing official 
estimates and forecasts.
    (e) Director, Survey Management Division. The Director is 
responsible for application of survey design and data collection 
methodologies to the agricultural statistics program. Major functions 
include:
    (1) Constructing and maintaining appropriate sampling frames for 
agricultural and rural surveys.
    (2) Designing, testing, and establishing survey techniques and 
standards, including sample design, sample selection, questionnaires, 
data collection methods, survey materials, and training methods for 
NASS.
    (3) Reviewing specifications for special data collection activities 
for programs of other Federal or State agencies.
    (f) Director, Research Division. The Director is responsible for 
researching statistical methodology for survey design, data collection, 
processing, estimating, and forecasting. Major functions include:
    (1) Conducting statistical research to develop new and improved 
sampling techniques, develop improved data collection methods, and 
identify methods of controlling sampling and nonsampling errors.
    (2) Researching statistical computing methods and developing 
efficient uses of computer technology including telecommunications, 
networking, and other applications.
    (3) Developing new statistical theory and models and solving 
statistical problems, including numerical methods involving advanced 
mathematical statistics.
    (g) Director, Systems and Information Division. The Director is 
responsible for NASS information management system and processing 
services. Specific functions are:
    (1) Designing, maintaining, and providing access to an integrated 
and standardized information management system containing sampling 
frames, survey data, estimates, and administrative records utilized by 
NASS.
    (2) Providing appropriate support for assisting users of the 
information management system through documentation, evaluation, 
training, and resolution of information management problems.
    (3) Designing and issuing all reports releasing official State and 
national estimates and forecasts from NASS.
    (h) Chairperson, Agricultural Statistics Board. The Chairperson 
reviews, prepares, and issues on specific dates, following approval by 
the Secretary of Agriculture as provided by law (7 U.S.C. 411a) and 
Departmental Regulation, the official State and national estimates 
relating to crop production, livestock and livestock products, dairy and 
dairy products, poultry and poultry products, stocks of agricultural 
commodities, value of farm products, farm inputs, and other assigned 
agricultural aspects.



Sec. 3600.4  Authority to act for the Administrator.

    In the absence of the Administrator, the following officials are 
designated to serve as Acting Administrator in the order indicated:

Associate Administrator
Deputy Administrator for Field Operations
Director, Estimates Division
Director, Survey Management Division
Director, Systems and Information Division

[[Page 635]]

Director, Research Division



     Sec. Appendix A to Part 3600--List of State Statistical Offices

                           Section 1. General

    Information concerning NASS statistics programs and activities 
related to individual States may be obtained from the State 
Statistician, State Statistical Office, NASS, in the locations listed 
below.

                      Section 2. List of Addresses

Alabama, Sterling Centre, Suite 200, 4121 Carmichael Road, Montgomery, 
AL 36106-2872
Alaska, 809 South Chugach Street, Suite 4, Palmer, AK 99645
Arizona, 3003 North Central Avenue, Suite 950, Phoenix, AZ 85012
Arkansas, 3408 Federal Office Building, Little Rock, AR 72201
California, 1220 ``N'' Street, Room 243, Sacramento, CA 95814
Colorado, 645 Parfet Street, Suite W-201, Lakewood, CO 80215-5517
Delaware, Delaware Department of Agriculture Building, 2320 South Dupont 
Highway, Dover, DE 19901
Florida, 1222 Woodward Street, Orlando, FL 32803
Georgia, Stephens Federal Building, Suite 320, Athens, GA 30613
Hawaii, State Department of Agriculture Building, 1428 South King 
Street, Honolulu, HI 96814
Idaho, 2224 Old Penitentiary Road, Boise, ID 83712
Illinois, Illinois Department of Agriculture Building, 801 Sangamon 
Avenue, Room 54, Springfield, IL 62702
Indiana, 1148 AGAD Building, Purdue University, Room 223, West 
Lafayette, IN 47907-1148
Iowa, 833 Federal Building, 210 Walnut Street, Des Moines, IA 50309
Kansas, 632 S.W. Van Buren, Room 200, Topeka, KS 66603
Kentucky, Gene Snyder & Courthouse Building, 601 W. Broadway, Room 645, 
Louisville, KY 40202
Louisiana, 5825 Florida Boulevard, Baton Rouge, LA 70806
Maryland, 50 Harry S Truman Parkway, Suite 202, Annapolis, MD 21401
Michigan, 201 Federal Building, Lansing, MI 48904
Minnesota, 8 East 4th Street, Suite 500, St. Paul, MN 55101
Mississippi, 121 North Jefferson Street, Jackson, MS 39201
Missouri, 601 Business Loop West, Suite 240, Columbia, MO 65203
Montana, Federal Building & U.S. Court House, Room 398, 301 S. Park 
Avenue, Helena, MT 59626
Nebraska, 100 Centennial Mall N., Room 273 Federal Building, Lincoln, NE 
68508
Nevada, Max C. Fleischmann Agriculture Building, Room 232, University of 
Nevada, Reno, NV 89557
New Hampshire, 22 Bridge Street, Room 301, Concord, NH 03301
New Jersey, Health and Agriculture Building, Room 205, CN-330 New Warren 
Street, Trenton, NJ 08625
New Mexico, 2507 North Telshor Boulevard, Suite 4, Las Cruces, NM 88001
New York, Department of Agriculture & Markets, 1 Winners Circle, Albany, 
NY 12235
North Carolina, 2 W. Edenton Street, Raleigh, NC 27601-1085
North Dakota, 1250 Albrecht Boulevard, NDSU, Room 448, Fargo, ND 58105
Ohio, 200 N. High Street, New Federal Building, Room 608, Columbus, OH 
43215
Oklahoma, 2800 North Lincoln Boulevard, Oklahoma City, OK 73105
Oregon, 1220 S.W. Third Avenue, Room 1735, Portland, OR 97204
Pennsylvania, 2301 N. Cameron Street, Room G-19, Harrisburg, PA 17110
South Carolina, 1835 Assembly Street, Room 1008, Columbia, SC 29201
South Dakota, 3528 S. Western Avenue, Sioux Falls, SD 57117
Tennessee, 440 Hogan Road, Holeman Office Building, Ellington 
Agricultural Center, Nashville, TN 37220-1626
Texas, 300 E. 8th Street, Federal Building, Room 504, Austin, TX 78701
Utah, 176 N. 2200 West--Suite 260, Salt Lake City, UT 84116
Virginia, 1100 Bank Street, Room 706, Richmond, VA 23219
Washington, 1111 Washington Street, SE, Olympia, WA 98504
West Virginia, 1900 Kanawha Boulevard E, Charleston, WV 25305
Wisconsin, 2811 Agriculture Drive, Madison, WI 53704
Wyoming, 504 W. 17th Street, Suite 250, Cheyenne, WY 82001



PART 3601_PUBLIC INFORMATION--Table of Contents



Sec.
3601.1 General statement.
3601.2 Public inspection, copying, and indexing.
3601.3 Requests for records.
3601.4 Multitrack processing.
3601.5 Denials.
3601.6 Appeals.
3601.7 Requests for published data and information.

    Authority: 5 U.S.C. 301, 552; 7 CFR part 1, subpart A and appendix A 
thereto.

    Source: 66 FR 57843, Nov. 19, 2001, unless otherwise noted.

[[Page 636]]



Sec. 3601.1  General statement.

    This part is issued in accordance with the regulations of the 
Secretary of Agriculture in part 1, subpart A of this title and appendix 
A thereto, implementing the Freedom of Information Act (FOIA) (5 U.S.C. 
552), and governs the availability of records of the National 
Agricultural Statistics Service (NASS) to the public.



Sec. 3601.2  Public inspection, copying, and indexing.

    5 U.S.C. 552(a)(2) requires that certain materials be made available 
for public inspection and copying and that a current index of these 
materials be published quarterly or otherwise be made available. Members 
of the public may request access to such materials maintained by NASS at 
the following office: Information Staff, ARS, REE, USDA, Room 1-2248, 
Mail Stop 5128, 5601 Sunnyside Avenue, Beltsville, MD 20705-5128; 
Telephone (301) 504-1640 or (301) 504-1655; TTY-VOICE (301) 504-1743. 
Office hours are 8 a.m. to 4:30 p.m. Information maintained in our 
electronic reading room can be accessed at http://www.ars.usda.gov/is/
foia/Electronic.



Sec. 3601.3  Requests for records.

    Requests for records of NASS under 5 U.S.C. 552(a)(3) shall be made 
in accordance with Sec. 1.5 of this title and submitted to the FOIA 
Coordinator, Information Staff, ARS, REE, USDA, Mail Stop 5128, 5601 
Sunnyside Avenue, Beltsville, MD 20705-5128; Telephone (301) 504-1640 or 
(301) 504-1655; TTY-VOICE (301) 504-1643; Facsimile (301) 504-1648; e-
mail [email protected] or [email protected]. The FOIA 
Coordinator is delegated authority to make determinations regarding such 
requests in accordance with Sec. 1.3(c) of this title.



Sec. 3601.4  Multitrack processing.

    (a) When NASS has a significant number of requests, the nature of 
which precludes a determination within 20 working days, the requests may 
be processed in a multitrack processing system, based on the date of 
receipt, the amount of work and time involved in processing the request, 
and whether the request qualifies for expedited processing.
    (b) NASS may establish as many processing tracks as appropriate; 
processing within each track shall be based on a first-in, first-out 
concept, and rank-ordered by the date of receipt of the request.
    (c) A requester whose request does not qualify for the fastest track 
may be given an opportunity to limit the scope of the request in order 
to qualify for the fastest track. This multitrack processing system does 
not lessen agency responsibility to exercise due diligence in processing 
requests in the most expeditious manner possible.
    (d) NASS shall process requests in each track on a ``first-in, 
first-out'' basis, unless there are unusual circumstances as set forth 
in Sec. 1.16 of this title, or the requester is entitled to expedited 
processing as set forth in Sec. 1.9 of this title.



Sec. 3601.5  Denials.

    If the FOIA Coordinator determines that a requested record is exempt 
from mandatory disclosure and that discretionary release would be 
improper, the FOIA Coordinator shall give written notice of denial in 
accordance with Sec. 1.7(a) of this title.



Sec. 3601.6  Appeals.

    Any person whose request is denied shall have the right to appeal 
such denial. Appeals shall be made in accordance with Sec. 1.13 of this 
title and should be addressed as follows: Administrator, NASS, U.S. 
Department of Agriculture, Washington, DC 20250.



Sec. 3601.7  Requests for published data and information.

    (a) Published data and reports produced by NASS since 1995 are 
available via the NASS Web site at http://www.usda.gov/nass/ or an e-
mail subscription may be established via the website under Publications. 
Searching on the website is available by topic, by title, or by date. 
The titles displayed in the search include NASS's published periodicals 
and annual reports. Full text of all the titles is available at no cost 
(PDF Files beginning 1999). Printed copies and reports published after 
1996 can be purchased from the ERS-NASS sales desk at the National 
Technical Information Center at 1 (800) 999-

[[Page 637]]

6779 (8:30 a.m.-5 p.m. Eastern Time, M-F).
    (b) Information on published data, printed subscription rates, and 
historic publications is available from the Secretary, Agricultural 
Statistics Board, NASS, U.S. Department of Agriculture, Washington, DC 
20250. This information is also available from the NASS website under 
Publications, NASS Catalog, NASS Periodicals and Annual Reports. 
Published data, from each State Statistical Office, are available via 
the NASS website under State Information or by e-mail subscription. 
Published data subscription forms are available from the State 
Statistician at each State Statistical Office. Addresses are listed in 
appendix A to part 3600 of this chapter.

                       PARTS 3602	3699 [RESERVED]

[[Page 639]]



  CHAPTER XXXVII--ECONOMIC RESEARCH SERVICE, DEPARTMENT OF AGRICULTURE




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3701            Public information..........................         643
3702-3799

 [Reserved]

[[Page 641]]



PART 3700_ORGANIZATION AND FUNCTIONS--Table of Contents



Sec.
3700.1 General.
3700.2 Organization.
3700.3 Functions.
3700.4 Authority to act for the Administrator.

    Authority: 5 U.S.C. 301 and 552, and 7 CFR 2.67.

    Source: 61 FR 1827, Jan. 24, 1996, unless otherwise noted.



Sec. 3700.1  General.

    The Economic Research Service (ERS), originally established in 1961 
under the authority of the Agricultural Marketing Act of 1946 (7 U.S.C. 
1621-1627), was reestablished as an agency of the U.S. Department of 
Agriculture of September 30, 1981 (46 FR 47747), in response to 
Secretary's Memorandum 1000-1 of June 17, 1981, entitled 
``Reorganization of Department.'' The mission of ERS is to provide 
economic and other social science information and analysis for public 
and private decisions on agriculture, food, natural resources, and rural 
America. Its primary customers are USDA policy officials and program 
administrators, the Office of the While House, Congress, and 
environmental, consumer, and rural public interest groups, including 
farm groups and industry.



Sec. 3700.2  Organization.

    ERS maintains its offices at 1301 New York Avenue, NW., Washington, 
DC 20005-4788. The organization consists of:
    (a) The Administrator;
    (b) Associate Administrator;
    (c) Five Divisions; Commercial Agriculture Division, Food and 
Consumer Economics Division, Information Services Division, Natural 
Resources and Environment Division, and Rural Economy Division; and
    (d) Office of Energy and New Uses.



Sec. 3700.3  Functions.

    (a) Administrator and Associate Administrator. The Administrator and 
Associate Administrator are responsible for developing and implementing 
policies and plans in support of a program of economic and social 
science research, analysis, and data dissemination. General functions 
are: Conducting research and staff analysis, and developing short to 
long-term outlook analysis and economic indicators.
    (b) Director, Commercial Agriculture Division. The Director, 
Commercial Agriculture Division, is responsible for conducting a program 
of economic research; economic intelligence gathering, analysis, and 
reporting; and data development and dissemination on economic 
conditions, U.S. and foreign policies, and agriculture production, 
trade, and marketing. General functions are:
    (1) Developing and monitoring current intelligence and indicators on 
domestic and international agricultural markets and related farm and 
trade developments and short to long-term forecasts of domestic and 
world agricultural markets.
    (2) Assessing the technological, economic, and institutional forces 
influencing U.S. and world agricultural markets.
    (3) Conducting special analyses of U.S. and world agricultural 
markets for policy officials to assist in policy development and the 
operation of USDA programs.
    (4) Collecting necessary information and performing international, 
national, and regional macroeconomics analysis to estimate the effects 
of macro economic trends and events in the global economy on the 
American farm sector.
    (c) Director, Food and Consumer Economic Division. The Director, 
Food and Consumer Economic Division, is responsible for providing 
economic research, monitoring and statistical indicators, and staff and 
the policy analysis of consumer and food marketing issues, including: 
Consumption determinants and trends; consumer demand for food quality, 
safety, and nutrition; food security; market competition; vertical 
coordination; nutrition education and food assistance programs; and food 
safety regulation. General functions are:
    (1) Analyzing consumer behavior and food choices, including research 
regarding the socio-demographic and economic determinants of food and 
nutrient consumption; consumer valuation

[[Page 642]]

of quality, safety, and nutrition characteristics; and the role of 
information in determining food choices.
    (2) Examining food assistance and nutrition programs, nutritional 
adequacy of diets, and food security, including costs and benefits of 
food assistance and nutrition programs, program and policy alternatives, 
the extent and social cost of good insecurity, and the role of food 
assistance in meeting larger goals of welfare programs.
    (3) Analyzing the food processing and distribution sector, including 
the ability of the sector to meet changing consumer demand; the effect 
of government market interventions to facilitate that response; and the 
effect of government interventions and rapid changes in the sector on 
consumer and producer welfare.
    (4) Analyzing food safety issues, including consumer benefits from 
risk reduction, production tradeoffs in reducing hazards, impact of 
proposed regulations and international harmonization, and policy 
alternatives.
    (5) Developing and monitoring indicators of individual, household, 
and market level food consumption, expenditures, and nutrients; food 
marketing costs, marketing margins, and farm-retail price spreads; and 
food safety hazards, their effects, and mitigation.
    (d) Director, Information Services Division. The Director, 
Information Services Division, is responsible for managing and directing 
agencywide information technology, communications, and administrative 
activities in support of the economic research and analysis mission of 
ERS. General functions are:
    (1) Developing and managing information technology infrastructure 
and training.
    (2) Developing and managing communications, publication, and 
dissemination programs, policies, and procedures.
    (3) Providing operations and management services, including liaison 
with the ARS's Administrative and Financial Management unit.
    (e) Director, Natural Resources and Environment Division. The 
Director, Natural Resources and Environment Division, is responsible for 
providing economic research, monitoring and statistical indicators, and 
staff and policy analysis of agricultural resource and environment 
issues including the relationship between agriculture--its practices, 
technologies, policies, and resource use--and the environment, including 
effects on the sustainability of the natural resource base, preservation 
of species and genetic diversity, and environmental quality. General 
functions are:
    (1) Developing and disseminating data for assessing the use of 
agricultural resources and technologies by agricultural producers. These 
data include use and ownership of land, use of agricultural chemicals 
and equipment, and water use.
    (2) Evaluating the implications of alternative agricultural and 
resource conservation policies and programs on commodity prices, 
consumer welfare, competitiveness, and long-range maintenance of 
agricultural land and water resources.
    (3) Analyzing the costs, benefits, and distributional impacts of 
alternative policies to reduce environmental and health risk 
externalities associated with agriculture.
    (4) Monitoring and analyzing the uses and conditions of the nation's 
water resources and the economic consequences of agricultural and 
environmental policies affecting water supply, use, and quality.
    (5) Analyzing the impacts of national and global developments and 
domestic and international policies on the use and value of land, water, 
capital assets, and other agricultural production decisions.
    (6) Assessing the possible impacts of proposed or anticipated 
domestic policy and program changes on agricultural production 
decisions.
    (7) Assessing the effects of technology on input use and markets and 
evaluating the factors affecting input productivity and technology 
adoption.
    (8) Analyzing the implications of global environmental change and 
sustainable development for U.S. agriculture.
    (f) Director, Rural Economy Division. The Director, Rural Economy 
Division, is responsible for conducting a program of economic and social 
science research

[[Page 643]]

and analysis on national rural and agricultural conditions and trends, 
and identifying and assessing the potential impact of public and private 
sector actions and policies that affect rural areas and the agricultural 
sector. General functions are:
    (1) Analyzing and reporting on current economic and demographic 
issues facing rural areas and agricultural, especially how changes in 
the national and global economies affect rural areas and the agriculture 
sector.
    (2) Determining the effects of economic, social, and governmental 
events and actions on the demand for and supply of rural local 
government services, the quality of such services, and the relationships 
between local services and the viability of rural communities.
    (3) Developing and disseminating information on current trends in 
the non-metropolitan and farm populations, the number, location and 
characteristics of such people, and the factors associated with these 
trends.
    (4) Developing estimates and analyzing labor force trends in rural 
labor markets, including analyses of unemployment and employment by 
industry and occupational groups, including farm labor.
    (5) Developing data on the income situation of rural people and 
evaluating the effectiveness of alternative public policies and programs 
in improving incomes of rural people, especially people in disadvantaged 
groups.
    (6) Monitoring information on and analyzing the development of rural 
portions of geographic regions of the United States, including changes 
in industry mix, impacts of energy costs, credit availability, and other 
economic activities.
    (7) Analyzing and reporting on developments in rural and 
agricultural financial markets and in Federal tax laws, and their 
consequences for agriculture and rural economies.
    (8) Collecting and disseminating financial information on farms and 
farm enterprises, and developing techniques necessary to measure and 
describe the financial condition of the agriculture sector and its 
components.

[61 FR 1827, Jan. 24, 1996, as amended at 64 FR 40736, July 28, 1999]



Sec. 3700.4  Authority to act for the Administrator.

    In the absence of the Administrator, the following officials are 
designated to serve as Acting Administrator in the order indicated:

Associate Administrator
Director, Commercial Agriculture Division
Director, Food and Consumer Economics Division
Director, Natural Resources and Environment Division
Director, Rural Economy Division
Director, Information Services Division
Director, Office of Energy and New Uses



PART 3701_PUBLIC INFORMATION--Table of Contents



Sec.
3701.1 General statement.
3701.2 Public inspection, copying, and indexing.
3701.3 Requests for records.
3701.4 Multitrack processing.
3701.5 Denials.
3701.6 Appeals.
3701.7 Requests for published data and information.

    Authority: 5 U.S.C. 301, 552; 7 CFR part 1, subpart A and appendix A 
thereto.

    Source: 66 FR 57845, Nov. 19, 2001, unless otherwise noted.



Sec. 3701.1  General statement.

    This part is issued in accordance with the regulations of the 
Secretary of Agriculture in part 1, subpart A of this title and appendix 
A thereto, implementing the Freedom of Information Act (FOIA) (5 U.S.C. 
552). The Secretary's regulations, as implemented by the regulations in 
this part, govern the availability of records of the Economic Research 
Service (ERS) to the public.



Sec. 3701.2  Public inspection, copying, and indexing.

    5 U.S.C. 552(a)(2) requires that certain materials be made available 
for public inspection and copying and that a current index of these 
materials be published quarterly or otherwise be made available. Members 
of the public may request access to such materials maintained by ERS at 
the following office: Information Staff, ARS, REE, USDA, Room 1-2248, 
Mail Stop 5128, 5601 Sunnyside Avenue, Beltsville, MD 20705-5128; 
Telephone (301) 504-1640 or

[[Page 644]]

(301) 504-1655; TTY-VOICE (301) 504-1743. Office hours are 8 a.m. to 
4:30 p.m. Information maintained in our electronic reading room can be 
accessed at http://www.ars.usda.gov/is/foia/Electronic.



Sec. 3701.3  Requests for records.

    Requests for records of ERS under 5 U.S.C. 552(a)(3) shall be made 
in accordance with Sec. 1.5 of this title and submitted to the FOIA 
Coordinator, Information Staff, ARS, REE, USDA, Mail Stop 5128, 5601 
Sunnyside Avenue, Beltsville, MD 20705-5128; Telephone (301) 504-1640 or 
(301) 504-1655; TTY-VOICE (301) 504-1743; Facsimile (301) 504-1648; e-
mail [email protected] or [email protected]. The FOIA 
Coordinator is delegated authority to make determinations regarding such 
requests in accordance with Sec. 1.3(c) of this title.



Sec. 3701.4  Multitrack processing.

    (a) When ERS has a significant number of requests, the nature of 
which precludes a determination within 20 working days, the requests may 
be processed in a multitrack processing system, based on the date of 
receipt, the amount of work and time involved in processing the request, 
and whether the request qualifies for expedited processing.
    (b) ERS may establish as many processing tracks as appropriate; 
processing within each track shall be based on a first-in, first-out 
concept, and rank-ordered by the date of receipt of the request.
    (c) A requester whose request does not qualify for the fastest track 
may be given an opportunity to limit the scope of the request in order 
to qualify for the fastest track. This multitrack processing system does 
not lessen agency responsibility to exercise due diligence in processing 
requests in the most expeditious manner possible.
    (d) ERS shall process requests in each track on a ``first-in, first-
out'' basis, unless there are unusual circumstances as set forth in 
Sec. 1.16 of this title, or the requester is entitled to expedited 
processing as set forth in Sec. 1.9 of this title.



Sec. 3701.5  Denials.

    If the FOIA Coordinator determines that a requested record is exempt 
from mandatory disclosure and that discretionary release would be 
improper, the FOIA Coordinator shall give written notice of denial in 
accordance with Sec. 1.7(a) of this title.



Sec. 3701.6  Appeals.

    Any person whose request is denied shall have the right to appeal 
such denial. Appeals shall be made in accordance with Sec. 1.14 of this 
title and should be addressed as follows: Administrator, ERS, U.S. 
Department of Agriculture, Washington, DC 20250.



Sec. 3701.7  Requests for published data and information.

    Published data and reports produced by ERS since 1996 are available 
on the ERS Web site at http://www.ers.usda.gov. Searching on the website 
is available by topic, by title, or by date. The titles displayed in the 
search include ERS's separately published research reports as well as 
articles in ERS-produced periodicals. Full text of all the titles are 
available at no cost (usually in PDF Files). Printed copies and reports 
published before 1996 (while supplies last) can be purchased from the 
ERS-NASS sales desk at the National Technical Information Center at 1-
800-999-6779 (8:30 a.m.-5 p.m., Eastern Standard Time, M-F).

                       PARTS 3702	3799 [RESERVED]

[[Page 645]]



    CHAPTER XXXVIII--WORLD AGRICULTURAL OUTLOOK BOARD, DEPARTMENT OF 
                               AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3800            Organization and functions..................         647
3801            Availability of information to the public...         647
3802-3899

 [Reserved]

[[Page 647]]



PART 3800_ORGANIZATION AND FUNCTIONS--Table of Contents



Sec.
3800.1 General.
3800.2 Organization.
3800.3 Functions.
3800.4 Authority to act for the Chairperson.

    Authority: 5 U.S.C. 301 and 552, and 7 CFR 2.72, except as otherwise 
noted.

    Source: 53 FR 5358, Feb. 24, 1988, unless otherwise noted.



Sec. 3800.1  General.

    The World Agricultural Outlook Board (WAOB) was established on June 
3, 1977, by Secretary's Memorandum 1920, entitled ``World Food and 
Agricultural Outlook and Situation Board.'' The primary responsibility 
of WAOB is to coordinate and review all commodity and aggregate 
agricultural and food data and analyses used to develop outlook and 
situation material within the Department of Agriculture.



Sec. 3800.2  Organization.

    The central and only office of WAOB is located in Washington, DC, 
and consists of the Chairperson, Deputy Chairperson, and supporting 
staff.



Sec. 3800.3  Functions.

    The WAOB has four major areas of responsibility:
    (a) Agricultural outlook and situation. (1) Coordinate and review 
all crop and commodity data used to develop outlook and situation 
material within the Department of Agriculture.
    (2) Oversee and clear for consistency of analytical assumptions and 
results, all estimates and analyses which significantly relate to 
international and domestic commodity supply and demand. This includes 
such estimates and analyses prepared for public distribution by the 
Foreign Agricultural Service, the Economic Research Service, or by any 
other agency or office of the Department.
    (3) Participate in planning and developing research programs 
relating to improving the Department's forecasting and estimating 
capabilities.
    (4) Provide liaison between the Department and Commodity Futures 
Trading Commission to assure that the futures market serves the best 
interest of agriculture and the public.
    (5) Plan and participate in Departmental, interdepartmental, 
regional and international outlook conferences and briefings, to 
maintain an awareness of current and upcoming economic issues 
significant to the food and agricultural system.
    (b) Interagency commodity estimates. (1) Establish Interagency 
Commodity Estimates Committees to bring together estimates and analyses 
from supporting agencies and to develop official estimates of supply, 
utilization, and prices for commodities.
    (2) Review for consistency of analytical assumptions and results, 
all proposed decisions made by the Interagency Commodity Estimates 
Committee prior to any release outside the Department.
    (c) Weather and climate. (1) Serve as a focal point within the 
Department for coordination of weather, climate, and related crop 
monitoring activities.

[53 FR 5358, Feb. 24, 1988, as amended at 79 FR 44117, July 30, 2014]



Sec. 3800.4  Authority to act for the Chairperson.

    When the Chairperson is absent or temporarily unavailable, the 
Deputy Chairperson is authorized to act for the Chairperson.



PART 3801_AVAILABILITY OF INFORMATION TO THE PUBLIC--Table of Contents



Sec.
3801.1 General.
3801.2 Public inspection, copying, and indexing.
3801.3 Requests for records.
3801.4 Denials.
3801.5 Appeals.
3801.6 Requests for published data and information.

    Authority: 5 U.S.C. 301 and 552; 7 CFR 1.1-1.23 and Appendix A.

    Source: 53 FR 5358, Feb. 24, 1988, unless otherwise noted.



Sec. 3801.1  General.

    This part is issued in accordance with the regulations of the 
Secretary of Agriculture in Sec. Sec. 1.1-1.23 of this title and 
Appendix A thereto, implementing the Freedom of Information Act (FOIA)

[[Page 648]]

(5 U.S.C. 552), and governs the availability of records of the World 
Agricultural Outlook Board (WAOB) to the public.



Sec. 3801.2  Public inspection, copying, and indexing.

    5 U.S.C. 552(a)(2) requires that certain materials be made available 
for public inspection and copying and that a current index of these 
materials be published quarterly or otherwise be made available. WAOB 
does not maintain any materials within the scope of these requirements.



Sec. 3801.3  Requests for records.

    Requests for records of WAOB shall be made in accordance with Sec. 
1.6 (a) and (b) of this title and addressed to: Economics Agencies FOIA 
Officer, Economics Management Staff, USDA, Room 4310, South Building, 
12th and Independence Avenue SW., Washington, DC 20250. This official is 
delegated authority to make determinations regarding such requests in 
accordance with Sec. 1.3(a)(3) of this title.



Sec. 3801.4  Denials.

    If the Economics Agencies FOIA Officer determines that a requested 
record is exempt from mandatory disclosure and that discretionary 
release would be improper, the Economics Agencies FOIA Officer shall 
give written notice of denial in accordance with Sec. 1.8(a) of this 
title.



Sec. 3801.5  Appeals.

    Any person whose request is denied shall have the right to appeal 
such denial. Appeals shall be in accordance with Sec. 1.6(e) of this 
title and addressed to the Chairperson, World Agricultural Outlook 
Board, U.S. Department of Agriculture, Washington, DC 20250.



Sec. 3801.6  Requests for published data and information.

    Information on published data, subscription rates, and all WAOB 
programs is available from the Chairperson, World Agricultural Outlook 
Board, U.S. Department of Agriculture, Washington, DC 20250.

                       PARTS 3802	3899 [RESERVED]



                         CHAPTER XLI [RESERVED]



[[Page 649]]



  CHAPTER XLII--RURAL BUSINESS-COOPERATIVE SERVICE AND RURAL UTILITIES 
                   SERVICE, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------


  Editorial Note: Nomenclature changes to chapter XLII appear at 61 FR 
3782, Feb. 2, 1996.
Part                                                                Page
4200-4273

 [Reserved]

4274            Direct and insured loanmaking...............         651
4279            Guaranteed loanmaking.......................         676
4280            Loans and grants............................         759
4284            Grants......................................         856
4285            Cooperative agreements......................         908
4287            Servicing...................................         915
4288            Payment programs............................         944
4290            Rural Business Investment Company (``RBIC'') 
                    Program.................................         968
4291-4299

 [Reserved]

[[Page 651]]

                       PARTS 4200	4273 [RESERVED]



PART 4274_DIRECT AND INSURED LOANMAKING--Table of Contents



Subparts A-C [Reserved]

             Subpart D_Intermediary Relending Program (IRP)

Sec.
4274.301 Introduction.
4274.302 Definitions.
4274.303 Review or appeal rights.
4274.304 Exception authority.
4274.305 Other regulatory requirements.
4274.306-4274.309 [Reserved]
4274.310 Eligibility requirements--intermediary.
4274.311 Eligibility requirements--ultimate recipients.
4274.312-4274.319 [Reserved]
4274.320 Loan purposes.
4274.321 Ineligible loan purposes.
4274.322-4274.329 [Reserved]
4274.330 Agency IRP loan conditions and terms.
4274.331 IRP revolving loan fund loan conditions and terms.
4274.332 Post award requirements.
4274.333 Loan agreements between the Agency and the intermediary.
4274.334-4274.339 [Reserved]
4274.340 Application content and submittal.
4274.341 Processing applications for loans.
4274.342-4274.344 [Reserved]
4274.345 Letter of conditions.
4274.346 Agency IRP loan closing.
4274.347-4274.350 [Reserved]
4274.351 Loan approval and obligating funds.
4274.352 Loan documentation for ultimate recipients.
4274.353-4274.359 [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1932 note; 7 U.S.C. 1989.

    Source: 63 FR 6053, Feb. 6, 1998, unless otherwise noted.

Subparts A-C [Reserved]



             Subpart D_Intermediary Relending Program (IRP)

    Source: 86 FR 72156, Dec. 21, 2021, unless otherwise noted.



Sec. 4274.301  Introduction.

    (a) This subpart contains regulations for loans made by the Agency 
to eligible intermediaries. This applies to borrowers, ultimate 
recipients and other parties involved in making such loans. The 
provisions of this subpart supersede conflicting provisions of any other 
subpart. All complete applications received before December 21, 2021 
will be processed, awarded, and serviced in accordance with the existing 
regulatory provisions in effect at the complete application date for the 
program under which the application was submitted. An intermediary 
borrower may use the Agency-prescribed self-election template, available 
at the USDA Rural Development website under ``Details'' in the RBCS IRP 
program section to have its existing loans, and any loans approved under 
the previous regulation but not yet closed, serviced under these 
provisions.
    (b) The purpose of the program is to alleviate poverty and increase 
economic activity and employment in rural communities, especially 
disadvantaged and remote communities in partnership with other public 
and private resources, and in accordance with State and regional 
strategy based on identified community needs. This purpose is achieved 
through loans made to intermediaries that establish a revolving loan 
fund for the purpose of providing loans to ultimate recipients to 
promote community development, establish new businesses, establish and 
support microlending programs, and create or retain employment 
opportunities in rural areas.
    (c) Intermediaries are required to identify any known relationship 
or association with an Agency employee. Any processing or servicing 
Agency activity conducted pursuant to this subpart involving authorized 
assistance to Agency employees, members of their families, close 
relatives, or business or close personal associates, is subject to the 
provisions of 7 CFR part 1900, subpart D.
    (d) Copies of all forms, regulations, and Agency procedures 
referenced in this subpart are available at USDA Rural Development's 
website under the ``Resources'' section, in the Rural Development 
National Office, or any Agency State Office.



Sec. 4274.302  Definitions.

    The following definitions are applicable to the terms used in this 
subpart.

[[Page 652]]

    Administrator. The Administrator of the Rural Business-Cooperative 
Service within the Rural Development mission area of the U.S. Department 
of Agriculture (USDA).
    Affiliate. Affiliate means individuals and entities are affiliates 
of each other when:
    (1) One controls or has the power to control the other, or a third 
party or parties controls or has the power to control both. Factors such 
as ownership, management, current and previous relationships with or 
ties to another concern, and contractual relationships, shall be 
considered in determining whether affiliation exists. It does not matter 
whether control is exercised, so long as the power to control exists. 
Concerns owned and controlled by Indian Tribes, Alaska Native 
Corporations (ANC), Native Hawaiian Organizations (NHO), Community 
Development Corporations (CDC), or wholly-owned entities of Indian 
Tribes, ANCs, NHOs, or CDCs, are not considered to be affiliated with 
other concerns owned by these entities because of their common ownership 
or common management.
    (2) There is an identity of interest between immediate family with 
identical or substantially identical business or economic interests 
(such as where the immediate family operate concerns in the same or 
similar industry in the same geographic area); however, an individual or 
entity may rebut that determination with evidence showing that the 
interests deemed to be one are in fact separate.
    Agency. The Rural Business-Cooperative Service (RBCS) that has the 
responsibility to administer the Intermediary Relending Program (IRP).
    Agency IRP loan. An IRP loan from the Agency to an intermediary with 
established terms and evidenced by a loan agreement and promissory note 
between parties.
    Agency IRP loan funds. Cash proceeds of an Agency IRP loan received 
by an intermediary are considered Agency IRP loan funds.
    Agricultural production or agriculture production. The cultivation, 
growing, or harvesting of plants and crops (including farming) breeding, 
raising, feeding, or housing of livestock (including ranching); forestry 
products, hydroponics, or nursery stock; or aquaculture.
    Aquaculture. The commercial cultivation of aquatic animals and 
plants in natural or controlled marine or freshwater environments.
    Citizen. An individual who is a citizen of the United States or 
resides in any State in the United States after being legally admitted 
for permanent residence.
    Community development. Advancing livable and vibrant communities 
through coordinated approaches to economic, environmental, and human 
development by means of comprehensive business-based technical and 
financial assistance.
    Conflict of interest. A situation in which a person or entity has 
competing personal, professional, or financial interests that make it 
difficult for the person or business to act impartially, or there is a 
real or perceived benefit from engaging in certain projects or 
transactions. Regarding use of both grant and matching funds, Federal 
procurement standards prohibit transactions that involve a real or 
apparent conflict of interest for owners, employees, officers, agents, 
their immediate family members, partners, or an organization which is 
about to employ any of the parties indicated herein, having a financial 
or other interest in or tangible personal benefit from the outcome of 
the project; or that restrict open and free competition for unrestrained 
trade. Specifically, project funds may not be used for services or goods 
going to, or coming from, a person or entity with a real or apparent 
conflict of interest, including, but not limited to, owner(s) and their 
immediate family members and as stated in Sec. 4274.321(b)(4).
    Cooperative. An entity that is legally chartered by a State in which 
it operates as a cooperatively-operated business, or an entity that is 
not legally chartered as a cooperative but is owned and operated for the 
benefit of its members, with the return of residual earnings paid to 
such members on the basis of patronage.
    Hydroponics. The commercial cultivation of plants by placing the 
roots in

[[Page 653]]

liquid nutrient solutions rather than in soil.
    Immediate family. Individuals who live in the same household or who 
are closely related by blood, marriage, or adoption, such as a spouse, 
domestic partner, parent, child, stepchild, sibling, aunt, uncle, 
grandparent, grandchild, niece, nephew, or first cousin.
    Indian tribe. The term as defined in 25 U.S.C. 5304(e); any Indian 
tribe, band, nation, or other organized group or community, including 
any Alaska Native village or regional or village corporation as defined 
in or established pursuant to the Alaska Native Claims Settlement Act 
(85 Stat. 688) [43 U.S.C. 1601 et seq.], which is recognized as eligible 
for the special programs and services provided by the United States to 
Indians because of their status as Indians.
    Intermediary. The entity requesting or receiving, as applicable, 
Agency IRP loan funds for establishing or recapitalizing an IRP 
revolving loan fund and relending to ultimate recipients.
    Intermediary equity contribution. Represents an intermediary's 
investment in the IRP revolving loan fund, in the form of cash and 
unencumbered ownership in an amount determined by the applicant. This 
must be contributed to the IRP revolving loan fund prior to, or 
concurrently to, the disbursement of Agency IRP loan funds from the 
Agency. This contribution becomes restricted and must remain as equity 
in the IRP revolving loan fund subject to the provisions of Sec. Sec. 
4274.332(d) and 4274.341(b)(1) and (2).
    IRP revolving loan fund. A group of assets:
    (1) Obtained through or related to an Agency IRP loan; and
    (2) Accounted for, along with related liabilities, revenues, and 
expenses, as an entity or enterprise separate from the intermediary's 
other assets and financial activities.
    Loan agreement. The agreement, which utilizes the requisite OMB-
approved form, between the Agency and the intermediary setting forth the 
terms and conditions of the Agency IRP loan.
    Military personnel. Individuals currently on active duty in the 
regular service, having enlisted from civilian or Reserve Officers' 
Training Corps status, or individuals on active duty in the regular 
service with more than six months until their anticipated date of 
release from service.
    Principals of intermediary. Members, officers, directors, and other 
individuals or entities directly involved in the operation and 
management, including those setting policy, of an intermediary.
    Public agency. Any State, Indian Tribal or local government, or any 
branch or agency of such government having authority to act on behalf of 
that government, to borrow funds and engage in activities eligible for 
funding under this subpart.
    Revolved funds. The cash portion of an IRP revolving loan fund that 
includes fees, principal, and interest payments received from ultimate 
recipients and is not composed of any Agency IRP loan funds.
    Rural or rural area. Any area of a State not in a city or town that 
has a population of more than 50,000 inhabitants, and which excludes 
certain populations pursuant to 7 U.S.C. 1991(a)(13)(H) and (I), 
according to the latest decennial census of the United States and not in 
the urbanized area contiguous and adjacent to a city or town that has a 
population of more than 50,000 inhabitants. In making this 
determination, the Agency will use the latest decennial census of the 
United States. The following exclusions apply:
    (1) Any area in the urbanized area contiguous and adjacent to a city 
or town that has a population of more than 50,000 inhabitants that has 
been determined to be ``rural in character'' as follows:
    (i) The determination that an area is ``rural in character'' will be 
made by the Under Secretary of Rural Development. The process to request 
a determination under this provision is outlined in paragraph (1)(ii) of 
this definition. The determination that an area is ``rural in 
character'' under this definition will apply to areas that are within:
    (A) An urbanized area that has two points on its boundary that are 
at least 40 miles apart, which is not contiguous or adjacent to a city 
or town that has

[[Page 654]]

a population of greater than 150,000 inhabitants or the urbanized area 
of such a city or town; or
    (B) An urbanized area contiguous and adjacent to a city or town of 
greater than 50,000 inhabitants that is within \1/4\ mile of a rural 
area.
    (ii) Units of local government may petition the Under Secretary of 
Rural Development for a ``rural in character'' designation by submitting 
a petition to the appropriate Rural Development State Director for 
recommendation to the Administrator on behalf of the Under Secretary. 
The petition shall document how the area meets the requirements of 
paragraph (1)(i)(A) or (B) of this definition and discuss why the 
petitioner believes the area is ``rural in character,'' including, but 
not limited to, the area's population density, demographics, and 
topography and how the local economy is tied to a rural economic base. 
Upon receiving a petition, the Under Secretary will consult with the 
applicable governor or leader in a similar position and request comments 
to be submitted within five business days, unless such comments were 
submitted with the petition. The Under Secretary will release to the 
public a notice of a petition filed by a unit of local government not 
later than 30 days after receipt of the petition by way of publication 
in a local newspaper and posting on the Rural Development State Office 
website and the Under Secretary will make a determination not less than 
15 days, but no more than 60 days, after the release of the notice. Upon 
a negative determination, the Under Secretary will provide to the 
petitioner an opportunity to appeal a determination to the Under 
Secretary, and the petitioner will have 10 business days to appeal the 
determination and provide further information for consideration. The 
Under Secretary will make a determination of the appeal in not less than 
15 days, but no more than 30 days.
    (iii) Rural Development State Directors may also initiate a request 
to the Under Secretary to determine if an area is ``rural in 
character.'' A written recommendation should be sent to the 
Administrator, on behalf of the Under Secretary, that documents how the 
area meets the statutory requirements of paragraph (1)(i)(B) of this 
definition and discusses why the State Director believes the area is 
``rural in character,'' including, but not limited to, the area's 
population density, demographics, topography, and how the local economy 
is tied to a rural economic base. Upon receipt of such a request, the 
Administrator will review the request for compliance with the ``rural in 
character'' provisions and make a recommendation to the Under Secretary. 
Provided a favorable determination is made, the Under Secretary will 
consult with the applicable Governor and request comments within 10 
business days, unless gubernatorial comments were submitted with the 
request. A public notice will be published by the State Office in 
accordance with paragraph (1)(ii) of this definition. There is no appeal 
process for requests made on the initiative of the State Director.
    (2) An area that is attached to the urbanized area of a city or town 
with more than 50,000 inhabitants by a contiguous area of urbanized 
census blocks that is not more than two census blocks wide. Applicants 
from such an area should work with their Rural Development State Office 
to request a determination of whether their project is located in a 
rural area under this provision.
    (3) For the Commonwealth of Puerto Rico, the island is considered 
rural and eligible except for the San Juan Census Designated Place (CDP) 
and any other CDP with greater than 50,000 inhabitants. Areas within 
CDPs with greater than 50,000 inhabitants, other than the San Juan CDP, 
may be determined to be Rural if they are not urban in character.
    (4) For the State of Hawaii, all areas within the State are 
considered rural and eligible except for the Honolulu CDP within the 
County of Honolulu and any other CDP with greater than 50,000 
inhabitants. Areas within CDPs with greater than 50,000 inhabitants, 
other than the Honolulu CDP, may be determined to be Rural if they are 
not urban in character.
    (5) For the purpose of defining a rural area in the Republic of 
Palau, the Federated States of Micronesia, and the Republic of the 
Marshall Islands, the

[[Page 655]]

Agency shall determine what constitutes rural and rural area based on 
available population data.
    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the Republic of Palau, the 
Federated States of Micronesia, and the Republic of the Marshall 
Islands.
    Technical assistance. A function performed for the benefit of an 
ultimate recipient, or proposed ultimate recipient, that is a problem-
solving activity that assists the ultimate recipient in selecting, 
initiating, or completing a project. The Agency will determine whether a 
specific activity qualifies as technical assistance.
    Ultimate recipient. An entity or individual that receives a loan 
from an intermediary's IRP revolving loan fund.
    Underrepresented group. U.S. citizens with identifiable common 
characteristics, (including, but not limited to, racial and ethnic 
minorities, disabled and/or gender) that have not received IRP 
assistance or have received a lower percentage of total IRP dollars than 
the percentage they represent of the general population.
    Value-added agricultural product. Any agricultural commodity that 
meets the requirements specified here. The agricultural commodity must 
meet one of the following value-added methodologies:
    (1) Has undergone a change in physical state;
    (2) Is a source of farm or ranch-based renewable energy; or
    (3) Is aggregated and marketed as a locally produced agricultural 
food product.
    Work plan. A narrative provided by the intermediary that 
demonstrates the feasibility of the intermediary and its lending program 
to meet the objectives of the IRP program, including a set of goals, 
strategies, anticipated outcomes, and well-developed targeting criteria 
for assisting eligible ultimate recipients.

[86 FR 72156, Dec. 21, 2021, as amended at 87 FR 38644, June 29, 2022]



Sec. 4274.303  Review or appeal rights.

    An intermediary may have appeal or review rights for adverse Agency 
decisions made under this part. Agency decisions that are adverse to the 
individual participant are appealable, while matters of general 
applicability are not subject to appeal; however, such decisions are 
reviewable for appealability by the National Appeals Division (NAD). All 
appeals will be conducted by NAD and will be handled in accordance with 
7 CFR part 11.



Sec. 4274.304  Exception authority.

    The Administrator may, on a case-by-case basis, grant an exception 
to any requirement or provision of this subpart provided that such an 
exception is in the best financial interests of the Federal government. 
Exercise of this authority cannot be in conflict with applicable law.



Sec. 4274.305  Other regulatory requirements.

    (a) Intergovernmental consultation. The approval of an Agency IRP 
loan to an intermediary is subject to intergovernmental consultation in 
accordance with Executive Order 12372. For ultimate recipients located 
in States where the State has elected to review the program under the 
intergovernmental review process, in accordance with Executive Order 
12372, the intermediary and ultimate recipient must submit a 
notification in the form of a project description to the State single 
point of contact. The intermediary must include any comments from the 
State with the intermediary's request to use the Agency IRP loan funds 
for the ultimate recipient. Prior to the Agency's decision on the 
request, the ultimate recipient must demonstrate compliance with the 
requirements of intergovernmental consultation. These requirements are 
set forth in 2 CFR part 415, subpart C, General Program Administrative 
Regulations.
    (b) Environmental requirements. The requirements of 7 CFR part 1970 
apply to this subpart. Intermediaries and ultimate recipients must 
consider the potential environmental impacts of their projects at the 
earliest planning stages and develop plans in order to minimize the 
potential to adversely impact the

[[Page 656]]

environment. Both the intermediaries and the ultimate recipients must 
cooperate and furnish such information and assistance as the Agency 
needs to make any of its environmental determinations.
    (1) All IRP loans between the Agency and the intermediary are 
considered categorical exclusions absent the existence of extraordinary 
circumstances in accordance with 7 CFR part 1970. All intermediaries 
must execute an Exhibit H, ``Multi-tier Action Environmental Compliance 
Agreement,'' to RD Instruction 1970-A as part of their IRP application 
submitted to the Agency. The intermediary must sign a certification that 
they have National Environmental Policy Act (NEPA) staff capable of 
undertaking an environmental review that meets Agency standards. For 
intermediaries that don't have capable staff, the Agency will deliver 
sufficient training to intermediaries on the environmental process and 
how to determine whether an ultimate recipient project is a categorical 
exclusion or requires an environmental assessment and review.
    (2) For each proposed loan from an intermediary to an ultimate 
recipient using Agency IRP loan funds, an environmental review will be 
completed in accordance with 7 CFR 1970.55. For projects that do not 
qualify for a categorical exclusion, or which may be subject to an 
extraordinary circumstance under 7 CFR 1970.52, the intermediary will 
refer the project to the Agency for review under 7 CFR part 1970, 
subpart C. The intermediary retains responsibility for providing 
sufficient information for the Agency to make an environmental 
determination, though Agency staff may also opt to complete the 
environmental review with information provided by either the 
intermediary or ultimate recipient.
    (3) The Agency will prepare an environmental impact statement for 
any application for a loan from Agency IRP loan funds determined to have 
a significant adverse effect on the quality of the human environment.
    (c) Equal opportunity and nondiscrimination requirements. In 
accordance with Title V of Public Law 93-495, the Equal Credit 
Opportunity Act, and section 504 of the Rehabilitation Act for Federally 
Conducted Programs and Activities, neither the intermediary nor the 
Agency will discriminate against any employee, intermediary, or proposed 
ultimate recipient on the basis of sex, marital status, race, color, 
religion, national origin, age, physical or mental disability (provided 
the intermediary or proposed ultimate recipient has the capacity to 
contract), because all or part of the intermediary's or proposed 
ultimate recipient's income is derived from public assistance of any 
kind, or because the intermediary or proposed ultimate recipient has in 
good faith exercised any right under the Consumer Credit Protection Act, 
with respect to any aspect of a credit transaction anytime any cash of 
the IRP revolving loan fund is involved.
    (1) The civil rights compliance requirements contained in 7 CFR part 
1901, subpart E, apply to intermediaries and ultimate recipients.
    (2) The Agency will ensure that equal opportunity and 
nondiscrimination requirements are met in accordance with the Equal 
Credit Opportunity Act, Title VI of the Civil Rights Act of 1964, 
``Nondiscrimination in Federally Assisted Programs,'' 42 U.S.C. 2000d-4, 
Sec. 504 of the Rehabilitation Act for Federally Conducted Programs and 
Activities, the Age Discrimination Act of 1975, and the Americans With 
Disabilities Act of 1990 (as amended).
    (d) Seismic safety of new building construction. The IRP is subject 
to the provisions of Executive Order 12699, which require each Federal 
agency assisting in the financing, through Federal grants or loans, or 
guaranteeing the financing, through loan or mortgage insurance programs, 
of newly constructed buildings to assure appropriate consideration of 
seismic safety.
    (1) All new buildings financed from the IRP revolving loan fund, 
whether directly or through participations, must be designed and 
constructed in accordance with the seismic provisions of the most 
current version of the International Building Code (IBC) or two versions 
prior; currently that is 2021 IBC, 2018 IBC or 2015 IBC, or an above-
code seismic standard that meets or exceeds the equivalent level

[[Page 657]]

of safety to that contained in the latest edition of the National 
Earthquake Hazard Reduction Programs (NEHRP) Recommended Provisions for 
the Development of Seismic Regulations for New Building (NEHRP 
Provisions.)
    (2) The date, signature, and seal of a registered architect or 
engineer and the identification and date of the model building code on 
the plans and specifications constitutes evidence of compliance with the 
seismic requirements of the appropriate code.



Sec. 4274.306-Sec. 4274.309  [Reserved]



Sec. 4274.310  Eligibility requirements--intermediaries.

    To be eligible to receive an Agency IRP loan, an intermediary must 
comply with the requirements specified in paragraphs (a) through (i) of 
this section.
    (a) Type of entity. The intermediary must be one of the following 
types of entities:
    (1) A private nonprofit corporation;
    (2) A public agency;
    (3) An Indian Tribe; or
    (4) A cooperative.
    (b) Legal authority. The intermediary must have the legal authority 
necessary for carrying out the proposed loan purposes and for obtaining, 
giving security for, and repaying the proposed loan. If the intermediary 
is an affiliate of another entity, the intermediary's governing board 
must be independent of the affiliated entity.
    (c) Proven record. The intermediary must have a proven lending 
record of successfully assisting rural business and industry or, for 
intermediaries that propose to finance community development, a proven 
lending record of successfully assisting rural community development 
projects of the type planned. The intermediary must have the capacity to 
conduct outreach and marketing, the underwriting of loan applications, 
and provide the servicing and monitoring of its proposed IRP portfolio.
    (1) Except as provided in paragraph (c)(2) of this section, such 
record must include recent experience in loan making and servicing with 
loans that are similar in nature to those proposed by the intermediary 
and a delinquency and loss rate acceptable to the Agency. Any request 
for an exception must be specifically addressed in the loan application 
and be supported with concluding statements that relate to the items 
specified in paragraphs (c)(2)(i) and (ii) of this section.
    (2) The Agency may approve an exception to the requirement for loan 
making and servicing experience provided the intermediary:
    (i) Itself has a proven record of successfully assisting (other than 
through lending) rural business and industry or rural community 
development projects through technical assistance or business 
development projects to the type and size of planned ultimate recipient 
borrowers; and
    (ii) Will, before the loan is closed, employ individuals with loan 
making and servicing experience and qualifications and expertise for the 
operation and administration of an IRP revolving loan fund as described 
in Sec. 4274.340(a)(1)(ii). These shall not include contracted staff 
and staff from affiliates of the intermediary.
    (d) Staff. The intermediary itself must employ a staff with loan 
making and servicing expertise acceptable to the Agency. The 
intermediary may contract for general services, such as, clerical, 
administrative, and accounting services, and loan packaging. The 
intermediary may not routinely contract their lending outreach, loan 
underwriting, management, or day-to-day operations. Essential activities 
of a business lending operation and the administration of the IRP 
revolving loan fund must be conducted in-house.
    (e) Capitalization/equity. The intermediary's balance sheet must 
have capitalization or equity acceptable to the Agency and deemed 
sufficient to sustain its lending and business operations.
    (f) Citizens. At least 51 percent of the outstanding interest or 
membership in any nonpublic body intermediary must be composed of 
citizens.
    (g) Delinquent debt. An intermediary is ineligible to receive an 
Agency IRP loan if the intermediary or any principal of the intermediary 
has any delinquent debt to the Federal government. Agency IRP loan funds 
cannot be used to satisfy the delinquent debt.

[[Page 658]]

    (h) Conditions. No loans will be extended to an intermediary unless:
    (1) There is adequate assurance of repayment of the loan based on 
the fiscal and managerial capabilities of the intermediary itself; and
    (2) The amount of the loan, together with other funds available, is 
adequate to ensure the continuation or establishment of an effective IRP 
revolving loan fund or achieve the purposes for which the loan is made.
    (i) Other financing unavailable. The intermediary must be unable to 
finance the continuation or establishment of an effective IRP revolving 
loan fund from its own resources, or through commercial credit, or from 
other Federal, State, or local programs at reasonable rates and terms.
    (j) Restrictions. Intermediaries established for the purpose of, or 
that predominantly use IRP loan funds for, the financial benefit of an 
affiliate through loan participations or other funding methods will not 
be allowed.



Sec. 4274.311  Eligibility requirements--ultimate recipients.

    To be eligible for a loan from an intermediary under this subpart, 
an ultimate recipient must meet or comply with the requirements 
specified in paragraphs (a) through (g) of this section.
    (a) Type of entity. The ultimate recipient must be a legal entity 
that can incur debt, including but not limited to, an individual; a 
public organization; a private organization; or other legal entity.
    (b) Legal authority. The ultimate recipient must have the legal 
authority to incur the debt and carry out the purpose of the loan.
    (c) Citizens. An individual ultimate recipient must be a citizen. In 
the case of an entity ultimate recipient, at least 51 percent of the 
outstanding membership or ownership of the entity must be citizens.
    (d) Location. The ultimate recipient project must be located in an 
eligible rural area, although funds may also be used for community 
projects that predominantly serve rural residents of a State. 
Predominantly serves means more than 50 percent of the ultimate 
recipient's service is to rural residents of a State.
    (e) Other financing unavailable. The ultimate recipient must be 
unable to finance the entirety of the proposed project from its own 
resources, or through commercial credit or from other Federal, State, or 
local programs at reasonable rates and terms.
    (f) Legal or financial influence. (1) The intermediary and its 
principals (including immediate families) must hold no legal or 
financial interest or influence in or with the ultimate recipient as 
this is considered a conflict of interest, as defined. However, this 
paragraph does not prevent an intermediary that is organized as a 
cooperative from making a loan to one of its members per Sec. 
4274.321(b)(4) of this subpart.
    (2) The ultimate recipient must, along with its principals 
(including their immediate families), hold no legal or financial 
interest or influence in or with the intermediary as per Sec. 
4274.321(b)(4) as this is considered a conflict of interest, as defined.
    (g) Delinquent debt. An ultimate recipient is ineligible to receive 
a loan from IRP loan funds if the ultimate recipient or any of its 
principals has any federal delinquent debt or is debarred from engaging 
in business with the Federal government. IRP loan funds may not be used 
to satisfy any Federal delinquent debt or used to make an otherwise 
ineligible ultimate recipient eligible for IRP loan funds.
    (h) Fund usage. Ultimate recipients must demonstrate, to the 
Agency's satisfaction, that loan funds will remain in the United States 
and the facility being financed will primarily create new or save 
existing jobs for rural U.S. residents.



Sec. 4274.312-Sec. 4274.319  [Reserved]



Sec. 4274.320  Loan purposes.

    (a) Agency IRP loans. The intermediary must deposit the Agency IRP 
loans into the intermediary's IRP revolving loan fund to provide loans 
directly to eligible ultimate recipients or in cooperation with banks 
and other lending organizations through loan participation agreements.
    (b) IRP revolving loan fund loans. Ultimate recipients receiving 
loans from

[[Page 659]]

an IRP revolving loan fund must use those loans for business or 
community development projects and for projects that predominately serve 
communities and residents in rural areas.
    (1) The Secretary may relend funds to eligible intermediaries for 
projects that:
    (i) Promote community development;
    (ii) Establish new businesses;
    (iii) Establish and support microlending programs; and
    (iv) Create or retain employment opportunities.
    (2) Such loan purposes may include, but are not limited to, those 
purposes identified in paragraphs (b)(2)(i) through (xx) of this 
section.
    (i) Business and industrial acquisitions when the loan will keep the 
business from closing, prevent the loss of employment opportunities, or 
provide expanded job opportunities.
    (ii) Business construction, conversion, enlargement, repair, 
modernization, or development.
    (iii) Purchase and development of land, easements, rights-of-way, 
buildings, facilities, leases, or materials.
    (iv) Purchase of equipment, leasehold improvements, machinery, or 
supplies.
    (v) Pollution control and abatement.
    (vi) Transportation services.
    (vii) Start-up operating costs and working capital.
    (viii) Interest (including interest on interim financing) during the 
period before the facility becomes income producing, but not to exceed 
three years.
    (ix) Feasibility studies.
    (x) Debt refinancing.
    (A) The intermediary is responsible for making prudent lending 
decisions based on sound underwriting principles when considering the 
restructuring of an ultimate recipient's debt.
    (B) Refinancing debts may be allowed only when it is determined by 
the intermediary that the project is viable, and refinancing is 
necessary to create new or save existing jobs or create or continue a 
needed service.
    (xi) Reasonable fees and charges to the ultimate recipient are 
allowed only as specifically listed in this paragraph. Authorized fees 
include loan documentation and fees for recording a collateral lien, 
environmental data collection fees, management consultant fees, and 
other fees for services rendered by professionals in relation to the 
loan project. Professionals are generally persons licensed by States or 
accreditation associations, such as engineers, architects, lawyers, 
accountants, and appraisers. Additional charges to the ultimate 
recipient, whether by a fee or interest rate increase, for an 
intermediary's costs related to loan participations are not allowed. In 
addition, the intermediary shall not be charged fees related to the 
purchase or sale of a loan participation. The maximum amount of any fee 
will be what is reasonable and customary in the community or region 
where the project is located; provided, however, that all costs must be 
actual costs and shall not be marked-up beyond actual cost. Any such 
fees or charges are to be fully documented and justified.
    (xii) Hotels, motels, tourist homes, bed and breakfast 
establishments, nonowner-occupied real estate, convention centers, and 
other tourist and recreational facilities except as prohibited by Sec. 
4274.321. These types of facilities are allowed when the pro rata value, 
supported by an analysis of the supporting real estate appraisal, of the 
owner's living quarters is deleted from the appraised value.
    (xiii) Educational institutions.
    (xiv) Revolving lines of credit provided the portion of the 
intermediary's total IRP revolving loan fund that is committed to, or in 
use for revolving lines of credit, will not exceed 25 percent at any 
time.
    (A) All ultimate recipients receiving revolving lines of credit must 
reduce the outstanding balance of the revolving line of credit to zero 
at least once each year.
    (B) The intermediary must approve all revolving lines of credit for 
a specific maximum amount and for a specific maximum time period, not to 
exceed two years.
    (C) The intermediary must provide a detailed description, which will 
be incorporated into the intermediary's work plan and be subject to 
Agency approval, of how the revolving lines of credit will be operated 
and managed. The description must include evidence that the intermediary 
has an adequate system for:

[[Page 660]]

    (1) Interest calculations on varying balances; and
    (2) Monitoring and control of the ultimate recipients' cash, 
inventory, and accounts receivable.
    (D) If, at any time, the Agency determines that an intermediary's 
operation of revolving lines of credit is causing excessive risk of loss 
for the intermediary or the government, the Agency may terminate the 
intermediary's authority to use the IRP revolving loan fund for 
revolving lines of credit. Such termination will be by written notice 
and will prevent the intermediary from approving any new lines of credit 
or extending any existing revolving lines of credit beyond the effective 
date of termination contained in the notice.
    (xv) Aquaculture and hydroponics, as defined in this subpart.
    (xvi) Commercial fishing.
    (xvii) Commercial nurseries engaged in the production of ornamental 
plants and trees and other nursery products such as bulbs, flowers, 
shrubbery, flower and vegetable seeds, sod, and the growing of plants 
from seed to the transplant stage.
    (xviii) Forestry, which includes businesses primarily engaged in the 
commercial operation of timber tracts, tree farms, and forest nurseries 
and related activities such as reforestation.
    (xix) Value-added production.
    (xx) Housing, only when related to community development projects 
and, limited to working capital, equipment, pre-business development 
costs, and other such business purposes. Agency IRP loan funds may be 
used to assist a housing project planner, a housing project builder, a 
construction sub-contractor (indirect soft costs such as architectural, 
engineering and legal fees), or for any other business-related aspect of 
a housing project that is separate from the sale and/or purchase 
transaction involved in transferring ownership of a single or multi-
family dwelling. While the proceeds from a sale might be used by an 
ultimate recipient to repay an Agency IRP loan, an Agency IRP loan 
cannot be used to finance a residential housing purchase. Agency IRP 
loans may not be used to assist in the purchase of residential housing 
(single, multiple dwelling, etc.) as financial assistance moves outside 
of community development when the financial assistance (a mortgage loan) 
is requested for a purchase.
    (c) Participations. (1) Loans made to eligible ultimate recipients 
by eligible intermediaries in cooperation with banks and other 
organizations through loan participation agreements shall be considered 
an eligible loan to an ultimate recipient for the purposes of this 
program. Loan participations are allowed in the IRP program, subject to 
the provisions of this regulation, with the intent to assist 
intermediaries in the management of their revolving loan fund, to meet 
the needs of larger ultimate recipient projects, and to promote 
cooperation in community projects where multiple lenders may be 
involved. In a participation, the lead (originating) bank retains a 
partial interest in the loan, holds all loan documentation in its own 
name, services the loan, and deals directly with the customer for the 
benefit of all participants. All loan participants share in the credit 
risk of the associated loan up to the amount of their participation.
    (2) Loan participant buyers are able to compensate for low loan 
demand or invest in large loans without servicing burdens and 
origination costs. Lenders selling loan participations can accommodate a 
larger credit while mitigating some of the risk by reducing their credit 
exposure.
    (3)(i) Participation agreements between the lead lender and buying 
participants are executed with each transaction and must address, among 
other items:
    (A) The obligation of the lead lender to furnish timely credit 
information and to provide notification of material changes in the 
borrower's status;
    (B) Requirements that the lead lender consult with participants and 
obtain their consent prior to modifying any loan, guaranty, or security 
agreements and before taking any action on defaulted loans; and
    (C) The specific rights and remedies available to the lead and 
participating lenders upon default of the borrower.
    (ii) A Master (open ended) participation agreement between the 
intermediary and any lender is not allowed.

[[Page 661]]

All loans made through use of participation agreements must be to 
eligible ultimate recipients and for eligible purposes. The ultimate 
recipients, lead lender and all participating lenders must agree to be 
bound by the applicable requirements of this regulation.
    (4) Participation in loans where 50 percent or more of the loan 
funds are used to refinance a lead lender's existing loans to the 
borrower are ineligible. The Agency does not consider take out or 
terming out a construction loan as refinancing.
    (5) No more than 50 percent of an intermediary's loan funds may be 
used to purchase loans from any individual lender or affiliation of 
lenders, to prevent an exclusive relationship with a lender or lender 
holding company. Likewise, no more than 50 percent of the total 
intermediary loans to ultimate recipients may be sold or participated to 
an individual lender or affiliation of lenders. An exception to these 
limits may be requested by the intermediary and is subject to review by 
the Agency of the intermediary's lending portfolio, credit quality and 
overall use of loan participations.



Sec. 4274.321  Ineligible loan purposes.

    (a) Agency IRP loans. The intermediary cannot use Agency IRP loan 
funds to pay for its administrative costs and expenses.
    (b) IRP revolving loan fund loans. IRP revolving loan fund loans 
cannot be used for any of the purposes identified in paragraphs (b)(1) 
through (13) of this section.
    (1) Assistance in excess of what is needed to accomplish the purpose 
of the ultimate recipient's project.
    (2) Distribution, payment, or loans to the owner, partners, 
shareholders, or beneficiaries of the ultimate recipient or members of 
their families when such persons will retain any portion of their 
equity, or control, in the ultimate recipient. This is not intended to 
prevent the sale of a business among immediate family members as long as 
the selling immediate family member does not retain an ownership 
interest and the price paid is deemed to be reasonable. This type of 
transaction is not an arm's length transaction and reasonableness of the 
price paid will be based upon an appraisal acceptable to the Agency.
    (3) Charitable institutions and fraternal organizations that would 
not have revenue from sales, fees, or stable revenue source to support 
their operation and repay the loan.
    (4) Assistance to Federal government employees, active-duty military 
personnel, employees of the intermediary, or any organization for which 
such persons are directors or officers or have 20 percent or more 
ownership.
    (5) A loan to an ultimate recipient that has an application pending 
with or a loan outstanding from another intermediary involving an IRP 
revolving loan fund if the total Agency IRP loans would exceed the 
limits established in Sec. 4274.331(c).
    (6) Agricultural production. For the purposes of this program, 
Agricultural production does not include those activities specifically 
listed as eligible uses of IRP revolving loan fund loans in Sec. 
4274.320(b)(15) through (19).
    (7) The transfer of ownership unless the loan will keep the business 
from closing, prevent the loss of employment opportunities in the area, 
or provide expanded job opportunities.
    (8) Community antenna television services or facilities.
    (9) Any illegal activity.
    (10) Any project that is in violation of either a Federal, State, or 
local environmental protection law or regulation or an enforceable land 
use restriction unless the assistance given will result in curing or 
removing the violation.
    (11) Loans to lending and investment institutions and insurance 
companies.
    (12) Golf courses, racetracks, or gambling facilities.
    (13) An entity is ineligible if it derives more than 15 percent of 
its annual gross revenue (including any lease income from space or 
machines) from gambling activity, excluding State-authorized lottery 
proceeds or Tribal-authorized gambling proceeds, as approved by the 
Agency, conducted for the purpose of raising funds for the approved 
project.

[[Page 662]]



Sec. 4274.322-Sec. 4274.329  [Reserved]



Sec. 4274.330  Agency IRP loan conditions and terms.

    (a) Revolving fund. The intermediary must place Agency IRP loan 
funds in the intermediary's IRP revolving loan fund, and these funds 
must only be used to provide loans to eligible ultimate recipients per 
Sec. 4274.320(a).
    (b) Loan closing. Loan closing between the intermediary and the 
Agency must take place within six months of loan approval and obligation 
of funds, or funds will be forfeited, and the Agency will deobligate the 
loan.
    (c) Term. The Agency IRP maximum loan term will be 30 years. 
Principal and interest payments will be scheduled at least annually. All 
Agency IRP loans will have interest-only payments scheduled for a 
maximum of the first three years following the loan closing. An 
intermediary may request a shorter interest-only period during the 
application process. All Agency IRP loans will automatically, fully 
amortize with principal and interest payments due in the fourth year on 
the anniversary of the closing date. The Agency IRP loan will fully 
amortize based on the total amount of the loan.
    (d) Interest rate. The interest rate for an Agency IRP loan will be 
a fixed rate of one percent per annum over the term of the loan.
    (e) Security. Security for all Agency IRP loans to intermediaries 
must ensure that the repayment of the loan is reasonably assured, when 
considered along with the intermediary's financial condition, work plan, 
and management ability. The intermediary is responsible for making loans 
to ultimate recipients in a manner that fully protects the interests of 
the intermediary and the Federal Government.
    (1) Security for such loans may include, but is not limited to:
    (i) Any realty, personalty, or intangible asset capable of being 
mortgaged, pledged, or otherwise encumbered by the intermediary in favor 
of the Agency; and
    (ii) Any realty, personalty, or intangible asset capable of being 
mortgaged, pledged, or otherwise encumbered by an ultimate recipient in 
favor of the Agency.
    (2) Initial security will consist of a pledge by the intermediary of 
all assets now in or hereafter placed in the IRP revolving loan fund, 
including cash and investments, notes receivable from ultimate 
recipients, and the intermediary's security interest in collateral 
pledged by ultimate recipients. Except for good cause shown, the Agency 
will not obtain assignments of specific assets at the time a loan is 
made to an intermediary or ultimate recipient. The intermediary must 
covenant that, in the event the intermediary's financial condition 
deteriorates or the intermediary takes action detrimental to prudent 
fund operation or fails to take action required of a prudent lender, the 
intermediary will provide additional security, execute any additional 
documents, and undertake any reasonable acts the Agency may request to 
protect the Federal Government interest or to perfect a security 
interest in any asset, including physical delivery of assets and 
specific assignments to the Agency. All debt instruments and collateral 
documents used by an intermediary in connection with loans to ultimate 
recipients, including all documents representing an interest in a 
participation loan made pursuant to Sec. 4273.320 of this chapter, must 
be assignable.
    (3) In addition to normal security documents, a first lien interest 
in the intermediary's IRP revolving loan fund account(s) will be 
accomplished by a control agreement satisfactory to the Agency. Agency 
signatures for withdrawals are not required. The depository bank must 
waive its offset and recoupment rights against the depository account to 
the Agency and subordinate any liens it may have against the IRP 
depository bank account. The use of Form RD 402-1, ``Deposit 
Agreement,'' or a similar form developed by the Agency's Office of the 
General Counsel is acceptable.
    (f) Loan limits. (1) No loan to an intermediary will exceed the 
maximum amount the intermediary can reasonably be expected to lend to 
eligible ultimate recipients, in an effective and sound manner, within 
three years after loan closing. Only one Agency IRP loan will be 
approved by the Agency for an intermediary in any single fiscal year

[[Page 663]]

unless the additional request is from an IRP earmark that serves a 
different geographical area than the initial non-earmarked loan.
    (2) The Agency IRP loan to an intermediary will not exceed the 
maximum award amount established by the Agency in an annual Notice.
    (3) Intermediaries that have received one or more Agency IRP loans 
may apply for and be considered for additional Agency IRP loans provided 
that the outstanding loans of the intermediary's IRP revolving loan fund 
are generally sound, the intermediary is in compliance with all 
applicable regulations and its loan agreements with the Agency, and 
either:
    (i) The intermediary has insufficient IRP revolving loan funds 
available for lending to meet current and expected ultimate recipient 
loan demand. Funds available for lending consist of Agency IRP loan 
funds not yet disbursed by the Agency, revolved funds, and cash on-hand 
in the IRP revolving loan fund. Necessary cash reserves including, but 
not limited to, debt service reserves, may be deducted from the IRP 
revolving loan fund cash on-hand in determining funds available for 
lending. The intermediary must provide documentation acceptable to the 
Agency of the current and expected ultimate recipient loan demand; or
    (ii) The Agency IRP loan will serve a geographic area not included 
in an area currently served by an existing IRP intermediary and it is 
not possible or feasible to expand the existing IRP loan's service area 
to include the new geographic area; and
    (4) Total outstanding IRP indebtedness of an intermediary to the 
Agency will not exceed $15 million at any time.



Sec. 4274.331  IRP revolving loan fund loan conditions and terms.

    (a) Conditions and terms. Loan conditions and terms made by an 
intermediary to an ultimate recipient from the IRP revolving loan fund 
will be negotiated by the intermediary and ultimate recipient.
    (1) Interest rate. The interest rate must be within limits 
established by the intermediary's work plan approved by the Agency. The 
rate must be the lowest rate sufficient to cover the loan's proportional 
share of the IRP revolving loan fund's debt service reserve and 
administrative costs.
    (2) Repayment. The loan term must be reasonable and prudent 
considering the purpose of the loan, expected repayment ability of the 
ultimate recipient, and the useful life of collateral, and must be 
within any limits established by the intermediary's work plan approved 
by the Agency.
    (b) Security. The intermediary is responsible for adherence to 
prudent lending practices when obtaining adequate security on each of 
its ultimate recipient loans.
    (c) Loan limits. Loans from intermediaries to ultimate recipients 
using the IRP revolving loan fund must not exceed the limits in 
paragraphs (c)(1) and (2) of this section. In accordance with Sec. 
4274.321(b)(5), these loan limits apply to ultimate recipients 
cumulatively based on all existing and pending loans from one or 
multiple IRP intermediaries. The loan limits of ultimate recipient loans 
made from Agency IRP funds may be based on the total amount of the 
Agency IRP loans awarded. However, should any portion of an 
intermediary's Agency IRP loan funds be de-obligated by the Agency, the 
ultimate recipient loan limit will thereafter be based on the actual 
amount of Agency IRP loan funds advanced to the intermediary and loaned 
out to ultimate recipients. Intermediaries with multiple IRP loans that 
have combined those IRP funds in accordance with Sec. 4274.332(b)(6) 
may base their ultimate recipient loan limits on the combined amount of 
Agency IRP loans. The maximum amount of an IRP Agency loan made by an 
intermediary to an ultimate recipient, whether directly or held through 
loan participation and including the balance of any existing ultimate 
recipient loans, shall be the lesser of:
    (1) $400,000; and
    (2) Fifty percent of the originally-approved Agency IRP loan amount 
to an intermediary (including the unpaid balance of any existing 
ultimate recipient loans).



Sec. 4274.332  Post award requirements.

    (a) Applicability. Intermediaries receiving loans under this program 
shall

[[Page 664]]

be governed by these regulations, the loan agreement, the approved work 
plan, security interests, and any other conditions which the Agency may 
impose in making a loan. Whenever this subpart imposes a requirement on 
loans made from the ``IRP revolving loan fund,'' such requirement shall 
apply to all loans made by an intermediary to an ultimate recipient from 
the intermediary's IRP revolving fund for as long as any portion of the 
intermediary's IRP loan from the Agency remains unpaid. This includes 
revolved funds. Whenever this subpart imposes a requirement on loans 
made by intermediaries from ``Agency IRP loan funds,'' without specific 
reference to the IRP revolving loan fund, such requirement shall apply 
only to loans made by an intermediary using Agency IRP loan funds and 
will not apply to loans made from revolved funds.
    (b) Maintenance of IRP revolving loan fund. For as long as any part 
of an Agency IRP loan to an intermediary remains unpaid, the 
intermediary must maintain the IRP revolving loan fund. All Agency IRP 
loan funds received by an intermediary must be deposited in an IRP 
revolving loan fund. The IRP revolving loan fund can only be used for 
receiving advances from the Agency, making payments to the Agency, 
disbursing ultimate recipient loans, and collecting ultimate recipient 
loan repayments. This includes transferred IRP revolving loan funds from 
another intermediary as a result of a transfer and assumption. Interest 
earned, cash obtained from fees assessed from activities of the IRP 
revolving loan fund, etc. must remain part of the IRP revolving loan 
fund though these monies may be used to pay administrative expenses as 
provided below. All Agency IRP loan activity must be managed through the 
IRP revolving loan fund. The intermediary may transfer additional assets 
into the IRP revolving loan fund to cover any shortage at any time. The 
intermediary must deposit all cash of the IRP revolving loan fund in a 
separate bank account or accounts. The intermediary is prohibited from 
commingling other funds of the intermediary with the funds in the IRP 
revolving loan fund. Intermediaries may use an operating account, 
general fund, or Automated Clearing House (ACH) account to initially 
collect payments from ultimate recipients, as long as those payments are 
transferred to the IRP revolving loan fund within 10 working days of 
receipt or by the end of the Federal fiscal quarter, whichever occurs 
first. All moneys deposited to the IRP revolving loan fund bank account 
or accounts must be money of the IRP revolving loan fund, and such 
accounts must be properly secured in accordance with Sec. 4274.330(e). 
The receivables created by making loans to ultimate recipients, the 
intermediary's security interest in collateral pledged by ultimate 
recipients, collections on the receivables, interest, fees, and any 
other income or assets derived from the operation of the IRP revolving 
loan fund are a part of the IRP revolving loan fund.
    (1) The intermediary can use the portion of the IRP revolving loan 
fund that consists of Agency IRP loan funds only for making loans in 
accordance with Sec. 4274.320. The intermediary may use the portion of 
the IRP revolving loan fund that consists of revolved funds for debt 
service reserve and reasonable administrative costs, in accordance with 
this section, or for making additional ultimate recipient loans.
    (2) The intermediary must submit for Agency approval an annual 
budget of proposed IRP revolving loan fund income and expenses including 
expected administrative costs. The annual budget must itemize income, 
including interest received from ultimate recipients, interest earnings 
on deposits, fees, and other income excluding principal recaptured from 
ultimate recipients, and expenses including interest repaid to the 
Agency, administrative expenses, liquidation expenses, loan write-offs, 
and other fees and costs excluding principal repaid to the Agency. The 
intermediary cannot use proceeds received from the collection of 
principal repayment by an ultimate recipient for administrative 
expenses. The amount removed by the intermediary from the IRP revolving 
loan fund for administrative costs in any year must be reasonable, must 
not exceed the actual cost of operating the IRP revolving loan fund, 
including loan servicing, and providing technical assistance, and

[[Page 665]]

must not exceed the amount approved by the Agency in the intermediary's 
annual budget. The administrative expenses that the intermediary charges 
to the IRP fund may never exceed the actual income earned on an annual 
basis. An intermediary can contract personnel for hire per Sec. 
4274.340(a)(1)(ii); but the intermediary may not routinely contract loan 
underwriting, management, or day-to-day operations. Essential activities 
of the IRP revolving loan funds must be conducted in-house.
    (3) The intermediary must establish a debt service reserve fund. The 
purpose of the debt service reserve fund is to ensure that adequate cash 
is available for the annual IRP loan installment(s) in the event that 
the IRP revolving loan fund has insufficient cash to make these 
payments. The minimum amount of cash in the debt service reserve fund 
must be at least equal to the intermediary's cumulative, annual debt 
service requirements for all Agency IRP loans outstanding. This account 
should be established by the date of loan closing, but the minimum 
required cash balance does not have to be reached until the third 
anniversary of an Agency IRP loan closing. The minimum required balance 
must be maintained for the life of the Agency IRP loan thereafter. The 
debt service reserve funds can only be withdrawn when there is 
insufficient cash in the IRP revolving loan fund's other account(s) to 
make the annual Agency IRP loan installments, and such withdrawals 
require the prior written concurrence of the Agency. Any withdrawal that 
causes the cash balance to drop below the minimum amount required must 
be repaid to the debt service reserve fund as soon as possible, but in 
no event can such repayment be longer than six months from the date of 
withdrawal. The funding of this debt service reserve fund may not come 
from Agency IRP loan funds and must come from an unencumbered source.
    (4) The intermediary must make any cash in the IRP revolving loan 
fund that is not needed for debt service or approved administrative 
costs available for additional loans to ultimate recipients. If the 
Agency determines that the intermediary has substantial amounts of 
Agency IRP loan funds available for lending that is not being regularly 
loaned out to ultimate recipients, the Agency may require, at its 
discretion, that those funds be returned to the Agency in accordance 
with paragraph (b)(8) of this section.
    (5) The intermediary must deposit all reserves and other cash of the 
IRP revolving loan fund not immediately needed for loans to ultimate 
recipients or other authorized uses in accounts in banks or other 
financial institutions. Such accounts must be fully covered by Federal 
deposit insurance or fully collateralized with other securities in 
accordance with normal banking practices and all applicable State laws. 
The account must be interest-bearing if feasible and any interest earned 
thereon remains a part of the IRP revolving loan fund. The intermediary 
cannot use funds for any certificates of deposit over a 30-day duration 
or for investments in securities. All instruments associated with the 
revolving loan fund must be liquid and not impose fees associated with 
the withdrawal or movement of cash.
    (6) If an intermediary receives more than one IRP loan, the 
intermediary does not need to establish and maintain a separate IRP 
revolving loan fund for each loan. Instead, the intermediary may combine 
them and maintain only one IRP revolving loan fund, unless the Agency 
requires separate IRP revolving loan funds because there are significant 
differences in the loan purposes, work plans, loan agreements, or 
requirements for the loans. The Agency may allow loans with different 
requirements to be combined into one IRP revolving loan fund if the 
intermediary agrees in writing to operate the combined revolving funds 
in accordance with the most stringent requirements of the Agency. The 
combining of multiple loans in one IRP revolving loan fund does not 
preclude the intermediary from being able to individually track the 
activity of each Agency IRP loan. The Agency must be able to readily 
determine the ultimate recipient loans made from each Agency IRP loan.
    (7) The intermediary may deposit their full equity contribution for 
the

[[Page 666]]

entire Agency IRP loan before the initial advance of Agency IRP loan 
funds or it may deposit its matching percent at each interval that loan 
advances are made by the Agency.
    (8) IRP revolving loan fund funds are intended to be active 
mechanisms to enhance business development in rural communities. If 
Agency IRP loan funds have been unused for a period of six months or 
more, those funds in excess of $250,000 will be returned to the Agency 
unless the Agency concurs with an intermediary's request for an 
exception. Any exception would be based on evidence satisfactory to the 
Agency that every effort is being made by the intermediary to utilize 
the IRP revolving loan fund funding for loans to ultimate recipients in 
conformance with program objectives.
    (9) The full measure of collateral must be made up of cash available 
in the IRP revolving loan fund, the debt service reserve, and the total 
outstanding balance of ultimate recipient loans. At all times, the sum 
of the IRP revolving loan fund, debt service reserve, and principal 
amount outstanding on performing ultimate recipient loans must equal 100 
percent of what is owed to the Agency by the intermediary plus any 
equity contribution amount. Therefore, if any part of the collateral 
fluctuates to the extent that the minimum retention requirement falls 
below the 100 percent plus the equity contribution threshold, the 
intermediary must inject cash into the IRP revolving loan fund and or 
debt service reserve fund to ensure that the total collateral is 
maintained at the minimum required level.
    (10) The intermediary must also file a Uniform Commercial Code (UCC) 
financing statement at closing in order to perfect the Agency's security 
interest in the ultimate recipient's promissory notes. The intermediary 
is responsible for covering the costs of filing as well as ensuring the 
necessary filings are renewed and recorded with the Secretary of State, 
or the equivalent tribal official as appropriate.
    (c) Agency oversight. The Agency will monitor each intermediary 
based on progress reports submitted by the intermediary, audit findings, 
disbursement transactions, visitations, and other contact with the 
intermediary as necessary. The Agency will send written notices on 
payments coming due to the intermediary approximately 15 days in advance 
of the payment due date.
    (d) Return of equity. An intermediary with an IRP loan(s) where the 
cash portion of the IRP revolving loan fund includes fees, principal and 
interest payments received from ultimate recipients and is not composed 
of any original Agency IRP loan funds, may annually request a partial or 
full return of their contributed equity under the following conditions:
    (1) The intermediary is current in all payments to the Agency and in 
compliance with all elements of their loan agreement and Agency 
reporting requirements;
    (2) The ratio of intermediary equity to the Agency loan after the 
return of equity remains consistent with the initial equity injection 
percentage by the intermediary; and
    (3) Any return of an intermediary's equity from the revolving loan 
fund must be approved by the Agency in writing and is limited to an 
amount that the Agency determines will not cause additional credit risk 
to the revolving loan fund or the Agency and is in compliance with 
paragraph (b)(9) of this section.



Sec. 4274.333  Loan agreements between the Agency and the intermediary.

    The intermediary and the Agency must execute a loan agreement or a 
supplement to a previous loan agreement at loan closing for each Agency 
IRP loan. The Agency will prepare the loan agreement and the 
intermediary must review it prior to loan closing. The intermediary is 
responsible for compliance with the terms and conditions of the loan 
agreement.
    (a) The loan agreement will, at a minimum, set out:
    (1) The amount of the loan;
    (2) The interest rate;
    (3) The term and repayment schedule;
    (4) The provisions for late charges. The intermediary must pay a 
late charge of four percent of the payment due if payment is not 
received within 15 calendar days following the due date. The Agency will 
consider the late

[[Page 667]]

charge as unpaid if it is not received within 30 calendar days of the 
missed due date for which it was imposed. The Agency will add any unpaid 
late charge to the loan's principal balance, and it will be due as an 
extra payment at the end of the term. Acceptance of a late charge by the 
Agency does not constitute a waiver of default.
    (i) A per diem amount will be shown on the late notice sent to the 
intermediary. The Agency will continue sending notices to the 
intermediary on the late payments or any further payments until the 
account is in a current status.
    (ii) Interest will be computed on a 365-day basis unless legal 
documents state otherwise.
    (5) The disbursement procedure. The Agency will disburse the Agency 
IRP loan funds to the intermediary on an as-needed basis after the loan 
agreement and promissory note are executed, and after any other 
conditions precedent to disbursement of funds are fully satisfied. Fund 
disbursement requests must be submitted with an intermediary's request 
for Agency concurrence in accordance with the provisions of Sec. 
4274.352(a). Only the amount of Agency IRP loan funds necessary to fund 
the given ultimate recipient loan request(s) can be requested by the 
intermediary and disbursed by the Agency. The intermediary's equity 
contribution may not be used for administrative costs. When lending, the 
intermediary's equity contribution must be loaned out prior to or on a 
pro rata basis with Agency IRP loan funds. For purposes of computing 
interest, the date of each draw down of an Agency IRP loan constitutes 
the date the funds are advanced under the loan agreement.
    (6) The provisions regarding default. On the occurrence of any event 
of default (monetary or nonmonetary), the Agency may declare all or any 
portion of the debt and interest to be immediately due and payable and 
may proceed to enforce its rights under the loan agreement or any other 
instruments securing or relating to the loan and in accordance with the 
applicable laws and regulations. Any of the following may be regarded as 
an ``event of default'' at the sole discretion of the Agency:
    (i) Failure of the intermediary to carry out the specific activities 
in its loan application as approved by the Agency or failure to comply 
with the loan terms and conditions of the loan agreement, any applicable 
Federal or State laws, or with such USDA or Agency regulations as may be 
applicable; or
    (ii) Failure of the intermediary to pay within 15 calendar days of 
its due date any installment of principal or interest on its promissory 
note to the Agency; or
    (iii) The occurrence of:
    (A) The intermediary becoming insolvent, or ceasing, being unable, 
or admitting in writing its inability to pay its debts as they mature, 
or making a general assignment for the benefit of, or entering into any 
composition or arrangement with creditors; or
    (B) Proceedings for the appointment of a receiver, trustee, or 
liquidator of the intermediary, in whole or of a substantial part of its 
assets, being authorized or instituted by or against it; or
    (iv) Submission or making of any report, statement, warranty, or 
representation by the intermediary or agent on its behalf to the Agency 
in connection with the financial assistance awarded hereunder which is 
false, incomplete, or incorrect in any material respect; or
    (v) Failure of the intermediary to remedy any material adverse 
change in its financial or other condition (such as the representational 
character of its board of directors, loan making or policymaking body) 
arising since the date of the Agency's award of assistance hereunder, 
which condition was an inducement to the Agency's original award.
    (7) Insurance requirements.
    (i) Hazard insurance with a standard mortgage clause naming the 
intermediary as beneficiary will be required by the intermediary on 
every ultimate recipient's project funded from the IRP revolving loan 
fund in an amount that is at least the lesser of the depreciated 
replacement value of the property being insured or the amount of the 
loan. Hazard insurance includes fire, windstorm, lightning, hail, 
business

[[Page 668]]

interruption, explosion, riot, civil commotion, aircraft, vehicle, 
marine, smoke, builder's risk, public liability, property damage, flood 
or mudslide, or any other hazard insurance that may be required to 
protect the security. The intermediary's interest in the insurance will 
be assigned to the Agency, upon the Agency's request, in the event of 
default by the intermediary.
    (ii) Workmen's compensation insurance on ultimate recipients is 
required in accordance with State law.
    (iii) The intermediary is responsible for determining if an ultimate 
recipient funded from the IRP revolving loan fund is located in a 
special flood or mudslide hazard area. If the ultimate recipient is in a 
flood or mudslide area, then flood or mudslide insurance must be 
provided in accordance with 7 CFR part 1806, subpart B.
    (iv) Intermediaries must provide fidelity bond coverage, or employee 
dishonesty insurance, for all persons who have access to intermediary 
funds. Coverage may be provided either for all individual positions or 
persons, or through ``blanket'' coverage providing protection for all 
appropriate employees and officials.
    (A) The minimum amount of fidelity bond/employee dishonesty coverage 
required by the Agency will equal the total, cumulative annual debt 
service requirements for all Agency IRP loans. Intermediaries with 
fidelity bond/employee dishonesty coverage requirements through other 
Agency programs (e.g., the Rural Microentrepreneur Assistance Program) 
must add the coverage requirements of those programs to the coverage 
requirements of this section in calculating the minimum coverage amount.
    (B) Evidence of this coverage must be provided at, or prior to, loan 
closing and must be maintained for the life of the IRP loan. During the 
term of the loan, the intermediary must provide evidence to the Agency, 
upon request, that adequate fidelity bond/employee dishonesty coverage 
is in place.
    (v) The Agency may also require the intermediary to carry other 
appropriate insurance, such as coverage for public liability, leasehold, 
and property damage.
    (b) The intermediary must agree in the loan documents to:
    (1) Not make any changes in the intermediary's articles of 
incorporation, charter, or by-laws that would impact the intermediary's 
eligibility for the IRP program or would adversely affect their ability 
to operate the IRP program in accordance with the provisions of this 
instruction and any other applicable laws, regulations, and executive 
orders without the prior written concurrence of the Agency. This 
pertains to the Agency's original IRP loan funds and revolved funds.
    (2) Not make a loan commitment to an ultimate recipient to be funded 
from Agency IRP loan funds without first receiving the Agency's written 
concurrence;
    (3) Maintain a separate ledger and segregated accounting for the IRP 
revolving loan fund;
    (4) Provide to the Agency:
    (i) An annual audit as described in 2 CFR part 200, subpart F, or 
any successor regulation;
    (A) The financial audit report period may be different than the IRP 
reporting periods. Intermediaries must promptly provide the auditor with 
the records and documentation necessary for the completion of the audit 
following the end of the audit period. The audit report must be 
submitted to the Agency within the earlier of 30 calendar days after 
receipt of the auditor's report, or nine months after the end of the 
audit period as described in 2 CFR 200.512. Audits must cover all the 
intermediary's activities. Audits will be performed by an independent 
certified public accountant. An acceptable audit will be performed in 
accordance with Generally Accepted Government Auditing Standards (GAAP) 
and include such tests of the accounting records as the auditor 
considers necessary in order to express an opinion on the financial 
condition of the intermediary. Compilations or reviews do not satisfy 
the audit requirement.
    (B) It is not intended that audits required by this subpart be 
separate and apart from audits performed in accordance with State and 
local laws or for other purposes. To the extent feasible,

[[Page 669]]

the audit work should be done in connection with these audits. 
Intermediaries covered by 2 CFR part 200, subpart F, as codified in 2 
CFR 400.1, should submit audits conducted in accordance with that 
regulation.
    (ii) Quarterly or semiannual reports (due 30 days after the end of 
the period);
    (A) Reports will be required quarterly during the first year after 
loan closing and, if all loan funds are not utilized during the first 
year, quarterly reports will be continued until at least 90 percent of 
the Agency IRP loan funds have been loaned out to ultimate recipients. 
Thereafter, reports will be required semiannually. Also, the Agency may 
require quarterly reports if the intermediary becomes delinquent in 
repayment of its loan or otherwise fails to fully comply with the 
provisions of its work plan or loan agreement, or the Agency determines 
that the intermediary's IRP revolving loan fund is not adequately 
protected by the current sound worth and paying capacity of the ultimate 
recipients.
    (B) These reports must contain information only on the IRP revolving 
loan fund. Information required to be included in these reports as well 
as detailed reporting instructions will be provided by the Agency 
through a revolving loan fund user manual (available on the USDA Rural 
Development Intermediary Relending Program website) or similar 
documentation, which may be amended from time to time;
    (iii) Annual proposed budget for the following year that meets the 
requirements of Sec. 4274.332(b)(2); and
    (iv) Other reports as the Agency may require from time to time;
    (5) Before the initial lending of Agency IRP loan funds to an 
ultimate recipient, to obtain written Agency approval of all forms to be 
used for relending purposes, including application forms, loan 
agreements, promissory notes, and security instruments. If the 
intermediary plans to sell participations in its loans made to ultimate 
recipients, the loan participation agreement and any planned interest 
rate spread or associated fees must be submitted to the Agency for 
review and concurrence;
    (6) To obtain written approval of the Agency before making any 
significant changes in forms, security policy, or the work plan. The 
servicing officer may approve changes in forms, security policy, IRP 
revolving loan fund plan, or work plans at any time upon a written 
request from the intermediary and determination by the Agency that the 
change will not jeopardize repayment of the loan or violate any 
requirement of this subpart or other Agency regulations. The 
intermediary must comply with the work plan approved by the Agency so 
long as any portion of the intermediary's IRP loan is outstanding.
    (7) To secure the indebtedness by pledging the IRP revolving loan 
fund, including all of its loans derived from the proceeds of the Agency 
loan award, and pledging its real and personal property and other rights 
and interests as the Agency may require;
    (8) In the event the intermediary's financial condition deteriorates 
or the intermediary takes action detrimental to prudent fund operation 
or fails to take action required of a prudent lender, to provide 
additional security, execute any additional documents, and undertake any 
reasonable acts the Agency may request, to protect the agency's interest 
or to perfect a security interest in any assets, including physical 
delivery of assets and specific assignments; and
    (9) Funds not disbursed to the intermediary by the end of the 36th 
month of the IRP loan from the Agency will be deobligated and not 
available for disbursement to the intermediary.
    (10) For revolved funds, the intermediary is responsible for 
continuing compliance with the terms and conditions of the loan 
agreement until the Agency loan is fully satisfied and repaid.

[86 FR 72156, Dec. 21, 2021, as amended at 87 FR 18967, Apr. 1, 2022]



Sec. 4274.334--Sec. 4274.339  [Reserved]



Sec. 4274.340  Application content and submittal.

    Intermediaries seeking to participate in the IRP program must submit 
an application in accordance with paragraph

[[Page 670]]

(a) of this section. Intermediaries applying for a subsequent Agency IRP 
loan may instead submit a streamlined application in accordance with 
paragraph (b) of this section. All intermediaries must submit their 
applications as provided in paragraph (c) of this section.
    (a) Intermediary application content. A complete application will 
include forms as requested in the intermediary application checklist 
guide available on the USDA Rural Development Intermediary Relending 
Program website plus information identified in paragraphs (a)(1) through 
(12) of this section.
    (1) A work plan/narrative that demonstrates the feasibility of the 
intermediary's program to meet the objectives of this program. The work 
plan must include, at a minimum:
    (i) A copy of the intermediary's policy and/or procedural manuals to 
assure the Agency that its mission and goals align with that of the 
Agency (i.e., economic development, promoting rural America, regional 
and community development.)
    (ii) Document the intermediary staff's ability in administering an 
IRP revolving loan fund. This includes but is not limited to providing a 
complete listing of all personnel responsible for administering this 
program along with a statement of their qualifications and experience. 
Their qualifications should detail their experience in loan making, loan 
monitoring, and loan servicing including liquidations. The personnel may 
be either members or employees of the intermediary's organization or on 
an as-needed basis and as allowed by this regulation, contracted 
personnel.
    (A) Contract personnel may be used to train, develop, or supervise 
the intermediary's members or employees or to provide interim expertise 
while the intermediary develops relevant in-house experience. The 
intermediary may contract for general services, such as clerical, 
administrative, and accounting services, and loan packaging.
    (B) The intermediary cannot use contract personnel for the primary 
functions of its lending program, such as credit analysis and loan 
underwriting. The intermediary is expected to make an independent 
lending decision for each ultimate recipient loan request.
    (1) The contract between the intermediary and the person or entity 
providing such service must be submitted for Agency review.
    (2) The terms of the contract and its duration must be sufficient to 
develop in-house expertise and to ensure the Agency loan is adequately 
serviced throughout its term. The contract must provide for termination 
at the request of the Agency whether or not for cause.
    (C) If the Agency determines the intermediary's personnel lack the 
necessary expertise to administer the program, the loan request will not 
be approved;
    (iii) Demonstrate a need for loan funds. At a minimum, the 
intermediary must either positively identify a sufficient number of 
proposed and known ultimate recipients it has on hand to justify the 
level of Agency funding of its loan request, or include well developed 
targeting criteria for ultimate recipients consistent with the 
intermediary's mission and strategy for the IRP, along with supporting 
statistical or narrative evidence that such prospective recipients exist 
in sufficient numbers to justify Agency funding of the loan request;
    (iv) Provide a set of goals, strategies, and anticipated outcomes 
for the intermediary's program. Outcomes should be expressed in 
quantitative or observable terms (e.g., jobs created for low-income area 
residents or self-empowerment opportunities funded) and should relate to 
the purpose of IRP (see Sec. 4274.301(b)); and
    (v) Provide specific information as to whether and how the 
intermediary will ensure that technical assistance is made available to 
ultimate recipients and potential ultimate recipients. Describe the 
qualifications of the technical assistance providers, the nature of 
technical assistance that will be available, and expected and committed 
sources of funding for technical assistance. If other than the 
intermediary itself, describe the organizations providing such 
assistance and the arrangements between such organizations and the 
intermediary.

[[Page 671]]

    (2) Demonstrate the sustainability of the IRP revolving loan fund by 
providing a pro forma balance sheet at start-up and projected balance 
sheets for at least three additional years including the accumulated 
debt service reserve; financial statements for the last three years, or 
from inception of the operations of the intermediary if less than three 
years; and projected cash flow and earnings statements for at least 
three years supported by a list of assumptions showing the basis for the 
projections. The projected earnings statement and balance sheet must 
include one set of projections that shows the IRP revolving loan fund 
only and a separate set of projections that shows the intermediary 
organization's total operations. Also, if principal repayment on the IRP 
loan will not be scheduled during the first three years, the projections 
for the IRP revolving loan fund must extend to include at least one year 
with a full annual installment on the IRP loan.
    (3) Provide documentation of any funds pledged and intermediary 
equity contribution that will be contributed into the IRP revolving loan 
fund to serve as security for the IRP loan and to pay for part of the 
cost of the ultimate recipient projects. Pledged funds and intermediary 
equity contribution must be in the form of cash and cannot be in-kind 
contributions; they also cannot be used as intermediary operating funds.
    (4) A written agreement of the intermediary to abide with the Agency 
audit requirements.
    (5) Complete organizational documents including: Articles of 
Incorporation (initial loan only), Bylaws, Certificate of Good Standing, 
a list of board members with contact and lending experience information, 
and evidence of authority to conduct the proposed lending activities 
(this could be satisfied with a statement from the intermediary's 
counsel).
    (6) Document the intermediary's ability to commit financial 
resources under the control of the intermediary to the establishment of 
an IRP program. This should include a statement of the sources of non-
Agency funds for administration of the intermediary's operations and 
financial assistance for projects.
    (7) Demonstrate to Agency satisfaction that the intermediary has 
secured commitments of significant financial support from public 
agencies and private organizations.
    (8) Provide evidence to Agency satisfaction that the intermediary 
has a proven record of obtaining private or philanthropic funds for the 
operation of similar programs to the IRP.
    (9) Latest audit report, if available.
    (10) The IRP revolving loan fund plan is a separate stand-alone 
document from the application and may be revised in the future. The IRP 
revolving loan fund plan governs the use of the RLF and must be 
developed by the intermediary and approved by the Agency. The plan must 
include a detailed explanation of the intermediary's fund administration 
policies and procedures in addition to planned fund use after the 
original IRP loan funds in the RLF have revolved. Fund administration 
policies and procedures must also include information regarding the 
review and approval of loans from the fund, including participation 
loans. The revolving loan fund plan must be of sufficient and detailed 
information to provide the Agency with a complete understanding of what 
the intermediary will accomplish by lending the funds to the ultimate 
recipient and the complete mechanics of how the funds will get from the 
intermediary to the ultimate recipient, including participation loans. 
The IRP revolving loan fund plan must contain:
    (i) The specific service area of the IRP fund including names of 
counties and or cities within the service area;
    (ii) Borrower eligibility criteria, loan purposes, loan priorities, 
fees, rates, terms, loan limits and collateral requirements;
    (iii) Details on the intermediary's application review and approval 
process;
    (iv) Details on the method of disposition of funds to the ultimate 
recipient, monitoring of the ultimate recipient's accomplishments, the 
reporting requirements by the ultimate recipient's management; and
    (v) A copy of the intermediary's ultimate recipient loan application 
package and sample loan documents (i.e.,

[[Page 672]]

application forms, debt instruments, collateral and security documents, 
etc.).
    (11) Credit Elsewhere Certification (see Agency template available 
at the USDA Rural Development Intermediary Relending Program website).
    (12) Prior to applying for program funding, a resolution by the 
intermediary's board of directors is required. At a minimum, the 
executive director of the intermediary must make the organization's 
board of directors aware of the possibility that the organization may be 
entering into a significant debt.
    (b) Streamlined applications. Intermediaries that have an active 
Agency IRP loan may submit a streamlined application that includes the 
following:
    (1) Submission of the information required under the Intermediary 
Guide (available at the USDA Rural Development Intermediary Relending 
Program website) and paragraphs (a)(1) through (4) of this section 
except that the information required by paragraph (a)(2) of this section 
may be limited to projections for the proposed new IRP revolving loan 
fund.
    (2) A statement that the new loan would be operated in accordance 
with the work plan on file for the previous IRP loan(s) may be submitted 
in lieu of a new work plan. Any substantial change to an existing work 
plan would require the submission of a new work plan.
    (3) Intermediaries that have received one or more Agency IRP loans 
may apply for and be considered for additional Agency IRP loans provided 
that the outstanding loans of the intermediary's IRP revolving loan fund 
are generally sound, the intermediary is in compliance with all 
applicable regulations and its loan agreements with the Agency, and the 
revolving loan fund's liabilities do not significantly exceed their 
assets. The intermediary must have a reasonable plan to disburse any 
unused IRP loan funds within six months of loan closing in addition to 
showing the need for additional IRP funds in accordance with paragraph 
(a)(1)(iii) of this section.
    (c) Application submittal. Intermediaries must submit the complete 
application in one package. The intermediary must file its application 
with the Agency State Office in the State in which the intermediary's 
headquarters is located. An intermediary headquartered in the District 
of Columbia may file its application with the Delaware/Maryland Rural 
Development State Office, Attention: Business Programs, 1221 College 
Park Drive, Suite 200, Dover, DE 19904.



Sec. 4274.341  Processing applications for loans.

    (a) Processing applications. Applications are accepted in the Rural 
Development State Office on an ongoing basis. The Agency will review all 
applications received for eligibility and will score each application 
according to the criteria in paragraph (b) of this section. Eligible 
applications received by the Rural Development State Office by close of 
business on September 30, December 31, March 31, and June 30 of each 
year will compete based on score ranking for available funds with other 
applications in that Federal fiscal quarter. If the quarterly 
application deadline falls on a weekend or holiday, the application 
deadline will be the next business day. The Agency will rank all 
eligible, scored applications each Federal fiscal quarter and will fund 
applications in the order of priority ranking using available funds for 
that quarter. The Agency will retain unsuccessful applications due to 
limited funding for consideration in subsequent reviews, through a total 
of four quarterly reviews.
    (b) Scoring. The Agency will use a point system to determine an 
eligible applicant's priority ranking for available loan funds. Points 
will be awarded only for factors indicated by well documented, 
reasonable plans which, in the opinion of the Agency, provide assurance 
that the work plan items have a high probability of being accomplished. 
Application content must contain sufficient information to assess the 
applicant's ability to manage an IRP revolving loan fund and allow the 
Agency to assign priority points in accordance with the criteria 
discussed in this section. The Agency will award points using the 
criteria identified in paragraphs (b)(1) through (9) of this section. 
Any application that does not meet the

[[Page 673]]

minimum value for receiving points associated with a criterion will 
receive no points for that criterion.
    (1) Intermediary equity contribution for initial Agency IRP loan 
applications only (maximum 35 points). The Agency will award points 
under this criterion if the applicant is applying for its first ever 
Agency IRP loan and will contribute cash matching funds to the IRP 
revolving loan fund. These funds must be deposited into the IRP account 
at closing and are subject to the same use restrictions as Agency IRP 
loan funds. These funds must be loaned out to ultimate recipients in 
conjunction with Agency IRP loan funds. The amount of cash matching 
funds contributed will be:
    (i) At least 5 percent, but less than 10 percent of the requested 
loan amount--10 points.
    (ii) At least 10 percent, but less than 20 percent of the requested 
loan amount--15 points.
    (iii) At least 20 percent, but less than 30 percent of the requested 
loan amount--20 points.
    (iv) At least 30 percent, but less than 40 percent of the requested 
loan amount--25 points.
    (v) At least 40 percent, but less than 50 percent of the requested 
loan amount--30 points.
    (vi) More than 50 percent of the requested loan amount--35 points.
    (2) Intermediary equity contribution for subsequent Agency IRP loan 
applications only (maximum 35 points). The Agency will award points 
under this criterion if the applicant is applying for a subsequent IRP 
loan and will contribute cash matching funds to the IRP revolving loan 
fund. The Agency must determine that the applicant's performance under 
their current IRP loan(s) is satisfactory in accordance with Sec. 
4274.330(f)(3) in order to be eligible and receive points under this 
criterion. These funds must be deposited into the IRP account at closing 
and are subject to the same use restrictions as Agency IRP Funds and 
loaned out to ultimate recipients in conjunction with Agency IRP loan 
funds. Cash matching funds are not required of subsequent applicants, 
but points will be awarded if the amount of cash matching funds 
contributed will be:
    (i) At least 5 percent, but less than 10 percent of the requested 
loan amount--10 points.
    (ii) At least 10 percent, but less than 20 percent of the requested 
loan amount--15 points.
    (iii) At least 20 percent, but less than 30 percent of the requested 
loan amount--20 points.
    (iv) At least 30 percent, but less than 40 percent of the requested 
loan amount--25 points.
    (v) At least 40 percent, but less than 50 percent of the requested 
loan amount--30 points.
    (vi) More than 50 percent of the requested loan amount--35 points.
    (3) Community Representation (10 points). Governing board of 
directors where 50 percent or more of its members consist of business, 
banking, civic and community leaders that are representative of the 
rural communities within the service area(s) that intermediary serves. 
These board members are diversely spread across the service areas and 
represent at least 50 percent of the intermediary total service area. 
These board members are not employees of the intermediary. Statewide and 
national IRP lenders must have a board of directors with members that 
are also familiar with current economic conditions and the inherent 
credit risks of making and servicing loans outside of the intermediary's 
primary location to receive these points. Documentation in the workplan 
must address these qualifications.
    (4) Leveraging (maximum 25 points). The Agency will award points if 
the intermediary will limit the funding of ultimate recipient project 
loans with Agency IRP funds. IRP revolving loan fund funds that consist 
of revolved funds may also be used as leveraging. However, any projects 
funded must continue to comply with the loan agreement and requirements 
of this subpart so long as any part of the Agency IRP loan remains 
unpaid. The intermediary's equity contribution will be the following 
percentages of an ultimate recipient's total project costs:
    (i) At least 10 percent, but less than 25 percent of the total 
project costs--5 points will be awarded;

[[Page 674]]

    (ii) At least 25 percent, but less than 50 percent of the total 
project costs--10 points will be awarded; or
    (iii) Fifty percent or more of the total project costs--25 points 
will be awarded.
    (5) Median household income (maximum 15 points). The Agency will 
award points under this criterion based on the degree to which the 
median household income in the service area of the intermediary exceeds 
the poverty line for a family of four. For applicant intermediaries 
whose service area includes multiple locations or geographic areas, 
weighted averages based on the populations will be used in calculating 
the area's median household income. For median household income 
computations, applicant intermediaries will use income data from the 
latest decennial census of the United States, updated according to 
changes in the consumer price index as published annually by the Agency. 
The poverty line used will be as defined in section 673(2) of the 
Community Services Block Grant Act (42 U.S.C. 9902(2)), which will be 
published annually by the Agency. If the median household income in the 
intermediary's service area exceeds the poverty line for a family of 
four by:
    (i) At least 50 percent, but not more than 75 percent, 5 points will 
be awarded;
    (ii) At least 25 percent, but less than 50 percent, 10 points will 
be awarded; or
    (iii) Below 25 percent, 15 points will be awarded.
    (6) Unemployment (maximum 15 points). The Agency will award points 
under this criterion based on the extent to which the unemployment rate 
in the intermediary's service area exceeds the national unemployment 
rate. For unemployment computations, applicant intermediaries must use 
the unemployment data published by the Bureau of Labor Statistics, U.S. 
Department of Labor, for the most current month available at the time of 
application in comparison to the national unemployment rate for the same 
month. If the service area is a single city, town, or Indian Reservation 
and current, monthly unemployment data is not available for that city or 
town, the current, monthly unemployment rate for the county (or Indian 
Reservation) in which the service area is located should be used. For 
applicant intermediaries whose service area includes multiple locations 
or geographic areas, a weighted average based on the populations should 
be used in calculating the area's unemployment rate. If the unemployment 
rate in the intermediary's service area is:
    (i) Equal to, or less than 25 percent above the national 
unemployment rate, 5 points will be awarded;
    (ii) At least 25 percent above, but less than 50 percent above the 
national unemployment rate, 10 points will be awarded; or
    (iii) Fifty percent or more above the national unemployment rate, 15 
points will be awarded.
    (7) Trauma (maximum 15 points). Under this criterion, the Agency 
will award 15 points if 50 percent or more of the intermediary's service 
area is experiencing trauma due to a major natural disaster, as declared 
by the Federal Emergency Management Agency (FEMA), that occurred not 
more than three years prior to the filing of the application for 
assistance. Intermediaries with proposed statewide and nationwide 
service areas do not qualify for these points.
    (8) Experience (maximum 30 points). The Agency will award points 
under this criterion based on the number of years the intermediary 
entity has in successfully making and servicing commercial loans. If the 
intermediary entity itself has actual experience in making and servicing 
commercial loans, with a successful record, for:
    (i) At least 1 but less than 3 years, 5 points will be awarded;
    (ii) At least 3 but less than 5 years, 10 points will be awarded;
    (iii) At least 5 but less than 10 years, 20 points will be awarded; 
or
    (iv) Ten or more years, 30 points will be awarded.
    (9) Size of loan request (maximum 20 points). The Agency will award 
points under this criterion based on the size of the intermediary's loan 
request. If the size of the loan request is:
    (i) $500,000 or less, 20 points will be awarded; or
    (ii) Over $500,000, and up to $750,000, 10 points will be awarded

[[Page 675]]

    (10) Administrator (maximum 10 points). The Administrator may award 
up to 10 additional points to an application to account for either or 
both of the items identified in below:
    (i) The project meets the President/Secretary Initiative(s) (e.g., 
local foods, regional development, persistent poverty, energy-related, 
etc.); or
    (ii) The applicant's service area will include areas not currently 
served by existing IRP Intermediaries. Statewide and nationwide 
Intermediaries will not be considered for Administrator points with 
regard to whether an area is currently covered by an existing IRP fund.



Sec. 4274.342-Sec. 4274.344  [Reserved]



Sec. 4274.345  Letter of conditions.

    The Agency will provide the successful intermediary with a letter of 
conditions listing all requirements for the loan. Immediately after 
reviewing the conditions and requirements in the letter of conditions, 
the intermediary must complete, sign, and return the requisite forms 
provided by the Agency indicating the intermediary's intent to meet the 
conditions and the request of obligation of funds. If the intermediary 
identifies certain conditions that cannot be met, the intermediary may 
propose alternate conditions to the Agency. The Agency must approve in 
writing of any proposed changes made to the initially issued or proposed 
letter of conditions prior to acceptance and finalization



Sec. 4274.346  Agency IRP loan closing.

    (a) At the time the Agency IRP loan is closed, the intermediary must 
certify to each condition identified in paragraphs (a)(1) through (5) of 
this section.
    (1) No major changes have been made in the work plan except those 
approved in the interim by the Agency.
    (2) All requirements of the letter of conditions have been met.
    (3) There has been no material adverse change in the intermediary's 
financial condition, nor any other material adverse change in the 
intermediary, for any reason, during the period of time from the 
Agency's loan approval to loan closing regardless of the cause or causes 
of the change and whether or not the change or causes of the change were 
within the intermediary's control. Any material adverse change must be 
explained by the intermediary. The Agency, at its sole discretion, will 
consider any such change and determine if it is significant enough to 
prevent the loan closing or disbursement of IRP loan funds to the 
intermediary.
    (4) There are no claims or liens of laborers, materialmen, 
contractors, subcontractors, suppliers of machinery and equipment, or 
other parties pending against the security of the intermediary, and that 
no suits are pending or threatened that would adversely affect the 
security of the intermediary when the security instruments are filed.
    (5) Certification that the intermediary has received Agency staff 
training on how to distinguish a required environmental review from a 
categorical exclusion in accordance with Sec. 4274.305(b).
    (b) The Agency will consider all requested changes submitted in 
writing to the Agency but will only approve changes that do not 
materially affect the IRP project, its capacity, employment, original 
projections, or credit factors.



Sec. 4274.347-Sec. 4274.350  [Reserved]



Sec. 4274.351  Loan approval and obligating funds.

    (a) The loan will be considered approved on the date that the 
obligation of funds document (Form RD 1940-1, Request for Obligation of 
Funds), is signed by the Agency. Agency IRP loans not closed within six 
months of approval by the Agency will be deobligated and the loan funds 
will no longer be available to the intermediary.
    (b) An obligation of funds established for an intermediary may be 
transferred by the Agency to a different (substituted) intermediary 
provided:
    (1) The substituted intermediary is eligible to receive the 
assistance approved for the original intermediary;
    (2) The substituted intermediary bears a close and genuine 
relationship to the original intermediary; and
    (3) The need for and scope of the project and the purposes for which

[[Page 676]]

Agency IRP loan funds will be used remain substantially unchanged.



Sec. 4274.352  Loan documentation for ultimate recipients.

    (a) Agency IRP loans. Prior Agency concurrence is required when an 
intermediary makes loans to an ultimate recipient from its Agency IRP 
loan funds (this applies to each Agency IRP loan received). A request 
for Agency concurrence in approval of a proposed loan to an ultimate 
recipient, whether made directly or through a loan participation 
purchase, must contain or comply with, as appropriate, the items 
identified in paragraph (b)(1) through (5) of this section and must 
include information listed in the IRP Revolving Loan Fund File 
Checklist, on the Agency website at the USDA Rural Development 
Intermediary Relending Program website:
    (1) Certification by the intermediary that:
    (i) The ultimate recipient is eligible for the loan;
    (ii) The loan is for an eligible purpose;
    (iii) Agency IRP loan funds are not more than 75 percent of the 
total project costs;
    (iv) The loan complies with all applicable statutes and regulations;
    (v) The ultimate recipient is unable to finance the proposed project 
through commercial credit or other Federal, State, or local programs at 
reasonable rates and terms; and
    (vi) The intermediary and its principal officers (including 
immediate family) hold no legal or financial interest or influence in 
the ultimate recipient, and the ultimate recipient and its principal 
officers (including immediate family) hold no legal or financial 
interest or influence in the intermediary. The interest and influence of 
a cooperative member when the intermediary is a cooperative is an 
allowable exception to this paragraph.
    (2) A completed and executed request for environmental information 
on a form provided by the Agency for projects that meet the criteria for 
a NEPA review categorical exclusion, NEPA environmental assessment or 
NEPA environmental impact statement in accordance with Sec. 
4274.305(b)(2).
    (3) All comments obtained in accordance with Sec. 4274.305(a) 
regarding intergovernmental consultation (if required).
    (4) Copies of sufficient material from the ultimate recipient's 
application and the intermediary's related files to allow the Agency to 
determine the:
    (i) Name, address, DUNS number, Federal ID number, and North 
American Classification System (NAICS) Code of the ultimate recipient;
    (ii) Loan purpose;
    (iii) Interest rate and term;
    (iv) Location, nature, and scope of the project being financed;
    (v) Uses and sources of funds; and
    (vi) Nature and lien priority of the collateral.
    (5) Such other information as the Agency may request.
    (b) Revolved IRP loan funds. An intermediary may use revolved funds 
to make loans to ultimate recipients in accordance with Sec. 
4274.320(b) without obtaining prior Agency concurrence as required in 
Sec. 4274.352(a) and are also exempted from completion of items 
required by paragraphs (a)(2) and (3) of this section.



Sec. 4274.353-Sec. 4274.359  [Reserved]



PART 4279_GUARANTEED LOANMAKING--Table of Contents



                            Subpart A_General

Sec.
4279.1 Introduction.
4279.2 Definitions and abbreviations.
4279.3-4279.14 [Reserved]
4279.15 Exception authority.
4279.16 Appeals.
4279.17-4279.28 [Reserved]
4279.29 Eligible lenders.
4279.30 Lenders' functions and responsibilities.
4279.31-4279.43 [Reserved]
4279.44 Access to records.
4279.45-4279.58 [Reserved]
4279.59 Environmental requirements.
4279.60 Civil rights impact analysis.
4279.61 Equal Credit Opportunity Act.
4279.62-4279.70 [Reserved]
4279.71 Public bodies and nonprofit corporations.
4279.72 Conditions of guarantee.
4279.73-4279.74 [Reserved]
4279.75 Sale or assignment of guaranteed loan.
4279.76 [Reserved]

[[Page 677]]

4279.77 Minimum retention.
4279.78 Repurchase from holder.
4279.79-4279.83 [Reserved]
4279.84 Replacement of document.
4279.85-4279.99 [Reserved]
4279.100 OMB control number.

                  Subpart B_Business and Industry Loans

4279.101 Introduction.
4279.102 Definitions and abbreviations.
4279.103 Exception authority.
4279.104 Appeals.
4279.105-4279.107 [Reserved]
4279.108 Eligible borrowers.
4279.109-4279.112 [Reserved]
4279.113 Eligible uses of funds.
4279.114 [Reserved]
4279.115 Cooperative stock/cooperative equity.
4279.116 New Markets Tax Credit program.
4279.117 Ineligible purposes and entity types.
4279.118 [Reserved]
4279.119 Loan guarantee limits.
4279.120 Fees and charges.
4279.121-4279.124 [Reserved]
4279.125 Interest rates.
4279.126 Loan terms.
4279.127-4279.130 [Reserved]
4279.131 Credit quality.
4279.132 Personal and corporate guarantees.
4279.133-4279.135 [Reserved]
4279.136 Insurance.
4279.137 Financial statements.
4279.138-4279.143 [Reserved]
4279.144 Appraisals.
4279.145-4279.149 [Reserved]
4279.150 Feasibility studies.
4279.151-4279.160 [Reserved]
4279.161 Filing preapplications and applications.
4279.162 Strategic economic and community development.
4279.163-4279.164 [Reserved]
4279.165 Evaluation of application.
4279.166 Loan priority scoring.
4279.167 Planning and performing development.
4279.168 Timeframe for processing applications.
4279.169-4279.172 [Reserved]
4279.173 Loan approval and obligating funds.
4279.174 Transfer of lenders.
4279.175-4279.179 [Reserved]
4279.180 Changes in borrower.
4279.181 Conditions precedent to issuance of the Loan Note Guarantee.
4279.182-4279.186 [Reserved]
4279.187 Refusal to execute Loan Note Guarantee.
4279.188-4279.189 [Reserved]
4279.190 Business and Industry national COVID-19 Public Health Emergency 
          Loans.
4279.191-4279.199 [Reserved]
4279.200 OMB control number.

    Subpart C_Biorefinery, Renewable Chemical, and Biobased Product 
                     Manufacturing Assistance Loans

                                 General

4279.201 Purpose and scope.
4279.202 Definitions and abbreviations.
4279.203 Exception authority.
4279.204 Appeals.
4279.205 Prohibition under Agency programs.
4279.206 Agency representation.
4279.207 [Reserved]

                        Eligibility Requirements

4279.208 Lender eligibility requirements.
4279.209 Borrower eligibility requirements.
4279.210 Project eligibility requirements.
4279.211-4279.213 [Reserved]

                  Lender Functions and Responsibilities

4279.214 General functions and responsibilities.
4279.215 Credit evaluation.
4279.216 Environmental responsibilities.
4279.217 Oversight and monitoring.
4279.218-4279.219 [Reserved]

                         Conditions of Guarantee

4279.220 General conditions of guarantee.
4279.221 Rights and liabilities.
4279.222 Payments.
4279.223 Sale or assignment of guaranteed loan.
4279.224 Minimum retention.
4279.225 Repurchase from Holder.
4279.226 Replacement of document.
4279.227 Equal Credit Opportunity Act.
4279.228-4279.230 [Reserved]

                             Loan Processing

4279.231 Fees.
4279.232 Guaranteed loan funding.
4279.233 Interest rates.
4279.234 Terms of loan.
4279.235 Collateral.
4279.236-4279.242 [Reserved]
4279.243 Insurance.
4279.244 Appraisals.
4279.245 Personal and corporate guarantees.
4279.246-4279.255 [Reserved]
4279.256 Construction planning and performing development.
4279.257-4279.258 [Reserved]
4279.259 Borrower responsibilities.

                              Applications

4279.260 Guarantee applications--general.
4279.261 Application for loan guarantee content.
4279.262-4279.264 [Reserved]
4279.265 Guarantee application processing.
4279.266 Guarantee application scoring.

[[Page 678]]

4279.267 Selecting guarantee applications.
4279.268-4279.277 [Reserved]
4279.278 Loan approval and obligating funds.
4279.279 Transfer of Lenders.
4279.280 Changes in Borrowers.
4279.281 Conditions precedent to issuance of Loan Note Guarantee.
4279.282 [Reserved]
4279.283 Refusal to execute Loan Note Guarantee.
4279.284-4279.289 [Reserved]
4279.290 Requirements after Project construction.
4279.291-4279.299 [Reserved]
4279.300 OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 7 U.S.C. 310B(a)(2); and 7 
U.S.C 8103.

    Source: 61 FR 67633, Dec. 23, 1996, unless otherwise noted.



                            Subpart A_General

    Source: 81 FR 35997, June 3, 2016, unless otherwise noted.



Sec. 4279.1  Introduction.

    (a) As of October 1, 2020, this subpart is specifically applicable 
to and only contains regulations for Business and Industry loans under 
the authority of the Coronavirus Aid, Relief, and Economic Security Act 
(CARES Act) (Pub. L. 116-136) to provide B&I guarantees for loans needed 
as a result of the Coronavirus Disease 2019 (COVID-19) pandemic for 
working capital loan purposes to support business operations and 
facilities in rural areas (B&I CARES Act Program Loans). Some of the 
requirements of this subpart are waived or altered for B&I CARES Act 
Program Loans. The waivers and alterations are provided in Sec. 
4279.190 of this subpart. Other than B&I CARES Act Program Loans, this 
subpart is no longer used for making Business and Industry (B&I) loans 
guaranteed by the Agency. Subpart B of part 4287 of this chapter is 
retained for servicing B&I CARES Act Program Loans and B&I loans 
guaranteed by the Agency prior to October 1, 2020. Requirements for B&I 
loans guaranteed by the Agency after October 1, 2020 (other than B&I 
CARES Act Loans) may be found at 7 CFR part 5001.
    (b) The lender is responsible for ascertaining that all requirements 
for making, securing, servicing, and collecting the loan are complied 
with.
    (c) Whether specifically stated or not, whenever Agency approval is 
required, it must be in writing. Copies of all forms and regulations 
referenced in this subpart may be obtained from any Agency office and 
from the USDA Rural Development Web site at http://www.rd.usda.gov/ 
publications. Whenever a form is designated in this subpart, it is 
initially capitalized and its reference includes predecessor and 
successor forms, if applicable.

[81 FR 35997, June 3, 2016, as amended at 85 FR 31040, May 22, 2020; 85 
FR 62196, Oct. 2, 2020]



Sec. 4279.2  Definitions and abbreviations.

    (a) Definitions. The following definitions apply to this subpart:
    Administrator. The Administrator of Rural Business-Cooperative 
Service within the Rural Development mission area of the U.S. Department 
of Agriculture.
    Affiliate. An entity that is related to another entity by owning 
shares or having an interest in the entity, by common ownership, or by 
any means of control.
    Agency. The Rural Business-Cooperative Service or successor Agency 
assigned by the Secretary of Agriculture to administer the B&I 
Guaranteed Loan Program. References to the National or State Office 
should be read as prefaced by ``Agency'' or ``Rural Development'' as 
applicable.
    Agricultural production. The breeding, raising, feeding, or housing 
of livestock for fiber or food for human consumption and the 
cultivation, growing, or harvesting of crops.
    Annual renewal fee. The annual renewal fee is a fee that is paid 
once a year by the lender and is required to maintain the enforceability 
of the Loan Note Guarantee.
    Appraisal surplus. The difference between the fair market value of 
an asset and its depreciated book value when the fair market value is 
higher.
    Arm's-length transaction. A transaction between ready, willing, and 
able disinterested parties that are not affiliated with or related to 
each other and have no security, monetary, or stockholder interest in 
each other.

[[Page 679]]

    Assignment Guarantee Agreement. Form RD 4279-6, ``Assignment 
Guarantee Agreement,'' is the signed agreement among the Agency, the 
lender, and the holder containing the terms and conditions of an 
assignment of a guaranteed portion of a loan, using the single note 
system.
    Bankruptcy Code. The provisions of title 11 of the United States 
Code or any successor statute.
    Biofuel. A fuel derived from Renewable Biomass.
    Bond. A form of debt security in which the authorized issuer 
(borrower) owes the bond holder (lender) a debt and is obligated to 
repay the principal and interest (coupon) at a later date(s) (maturity). 
An explanation of the type of bond and other bond stipulations must be 
attached to the bond issuance.
    Borrower. The person that borrows, or seeks to borrow, money from 
the lender, including any party liable for the loan except for 
guarantors.
    Certificate of Incumbency and Signature. Form RD 4279-7, 
``Certificate of Incumbency and Signature,'' is used to validate 
authenticity of Agency representatives' signatures on Forms RD 4279-4, 
4279-5, and 4279-6.
    Collateral. The asset(s) pledged by the borrower to secure the loan.
    Commercially available. A system that has a proven operating history 
for at least 1 year specific to the proposed application. Such a system 
is based on established design and installation procedures and 
practices. Professional service providers, trades, large construction 
equipment providers, and labor are familiar with installation procedures 
and practices. Proprietary and the balance of system equipment and spare 
parts are readily available, and service is readily available to 
properly maintain and operate the system. An established warranty exists 
for major parts and labor. If the system is currently commercially 
available only outside of the United States, authoritative evidence of 
the foreign operating history, performance, and reliability is required 
in order to address the proven operating history.
    Conditional Commitment. Form RD 4279-3, ``Conditional Commitment,'' 
is the Agency's notice to the lender that the loan guarantee it has 
requested is approved subject to the completion of all conditions and 
requirements set forth by the Agency and outlined in the attachment to 
the Conditional Commitment.
    Conflict of interest. A situation in which a person has competing 
personal, professional, or financial interests that prevents the person 
from acting impartially.
    Cooperative organization. An entity that is legally chartered as a 
cooperative or an entity that is not legally chartered as a cooperative 
but is owned and operated for the benefit of its members, with returns 
of residual earnings paid to such members on the basis of patronage.
    Debt Collection Improvement Act. The Debt Collection Improvement Act 
of 1996, 31 U.S.C. 3701 et seq. requires that any monies that are 
payable or may become payable from the United States under contracts and 
other written agreements to any person not an agency or subdivision of a 
State or local government may be subject to certain collection options, 
such as administrative offset, for a delinquent debt the person owes to 
the United States.
    Default. The condition that exists when a borrower is not in 
compliance with the promissory note, the loan agreement, or other 
documents relating to the loan. Default could be a monetary or non-
monetary default.
    Deficiency judgment. A monetary judgment rendered by a court of 
competent jurisdiction after foreclosure and liquidation of all 
collateral securing the loan.
    Delinquency. A loan for which a scheduled loan payment is more than 
30 days past due and cannot be cured within 30 days.
    Energy projects. Commercially available projects that generate 
energy or power or projects that produce biofuel. Projects that have 
energy outputs that are a by-product of operations or that the Agency 
otherwise determines is not an energy project are not subject to the 
increased equity requirement for energy projects required by Sec. 
4279.131(d)(1).
    Existing business. A business that has been in operation for at 
least 1 full year. Mergers or changes in the business name or legal type 
of entity of a

[[Page 680]]

business that has been in operation for at least 1 full year are 
considered to be existing businesses as long as there is not a 
significant change in operations. Newly-formed entities that are buying 
existing businesses will be considered an existing business as long as 
the business being bought remains in operation and there is no 
significant change in operations.
    Existing lender debt. A debt owed by a borrower to the same lender 
that is applying for or has received the Agency guarantee.
    Fair market value. The price that could reasonably be expected for 
an asset in an arm's-length transaction between a willing buyer and a 
willing seller under ordinary economic and business conditions.
    Future recovery. Funds collected by the lender after a final loss 
claim is processed.
    High impact business development investment. A business that scores 
at least 25 points under Sec. 4279.166(b)(4).
    High-priority project. A project that scores more than 50 percent of 
the priority points available under Sec. 4279.166(b)(1) through (5).
    Holder. A person, other than the lender, who owns all or part of the 
guaranteed portion of the loan with no servicing responsibilities. When 
the single note option is used and the lender assigns a part of the 
guaranteed note to an assignee, the assignee becomes a holder only when 
the Agency receives notice and the transaction is completed through the 
use of the Assignment Guarantee Agreement.
    Immediate family. Individuals who live in the same household or who 
are closely related by blood, marriage, or adoption, such as a spouse, 
domestic partner, parent, child, sibling, aunt, uncle, grandparent, 
grandchild, niece, nephew, or cousin.
    In-house expenses. Expenses associated with activities that are 
routinely the responsibility of a lender's internal staff or its agents. 
In-house expenses include, but are not limited to, employees' salaries, 
staff lawyers, travel, and overhead.
    Interest. A fee paid by a borrower to the lender as a form of 
compensation for the use of money. When money is borrowed, interest is 
paid as a fee over a certain period of time (typically months or years) 
to the lender as a percentage of the principal amount owed. The term 
interest does not include default or penalty interest or late payment 
fees or charges.
    Interim financing. A temporary or short-term loan made with the 
clear intent when the loan is made that it will be repaid through 
another loan that provides permanent financing. Interim financing is 
frequently used to pay construction and other costs associated with a 
planned project, with permanent financing to be obtained after project 
completion.
    Lender. The eligible lender approved by the Agency to make, service, 
and collect the Agency guaranteed loan that is subject to this subpart. 
Agency approval of the lender will be evidenced by an outstanding Form 
RD 4279-4, ``Lender's Agreement,'' between the Agency and the lender.
    Lender's Agreement. Form RD 4279-4, ``Lender's Agreement,'' or 
predecessor form, between the Agency and the lender setting forth the 
lender's loan responsibilities.
    Liquidation expenses. Costs directly associated with the liquidation 
of collateral, including preparing collateral for sale (e.g., repairs 
and transport) and conducting the sale (e.g., advertising, public 
notices, auctioneer expenses, and foreclosure fees). Liquidation 
expenses do not include in-house expenses. Legal/attorney fees are 
considered liquidation expenses provided that the fees are reasonable, 
as determined by the Agency, and cover legal issues pertaining to the 
liquidation that could not be properly handled by the lender and its in-
house counsel.
    Loan agreement. The agreement between the borrower and lender 
containing the terms and conditions of the loan and the responsibilities 
of the borrower and lender.
    Loan classification. The process by which loans are examined and 
categorized by degree of potential loss in the event of default.
    Loan Note Guarantee. Form RD 4279-5, ``Loan Note Guarantee,'' issued 
and executed by the Agency, containing the terms and conditions of the 
guarantee.

[[Page 681]]

    Loan packager. A person, other than the applicant borrower or 
lender, that prepares a loan application package.
    Loan service provider. A person, other than the lender of record, 
that provides loan servicing activities to the lender.
    Loan-to-discounted value. The ratio of the dollar amount of a loan 
to the discounted dollar value of the collateral pledged as security for 
the loan.
    Loan-to-value. The ratio of the dollar amount of a loan to the 
dollar value of the collateral pledged as security for the loan.
    Local government. A county, municipality, town, township, village, 
or other unit of general government, including tribal governments, below 
the State level.
    Material adverse change. Any change in circumstance associated with 
a guaranteed loan, including the borrower's financial condition or 
collateral, that, individually or in the aggregate, has jeopardized, or 
could be reasonably expected to jeopardize, loan performance.
    Natural resource value-added product. Any naturally occurring 
resource, including agricultural resources, that is processed to add 
value or to generate renewable energy from a natural resource.
    Negligent loan origination. The failure of a lender to perform those 
services that a reasonably prudent lender would perform in originating 
its own portfolio of loans that are not guaranteed. The term includes 
the concepts of failure to act, not acting in a timely manner, or acting 
in a manner contrary to the manner in which a reasonably prudent lender 
would act.
    Negligent loan servicing. The failure of a lender to perform those 
services that a reasonably prudent lender would perform in servicing 
(including liquidation of) its own portfolio of loans that are not 
guaranteed. The term includes the concepts of failure to act, not acting 
in a timely manner, or acting in a manner contrary to the manner in 
which a reasonably prudent lender would act.
    New business. A startup or otherwise new business that has been in 
operation for less than 1 full year. New businesses include newly-formed 
entities leasing space or building ground-up facilities, even if the 
owners of the new or startup business own affiliated businesses doing 
the same kind of business.
    Parity. A lien position whereby two or more lenders share a security 
interest of equal priority in collateral. In the event of default, each 
lender will be affected on an equal basis.
    Participation. Sale of an interest in a loan by the lead lender to 
one or more participating lenders wherein the lead lender retains the 
note, collateral securing the note, and all responsibility for managing 
and servicing the loan. Participants are dependent upon the lead lender 
for protection of their interests in the loan. The relationship is 
typically formalized by a participation agreement. The participants and 
the borrower have no rights or obligations to one another.
    Person. An individual or entity.
    Poverty. A community or area (including a county, city, or 
equivalent such as parish, borough, municipio, or census designated 
place) where at least 20 percent of the population have income below the 
poverty line.
    Pro rata. On a proportional basis.
    Promissory note. Evidence of debt with stipulated repayment terms. 
``Note'' or ``promissory note'' shall also be construed to include 
``Bond'' or other evidence of debt, where appropriate.
    Protective advances. Advances made by the lender for the purpose of 
preserving and protecting the collateral where the debtor has failed to, 
and will not or cannot, meet its obligations to protect or preserve 
collateral. Protective advances include, but are not limited to, 
advances affecting the collateral made for property taxes, rent, hazard 
and flood insurance premiums, and annual assessments. Legal/attorney 
fees are not a protective advance.
    Public body. A municipality, county, or other political subdivision 
of a State; a special purpose district; an Indian tribe on a Federal or 
State reservation or other federally-recognized Indian tribe; or an 
organization controlled by any of the above.
    Renewable biomass. (1) Materials, pre-commercial thinnings, or 
invasive species from National Forest System land or public lands (as 
defined in section 103 of the Federal Land Policy and

[[Page 682]]

Management Act of 1976 (43 U.S.C. 1702)) that:
    (i) Are by-products of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health;
    (ii) Would not otherwise be used for higher-value products; and
    (iii) Are harvested in accordance with applicable law and land 
management plans and the requirements for old-growth maintenance, 
restoration, and management direction of paragraphs (2), (3), and (4) of 
subsection (e) of section 102 of the Healthy Forests Restoration Act of 
2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of that 
section; or
    (2) Any organic matter that is available on a renewable or recurring 
basis from non-Federal land or land belonging to an Indian or Indian 
Tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including:
    (i) Renewable plant material, including feed grains; other 
agricultural commodities; other plants and trees; and algae; and
    (ii) Waste material, including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and by-
products (including fats, oils, greases, and manure); and food and yard 
waste.
    Report of loss. Form RD 449-30, ``Guaranteed Loan Report of Loss,'' 
used by lenders when reporting a financial loss under an Agency 
guarantee.
    Rural Development. The mission area of USDA that is comprised of the 
Rural Business-Cooperative Service, the Rural Housing Service, and the 
Rural Utilities Service and is under the policy direction and 
operational oversight of the Under Secretary for Rural Development.
    Spreadsheet. A table containing data from a series of financial 
statements of a business over a period of time. A financial statement 
analysis normally contains spreadsheets for balance sheet and income 
statement items and includes a cash flow analysis and commonly used 
ratios. The spreadsheets enable a reviewer to easily scan the data, spot 
trends, and make comparisons.
    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the Republic of Palau, the 
Federated States of Micronesia, and the Republic of the Marshall 
Islands.
    Subordination. An agreement among the lender, borrower, and Agency 
whereby lien priorities on certain assets pledged to secure payment of 
the guaranteed loan will be reduced to a position junior to, or on 
parity with, the lien position of another loan.
    Tangible balance sheet equity. Tangible equity divided by tangible 
assets. Formula: ((Assets--intangible assets)--liabilities)/(Assets--
intangible assets) or (Equity--intangible assets)/(Assets--intangible 
assets).
    Transfer and assumption. The conveyance by a borrower to an assuming 
borrower of the assets, collateral, and liabilities of the loan in 
return for the assuming borrower's binding promise to pay the 
outstanding debt.
    USDA Lender Interactive Network Connection (LINC). The portal Web 
site currently at https://usdalinc.sc.egov.usda.gov/ used by lenders to 
update loan data in the Agency's Guaranteed Loan System. Current LINC 
capabilities include loan closing and status reporting.
    Veteran. For the purposes of assigning priority points, a veteran is 
a person who is a veteran of any war, as defined in title 38 U.S.C. 
101(12).
    Working capital. Current assets available to support a business' 
operations and growth. Working capital is calculated as current assets 
less current liabilities.
    (b) Abbreviations. The following abbreviations apply to this 
subpart:

B&I--Business and Industry
CFR--Code of Federal Regulations
DCIA--Debt Collection Improvement Act
FDIC--Federal Deposit Insurance Corporation
FSA--Farm Service Agency
GAAP--Generally Accepted Accounting Principles of the United States
LINC--USDA Lender Interactive Network Connection
NAD--National Appeals Division
OMB--Office of Management and Budget

[[Page 683]]

REAP--Rural Energy for America Program
U.S.--United States of America
USDA--U.S. Department of Agriculture

    (c) Accounting terms. Accounting terms not otherwise defined in this 
part shall have the definition ascribed to them under GAAP.



Sec. Sec. 4279.3-4279.14  [Reserved]



Sec. 4279.15  Exception authority.

    The Administrator may, on a case-by-case basis, grant an exception 
to any requirement or provision of this subpart provided that such an 
exception is in the best financial interests of the Federal government. 
Exercise of this authority cannot be in conflict with applicable law.



Sec. 4279.16  Appeals.

    Applicants, borrowers, lenders, and holders have appeal or review 
rights for Agency decisions made under this subpart, subpart B of this 
part, or subpart B of part 4287 of this chapter. Programmatic decisions 
based on clear and objective statutory or regulatory requirements are 
not appealable; however, such decisions are reviewable for appealability 
by the National Appeals Division (NAD). The borrower, lender, and holder 
can appeal any Agency decision that directly and adversely impacts them. 
For an adverse decision that impacts the borrower, the lender and 
borrower must jointly execute a written request for appeal for an 
alleged adverse decision made by the Agency. An adverse decision that 
only impacts the lender may be appealed by the lender only. An adverse 
decision that only impacts the holder may be appealed by the holder 
only. A decision by a lender adverse to the interest of the borrower is 
not a decision by the Agency, whether or not concurred in by the Agency. 
Appeals will be conducted by USDA NAD and will be handled in accordance 
with 7 CFR part 11.



Sec. Sec. 4279.17-4279.28  [Reserved]



Sec. 4279.29  Eligible lenders.

    An eligible lender must be domiciled in a State as defined in Sec. 
4279.2 or the District of Columbia and must not be debarred or suspended 
by the Federal government. If the lender is under a cease and desist 
order, or similar constraint, from a Federal or State agency, the lender 
must inform the Agency. The Agency will evaluate the lender's 
eligibility on a case-by-case basis, given the risk of loss posed by the 
cease and desist order. The Agency will only approve loan guarantees for 
lenders with adequate capital to fund and cover potential liquidation 
expenses for guaranteed loans it proposes to make and adequate 
experience and expertise to make, secure, service, and collect B&I 
loans. The lender must provide documentation as to its capital and 
experience in commercial lending. The lender and the Agency will execute 
a Lender's Agreement for each lender approved to participate in the 
program. If a valid Lender's Agreement already exists, it is not 
necessary to execute a new Lender's Agreement with each loan guarantee; 
however, a new Lender's Agreement must be executed with any existing 
lenders making new loans on or after August 2, 2016. The Agency may 
revoke a lender's eligible status at any time for cause, including those 
examples cited in Sec. 4279.29(c).
    (a) Regulated lenders. A regulated lender is any Federal or State 
chartered bank, or other financial institution, Farm Credit Bank, other 
Farm Credit System institution with direct lending authority, Bank for 
Cooperatives, Savings and Loan Association, Savings Bank, or mortgage 
company that is part of a bank-holding company. These entities must be 
subject to credit examination and supervision by either an agency of the 
United States or a State. Eligible lenders may also include the National 
Rural Utilities Cooperative Finance Corporation and credit unions 
provided that they are subject to credit examination and supervision by 
either the National Credit Union Administration or a State agency.
    (b) Non-regulated lenders. The Agency may consider an applicant 
lender that does not meet the criteria of paragraph (a) of this section 
for eligibility to become a guaranteed lender for a 3-year period 
provided that the Agency determines that the applicant lender has the 
legal authority to operate a lending program and sufficient lending 
expertise and financial strength to operate a

[[Page 684]]

successful lending program. When the applicant lender is a multi-tiered 
entity, it will be considered in its entirety. Insurance companies 
(formerly included as traditional lenders) and non-regulated lenders 
(formerly known as other lenders) previously approved as guaranteed 
lenders prior to August 2, 2016 must reapply to become an approved non-
regulated lender in order to originate new guaranteed loans. However, 
both insurance companies and non-regulated lenders that have executed a 
Lender's Agreement must continue to service the guaranteed loans in 
their portfolios in accordance with that agreement.
    (1) In order to become an eligible lender, non-regulated lenders 
must:
    (i) Have been making commercial loans for at least 5 years;
    (ii) Have a record of successfully making at least 10 commercial 
loans annually totaling at least $1 million for each of the last 5 
years, with lender's delinquent commercial loan portfolio over this 
period not exceeding (a) 6 percent of all commercial loans made and (b) 
3 percent in commercial loan losses (based on the original principal 
loan amount);
    (iii) Have and maintain tangible balance sheet equity of at least 10 
percent of tangible assets and sufficient funds available to disburse 
the guaranteed loans it proposes to approve within the first 6 months of 
being approved as a guaranteed lender;
    (iv) Have and maintain a line of credit issued by a regulated lender 
that is acceptable to the Agency;
    (v) Agree to establish and maintain an Agency approved loss reserve 
equal to 3 percent of each B&I loan closed and agree to increase the 
loss reserve for anticipated losses as required by the Agency;
    (vi) Have adequate policies and procedures to ensure that internal 
credit controls provide adequate loanmaking and servicing guidance; and
    (vii) Have undergone a credit examination at its own expense from a 
recognized independent reviewer acceptable to the Agency. The applicant 
lender should consult with the Agency prior to receiving an examination 
to ensure the examiner will be acceptable.
    (2) A non-regulated lender that wishes consideration to become a 
guaranteed lender must submit a request in writing to the Agency. The 
Agency will notify the prospective lender whether the lender's request 
for eligibility is approved or rejected. If rejected, the Agency will 
notify the prospective lender, in writing, of the reasons for the 
rejection. The lender must include in its written request the following:
    (i) An audited financial statement not more than 1 year old that 
evidences the lender has the required tangible balance sheet equity and 
the resources to successfully meet its responsibilities;
    (ii) A copy of any license, charter, or other evidence of authority 
to engage in the proposed loanmaking and servicing activities. If 
licensing by the State is not required, an attorney's opinion stating 
that licensing is not required and that the entity has the legal 
authority to engage in the proposed loanmaking and servicing activities 
must be submitted;
    (iii) Information on lending experience, including length of time in 
the lending business; range and volume of lending and servicing 
activity, including a list of the industries for which it has provided 
financing; status of its loan portfolio, including a list of loans in 
the portfolio with each loan's current loan classification code and 
delinquency and loss rates as outlined in Sec. 4279.29(b)(1)(ii); 
experience of management and loan officers; sources of funds for the 
proposed loans; office location and proposed lending area; an estimate 
of the number and size of guaranteed loan applications the lender will 
develop; and proposed rates and fees, including loan origination, loan 
preparation, and servicing fees;
    (iv) A copy of the examination required under paragraph (b)(1)(vii) 
of this section; and
    (v) Documentation as to how the lender will fulfill the requirements 
of Sec. 4279.30.
    (3) Non-regulated lenders must submit audited financial statements 
to the Agency annually for monitoring purposes.
    (4) Renewal of eligible lender status to continue making B&I loans 
is not automatic. Eligible lender status will

[[Page 685]]

lapse 3 years from the date of Agency approval and execution of the 
Lender's Agreement unless the lender obtains a renewal. A lender whose 
eligible status has lapsed must continue to service any outstanding 
loans guaranteed under this part but may not submit requests for new 
loan guarantees. Lenders whose eligibility has lapsed may file a 
subsequent request under this subsection. Lenders requesting renewal 
must complete and execute a new Lender's Agreement, along with a written 
update of the eligibility criteria required by this section for 
approval. Lenders requesting renewal must resubmit the information 
required by paragraph (b)(2) of this section and must address how the 
lender is complying with each of the required criteria described in 
paragraph (b)(1) of this section. The written update of the eligibility 
criteria must also include any change in the persons designated to 
process and service Agency guaranteed loans or change in the operating 
methods used in the processing and servicing of loans since the original 
or last renewal date of eligible lender status. The lender must provide 
this information to the Agency at least 60 days prior to the expiration 
of the existing agreement to be assured of a timely renewal.
    (c) Revocation of eligible lender status. The Agency may revoke a 
lender's status at any time for cause. Cause for revoking eligible 
status includes:
    (1) Failure to maintain status as an eligible lender as set forth in 
Sec. 4279.29 of this subpart;
    (2) Knowingly submitting false information when requesting a 
guarantee or basing a guarantee request on information known to be false 
or which the lender should have known to be false;
    (3) Making a guaranteed loan with deficiencies that may cause losses 
not to be covered by the Loan Note Guarantee, such as negligent loan 
origination;
    (4) Conviction of the lender or its officers for criminal acts in 
connection with any loan transaction whether or not the loan was 
guaranteed by the Agency;
    (5) Violation of usury laws in connection with any loan transaction 
whether or not the loan was guaranteed by the Agency;
    (6) Failure to obtain and maintain the required security for any 
loan guaranteed by the Agency;
    (7) Using loan funds guaranteed by the Agency for purposes other 
than those specifically approved by the Agency in the Conditional 
Commitment or amendment thereof in accordance with Sec. 4279.173(b);
    (8) Violation of any term of the Lender's Agreement;
    (9) Failure to correct any Agency-cited deficiency in loan documents 
in a timely manner;
    (10) Failure to submit reports required by the Agency in a timely 
manner;
    (11) Failure to process Agency guaranteed loans as would a 
reasonably prudent lender;
    (12) Failure to provide for adequate construction planning and 
monitoring in connection with any loan to ensure that the project will 
be completed with the available funds and, once completed, will be 
suitable for the borrower's needs;
    (13) Repetitive recommendations for servicing actions or guaranteed 
loans with marginal or substandard credit quality or that do not comply 
with Agency requirements;
    (14) Negligent loan origination;
    (15) Negligent loan servicing;
    (16) Failure to conduct any approved liquidation of a loan 
guaranteed by the Agency or its predecessors in a timely and effective 
manner and in accordance with the approved liquidation plan; or
    (17) Violation of applicable nondiscrimination law, including, but 
not limited to, statutes, regulations, USDA Departmental Regulations, 
the USDA Non-Discrimination Statement, and the Equal Credit Opportunity 
Act. USDA's Non-Discrimination Statement is located at the following Web 
site: http://www.usda.gov/ wps/portal/ usda/ 
usdahome?navtype=FT&navid=NON_ DISCRIMINATION.
    (d) Debarment of lender. The Agency may debar a lender in addition 
to the revocation of the lender's status.

[81 FR 35997, June 3, 2016, as amended at 81 FR 54477, Aug. 16, 2016]

[[Page 686]]



Sec. 4279.30  Lenders' functions and responsibilities.

    (a) General. (1) Lenders have the primary responsibility for the 
successful delivery of the guaranteed loan program. Any action or 
inaction on the part of the Agency does not relieve the lender of its 
responsibilities to originate and service the loan guaranteed under this 
subpart, subpart B of this part, and subpart B of part 4287 of this 
chapter. Lenders may contract for services but are ultimately 
responsible for underwriting, loan origination, loan servicing, and 
compliance with all Agency regulations. No person may act as, or work 
for, both a loan packager and loan service provider on the same 
guaranteed loan. All lenders obtaining or requesting a loan guarantee 
are responsible for:
    (i) Processing applications for guaranteed loans;
    (ii) Developing and maintaining adequately documented loan files, 
which must be maintained for at least 3 years after any final loss has 
been paid;
    (iii) Recommending only loan proposals that are eligible and 
financially feasible;
    (iv) Properly closing the loan and obtaining valid evidence of debt 
and collateral in accordance with sound lending practices prior to 
disbursing loan proceeds;
    (v) Keeping an inventory accounting of all collateral items and 
reconciling the inventory of all collateral sold during loan servicing, 
including liquidation;
    (vi) Monitoring construction and operation;
    (vii) Distributing loan funds;
    (viii) Servicing guaranteed loans in a prudent manner, including 
liquidation if necessary;
    (ix) Reporting all conflicts of interest, or appearances thereof, to 
the Agency;
    (x) Following Agency regulations and agreements; and
    (xi) Obtaining Agency approvals or concurrence as required.
    (2) This subpart, subpart B of this part, and subpart B of part 4287 
of this chapter contain the regulations for this program, including the 
lenders' responsibilities. If a lender fails to comply with these 
requirements, the Agency may reduce any loss payment in accordance with 
the applicable regulations.
    (b) Credit evaluation. The lender must analyze all credit factors 
associated with each proposed loan and apply its professional judgment 
to determine that the credit factors, considered in combination, ensure 
loan repayment. The lender must have an adequate underwriting process to 
ensure that loans are reviewed by persons other than the originating 
officer, and there must be good credit documentation procedures. The 
Agency will only issue guarantees for loans that are sound and have 
reasonable assurance of repayment. The Agency will not issue guarantees 
for marginal or substandard loans.
    (c) Environmental responsibilities. Lenders are responsible for 
becoming familiar with Federal environmental requirements; considering, 
in consultation with the prospective borrower, the potential 
environmental impacts of their proposals at the earliest planning 
stages; and developing proposals that minimize the potential to 
adversely impact the environment.
    (1) Lenders must assist the borrower in providing details of the 
project's impact on the environment and historic properties in 
accordance with 7 CFR part 1970, ``Environmental Policies and 
Procedures,'' (or successor regulation), when applicable; assist in the 
collection of additional data when the Agency needs such data to 
complete its environmental review of the proposal; and assist in the 
resolution of environmental problems.
    (2) Lenders must ensure the borrower has:
    (i) Provided the necessary environmental information to enable the 
Agency to undertake its environmental review process in accordance with 
7 CFR part 1970, ``Environmental Policies and Procedures,'' or successor 
regulation, including the provision of all required Federal, State, and 
local permits;
    (ii) Complied with any mitigation measures required by the Agency; 
and
    (iii) Not taken any actions or incurred any obligations with respect 
to the proposed project that will either limit the range of alternatives 
to be

[[Page 687]]

considered during the Agency's environmental review process or that will 
have an adverse effect on the environment.
    (3) Lenders must alert the Agency to any environmental issues 
related to a proposed project or items that may require extensive 
environmental review.



Sec. Sec. 4279.31-4279.43  [Reserved]



Sec. 4279.44  Access to records.

    The lender must permit representatives of the Agency (or other 
agencies of the United States) to inspect and make copies of any records 
of the lender pertaining to Agency guaranteed loans during regular 
office hours of the lender or at any other time upon agreement between 
the lender and the Agency. In addition, the lender must cooperate fully 
with Agency oversight and monitoring of all lenders involved in any 
manner with any guarantee to ensure compliance with this subpart, 
subpart B of this part, and subpart B of part 4287 of this chapter. Such 
oversight and monitoring will include, but is not limited to, reviewing 
lender records and meeting with lenders in accordance with subpart B of 
part 4287 of this chapter.



Sec. Sec. 4279.45-4279.58  [Reserved]



Sec. 4279.59  Environmental requirements.

    The Agency is responsible for ensuring that the requirements of the 
National Environmental Policy Act of 1969 (under 40 CFR part 1500) and 
related compliance actions, such as Section 106 of the National Historic 
Preservation Act (under 36 CFR part 800) and Section 7 of the Endangered 
Species Act, are met and will complete the appropriate level of 
environmental review in accordance with 7 CFR part 1970, ``Environmental 
Policies and Procedures,'' or successor regulation. Because development 
of the loan application occurs simultaneously with development of the 
environmental review, applicants, including lenders and borrowers, must 
not take any actions or incur any obligations that would either limit 
the range of alternatives to be considered in the environmental review 
or that would have an adverse effect on the environment. Satisfactory 
completion of the environmental review process must occur prior to 
issuance of the Conditional Commitment to the lender.



Sec. 4279.60  Civil rights impact analysis.

    Issuance of a Conditional Commitment is conditioned on the Agency 
being able to satisfactorily complete a civil rights impact analysis.



Sec. 4279.61  Equal Credit Opportunity Act.

    In accordance with the Equal Credit Opportunity Act (15 U.S.C. 1691 
et seq.), with respect to any aspect of a credit transaction, neither 
the lender nor the Agency will discriminate against any applicant on the 
basis of race, color, religion, national origin, sex, marital status, or 
age (providing the applicant has the capacity to contract), or because 
all or part of the applicant's income derives from a public assistance 
program, or because the applicant has, in good faith, exercised any 
right under the Consumer Protection Act. The lender must comply with the 
requirements of the Equal Credit Opportunity Act as contained in the 
Federal Reserve Board's Regulation implementing that Act (see 12 CFR 
part 202) prior to loan closing.



Sec. Sec. 4279.62-4279.70  [Reserved]



Sec. 4279.71  Public bodies and nonprofit corporations.

    Audits will be required of any public body, nonprofit corporation or 
Indian Tribe that receives a guaranteed loan that meets the thresholds 
established by 2 CFR part 200, subpart F. Any audit provided by a public 
body, nonprofit corporation, or Indian Tribe required by this paragraph 
will be considered adequate to meet the audit requirements of the B&I 
program for that year.



Sec. 4279.72  Conditions of guarantee.

    A loan guarantee under this part will be evidenced by a Loan Note 
Guarantee issued by the Agency. The provisions of this part and part 
4287 of this chapter will apply to all outstanding guarantees. In the 
event of a conflict between the guarantee documents and these 
regulations as they exist at the time

[[Page 688]]

the documents are executed, these regulations will control.
    (a) Full faith and credit. A guarantee under this part constitutes 
an obligation supported by the full faith and credit of the United 
States and is incontestable except for fraud or misrepresentation of 
which a lender or holder has actual knowledge at the time it becomes 
such lender or holder or which a lender or holder participates in or 
condones. The guarantee will be unenforceable by the lender to the 
extent that any loss is occasioned by a provision for interest on 
interest or default or penalty interest. In addition, the guarantee will 
be unenforceable by the lender to the extent any loss is occasioned by 
the violation of usury laws, use of loan proceeds for unauthorized 
purposes, negligent loan origination, negligent loan servicing, or 
failure to obtain or maintain the required security regardless of the 
time at which the Agency acquires knowledge thereof. Any losses 
occasioned will be unenforceable by the lender to the extent that loan 
funds were used for purposes other than those specifically approved by 
the Agency in its Conditional Commitment or amendment thereof in 
accordance with Sec. 4279.173(b). The Agency may for cause terminate or 
reduce the Loan Note Guarantee at any time. The Agency will guarantee 
payment as follows:
    (1) To any holder, 100 percent of any loss sustained by the holder 
on the guaranteed portion of the loan it owns and on interest due on 
such portion less any outstanding servicing fee. For those loans closed 
on or after August 2, 2016, the lender or the Agency will issue an 
interest termination letter to the holder(s) establishing the 
termination date for interest accrual. The guarantee will not cover 
interest to any holder accruing after the greater of: 90 days from the 
date of the most recent delinquency effective date as reported by the 
lender or 30 days from the date of the interest termination letter.
    (2) To the lender, subject to the provisions of this part and 
subpart B of part 4287 of this chapter, the lesser of:
    (i) Any loss sustained by the lender on the guaranteed portion, 
including principal and interest (for loans closed on or after August 2, 
2016, the guarantee will not cover note interest to the lender accruing 
after 90 days from the most recent delinquency effective date) evidenced 
by the notes or assumption agreements and secured advances for 
protection and preservation of collateral made with the Agency's 
authorization; or
    (ii) The guaranteed principal advanced to or assumed by the borrower 
and any interest due thereon. For loans closed on or after August 2, 
2016, the guarantee will not cover note interest to the lender accruing 
after 90 days from the most recent delinquency effective date.
    (b) Rights and liabilities. When a guaranteed portion of a loan is 
sold to a holder, the holder will succeed to all rights of the lender 
under the Loan Note Guarantee to the extent of the portion purchased. 
The full, legal interest in the note must remain with the lender, and 
the lender will remain bound to all obligations under the Loan Note 
Guarantee, Lender's Agreement, and Agency program regulations. A 
guarantee and right to require purchase will be directly enforceable by 
a holder notwithstanding any fraud or misrepresentation by the lender or 
any unenforceability of the guarantee by the lender, except for fraud or 
misrepresentation of which the holder had actual knowledge at the time 
it became the holder or in which the holder participates in or condones. 
The lender will reimburse the Agency for any payments the Agency makes 
to a holder on the lender's guaranteed loan that, under the Loan Note 
Guarantee, would not have been paid to the lender had the lender 
retained the entire interest in the guaranteed loan and not conveyed an 
interest to a holder.
    (c) Payments. A lender will receive all payments of principal and 
interest on account of the entire loan and must promptly remit to the 
holder its pro rata share thereof, determined according to its 
respective interest in the loan, less only the lender's servicing fee.

[81 FR 35997, June 3, 2016, as amended at 83 FR 11634, Mar. 16, 2018]

[[Page 689]]



Sec. Sec. 4279.73-4279.74  [Reserved]



Sec. 4279.75  Sale or assignment of guaranteed loan.

    The lender may sell all or part of the guaranteed portion of the 
loan on the secondary market or retain the entire loan. The lender must 
fully disburse and properly close a loan prior to sale of the note(s) on 
the secondary market. The lender cannot sell or participate any amount 
of the guaranteed or unguaranteed portion of the loan to the borrower or 
its parent, subsidiary, or affiliate or to officers, directors, 
stockholders, other owners, or members of their immediate families. The 
lender cannot share any premium received from the sale of a guaranteed 
loan in the secondary market with a loan packager or other loan service 
provider. If the lender desires to market all or part of the guaranteed 
portion of the loan at or subsequent to loan closing, such loan must not 
be in default. Lenders may use either the single note or multi-note 
system as outlined in paragraphs (a) and (b) of this section. The lender 
may also obtain participation in the loan under its normal operating 
procedures; however, the lender must retain title to the notes if any of 
them are unguaranteed and retain the lender's interest in the 
collateral.
    (a) Single note system. The entire loan is evidenced by one note, 
and one Loan Note Guarantee is issued. The lender must retain title to 
the note, retain the lender's interest in the collateral, and retain the 
servicing responsibilities for the guaranteed loan. When the loan is 
evidenced by one note, the lender may not at a later date cause any 
additional notes to be issued. The lender may assign all or part of the 
guaranteed portion of the loan to one or more holders by using an 
Assignment Guarantee Agreement. The lender must complete and execute the 
Assignment Guarantee Agreement and return it to the Agency for execution 
prior to holder execution. In order to validate authenticity, holders 
are encouraged to consult with the Agency. Additionally, a Certificate 
of Incumbency and Signature may be requested. The holder, with written 
notice to the lender and the Agency, may reassign the unpaid guaranteed 
portion of the loan, in full, sold under the Assignment Guarantee 
Agreement. Holders may only reassign the entire guaranteed portion they 
have received and cannot subdivide or further split the guaranteed 
portion of a loan or retain an interest strip. Upon notification and 
completion of the Assignment Guarantee Agreement, the assignee shall 
succeed to all rights and obligations of the holder thereunder. 
Subsequent assignments require notice to the lender and Agency using any 
format, including that used by the Securities Industry and Financial 
Markets Association (formerly known as the Bond Market Association), 
together with the transfer of the original Assignment Guarantee 
Agreement. The Agency will neither execute a new Assignment Guarantee 
Agreement to effect a subsequent reassignment nor reissue a duplicate 
Assignment Guarantee Agreement unless the original was lost, stolen, 
destroyed, mutilated, or defaced in accordance with Sec. 4279.84. The 
Assignment Guarantee Agreement clearly states the percentage and 
corresponding amount of the guaranteed portion it represents and the 
lender's servicing fee. A servicing fee may be charged by the lender to 
a holder and is calculated as a percentage per annum of the unpaid 
balance of the guaranteed portion of the loan assigned by the Assignment 
Guarantee Agreement. The Agency is not and will not be a party to any 
contract between the lender and another party where the lender sells its 
servicing fee. The Agency will not acknowledge, approve, nor have any 
liability to any of the parties of this contract.
    (b) Multi-note system. Under this option, the lender may provide one 
note for the unguaranteed portion of the loan and no more than 10 notes 
for the guaranteed portion. All promissory notes must reflect the same 
payment terms. The lender must retain its interest in the collateral and 
servicing responsibilities for the guaranteed loan. When the lender 
selects this option, the holder will receive one of the borrower's 
executed notes and a Loan Note Guarantee. The Agency will issue a Loan 
Note Guarantee for each note, including the unguaranteed note, to be 
attached to each note. An Assignment

[[Page 690]]

Guarantee Agreement will not be used when the multi-note option is 
utilized.



Sec. 4279.76  [Reserved]



Sec. 4279.77  Minimum retention.

    The lender is required to hold in its own portfolio a minimum of 5 
percent of the original total loan amount. The amount required to be 
maintained must be of the unguaranteed portion of the loan and cannot be 
participated to another. The lender may enter into no agreement that 
reduces its exposure below the minimum 5 percent it is required to 
retain in its portfolio. The lender may sell the remaining amount of the 
unguaranteed portion of the loan only through participation.



Sec. 4279.78  Repurchase from holder.

    (a) Repurchase by lender. A lender has the option to repurchase the 
unpaid guaranteed portion of the loan from a holder within 30 days of 
written demand by the holder when the borrower is in default not less 
than 60 days on principal or interest due on the loan; or when the 
lender has failed to remit to the holder its pro rata share of any 
payment made by the borrower within 30 days of the lender's receipt 
thereof. The repurchase by the lender must be for an amount equal to the 
unpaid guaranteed portion of principal and accrued interest less the 
lender's servicing fee. The holder must concurrently send a copy of the 
demand letter to the Agency. The lender must accept an assignment 
without recourse from the holder upon repurchase. For those loans closed 
on or after August 2, 2016, the lender or the Agency will issue an 
interest termination letter to the holder(s) establishing the 
termination date for interest accrual if the default is not cured. The 
guarantee will not cover interest to any holder accruing after the 
greater of: 90 days from the date of the most recent delinquency 
effective date as reported by the lender or 30 days from the date of the 
interest termination letter. If, in the opinion of the lender, 
repurchase of the guaranteed portion of the loan is necessary to 
adequately service the loan, the holder must sell the guaranteed portion 
of the loan to the lender for an amount equal to the unpaid principal 
and interest on such portion less the lender's servicing fee. The lender 
must not repurchase from the holder for arbitrage or other purposes to 
further its own financial gain. Any repurchase must only be made after 
the lender obtains the Agency's written approval. If the lender does not 
repurchase the guaranteed portion from the holder, the Agency may, at 
its option, purchase such guaranteed portion for servicing purposes. The 
lender is encouraged to repurchase the loan to facilitate the accounting 
of funds, resolve any loan problems, and prevent default, where and when 
reasonable. The benefit to the lender is that it may resell the 
guaranteed portion of the loan in order to continue collection of its 
servicing fee if the default is cured. When the lender repurchases the 
guaranteed portion from the secondary market for servicing purposes, the 
lender must discontinue interest accrual if Federal or State regulators 
place the loan in non-accrual status if the default is not cured within 
90 days. The lender will notify the holder and the Agency of its 
decision.
    (b) Agency repurchase. (1) The lender's servicing fee will stop on 
the date that interest was last paid by the borrower when the Agency 
purchases the guaranteed portion of the loan from a holder. The lender 
cannot charge such servicing fee to the Agency and must apply all loan 
payments and collateral proceeds received to the guaranteed and 
unguaranteed portions of the loan on a pro rata basis.
    (2) If the Agency repurchases 100 percent of the guaranteed portion 
of the loan and becomes the holder, interest accrual on the loan will 
cease, and the Agency will not continue collection of the annual renewal 
fee from the lender.
    (3) If the lender does not repurchase the unpaid guaranteed portion 
of the loan as provided in paragraph (a) of this section, the Agency 
will purchase from the holder the unpaid principal balance of the 
guaranteed portion together with accrued interest to date of repurchase, 
less the lender's servicing fee, within 30 days after written demand to 
the Agency from the holder. For those loans closed on or after August 2, 
2016, the lender or the Agency will issue an interest termination letter 
to the holder(s) establishing the

[[Page 691]]

termination date for interest accrual. The guarantee will not cover 
interest to any holder accruing after the greater of: 90 days from the 
date of the most recent delinquency effective date as reported by the 
lender or 30 days from the date of the interest termination letter. Once 
the holder makes demand upon the Agency, the request cannot be 
rescinded.
    (4) When the guaranteed loan has been delinquent more than 60 days 
and no holder comes forward, the Agency may issue a letter to the 
holder(s) establishing the cutoff date for interest accrual. Accrued 
interest to be paid the holder will be calculated from the date interest 
was last paid on the loan with a cutoff date being no more than 90 days 
from the date of the most recent delinquency effective date as reported 
by the lender.
    (5) When the lender has accelerated the account and holds all or a 
portion of the guaranteed loan, an estimated loss claim (loan in the 
liquidation process) must be filed by the lender with the Agency within 
60 days. Accrued interest paid to the lender will be calculated from the 
date interest was last paid on the loan with a cutoff date being no more 
than 90 days from the most recent delinquency effective date as reported 
by the lender.
    (6) The holder's demand to the Agency must include a copy of the 
written demand made upon the lender. The holder must also include 
evidence of its right to require payment from the Agency. Such evidence 
must consist of either the original of the Loan Note Guarantee properly 
endorsed to the Agency or the original of the Assignment Guarantee 
Agreement properly assigned to the Agency without recourse, including 
all rights, title, and interest in the loan. When the single-note system 
is utilized and the initial holder has sold its interest, the current 
holder must present the original Assignment Guarantee Agreement and an 
original of each Agency-approved reassignment document in the chain of 
ownership, with the latest reassignment being assigned to the Agency 
without recourse, including all rights, title, and interest in the 
guarantee. The holder must include in its demand the amount due, 
including unpaid principal, unpaid interest to date of demand, and 
interest subsequently accruing from date of demand to proposed payment 
date. The Agency will be subrogated to all rights of the holder.
    (7) Upon request by the Agency, the lender must promptly furnish a 
current statement certified by an appropriate authorized officer of the 
lender of the unpaid principal and interest then owed by the borrower on 
the loan and the amount then owed to any holder, along with the 
information necessary for the Agency to determine the appropriate amount 
due the holder. Any discrepancy between the amount claimed by the holder 
and the information submitted by the lender must be resolved between the 
lender and the holder before payment will be approved. Such conflict 
will suspend the running of the 30-day payment requirement.
    (8) Purchase by the Agency neither changes, alters, nor modifies any 
of the lender's obligations to the Agency arising from the loan or 
guarantee nor does it waive any of the Agency's rights against the 
lender. The Agency will have the right to set-off against the lender all 
rights inuring to the Agency as the holder of the instrument against the 
Agency's obligation to the lender under the program.



Sec. Sec. 4279.79-4279.83  [Reserved]



Sec. 4279.84  Replacement of document.

    (a) The Agency may issue a replacement Loan Note Guarantee or 
Assignment Guarantee Agreement that was lost, stolen, destroyed, 
mutilated, or defaced to the lender or holder upon receipt of an 
acceptable certificate of loss and an indemnity bond.
    (b) When a Loan Note Guarantee or Assignment Guarantee Agreement is 
lost, stolen, destroyed, mutilated, or defaced while in the custody of 
the lender or holder, the lender must coordinate the activities of the 
party who seeks the replacement documents and submit the required 
documents to the Agency for processing. The requirements for replacement 
are as follows:
    (1) A certificate of loss, notarized and containing a jurat, which 
includes:
    (i) Name and address of owner;
    (ii) Name and address of the lender of record;

[[Page 692]]

    (iii) Capacity of person certifying;
    (iv) Full identification of the Loan Note Guarantee or Assignment 
Guarantee Agreement, including the name of the borrower, the Agency's 
case number, date of the Loan Note Guarantee or Assignment Guarantee 
Agreement, face amount of the evidence of debt purchased, date of 
evidence of debt, present balance of the loan, percentage of guarantee, 
and, if an Assignment Guarantee Agreement, the original named holder and 
the percentage of the guaranteed portion of the loan assigned to that 
holder. Any existing parts of the document to be replaced must be 
attached to the certificate;
    (v) A full statement of circumstances of the loss, theft, 
destruction, defacement, or mutilation of the Loan Note Guarantee or 
Assignment Guarantee Agreement; and
    (vi) For the holder, evidence demonstrating current ownership of the 
Loan Note Guarantee and promissory note or the Assignment Guarantee 
Agreement. If the present holder is not the same as the original holder, 
a copy of the endorsement of each successive holder in the chain of 
transfer from the initial holder to present holder must be included. If 
copies of the endorsement cannot be obtained, best available records of 
transfer must be submitted to the Agency (e.g., order confirmation, 
canceled checks, etc.).
    (2) An indemnity bond acceptable to the Agency must accompany the 
request for replacement except when the holder is the United States, a 
Federal Reserve Bank, a Federal corporation, a State or territory, or 
the District of Columbia. The bond must be with surety except when the 
outstanding principal balance and accrued interest due the present 
holder is less than $1 million, verified by the lender in writing in a 
letter of certification of balance due. The surety must be a qualified 
surety company holding a certificate of authority from the Secretary of 
the Treasury and listed in Treasury Department Circular 570.
    (3) All indemnity bonds must be issued and payable to the United 
States of America acting through the Agency. The bond must be in an 
amount not less than the unpaid principal and interest. The bond must 
hold the Agency harmless against any claim or demand that might arise or 
against any damage, loss, costs, or expenses that might be sustained or 
incurred by reasons of the loss or replacement of the instruments.
    (4) The Agency will not attempt to obtain, or participate in the 
obtaining of, replacement notes from the borrower. The holder is 
responsible for bearing the costs of note replacement if the borrower 
agrees to issue a replacement instrument. Should such note be replaced, 
the terms of the note cannot be changed. If the evidence of debt has 
been lost, stolen, destroyed, mutilated, or defaced, such evidence of 
debt must be replaced before the Agency will replace any instruments.



Sec. Sec. 4279.85-4279.99  [Reserved]



Sec. 4279.100  OMB control number.

    In accordance with the Paperwork Reduction Act of 1995, the 
information collection requirements contained in this subpart have been 
submitted to the Office of Management and Budget (OMB) under OMB Control 
Number 0570-0069 for OMB approval.



                  Subpart B_Business and Industry Loans

    Source: 81 FR 36005, June 3, 2016, unless otherwise noted.



Sec. 4279.101  Introduction.

    (a) Content. As of October 1, 2020, this subpart is specifically 
applicable to and only contains loan processing regulations for Business 
and Industry loans under the authority of the Coronavirus Aid, Relief, 
and Economic Security Act (CARES Act) (Pub. L. 116-136) to provide B&I 
guarantees for loans needed as a result of the Coronavirus Disease 2019 
(COVID-19) pandemic for working capital loan purposes to support 
business operations and facilities in rural areas (B&I CARES Act Program 
Loans). Some of the requirements of this subpart are waived or altered 
for B&I CARES Act Program Loans. The waivers and alterations are 
provided in Sec. 4279.190 of this subpart. This subpart is supplemented 
by subpart A of this part, which contains general guaranteed loan 
regulations, and subpart B of

[[Page 693]]

part 4287 of this chapter, which contains loan servicing regulations. 
Other than the B&I CARES Act Program Loans, this subpart is no longer 
used for loan processing requirements for Business and Industry (B&I) 
loans guaranteed by the Agency. Requirements for regular B&I loans 
(other than the B&I CARES Act Program Loans) may be found at 7 CFR part 
5001.
    (b) Purpose. The purpose of the B&I Guaranteed Loan Program is to 
improve, develop, or finance business, industry, and employment and 
improve the economic and environmental climate in rural communities. 
This purpose is achieved by bolstering the existing private credit 
structure through the guarantee of quality loans that will provide 
lasting community benefits. It is not intended that the guarantee 
authority will be used for marginal or substandard loans or for relief 
of lenders having such loans.
    (c) Documents. Whether specifically stated or not, whenever Agency 
approval is required, it must be in writing. Copies of all forms and 
regulations referenced in this subpart may be obtained from any Agency 
office and from the USDA Rural Development Web site at http://
www.rd.usda.gov/ publications. Whenever a form is designated in this 
subpart, that designation includes predecessor and successor forms, if 
applicable, as specified by the Agency.

[81 FR 36005, June 3, 2016, as amended at 85 FR 31040, May 22, 2020; 85 
FR 62196, Oct. 2, 2020]



Sec. 4279.102  Definitions and abbreviations.

    The definitions and abbreviations in Sec. 4279.2 are applicable to 
this subpart.



Sec. 4279.103  Exception authority.

    Section 4279.15 applies to this subpart.



Sec. 4279.104  Appeals.

    Section 4279.16 applies to this subpart.



Sec. Sec. 4279.105-4279.107  [Reserved]



Sec. 4279.108  Eligible borrowers.

    (a) Type of entity. A borrower may be a cooperative organization, 
corporation, partnership, or other legal entity organized and operated 
on a profit or nonprofit basis; an Indian tribe on a Federal or State 
reservation or other federally recognized tribal group; a public body; 
or an individual. A borrower must be engaged in or proposing to engage 
in a business. A business may include manufacturing, wholesaling, 
retailing, providing services, or other activities that will provide 
employment and improve the economic or environmental climate.
    (b) Citizenship. Individual borrowers must be citizens of the United 
States or reside in the United States after being legally admitted for 
permanent residence. For purposes of this subpart, citizens and 
residents of the Republic of Palau, the Federated States of Micronesia, 
American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, 
and the Republic of the Marshall Islands are considered U.S. citizens. 
Individuals that reside in the United States after being legally 
admitted for permanent residence must provide a permanent green card as 
evidence of eligibility. Private entity borrowers must demonstrate, to 
the Agency's satisfaction, that loan funds will remain in the United 
States and the facility being financed will primarily create new or save 
existing jobs for rural U.S. residents.
    (c) Rural area. The business financed with a guaranteed loan under 
this subpart must be located in a rural area, except for cooperative 
organizations financed in accordance with Sec. 4279.113(j)(2) and local 
foods projects financed in accordance with Sec. 4279.113(y)(2). Loans 
to borrowers with facilities located in both rural and non-rural areas 
will be limited to the amount necessary to finance the facility located 
in the eligible rural area, except for those cooperative organizations 
financed in accordance with Sec. 4279.113(j)(2) and those local foods 
projects financed in accordance with Sec. 4279.113(y)(2).
    (1) Rural areas are any area of a State other than a city or town 
that

[[Page 694]]

has a population of greater than 50,000 inhabitants and any urbanized 
area contiguous and adjacent to such a city or town, and which excludes 
certain populations pursuant to 7 U.S.C. 1991(a)(13)(H) and (I). In 
making this determination, the Agency will use the latest decennial 
census of the United States.
    (2) For the purposes of this definition, cities and towns are 
incorporated population centers with definite boundaries, local self 
government, and legal powers set forth in a charter granted by the 
State.
    (3) For the Commonwealth of Puerto Rico, the island is considered 
rural, except for the San Juan Census Designated Place (CDP) and any 
other CDP with greater than 50,000 inhabitants. However, CDPs with 
greater than 50,000 inhabitants, other than the San Juan CDP, may be 
eligible if they are determined to be ``not urban in character.''
    (4) For the State of Hawaii, all areas within the State are 
considered rural, except for the Honolulu CDP within the County of 
Honolulu.
    (5) For the Republic of Palau, the Federated States of Micronesia, 
American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, 
and the Republic of the Marshall Islands, the Agency will determine what 
constitutes a rural area based on available population data.
    (6) Notwithstanding any other provision of this definition, in 
determining which census blocks in an urbanized area are not in a rural 
area, the Agency will exclude any cluster of census blocks that would 
otherwise be considered not in a rural area only because the cluster is 
adjacent to not more than two census blocks that are otherwise 
considered not in a rural area under this definition.
    (7) The Under Secretary, whose authority may not be redelegated, may 
determine that an area is ``rural in character.'' Any determination made 
by the Under Secretary under this provision will be to areas that are 
determined to be ``rural in character'' and are within: An urbanized 
area that has two points on its boundary that are at least 40 miles 
apart, which is not contiguous or adjacent to a city or town that has a 
population of greater than 150,000 inhabitants or the urbanized area of 
such city or town; or an area within an urbanized area contiguous and 
adjacent to a city or town of greater than 50,000 inhabitants that is 
within \1/4\ mile of a rural area.
    (i) Units of local government may petition the Under Secretary for a 
``rural in character'' designation by submitting a petition to both the 
appropriate Rural Development State Director and the Administrator on 
behalf of the Under Secretary. The petition must document how the area 
meets the requirements of paragraph (c)(7) of this section and discuss 
why the petitioner believes the area is ``rural in character,'' 
including, but not limited to, the area's population density; 
demographics; topography; and how the local economy is tied to a rural 
economic base. Upon receiving a petition, the Under Secretary will 
consult with the applicable Governor and Rural Development State 
Director and request comments within 10 business days, unless those 
comments were submitted with the petition. The Under Secretary will 
release to the public a notice of a petition filed by a unit of local 
government not later than 30 days after receipt of the petition by way 
of notice in a local newspaper and notice on the applicable Rural 
Development State Office Web site. The Under Secretary will make a 
determination not less than 15 days, but no more than 60 days, after the 
release of the notice. The public notice will appear for at least 3 
consecutive days if published in a daily newspaper or otherwise in two 
consecutive publications. Upon a negative determination, the Under 
Secretary will provide to the petitioner an opportunity to appeal a 
determination to the Under Secretary for reconsideration, and the 
petitioner will have 10 business days to appeal the determination and 
provide further information for consideration.
    (ii) Rural Development State Directors may also initiate a request 
to the Under Secretary to determine if an area is ``rural in 
character.'' A written recommendation should be sent to the 
Administrator, on behalf of the Under Secretary, that documents how the 
area meets the statutory requirements

[[Page 695]]

of paragraph (c)(7) of this section and discusses why the State Director 
believes the area is ``rural in character,'' including, but not limited 
to, the area's population density; demographics; topography; and how the 
local economy is tied to a rural economic base. Upon receipt of such a 
request, the Administrator will review the request for compliance with 
the ``rural in character'' provisions and make a recommendation to the 
Under Secretary. Provided a favorable determination is made, the Under 
Secretary will consult with the applicable Governor and request comments 
within 10 business days, unless gubernatorial comments were submitted 
with the request. A public notice will be published by the State Office 
in accordance with paragraph (c)(7)(i) of this section. There is no 
appeal process for requests made on the initiative of the State 
Director.
    (d) Other credit. All applications for assistance will be accepted 
and processed without regard to the availability of credit from any 
other source.
    (e) Prohibition under Agency programs. No loans guaranteed by the 
Agency will be conditioned on any requirement that the recipients of 
such assistance accept or receive electric or other services from any 
particular utility, supplier, or cooperative.

[81 FR 36005, June 3, 2016, as amended at 87 FR 38644, June 29, 2022]



Sec. Sec. 4279.109-4279.112  [Reserved]



Sec. 4279.113  Eligible uses of funds.

    Eligible uses of funds must be consistent with Sec. 4279.101(b) and 
Sec. 4279.108(a) and include, but are not limited to, the following:
    (a) Purchase and development of land, buildings, and associated 
infrastructure for commercial or industrial properties, including 
expansion or modernization.
    (b) Business acquisitions provided that jobs will be created or 
saved. A business acquisition is considered the acquisition of an entire 
business, not a partial stock acquisition in a business.
    (c) Leasehold improvements when the lease contains no reverter 
clauses or restrictive clauses that would impair the use or value of the 
property as security for the loan. The term of the lease must be equal 
to or greater than the term of the loan.
    (d) Constructing or equipping facilities for lease to private 
businesses engaged in commercial or industrial operations. Financing for 
mixed-use properties, involving both commercial business and residential 
space, is authorized provided that not less than 50 percent of the 
building's projected revenue will be generated from business use.
    (e) Purchase of machinery and equipment.
    (f) Startup costs, working capital, inventory, and supplies in the 
form of a permanent working capital term loan.
    (g) Debt refinancing when it is determined that the project is 
viable and refinancing is necessary to improve cash flow and create new 
or save existing jobs. Debt being refinanced must be debt of the 
borrower reflected on its balance sheet. The lender's analysis must 
document that, except for the refinancing of lines of credit, the debt 
being refinanced was for an eligible loan purpose under this subpart. 
Except as provided for in paragraph (j)(3) of this section, existing 
lender debt may be included provided that, at the time of application, 
the loan being refinanced has been closed and current for at least the 
past 12 months (current status cannot be achieved by the lender 
forgiving the borrower's debt or servicing actions that impact the 
borrower's repayment schedule), and the lender is providing better rates 
or terms. Unless the amount to be refinanced is owed directly to the 
Federal government or is federally guaranteed, existing lender debt may 
not exceed 50 percent of the overall loan.
    (h) Takeout of interim financing. Guaranteeing a loan that provides 
for permanent, long-term financing after project completion to pay off a 
lender's interim loan will not be treated as debt refinancing provided 
that the lender submits a complete preapplication or application that 
proposes such interim financing prior to closing the interim loan. The 
borrower must take no action that would have an adverse impact on the 
environment or limit the range of alternatives to be considered by the 
Agency during the environmental review process. The Agency will not

[[Page 696]]

guarantee takeout of interim financing loans that prevent a meaningful 
environmental assessment prior to Agency loan approval. Even for 
projects with interim financing, the Agency cannot approve the loan and 
issue a Conditional Commitment until the environmental process is 
complete. The Agency assumes no responsibility or obligation for interim 
loans.
    (i) Purchase of membership, stocks, bonds, or debentures necessary 
to obtain a loan from Farm Credit System institutions and other lenders 
provided the purchase is required for all of their borrowers and is the 
minimum amount required.
    (j) Loans to cooperative organizations.
    (1) Guaranteed loans to eligible cooperative organizations may be 
made in principal amounts up to $40 million if the project is located in 
a rural area, the cooperative facility being financed provides for the 
value-added processing of agricultural commodities, and the total amount 
of loans exceeding $25 million does not exceed 10 percent of the funds 
available for the fiscal year.
    (2) Guaranteed loans to eligible cooperative organizations may also 
be made in non-rural areas provided:
    (i) The primary purpose of the loan is for a facility to provide 
value-added processing for agricultural producers that are located 
within 80 miles of the facility;
    (ii) The applicant satisfactorily demonstrates that the primary 
benefit of the loan will be to provide employment for rural residents;
    (iii) The principal amount of the loan does not exceed $25 million; 
and
    (iv) The total amount of loans guaranteed under this paragraph does 
not exceed 10 percent of the funds available for the fiscal year.
    (3) An eligible cooperative organization may refinance an existing 
B&I loan provided the existing loan is current and performing; the 
existing loan is not and has not been in monetary default (more than 30 
days late) or the collateral of which has not been converted; and there 
is adequate security or full collateral for the new guaranteed loan.
    (k) The purchase of cooperative stock by individual farmers or 
ranchers in a farmer or rancher cooperative or the purchase of 
transferable cooperative stock in accordance with Sec. 4279.115(a); or 
the purchase of stock in a business by employees forming an Employee 
Stock Ownership Plan or worker cooperative in accordance with Sec. 
4279.115(c).
    (l) The purchase of preferred stock or similar equity issued by a 
cooperative organization or a fund that invests primarily in cooperative 
organizations in accordance with Sec. 4279.115(b).
    (m) Taxable corporate bonds when the bonds are fully amortizing and 
comply with all provisions of Sec. 4279.126, and the bond holder 
(lender) retains 5 percent of the bond in accordance with Sec. 4279.77. 
The bonds must be fully secured with collateral in accordance with Sec. 
4279.131(b). The bonds must only provide for a trustee when the trustee 
is totally under the control of the lender. The bonds must provide no 
rights to bond holders other than the right to receive the payments due 
under the bond. For instance, the bonds must not provide for bond 
holders replacing the trustee or directing the trustee to take servicing 
actions, such as accelerating the bonds. Convertible bonds are not 
eligible under this paragraph due to the potential conflict of interest 
of a lender having an ownership interest in the borrower.
    (1) The bond issuer (borrower) must not issue more than 11 bonds, 
with no more than 10 of those bonds being guaranteed under this program. 
The bond issuer must obtain the services and opinion of an experienced 
bond counsel who must present a legal opinion stating that the bonds are 
legal, valid, and binding obligations of the issuer and that the issuer 
has adhered to all applicable laws.
    (2) The bond holder must purchase all of the bonds and comply with 
all Agency regulations. There must be a bond purchase agreement between 
the issuer and the bond holder. The bond purchase agreement must contain 
similar language to what is required to be in a loan agreement in 
accordance with Sec. 4279.161(b)(11) and must not be in conflict with 
subparts A or B of part 4279 or subpart B of part 4287 of this chapter. 
The bond holder is responsible for all servicing of the loan (bond), 
although the bond holder may contract

[[Page 697]]

for servicing assistance, including contracting with a trustee who 
remains under the lender's total control.
    (n) Interest (including interest on interim financing) during the 
period before the first principal payment becomes due or when the 
facility becomes income producing, whichever is earlier.
    (o) Fees and charges outlined in Sec. 4279.120(a), (c) and (d).
    (p) Feasibility studies.
    (q) Agricultural production, when not eligible for Farm Service 
Agency (FSA) farm loan programs assistance and when it is part of an 
integrated business also involved in the processing of agricultural 
products. Any agricultural production considered for guaranteed loan 
financing must be owned, operated, and maintained by the business 
receiving the loan for which a guarantee is provided. Except for 
cooperative stock purchase loans in accordance with Sec. 4279.115(a), 
independent agricultural production operations are not eligible, even if 
not eligible for FSA farm loan programs assistance.
    (1) The agricultural-production portion of any loan must not exceed 
50 percent of the total loan or $5 million, whichever is less.
    (2) This paragraph does not preclude financing the following types 
of businesses:
    (i) Commercial nurseries engaged in the production of ornamental 
plants, trees, and other nursery products, such as bulbs, flowers, 
shrubbery, flower and vegetable seeds, sod, and the growing of plants 
from seed to the transplant stage; and forestry, which includes 
businesses primarily engaged in the operation of timber tracts, tree 
farms, forest nurseries, and related activities, such as reforestation.
    (ii) The growing of mushrooms or hydroponics.
    (iii) The boarding and/or training of animals.
    (iv) Commercial fishing.
    (v) Aquaculture, including conservation, development, and 
utilization of water for aquaculture.
    (r) Educational or training facilities.
    (s) Industries undergoing adjustment from terminated Federal 
agricultural price and income support programs or increased competition 
from foreign trade.
    (t) Community facility projects that are not listed as an ineligible 
loan purpose in Sec. 4279.117.
    (u) Nursing homes and assisted living facilities where constant 
medical care is provided and available onsite to the residents. 
Independent living facilities are considered residential in nature and 
are not eligible in accordance with Sec. 4279.117(d).
    (v) Tourist and recreation facilities, including hotels, motels, bed 
and breakfast establishments, and resort trailer parks and campgrounds, 
except as prohibited under ineligible purposes in Sec. 4279.117.
    (w) Pollution control and abatement.
    (x) Energy projects that are not eligible for the Rural Energy for 
America Program (REAP) (7 CFR part 4280, subpart B), unless sufficient 
funding is not available under REAP, and when the facility has been 
constructed according to plans and specifications and is producing at 
the quality and quantity projected in the application. This does not 
preclude the guarantee of joint REAP/B&I projects. Eligible energy 
projects must be commercially available. Eligible energy projects also 
include those that reduce reliance on nonrenewable energy resources by 
encouraging the development and construction of solar energy systems and 
other renewable energy systems (including wind energy systems and 
anaerobic digesters for the purpose of energy generation), including the 
modification of existing systems in rural areas.
    (1) Projects that produce renewable biomass or biofuel as an output 
must utilize commercially available technologies and have completed two 
operating cycles at design performance levels prior to issuance of a 
Loan Note Guarantee.
    (2) Projects that produce steam or electricity as an output must 
have met acceptance test performance criteria acceptable to the Agency 
and be successfully interconnected with the purchaser of the output. An 
executed power purchase agreement acceptable to the Agency will be 
required prior to issuance of a Loan Note Guarantee.
    (3) Performance or acceptance test requirements for all other energy

[[Page 698]]

projects will be determined by the Agency on a case-by-case basis.
    (y) Projects that process, distribute, aggregate, store, and/or 
market locally or regionally produced agricultural food products to 
support community development and farm and ranch income, subject to each 
of the following:
    (1) The term ``locally or regionally produced agricultural food 
product'' means any agricultural food product that is raised, produced, 
and distributed in the locality or region in which the final product is 
marketed, so that the distance the product is transported is less than 
400 miles from the origin of the product, or within the State in which 
the product is produced. Food products could be raw, cooked, or a 
processed edible substance, beverage, or ingredient used or intended for 
use or for sale in whole or in part for human consumption.
    (2) Projects may be located in urban areas, as well as rural areas.
    (3) A significant amount of the food product sold by the borrower is 
locally or regionally produced, and a significant amount of the locally 
or regionally produced food product is sold locally or regionally. The 
Agency is choosing not to set a threshold for ``significant'' but 
reserves the right to do so in periodic notices in the Federal Register.
    (4) The borrower must include in an appropriate agreement, with 
retail and institutional facilities to which the borrower sells locally 
or regionally produced agricultural food products, a requirement to 
inform consumers of the retail or institutional facilities that the 
consumers are purchasing or consuming locally or regionally produced 
agricultural food products.
    (5) The Agency will give funding priority to projects that provide a 
benefit to underserved communities in accordance with Sec. 
4279.166(b)(4)(i)(G). An underserved community is a community (including 
an urban or rural community and an Indian tribal community) that has 
limited access to affordable, healthy foods, including fresh fruits and 
vegetables, in grocery retail stores or farmer to consumer direct 
markets and that has either a high rate of hunger or food insecurity or 
a high poverty rate as reflected in the most recent decennial census or 
other Agency-approved census.
    (z) A borrower is permitted to use up to 10 percent of the amount 
provided under this subpart to construct, improve, or acquire broadband 
infrastructure related to the project financed, subject to the 
requirements of 7 CFR part 1980, subpart M.

[81 FR 36005, June 3, 2016, as amended at 85 FR 57084, Sept. 15, 2020]



Sec. 4279.114  [Reserved]



Sec. 4279.115  Cooperative stock/cooperative equity.

    (a) Cooperative stock purchase program. The Agency may guarantee 
loans for the purchase of cooperative stock by individual farmers or 
ranchers in a farmer or rancher cooperative established for the purpose 
of processing an agricultural commodity. The cooperative may use the 
proceeds from the stock sale to recapitalize, to develop a new 
processing facility or product line, or to expand an existing production 
facility. The cooperative may contract for services to process 
agricultural commodities or otherwise process value-added agricultural 
products during the 5-year period beginning on the operation startup 
date of the cooperative in order to provide adequate time for the 
planning and construction of the processing facility of the cooperative. 
Loan proceeds must remain in the cooperative from which stock was 
purchased, and the cooperative must not reinvest those funds into 
another entity. The Agency may also guarantee loans for the purchase of 
transferable stock shares of any type of existing cooperative, which 
would primarily involve new or incoming members. Such stock may provide 
delivery or some form of participation rights and may only be traded 
among cooperative members. Paragraphs (5) through (7) of this section 
are not applicable for guaranteed loans for the purchase of transferable 
cooperative stock.
    (1) The maximum loan amount is the threshold established in Sec. 
4279.161(c), and all applications will be processed in accordance with 
Sec. 4279.161(c).
    (2) The maximum term is 7 years.

[[Page 699]]

    (3) The lender will, at a minimum, obtain a valid lien on the stock, 
an assignment of any patronage refund, and the ability to transfer the 
stock to another party, or otherwise liquidate and dispose of the 
collateral in the event of a borrower default.
    (4) The lender must complete a written credit analysis of each stock 
purchase loan and a complete credit analysis of the cooperative prior to 
making its first stock purchase loan.
    (5) The borrower may provide financial information in the manner 
that is generally required by commercial agricultural lenders.
    (6) A feasibility study of the cooperative is required for startup 
cooperatives and may be required by the Agency for existing cooperatives 
when the cooperative's operations will be significantly affected by the 
proceeds that were generated from the stock sale.
    (7) The Agency will conduct an appropriate environmental assessment 
on the processing facility and will not process individual applications 
for the purchase of stock until the environmental assessment on the 
cooperative processing facility is completed. Typically, an individual 
loan for the purchase of cooperative stock is considered a categorical 
exclusion.
    (b) Cooperative equity security guarantees. The Agency may guarantee 
loans for the purchase of preferred stock or similar equity issued by a 
cooperative organization or for a fund that invests primarily in 
cooperative organizations. In either case, the guarantee must 
significantly benefit one or more entities eligible for assistance under 
the B&I program.
    (1) ``Similar equity'' is any special class of equity stock that is 
available for purchase by non-members and/or members and lacks voting 
and other governance rights.
    (2) A fund that invests ``primarily'' in cooperative organizations 
is determined by its percentage share of investments in and loans to 
cooperatives. A fund portfolio must have at least 50 percent of its 
loans and investments in cooperatives to be considered eligible for loan 
guarantees for the purchase of preferred stock or similar equity.
    (3) The principal amount of the loan will not exceed $10 million.
    (4) The maximum term is 7 years or no longer than the specified 
holding period for redemption as stated by the stock offering, whichever 
is less.
    (5) All borrowers purchasing preferred stock or similar equity must 
provide documentation of the terms of the offering that includes 
compliance with State and Federal securities laws and financial 
information about the issuer of the preferred stock to both the lender 
and the Agency.
    (6) Issuer(s) of preferred stock must be a cooperative organization 
or a fund and must be able to issue preferred stock to the public that, 
if required, complies with State and Federal securities laws.
    (7) A fund must use a loan guaranteed under this subpart to purchase 
preferred stock that is issued by cooperatives.
    (8) The lender will, at a minimum, obtain a valid lien on the 
preferred stock, an assignment of any patronage refund, and the ability 
to transfer the stock to another party, or otherwise liquidate and 
dispose of the collateral in the event of a borrower default. For the 
purpose of recovering losses from loan defaults, lenders may take 
ownership of all equities purchased with such loans, including 
additional shares derived from reinvestment of dividends.
    (9) Shares of preferred stock that are purchased with guaranteed 
loan proceeds cannot be converted to common or voting stock.
    (10) In the absence of adequate provisions for investors' rights to 
early redemption of preferred stock or similar equity, a borrower must 
request from a cooperative or fund issuing such equities a contingent 
waiver of the holding or redemption period in advance of share 
purchases. This contingent waiver provides that in the event a borrower 
defaults on a loan financed under the guaranteed loan program, the 
borrower waives any ownership rights in the stock, and the lender and 
Agency will then have the right to redeem the stock.
    (11) Guaranteed loans for the purchase of preferred stock must be 
prepaid in the event a cooperative or fund that issued the stock 
exercises an early redemption. If the cooperative enters

[[Page 700]]

into bankruptcy, to the extent the cooperative can redeem the preferred 
stock, the borrower is required to repay the loan from the redemption of 
the stock.
    (c) Employee ownership succession. The Agency may guarantee loans 
for conversions of businesses to either cooperatives or Employee Stock 
Ownership Plans (ESOP) within 5 years from the date of initial transfer 
of stock.
    (1) The maximum loan amount is the threshold established in Sec. 
4279.161(c), and all applications will be processed in accordance with 
Sec. 4279.161(c).
    (2) The maximum term is 7 years.
    (3) The lender will, at a minimum, obtain a valid lien on the stock, 
an assignment of any patronage refund, and the ability to transfer the 
stock to another party, or otherwise liquidate and dispose of the 
collateral in the event of a borrower default.
    (4) The lender must complete a written credit analysis of each stock 
purchase loan and a complete credit analysis of the cooperative or ESOP 
prior to making its first stock purchase loan.
    (5) If a cooperative is organized, the selling owner(s) become 
members with special control rights to protect their stake in the 
business while a succession plan is implemented. At the completion of 
the stock transfer, selling owners may retain their membership in the 
cooperative provided that their control rights are the same as all other 
members. Any special covenants that selling owners may have held must be 
extinguished upon completion of the transfer.
    (6) If an ESOP is organized for transferring ownership to employees, 
selling owner(s) may not retain ownership in the business after 5 years 
from the date of the initial transfer of stock.



Sec. 4279.116  New Markets Tax Credit program.

    This section identifies the provisions specific to guaranteed loans 
involving projects that include new markets tax credits available under 
the New Markets Tax Credit (NMTC) program. Such applicants and 
applications must comply with the provisions in subparts A and B of this 
part, except as modified in this section.
    (a) Loan guarantees for Qualified Active Low Income Community 
Businesses (QALICB). (1) To be an eligible lender for a loan guarantee 
that involves NMTCs, the organization must meet the applicable 
eligibility criteria in Sec. 4279.29 as otherwise modified by 
paragraphs (a)(1)(i) and (ii) of this section.
    (i) Sub-entities under the control of a non-regulated lender 
approved as a lender for this program do not need to separately meet the 
requirements of Sec. 4279.29(b). An eligible non-regulated lender may 
modify its list of eligible sub-entities under its control at any time 
by notifying the Agency in writing.
    (ii) In order to take advantage of the requirement exemption in 
paragraph (a)(1)(i) of this section, the non-regulated lender must 
include in its application to be a lender each sub-entity under its 
control and must clearly define the multiple-entity organizational and 
control structure. In addition, the lender must include each such sub-
entity in the audited financial statements, commercial loan portfolio, 
and commercial loan performance statistics.
    (2) The provisions of Sec. 4279.117(q) notwithstanding, a lender 
that is a Department of Treasury certified Community Development Entity 
(CDE) or subsidiary of a CDE (sub-CDE) may have an ownership interest in 
the borrower provided that each of the conditions specified in 
paragraphs (a)(2)(i) through (iv) of this section is met.
    (i) The lender does not have an ownership interest in the borrower 
prior to the guaranteed loan application.
    (ii) The lender does not take a controlling interest in the 
borrower.
    (iii) The lender cannot provide equity or take an ownership interest 
in a borrower at a level that would result in the lender owning 20 
percent or more interest in the borrower.
    (iv) In its guaranteed loan application, the lender provides an 
Agency-approved exit strategy when the NMTCs expire after the seventh 
year. The CDE's (or sub-CDE's) exit strategy must include a general plan 
to address the lender's equity in the project, and, if the lender will 
divest its equity interest, how this will be accomplished and the impact 
on the borrower.

[[Page 701]]

    (3) Notwithstanding Sec. 4279.117(p), a CDE's (or sub-CDE's) 
ownership interest in the borrower does not constitute a conflict of 
interest. The Agency will mitigate the potential for or appearance of a 
conflict of interest by requiring appropriate loan covenants regarding 
limitations on dividends and distributions of earnings be established, 
as well as other covenants in accordance with Sec. 4279.161(b)(11). The 
Agency will also ensure that the lender limits waivers of loan covenants 
and future modifications of loan documents.
    (4) For purposes of calculating tangible balance sheet equity, the 
CDE's or sub-CDE's loan that is subordinated to the guaranteed loan will 
be considered equity when calculating tangible balance sheet equity. The 
QALICB's financial statements must be prepared in accordance with GAAP.
    (b) Loan guarantees for the leveraged lender. The provisions of 
Sec. 4279.117(s) notwithstanding, an investor fund entity, such as an 
investor partnership or investor LLC, may be an eligible borrower as 
specified in paragraph (b)(1) of this section. Paragraphs (b)(2) through 
(13) of this section identify modifications to subpart B of this part 
that apply when the eligible borrower is an investor fund entity.
    (1) To be an eligible borrower for a NMTC loan, each of the 
following conditions must be met:
    (i) The investor fund entity must be established for a single 
specific NMTC investment;
    (ii) The lender is not an affiliate of the investor fund entity;
    (iii) One hundred percent of the guaranteed loan funds are or will 
be invested in one or more sub-CDEs that will then be loaned directly to 
a Qualified Active Low Income Community Business (QALICB), as defined by 
applicable regulations of the Internal Revenue Service and are or will 
be used by the QALICB in accordance with Sec. Sec. 4279.113 and 
4279.117. All of the B&I guaranteed loan funds must be ``passed 
through'' the sub-CDE to the QALICB through a direct tracing method. The 
QALICB's project must be the ultimate use of the B&I guaranteed loan 
funds; and
    (iv) The QALICB meets the requirements of Sec. 4279.108.
    (2) The provisions of Sec. 4279.119 apply except that the loan 
guarantee limits apply to the QALICB and not to the investor fund 
entity, who would otherwise be understood to be the ``borrower.''
    (3) Section 4279.126 applies to both the borrower (investor fund 
entity) and the QALICB. The terms and payment schedule of the lender's 
loan to the investor fund entity must be at least equal to the terms and 
payment schedule of the sub-CDE's loan to the QALICB. An Agency approved 
unequal or escalating schedule of principal and interest payments may be 
used for a NMTC loan. The lender may require additional principal 
repayment by a co-borrower, such as an owner or principal of the QALICB. 
The lender or sub-CDE may require a debt repayment reserve fund or 
sinking fund; however, such fund is not in lieu of a principal repayment 
schedule in accordance with Sec. 4279.126 as amended by this paragraph.
    (4) Except for Sec. 4279.131(b), Sec. 4279.131 applies to both the 
lender's loan to the investor fund entity and the sub-CDE's loan to the 
QALICB. Section 4279.131(b) applies only to the sub-CDE's loan to the 
QALICB. Section 4279.116(a)(4) also applies when calculating tangible 
balance sheet equity.
    (5) The personal and corporate guarantee provisions of Sec. 
4279.132 and the insurance provisions of Sec. 4279.136 apply only to 
the QALICB and the sub-CDE's loan to the QALICB.
    (6) Section 4279.137 applies to both the borrower (investor fund 
entity) and the QALICB.
    (7) Sections 4279.144 and 4279.150 apply to both the QALICB and the 
sub-CDE's loan to the QALICB.
    (8) Section 4279.161 applies to both the borrower (investor fund 
entity) and the QALICB. As part of the application completed by the 
lender in accordance with Sec. 4279.161, the application documentation 
must include comparable information for the loan (using the B&I 
guaranteed loan funds) between the sub-CDE and QALICB. The requirements 
of Sec. 4279.161 apply to the loan application, application analysis 
and underwriting, and loan documents between the sub-CDE and QALICB. The 
lender must include these materials in

[[Page 702]]

its guaranteed loan application to the Agency.
    (9) The environmental requirements specified in Sec. 4279.165(b) 
apply to both the loan between the sub-CDE and QALICB and the QALICB's 
project.
    (10) When assigning the priority score to a NMTC loan application 
under Sec. 4279.166, the Agency will score the project based on the 
sub-CDE's loan to the QALICB, the QALICB, and the QALICB's project as 
the ultimate use of B&I guaranteed loan funds.
    (11) When complying with the planning and performing development 
provisions in Sec. 4279.167, the lender is responsible for ensuring 
that both the sub-CDE's loan to the QALICB and the QALICB's project 
comply with the provisions in Sec. 4279.167.
    (12) Section 4279.180 applies to both the borrower (investor fund 
entity) and the QALICB.
    (13) Section 4279.181 applies to both the borrower (investor fund 
entity) and the QALICB.

[81 FR 36005, June 3, 2016, as amended at 82 FR 26335, June 7, 2017]



Sec. 4279.117  Ineligible purposes and entity types.

    (a) Distribution or payment to an individual or entity that will 
retain an ownership interest in the borrower or distribution or payment 
to a beneficiary of the borrower. Distribution or payment to a member of 
the immediate family of an owner, partner, or stockholder will not be 
permitted, except for a change in ownership of the business where the 
selling immediate family member does not retain an ownership interest 
and the Agency determines the price paid to be reasonable. As this type 
of transaction is not an arm's length transaction, reasonableness of the 
price paid will be based upon an appraisal. In situations where there is 
common ownership or an otherwise closely-related company is being paid 
to do construction or installation work for a borrower, only documented 
costs associated with construction or installation can be paid with loan 
proceeds. Documented construction or installation costs may not include 
any profit or wages to a related person, and all work must be done at 
cost with no profit built into the cost. This paragraph does not apply 
to transfers of ownership for ESOPs or worker cooperatives, to 
cooperatives where the cooperative pays the member for product or 
services, or where member stock is transferred among members of the 
cooperative in accordance with Sec. 4279.115.
    (b) Projects in excess of $1 million that would likely result in the 
transfer of jobs from one area to another and increase direct employment 
by more than 50 employees. However, this limitation is not to be 
construed to prohibit assistance for the expansion of an existing 
business entity through the establishment of a new branch, affiliate, or 
subsidiary of such entity if the establishment of such branch, 
affiliate, or subsidiary will not result in an increase in unemployment 
in the area of original location or in any other area where such entity 
conducts business operations, unless there is reason to believe that 
such branch, affiliate, or subsidiary is being established with the 
intention of closing down the operations of the existing business entity 
in the area or its original location or in any other area where it 
conducts such operations.
    (c) Projects in excess of $1 million that would increase direct 
employment by more than 50 employees, which is calculated to or likely 
to result in an increase in the production of goods, materials, or 
commodities, or the availability of services or facilities in the area, 
when there is not sufficient demand for such goods, materials, 
commodities, services, or facilities to employ the efficient capacity of 
existing competitive commercial or industrial enterprises, unless such 
financial or other assistance will not have an adverse effect upon 
existing competitive enterprises in the area.
    (d) The financing of timeshares, residential trailer parks, housing 
development sites, apartments, duplexes, or other residential housing, 
except as authorized in Sec. 4279.113(d).
    (e) Owner-occupied housing, such as bed and breakfasts, hotels and 
motels, storage facilities, etc., are only allowed when the pro rata 
value of the owner's living quarters, based on square footage, is 
deducted from the use of loan proceeds.

[[Page 703]]

    (f) Guaranteeing lease payments or any lines of credit.
    (g) Guaranteeing loans made by other Federal agencies.
    (h) Loans made with the proceeds of any obligation the interest on 
which is excludable from income under 26 U.S.C. 103 or a successor 
statute. Funds generated through the issuance of tax-exempt obligations 
shall neither be used to purchase the guaranteed portion of any Agency 
guaranteed loan nor shall an Agency guaranteed loan serve as collateral 
for a tax-exempt issue. The Agency may guarantee a loan for a project 
that involves tax-exempt financing only when the guaranteed loan funds 
are used to finance a part of the project that is separate and distinct 
from the part that is financed by the tax-exempt obligation, and the 
guaranteed loan has at least a parity security position with the tax-
exempt obligation.
    (i) Guarantees supporting inherently religious activities, such as 
worship, religious instruction, proselytization, or to pay costs 
associated with acquisition, construction, or rehabilitation of 
structures for inherently religious activities, including the financing 
of multi-purpose facilities where religious activities will be among the 
activities conducted.
    (j) Businesses that derive more than 10 percent of annual gross 
revenue (including any lease income from space or machines) from 
gambling activity, excluding State-authorized lottery proceeds.
    (k) Businesses deriving income from activities of a prurient sexual 
nature or illegal activities.
    (l) Racetracks or facilities for the conduct of races by animals, 
professional or amateur drivers, jockeys, etc.
    (m) Golf courses and golf course infrastructure, including par 3 and 
executive golf courses.
    (n) Cemeteries.
    (o) Research and development projects and projects that involve 
technology that is not commercially available.
    (p) Any project that the Agency determines creates a conflict of 
interest or an appearance thereof between any party related to the 
project.
    (q) Guarantees where the lender or any of the lender's officers has 
an ownership interest in the borrower or is an officer or director of 
the borrower or where the borrower or any of its officers, directors, 
stockholders, or other owners have more than a 5 percent ownership 
interest in the lender. Any of the lender's directors, stockholders, or 
other owners that are officers, directors, stockholders, or other owners 
of the borrower must be recused from the decisionmaking process.
    (r) Other than cooperative stock purchase loans and cooperative 
equity security guarantees in accordance with Sec. 4279.115, guarantees 
supporting investment or arbitrage or speculative real estate 
investment.
    (s) Lending institutions, investment institutions, or insurance 
companies.
    (t) Charitable or fraternal organizations. Businesses that derive 
more than 10 percent of annual gross revenue from tax deductible 
charitable donations, based on historical financial statements required 
by Sec. 4279.161(b), are considered charitable organizations for the 
purpose of this paragraph. Fees for services rendered or that are 
otherwise ineligible for deduction under the Internal Revenue Code are 
not considered tax deductible charitable donations.
    (u) Any business located within the Coastal Barriers Resource System 
that does not qualify for an exception as defined in section 6 of the 
Coastal Barriers Resource Act, 16 U.S.C. 3501 et seq.
    (v) Any business located in a special flood or mudslide hazard area 
as designated by the Federal Emergency Management Agency in a community 
that is not participating in the National Flood Insurance Program unless 
the project is an integral part of a community's flood control plan.
    (w) Any project that drains, dredges, fills, levels, or otherwise 
manipulates a wetland or engages in any activity that results in 
impairing or reducing the flow, circulation, or reach of water, except 
in the case of activity related to the maintenance of previously 
converted wetlands. This does not apply to loans for utility lines.

[[Page 704]]



Sec. 4279.118  [Reserved]



Sec. 4279.119  Loan guarantee limits.

    (a) Loan amount. The total amount of B&I loans to one borrower 
(including the guaranteed and unguaranteed portions, the outstanding 
principal and interest balance of any existing B&I guaranteed loans, and 
the new loan request) must not exceed $10 million, except as outlined in 
paragraphs (a)(1) and (2) of this section. In addition to the borrower 
loan limit, there is a guarantor loan limit of $50 million.
    (1) The Administrator may, at the Administrator's discretion, grant 
an exception to the $10 million limit for loans of $25 million or less 
under the following circumstances:
    (i) The project to be financed is a high-priority project as defined 
in Sec. 4279.2. Priority points will be awarded in accordance with the 
criteria contained in Sec. 4279.166;
    (ii) The lender must document to the satisfaction of the Agency that 
the loan will not be made and the project will not be completed if the 
guaranteed loan is not approved; and
    (iii) The percentage of guarantee will not exceed 60 percent. No 
exception to this requirement will be approved under paragraph (b) of 
this section for loans exceeding $10 million.
    (2) The Secretary, whose authority may not be redelegated, may 
approve guaranteed loans in excess of $25 million, at the Secretary's 
discretion, for rural cooperative organizations that process value-added 
agricultural commodities in accordance with Sec. 4279.113(j)(1).
    (b) Percentage of guarantee. The percentage of guarantee, up to the 
maximum allowed by this section, is a matter of negotiation between the 
lender and the Agency. The maximum percentage of guarantee is 80 percent 
for loans of $5 million or less, 70 percent for loans between $5 and $10 
million, and 60 percent for loans exceeding $10 million. For subsequent 
guaranteed loans, the maximum percentage of guarantee will be based on 
the cumulative amount of outstanding principal and interest of any 
existing B&I guaranteed loans and the new loan request. Notwithstanding 
the preceding, the Administrator may, at the Administrator's discretion, 
grant an exception allowing guarantees of up to 90 percent on loans of 
$5 million or less if the conditions of either paragraph (b)(1) or 
(b)(2) are met. Each fiscal year, the Agency will establish a limit on 
the maximum portion of guarantee authority available for that fiscal 
year that may be used to guarantee loans with an increased percentage of 
guarantee. The Agency will publish a notice announcing this limit in the 
Federal Register.
    (1) The project to be financed is a high-priority project as defined 
in Sec. 4279.2. Priority points will be awarded in accordance with the 
criteria contained in Sec. 4279.166; or
    (2) The lender documents, to the satisfaction of the Agency, that 
the loan will not be made and the project will not be completed due to 
the bank's legal or regulatory lending limit if the higher percentage of 
guarantee is not approved.



Sec. 4279.120  Fees and charges.

    There are two types of non-refundable fees--the guarantee fee and 
the annual renewal fee. These fees are to be paid by the lender but may 
be passed on to the borrower.
    (a) Guarantee fee. The guarantee fee is paid at the time the Loan 
Note Guarantee is issued and may be included as an eligible use of 
guaranteed loan proceeds. The amount of the guarantee fee is determined 
by multiplying the total loan amount by the guarantee fee rate by the 
percentage of guarantee. The rate of the guarantee fee is established by 
the Agency in an annual notice published in the Federal Register. 
Subject to annual limits set by the Agency in the published notice, the 
Agency may charge a reduced guarantee fee if requested by the lender for 
loans of $5 million or less when the borrower's business:
    (1) Supports value-added agriculture and results in farmers 
benefiting financially,
    (2) Promotes access to healthy foods, or
    (3) Is a high impact business development investment as defined in 
Sec. 4279.2 and applied in accordance with Sec. 4279.166(b)(4) and is 
located in a rural community that:

[[Page 705]]

    (i) Is experiencing long-term population decline;
    (ii) Has remained in poverty for the last 30 years;
    (iii) Is experiencing trauma as a result of natural disaster;
    (iv) Is located in a city or county with an unemployment rate 125 
percent of the Statewide rate or greater; or
    (v) Is located within the boundaries of a federally recognized 
Indian tribe's reservation or within tribal trust lands or within land 
owned by an Alaska Native Regional or Village Corporation as defined by 
the Alaska Native Claims Settlement Act.
    (b) Annual renewal fee. The annual renewal fee is paid by the lender 
to the Agency once a year. Payment of the annual renewal fee is required 
in order to maintain the enforceability of the guarantee as to the 
lender.
    (1) The Agency will establish the rate of the annual renewal fee in 
an annual notice published in the Federal Register. The amount of the 
annual renewal fee is determined by multiplying the outstanding 
principal loan balance as of December 31 of each year by the annual 
renewal fee rate by the percentage of guarantee. The rate that is in 
effect at the time the loan is obligated remains in effect for the life 
of the guarantee on the loan.
    (2) Annual renewal fees are due on January 31. Payments not received 
by April 1 are considered delinquent and, at the Agency's discretion, 
may result in the Agency terminating the guarantee to the lender. The 
Agency will provide the lender 30 calendar days' notice that the annual 
renewal fee is delinquent before terminating the guarantee. Holders' 
rights will continue in effect as specified in Form RD 4279-5, ``Loan 
Note Guarantee,'' and Form RD 4279-6, ``Assignment Guarantee 
Agreement,'' unless the holder took possession of an interest in the 
Loan Note Guarantee knowing the annual renewal fee had not been paid. 
Until the Loan Note Guarantee is terminated by the Agency, any 
delinquent annual renewal fees will bear interest at the note rate, and 
any delinquent annual renewal fees, including any interest due thereon, 
will be deducted from any loss payment due the lender. For loans where 
the Loan Note Guarantee is issued between October 1 and December 31, the 
first annual renewal fee payment is due January 31 of the second year 
following the date the Loan Note Guarantee was issued.
    (3) Lenders are prohibited from selling guaranteed loans on the 
secondary market if there are unpaid annual renewal fees.
    (c) Routine lender fees. The lender may establish charges and fees 
for the loan provided they are similar to those normally charged other 
applicants for the same type of loan in the ordinary course of business, 
and these fees are an eligible use of loan proceeds. The lender must 
document such routine fees on Form RD 4279-1, ``Application for Loan 
Guarantee.'' The lender may charge prepayment penalties and late payment 
fees that are stipulated in the loan documents, as long as they are 
reasonable and customary; however, the Loan Note Guarantee will not 
cover either prepayment penalties or late payment fees.
    (d) Professional services. Professional services are those rendered 
by persons generally licensed or certified by States or accreditation 
associations, such as architects, engineers, accountants, attorneys, or 
appraisers, and those rendered by loan packagers. The borrower may pay 
fees for professional services needed for planning and developing a 
project. Such fees are an eligible use of loan proceeds provided that 
the Agency agrees that the amounts are reasonable and customary. The 
lender must document these fees on Form RD 4279-1.



Sec. Sec. 4279.121-4279.124  [Reserved]



Sec. 4279.125  Interest rates.

    The interest rate for the guaranteed loan will be negotiated between 
the lender and the borrower and may be either fixed or variable, or a 
combination thereof, as long as it is a legal rate. Interest rates will 
not be more than those rates customarily charged borrowers for loans 
without guarantees and are subject to Agency review and approval. 
Lenders are encouraged to utilize the secondary market and pass 
interest-rate savings on to the borrower.

[[Page 706]]

    (a) A variable interest rate must be a rate that is tied to a 
published base rate, published in a national or regional financial 
publication, agreed to by the lender and the Agency. The variable 
interest rate must be specified in the promissory note and may be 
adjusted at different intervals during the term of the loan, but the 
adjustments may not be more often than quarterly. The lender must 
incorporate, within the variable rate promissory note at loan closing, 
the provision for adjustment of payment installments. The lender must 
fully amortize the outstanding principal balance within the prescribed 
loan maturity in order to eliminate the possibility of a balloon payment 
at the end of the loan.
    (b) It is permissible to have different interest rates on the 
guaranteed and unguaranteed portions of the loan provided that the rate 
of the guaranteed portion does not exceed the rate on the unguaranteed 
portion, except for situations where a fixed rate on the guaranteed 
portion becomes a higher rate than the variable rate on the unguaranteed 
portion due to the normal fluctuations in the approved variable interest 
rate.
    (c) Any change in the base rate or fixed interest rate between 
issuance of Form RD 4279-3, ``Conditional Commitment,'' and Form RD 
4279-5 must be approved in writing by the Agency. Approval of such 
change must be shown as an amendment to the Conditional Commitment in 
accordance with Sec. 4279.173(b) and must be reflected on Form RD 1980-
19, ``Guaranteed Loan Closing Report.''
    (d) The lender's promissory note must not contain provisions for 
default or penalty interest nor will default or penalty interest, 
interest on interest, or late payment fees or charges be paid under the 
Loan Note Guarantee.



Sec. 4279.126  Loan terms.

    (a) The length of the loan term must be the same for both the 
guaranteed and unguaranteed portions of the loan. The maximum repayment 
for loans for real estate will not exceed 30 years; machinery and 
equipment repayment will not exceed the useful life of the machinery and 
equipment or 15 years, whichever is less; and working capital repayment 
will not exceed 7 years. The term for a debt refinancing loan may be 
based on the collateral the lender will take to secure the loan.
    (b) A loan's maturity will take into consideration the use of 
proceeds, the useful life of assets being financed and those used as 
collateral, and the borrower's ability to repay the loan.
    (c) Only loans that require a periodic payment schedule that will 
retire the debt over the term of the loan without a balloon payment will 
be guaranteed.
    (d) The first installment of principal and interest will, if 
possible, be scheduled for payment after the facility is operational and 
has begun to generate income. However, the first full installment must 
be due and payable within 3 years from the date of the promissory note 
and be paid at least annually thereafter. In cases where there is an 
interest-only period, interest will be paid at least annually from the 
date of the note.
    (e) There must be no ``due-on-demand'' clauses without cause. 
Regardless of any ``due-on-demand'' with cause provision in a lender's 
promissory note, the Agency must concur in any acceleration of the loan 
unless the basis for acceleration is monetary default.



Sec. Sec. 4279.127-4279.130  [Reserved]



Sec. 4279.131  Credit quality.

    The Agency will only guarantee loans that are sound and that have a 
reasonable assurance of repayment. The lender is responsible for 
conducting a financial analysis that involves the systematic examination 
and interpretation of information to assess a company's past 
performance, present condition, and future viability. The lender is 
primarily responsible for determining credit quality and must address 
all of the elements of credit quality in a comprehensive, written credit 
analysis, including capacity (sufficient cash flow to service the debt), 
collateral (assets to secure the loan), conditions (borrower, economy, 
and industry), capital (equity/net worth), and character (integrity of 
management), as further described in paragraphs (a) through (e) of this 
section. The lender's analysis is the central underwriting

[[Page 707]]

document and must be sufficiently detailed to describe the proposed loan 
and business situation and document that the proposed loan is sound. The 
lender's analysis must include a written discussion of repayment ability 
with a cash-flow analysis, history of debt repayment, borrower's 
management, necessity of any debt refinancing, and credit reports of the 
borrower, principals, and any parent, affiliate, or subsidiary. The 
lender's analysis must also include spreadsheets and discussion of the 3 
years of historical balance sheets and income statements (for existing 
businesses) and 2 years of projected balance sheets, income statements, 
and cash flow statements, with appropriate ratios and comparisons with 
industrial standards (such as Dun & Bradstreet or the Risk Management 
Association). All data must be shown in total dollars and also in common 
size form, obtained by expressing all balance sheet items as a 
percentage of assets and all income and expense items as a percentage of 
sales.
    (a) Capacity/cash flow. The lender must make all efforts to ensure 
the borrower has adequate working capital or operating capital and to 
structure or restructure debt so that the borrower has adequate debt 
coverage and the ability to accommodate expansion.
    (b) Collateral. The lender must ensure that the collateral for the 
loan has a documented value sufficient to protect the interest of the 
lender and the Agency. The discounted collateral value must be at least 
equal to the loan amount.
    (1) The lender must discount collateral consistent with the sound 
loan-to-discounted value policy outlined in paragraphs (b)(1)(i) through 
(iv) of this section. The type, quality, and location of collateral are 
relevant factors used to assess collateral adequacy and appropriate 
levels of discounting. Other factors to be considered in the discounted 
value of collateral must include the marketability and alternative uses 
of the collateral. That is, specialized buildings or equipment will be 
discounted greater than multi-purpose facilities or equipment. When 
using discounts other than those outlined in paragraphs (b)(1)(i) 
through (b)(1)(iv) and when in accordance with paragraph (b)(2), the 
lender must document why such discounts are appropriate.
    (i) A maximum of 80 percent of current fair market value will be 
given to real estate. Special purpose real estate must be assigned less 
value.
    (ii) A maximum of 70 percent of cost or current fair market value 
will be given to machinery, equipment, and furniture and fixtures and 
will be based on its marketability, mobility, useful life, 
specialization, and alternative uses, if any.
    (iii) A maximum of 60 percent of book value will be assigned to 
acceptable inventory and accounts receivable; however, all accounts over 
90 days past due, contra accounts, affiliated accounts, and other 
accounts deemed not to be acceptable collateral, as determined by the 
Agency, will be omitted. Calculations to determine the percentage to be 
applied in the analysis are to be based on the realizable value of the 
accounts receivable taken from a current aging of accounts receivable 
from the borrower's most recent financial statement. At a minimum, 
reviewed annual financial statements will be required when there is a 
predominant reliance on inventory and/or receivable collateral that 
exceeds $250,000. Except for working capital loans, term debt must not 
be dependent upon accounts receivable and inventory to meet collateral 
requirements.
    (iv) No value will be assigned to unsecured personal, partnership, 
or corporate guarantees.
    (2) Some businesses are predominantly cash-flow oriented, and where 
cash flow and profitability are strong, loan-to-value discounts may be 
adjusted accordingly with satisfactory documentation. A loan primarily 
based on cash flow must be supported by a successful and documented 
financial history. Under no circumstances must the loan-to-value of the 
collateral (loan-to-fair market value) ever be equal to or greater than 
100 percent.
    (3) Intangible assets cannot serve as primary collateral. For 
purposes of determining compliance with this requirement, leasehold 
improvements are considered tangible assets and can serve as primary 
collateral.

[[Page 708]]

    (4) A parity or junior lien position may be considered provided the 
loan-to-discounted value is adequate to secure the guaranteed loan in 
accordance with this section.
    (5) The entire loan must be secured by the same security with equal 
lien priority for the guaranteed and unguaranteed portions of the loan. 
The unguaranteed portion of the loan will neither be paid first nor 
given any preference or priority over the guaranteed portion.
    (c) Conditions. The lender must consider the current status of the 
borrower, overall economy, and industry for which credit is being 
extended. The regulatory environment surrounding the particular business 
or industry must also be considered. Businesses in areas of decline will 
be required to provide strong business plans that outline how they 
differ from the current trends. Local, regional, and national condition 
of the industry must be addressed.
    (d) Capital/equity. (1) A minimum of 10 percent tangible balance 
sheet equity (or a maximum debt to tangible net worth ratio of 9:1) will 
be required at loan closing for borrowers that are existing businesses. 
A minimum of 20 percent tangible balance sheet equity (or a maximum debt 
to tangible net worth ratio of 4:1) will be required at loan closing for 
borrowers that are new businesses. For energy projects, the minimum 
tangible balance sheet equity requirement range will be between 25 
percent and 40 percent (or a maximum debt to tangible net worth ratio 
between 3:1 and 1.5:1) at loan closing, considering whether the business 
is an existing business with a successful financial and management 
history or a new business; the value of personal/corporate guarantees 
offered; contractual relationships with suppliers and buyers; credit 
rating; and strength of the business plan/feasibility study.
    (2) Tangible balance sheet equity will be determined based upon 
financial statements prepared in accordance with GAAP except that, for 
the purposes of this subpart, leasehold improvements are to be 
considered tangible assets when making the tangible balance sheet equity 
calculation. The capital/equity requirement must be met in the form of 
either cash or tangible earning assets contributed to the business and 
reflected on the borrower's balance sheet. Transfers of assets at fair 
market value between related parties, which are not arm's length 
transactions, must be in accordance with GAAP and require evidence that 
the transaction was entered into at market terms. Tangible equity cannot 
include appraisal surplus, bargain purchase gains, or intangible assets 
(except for leasehold improvements). Owner subordinated debt may be 
included when the subordinated debt is in exchange for cash injected 
into the business that remains in the business for the life of the 
guaranteed loan. The note or other form of evidence must be submitted to 
the Agency in order for subordinated debt to count towards meeting the 
tangible balance sheet equity requirement.
    (3) The lender must certify, in accordance with Sec. 
4279.181(a)(9)(i), that the capital/equity requirement was determined, 
based on a balance sheet prepared in accordance with GAAP, and met, as 
of the date the guaranteed loan was closed, giving effect to the 
entirety of the loan in the calculation, whether or not the loan itself 
is fully advanced. A copy of the loan closing balance sheet must be 
included with the lender's certification.
    (4) In situations where a real estate holding company and an 
operating entity are dependent upon one another's operations and are 
effectively one business, they must be co-borrowers, unless waived by 
the Agency when the Agency determines that adequate justification exists 
to not require the entities to be co-borrowers. The capital/equity 
requirement will apply to all borrowing entities on a consolidated 
basis, and financial statements must be prepared both individually and 
on a consolidated basis.
    (5) In situations where co-borrowers are independent operations, the 
capital/equity requirement will apply to all co-borrowers on an 
individual basis.
    (6) For sole proprietorships and other situations where business 
assets are held personally, financial statements must be prepared using 
only the assets and liabilities directly attributable to

[[Page 709]]

the business. Assets, plus any improvements, must be valued at the lower 
of cost or fair market value.
    (7) Increases in the equity requirement may be imposed by the 
Agency. A reduction in the capital/equity requirement for existing 
businesses may be permitted by the Administrator under the following 
conditions:
    (i) Collateralized personal and/or corporate guarantees, in 
accordance with Sec. 4279.132, when feasible and legally permissible, 
are obtained; and
    (ii) All pro forma and historical financial statements indicate the 
business to be financed meets or exceeds the median quartile (as 
identified in the Risk Management Association's Annual Statement Studies 
or similar publication) for the current ratio, quick ratio, debt-to-
worth ratio, and debt coverage ratio.
    (e) Character. The lender must conduct a thorough review of key 
management personnel to ensure that the business has adequately trained 
and experienced managers. The borrower and all owners with a 20 percent 
or more ownership interest must have a good credit history, reflecting a 
record of meeting obligations in a timely manner. If there have been 
credit problems in the past, the lender must provide a satisfactory 
explanation to show that the problems are unlikely to recur.

[81 FR 36005, June 3, 2016, as amended at 83 FR 11634, Mar. 16, 2018]



Sec. 4279.132  Personal and corporate guarantees.

    (a) Full, unconditional personal and/or corporate guarantees for the 
full term of the loan are required from those owning 20 percent or more 
interest in the borrower, where legally permissible, unless the Agency 
grants an exception. The Agency may grant an exception for existing 
businesses only when the lender requests it and documents to the 
Agency's satisfaction that collateral, equity, cash flow and 
profitability indicate an above-average ability to repay the loan. 
Partial guarantees for the full term of the loan at least equal to each 
owner's percentage of interest in the borrower times the loan amount may 
be required in lieu of full, unconditional guarantees when the 
guarantors' percentages equal 100 percent so that the loan is fully 
guaranteed.
    (b) When warranted by an Agency assessment of potential financial 
risk, the Agency may require the following:
    (1) Guarantees to be secured;
    (2) Guarantees of parent, subsidiaries, or affiliated companies 
owning less than a 20 percent interest in the borrower; and
    (3) Guarantees from persons whose ownership interest in the borrower 
is held indirectly through intermediate entities.
    (c) All personal and corporate guarantors must execute Form RD 4279-
14, ``Unconditional Guarantee,'' and any guarantee form required by the 
lender. The Agency will retain the original, executed Form RD 4279-14.
    (1) Any amounts paid by the Agency on behalf of an Agency guaranteed 
loan borrower will constitute a Federal debt owed to the Agency by the 
guaranteed loan borrower.
    (2) Any amounts paid by the Agency pursuant to a claim by a 
guaranteed program lender will constitute a Federal debt owed to the 
Agency by a guarantor of the loan, to the extent of the amount of the 
guarantor's guarantee.
    (3) In all instances under paragraphs (c)(1) and (2) of this 
section, interest charges will be assessed in accordance with 7 CFR 
1951.133.



Sec. Sec. 4279.133-4279.135  [Reserved]



Sec. 4279.136  Insurance.

    The lender is responsible for ensuring that required insurance is 
maintained by the borrower.
    (a) Hazard. Hazard insurance with a standard clause naming the 
lender as mortgagee or loss payee, as applicable, is required for the 
life of the guaranteed loan. The amount must be at least equal to the 
replacement value of the collateral or the outstanding balance of the 
loan, whichever is the greater amount.
    (b) Life. The lender may require a collateral assignment of life 
insurance to insure against the risk of death of persons critical to the 
success of the business. When required, coverage must be in amounts 
necessary to provide for management succession or to protect

[[Page 710]]

the business. The Agency may require life insurance on key individuals 
for loans where the lender has not otherwise proposed such coverage. The 
cost of insurance and its effect on the applicant's working capital must 
be considered, as well as the amount of existing insurance that could be 
assigned without requiring additional expense.
    (c) Worker compensation. Worker compensation insurance is required 
in accordance with State law.
    (d) Flood. National flood insurance is required in accordance with 
applicable law.
    (e) Other. The lender must consider whether public liability, 
business interruption, malpractice, and other insurance is appropriate 
to the borrower's particular business and circumstances and must require 
the borrower to obtain such insurance as is necessary to protect the 
interests of the borrower, the lender, or the Agency.



Sec. 4279.137  Financial statements.

    Except for audited financial statements required by Sec. 4279.71, 
the lender will determine the type and frequency of submission of 
financial statements by the borrower and any guarantors. At a minimum, 
annual financial statements prepared by an accountant in accordance with 
GAAP are required, except for personal financial statements and 
cooperative stock purchase loans in accordance with Sec. 4279.115(a) 
that do not have to be prepared in accordance with GAAP. However, if the 
loan amount exceeds $10 million or if circumstances warrant, the Agency 
may require annual audited financial statements.



Sec. Sec. 4279.138-4279.143  [Reserved]



Sec. 4279.144  Appraisals.

    Lenders must obtain appraisals for real estate and chattel 
collateral when the value of the collateral exceeds $250,000, unless the 
chattel is newly-acquired equipment and the value is supported by a bill 
of sale. For collateral values under this threshold, lenders must follow 
their primary regulator's policies relating to appraisals and 
evaluations or, if the lender is not regulated, normal banking practices 
and generally accepted methods of determining value. Lenders must use 
the fair market value as established by the appraisal and discounting 
policies outlined in Sec. 4279.131(b) to meet the discounted collateral 
coverage requirements of this subpart. Lenders are responsible for 
ensuring that appraisal values adequately reflect the actual value of 
the collateral. The Agency will require documentation that the appraiser 
has the necessary experience and competency to appraise the property in 
question. Appraisals must not be more than 1 year old, and a more recent 
appraisal may be requested by the Agency in order to reflect more 
current market conditions. For loan servicing purposes, an appraisal may 
be updated in lieu of a complete new appraisal when the original 
appraisal is more than 1 year old but less than 2 years old. Failure by 
the lender to follow these requirements will be considered not acting in 
a reasonably prudent manner.
    (a) All real property appraisals associated with Agency guaranteed 
loanmaking and servicing transactions must meet the requirements 
contained in the Financial Institutions Reform, Recovery and Enforcement 
Act (FIRREA) of 1989, and the appropriate guidelines contained in 
Standards 1 and 2 of the Uniform Standards of Professional Appraisal 
Practices (USPAP) and be performed by a State Certified General 
Appraiser. Notwithstanding any exemption that may exist for transactions 
guaranteed by a Federal government agency, all appraisals obtained by 
the lender for loanmaking and servicing must conform to the Interagency 
Appraisal and Evaluations Guidelines established by the lender's primary 
Federal or State regulator. All appraisals must include consideration of 
the potential effects from a release of hazardous substances or 
petroleum products or other environmental hazards on the fair market 
value of the collateral, if applicable. The lender must complete and 
submit its technical review of the appraisal. For construction projects, 
the lender must use the ``as-completed'' market value of the real estate 
to determine value of the real estate property.

[[Page 711]]

    (b) Values of both tangible and intangible assets, including values 
attributed to business valuation or as a going concern, must be reported 
individually/separately in the appraisal as values attributed to 
business valuation or as a going concern will be deducted from the 
reconciled fair market value of the hard assets for purposes of 
calculating collateral coverage.
    (c) Chattels with values under the $250,000 threshold must be 
evaluated in accordance with the lender's primary regulator's policies 
relating to appraisals and evaluations or, if the lender is not 
regulated, normal banking practices and generally accepted methods of 
determining value. Chattel appraisals must reflect the age, condition, 
and remaining useful life of the equipment. If the appraisal is 
completed by a State licensed/certified appraiser, the appraisal report 
must comply with USPAP Standards 7 and 8.

[81 FR 36005, June 3, 2016, as amended at 81 FR 54477, Aug. 16, 2016]



Sec. Sec. 4279.145-4279.149  [Reserved]



Sec. 4279.150  Feasibility studies.

    A feasibility study, by a qualified independent consultant 
acceptable to the Agency, is required for new businesses. The Agency may 
require a feasibility study for existing businesses when the project 
will significantly affect the borrower's operations, and cash flow from 
the existing facility is not sufficient to service the new debt. At a 
minimum, a feasibility study must include an evaluation of the economic, 
market, technical, financial, and management feasibility and an 
executive summary that reaches an overall conclusion as to the business' 
chance of success. The income approach of an appraisal is not an 
acceptable feasibility study.



Sec. Sec. 4279.151-4279.160  [Reserved]



Sec. 4279.161  Filing preapplications and applications.

    Borrowers and lenders are encouraged to file preapplications and 
obtain Agency comments before completing an application. However, if 
they prefer, borrowers and lenders may file a complete application 
without filing a preapplication. The Agency will neither accept nor 
process preapplications and applications unless a lender has agreed to 
finance the proposal. For borrowers other than individuals, a Dun and 
Bradstreet Universal Numbering System (DUNS) number is required, which 
can be obtained online at http://fedgov/dnd.com/webform. Guaranteed 
loans exceeding $600,000 must be submitted under the requirements 
specified in paragraph (b) of this section. However, guaranteed loans of 
$600,000 and less may be submitted under the requirements of either 
paragraph (b) or (c) of this section.
    (a) Preapplications. Lenders may file preapplications by submitting 
the following to the Agency:
    (1) A letter or preliminary lender credit analysis, signed by the 
lender, containing the following:
    (i) Name of the proposed borrower, organization type, address, 
contact person, Federal tax identification number, email address, and 
telephone number;
    (ii) Name of the proposed lender, address, telephone number, contact 
person, email address, and lender's Internal Revenue Service (IRS) 
identification number;
    (iii) Amount of the loan request, percent of guarantee requested, 
and the proposed rates and terms;
    (iv) Description of collateral to be offered with estimated value(s) 
and the amount and source of equity to be contributed to the project;
    (v) A brief description of the project, products or services 
provided, and availability of raw materials and supplies; and
    (vi) The number of current full-time equivalent jobs, the number of 
jobs to be created as a result of the proposed loan, and the overall 
average wage rate.
    (2) The borrower's current (not more than 90 days old) balance sheet 
and year-to-date income statement. For existing businesses, also include 
balance sheets and income statements for the last 3 years; and
    (3) A completed Form RD 4279-2, ``Certification of Non-Relocation 
and Market Capacity Information Report,'' if the proposed loan is in 
excess of $1

[[Page 712]]

million and will increase direct employment by more than 50 employees.
    (b) Applications. Lenders must submit the information specified in 
paragraphs (b)(1) through (19) of this section when filing an 
application with the Agency.
    (1) A completed Form RD 4279-1.
    (2) A completed Form RD 4279-2, if the proposed loan is in excess of 
$1 million and will increase direct employment by more than 50 
employees, unless already submitted in accordance with Sec. 
4279.161(a)(3).
    (3) Environmental review documentation in accordance with 7 CFR part 
1970, ``Environmental Policies and Procedures,'' or successor 
regulation.
    (4) A personal or commercial credit report from an acceptable credit 
reporting company for each individual or entity owning 20 percent or 
more interest in the borrower, except for those corporations listed on a 
major stock exchange. Credit reports are not required for elected and 
appointed officials when the applicant is a public body or non-profit 
corporation.
    (5) Commercial credit reports for the borrower(s) and any parent, 
affiliate, and subsidiary companies.
    (6) Current (not more than 90 days old) financial statements for any 
parent, affiliate, and subsidiary companies.
    (7) Current (not more than 90 days old) personal and corporate 
financial statements of any guarantors.
    (8) For all borrowers, a current (not more than 90 days old) balance 
sheet and year-to-date income statement, a pro forma balance sheet 
projected for loan closing, and projected balance sheets, income 
statements, and cash flow statements for the next 2 years. Projections 
must be prepared in line with GAAP standards and supported by a list of 
assumptions showing the basis for the projections. In the event 
processing of the loan is not complete within 90 days, a current set of 
financial statements will be required every 90 days.
    (9) For borrowers that are existing businesses, balance sheets and 
income statements for the last 3 years. If the business has been in 
operation for less than 3 years, balance sheets and income statements 
for all years for which financial information is available.
    (10) The lender's comprehensive, written credit analysis of the 
proposal, as described in Sec. 4279.131.
    (11) A draft loan agreement. A final loan agreement must be executed 
by the lender and borrower before the Agency issues a Loan Note 
Guarantee and must contain any additional requirements imposed by the 
Agency in its Conditional Commitment. The loan agreement must establish 
prudent, adequate controls to protect the interests of the lender and 
Agency. At a minimum, the following requirements must be included in the 
loan agreement:
    (i) Type and frequency of borrower and guarantor financial 
statements to be required for the duration of the loan;
    (ii) Prohibition against assuming liabilities or obligations of 
others;
    (iii) Limitations on dividend payments and compensation of officers 
and owners;
    (iv) Limitation on the purchase and sale of equipment and other 
fixed assets;
    (v) Restrictions concerning consolidations, mergers, or other 
circumstances and a limitation on selling the business without the 
concurrence of the lender;
    (vi) Maximum debt-to-net worth ratio; and
    (vii) Minimum debt service coverage ratio.
    (12) Intergovernmental consultation comments in accordance with 2 
CFR part 415, subpart C, or successor regulation, unless exemptions have 
been granted by the State single point of contact.
    (13) Appraisals, accompanied by a copy of the appropriate 
environmental site assessment, if available, and the technical review of 
the appraisals required by Sec. 4279.144(a).
    (14) A business plan or similar document that must include a 
description of the business and project; management experience; sources 
of capital; products, services, and pricing; marketing plan; proposed 
use of funds; availability of labor, raw materials, and supplies; 
contracts in place; distribution channels; and the names of

[[Page 713]]

any corporate parent, affiliates, and subsidiaries with a description of 
the relationship. A business plan may be omitted if the information is 
included in a feasibility study. A business plan may also be omitted 
when loan proceeds are used exclusively for debt refinancing and fees.
    (15) Independent feasibility study, if required.
    (16) For companies listed on a major stock exchange or subject to 
the Securities and Exchange Commission regulations, a copy of SEC Form 
10-K, ``Annual Report Pursuant to sections 13 or 15(d) of the Securities 
Exchange Act of 1934.''
    (17) For health care facilities, a certificate of need, if required 
by statute or State law.
    (18) For guaranteed loan applications for five or more residential 
units, including nursing homes and assisted-living facilities, an 
Affirmative Fair Housing Marketing Plan that is in conformance with 7 
CFR 1901.203(c)(3).
    (19) Any additional information required by the Agency to make a 
decision, including any information needed to score the project in 
accordance with Sec. 4279.166.
    (c) Applications of $600,000 and less. Guaranteed loan applications 
may be processed under this paragraph if the request does not exceed 
$600,000, provided the Agency determines that there is not a significant 
increased risk of a default on the loan. A lender may need to resubmit 
an application under paragraph (b) of this section if the application 
under this paragraph does not contain sufficient information for the 
Agency to make a decision to guarantee the loan. Applications submitted 
under this paragraph must include the information contained in 
paragraphs (b)(1) (with the short application box marked at the top of 
Form RD 4279-1), (b)(3), (b)(8) through (10), (b)(12), and (b)(13) of 
this section. The lender must have the documentation identified in 
paragraph (b) of this section, with the exception of paragraph (b)(2), 
available in its file for review.



Sec. 4279.162  Strategic economic and community development.

    Applicants with projects that support the implementation of 
Strategic Community Investment Plans are encouraged to review and 
consider 7 CFR part 1980, subpart K, which contains provisions for 
providing priority to projects that support the implementation of 
Strategic Community Investment Plans on a multi-jurisdictional and 
multi-sectoral basis.

[85 FR 59395, Sept. 22, 2020]



Sec. Sec. 4279.163-4279.164  [Reserved]



Sec. 4279.165  Evaluation of application.

    (a) General review. The Agency will evaluate the application and 
make a determination whether the borrower is eligible, the proposed loan 
is for an eligible purpose, there is reasonable assurance of repayment 
ability, there is sufficient collateral and equity, and the proposed 
loan complies with all applicable statutes and regulations. If the 
Agency determines it is unable to guarantee the loan, it will inform the 
lender in writing.
    (b) Environmental requirements. The environmental review process 
must be completed, in accordance with 7 CFR part 1970, ``Environmental 
Policies and Procedures,'' or successor regulation, prior to loan 
approval.



Sec. 4279.166  Loan priority scoring.

    The Agency will consider applications and preapplications in the 
order they are received by the Agency; however, for the purpose of 
assigning priority points as described in paragraph (b) of this section, 
the Agency will compare an application to other pending applications 
that are competing for funding. The Agency may establish a minimum loan 
priority score to fund projects from the National Office reserve and 
will publish any minimum loan priority score in a notice published in 
the Federal Register.
    (a) When applications on hand otherwise have equal priority, the 
Agency will give preference to applications for loans from qualified 
veterans.
    (b) The Agency will assign priority points on the basis of the point 
system contained in this section. The Agency will use the application 
and supporting information to determine an eligible proposed project's 
priority for available guarantee authority. To the extent possible, all 
lenders must consider

[[Page 714]]

Agency priorities when choosing projects for guarantee. The lender must 
provide necessary information related to determining the score, if 
requested.
    (1) Population priority. Projects located in an unincorporated area 
or in a city with a population under 25,000 (10 points).
    (2) Demographics priority. The priority score for demographics 
priority will be the total score for the following categories:
    (i) Located in an eligible area of long-term population decline 
according to the last three decennial censuses (5 points);
    (ii) Located in a rural county that has had 20 percent or more of 
its population living in poverty based on the last three decennial 
censuses (10 points);
    (iii) Located in a rural community that is experiencing trauma as a 
result of natural disaster (5 points);
    (iv) Located in a city or county with an unemployment rate 125 
percent of the Statewide rate or greater (5 points);
    (v) Located within the boundaries of a Federally recognized Indian 
tribe's reservation, within tribal trust lands, or within land owned by 
an Alaska Native Regional or Village Corporation as defined by the 
Alaska Native Claims Settlement Act (5 points); and
    (vi) Business is owned by a qualified veteran as defined by Sec. 
4279.2 (5 points).
    (3) Loan features. The priority score for loan features will be the 
total score for each of the following categories:
    (i) Lender will price the guaranteed loan at an interest rate equal 
to or less than the equivalent of the Wall Street Journal published 
Prime Rate plus 1.5 percent (5 points);
    (ii) Lender will price the guaranteed loan at an interest rate equal 
to or less than the equivalent of the Wall Street Journal published 
Prime Rate plus 1 percent (5 points);
    (iii) The Agency guaranteed loan is less than 60 percent of project 
cost (5 points);
    (iv) The Agency guaranteed loan is less than 50 percent of project 
cost (5 points);
    (v) The Agency guaranteed loan is less than 40 percent of project 
cost (5 points); and
    (vi) For loans not requesting an exception under Sec. 4279.119(b), 
the percentage of guarantee is 10 or more percentage points less than 
the maximum allowable for a loan of its size (5 points).
    (4) High impact business investment priorities. The priority score 
for high impact business investment will be the total score for the 
following categories:
    (i) Business/industry. The priority score for business/industry will 
be the total score for the following:
    (A) Industry that is not already present in the community (5 
points);
    (B) Business that has 20 percent or more of its sales in 
international markets (5 points);
    (C) Business that offers high value, specialized products and/or 
services that command high prices (5 points);
    (D) Business that provides an additional market for existing local 
businesses (5 points);
    (E) Business that is locally owned and managed (5 points);
    (F) Business that will produce a natural resource value-added 
product (5 points); and
    (G) Business that processes, distributes, aggregates, stores, and/or 
markets locally or regionally produced agricultural food products to 
underserved communities in accordance with Sec. 4279.113(y)(5) (10 
points).
    (ii) Occupations. The priority score for occupations will be the 
total score for the following:
    (A) Business that creates or saves jobs with an average wage 
exceeding 125 percent of the Federal minimum wage (5 points);
    (B) Business that creates or saves jobs with an average wage 
exceeding 150 percent of the Federal minimum wage (5 points); and
    (C) Business that offers a healthcare benefits package to all 
employees, with at least 50 percent of the premium paid by the employer 
(5 points).
    (5) Administrative points. The State Director may assign up to 10 
additional points to an application to account for Statewide 
distribution of funds, natural disasters or economic emergency 
conditions, community economic development strategies, State strategic

[[Page 715]]

plans, fundamental structural changes in a community's economic base, or 
projects that will fulfill an Agency initiative. In addition to the 
State Director assigned points, if an application is considered in the 
National Office, the Administrator may assign up to an additional 10 
points to account for geographic distribution of funds, emergency 
conditions caused by economic problems or natural disasters, or projects 
that will fulfill an Agency initiative.



Sec. 4279.167  Planning and performing development.

    (a) Design policy. The lender must ensure that all facilities 
constructed with program funds are designed, and costs estimated, by an 
independent professional, utilizing accepted architectural, engineering, 
and design practices. The Agency may require an independent professional 
architect on complex projects. The lender must ensure the design 
conforms to applicable Federal, State, and local codes and requirements. 
The lender must also ensure that the project will be completed with 
available funds and, once completed, will be used for its intended 
purpose and produce in the quality and quantity proposed in the 
completed application approved by the Agency. Once construction is 
completed, the lender must provide the Agency with a copy of the Notice 
of Completion or similar document issued by the relevant building 
jurisdiction.
    (b) Issuing the Loan Note Guarantee prior to project completion. If 
the lender requests that the Loan Note Guarantee be issued prior to 
construction or completion of a project, the lender must have a 
construction monitoring plan acceptable to the Agency and undertake the 
added responsibilities set forth in this paragraph. The lender must 
monitor the progress of construction and undertake the reviews and 
inspections necessary to ensure that construction conforms to applicable 
Federal, State, and local code requirements; proceeds are used in 
accordance with the approved plans, specifications, and contract 
documents; and that funds are used for eligible project costs. The 
lender must expeditiously report any problems in project development to 
the Agency.
    (1) In cases of takeout of interim financing where the Loan Note 
Guarantee is issued prior to construction or completion of a project, 
the promissory note must contain the terms and conditions of the interim 
financing and the permanent financing and convert the interim financing 
to the permanent note as the Loan Note Guarantee can only be placed on 
one note.
    (2) Prior to disbursement of construction funds, the lender must 
have:
    (i) A complete set of plans and specifications for the project on 
file;
    (ii) A detailed timetable for the project with a corresponding 
budget of costs setting forth the parties responsible for payment. The 
timetable and budget must be agreed to by the borrower;
    (iii) A person, who may be the project architect or engineer, with 
demonstrated experience relating to the project's industry, confirm that 
the budget is adequate for the planned development;
    (iv) A firm, fixed-price construction contract with an independent 
general contractor with costs and provisions for change order approvals, 
a retainage percentage, and a disbursement schedule; a 100 percent 
performance/payment bond on the borrower's contractor; or a contract 
with an independent disbursement and monitoring firm where project 
construction and completion are guaranteed. A bonding agent must be 
listed on Treasury Circular 570; and
    (v) Contingencies in place to handle unforeseen cost overruns 
without seeking additional guaranteed assistance. These are to be agreed 
to by the borrower.
    (3) Once construction begins, the lender is to:
    (i) Use any borrower funds in the project first;
    (ii) Ensure that the project is built to support the functions at 
the level and quality contemplated by the borrower through the use of 
accepted architectural and engineering practices. There is no absolute 
requirement that the goal be achieved by the use of a professional 
inspection. However, if after careful review, it appears that the use of 
a professional inspector is the only

[[Page 716]]

method that ensures the project is built to support the functions at the 
level and quality contemplated by the borrower through the use of 
accepted architectural and engineering practices, one may be required by 
the Agency. If one is required, inspections must be made by a qualified, 
independent inspector prior to any progress payment. If other less 
expensive or rigorous methods will achieve the same result, they may be 
utilized. The decision will be made on a case-by-case basis and must be 
reasonable under the specific circumstances of the case;
    (iii) Obtain lien waivers from all contractors and materialmen prior 
to any disbursement; and
    (iv) Provide at least monthly, written reports to the Agency on fund 
disbursement and project status.
    (4) Once construction is completed, the lender is to provide the 
Agency with a copy of the Notice of Completion or similar document 
issued by the relevant building jurisdiction.
    (c) Compliance with other Federal laws. Lenders must comply with 
other applicable Federal laws, including Equal Employment Opportunities, 
the Equal Credit Opportunity Act, the Fair Housing Act, and the Civil 
Rights Act of 1964. Guaranteed loans that involve the construction of or 
addition to facilities that accommodate the public must comply with the 
Architectural Barriers Act Accessibility Standard. The borrower and 
lender are responsible for ensuring compliance with these requirements.
    (d) Environmental responsibilities. The lender must ensure that the 
borrower has:
    (1) Provided the necessary environmental information to enable the 
Agency to undertake its environmental review process in accordance with 
7 CFR part 1970, ``Environmental Policies and Procedures,'' or successor 
regulation, including the provision of all required Federal, State, and 
local permits;
    (2) Complied with any mitigation measures required by the Agency; 
and
    (3) Not taken any actions or incurred any obligations with respect 
to the proposed project that would either limit the range of 
alternatives to be considered during the Agency's environmental review 
process or that would have an adverse effect on the environment.



Sec. 4279.168  Timeframe for processing applications.

    All complete guaranteed loan applications will be approved or 
disapproved within 60 days, unless approval is prevented by a lack of 
guarantee authority or there are delays resulting from public comment 
requirements of the environmental assessment or outstanding DOL 
clearance issues.



Sec. Sec. 4279.169-4279.172  [Reserved]



Sec. 4279.173  Loan approval and obligating funds.

    (a) Upon approval of a loan guarantee, the Agency will issue a 
Conditional Commitment to the lender, containing conditions under which 
a Loan Note Guarantee will be issued. No Conditional Commitment can be 
issued until the loan is obligated. If a Loan Note Guarantee is not 
issued by the Conditional Commitment expiration date, the Conditional 
Commitment may be extended at the request of the lender and only if 
there has been no material adverse change in the borrower or the 
borrower's financial condition since issuance of the Conditional 
Commitment. If the Conditional Commitment is not accepted, the 
Conditional Commitment may be withdrawn and funds may be deobligated. 
Likewise, if the Conditional Commitment expires, funds may be 
deobligated.
    (b) If certain conditions of the Conditional Commitment cannot be 
met, the lender and borrower may request changes to the Conditional 
Commitment. Within the requirements of the applicable regulations and 
prudent lending practices, the Agency may negotiate with the lender and 
the borrower regarding any proposed changes to the Conditional 
Commitment. Any changes to the Conditional Commitment must be documented 
by written amendment to the Conditional Commitment.
    (c) The borrower must comply with all Federal requirements then in 
effect for receiving Federal assistance.

[[Page 717]]



Sec. 4279.174  Transfer of lenders.

    (a) The Agency may approve the substitution of a new eligible lender 
in place of a former lender who has been issued and has accepted an 
outstanding Conditional Commitment when the Loan Note Guarantee has not 
yet been issued, provided that there are no changes in the borrower's 
ownership or control, loan purposes, or scope of project, and the loan 
terms and conditions in the Conditional Commitment and the loan 
agreement remain the same. Any request for a transfer of lender must be 
submitted in writing by the current lender, the proposed lender, and the 
borrower. The original lender must state the reason(s) it no longer 
desires to be the lender for the project.
    (b) Unless the new lender is already an approved lender, the Agency 
will analyze the new lender's servicing capability, eligibility, and 
experience prior to approving the substitution. The substituted lender 
must execute a new part B of Form 4279-1, ``Application for Loan 
Guarantee;'' Form RD 4279-4, ``Lender's Agreement'' (unless a valid 
Lender's Agreement with the Agency already exists); and complete a new 
lender's analysis in accordance with Sec. 4279.131. The new lender may 
also be required to provide other updated application items outlined in 
Sec. 4279.161(b).



Sec. Sec. 4279.175-4279.179  [Reserved]



Sec. 4279.180  Changes in borrower.

    Any changes in borrower ownership or organization prior to the 
issuance of the Loan Note Guarantee must meet the eligibility 
requirements of the program and be approved by the Agency.



Sec. 4279.181  Conditions precedent to issuance of the Loan Note Guarantee.

    (a) The lender must not close the loan until all conditions of the 
Conditional Commitment are met. When loan closing plans are established, 
the lender must notify the Agency. Coincident with, or immediately after 
loan closing, the lender must provide the following to the Agency:
    (1) An executed Form RD 4279-4, unless a valid Lender's Agreement 
exists that was issued after August 2, 2016;
    (2) Form RD 1980-19 and appropriate guarantee fee;
    (3) Copy of the executed promissory note(s);
    (4) Copy of the executed loan agreement;
    (5) Copy of the executed settlement statement;
    (6) Original, executed Forms RD 4279-14, as required;
    (7) Any other documents required to comply with applicable law or 
required by the Conditional Commitment.
    (8) Borrower's loan closing balance sheet, supporting paragraph 
(a)(9)(i) of the lender certification, demonstrating required tangible 
balance sheet equity; and
    (9) The lender's certification to each of the following 
certifications:
    (i) The capital/equity requirement was determined, based on a 
balance sheet prepared in accordance with GAAP, and met, as of the date 
the guaranteed loan was closed, giving effect to the entirety of the 
loan in the calculation, whether or not the loan itself is fully 
advanced.
    (ii) All requirements of the Conditional Commitment have been met.
    (iii) No major changes have been made in the lender's loan 
conditions and requirements since the issuance of the Conditional 
Commitment, unless such changes have been approved by the Agency in 
writing.
    (iv) There is a reasonable prospect that the guaranteed loan and 
other project debt will be repaid on time and in full (including 
interest) from project cash flow according to the terms proposed in the 
application for loan guarantee.
    (v) All planned property acquisition has been or will be completed, 
all development has been or will be substantially completed in 
accordance with plans and specifications, conforms with applicable 
Federal, State, and local codes, and costs have not exceeded the amount 
approved by the lender and the Agency.
    (vi) The borrower has marketable title to the collateral then owned 
by the borrower, subject to the instrument securing the loan to be 
guaranteed and to any other exceptions approved in writing by the 
Agency.

[[Page 718]]

    (vii) The loan has been properly closed, and the required security 
instruments have been properly executed or will be obtained on any 
acquired property that cannot be covered initially under State law.
    (viii) Lien priorities are consistent with the requirements of the 
Conditional Commitment. No claims or liens of laborers, subcontractors, 
suppliers of machinery and equipment, materialmen, or other parties have 
been filed against the collateral, and no suits are pending or 
threatened that would adversely affect the collateral.
    (ix) When required, personal and/or corporate guarantees have been 
obtained in accordance with Sec. 4279.132.
    (x) The loan proceeds have been or will be disbursed for purposes 
and in amounts consistent with the Conditional Commitment (or Agency-
approved amendment thereof) and the application submitted to the Agency. 
When applicable, the entire amount of the loan for working capital has 
been disbursed to the borrower, except in cases where the Agency has 
approved disbursement over an extended period of time and funds are 
escrowed so that the settlement statement reflects the full amount to be 
disbursed.
    (xi) All truth-in-lending and equal credit opportunity requirements 
have been met.
    (xii) There has been neither any material adverse change in the 
borrower's financial condition nor any other material adverse change in 
the borrower, for any reason, during the period of time from the 
Agency's issuance of the Conditional Commitment to the issuance of the 
Loan Note Guarantee regardless of the cause or causes of the change and 
whether or not the change or causes of the change were within the 
lender's or borrower's control. The lender must address any assumptions 
or reservations in the requirement and must address all adverse changes 
of the borrower, any parent, affiliate, or subsidiary of the borrower, 
and guarantors.
    (xiii) Neither the lender nor any of the lender's officers has an 
ownership interest in the borrower or is an officer or director of the 
borrower, and neither the borrower nor its officers, directors, 
stockholders, or other owners have more than a 5 percent ownership 
interest in the lender.
    (xiv) The loan agreement includes all measures identified in the 
Agency's environmental impact analysis for this proposal with which the 
borrower must comply for the purpose of avoiding or reducing adverse 
environmental impacts of the project's construction or operation.
    (xv) If required, hazard, flood, liability, workers compensation, 
and life insurance are in effect.
    (b) The Agency may, at its discretion, request copies of additional 
loan documents for its file.
    (c) When the Agency is satisfied that all conditions for the 
guarantee have been met, the Agency will issue the Loan Note Guarantee 
and the following documents, as appropriate.
    (1) Assignment Guarantee Agreement. In the event the lender uses the 
single note option and assigns the guaranteed portion of the loan to a 
holder, the lender, holder, and the Agency will execute Form RD 4279-6 
in accordance with Sec. 4279.75(a); and
    (2) Certificate of Incumbency. If requested by the lender, the 
Agency will provide the lender with a certification on Form RD 4279-7, 
``Certificate of Incumbency and Signature,'' of the signature and title 
of the Agency official who signs the Loan Note Guarantee, Lender's 
Agreement, and Assignment Guarantee Agreement.



Sec. Sec. 4279.182-4279.186  [Reserved]



Sec. 4279.187  Refusal to execute Loan Note Guarantee.

    If the Agency determines that it cannot execute the Loan Note 
Guarantee, the Agency will promptly inform the lender of the reasons and 
give the lender a reasonable period within which to satisfy the 
objections. If the lender satisfies the objections within the time 
allowed, the Agency will issue the Loan Note Guarantee. If the lender 
requests additional time in writing and within the period allowed, the 
Agency may grant the request.

[[Page 719]]



Sec. Sec. 4279.188-4279.189  [Reserved]



Sec. 4279.190  Business and Industry national COVID-19 Public Health Emergency Loans.

    (a) Introduction. This section contains regulations for the Business 
and Industry National COVID-19 Public Health Emergency loan program (B&I 
CARES Act Program Loans). The purpose of the program is to provide loan 
guarantees under the authority of the Coronavirus Aid, Relief, and 
Economic Security Act (CARES Act) (Pub. L. 116-136). These B&I CARES Act 
Program Loans cover costs to prevent, prepare for and respond to the 
coronavirus. Consistent with the purposes of the CARES Act, the Agency 
has determined that the most effective use of these program funds is to 
support the cost of guaranteed loans to rural businesses to respond to 
the coronavirus. No B&I CARES Act Program Loan guarantee will be 
approved after September 30, 2021. All provisions of Subparts A and B of 
Part 4279 and Subpart A of Part 4287 of this chapter apply to B&I CARES 
Act Program Loans, except as provided in this section. All forms used in 
connection with a B&I CARES Act Program Loan will be those used with 
other Business and Industry (B&I) loans, except as provided in this 
section.
    (b) Eligible borrowers. Section 4279.108 of this subpart applies to 
B&I CARES Act Program Loans. In addition, borrowers must have been in 
operation on February 15, 2020.
    (c) Eligible use of funds. (1) The purpose of any B&I CARES Act 
Program Loan must be to cover costs to prevent, prepare for, and respond 
to the coronavirus pandemic in accordance with paragraph (a) of this 
section. B&I CARES Act Program Loans should not exceed the amount needed 
to overcome the financial distress caused by the COVID-19 National 
Emergency.
    (2) Notwithstanding the provisions of Sec. 4279.113, B&I CARES Act 
Program guaranteed loans will be limited to loans for working capital 
loan purposes in accordance with paragraph (c)(3) of this section. Loan 
proceeds may be used only to support facilities and business operations 
in rural areas and the Borrower must have been in operation on February 
15, 2020. Loan proceeds must be disbursed through multiple draws on an 
as-needed monthly basis.
    (3) Eligible Working Capital uses of B&I CARES Act Program Loan 
funds are limited to:
    (i) Wages, salaries, sales commissions to employees, group 
healthcare benefits, and other employee benefits;
    (ii) Administrative expenses and administrative service contracts;
    (iii) Property insurance, hazard insurance, and other business 
insurance;
    (iv) Principal and interest payments excluding owner/stockholder 
debt and related-party debts;
    (v) Rent, payments on leases, and routine maintenance;
    (vi) Utilities;
    (vii) Inventory, feed, seed, fertilizer and chemicals, livestock 
(excluding livestock for breeding) and supplies;
    (viii) Marketing, shipping, and other expenses incurred through 
normal business operations or such additional expenses due to the 
national COVID-19 Public Health Emergency;
    (ix) Taxes; and
    (x) Loan costs and essential loan-related expenses.
    (4) Ineligible purposes. Notwithstanding the provisions of Sec. 
4279.113, the following purposes are ineligible for B&I CARES Act 
Program guaranteed loans:
    (i) Purchase and development of land, buildings, and associated 
infrastructure for commercial or industrial properties, including 
expansion or modernization;
    (ii) Business acquisitions;
    (iii) Leasehold improvements;
    (iv) Constructing or equipping facilities;
    (v) Purchase of machinery and equipment; and
    (vi) Debt refinancing unless such debt refinancing is for debts 
incurred subsequent to February 15, 2020 for eligible purposes listed in 
paragraph (c)(3) of this section.
    (5) Agricultural production. The provisions of Sec. 4279.113(q) do 
not apply to B&I CARES Act Program Loans. Loans for working capital to 
support agricultural production, including independent agricultural 
production, is an eligible use

[[Page 720]]

of funds when the applicant's loan request exceeds the maximum loan 
available through Farm Service Agency (FSA) guaranteed loan programs or 
the applicant's request is otherwise ineligible for FSA loans.
    (d) Loan amount limits. (1) The provisions of Sec. 4279.119(a) do 
not apply to B&I CARES Act Program Loans. The total amount of B&I and 
B&I CARES Act Program Loans to one borrower (including the guaranteed 
and unguaranteed portions, the outstanding principal and interest 
balance of any existing B&I guaranteed loans, and the new loan request) 
cannot exceed $25 million.
    (2) The amount of the B&I CARES Act Program Loan shall be based on a 
cash flow analysis and must not be greater than the amount needed to 
cure problems caused by the COVID-19 emergency so that the business is 
reestablished on a successful basis. Losses and business operating 
expenses that were adequately paid by insurance or by loans or grants 
from other sources will not be covered by B&I CARES Act Program Loans. 
LB&I CARES Act Program Loans may be used to supplement insurance 
payments or assistance from other sources when the insurance coverage or 
other assistance is insufficient.
    (3) The maximum loan amount of the B&I CARES Act Program Loan for 
working capital purposes may not exceed 12 times the borrower's total 
average monthly costs of eligible working capital loan purposes less the 
total amount of covered loans received under the provisions of section 
1102 and Section 1110(a)(2) of the CARES Act and other Federal emergency 
assistance received.
    (4) Borrowers receiving B&I CARES Act Program Loans in an amount 
less than the maximum loan amount in accordance with paragraph (d)(3) of 
this section, may apply for subsequent loans under this section up to an 
accumulative amount of B&I CARES Act Program loans not to exceed the 
maximum loan amount.
    (e) Percentage of guarantee. The provisions of Sec. 4279.119(b) do 
not apply to B&I CARES Act Program Loans. The percentage of guarantee is 
90 percent.
    (f) Guarantee fee. The provisions of Sec. 4279.120(a) do not apply 
to B&I CARES Act Program Loans. The guarantee fee for the B&I CARES Act 
Program Loans shall be two (2) percent. The guarantee fee is paid at the 
time the Loan Note Guarantee is issued and may be included as an 
eligible use of guaranteed loan proceeds. The amount of the guarantee 
fee is determined by multiplying the total loan amount by the guarantee 
fee rate by the percentage of guarantee.
    (g) Annual renewal fee. Notwithstanding the provisions of Sec. 
4279.120(b), the annual renewal fee for B&I CARES Act Program Loans 
shall be one half of one (0.5) percent (50 basis points.)
    (h) Loan terms. Notwithstanding the provisions of Sec. 4279.126, 
the maximum allowable repayment term of loans for working capital 
purposes is 10 years. Loan repayment may defer principal payments or 
principal and interest payments for a period up to 12 months from loan 
closing and may extend deferral of principal payments up to a total of 
three years with a maximum repayment term of 10 years from the date of 
loan closing.
    (i) Credit quality. Notwithstanding the provisions of Sec. 
4279.131(a), the lender's evaluation of the borrower's repayment ability 
shall include an emphasis on the borrower's successful financial history 
and on the borrower's 2019 financial performance, present condition, and 
future viability.
    (j) Collateral. B&I CARES Act Program loans must be adequately 
secured. Notwithstanding the provisions of Sec. 4279.131(b), loan-to-
value discounting by the lender is not required for B&I CARES Act 
Program Loans for working capital purposes. The value of the collateral 
(fair market value) must be equal to or greater than the loan amount.
    (k) Capital/equity. Notwithstanding the provisions of Sec. 
4279.131(d), the business must meet one of the following requirements at 
loan closing:
    (1) A minimum of 10 percent balance sheet equity (including 
subordinated debt when subject to a standstill agreement), or a maximum 
debt-to-balance sheet equity ratio of 9 to 1;
    (2) A Borrower investment of equity or other funds into the project 
equal to

[[Page 721]]

10 percent or more of total eligible project costs, (such investment may 
include grants or subordinated debt when subject to a standstill 
agreement); or
    (3) The balance sheet equity includes owner-contributed capital of 
10 percent or more of total fixed assets (net total fixed assets plus 
depreciation).
    (l) Appraisals. Notwithstanding the provisions of Sec. 4279.144, 
appraisals of real estate and chattel collateral are required when the 
amount of the loan exceeds $1,000,000, unless the chattel is newly 
acquired equipment and the value is supported by a bill of sale. The 
Agency will accept appraisals older than 1 year but completed within 2 
years of the application date. Lenders may provide an updated appraisal 
in lieu of a new complete appraisal when the original appraisal is more 
than 2 years old. All appraisals of real estate must be compliant with 
Uniform Standards of Professional Appraisal Practices (USPAP) 
requirements and reflect the current market value of the collateral as 
required by Sec. 4279.144(a). To protect lenders, appraisers and Agency 
staff during the COVID-19 pandemic, an interior or on-site inspection of 
the collateral is not required if an assumption can be made by the 
appraiser on a reasonable basis or is based on previous inspections and 
condition reports completed by the lender or third party for the 
collateral.
    (m) Filing preapplications and applications. (1) B&I CARES Act 
Program Loan borrowers with existing B&I loans do not need to resubmit 
their historical financial statements that have been previously 
submitted through routine loan servicing actions.
    (2) Loans for working capital are classified as categorical 
exclusions for purposes of the Agency's environmental review policies 
and procedures in accordance with 7 CFR part 1970. These actions 
normally do not require an applicant to submit environmental 
documentation with the application. However, based on the review of the 
project description, the Agency may request additional environmental 
documentation from the applicant at any time, specifically if the Agency 
determines that extraordinary circumstances may exist.
    (3) Notwithstanding the provisions of Sec. 4279.161(b), a draft 
loan agreement is not required, a business plan or feasibility study is 
not required, and lenders may substitute and rely on the borrower's tax 
returns when financial statements prepared in accordance with GAAP are 
not available from the borrower. Agricultural producers' financial 
records must meet the industry's standard accounting practices.
    (4) A lender or borrower may combine applications for a B&I CARES 
Act Program loan for working capital with an application for B&I 
appropriated fiscal year funds. The provisions of this section do not 
apply to applications for B&I appropriated fiscal year funds.

[85 FR 31040, May 22, 2020]



Sec. Sec. 4279.191-4279.199  [Reserved]



Sec. 4279.200  OMB control number.

    In accordance with the Paperwork Reduction Act of 1995, the 
information collection requirements contained in this rule have been 
submitted to the Office of Management and Budget (OMB) under OMB Control 
Number 0570-0069 for OMB approval.



    Subpart C_Biorefinery, Renewable Chemical, and Biobased Product 
                     Manufacturing Assistance Loans

    Source: 80 FR 36425, June 24, 2015, unless otherwise noted.

                                 General



Sec. 4279.201  Purpose and scope.

    The purpose of the Biorefinery, Renewable Chemical, and Biobased 
Product Manufacturing Program is to assist in the development of new and 
emerging technologies for the development of Advanced Biofuels, 
Renewable Chemicals, and Biobased Product Manufacturing. This is 
achieved through guarantees for loans made to fund the development, 
construction, and Retrofitting of Commercial-Scale Biorefineries using 
Eligible Technology and of Biobased Product Manufacturing facilities 
that use Technologically New

[[Page 722]]

Commercial-Scale processing and manufacturing equipment and required 
facilities to convert Renewable Chemicals and other biobased outputs of 
Biorefineries into end-user products on a Commercial Scale.
    (a) This subpart and subpart D of part 4287 of this chapter contain 
the regulations for this Program.
    (b) The Lender is responsible for ascertaining that all requirements 
for making, securing, servicing, and collecting the loan are complied 
with.
    (c) Whether specifically stated or not, whenever Agency approval is 
required, it must be in writing.
    (d) Copies of all forms, regulations, and instructions referenced in 
this subpart are available in any Agency office and from the USDA Rural 
Development Web site at http://www.rd.usda.gov/ programs-services/ 
biorefinery-assistance -program. Whenever a form is designated in this 
subpart, it is initially capitalized and its reference includes 
predecessor and successor forms, if applicable.



Sec. 4279.202  Definitions and abbreviations.

    Terms used in this subpart are defined in this section. Terms used 
in this subpart that have the same meaning as the terms defined in this 
section have been capitalized in this subpart.
    Administrator. The Administrator of Rural Business-Cooperative 
Service within the Rural Development mission area of the U.S. Department 
of Agriculture.
    Advanced biofuel. Fuel derived from Renewable Biomass, other than 
corn kernel starch, to include:
    (1) Biofuel derived from cellulose, hemicellulose, or lignin;
    (2) Biofuel derived from sugar and starch (other than ethanol 
derived from corn kernel starch);
    (3) Biofuel derived from waste material, including crop residue, 
other vegetative waste material, animal waste, food waste, and yard 
waste;
    (4) Diesel-equivalent fuel derived from Renewable Biomass, including 
vegetable oil and animal fat;
    (5) Biogas (including landfill gas and sewage waste treatment gas) 
produced through the conversion of organic matter from Renewable 
Biomass;
    (6) Butanol or other alcohols produced through the conversion of 
organic matter from Renewable Biomass; and
    (7) Other fuel derived from cellulosic biomass.
    Affiliate. An entity that is related to another entity by owning 
shares or having an interest in the entity, by common ownership, or by 
any means of control.
    Agency. The Rural Business-Cooperative Service or successor Agency 
assigned by the Secretary of Agriculture to administer the Program. 
References to the National or State Office should be read as prefaced by 
``Agency'' or ``Rural Development'' as applicable.
    Agricultural producer. An individual or entity directly engaged in 
the production of agricultural products, including crops (including 
farming); livestock (including ranching); forestry products; 
hydroponics; nursery stock; or aquaculture, whereby 50 percent or 
greater of their gross income is derived from the operations.
    Annual renewal fee. A fee that is paid once a year by the Lender and 
is required to maintain the enforceability of the Loan Note Guarantee.
    Arm's length transaction. A transaction between ready, willing, and 
able disinterested parties that are not affiliated with or related to 
each other and have no security, monetary, or stockholder interest in 
each other.
    Assignment Guarantee Agreement. Form RD 4279-6, ``Assignment 
Guarantee Agreement,'' is the signed agreement between the Agency, the 
Lender, and the Holder containing the terms and conditions of an 
assignment of a guaranteed portion of a loan, using the single 
Promissory Note system.
    Association of Agricultural Producers. An organization that 
represents Agricultural Producers and whose mission includes working on 
behalf of such producers and the majority of whose membership and board 
of directors is comprised of Agricultural Producers.
    BAP. Biorefinery, Renewable Chemical, and Biobased Product 
Manufacturing Assistance Program.
    Biobased product. A product determined by the Secretary to be a 
commercial or industrial product (other than food or feed) that is 
either:

[[Page 723]]

    (1) Composed, in whole or in significant part, of biological 
products, including renewable domestic agricultural materials and 
forestry materials; or
    (2) An intermediate ingredient or feedstock.
    Biobased product manufacturing. The use of Technologically New 
Commercial-Scale processing and manufacturing equipment and required 
facilities to convert Renewable Chemicals and other biobased outputs of 
Biorefineries into end-user products on a Commercial Scale.
    Biofuel. A fuel derived from Renewable Biomass.
    Biogas. Renewable Biomass converted to gaseous fuel.
    Biorefinery. A facility (including equipment and processes) that 
converts Renewable biomass or an intermediate ingredient or feedstock of 
Renewable biomass into any one or more, or a combination, of Biofuels, 
Renewable chemicals or Biobased products, and may produce electricity.
    Bond. A form of debt security in which the authorized issuer 
(Borrower) owes the Bond holder (Lender) a debt and is obligated to 
repay the principal and Interest (coupon) at a later date(s) (maturity). 
An explanation of the type of Bond and other Bond stipulations must be 
attached to the Bond issuance.
    Borrower. The Person that borrows, or seeks to borrow, money from 
the Lender, including any party liable for the loan except for 
guarantors.
    Byproduct. An incidental or secondary product generated under normal 
operations of the proposed Project that can be reasonably measured and 
monitored other than: Advanced Biofuel, Program-eligible Biobased 
Products including Renewable Chemicals, and Program-eligible end-user 
products produced by Biobased Product Manufacturing facilities. 
Byproducts may or may not have a readily identifiable commercial use or 
value.
    Calendar quarter. Four three-month periods in each calendar year as 
follows:
    (1) Quarter 1 begins on January 1 and ends on March 31;
    (2) Quarter 2 begins on April 1 and ends on June 30;
    (3) Quarter 3 begins on July 1 and ends on September 30; and
    (4) Quarter 4 begins on October 1 and ends on December 31.
    Collateral. The asset(s) pledged by the Borrower to secure the loan.
    Commercial-scale (commercial scale). An operation is considered to 
be a Commercial-Scale operation if it demonstrates that its sole or 
chief emphasis is on salability and profit and:
    (1) Its revenue will be sufficient to recover the full cost of the 
Project over its expected life and result in an anticipated annual rate 
of return sufficient to encourage investors or Lenders to provide 
funding for the Project;
    (2) It will be able to operate profitably without public and private 
sector subsidies upon completion of construction (volumetric excise tax 
is not included as a subsidy);
    (3) Contracts for feedstock are adequate to address proposed off-
take; and
    (4) It has the ability to achieve market entry, suitable 
infrastructure to transport product to its market is available, and the 
technology and related products are generally competitive in the market.
    Conditional Commitment. Form RD 4279-3, ``Conditional Commitment,'' 
is the Agency's notice to the Lender that the loan guarantee it has 
requested is approved subject to the completion of all conditions and 
requirements set forth by the Agency and outlined in the attachment to 
the Conditional Commitment.
    Conflict of interest. A situation in which a Person has competing 
personal, professional, or financial interests that prevents the Person 
from acting impartially.
    Default. The condition that exists when a Borrower is not in 
compliance with the Promissory Note, the Loan Agreement, security 
documents, or other documents evidencing the loan. Default could be a 
monetary or non-monetary Default.
    Deficiency judgment. A monetary judgment rendered by a court of 
competent jurisdiction after foreclosure and liquidation of all 
Collateral securing the loan.
    Delinquency. A loan for which a scheduled loan payment is more than

[[Page 724]]

30 days past due and cannot be cured within 30 days.
    Eligible project costs. Those expenses approved by the Agency for 
the Project as set forth in Sec. 4279.210(d) and do not include the 
costs set forth in Sec. 4279.210(e).
    Eligible technology. The term ``Eligible technology'' means, as 
determined by the Secretary:
    (1) A technology that is being adopted in a viable Commercial-scale 
operation of a Biorefinery that produces any one or more, or a 
combination, of an Advanced biofuel; a Renewable chemical; or a Biobased 
product; and
    (2) A technology not described in paragraph (1) of this definition 
that has been demonstrated to have technical and economic potential for 
commercial application in a Biorefinery that produces any one or more, 
or a combination, of an Advanced biofuel, a Renewable chemical or a 
Biobased product.
    Fair market value. The price that could reasonably be expected for 
an asset in an Arm's-Length Transaction between a willing buyer and a 
willing seller under ordinary economic and business conditions.
    Farm cooperative. A business owned and controlled by Agricultural 
Producers that is incorporated, or otherwise recognized by the State in 
which it operates, as a cooperatively-operated business.
    Farmer Cooperative Organization. An organization whose membership is 
composed of Farm Cooperatives.
    Feasibility study. An analysis by an independent qualified 
consultant or consultants of the economic, market, technical, financial, 
and management feasibility of a proposed Project or business in terms of 
its expectation for success.
    Federal debt. Debt owed to the Federal government that is subject to 
collection under the Debt Collection Improvement Act of 1996, 31 U.S.C. 
3701 et seq. Once the Agency determines a debt is Federal Debt and 
provides notice to the Lender, that Federal Debt is excluded from Future 
Recovery.
    Future recovery. Funds anticipated to be collected by the Lender 
after a final loss claim is processed.
    Good cause. A justification representing a reasonable approach 
given:
    (1) The reasonably available alternatives;
    (2) All known relevant factors;
    (3) Program requirements; and
    (4) The best interests of the government. Good cause must be 
approved by the Agency. Without prior approval by the Agency, 
alternatives that require the Agency to increase its guarantee, in 
either the Conditional Commitment or Loan Note Guarantee (including an 
increase of its subsidy costs under the Credit Reform Act of 1990), or 
provide additional assistance, will not be considered reasonable 
available alternatives under paragraph (1) of this definition or in the 
best interests of the government under paragraph (4) of this definition.
    Grossly negligent loan origination. A serious carelessness in 
originating the loan which is so great as to appear to be conscious. The 
term includes not only the concept of a failure to act, but also not 
acting in a timely manner.
    Grossly negligent loan servicing. A serious carelessness in 
servicing the loan which is so great as to appear to be conscious. The 
term includes not only the concept of a failure to act, but also not 
acting in a timely manner.
    Guaranteed Loan Report of Loss. Form RD 449-30, ``Guaranteed Loan 
Report of Loss,'' used by Lenders when reporting a financial loss under 
an Agency guarantee.
    Holder. A Person, other than the Lender, who owns all or part of the 
guaranteed portion of the loan with no servicing responsibilities.
    Immediate family(ies). Individuals who live in the same household or 
who are closely related by blood, marriage, or adoption, such as a 
spouse, domestic partner, parent, child, sibling, aunt, uncle, 
grandparent, grandchild, niece, nephew, or cousin.
    Indian tribe. This term has the meaning as defined in 25 U.S.C. 
450b.
    In-house expenses. Expenses associated with activities that are 
routinely the responsibility of a Lender's internal staff or its agents. 
In-house expenses include, but are not limited to, employees' salaries, 
staff lawyers, travel, and overhead.
    Institution of higher education. This term has the meaning as 
defined in 20 U.S.C. 1002(a).

[[Page 725]]

    Interest. A fee paid by a Borrower to a Lender as a form of 
compensation for the use of money. When money is borrowed, Interest is 
typically paid as a fee over a certain period of time (typically months 
or years) to the Lender as percentage of the principal amount owed. The 
term Interest does not include Default or penalty Interest or late 
payment fees or charges.
    Interest Termination Date. The date on which no further interest 
will be payable under the Loan Note Guarantee.
    (1) If the Lender owns all or a portion of the guaranteed interest 
in the guaranteed loan or makes a Protective Advance, then the Loan Note 
Guarantee will not cover Interest to the Lender accruing after 90 days 
from the most recent Delinquency effective date as reported by the 
Lender.
    (2) If the guaranteed loan has a Holder(s), the Lender, or the 
Agency, at its sole discretion, will issue an interest termination 
letter to the Holder(s) establishing the termination date for Interest 
accrual. The Loan Note Guarantee will not cover Interest to the 
Holder(s) accruing after the greater of:
    (i) 90 days from the date of the most recent Delinquency effective 
date as reported by the Lender or
    (ii) 30 days from the date of the interest termination letter.
    Lender. The entity approved, or seeking to be approved, by the 
Agency to make, service, and collect the Agency guaranteed loan that is 
subject to this subpart.
    Lender's Agreement. Form RD 4279-4, ``Lender's Agreement,'' or 
predecessor form, between the Agency and the Lender setting forth the 
Lender's loan responsibilities.
    Liquidation expenses. Costs directly associated with the liquidation 
of Collateral, including preparing Collateral for sale (e.g., repairs 
and transport) and conducting the sale (e.g., advertising, public 
notices, auctioneer expenses, and foreclosure fees). Liquidation 
Expenses do not include In-House Expenses. Legal/attorney fees are 
considered Liquidation Expenses provided that the fees are reasonable, 
as determined by the Agency, and cover legal issues pertaining to the 
liquidation that could not be properly handled by the Lender and its in-
house counsel.
    Loan agreement. The agreement between the Borrower and Lender 
containing the terms and conditions of the loan and the responsibilities 
of the Borrower and Lender.
    Loan classification. The process by which loans are examined and 
categorized by degree of potential loss in the event of Default.
    Loan Note Guarantee. Form RD 4279-5, ``Loan Note Guarantee,'' or 
predecessor form, issued and executed by the Agency containing the terms 
and conditions of the guarantee.
    Loan packager. A Person, other than the applicant Borrower or 
Lender, that prepares a loan application package.
    Loan service provider. A Person, other than the Lender of record, 
that provides loan servicing activities to the Lender.
    Local government. A county, municipality, town, township, village, 
or other unit of general government below the State level, or Indian 
Tribe governments.
    Local owner. An individual who owns any portion of an eligible 
Biorefinery and whose primary residence is located within a certain 
distance from the Biorefinery as specified by the Agency in a Notice 
published in the Federal Register.
    Market value. The amount for which a property will sell for its 
highest and best use at a voluntary sale in an Arm's Length Transaction.
    Material adverse change. Any change in circumstance associated with 
a guaranteed loan, including the Borrower's financial condition or 
Collateral that could be reasonably expected to jeopardize loan 
performance.
    NAD. National Appeals Division, or successor agency, in the United 
States Department of Agriculture.
    Negligent Loan Origination. The failure to perform those actions 
which a reasonably prudent lender would perform in originating its own 
portfolio of loans that are not guaranteed. The term includes not only 
the concept of a failure to act but also acting in a manner contrary to 
the manner in which a reasonably prudent lender would act.
    Negligent Loan Servicing. The failure to perform those services 
which a reasonably prudent lender would perform in servicing (including 
liquidation of)

[[Page 726]]

its own portfolio of loans that are not guaranteed. The term includes 
not only the concept of a failure to act, but also not acting in a 
timely manner, or acting in a manner contrary to the manner in which a 
reasonably prudent lender would act.
    Off-take agreement. The terms and conditions governing the sale and 
transportation of Biofuels, Biobased Products including Renewable 
Chemicals, Biobased Product Manufacturing end-user products, and 
electricity produced by the Borrower to another party.
    Parity. A lien position whereby two or more Lenders share a security 
interest of equal priority in Collateral.
    Participate. Sale of an interest in a loan by the lead Lender to one 
or more Lenders wherein the lead Lender retains the Promissory Note, 
Collateral securing the Promissory Note, and all responsibility for 
managing and servicing the loan. Participants are dependent upon the 
lead Lender for protection of their interests in the loan.
    Person. An individual or entity.
    Program. Biorefinery Renewable Chemical, and Biobased Product 
Manufacturing Assistance Program often abbreviated as BAP.
    Project. The facility or portion of a facility receiving funding 
under this subpart.
    Pro rata. On a proportional basis.
    Promissory note. Evidence of debt with stipulated repayment terms. 
``Note'' or ``Promissory Note'' shall also be construed to include 
``Bond'' or other evidence of debt, where appropriate.
    Protective advance. An advance made by the Lender for the purpose of 
preserving and protecting the Collateral where the Borrower has failed 
to, and will not or cannot, meet its obligations to protect or preserve 
Collateral. Protective advances include, but are not limited to, 
advances affecting the Collateral made for property taxes, rent, hazard 
and flood insurance premiums, and annual assessments. Legal/attorney 
fees are not a Protective Advance. Holders do not have an interest in 
Protective Advances.
    Public body. A municipality, county, or other political subdivision 
of a State; a special purpose district; or an Indian Tribe on a Federal 
or State reservation or other Federally-recognized Indian Tribe; or an 
organization controlled by any of the above. A Local Government would 
also be a Public Body.
    Renewable biomass. (1) Materials, pre-commercial thinnings, or 
invasive species from National Forest System land or public lands (as 
defined in section 103 of the Federal Land Policy and Management Act of 
1976 (43 U.S.C. 1702)) that:
    (i) Are byproducts of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health;
    (ii) Would not otherwise be used for higher-value products; and
    (iii) Are harvested in accordance with applicable law and land 
management plans and the requirements for old-growth maintenance, 
restoration, and management direction of paragraphs (2), (3), and (4) of 
subsection (e) of section 102 of the Healthy Forests Restoration Act of 
2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of 
section 102; or
    (2) Any organic matter that is available on a renewable or recurring 
basis from non-Federal land or land belonging to an Indian or Indian 
Tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including:
    (i) Renewable plant material, including feed grains; other 
agricultural commodities; other plants and trees; and algae; and
    (ii) Waste material, including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and 
byproducts (including fats, oils, greases, and manure); and food waste 
and yard waste.
    Renewable chemical. A monomer, polymer, plastic, formulated product, 
or chemical substance produced from Renewable Biomass.
    Retrofitting. The modification of a building or equipment to 
incorporate functions not included in the original design.
    Rural Development. The mission area of USDA that is comprised of the 
Rural Business-Cooperative Service, Rural Housing Service, and Rural 
Utilities

[[Page 727]]

Service and is under the policy direction and operational oversight of 
the Under Secretary for Rural Development.
    Rural or rural area. As described in 7 U.S.C. 1991(a)(13)(A), (D), 
(H) and (I).
    Secretary. The Secretary of the Department of the Agriculture.
    Semi-work scale. A facility operating on a limited scale to provide 
final tests of a product or process.
    Spreadsheet. A table containing data from a series of financial 
statements of a business over a period of time. Financial statement 
analysis normally contains Spreadsheets for balance sheet and income 
statement items and includes a cash flow analysis and commonly used 
ratios. The Spreadsheets enable a reviewer to easily scan the data, spot 
trends, and make comparisons.
    State. Any of the 50 States of the U.S., the Commonwealth of Puerto 
Rico, the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of 
the Northern Mariana Islands, the Republic of Palau, the Federated 
States of Micronesia, and the Republic of the Marshall Islands.
    Subordination. The reduction of the Lender's lien priority on 
certain assets pledged to secure payment of the guaranteed loan to a 
position junior to, or on Parity with, the lien position of another loan 
in order for the Borrower to obtain additional financing, not guaranteed 
by the Agency, from the Lender or a third party.
    Technologically New. New or significantly improved equipment, 
process or production method to deliver a product, or adoption of 
equipment, process or production method to deliver a new or 
significantly improved product, of which the first Commercial-Scale use 
in the United States is within the last five years and is used in not 
more than three Commercial-Scale facilities in the United States.
    Total project costs. The sum of all costs associated with a 
completed Project.
    Transfer and assumption. The conveyance by a Borrower to an assuming 
Borrower of the assets, Collateral, and liabilities of the loan in 
return for the assuming Borrower's binding promise to pay the 
outstanding loan debt approved by the Agency.
    USDA Lender Interactive Network Connection (LINC). The portal Web 
site currently at https://usdalinc.sc.egov.usda.gov/ used by Lenders to 
update loan data in the Agency's Guaranteed Loan System. Current 
capabilities include loan closing and status reporting.
    Well capitalized. Federal Deposit Insurance Corporation (FDIC) 
requirements used to determine if a lending institution has enough 
capital on hand to withstand negative effects in the market, and which 
the Agency uses to determine Lender eligibility. The criteria are 
specified in the Federal Deposit Insurance Act, and are currently at 12 
CFR 325.103, or subsequent regulation.
    Working capital. Current assets available to support a business's 
operations. Working Capital is calculated as current assets less current 
liabilities.

[80 FR 36425, June 24, 2015, as amended at 85 FR 29595, May 18, 2020; 87 
FR 38644, June 29, 2022]



Sec. 4279.203  Exception authority.

    The Administrator may, with the concurrence of the Secretary of 
Agriculture, make an exception, on a case-by-case basis, to any 
requirement or provision of this subpart that is not inconsistent with 
any authorizing statute or applicable law, if the Administrator 
determines that application of the requirement or provision would 
adversely affect the Federal government's interest.



Sec. 4279.204  Appeals.

    Borrowers, Lenders, and Holders have appeal or review rights for 
adverse Agency decisions made under this subpart. Adverse programmatic 
decisions based on clear and objective statutory or regulatory 
requirements are not appealable; however, such decisions are reviewable 
for appealability by the National Appeals Division (NAD). The Borrower, 
Lender, and Holder can appeal any Agency decision that directly and 
adversely impacts them. For an adverse decision that impacts the 
Borrower, the Lender and Borrower must jointly execute a written request 
for appeal for an alleged adverse decision

[[Page 728]]

made by the Agency. An adverse decision that only impacts the Lender may 
be appealed by the Lender only. An adverse decision that only impacts 
the Holder may be appealed by the Holder only. A decision by a Lender 
adverse to the interest of the Borrower is not a decision by the Agency, 
whether or not concurred in by the Agency. Appeals will be conducted by 
NAD and will be handled in accordance with 7 CFR part 11.



Sec. 4279.205  Prohibition under Agency programs.

    (a) No loan guaranteed by the Agency under this subpart will be 
conditioned on any requirement that the recipient(s) of such assistance 
accept or receive electric service from any particular utility, 
supplier, or cooperative.
    (b) No loan guaranteed by the Agency may be made with the proceeds 
of any obligation the Interest on which is excludable from income under 
26 U.S.C. 103 or a successor statute. Funds generated through the 
issuance of tax-exempt obligations may neither be used to purchase the 
guaranteed portion of any Agency guaranteed loan nor may an Agency 
guaranteed loan serve as Collateral for a tax-exempt issue. The Agency 
may guarantee a loan for a Project which involves tax-exempt financing 
only when the guaranteed loan funds are used to finance a part of the 
Project that is separate and distinct from the part which is financed by 
the tax-exempt obligation, and the guaranteed loan has at least a Parity 
security position with the tax-exempt obligation.
    (c) The Agency may not issue a guarantee for a loan where there may 
be, directly or indirectly, a Conflict of Interest or an appearance of a 
Conflict of Interest involving any action by the Agency.
    (d) The Agency may not guarantee lease payments.
    (e) The Agency may not guarantee loans made by other Federal 
agencies.



Sec. 4279.206  Agency representation.

    Notwithstanding any other provision of this subpart and 7 CFR part 
4287, subpart D, the Agency reserves the right to be represented by the 
U.S. Department of Justice in any litigation where the Agency is named 
as a party.



Sec. 4279.207  [Reserved]

                        Eligibility Requirements



Sec. 4279.208  Lender eligibility requirements.

    (a) An eligible Lender is any Federal or State chartered bank, Farm 
Credit Bank, other Farm Credit System institution with direct lending 
authority, and Bank for Cooperatives. These entities must be subject to 
credit examination and supervision by either an agency of the United 
States or a State. Credit unions subject to credit examination and 
supervision by either the National Credit Union Administration or a 
State agency are eligible Lenders. The National Rural Utilities 
Cooperative Finance Corporation is also an eligible Lender. Savings and 
loan associations, mortgage companies, insurance companies, and other 
lenders not meeting the above criteria are not eligible.
    (b) The Lender must demonstrate that it meets the FDIC definition of 
Well Capitalized at the time of application and at time of issuance of 
the Loan Note Guarantee. This information may be identified in FDIC Call 
Reports and Thrift Financial Reports. If the information is not 
identified in the Call Reports or Thrift Financial Reports, the Lender 
will be required to calculate its levels and provide them to the Agency.
    (c) The Lender must not be debarred or suspended by the Federal 
government.
    (d) If the Lender is under a cease-and-desist order, or similar 
constraint, from a Federal or State agency, the Lender must inform the 
Agency. The Agency will evaluate the Lender's eligibility on a case-by-
case basis given the risk of loss posed by the cease-and-desist order or 
similar constraint, as applicable.
    (e) The Agency will only approve loan guarantees for Lenders with 
adequate experience and expertise, from similar projects, to make, 
secure, service, and collect loans approved under this subpart.

[[Page 729]]



Sec. 4279.209  Borrower eligibility requirements.

    (a) Eligible entities. To be eligible, a Borrower must meet the 
requirements specified in paragraphs (a)(1) and (2) of this section.
    (1) Type of Borrower. A Borrower must be an individual; an entity; 
an Indian Tribe; or a unit of State or Local Government, including a 
corporation; a Farm Cooperative; a Farmer Cooperative Organization; an 
Association of Agricultural Producers; a National Laboratory; an 
Institution of Higher Education; a rural electric cooperative; a public 
power entity; or a consortium of any of the above entities.
    (2) Legal authority and responsibility. Each Borrower must have, or 
obtain before loan closing, the legal authority necessary to construct, 
operate, and maintain the proposed Project and services and to obtain, 
give security for, and repay the proposed loan.
    (b) Ineligible entities. A Borrower will be considered ineligible 
for a guarantee if the Borrower, any owner with more than 20 percent 
ownership interest in the Borrower, or any owner with more than 3 
percent ownership interest in the Borrower if there is no owner with 
more than 20 percent ownership interest in the Borrower:
    (1) Has an outstanding judgment obtained by the U.S. in a Federal 
Court (other than U.S. Tax Court);
    (2) Is delinquent on the payment of Federal income taxes;
    (3) Is delinquent on a Federal Debt; or
    (4) Is debarred or suspended from receiving Federal assistance.



Sec. 4279.210  Project eligibility requirements.

    (a) The Project must be located in a State.
    (b) The Project must be for either:
    (1) The development, construction, and Retrofitting of 
Technologically New Commercial-Scale processing and manufacturing 
equipment and required facilities that will be used to convert Renewable 
Chemicals and other biobased outputs of Biorefineries into end-user 
products on a Commercial Scale; or
    (2) The development, construction, or Retrofitting of a Commercial-
Scale Biorefinery using Eligible Technology.
    (c) The Borrower and other principals involved in the Project must 
make a significant equity investment in the Project in the form of cash 
contribution. Equity does not include loans to the Project. The Agency 
will evaluate the adequacy of equity in its credit evaluation in 
accordance with Sec. 4279.215(b).
    (d) Eligible Project Costs are only those costs associated with the 
items listed in paragraphs (d)(1) through (9) of this section, as long 
as the items are assets owned by the Borrower or expenses incurred by 
the Borrower and the items are an integral and necessary part of the 
Project, as determined by the Agency. A Project may consist of multiple 
facilities or components located at multiple locations.
    (1) Purchase and installation of equipment (new, refurbished, or 
remanufactured), including an integrated demonstration unit if the 
integrated demonstration unit will be used by the Borrower in the 
Project after the Project is developed and in operation.
    (2) New construction or Retrofitting of existing facilities 
including reasonable contingency reserves, land acquisition, site 
improvements and development, and associated costs such as surveys, 
title insurance, title fees, and recording or transfer fees.
    (3) Permit and license fees and fees and charges for professional 
services. Professional services are those rendered by entities generally 
licensed or certified by States or accreditation associations, such as 
architects, engineers, accountants, attorneys, or appraisers, and those 
rendered by Loan Packagers (excluding finders fees). The Borrower may 
pay fees for professional services needed for planning and developing a 
Project provided that the amounts are reasonable and customary in the 
area. Professional fees may be included as an eligible use of loan 
proceeds.
    (4) Working Capital.
    (5) Cost of necessary insurance and bonds.
    (6) Cost of financing, including capitalized Interest during 
construction period, legal fees, transaction costs,

[[Page 730]]

and customary fees charged by the lender, excluding the guaranteed loan 
fee and annual renewal fees.
    (7) Cash reserve accounts required by the Lender or Agency, such as 
a debt service reserve account.
    (8) Any other item identified by the Agency in a notice published in 
the Federal Register.
    (9) The Agency will consider refinancing only under either of the 
two conditions specified in paragraphs (d)(9)(i) and (ii) of this 
section.
    (i) Permanent financing used to refinance interim construction 
financing of the proposed Project only if the application for the 
guaranteed loan under this subpart was approved prior to closing the 
interim loan for the construction of the Project.
    (ii) Refinancing that is no more than 20 percent of the loan for 
which the Agency is guaranteeing and the purpose of the refinance is to 
enable the Agency to establish a first lien position with respect to 
pre-existing Collateral subject to a pre-existing lien and the 
refinancing would be in the best financial interests of the Federal 
Government.
    (10) A borrower is permitted to use up to 10 percent of the amount 
provided under this subpart to construct, improve, or acquire broadband 
infrastructure related to the project financed, subject to the 
requirements of 7 CFR part 1980, subpart M.
    (e) Ineligible Project costs include:
    (1) Distribution or payment to an individual owner, partner, 
stockholder, or beneficiary of the Borrower or a close relative of such 
an individual when such individual will retain any portion of the 
ownership of the Borrower;
    (2) Any line of credit;
    (3) Any equipment, processes, and related costs of such equipment 
used for processing corn kernel starch into biofuel, including as an 
incidental or secondary product; and
    (4) Payment in excess of actual costs (such as profit, overhead, and 
indirect costs) incurred by the contractor or other service provider on 
a contract or agreement that has been entered into at less than an Arm's 
Length Transaction or with an appearance of or a potential for Conflict 
of Interest.

[80 FR 36425, June 24, 2015, as amended at 85 FR 57085, Sept. 15, 2020]



Sec. Sec. 4279.211-4279.213  [Reserved]

                  Lender Functions and Responsibilities



Sec. 4279.214  General functions and responsibilities.

    (a) The Lender has the primary responsibility for loan origination 
and servicing. Any action or inaction on the part of the Agency does not 
relieve the Lender of its responsibilities to originate and service the 
loan guaranteed under this subpart. The Lender may contract for services 
and may rely on certain written materials (including, but not limited 
to, certifications, evaluations, appraisals, financial statements and 
other reports) to be provided by the Borrower or other qualified third 
parties (including, among others, one or more independent engineers, 
appraisers, accountants, consultants or other experts.) The Lender is 
ultimately responsible for underwriting, loan origination, loan 
servicing, and compliance with all Agency regulations.
    (b) Agents and Persons are prohibited from acting as both Loan 
Packager and Loan Service Provider on the same guaranteed loan.
    (c) All Lenders obtaining or requesting a Program loan guarantee are 
responsible for:
    (1) Processing applications for guaranteed loans. The Lender is 
responsible for submitting a complete application for each guaranteed 
loan requested;
    (2) Developing and maintaining adequately documented loan files, 
which must be maintained for at least 3 years after the final loss has 
been paid;
    (3) Recommending only loan proposals that are eligible and 
financially feasible;
    (4) Properly closing the loan and obtaining valid evidence of debt 
and Collateral in accordance with sound lending practices prior to 
disbursing loan proceeds;
    (5) Keeping an inventory accounting of all Collateral items and 
reconciling

[[Page 731]]

the inventory of all Collateral sold during loan servicing, including 
liquidation;
    (6) Supervising construction;
    (7) Distributing loan funds;
    (8) Servicing guaranteed loans in a reasonable manner, including 
liquidation if necessary;
    (9) Following Agency regulations and agreements;
    (10) Obtaining Agency approvals or concurrence as required; and
    (11) Reporting all Conflicts of Interest, or appearances thereof, to 
the Agency.



Sec. 4279.215  Credit evaluation.

    (a) Lenders must analyze all credit factors associated with each 
proposed loan and apply its professional judgment to determine that the 
credit factors, considered in combination, to ensure loan repayment. The 
Lender must have an adequate underwriting process to ensure that loans 
are reviewed by someone other than the originating officer. The Agency 
will only guarantee loans that are financially sound and feasible with 
reasonable assurance of repayment.
    (b) In its credit evaluation, the Agency will consider the following 
factors:
    (1) The feasibility of the Project and Borrower and likelihood that 
the Project and Borrower will produce sufficient revenues to service the 
Project's debt obligations over the life of the loan guarantee and 
result in sufficient returns to investors;
    (2) Project and Borrower debt structure and characteristics and debt 
repayment ability;
    (3) Revenues of the Project and Borrower, strength and duration of 
off-take contracts and counterparty agreements, market demand and 
competitive position;
    (4) Technical feasibility, demonstrated performance of the 
technology and readiness to commercialize the technology;
    (5) Ownership structure of the Project and Borrower, strength of 
ownership and sponsors, commitment and amount of equity investment from 
ownership, sponsors and other equity investors;
    (6) Operational management and experience;
    (7) Complexity of construction/completion, terms of construction 
contracts, experience and financial strength of the construction 
contractor or engineering, procurement, and construction (EPC) 
contractor;
    (8) Availability and depth of resource/feedstock market, strength 
and duration of purchase agreements, and availability of substitutes;
    (9) Contracts and intellectual property rights, and state and local 
regulations;
    (10) Energy, infrastructure and environmental considerations;
    (11) The extent to which Project Costs are funded by the guaranteed 
loan or other Federal and non-Federal governmental assistance such as 
grants, tax credits, or other loan guarantees;
    (12) Economic safeguards of the Project including contingency 
reserve funds and protections and safeguards provided to the Agency and 
Lender in the event of default through loan collateral and ownership and 
sponsorship guarantors, and;
    (13) Other criteria that the Agency deems relevant.



Sec. 4279.216  Environmental responsibilities.

    Lenders are responsible for becoming familiar with Federal 
environmental requirements; considering, in consultation with the 
prospective Borrower, the potential environmental impacts of their 
proposals at the earliest planning stages; and developing proposals that 
minimize the potential to adversely impact the environment.
    (a) Lenders must alert the Agency to any environmental issues 
related to a proposed Project or items that may require extensive 
environmental review.
    (b) Lenders must ensure that the Borrower has:
    (1) Provided the necessary environmental documentation to enable the 
Agency to undertake its environmental review process in accordance with 
7 CFR part 1970, including the provision of all required Federal, State, 
and local permits.
    (2) Complied with any mitigation measures required by the Agency; 
and
    (3) Not taken any actions or incurred any obligations with respect 
to the

[[Page 732]]

proposed Project that will either limit the range of alternatives to be 
considered during the Agency's environmental review process or which 
will have an adverse effect on the environment.
    (c) Lenders must assist in the collection of additional data when 
the Agency needs such data to complete its environmental review of the 
proposal and assist in the resolution of environmental issues.

[61 FR 67633, Dec. 23, 1996, as amended at 81 FR 11051, Mar. 2, 2016]



Sec. 4279.217  Oversight and monitoring.

    The Lender must permit representatives of the Agency (or other 
agencies of the United States) to inspect and make copies of any records 
of the Lender pertaining to Program guaranteed loans during regular 
office hours of the Lender or at any other time upon agreement between 
the Lender and the Agency. In addition, the Lender must cooperate fully 
with Agency oversight and monitoring of all Lenders involved in any 
manner with any loan guarantee under this Program to ensure compliance 
with this subpart. Such oversight and monitoring will include, but is 
not limited to, reviewing Lender records and meeting with Lenders (in 
accordance with Sec. 4287.307(d) of this chapter).



Sec. Sec. 4279.218-4279.219  [Reserved]

                         Conditions of Guarantee



Sec. 4279.220  General conditions of guarantee.

    A loan guarantee under this part will be evidenced by a Loan Note 
Guarantee issued by the Agency. Each Lender will execute a Lender's 
Agreement. If a valid Lender's Agreement already exists, it is not 
necessary to execute a new Lender's Agreement with each loan guarantee. 
The provisions of this part and 7 CFR part 4287, subpart D will apply to 
all outstanding guarantees. In the event of a conflict between the 
guaranteed loan documents and these regulations as they exist at the 
time the documents are executed, the regulations will control.
    (a) Full faith and credit. (1) A guarantee under this subpart 
constitutes an obligation supported by the full faith and credit of the 
United States and is incontestable except for fraud or misrepresentation 
of which a Lender or Holder has actual knowledge at the time it becomes 
such Lender or Holder or which a Lender or Holder participates in or 
condones.
    (2) The guarantee will be unenforceable to the extent that any loss 
is occasioned by:
    (i) A provision for Interest on Interest, Default or penalty 
Interest, or late payment fees;
    (ii) The violation of usury laws;
    (iii) Use of loan proceeds for unauthorized purposes or to the 
extent that loan funds are used for purposes other than those 
specifically approved by the Agency in its Conditional Commitment;
    (iv) Failure to obtain or maintain the required security regardless 
of the time at which the Agency acquires knowledge thereof; and
    (v) Negligent Loan Origination or Negligent Loan Servicing unless 
otherwise determined under paragraph (d) of this section.
    (3) The Agency will guarantee payment as follows:
    (i) To any Holder, 100 percent of any loss sustained by the Holder 
on the guaranteed portion of the loan it owns and Interest through the 
Interest Termination Date due on such portion.
    (ii) To the Lender, subject to the provisions of this part and 
subpart D of part 4287 of this chapter, the lesser of:
    (A) Any loss sustained by the Lender on the guaranteed portion, 
including principal and Interest, through the Interest Termination Date, 
evidenced by the notes or assumption agreements and secured advances for 
protection and preservation of Collateral made with the Agency's 
authorization; or
    (B) The guaranteed principal advanced to or assumed by the Borrower 
and any Interest due thereon through the Interest Termination Date.
    (b) Credit quality of Borrower. The Agency will provide guarantees 
only after consideration is given to the Borrower's overall credit 
quality and to the terms and conditions of any applicable subsidies, tax 
credits, and other such incentives.

[[Page 733]]

    (c) Quality of loan. All loans guaranteed under this subpart must be 
financially sound and feasible, with reasonable assurance of repayment.
    (d) Gross negligence. Upon written request of the Lender, the Agency 
will consider changing the negligence standard to Grossly Negligent Loan 
Origination and Grossly Negligent Loan Servicing on a case-by-case 
basis. The Lender must establish to the Agency's satisfaction that 
changing to the gross negligence standard does not materially impair the 
Agency's interests, solely at the Agency's discretion, subject to:
    (1) The lender has demonstrated capacity and experience in making 
and servicing loans of similar amounts and for transactions of 
comparable complexity;
    (2) The Agency's review of the Lender's underwriting, loan approval 
and loan servicing policies and procedures, and;
    (3) The Agency's review of the Lender's loan servicing plan.



Sec. 4279.221  Rights and liabilities.

    When a guaranteed portion of a loan is sold to a Holder, the Holder 
will succeed to all rights of the Lender under the Loan Note Guarantee 
to the extent of the portion purchased.
    (a) The Lender will remain bound to all obligations under the Loan 
Note Guarantee, Lender's Agreement, and the Agency Program regulations.
    (b) A guarantee and right to require purchase will be directly 
enforceable by a Holder notwithstanding any fraud or misrepresentation 
by the Lender or any unenforceability of the guarantee by the Lender, 
except for fraud or misrepresentation of which the Holder had actual 
knowledge at the time it became the Holder or in which the Holder 
participates or condones.
    (c) The Lender must reimburse the Agency for any payments the Agency 
makes to a Holder of Lender's guaranteed loan that, under the Loan Note 
Guarantee, would not have been paid to the Lender had the Lender 
retained the entire interest in the guaranteed loan and not conveyed an 
interest to a Holder.



Sec. 4279.222  Payments.

    A Lender will receive all payments of principal and Interest on 
account of the entire loan and must promptly remit to the Holder its Pro 
Rata share of any payment within 30 days of the Lender's receipt thereof 
from the Borrower, determined according to its respective interest in 
the loan, less only the Lender's servicing fee.



Sec. 4279.223  Sale or assignment of guaranteed loan.

    The Lender may Participate or sell all or part of the guaranteed 
portion of the loan or retain the entire loan. The Lender must fully 
disburse and properly close a loan prior to sale of any portion of the 
Promissory Note(s). The Lender cannot Participate or sell any amount of 
the guaranteed or unguaranteed portion of the loan to the Borrower or 
its parent, subsidiary or Affiliate or to officers, directors, 
stockholders, other owners, or members of their Immediate Families. The 
Lender cannot share any premium received from the sale of a guaranteed 
loan in the secondary market with a Loan Packager or other Loan Service 
Provider. The participating Lenders and Holders and the Borrower can 
have no rights or obligations to one another. If the Lender desires to 
market all or part of the guaranteed portion of the loan at or 
subsequent to loan closing, such loan must not be in Default. Lenders 
may use either the single Promissory Note or multi-note system as 
outlined in paragraphs (a) and (b) of this section.
    (a) Single note system. The entire loan is evidenced by one 
Promissory Note, and one Loan Note Guarantee is issued. When the loan is 
evidenced by one Promissory Note, the Lender may not at a later date 
cause any additional notes to be issued.
    (1) The Lender may assign all or part of the guaranteed portion of 
the loan to one or more Holders by using the Assignment Guarantee 
Agreement. The Lender must retain title to the Promissory Note. The 
Lender must complete and execute the Assignment Guarantee Agreement and 
return it to the Agency for execution prior to Holder execution.

[[Page 734]]

    (2) A Holder, upon written notice to the Lender and the Agency, may 
reassign the unpaid guaranteed portion of the loan, in full, sold under 
the Assignment Guarantee Agreement. Holders may only reassign the 
guaranteed portion in the complete block they have received and cannot 
subdivide or further split the guaranteed portion of a loan or retain an 
Interest strip.
    (3) Upon notification and completion of the assignment through the 
use of the Assignment Guarantee Agreement, the assignee shall succeed to 
all rights and obligations of the Holder thereunder. Subsequent 
assignments require notice to the Lender and Agency using any format, 
including that used by the Bond Market Association, together with the 
transfer of the original Assignment Guarantee Agreement.
    (4) The Agency will neither execute a new Assignment Guarantee 
Agreement to effect a subsequent reassignment nor reissue a duplicate 
Assignment Guarantee Agreement unless:
    (i) The original was lost, stolen, destroyed, mutilated, or defaced; 
and
    (ii) The reissue is in accordance with Sec. 4279.226.
    (5) The Assignment Guarantee Agreement clearly states the percentage 
and corresponding amount of the guaranteed portion it represents and the 
Lender's servicing fee. A servicing fee may be charged by the Lender to 
a Holder and is calculated as a percentage per annum of the unpaid 
balance of the guaranteed portion of the loan assigned by the Assignment 
Guarantee Agreement. The Agency is not and will not be a party to any 
contract between the Lender and another party where the Lender sells its 
servicing fee in an Arm's Length Transaction. The Agency will not 
acknowledge, approve, or have any liability to any of the parties of 
such contract.
    (b) Multi-note system. Under this option, the Lender may provide 
multiple Promissory Notes for the unguaranteed and the guaranteed 
portions of the loan. All Promissory Notes must reflect the same payment 
terms. When the Lender selects this option, the Holder will receive one 
of the Borrower's executed notes and a Loan Note Guarantee. The Agency 
will issue a Loan Note Guarantee for each Promissory Note, including the 
unguaranteed Promissory Note(s), to be attached to the Promissory 
Note(s). An Assignment Guarantee Agreement will not be used when the 
multi-note option is utilized.



Sec. 4279.224  Minimum retention.

    The Lender is required to hold a minimum of 7.5 percent of the total 
loan amount. The amount required to be held must be of the unguaranteed 
portion of the loan and cannot be Participated to another Person. The 
Agency may reduce the minimum retention below 7.5 percent on a case by 
case basis when the Lender establishes to the Secretary's satisfaction 
that reduction of the minimum retention percentage is to meet compliance 
with the Lender's regulatory authority. The Lender must retain interest 
in the Collateral, and retain the servicing responsibilities for the 
guaranteed loan.



Sec. 4279.225  Repurchase from Holder.

    (a) Repurchase by Lender. A Lender has the option to repurchase the 
unpaid guaranteed portion of the loan from a Holder within 30 days of 
written demand by the Holder when the Borrower is in Default not less 
than 60 days on principal or Interest due on the loan; or when the 
Lender has failed to remit to the Holder its Pro Rata share of any 
payment within 30 days of the Lender's receipt thereof from the 
Borrower. The repurchase by the Lender will be for an amount equal to 
the unpaid guaranteed portion of principal and accrued Interest less the 
Lender's servicing fee. The Holder must concurrently send a copy of the 
demand letter to the Agency. The Lender must accept an assignment 
without recourse from the Holder upon repurchase. The Lender is 
encouraged to repurchase the loan, upon written demand from the Holder, 
to facilitate the accounting of funds, resolve any loan problem, and 
resolve the Default, where and when reasonable. The benefit to the 
Lender is that it may re-sell the guaranteed portion of the loan in 
order to continue collection of its servicing fee if the Default is 
cured. The Lender must notify, in writing, the Holder and the Agency of 
its decision.

[[Page 735]]

    (b) Agency repurchase. (1) The Lender's servicing fee will stop on 
the date that Interest was last paid by the Borrower when the Agency 
purchases the guaranteed portion of the loan from a Holder. The Lender 
cannot charge such servicing fee to the Agency and must apply all loan 
payments and Collateral proceeds received to the guaranteed and 
unguaranteed portions of the loan on a Pro Rata basis.
    (2) If the Agency repurchases 100 percent of the guaranteed portion 
of the loan, the Agency will not continue collection of the Annual 
Renewal Fee from the Lender.
    (3) If the Lender does not repurchase the unpaid guaranteed portion 
of the loan as provided in paragraph (a) of this section, the Agency 
will purchase from the Holder the unpaid principal balance of the 
guaranteed portion together with accrued Interest to date of repurchase 
or the Interest Termination Date, whichever is sooner, less the Lender's 
servicing fee, within 30 days after written demand to the Agency from 
the Holder.
    (4) When Lender has accelerated the account, and subject to the 
expiration of any forbearance or workout agreement, the Lender, or the 
Agency at its sole discretion, must issue a letter to the Holder(s) 
establishing the Interest Termination Date. Accrued Interest to be paid 
to the Holder(s) will be calculated from the date Interest was last paid 
on the loan with a termination date not to exceed the Interest 
Termination Date.
    (5) When the Lender has accelerated the account and the Lender holds 
all or a portion of the guaranteed loan, an estimated loss claim (loan 
in the liquidation process) must be filed by the Lender with the Agency 
within 60 days. Accrued Interest paid to the Lender will be calculated 
from the date Interest was last paid on the loan to the Interest 
Termination Date.
    (6) The Holder's demand to the Agency must include a copy of the 
written demand made upon the Lender. The Holder must also include 
evidence of its right to require payment from the Agency. Such evidence 
must consist of either the original of the Loan Note Guarantee properly 
endorsed to the Agency or the original of the Assignment Guarantee 
Agreement properly assigned to the Agency without recourse including all 
rights, title, and interest in the loan. When the single-note system is 
utilized and the initial Holder has sold its interest, the current 
Holder must present the original Assignment Guarantee Agreement and an 
original of each Agency approved reassignment document in the chain of 
ownership, with the latest reassignment being assigned to the Agency 
without recourse, including all rights, title, and interest in the 
guarantee. The Holder must include in its demand the amount due 
including unpaid principal, unpaid Interest to date of demand, and 
Interest subsequently accruing from date of demand to proposed payment 
date. The Agency will be subrogated to all rights of the Holder.
    (7) Upon request by the Agency, the Lender must furnish within 30 
days of such request a current statement certified by an appropriate 
authorized officer of the Lender of the unpaid principal and Interest 
then owed by the Borrower on the loan and the amount then owed to any 
Holder, along with the information necessary for the Agency to determine 
the appropriate amount due the Holder. Any discrepancy between the 
amount claimed by the Holder and the information submitted by the Lender 
must be resolved between the Lender and the Holder before payment will 
be approved. Such conflict will suspend the running of the 30 day 
payment requirement.
    (8) Purchase by the Agency neither changes, alters, nor modifies any 
of the Lender's obligations to the Agency arising from the loan or 
guarantee nor does it waive any of Agency's rights against the Lender. 
The Agency will have the right to set-off against the Lender all rights 
inuring to the Agency as the Holder of the instrument against the 
Agency's obligation to the Lender under the guarantee.
    (c) Repurchase for servicing. If the Lender, Borrower, and Holder 
are unable to agree to restructuring of loan repayment, Interest rate, 
or loan terms to resolve any loan problem or resolve the Default and 
repurchase of the guaranteed portion of the loan is necessary to 
adequately service the loan, the

[[Page 736]]

Holder must sell the guaranteed portion of the loan to the Lender for an 
amount equal to the unpaid principal and Interest on such portion less 
the Lender's servicing fee. The Lender must not repurchase from the 
Holder for arbitrage or other purposes to further its own financial 
gain. Any repurchase must only be made after the Lender obtains the 
Agency's written approval. If the Lender does not repurchase the 
guaranteed portion from the Holder, the Agency may, at its option, 
purchase such guaranteed portion for servicing purposes.



Sec. 4279.226  Replacement of document.

    (a) The Agency may issue a replacement Loan Note Guarantee or 
Assignment Guarantee Agreement which was lost, stolen, destroyed, 
mutilated, or defaced to the Lender or Holder upon receipt of an 
acceptable certificate of loss and an indemnity bond.
    (b) When a Loan Note Guarantee or Assignment Guarantee Agreement is 
lost, stolen, destroyed, mutilated, or defaced while in the custody of 
the Lender or Holder, the Lender must coordinate the activities of the 
party who seeks the replacement documents and must submit the required 
documents to the Agency for processing. The requirements for replacement 
are as follows:
    (1) A certificate of loss, notarized and containing a jurat, which 
includes:
    (i) Name and address of owner;
    (ii) Name and address of the Lender of record;
    (iii) Capacity of Person certifying;
    (iv) Full identification of the Loan Note Guarantee or Assignment 
Guarantee Agreement including the name of the Borrower, the Agency's 
case number, date of the Loan Note Guarantee or Assignment Guarantee 
Agreement, face amount of the evidence of debt purchased, date of 
evidence of debt, present balance of the loan, percentage of guarantee, 
and, if an Assignment Guarantee Agreement, the original named Holder and 
the percentage of the guaranteed portion of the loan assigned to that 
Holder. Any existing parts of the document to be replaced must be 
attached to the certificate;
    (v) A full statement of circumstances of the loss, theft, 
destruction, defacement, or mutilation of the Loan Note Guarantee or 
Assignment Guarantee Agreement; and
    (vi) For the Holder, evidence demonstrating current ownership of the 
Loan Note Guarantee and Promissory Note or the Assignment Guarantee 
Agreement. If the present Holder is not the same as the original Holder, 
a copy of the endorsement of each successive Holder in the chain of 
transfer from the initial Holder to present Holder must be included. If 
copies of the endorsement cannot be obtained, best available records of 
transfer must be submitted to the Agency (e.g., order confirmation, 
canceled checks, etc.).
    (2) An indemnity bond acceptable to the Agency must accompany the 
request for replacement except when the Holder is the United States, a 
Federal Reserve Bank, a Federal corporation, a State or territory, or 
the District of Columbia. The indemnity bond must be with surety except 
when the outstanding principal balance and accrued Interest due the 
present Holder is less than $1 million verified by the Lender in writing 
in a letter of certification of balance due. The surety must be a 
qualified surety company holding a certificate of authority from the 
Secretary of the Treasury and listed in Treasury Department Circular 
570.
    (3) All indemnity bonds must be issued and payable to the United 
States of America acting through the Agency. The bond must be in an 
amount not less than the unpaid principal and Interest. The bond must 
hold the Agency harmless against any claim or demand that might arise or 
against any damage, loss, costs, or expenses that might be sustained or 
incurred by reasons of the loss or replacement of the instruments.
    (4) In those cases where the guaranteed loan was closed under the 
provision of the multi-note system, the Agency will not attempt to 
obtain, or participate in the obtaining of, replacement Promissory Notes 
from the Borrower. The Holder is responsible for bearing the costs of 
Promissory Note replacement if the Borrower agrees to issue a 
replacement instrument. Should such Promissory Note be replaced, the 
terms of the Promissory

[[Page 737]]

Note cannot be changed. If the evidence of debt has been lost, stolen, 
destroyed, mutilated or defaced, such evidence of debt must be replaced 
before the Agency will replace any instruments.



Sec. 4279.227  Equal Credit Opportunity Act.

    In accordance with the Equal Credit Opportunity Act (15 U.S.C. 1691, 
et seq.), with respect to any aspect of a credit transaction, neither 
the Lender nor the Agency will discriminate against any applicant on the 
basis of race, color, religion, national origin, sex, marital status or 
age (providing the applicant has the capacity to contract), or because 
all or part of the applicant's income derives from a public assistance 
program, or because the applicant has, in good faith, exercised any 
right under the Consumer Protection Act. The Lender must comply with the 
requirements of the Equal Credit Opportunity Act as contained in the 
Federal Reserve Board's Regulation implementing that Act (see 12 CFR 
part 202) prior to loan closing.



Sec. Sec. 4279.228-4279.230  [Reserved]

                             Loan Processing



Sec. 4279.231  Fees.

    (a) Guarantee fee. The guarantee fee is paid to the Agency by the 
Lender and is nonrefundable. The fee may be passed on to the Borrower. 
Issuance of the Loan Note Guarantee is conditioned on payment of the 
guarantee fee by closing. The guarantee fee will be the percentage 
specified in paragraphs (a)(1) or (2) of this section, as applicable, 
unless otherwise specified by the Agency in a notice published in the 
Federal Register, multiplied by the principal loan amount multiplied by 
the percent of guarantee and will be paid one time only at the time the 
Loan Note Guarantee is issued.
    (1) For loans receiving a 90 percent guarantee, the guarantee fee is 
three percent.
    (2) For loans receiving less than a 90 percent guarantee, the 
guarantee fee is:
    (i) Two percent for guarantees on loans greater than 75 percent of 
total Eligible Project Costs.
    (ii) One and one-half percent for guarantees on loans of greater 
than 65 percent but less than or equal to 75 percent of total Eligible 
Project Costs.
    (iii) One percent for guarantees on loans of 65 percent or less of 
total Eligible Project Costs.
    (b) Annual Renewal Fee. The Annual Renewal Fee, which may be passed 
on to the Borrower, is paid by the Lender to the Agency for as long as 
the guarantee is outstanding and is payable during the construction 
period.
    (1) The amount of the annual renewal fee is calculated by the 
outstanding principal loan balance as of December 31 of each year 
multiplied by the Annual Renewal Fee rate, multiplied by the percent of 
guarantee. The rate is the rate in effect at the time the loan is 
obligated, and will remain in effect for the life of the loan.
    (2) The Annual Renewal Fee is paid once a year and is required to 
maintain the enforceability of the guarantee as to the lender. Annual 
Renewal Rees are due on January 31. Payments not received by April 1 are 
considered delinquent and, at the Agency's discretion, may result in 
cancellation of the guarantee to the lender. Holders' rights will 
continue in effect as specified in the Loan Note Guarantee and 
Assignment Guarantee Agreement. Any delinquent Annual Renewal Fees will 
bear interest at the note rate and will be deducted from any loss 
payment due the lender. For loans where the Loan Note Guarantee is 
issued between October 1 and December 31, the first Annual Renewal Fee 
payment will be due January 31 of the second year following the date the 
Loan Note Guarantee was issued.
    (3) When the Agency repurchases 100 percent of the guaranteed 
portion of the loan, the Agency will not continue collection of the 
Annual Renewal Fee.
    (4) Unless otherwise specified by the Agency in a notice published 
in the Federal Register, the Annual Renewal Fee rate will be as follows:
    (i) One hundred basis points (1 percent) for guarantees on loans 
that were originally greater than 75 percent of total Eligible Project 
Costs.
    (ii) Seventy five basis points (0.75 percent) for guarantees on 
loans that were originally greater than 65 percent

[[Page 738]]

but less than or equal to 75 percent of total Eligible Project Costs.
    (iii) Fifty basis points (0.50 percent) for guarantees on loans that 
were originally for 65 percent or less of Total Eligible Project Costs.
    (c) Routine Lender fees. The Lender may establish charges and fees 
for the loan provided they are similar to those normally charged other 
applicants for the same type of loan in the ordinary course of business, 
and these fees are an eligible use of loan proceeds. The Lender must 
document such routine fees on Form RD 4279-1, ``Application for Loan 
Guarantee.'' The Lender may charge prepayment penalties and late payment 
fees that are stipulated in the loan documents, as long as they are 
reasonable and customary; however, the Loan Note Guarantee will not 
cover either prepayment penalties or late payment fees.



Sec. 4279.232  Guaranteed loan funding.

    (a) The amount of a loan guaranteed for a Project under this subpart 
will not exceed 80 percent of total Eligible Project Costs. Total 
Federal participation will not exceed 80 percent of total Eligible 
Project Costs. The Borrower needs to provide the remaining 20 percent 
from non-Federal sources to complete the Project. Eligible Project Costs 
are specified in Sec. 4279.210(d). If an eligible Borrower receives 
other direct Federal funding (i.e., direct loans or grants) for a 
Project, the maximum amount of the loan that the Agency will guarantee 
under this subpart must be reduced by the same amount of the other 
direct Federal funding that the eligible Borrower received for the 
Project. For example, an eligible Borrower is applying for a loan 
guarantee on a $100,000,000 Project. If the Borrower receives no other 
direct Federal funding for this Project and requests an $80,000,000 
guaranteed loan, the Agency will consider a guarantee on the 
$80,000,000. However, if this Borrower receives $10,000,000 in other 
direct Federal funding for this Project, the Agency will only consider a 
guarantee on $70,000,000.
    (b) The maximum principal amount of a loan guaranteed under this 
subpart is $250 million to one Borrower; there is no minimum amount.
    (c) The maximum guarantee on the principal and Interest due on a 
loan guaranteed under this subpart will be determined as specified in 
paragraphs (c)(1) through (4) of this section.
    (1) If the loan amount is equal to or less than $125 million, 80 
percent for the entire loan amount unless all of the conditions 
specified in paragraphs (c)(1)(i) through (iii) of this section are met, 
in which case 90 percent for the entire loan amount.
    (i) Total Federal participation, sum of the amount of the loan 
requested and other direct Federal funding, must not be greater than 60 
percent of total Eligible Project Costs;
    (ii) Feedstock and Off-Take Agreements of at least 1 year in 
duration; and
    (iii) Total of revenues from tax credits, carbon credits, or other 
Federal or State subsidies cannot be greater than 10 percent of the 
Project's total revenues on an annual basis, in the Borrower's base case 
of financial projections.
    (2) If the loan amount is more than $125 million and less than $150 
million, 80 percent for the entire loan amount.
    (3) If the loan amount is equal to or more than $150 million but 
less than $200 million, 70 percent on the entire loan amount.
    (4) If the loan amount is $200 million up to and including $250 
million, 60 percent on the entire loan amount.



Sec. 4279.233  Interest rates.

    The Interest rate for the guaranteed loan will be negotiated between 
the Lender and the Borrower and may be either fixed or variable, or a 
combination thereof, as long as it is a legal rate. Interest rates will 
not be more than those rates the Lender customarily charges Borrowers 
for non-guaranteed loans in similar circumstances in the ordinary course 
of business and are subject to Agency review and approval. Lenders are 
encouraged to utilize the secondary market and pass Interest-rate 
savings on to the Borrower.
    (a) A variable Interest rate must be a rate that is tied to a 
published base rate. The variable Interest rate must be specified in the 
Promissory Note and may be adjusted at specified intervals during the 
term of the loan, but

[[Page 739]]

the adjustments may not be more often than once each Calendar Quarter. 
The Lender must incorporate, within the variable rate Promissory Note at 
loan closing, the provision for adjustment of payment installments. The 
Lender must properly amortize the outstanding principal balance within 
the prescribed loan maturity in order to eliminate the possibility of a 
balloon payment at the end of the loan.
    (b) Any change in the base rate or fixed Interest rate between 
issuance of the Conditional Commitment and the issuance of the Loan Note 
Guarantee must be approved by the Agency. Approval of such a change must 
be shown as an amendment to the Conditional Commitment and must be 
reflected on the Guaranteed Loan Closing Report.
    (c) It is permissible to have different Interest rates on the 
guaranteed and unguaranteed portions of the loan.



Sec. 4279.234  Terms of loan.

    The loan terms, other than Interest, must be the same for both the 
guaranteed and unguaranteed portions of the loan.
    (a) The repayment term for a loan under this subpart will be no 
greater than the lesser of 20 years from the date of loan closing or the 
useful life of the Project, as determined by the Lender and confirmed by 
the Agency. Both the guaranteed and unguaranteed portions of the loan 
must be amortized over the same term.
    (b) A loan's maturity will take into consideration the use of 
proceeds, the useful life of assets being financed, and the Borrower's 
ability to repay the loan.
    (c) The first installment of principal and Interest will, if 
possible, be scheduled for payment after the Project is operational and 
has begun to generate income. However, the first full installment must 
be due and payable within three years from the date of the Promissory 
Note and be paid at least annually thereafter. In cases where there is 
an Interest-only period, Interest will be paid at least annually from 
the date of the Promissory Note.
    (d) Only loans that require a periodic payment schedule that will 
retire the debt over the term of the loan without a balloon payment will 
be guaranteed except the final payment may be the funds held in the debt 
service reserve account.



Sec. 4279.235  Collateral.

    The Lender is responsible for obtaining and maintaining proper and 
adequate Collateral to protect the interest of the Lender, the Holder, 
and the Agency. Collateral must be of such a nature that repayment of 
the loan is reasonably ensured when considered with the integrity and 
ability of Project management, soundness of the Project, and the 
Borrower's prospective earnings. The Collateral may include, but is not 
limited to, the following: Revenue, land, easements, rights-of-way, 
buildings, machinery, equipment, inventory, accounts receivable, 
contracts, cash, or other accounts, licenses and assignments of leases 
or leasehold interest.
    (a) The entire loan, the guaranteed and unguaranteed portions, must 
be secured by a first lien on all assets of the Project including all 
assets in the Project budget. The Agency may consider a subordinate lien 
position on inventory and accounts receivable to Working Capital loans 
including revolving lines of credit provided the Agency determines the 
Working Capital is necessary for the operation and with the 
Subordination, the loan remains adequately secured.
    (b) The entire loan must be secured by the same security with equal 
lien priority for the guaranteed and unguaranteed portions of the loan. 
The unguaranteed portion of the loan will neither be paid first nor 
given any preference or priority over the guaranteed portion.



Sec. Sec. 4279.236-4279.242  [Reserved]



Sec. 4279.243  Insurance.

    The Lender is responsible for ensuring that required insurance is 
maintained by the Borrower. The Lender must be shown as an additional 
insured on insurance policies (or other risk sharing instruments) that 
benefit the Project and must be able to assume any contracts that are 
material to the Project, including any feedstock or Off-Take Agreements, 
as may be applicable.

[[Page 740]]

    (a) Hazard. Hazard insurance with a standard clause naming the 
Lender as mortgagee or loss payee, as applicable, is required for the 
life of the guaranteed loan. The amount must be at least equal to the 
replacement value of the Collateral or the outstanding balance of the 
loan, whichever is the greater amount.
    (b) Life. The Lender may require as Collateral an assignment of life 
insurance to insure against the risk of death of persons critical to the 
success of the business. When required, coverage must be in amounts 
necessary to provide for management succession or to protect the 
business. The Agency may require life insurance on key individuals for 
loans where the Lender has not otherwise proposed such coverage. The 
cost of insurance and its effect on the applicant's Working Capital must 
be considered as well as the amount of existing insurance that could be 
assigned without requiring additional expense.
    (c) Worker compensation. Worker compensation insurance is required 
in accordance with State law.
    (d) Flood. National flood insurance is required in accordance with 
applicable law.
    (e) Other. The Lender must consider whether public liability, 
business interruption, malpractice, and other insurance is appropriate 
to the Borrower's particular business and must require the Borrower to 
obtain such insurance as is necessary to protect the interests of the 
Borrower, the Lender, or the Agency.



Sec. 4279.244  Appraisals.

    (a) Lenders must obtain appraisals for real estate when the value of 
the Collateral exceeds $250,000. Each appraisal must be reported in a 
manner that summarizes all of the information necessary for the intended 
users to understand the report and contain all information pertinent to 
the appraiser's opinions and conclusions.
    (1) Appraisals must not be more than one year old, and a more recent 
appraisal may be requested by the Agency in order to reflect more 
current market conditions. For loan servicing purposes, an appraisal may 
be updated in lieu of a complete new appraisal when the original 
appraisal is more than one year old, but less than two years old.
    (2) Specialized appraisers will be required to complete appraisals 
under this section. The Agency may approve a waiver of this requirement 
only if a specialized appraiser does not exist in a specific industry. 
The Agency will require documentation that the appraiser has the 
necessary experience and competency to appraise the property in 
question.
    (3) All real property appraisals associated with Agency guaranteed 
loan origination and servicing transactions must meet the requirements 
contained in the Financial Institutions Reform, Recovery and Enforcement 
Act (FIRREA) of 1989 and the appropriate guidelines contained in 
Standards 1 and 2 of the Uniform Standards of Professional Appraisal 
Practices (USPAP) and be performed by a State Certified General 
Appraiser. Notwithstanding any exemption that may exist for transactions 
guaranteed by a Federal Government agency, all appraisals obtained by 
the Lender for origination and servicing must conform to the Interagency 
Appraisal and Evaluations Guidelines established by the Lender's primary 
Federal or State regulator.
    (4) All appraisals must include consideration of the potential 
effects from a release of hazardous substances or petroleum products or 
other environmental hazards on the Market Value of the Collateral. The 
Lender must complete and submit its technical review of the appraisal. 
For construction Projects, the Lender must use the ``as-completed'' 
Market Value of the real estate to determine value of the real estate 
property. For all proposals, Lenders must obtain a Phase I Environmental 
Site Assessment in accordance with ASTM International Standards, which 
should be provided to the appraiser for completion of the appraisal. For 
additional guidance and information refer to ``Phase I Environmental 
Site Assessment,'' published by the American Society of Testing and 
Materials.
    (b) Chattels must be evaluated in accordance with normal banking 
practices and generally accepted methods of determining value. Chattel 
appraisals must reflect the age, condition, and

[[Page 741]]

remaining useful life of the equipment. If the appraisal is completed by 
a State licensed/certified appraiser, the appraisal report must comply 
with USPAP Standards 7 and 8.



Sec. 4279.245  Personal and corporate guarantees.

    (a) Unconditional personal and corporate guarantees are required for 
the full term of the loan from Persons owning 20 percent or greater 
interest in the borrower.
    (b) When warranted by an Agency assessment and its credit 
evaluation, guarantees may also be required of parent, subsidiaries, 
affiliated companies, Persons owning less than a 20 percent interest in 
the borrower, or Persons whose ownership interest in the Borrower is 
held indirectly through intermediate entities.
    (c) The Agency may require the guarantees to be secured.
    (d) Partial guarantees and exemptions to the requirement for 
guarantees may be requested by the Lender and are subject to concurrence 
by the Agency approval official on a case-by-case basis when warranted 
by an Agency assessment and its credit evaluation in accordance with 
Sec. 4279.215(b). If partial guarantees are required, the partial 
guarantee will be at least equal to each owner's percentage of interest 
in the Borrower multiplied by the loan amount.
    (e) All personal and corporate guarantors must execute Form RD 4279-
14, ``Unconditional Guarantee,'' and any guarantee form required by the 
Lender. The Agency will retain the original, executed Form RD 4279-14.
    (1) Any amounts paid by the Agency on behalf of an Agency Borrower 
will constitute a Federal Debt owed to the Agency by the Borrower.
    (2) Any amounts paid by the Agency pursuant to a claim by a Lender 
will constitute a Federal Debt owed to the Agency by a guarantor of the 
loan, to the extent of the amount of the guarantor's guarantee.
    (3) In all instances under paragraphs (c)(1) and (2) of this 
section, Interest charges will be assessed at the Promissory Note 
Interest rate on the date a loss claim is paid.



Sec. Sec. 4279.246-4279.255  [Reserved]



Sec. 4279.256  Construction planning and performing development.

    The Lender and Borrower must comply with paragraphs (a) through (i) 
of this section. The Lender may contract for services and may rely on 
certain written materials and other reports to be provided by an 
independent engineer and other qualified third parties.
    (a) Design policy. The Lender must monitor and require the Borrower 
ensure that all facilities constructed with Program funds are designed, 
and costs estimated, by an independent professional utilizing accepted 
architectural, engineering, and design practices and conform to 
applicable Federal, State, and local codes and requirements.
    (b) Project control. (1) The Lender must monitor the progress of 
construction and confirm the reviews and inspections necessary to ensure 
that construction conforms to applicable Federal, State, and local code 
requirements have been performed; proceeds are used in accordance with 
the approved plans, specifications, and contract documents; and that 
loan funds are used for Eligible Project Costs in accordance with the 
purposes approved by the Agency in its Conditional Commitment. The 
Lender must expeditiously report any problems in Project development to 
the Agency.
    (2) The Lender must ensure an onsite Project inspector or 
independent engineer monitors the Project.
    (3) The Lender must monitor the Project to confirm that the Project 
will be completed with available funds and, once completed, will be used 
for its intended purpose and produce products in the quality and 
quantity proposed in the completed application approved by the Agency. 
Once construction is completed, the Lender must provide the Agency with 
a copy of the notice of completion.
    (4) Prior to the disbursement of construction funds, the Lender 
shall:
    (i) Have on file the major drawings issued for construction and 
major equipment specifications issued for procurement;
    (ii) Have a detailed timetable for the Project with a corresponding 
budget of

[[Page 742]]

costs, setting forth the parties responsible for payment;
    (iii) Ensure that the independent engineer confirms that the budget 
is adequate for the Project;
    (iv) Require the Borrower to have a firm fixed-price engineering, 
procurement and construction (EPC) contract in place which includes 
performance guarantees customary and reasonable for a project of this 
nature or engineering, construction, and procurement contracts in place 
with vendors and construction contractors for the construction of the 
Project, each on customary terms and conditions;
    (v) Require provisions for change order approvals, a retainage 
percentage, and a disbursement schedule;
    (vi) Require the Borrower to have contingencies in place to handle 
unforeseeable cost overruns without seeking additional Agency 
assistance. These contingencies must be agreed to by the Agency.
    (c) Changes and cost overruns. The Borrower is responsible for any 
changes or cost overruns. If any such change or cost overrun occurs, 
then any change order must be expressly approved by the Agency, which 
approval shall not be unreasonably withheld, and neither the Lender nor 
Borrower will divert funds from purposes identified in the guaranteed 
loan application approved by the Agency to pay for any such change or 
cost overrun without the express written approval of the Agency. In no 
event will the current loan be modified or a subsequent guaranteed loan 
be approved to cover any such changes or costs. In the event of any of 
the aforementioned increases in cost or expenses, the Borrower must 
provide for such increases in a manner that does not diminish the 
Borrower's operating capital. Failure to comply with the terms of this 
paragraph (c) will be considered a Material Adverse Change in the 
Borrower's financial condition, and the Lender must address this matter, 
in writing, to the Agency's satisfaction.
    (d) New draw certifications. The following three certifications are 
required for each new draw:
    (1) Certification by the Project engineer to the Lender that the 
work referred to in the draw has been successfully completed;
    (2) Certification that all debts have been paid and all mechanics' 
liens have been waived; and
    (3) Certification that the Borrower is complying with the Davis-
Bacon Act (see paragraph (h) of this section).
    (e) Surety. Surety, as the term is commonly used in the industry, 
will be required. The Borrower must have either 100 percent performance/
payment bonds on the contractors or a guarantee from a creditworthy 
parent entity or an alternative acceptable to the Lender and the Agency 
and must be secured. The bonding agent must be listed on Treasury 
Circular 570.
    (f) Equal opportunity. For all construction contracts in excess of 
$10,000, the contractor must comply with Executive Order 11246, entitled 
``Equal Employment Opportunity,'' as amended by Executive Order 11375, 
and as supplemented by applicable Department of Labor regulations (41 
CFR part 60). The Borrower and Lender are responsible for ensuring that 
the contractor complies with these requirements.
    (g) Americans with Disabilities Act (ADA). Construction of or 
addition to facilities that accommodate the public or commercial 
facilities, as defined by the ADA, must comply with the ADA.
    (h) Wage rates. As a condition of receiving a loan guaranteed under 
this subpart, each Borrower shall ensure that all laborers and mechanics 
employed by contractors or subcontractors in the performance of 
construction work financed in whole or in part with guaranteed loan 
funds under this subpart shall be paid wages at rates not less than 
those prevailing on similar construction in the locality as determined 
by the Secretary of Labor in accordance with sections 3141 through 3144, 
3146, and 3147 of title 40, U.S.C. Awards under this subpart are further 
subject to the relevant regulations contained in 29 CFR part 5.
    (i) Reporting during construction. Lenders must submit monthly 
construction and quarterly progress reports to the Agency, as specified 
in paragraphs (i)(1) and (2), respectively, of this section and the 
Borrower information specified in paragraph (i)(3) of this section.

[[Page 743]]

    (1) Monthly construction reports documenting the use of the Project 
funding until construction is completed. The reports must include the 
following:
    (i) Certifications for each draw request:
    (A) Certification by the independent engineer to the Lender that the 
work referred to in the draw has been successfully completed;
    (B) Certification from the Borrower and independent engineer or that 
the proceeds of the prior draw have been applied to Eligible Project 
Costs in accordance with the draw request and that the contractors have 
delivered mechanics' lien waivers in connection with such draw; and
    (C) Certification from the Borrower as to its compliance with the 
Davis-Bacon Act confirmed by the independent engineer;
    (ii) List of invoices;
    (iii) Detail of equity and Guaranteed Loan funds paid to date;
    (iv) Status of construction and inspection reports; and
    (v) Concerns, potential problems, cost overruns, etc.
    (2) Quarterly progress reports by the end of each Calendar Quarter, 
unless more frequent ones are needed as determined by the Agency, 
through the time when the facility is producing at its designed capacity 
at a steady state. These reports must contain, at a minimum, planned and 
completed construction milestones, loan advances, and personnel hiring, 
training, and retention and commissioning and ramp-up milestones and 
performance reports. This requirement applies to both the development 
and construction of Commercial-Scale Biorefineries and to the 
Retrofitting of existing facilities using Eligible Technology for the 
development of Advanced Biofuels and Biobased Products including 
Renewable Chemicals. The Lender must expeditiously report any problems 
in Project development to the Agency.
    (3) Once construction is completed, the Lender must provide the 
Agency with:
    (i) A copy of all required material building permits, with sign-
offs;
    (ii) Notice of Completion or an Agency approved equivalent; and
    (iii) Final accounting of sources and uses of all Project funds.



Sec. Sec. 4279.257-4279.258  [Reserved]



Sec. 4279.259  Borrower responsibilities.

    (a) Federal, State, and local regulations. Borrowers must comply 
with all Federal, State, and local laws and rules that are in existence 
and that affect the Project including, but not limited to:
    (1) Land use zoning;
    (2) Health, safety, and sanitation standards as well as design and 
installation standards; and
    (3) Protection of the environment and consumer affairs.
    (b) Permits, agreements, and licenses. Borrowers must obtain all 
permits, agreements, and licenses that are applicable to the Project.
    (c) Insurance. The Borrower is responsible for maintaining all 
hazard, flood, liability, worker compensation, and personal life 
insurance, when required, for the Project.
    (d) Access to Borrower's records. Except as provided by law, upon 
request by the Agency, the Borrower will permit representatives of the 
Agency (or other Federal agencies as authorized by the Agency) to 
inspect and make copies of any of the records of the Borrower's Project. 
Such inspection and copying may be made during regular office hours of 
the Borrower or at any other time agreed upon between the Borrower and 
the Agency.
    (e) Access to the Project. The Borrower must allow the Agency access 
to the Project and its performance information until the loan is repaid 
in full and permit periodic inspections of the Project by a 
representative of the Agency.

                              Applications



Sec. 4279.260  Guarantee applications--general.

    (a) Application submittal. (1) For each guarantee request, the 
Lender or the Borrower must submit to the Agency a non-binding letter of 
intent to apply for loan guarantee not less than 30 calendar days prior 
to the application deadline as provided in paragraph (b) of this 
section. The letter must identify the Borrower, the Lender and Project

[[Page 744]]

sponsors; describe the Project and Project location; describe the 
proposed feedstock, primary technologies of the facility and primary 
products produced; estimate the Total Project Cost and amount of loan 
requested; and any additional information specified in the annual 
Federal Register notice, if any. Applications that do not submit a 
letter of intent may be accepted by the Agency at the Agency's 
discretion.
    (2) For each guarantee request, the Lender must submit to the Agency 
an application that is in conformance with Sec. 4279.261. The methods 
of application submittal will be specified in the annual Federal 
Register notice.
    (b) Application deadline. Unless otherwise specified by the Agency 
in a notice published in the Federal Register, application deadlines are 
October 1 and April 1 of each year. Complete applications must be 
received by the Agency on or before April 1 of each year to be 
considered for funding for that fiscal year. If the application deadline 
falls on a weekend or an observed holiday, the deadline will be the next 
Federal business day. The deadlines in this paragraph (b) relate to 
Phase 1 applications in accordance with Sec. 4279.261.
    (c) Incomplete applications. Incomplete applications will be 
rejected. Lenders will be informed of the elements that made the 
application incomplete. If a resubmitted application is received by the 
applicable application deadline, the Agency will reconsider the 
application.
    (d) Application withdrawal. During the period between the submission 
of an application and closing, the Lender must notify the Agency, in 
writing, if the Project is no longer viable or the Borrower is no longer 
requesting financial assistance for the Project. When the Lender so 
notifies the Agency, the Agency will rescind the selection or withdraw 
the application.
    (e) Application revisions and updates. During the period between the 
submission of an application and closing, the Lender must notify the 
Agency, in writing, of revisions to the Project including but not 
limited to revisions to technology utilized in the Project, feedstock, 
Off-Take Agreements, ownership structure, and Project financing. The 
Agency may require submittal of updated application and supporting 
materials. The Agency will complete the application priority scoring in 
accordance with Sec. 4279.266 based on the application materials 
received by the Agency prior to the application deadline. Subsequent 
changes to an application that result in a lower priority score could 
result in the Agency discontinuing processing of the application.



Sec. 4279.261  Application for loan guarantee content.

    Lenders must submit a complete application for each loan guarantee 
sought under this subpart. Components of an application are submitted in 
two phases. Phase I applications, which are the initial application 
submissions, must contain the information specified in paragraphs (a) 
through (j) of this section, organized pursuant to a table of contents 
in a chapter format. Phase 2 application components may be submitted 
after the Agency invites the Lender and Borrower to make the phase 2 
submittal and must contain the information specified in paragraph (k) of 
this section.
    (a) Project Summary. Provide a concise summary of the proposed 
Project and application information, Project purpose and need, and 
Project goals, including the following:
    (1) Title. Provide a descriptive title of the Project.
    (2) Borrower eligibility. Describe how the Borrower meets the 
eligibility criteria identified in Sec. 4279.209.
    (3) Project eligibility. Describe how the Project meets the 
eligibility criteria identified in Sec. 4279.210. Clearly state whether 
the application is for the construction and development of a Biorefinery 
or for the Retrofitting of an existing facility. Additional Project 
description information will be needed later in the application process.
    (4) Project funds. Submit a Spreadsheet identifying sources, 
amounts, and availability of funds. The Spreadsheet must also include a 
directory of funds source contact information. Attach any applications, 
correspondence, or other written communication between Borrower and fund 
source.

[[Page 745]]

    (5) Project timeline. A projected timeline detailing the timeline 
commencing with the loan application phase 1, including the loan 
application phase 2, final Project planning and engineering, obtaining 
required permits, loan closing, plant construction, commissioning and 
ramp up through stabilized state of operation.
    (b) Application form. Form RD 4279-1 or other Agency-approved 
application form if specified in a Federal Register notice.
    (c) Financial statements. (1) The most recent audited financial 
statements of the Borrower, unless alternative financial statements are 
authorized by the Agency; and
    (2) A current (not more than 90 days old) balance sheet and a pro 
forma balance sheet at startup.
    (d) Financial model. Submit a financial model for the Project in the 
form of a financial modeling software program in an active electronic 
format which includes, but is not limited to, a projected Project budget 
and projected balance sheets, income and expense statements, cash flow 
statements, and Working Capital and capital expense projections for not 
less than the term of the loan. The projections must be displayed in a 
monthly format for a period of three years after stabilized operation 
and annually thereafter. Projections should be supported by a list of 
assumptions showing the basis for the projections. Depending on the 
complexity of the Project and the financial condition of the Borrower, 
the Agency may require additional financial statements and additional 
related information.
    (e) Feasibility Study. The Feasibility Study should be prepared by a 
qualified, independent third party using information gathered from other 
qualified parties and documents such as: independent engineer reports, 
marketing studies, feedstock studies, business plans and financial 
statements prepared by a certified public accountant. Any information 
used to prepare the Feasibility Study should be submitted as 
attachments. Elements in an acceptable Feasibility Study include, but 
are not limited to, the elements outlined in Table 1 of this section.

                  Table 1--Feasibility Study Components
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
(A) Executive summary
 
    Introduction/Project Overview (Brief general overview of Project
     location, size, etc.).
    Economic feasibility determination.
    Market feasibility determination.
    Technical feasibility determination.
    Financial feasibility determination.
    Management feasibility determination.
    Recommendations for implementation.
 
(B) Economic Feasibility
 
    Description of feedstock and confirmation that the feedstock is not
     used elsewhere in the production of Advanced Biofuels or Biobased
     Products including Renewable Chemicals.
    Feedstock:
        Feedstock source management,
        Estimates of feedstock volumes and costs,
        Collection, pre-treatment, transportation, and storage, and
        Feedstock risks.
    Documentation that woody biomass feedstock from National Forest
     system lands or public lands cannot be used for a higher-value
     product.
    Impacts on any other similar Biorefineries in the area in which the
     Borrower proposes to place the Project, defined as the area that
     will supply the feedstock to the proposed Project, if any.
    Impacts on existing manufacturing plants or other facilities that
     use similar feedstock if the Borrower's proposed production
     technology is adopted.
    Projected impact on resource conservation, public health, and the
     environment.
    Information regarding Project site.

[[Page 746]]

 
    Availability of trained or trainable labor.
    Availability of infrastructure, including utilities, and rail, air
     and road service to the site.
    Overall economic impact of the Project, including direct jobs,
     indirect jobs, additional markets created for agricultural and
     forestry products and agricultural waste material and the potential
     for Rural economic development.
    Feasibility/plans of Project to work with producer associations or
     cooperatives and the estimated amount of annual feedstock purchased
     from or sold to producer associations and cooperatives.
 
(C) Market Feasibility
 
    Information on the sales organization and management.
    Nature and extent of market and market area.
    Marketing plans for sale of projected output--principal products and
     Byproducts.
    Extent of competition, including other similar facilities in the
     market area.
    Commitments from purchasers of off-take--principal products and
     secondary products, degree of commitment, duration or terms of Off-
     Take Agreements, and financial strength of counterparties.
    Risks related to the industry, including:
        Industry status;
        Specific market risks; and
        Competitive threats and advantages.
 
(D) Technical Feasibility
 
    Suitability of the selected site for the intended use.
    Scale of development for which the process technology has been
     proven (i.e., pilot, demonstration, or Semi-Work Scale Facility).
     Provide results from pilot, demonstration, or Semi-Work Scale
     Facilities that prove that the technology proposed to be used is
     feasible and stands a good chance of being successful. The proposed
     technology must meet the definition of Eligible technology.
    The degree of integration of all processes should be detailed and a
     summary of any integrated demonstration unit test results should be
     submitted.
    Specific volume produced from the technology of the process
     (expressed either as volume of feedstock processed [tons per unit
     of time] or as product [gallons per unit of time]).
    Identification and estimation of Project operation and development
     costs. Specify the level of accuracy of these estimates and the
     assumptions on which these estimates have been based. Detailed
     analysis of Project costs including: Project management and
     professional services; resource assessment; Project design and
     permitting; land agreements and site preparation; equipment
     requirements and system installation; startup and shakedown; and
     warranties, insurance, financing and operation and maintenance
     costs.
    A projected timeline detailing Borrower plans from the time of loan
     application through plant construction, commissioning and ramp up
     should be included.
    Ability of the proposed system to be commercially replicated.
    Risks related to:
        Construction of the Biorefinery;
        Production of the Advanced Biofuel and Biobased Product
         including Renewable Chemical;
        Regulation and governmental action;
        Design-related factors that may affect Project success; and
        Technology scale up risk.
 
(E) Financial Feasibility
 
    Reliability of the financial projections and the assumptions on
     which the financial statements are based, including all sources and
     uses of Project capital, private or public Federal and non-Federal
     funds. Provide detailed analysis and description of projected
     balance sheets, income and expense statements, and cash flow
     statements over the useful life of the Project.
    A detailed description of and the degree financial feasibility is
     dependent on:

[[Page 747]]

 
        Investment incentives;
        Productivity incentives;
        Loans and grants; and
        Other Project authorities RINs value, tax credits, other
         credits, and subsidies that affect the Project.
    Any constraints or limitations in the financial projections.
    Ability of the business to achieve the projected income and cash
     flow.
    Assessment of the cost accounting system.
    Availability of short-term credit or other means to meet seasonal
     business costs.
    Adequacy of raw materials and supplies.
    Sensitivity analysis, including feedstock and energy costs and
     product and Byproduct prices.
    Risks related to:
        The Project;
        Borrower financing plan;
        The operational units; and
        Tax issues.
 
(F) Management Feasibility
 
    Borrower and/or management's previous experience concerning:
        Production of Advanced Biofuel, and Biobased Product including
         Renewable Chemicals, as applicable;
        Acquisition of feedstock;
        Marketing and sale of off-take; and
        The receipt of Federal financial assistance, including amount of
         funding, date received, purpose, and outcome.
    Management plan for procurement of feedstock and labor, marketing of
     the off-take, and management succession.
    Risks related to:
        Borrower as a company (e.g., development-stage);
        Conflicts of Interest; and
        Management strengths and weaknesses.
 
(G) Qualifications
 
    A resume or statement of qualifications of the author and
     contributors of the Feasibility Study, including prior experience,
     must be submitted.
------------------------------------------------------------------------

    (f) Business Plan. The Lender must submit the Borrower's business 
plan that includes the information specified in paragraphs (f)(1) 
through (10) of this section. Any or all of this information may be 
omitted if it is included in the Feasibility Study specified in 
paragraph (e) of this section.
    (1) Describe or provide an organizational chart of the Borrower's 
ownership structure and affiliation with other entities, if any. The 
names and a description of the relationship of the Borrower's parent, 
Affiliates, and subsidiaries. Identify local ownership.
    (2) The Borrower's succession planning, addressing both ownership 
and management.
    (3) The Borrower's experience and management experience.
    (4) The products and services to be provided and the Borrower's 
business strategy.
    (5) Possible vendors and models of major system components.
    (6) The availability of the resources (e.g., labor, raw materials, 
supplies) necessary to provide the planned products and services.
    (7) Site location and its relation to product distribution (e.g., 
rail lines or highways) and any land use or other permits necessary to 
operate the facility.
    (8) The market for the product and its competition, including any 
and all competitive threats and advantages.
    (9) Projected balance sheets, income and expense statements, and 
cash flow

[[Page 748]]

statements for a period of not less than three years of stabilized 
operation.
    (10) A description of the proposed use of funds.
    (g) Scoring information. The application must contain information in 
a format that is responsive to the scoring criteria specified in Sec. 
4279.266.
    (h) Intergovernmental consultation. Intergovernmental consultation 
comments in accordance with 2 CFR part 415, subpart C or successor 
regulation.
    (i) DUNS Number. For Borrowers other than individuals, a Dun and 
Bradstreet Universal Numbering System (DUNS) number, which can be 
obtained online at http://fedgov.dnb.com/webform.
    (j) Other information. Any other information determined by the 
Agency to be necessary to evaluate the application.
    (k) Phase 2 application contents. (1) Updates, as appropriate, to 
contents of application materials submitted in application phase 1.
    (2) An appraisal conducted as specified under Sec. 4279.244.
    (3) A proposed Loan Agreement or a sample Loan Agreement with an 
attached list of the proposed Loan Agreement provisions as specified in 
paragraphs (k)(3)(i) through (ix) of this section.
    (i) Prohibition against assuming liabilities or obligations of 
others.
    (ii) Restriction on dividend payments.
    (iii) Limitation on the purchase or sale of equipment and fixed 
assets.
    (iv) Limitation on compensation of officers and owners.
    (v) Minimum Working Capital or current ratio requirement.
    (vi) Maximum debt-to-net worth ratio.
    (vii) Restrictions concerning consolidations, mergers, or other 
circumstances.
    (viii) Limitations on selling the business without the concurrence 
of the Lender.
    (ix) Repayment and amortization of the loan.
    (4) Environmental documentation in accordance with 7 CFR part 1970.
    (5) Under the direction of the Agency, an evaluation and rating of 
the total Project's indebtedness, without consideration for a government 
guarantee, from a nationally-recognized statistical rating organization 
(NRSRO), as defined by the U.S. Security and Exchange Commission, for 
all Projects with total Eligible Project Costs of $25 million or more 
unless as otherwise specified by the Agency in a notice published in the 
Federal Register. The evaluation and rating must be in the form of an 
indicative private rating, private credit analysis, or comparable 
analysis report and include a rating in accordance with the NRSRO's 
credit rating scales and include a recovery analysis. An updated rating 
may be required at the Agency's discretion if changes are subsequently 
made to the Project including changes to any contracts and agreements or 
changes to loan terms and conditions.
    (6) Lender's analysis and credit evaluation that conforms to Sec. 
4279.215 and must include the information specified in paragraphs 
(k)(6)(i) and (ii) of this section.
    (i) The credit reports of the Borrower, its principals, and any 
parent, Affiliate, or subsidiary as follows:
    (A) Unless otherwise determined by the Agency, a personal credit 
report from an Agency-approved credit reporting company for individuals 
who are key employees of the Borrower, as determined by the Agency, and 
for individuals owning 20 percent or more interest in the Borrower or 
any owner with more than 10 percent ownership interest in the Borrower 
if there is no owner with more than 20 percent ownership interest in the 
Borrower, except for when the Borrower is a corporation listed on a 
major stock exchange; and
    (B) Commercial credit reports on the Borrower and any parent, 
Affiliate, and subsidiary firms.
    (ii) Financial and sensitivity review using a financial modeling 
software program or a banking industry software analysis program with 
industry standards, when appropriate.
    (7) Whether the Loan Note Guarantee is requested prior to 
construction or after completion of construction of the Project.
    (8) The technical assessment must be completed by a qualified 
independent engineer and must demonstrate that the design, procurement, 
installation, startup, operation and maintenance of

[[Page 749]]

the Project will permit it to operate or perform as specified over its 
useful life in a reliable and a cost effective manner, and must identify 
what the useful life of the Project is. The technical assessment must 
also identify all necessary Project agreements, demonstrate that those 
agreements will be in place at or before the time of loan closing, and 
demonstrate that necessary Project equipment and services will be 
available over the useful life of the Project. The technical assessment 
must be based upon verifiable data and contain sufficient information 
and analysis so that a determination can be made on the technical 
feasibility of achieving the levels of income or production that are 
projected in the financial statements. All technical information 
provided must follow the format specified in paragraphs (k)(8)(i) 
through (ix) of this section. Supporting information may be submitted in 
other formats. Design drawings and process flow charts are required as 
exhibits. A discussion of a topic identified in paragraphs (k)(8)(i) 
through (ix) of this section is not necessary if the topic is not 
applicable to the specific Project. Questions identified in the Agency's 
technical review of the Project must be answered to the Agency's 
satisfaction before the application will be approved. All Projects 
require the services of an independent, third-party professional 
engineer.
    (i) Qualifications of Project team. The Project team will vary 
according to the complexity and scale of the Project. The Project team 
must have demonstrated expertise in similar Advanced Biofuel and 
Biobased Product including Renewable Chemical, as applicable, technology 
development, engineering, installation, and maintenance. Identify 
Borrower's, including its principals', prior experience in bioenergy 
projects and the receipt of Federal financial assistance, including the 
amount of funding, date received, purpose, and outcome, for such 
projects. Authoritative evidence that Project team service providers 
have the necessary professional credentials or relevant experience to 
perform the required services for the development, construction, and 
Retrofitting, as applicable, of technology for producing Advanced 
Biofuels and Biobased Products including Renewable Chemicals, if 
applicable, must be provided. In addition, authoritative evidence that 
vendors of proprietary components can provide necessary equipment and 
spare parts for the facility to operate over its useful life must be 
provided. The application must:
    (A) Discuss the proposed Project delivery method. Such methods 
include a design-bid-build method, where a separate engineering firm may 
design the Project and prepare a request for bids and the successful 
bidder constructs the Project at the Borrower's risk, and a design -
build method, often referred to as ``turnkey,'' where the Borrower 
establishes the specifications for the Project and secures the services 
of a developer who will design and build the Project at the developer's 
risk;
    (B) Discuss the manufacturers of major components of Advanced 
Biofuels and Biobased Product including Renewable Chemical technology 
equipment being considered in terms of the length of time in business 
and the number of units installed at the capacity and scale being 
considered;
    (C) Discuss the Project team members' qualifications for 
engineering, designing, and installing similar projects, including any 
relevant certifications by recognized organizations or bodies. Provide a 
list of the same or similar projects designed, installed, or supplied 
and currently operating, with references if available; and
    (D) Describe the facility operator's qualifications and experience 
for servicing, operating, and maintaining such equipment or projects. 
Provide a list of the same or similar projects designed, installed, or 
supplied and currently operating, with references if available.
    (ii) Agreements and permits. The application must identify all 
necessary agreements and permits required for the Project and the status 
and schedule for securing those agreements and permits, including the 
items specified in paragraphs (k)(8)(ii)(A) through (F) of this section.
    (A) All facilities funded under this subpart must be installed in 
accordance with applicable local, State, and national codes and 
applicable local,

[[Page 750]]

State, and Federal regulations. Identify zoning and code requirements 
and necessary permits and the schedule for meeting those requirements 
and securing those permits.
    (B) Identify licenses where required and the schedule for obtaining 
those licenses.
    (C) Identify land use agreements required for the Project, the 
schedule for securing those agreements, and the term of those 
agreements.
    (D) Identify any permits or agreements required for solid, liquid, 
and gaseous emissions or effluents and the schedule for securing those 
permits and agreements.
    (E) Identify available component warranties for the specific Project 
location and size.
    (F) Identify all environmental issues, including environmental 
compliance issues, associated with the Project.
    (iii) Resource assessment. The application must provide adequate and 
appropriate evidence of the availability of the feedstocks required for 
the facility to operate as designed. Indicate the type and quantity of 
the feedstock, and discuss storage of the feedstock, where applicable, 
and competing uses for the feedstock. Indicate shipping or receiving 
methods and required infrastructure for shipping, and other appropriate 
transportation mechanisms including methods and systems to prevent the 
spread of invasive species. For proposed Projects with an established 
resource, provide a summary of the resource.
    (iv) Design and engineering. The application must provide 
authoritative evidence that the facility will be designed and engineered 
so as to meet its intended purposes, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, codes, 
and standards. Projects shall be engineered by a qualified entity. Each 
facility must be engineered as a complete, integrated facility. The 
engineering must be comprehensive, including site selection, systems and 
component selection, and systems monitoring equipment. All Projects 
funded under this subpart must be constructed by a qualified entity.
    (A) The application must include a concise but complete description 
of the Project, including location of the Project; resource 
characteristics, including the kind and amount of feedstocks; facility 
specifications; kind, amount, and quality of the output; and monitoring 
equipment. Address performance on a monthly and annual basis. Describe 
the uses of or the market for the Advanced Biofuels and Biobased Product 
including Renewable Chemical produced by the facility. Discuss the 
impact of reduced or interrupted feedstock availability on the 
facility's operations.
    (B) The application must include:
    (1) A description of the Project site that addresses issues such as 
site access, foundations, and backup equipment when applicable;
    (2) Environmental documentation in accordance with 7 CFR part 1970.
    (3) Identification of any unique construction and installation 
issues.
    (C) Sites must be controlled by the eligible Borrower for at least 
the financing term of the Loan Note Guarantee.
    (v) Project development schedule. The application must describe each 
significant task, its beginning and end, and its relationship to the 
time needed to initiate and carry the Project through startup and 
shakedown. Provide a detailed description of the Project timeline 
including resource assessment, Project and site design, permits and 
agreements, equipment procurement, and Project construction from 
excavation through startup and shakedown.
    (vi) Equipment procurement. The application must demonstrate that 
equipment required by the facility is available and can be procured and 
delivered within the proposed Project development schedule. Projects 
funded under this subpart may be constructed of components manufactured 
in more than one location. Provide a description of any unique equipment 
procurement issues such as scheduling and timing of component 
manufacture and delivery, ordering, warranties, shipping, receiving, and 
on-site storage or inventory.
    (vii) Equipment installation. The application must provide a full 
description of the management of and plan for site development and 
systems installation,

[[Page 751]]

details regarding the scheduling of major installation equipment needed 
for Project construction, and a description of the startup and shakedown 
specification and process and the conditions required for startup and 
shakedown for each equipment item individually and for the facility as a 
whole.
    (viii) Operations and maintenance. The application must provide the 
operations and maintenance requirements of the facility necessary for 
the facility to operate as designed over its useful life. The 
application must also include:
    (A) Information regarding available facility and component 
warranties and availability of spare parts;
    (B) A description of the routine operations and maintenance 
requirements of the proposed facility, including maintenance schedules 
for the mechanical, piping, and electrical systems and system monitoring 
and control requirements, as well as provision of information that 
supports expected useful life of the facility and timing of major 
component replacement or rebuilds;
    (C) A discussion of the costs and labor associated with operating 
and maintaining the facility and plans for in-sourcing or outsourcing. A 
description of the opportunities for technology transfer for long-term 
Project operations and maintenance by a local entity or owner/operator; 
and
    (D) Provision and discussion of the risk management plan for 
handling large, unanticipated failures of major components.
    (ix) Decommissioning. A description of the decommissioning process, 
when the Project must be uninstalled or removed. A description of any 
issues, requirements, and costs for removal and disposal of the 
facility.

[81 FR 67633, Dec. 23, 1996, as amended at 81 FR 11051, Mar. 2, 2016]



Sec. Sec. 4279.262-4279.264  [Reserved]



Sec. 4279.265  Guarantee application processing.

    (a) Eligibility determination. Upon receipt of a complete Phase 1 
application, the Agency will determine if the Borrower, Lender, and 
Project are eligible and if the Project is technically and economically 
feasible, as provided under paragraph (b) of this section.
    (1) If the Borrower, Lender, or the Project is determined to be 
ineligible for any reason, the Agency will inform the Lender, in 
writing, of the reasons. No further evaluation of the application will 
occur.
    (2) If the Agency determines it is unable to guarantee the loan, the 
Agency will inform the Lender in writing. Such notification will include 
the reasons for denial of the guarantee.
    (b) Technical and economic feasibility. (1) The Agency's 
determination of a Project's technical and economic feasibility will be 
based on:
    (i) The Agency's analysis of the technical report and Feasibility 
Study submitted in the application conducted by qualified independent 
third parties;
    (ii) The Lenders credit evaluation; and
    (iii) Other application materials.
    (2) The Agency's determination of a Project's technical feasibility 
will be based on the technical report. In addition, prior to the 
issuance of the Conditional Commitment for a Project utilizing 
technology that does not have a history of successful utilization in a 
Commercial-scale operation of a Biorefinery that produces an Advanced 
biofuel, Renewable chemical, or Biobased product, evidence demonstrating 
120 days of continuous, steady state production from an integrated 
demonstration unit must be provided by the Borrower to the Lender and 
the Agency for review and determination of technical feasibility. 
Authoritative demonstration campaign results must be provided in 30-day 
intervals. The integrated demonstration unit must prove out the 
Project's ability to utilize Project-relevant biomass and produce 
Advanced biofuel at a yield and quality consistent with the design basis 
of the Project. The Borrower must provide to the Agency, for review and 
approval, sufficient information on the integrated campaign design so as 
to ensure operation duration, quality, and quantity specifications are 
met and incorporated into the final design criteria for the commercial 
facility.
    (3) Projects determined by the Agency to be without technical or 
economic

[[Page 752]]

feasibility will not be selected for funding.

[80 FR 36425, June 24, 2015, as amended at 85 FR 29596, May 18, 2020]



Sec. 4279.266  Guarantee application scoring.

    Using the evaluation criteria identified in this section, the Agency 
will score each eligible Biorefinery application that meets the minimum 
requirements for technical and economic feasibility. A maximum of 125 
points is possible. The Agency will award points based on its review and 
analysis of all application materials. Clarifications for the scoring on 
Biobased Product Manufacturing applications will be made available by a 
notice published in the Federal Register.
    (a) Whether the Borrower has established a market for the Advanced 
Biofuel and the Biobased Products including Renewable Chemicals, as 
applicable. A maximum of 20 points can be awarded. Points to be awarded 
will be determined as follows:
    (1) Degree of commitment of Off-Take Agreements. A maximum of 6 
points will be awarded.
    (i) If the Borrower has signed Off-Take Agreements for purchase for 
greater than 50 percent of the dollar value of off-take, 6 points will 
be awarded.
    (ii) If the Borrower has signed letters of intent to enter into Off-
Take Agreements, or comparable documentation, for the purchase for 
greater than 50 percent of the dollar value of off-take, or combination 
of signed contracts or agreements and letters of intent or comparable 
documentation, 4 points will be awarded.
    (iii) If the Borrower has signed letters of interest to enter into 
Off-Take Agreements, or comparable documentation, for the purchase for 
greater than 50 percent of the dollar value of off-take, or combination 
of signed Off-Take Agreements, letters of intent, letters of intent or 
comparable documentation, 2 points will be awarded.
    (2) Duration of Off-Take Agreements. A maximum of 6 points will be 
awarded.
    (i) If the Borrower commits to enter into Off-Take Agreements prior 
to loan closing for purchase for greater than or equal to 50 percent of 
the dollar value of off-take for the period not less than the loan term, 
6 points will be awarded.
    (ii) If the Borrower commits to enter into Off-Take Agreements prior 
to loan closing for purchase for greater than or equal to 50 percent of 
the dollar value of off-take for the period not less than five years but 
less than the term of the loan, 4 points will be awarded.
    (iii) If the Borrower commits to enter into Off-Take Agreements 
prior to loan closing for purchase for greater than or equal to 50 
percent of the dollar value of off-take for the period not less than one 
year but less than five years, 2 points will be awarded.
    (3) Financial strength of the off-take counterparty. A maximum of 4 
points will be awarded.
    (i) If the Borrower commits to enter into Off-Take Agreements prior 
to loan closing for purchase for greater than or equal to 50 percent of 
the dollar value of off-take with an off-take counterparty with a 
corporate credit rating not less than AA, Aa2, or equivalent, 4 points 
will be awarded.
    (ii) If the Borrower commits to enter into Off-Take Agreements prior 
to loan closing for purchase for greater than or equal to 50 percent of 
the dollar value of off-take with an off-take counterparty with a 
corporate credit rating less than AA, Aa2, or equivalent, but not less 
than A-, or A3, or equivalent, 2 points will be awarded.
    (iii) If the Borrower commits to enter into Off-Take Agreements 
prior to loan closing for purchase for greater than or equal to 50 
percent of the dollar value of off-take with an off-take counterparty 
with a corporate credit rating less than A-, or A3, or equivalent, but 
not less than BBB-, or Baa3, or equivalent, 1 point will be awarded.
    (4) Revenue dependency on tax credits, carbon credits, or other 
Federal or State subsidies. A maximum of 4 points will be awarded.
    (i) If total of revenues from tax credits, carbon credits, or other 
Federal or State subsidies is less than or equal to 10 percent of the 
Project's total revenues on an annual basis, in the Borrower's base case 
of financial projections, 4 points will be awarded.
    (ii) If total of revenues from tax credits, carbon credits, or other 
Federal or

[[Page 753]]

State subsidies is greater than 10 percent but less than or equal to 20 
percent of the Project's total revenues on an annual basis, in the 
Borrower's base case of financial projections, 2 points will be awarded.
    (iii) If total of revenues from tax credits, carbon credits, or 
other Federal or State subsidies is greater than 20 percent but less 
than or equal to 30 percent of the Project's total revenues on an annual 
basis, in the Borrower's base case of financial projections, 1 point 
will be awarded.
    (b) Whether the area in which the Borrower proposes to place the 
Project, defined as the area that will supply the feedstock to the 
proposed Project, has any other similar facilities. A maximum of 5 
points can be awarded. Points to be awarded will be determined as 
follows:
    (1) If the area that will supply the feedstock to the proposed 
Project does not have any other similar facilities, 5 points will be 
awarded.
    (2) If there are other similar facilities located within the area 
that will supply the feedstock to the proposed Project, 0 points will be 
awarded.
    (c) Whether the Borrower is proposing to use a feedstock or biobased 
output of Biorefineries not previously used in the production of 
Advanced Biofuels or Biobased Products including Renewable Chemicals. A 
maximum of 10 points can be awarded. Points to be awarded will be 
determined as follows:
    (1) If the Borrower proposes to use a feedstock previously used in 
the production of Advanced Biofuels and Biobased Product including 
Renewable Chemicals in a commercial facility, 0 points will be awarded.
    (2) If the Borrower proposes to use a feedstock not previously used 
in production of Advanced Biofuels and Biobased Product including 
Renewable Chemicals in a commercial facility, 10 points will be awarded.
    (d) Whether the Borrower is proposing to work with producer 
associations or cooperatives. A maximum of 5 points can be awarded. 
Points to be awarded will be determined as follows:
    (1) If at least 50 percent of the dollar value of feedstock to be 
used by the proposed Project will be supplied by producer associations 
and cooperatives, 5 points will be awarded.
    (2) If at least 30 percent of the dollar value of feedstock to be 
used by the proposed Project will be supplied by producer associations 
and cooperatives, 3 points will be awarded.
    (e) The level of financial participation by the Borrower, including 
support from non-Federal government sources and private sources. A 
maximum of 20 points can be awarded. Points to be awarded will be 
determined as follows:
    (1) If the sum of the loan amount requested and other direct Federal 
funding is less than or equal to 50 percent of total Eligible Project 
Cost, 20 points will be awarded.
    (2) If the sum of the loan amount requested and other direct Federal 
funding is greater than 50 percent but less than or equal to 55 percent 
of total Eligible Project Cost, 16 points will be awarded.
    (3) If the sum of the loan amount requested and other direct Federal 
funding is greater than 55 percent but less than or equal to 60 percent 
of total Eligible Project Cost, 12 points will be awarded.
    (4) If the sum of the loan amount and other direct Federal funding 
is greater than 60 percent but less than or equal to 65 percent of total 
Eligible Project Cost, 8 points will be awarded.
    (5) If the sum of the loan amount and other direct Federal funding 
is greater than 65 percent but less than or equal to 70 percent of total 
Eligible Project Cost, 4 points will be awarded.
    (f) Whether the Borrower has established that the adoption of the 
process proposed in the application will have a positive effect on three 
impact areas: resource conservation (e.g., water, soil, forest), public 
health (e.g., potable water, air quality), and the environment (e.g., 
compliance with an applicable renewable fuel standard, greenhouse gases, 
emissions, particulate matter). A maximum of 10 points can be awarded. 
Points to be awarded will be determined as follows:
    (1) If process adoption will have a positive impact on any one of 
the three impact areas (resource conservation, public health, or the 
environment), 3 points will be awarded.

[[Page 754]]

    (2) If process adoption will have a positive impact on two of the 
three impact areas, 6 points will be awarded.
    (3) If process adoption will have a positive impact on all three 
impact areas, 10 points will be awarded.
    (4) If the Project proposes to use a feedstock that can be used for 
human or animal consumption, 5 points will be deducted from the score.
    (g) Whether the Borrower can establish that, if adopted, the 
technology proposed in the application will not have any economically 
significant negative impacts on existing manufacturing plants or other 
facilities that use similar feedstocks or biobased outputs of 
Biorefineries. A maximum of 5 points can be awarded. Points to be 
awarded will be determined as follows:
    (1) If the Borrower has failed to establish, through an independent 
third-party Feasibility Study, that the production technology proposed 
in the application, if adopted, will not have any economically 
significant negative impacts on existing manufacturing plants or other 
facilities that use similar feedstocks, 0 points will be awarded.
    (2) If the Borrower has established, through an independent third-
party Feasibility Study, that the production technology proposed in the 
application, if adopted, will not have any economically significant 
negative impacts on existing manufacturing plants or other facilities 
that use similar feedstocks, 5 points will be awarded.
    (3) If the feedstock is wood pellets, no points will be awarded 
under this criterion.
    (h) The potential for Rural economic development. A maximum of 20 
points will be awarded. Points to be awarded will be determined as 
follows:
    (1) If the Project is located in a Rural Area, 5 points will be 
awarded.
    (2) If the Project creates jobs through direct employment with an 
average wage that exceeds the County median household wages where the 
Project will be located, 5 points will be awarded.
    (3) If the majority of feedstock to be utilized by the Project, on 
an annual basis, is harvested from the land, 10 points will be awarded.
    (i) The level of local ownership of the facility proposed in the 
application. A maximum of 5 points can be awarded. Points to be awarded 
will be determined as follows:
    (1) If Local Owners have an ownership interest in the facility of 
more than 20 percent but less than or equal to 50 percent, 3 points will 
be awarded.
    (2) If Local Owners have an ownership interest in the facility of 
more than 50 percent, 5 points will be awarded.
    (j) Whether the Project can be replicated. A maximum of 10 points 
can be awarded. Points to be awarded will be determined as follows:
    (1) If the Project can be commercially replicated regionally (e.g., 
Northeast, Southwest, etc.), 5 points will be awarded.
    (2) If the Project can be commercially replicated nationally, 10 
points will be awarded.
    (k) If the Project uses a particular technology, system, or process 
that is not currently operating at Commercial Scale as of October 1 of 
the fiscal year for which the funding is available, 5 points will be 
awarded.
    (l) The Administrator can award up to a maximum of 10 bonus points:
    (1) To ensure, to the extent practical, there is diversity in the 
types of Projects approved for loan guarantees to ensure as wide a range 
as possible technologies, products, and approaches are assisted in the 
Program portfolio; and
    (2) To applications that promote partnerships and other activities 
that assist in the development of new and emerging technologies for the 
development of Advanced Biofuels and Biobased Products including 
Renewable Chemicals, so as to, as applicable, increase the energy 
independence of the United States or reduce our dependence on petroleum-
based chemicals and products; promote resource conservation, public 
health, and the environment; diversify markets for agricultural and 
forestry products and agriculture waste material; and create jobs and 
enhance the economic development of the Rural economy. These 
partnerships and other activities will be identified in a Federal 
Register notice each fiscal year.

[[Page 755]]



Sec. 4279.267  Selecting guarantee applications.

    (a) Allocation of budget authority. In administering this Program's 
budgetary authority each fiscal year, the Agency will allocate up to, 
but no more, than 50 percent of its budgetary authority, excluding 
funding for Biobased Product Manufacturing Projects, to fund 
applications received by the end of the first application window, 
including those carried over from the previous application period. Any 
funds not obligated to support applications submitted by the end of the 
first application window will be available to support applications 
received by the end of the second window, including those carried over 
from the previous application period. The Agency, therefore, will have a 
minimum of 50 percent of each fiscal year's budgetary authority for this 
Program available to support applications received by the end of the 
second application window. Administrative procedures for the funding of 
Biobased Product Manufacturing Projects will be made available by a 
Notice published in the Federal Register.
    (b) Ranking of applications. The Agency will rank all complete 
eligible applications to create a priority list of scored Phase 1 
applications for the Program. Unless otherwise specified in a notice 
published in the Federal Register, the Agency will rank applications by 
approximately October 31 for complete and eligible applications received 
on or before October 1 and by approximately April 30 for complete and 
eligible applications received on or before April 1. All Phase 1 
applications received on or before October 1 and April 1 will be ranked 
by the Agency and will be competed against the other applications 
received on or before such date.
    (c) Selection of applications for funding. The Agency will invite 
applicants to submit Phase 2 applications based on the criteria 
specified in paragraphs (c)(1) through (3) of this section. The Agency 
will notify, in writing, Lenders whose applications have been selected.
    (1) Ranking. The Agency will consider the score an application has 
received compared to the scores of other applications in the priority 
list created under paragraph (b) of this section, with highest scoring 
applications receiving first consideration for invitation to the phase 2 
submittal. A minimum score of 55 points is required in order to be 
considered for a guarantee.
    (2) Availability of budgetary authority. The Agency will consider 
the size of the request relative to the budgetary authority that remains 
available to the Program during the fiscal year.
    (i) If there is insufficient budgetary authority during a particular 
funding period to select a higher scoring application, the Agency may 
elect to select the next highest scoring application for further 
processing. Before this occurs, the Agency will provide the Borrower of 
the higher scoring application the opportunity to reduce the amount of 
its request to the amount of budgetary authority available. If the 
Borrower agrees to lower its request, it must certify that the purposes 
of the Project can be met, and the Agency must determine the Project is 
financially feasible at the lower amount.
    (ii) If the amount of funding required is greater than 25 percent of 
the Program's outstanding budgetary authority, the Agency may elect to 
select the next highest scoring application for further processing, 
provided the higher scoring Borrower is notified of this action and 
given an opportunity to revise their application and resubmit it for an 
amount less than or equal to 25 percent of the Program's outstanding 
budgetary authority.
    (3) Availability of other funding sources. If other financial 
assistance is needed for the Project, the Agency will consider the 
availability of other funding sources. If the Lender cannot demonstrate 
that funds from these sources are available at the time of selecting 
applications for funding or potential funding, the Agency may instead 
select the next highest scoring application for further processing ahead 
of the higher scoring application.
    (d) Ranked applications not selected for phase 2. A ranked 
application that is not invited to submit phase 2 in the application 
cycle in which it was submitted will be carried forward one additional 
application cycle, which may be in the next fiscal year. The Agency will 
notify the Lender in writing.

[[Page 756]]



Sec. Sec. 4279.268-4279.277  [Reserved]



Sec. 4279.278  Loan approval and obligating funds.

    (a) Applications for loan guarantees may be approved as their Phase 
2 applications are completed and approved. If an application has been 
selected for phase 2, but has not been approved because additional 
information is needed, the Agency will notify, in writing, the Lender of 
what information is needed, including a timeframe for the Lender to 
provide the information. If the Lender does not provide the information 
within the specified timeframe, the Agency will remove the application 
from further consideration and will so notify the Lender in writing.
    (b) Upon approval of a loan guarantee application, the Agency will 
issue a Conditional Commitment to the Lender containing conditions under 
which a Loan Note Guarantee will be issued. The Agency will not issue a 
Conditional Commitment until the Agency has satisfactorily completed a 
Civil Rights Impact Analysis. The Conditional Commitment becomes null 
and void unless the conditions are accepted by the Lender and Borrower 
within 60 days from the date of issuance by USDA. If the conditions are 
not met or the Loan Note Guarantee is not issued by the Conditional 
Commitment expiration date, the Agency may extend the Conditional 
Commitment expiration date when requested by the Lender and only if 
there has been no Material Adverse Change in the Borrower's or 
Borrowers' financial condition since issuance of the Conditional 
Commitment.
    (c) The Lender and Borrower may request changes to the Conditional 
Commitment. The Agency may negotiate with the Lender and the Borrower 
regarding any proposed changes to the Conditional Commitment. Any 
changes to the Conditional Commitment must be documented by written 
amendment to the Conditional Commitment. The changes must be for Good 
Cause and the Agency may deny, solely at is discretion, changes to the 
Conditional Commitment even if the change is otherwise in compliance 
with this subpart.
    (d) The Borrower must comply with all Federal requirements then in 
effect for receiving Federal assistance.



Sec. 4279.279  Transfer of Lenders.

    (a) The Agency may approve the substitution of a new eligible Lender 
in place of a former Lender who has been issued an outstanding 
Conditional Commitment when the Loan Note Guarantee has not yet been 
issued provided that there are no changes in the:
    (1) Borrower's ownership or control, loan purposes, or scope of 
Project;
    (2) Loan terms and conditions in the Conditional Commitment; and
    (3) Loan Agreement.
    (b) The Agency must determine that the new Lender is eligible in 
accordance with Sec. 4279.208 prior to approving the substitution. The 
original Lender must provide the Agency with a letter stating the 
reasons it no longer desires to be a Lender for the Project. The 
substituted Lender must execute a new part B of Form 4279-1 and Lender's 
Agreement (unless a valid Lender's Agreement with the Agency already 
exists), and must complete a new Lender's analysis in accordance with 
Sec. 4279.215. The new Lender may also be required to provide other 
updated application items outlined in Sec. 4279.261(k).



Sec. 4279.280  Changes in Borrowers.

    Any changes in Borrower ownership or organization prior to the 
issuance of the Loan Note Guarantee must meet the eligibility 
requirements of the Program and be approved by the Agency.



Sec. 4279.281  Conditions precedent to issuance of Loan Note Guarantee.

    The Lender must not close the loan until all conditions of the 
Conditional Commitment are met or can be met. When loan closing plans 
are established, the Lender must notify the Agency in writing.
    (a) Coincident with, or immediately after loan closing, the Lender 
must provide the following forms and documents to the Agency:
    (1) An executed Lender's Agreement;
    (2) Form RD 1980-19, ``Guaranteed Loan Closing Report,'' and 
appropriate guarantee fee;
    (3) Copy of the executed Promissory Note(s);

[[Page 757]]

    (4) Copy of the executed Loan Agreement;
    (5) Copy of the executed settlement statement and updated source and 
use statement including all Project funding;
    (6) Original, executed Forms RD 4279-14, as appropriate;
    (7) Borrower's loan closing balance sheet; and
    (8) Any other documents required to comply with applicable law or 
required by the Conditional Commitment or the Agency.
    (b) The Lender must provide their certification to each condition 
specified in paragraphs (b)(1) through (16) of this section. The Lender 
may rely on certain written materials (including but not limited to 
certifications, evaluations, appraisals, financial statements and other 
reports) to be provided by the Borrower or other qualified third parties 
(including, among others, one or more independent engineers, appraisers, 
accountants, attorneys, consultants or other experts.) If the Lender is 
unable to provide any of the certifications required under this section, 
the Lender must provide an explanation satisfactory to the Agency as to 
why the Lender is unable to provide the certification. The Lender can 
request the guarantee prior to construction, but must still certify to 
all conditions in paragraphs (b)(1) through (16) of this section.
    (1) If required, hazard, flood, liability, worker compensation, and 
life insurance are in effect.
    (2) All truth-in-lending and equal credit opportunity requirements 
have been met.
    (3) The loan has been properly closed, and the required security 
instruments have been properly executed, or will be promptly obtained on 
any property that cannot be immediately secured under State law.
    (4) The Borrower has or will have marketable title to the 
Collateral, subject to the guaranteed loan and to any other exceptions 
approved in writing by the Agency.
    (5) The loan proceeds have been or will be disbursed for purposes 
and in amounts consistent with the Conditional Commitment and the 
application submitted to the Agency.
    (6) When required, personal or corporate guarantees have been 
obtained in accordance with Sec. 4279.245.
    (7) All requirements of the Conditional Commitment have been met.
    (8) Lien priorities are consistent with the requirements of the 
Conditional Commitment. No claims or liens of laborers, subcontractors, 
suppliers of machinery and equipment, materialmen, or other parties have 
been filed against the Collateral and no suits are pending or threatened 
that would adversely affect the Collateral when the security instruments 
are filed.
    (9) There has been neither any Material Adverse Change in the 
Borrower's financial condition nor any other Material Adverse Change in 
the Borrower, for any reason, during the period of time from the 
Agency's issuance of the Conditional Commitment to issuance of the Loan 
Note Guarantee regardless of the cause or causes of the change and 
whether or not the change or causes of the change were within the 
Lender's or Borrower's control. The Lender must address any assumptions 
or reservations in this certification and must address all Material 
Adverse Changes of the Borrower, any parent, Affiliate, or subsidiary of 
the Borrower, and guarantors.
    (10) Neither the Lender nor any of the Lender's officers has an 
ownership interest in the Borrower or is an officer or director of the 
Borrower, and neither the Borrower nor its officers, directors, 
stockholders, or other owners have more than a 5 percent ownership 
interest in the Lender.
    (11) The Loan Agreement includes all Borrower compliance measures 
identified in the Agency's environmental review process for avoiding or 
reducing adverse environmental impacts of the Project's construction or 
operation.
    (12) For loans exceeding $150,000, the Lender has certified its 
compliance with the Anti-Lobby Act (18 U.S.C. 1913). Also, if any funds 
have been, or will be, paid to any Person for influencing or attempting 
to influence an officer or employee of any agency, a member of Congress, 
an officer or employee of Congress, or an employee of a member of 
Congress in connection with this commitment providing for the United 
States to guarantee a loan, the

[[Page 758]]

Lender must completely disclose such lobbying activities in accordance 
with 31 U.S.C. 1352.
    (13) Where applicable, the Lender must certify that the Borrower has 
obtained:
    (i) A legal opinion relative to the title to rights-of-way and 
easements. Lenders are responsible for ensuring that Borrowers have 
obtained valid, continuous, and adequate rights-of-way and easements 
needed for the construction, operation and maintenance of a facility; 
and
    (ii) A title opinion or title insurance showing ownership of the 
land and all mortgages or other lien defects, restrictions, or 
encumbrances, if any. It is the responsibility of the Lender to ensure 
that the Borrower has obtained and recorded such releases, consents, or 
subordinations to such property rights from holders of outstanding liens 
or other instruments as may be necessary for the construction, operation 
and maintenance of the facility and to provide the required security. 
For example, when a site is for utility-type facilities (such as a gas 
distribution system) and the Lender and Borrower are able to obtain only 
a right-of-way or easement on such site rather than a fee simple title, 
such a title opinion must be provided.
    (14) Each Borrower shall certify to the Lender that all laborers and 
mechanics employed by contractors or subcontractors in the performance 
of construction work financed in whole or in part with guaranteed loan 
funds under this subpart shall be paid wages at rates not less than 
those prevailing on similar construction in the locality as determined 
by the Secretary of Labor in accordance with 40 U.S.C. 3141 through 
3144, 3146, and 3147. Awards under this subpart are further subject to 
the relevant regulations contained in Title 29 of the CFR.
    (15) The Lender certifies that it has reviewed all contract 
documents and verified compliance with 40 U.S.C. 3141 through 3144, 
3146, and 3147 and Title 29 of the CFR. The Lender will certify that the 
same process will be completed for all future contracts and any changes 
to existing contracts.
    (16) The Lender certifies that the proposed facility complies with 
all Federal, State, and local laws and regulatory rules that are in 
existence and that affect the Project, the Borrower, or Lender 
activities.
    (c) The Agency may, at its discretion, request copies of loan 
documents for its file.
    (d) When the Agency is satisfied that all conditions for the 
guarantee have been met, the Agency will issue the Loan Note 
Guarantee(s) and the documents identified in paragraphs (d)(1) and (2) 
of this section, as appropriate.
    (1) Assignment Guarantee Agreement. In the event the Lender uses the 
single Promissory Note option and assigns the guaranteed portion of the 
loan to a Holder, the Lender, Holder, and the Agency will execute the 
Assignment Guarantee Agreement.
    (2) Certificate of Incumbency. If requested by the Lender, the 
Agency will provide the Lender with a certification on Form 4279-7, 
``Certificate of Incumbency and Signature,'' of the signature and title 
of the Agency official who signs the Loan Note Guarantee, Lender's 
Agreement, and Assignment Guarantee Agreement.



Sec. 4279.282  [Reserved]



Sec. 4279.283  Refusal to execute Loan Note Guarantee.

    If the Agency determines that it cannot execute the Loan Note 
Guarantee, the Agency will inform the Lender, in writing, of the reasons 
and give the Lender a reasonable period within which to satisfy the 
objections. If the Lender satisfies the objections within the time 
allowed, the Agency will issue the Loan Note Guarantee. If the Lender 
requests additional time in writing and within the period allowed, the 
Agency may grant the request.



Sec. Sec. 4279.284-4279.289  [Reserved]



Sec. 4279.290  Requirements after Project construction.

    Once the Project has been constructed, the Lender must meet the 
requirements specified in paragraphs (a) and (b) of this section.
    (a) Provide the Agency annual reports from the Borrower commencing 
the first full calendar year following the year in which Project 
construction was completed and continuing for the

[[Page 759]]

life of the guaranteed loan. The Borrower's reports will include, but 
not be limited to, the information specified in paragraphs (a)(1) 
through (8), as applicable, of this section.
    (1) The actual amount of Advanced Biofuels, Biobased Products 
including Renewable Chemicals, and Byproducts produced.
    (2) If applicable, documentation that identified health or 
sanitation problems have been solved.
    (3) A summary of the cost of operating and maintaining the facility.
    (4) A description of any maintenance or operational problems 
associated with the facility.
    (5) Certification that the Project is and has been in compliance 
with all applicable State and Federal environmental laws and 
regulations.
    (6) The number of jobs created.
    (7) A description of the status of the Project's feedstock 
including, but not limited to, the feedstock being used, outstanding 
feedstock contracts, feedstock changes and interruptions, and quality of 
the feedstock.
    (8) The results of the annual inspections conducted under paragraph 
(b) of this section.
    (b) For the life of the guaranteed loan, conduct annual inspections.



Sec. Sec. 4279.291-4279.299  [Reserved]



Sec. 4279.300  OMB control number.

    In accordance with the Paperwork Reduction Act of 1995, the 
information collection requirements contained in the subsequent interim 
rule have been submitted to the Office of Management and Budget (OMB) 
under OMB control number 0570-0065 for approval. A person is not 
required to respond to a collection of information unless it displays a 
currently valid OMB control number.



PART 4280_LOANS AND GRANTS--Table of Contents



      Subpart A_Rural Economic Development Loan and Grant Programs

Sec.
4280.1 Purpose.
4280.2 Policy.
4280.3 Definitions.
4280.4-4280.12 [Reserved]
4280.13 Applicant eligibility.
4280.14 [Reserved]
4280.15 Ultimate Recipient Projects eligible for Rural Economic 
          Development Loan funding.
4280.16 REDL and REDG Loan terms.
4280.17 Additional REDL terms.
4280.18 [Reserved]
4280.19 REDG Grants.
4280.20 [Reserved]
4280.21 Eligible REDG initial Ultimate Recipients and Projects.
4280.22 [Reserved]
4280.23 Requirements for lending from Revolving Loan Fund.
4280.24 Revolved funds.
4280.25 Revolving Loan Fund Plan.
4280.26 Administration and operation of the Revolving Loan Fund.
4280.27 Ineligible purposes.
4280.28 [Reserved]
4280.29 Supplemental financing required for the Ultimate Recipient 
          Project.
4280.30 Restrictions on the use of REDL or REDG funds.
4280.31-4280.35 [Reserved]
4280.36 Other laws that contain compliance requirements for these 
          Programs.
4280.37 Application forms and filing dates.
4280.38 Maximum amount of loans and Grants.
4280.39 Contents of an application.
4280.40 [Reserved]
4280.41 Environmental review of the application.
4280.42 Application evaluation and selection.
4280.43 Discretionary points.
4280.44 Limitation on the number of loans or Grants to an Intermediary.
4280.45-4280.46 [Reserved]
4280.47 Non-selection of applications.
4280.48 Post-selection period.
4280.49 [Reserved]
4280.50 Disbursement of Zero-Interest Loan funds.
4280.51-4280.52 [Reserved]
4280.53 Loan payments.
4280.54 Construction procurement requirements.
4280.55 Monitoring responsibilities.
4280.56 Submission of reports and audits.
4280.57-4280.61 [Reserved]
4280.62 Appeals.
4280.63 Exception authority.
4280.64-4280.99 [Reserved]
4280.100 OMB control number.

           Subpart B_Rural Energy for America Program General

4280.101 Purpose.
4280.102 Organization of subpart.
4280.103 Definitions.
4280.104 Exception authority.
4280.105 Review or appeal rights.
4280.106 Conflict of interest.
4280.107 [Reserved]

[[Page 760]]

4280.108 U.S. Department of Agriculture departmental regulations and 
          laws that contain other compliance requirements.
4280.109 Ineligible applicants, grantees, and owners.
4280.110 General applicant, application, and funding provisions.
4280.111 Notifications.

    Renewable Energy System and Energy Efficiency Improvement Grants

4280.112 Applicant eligibility.
4280.113 Project eligibility.
4280.114 Ineligible projects.
4280.115 RES and EEI grant funding.
4280.116 Grant applications--general.
4280.117 Determination of technical merit.
4280.118 Grant applications for RES and EEI projects with total project 
          costs $200,000 and greater.
4280.119 Grant applications for RES and EEI projects with total project 
          costs of less than $200,000, but more than $80,000.
4280.120 Grant applications for RES and EEI projects with total project 
          costs of $80,000 or less.
4280.121 Scoring RES and EEI grant applications.
4280.122 Selecting RES and EEI grant applications for award.
4280.123 Awarding and administering RES and EEI grants.
4280.124 Servicing RES and EEI grants.
4280.125 Construction planning and performing development.
4280.126-4280.136 [Reserved]

  Combined Funding for Renewable Energy Systems and Energy Efficiency 
                              Improvements

4280.137 Combined grant and guaranteed loan funding requirements.
4280.138-4280.148 [Reserved]

     Energy Audit and Renewable Energy Development Assistance Grants

4280.149 Applicant eligibility.
4280.150 Project eligibility.
4280.151 Ineligible projects.
4280.152 Grant funding for EA and REDA.
4280.153 EA and REDA grant applications--content.
4280.154 Evaluation of EA and REDA grant applications.
4280.155 Scoring EA and REDA grant applications.
4280.156 Selecting EA and REDA grant applications for award.
4280.157 [Reserved]
4280.158 Awarding and administering EA and REDA grants.
4280.159 Servicing EA and REDA grants.
4280.160-4280.165 [Reserved]
4280.166 OMB control number.

Appendix A to Subpart B of Part 4280--Technical Reports for Energy 
          Efficiency Improvement (EEI) Projects
Appendix B to Subpart B of Part 4280--Technical Reports for Renewable 
          Energy System (RES) Projects With Total Project Costs of Less 
          Than $200,000, but More Than $80,000
Appendix C to Subpart B of Part 4280--Technical Reports for Renewable 
          Energy System (RES) Projects With Total Project Costs of 
          $200,000 and Greater
Appendix D to Subpart B of Part 4280--Contents of Feasibility Study

Subpart C [Reserved]

          Subpart D_Rural Microentrepreneur Assistance Program

4280.301 Purpose and scope.
4280.302 Definitions and abbreviations.
4280.303 Exception authority.
4280.304 Review or appeal rights and administrative concerns.
4280.305 Nondiscrimination and compliance with other Federal laws.
4280.306 Forms, regulations, and instructions.
4280.307-4280.309 [Reserved]
4280.310 Program requirements for MDOs.
4280.311 Loan provisions for Agency loans to microlenders.
4280.312 Loan approval and closing.
4280.313 Grant provisions.
4280.314 [Reserved]
4280.315 MDO application and submission information.
4280.316 Application scoring.
4280.317 Selection of applications for funding.
4280.318-4280.319 [Reserved]
4280.320 Grant administration.
4280.321 Grant and loan servicing.
4280.322 Loans from the microlenders to the microentrepreneurs.
4280.323 Ineligible microloan purposes and uses.
4280.324-4280.399 [Reserved]
4280.400 OMB control number.

               Subpart E_Rural Business Development Grants

                                 General

4280.401 Purpose.
4280.402 [Reserved]
4280.403 Definitions.
4280.404 Exception authority.
4280.405 Review or appeal rights.
4280.406 Conflict of interest.
4280.407 Statute and regulation references.
4280.408 U.S. Department of Agriculture (USDA) departmental regulations 
          and laws that contain other compliance requirements.

[[Page 761]]

4280.409 [Reserved]
4280.410 Other laws and regulations that contain compliance requirements 
          for this program.
4280.411 Forms, guides, and attachments.
4280.412-4280.414 [Reserved]

                    Rural Business Development Grants

4280.415 Rural Business Development Grants.

                               Eligibility

4280.416 Applicant eligibility.
4280.417 Project eligibility.
4280.418-4280.420 [Reserved]

                           Funding Provisions

4280.421 Term requirement.
4280.422 Joint funding.
4280.423 Ineligible uses of grant funds.
4280.424-4280.426 [Reserved]

                          Applying for a Grant

4280.427 Application.
4280.428 Strategic economic and community development.
4280.429 [Reserved]
4280.430 Notification of decision.
4280.431-4280.433 [Reserved]

                   Processing and Scoring Application

4280.434 General processing and scoring provisions.
4280.435 Scoring criteria.
4280.436-4280.438 [Reserved]

                       Grant Awards and Agreements

4280.439 Grant awards and agreements.
4280.440-4280.442 [Reserved]

                 Post Award Activities and Requirements

4280.443 Grant monitoring and servicing.
4280.444-4280.447 [Reserved]
4280.448 Transfers and assumptions.
4280.449-4280.499 [Reserved]
4280.500 OMB control number.

    Authority: 7 U.S.C. 1989(a), 7 U.S.C. 2008s

    Source: 70 FR 41303, July 18, 2005, unless otherwise noted.



      Subpart A_Rural Economic Development Loan and Grant Programs

    Source: 72 FR 29843, May 30, 2007, unless otherwise noted.



Sec. 4280.1  Purpose.

    The Rural Economic Development Loan (REDL) and Grant (REDG) Programs 
provide financing to eligible Rural Utilities Service (RUS) electric or 
telecommunications borrowers (Intermediaries) to promote rural economic 
development and job creation projects.



Sec. 4280.2  Policy.

    (a) REDL Program. REDL Zero-Interest Loans are made to 
Intermediaries, to relend, at a zero-interest rate, to Ultimate 
Recipients. Ultimate Recipients are responsible for repayment to the 
Intermediary. The Intermediary must transmit Ultimate Recipient loan 
repayments to Rural Development.
    (b) REDG Program. Grants are made to Intermediaries to establish 
Revolving Loan Funds. REDG Zero-Interest Loans are made by the 
Intermediary from the Revolving Loan Fund to Ultimate Recipients for the 
purpose of financing specific, approved Projects. Ultimate Recipients 
are responsible for repayment to the Intermediary. The Ultimate 
Recipient's loan repayments are to be retained in the Revolving Loan 
Fund, which is maintained by the Intermediary, to finance other rural 
economic development Projects. Only the initial loan made by the 
Intermediary from the Revolving Loan Fund has to be at zero interest.



Sec. 4280.3  Definitions.

    The following definitions are applicable to this subpart:
    Advanced Telecommunications. Using communications equipment for 
purposes, such as the simultaneous transmission of images and voice or 
the electronic transmission of data between multiple sites that do not 
consist primarily of providing local exchange voice or other routine 
communications.
    Agricultural Production. The cultivation, production, growing, 
raising, feeding, housing, breeding, hatching, or managing of crops, 
plants, animals, fish, or birds, either for fiber, food for human 
consumption, or livestock feed.
    Business Incubator. A facility in which small businesses can share 
premises, support staff, computers, software

[[Page 762]]

or hardware, telecommunications terminal equipment, machinery, 
janitorial services, utilities, or other overhead expenses, and where 
such businesses can receive Technical Assistance, financial advice, 
business planning services or other support.
    Community Facilities Project. An eligible community facility under 
the Community Facility Direct or Guaranteed programs.
    Conflict of interest. A situation in which a person or entity has 
competing personal, professional, or financial interests that make it 
difficult for the person or business to act impartially. Regarding use 
of both grant and matching funds, Federal procurement standards prohibit 
transactions that involve a real or apparent conflict of interest for 
owners, employees, officers, agents, their immediate family members, 
partners, or an organization which is about to employ any of the parties 
indicated herein, having a financial or other interest in or tangible 
personal benefit from the outcome of the project; or that restrict open 
and free competition for unrestrained trade. Specifically, project funds 
may not be used for services or goods going to, or coming from, a person 
or entity with a real or apparent conflict of interest, including, but 
not limited to, owner(s) and their immediate family members.
    Cushion of Credit. The amount contributed by the Intermediary 
pursuant to 7 U.S.C. 940c.
    Direct Job. A job that is created or saved by an Ultimate Recipient 
employer as a result of funding received from these Programs.
    Established Operation. An entity that has engaged in the nature of 
the Project for more than one year.
    Full-Time Job. A job for which a worker is scheduled to work 35 
hours per week, or more, on a regular basis.
    Grant. For the REDG Program only; a transfer of monies other than a 
loan, from Rural Development to an Intermediary for specific use in 
funding a Revolving Loan Fund from which loans are made to Ultimate 
Recipients. Grant funds must be repaid by the Intermediary to Rural 
Development in the event the Fund is unused for more than one year, 
misused, no longer needed for its intended purposes, or the Grant is 
terminated.
    Independent Provider. An entity or individual, other than the 
Intermediary or the Ultimate Recipient that is not owned by a subsidiary 
or an affiliate of the Intermediary or Ultimate Recipient or would 
otherwise have an interest in the Intermediary or Ultimate Recipient 
that would be a conflict of interest or have the appearance of a 
conflict of interest.
    Indirect Job. A job that is created or saved as a result of a funded 
Project, but is not with the Ultimate Recipient.
    Infrastructure. Facilities required to support private sector 
economic activity such as: Highways, streets, roads, and bridges; public 
transit; water supply; wastewater treatment; water resources; solid 
waste; and hazardous waste services.
    Intermediary. An entity that is identified by RUS as an eligible 
borrower under the Rural Electrification Act and obtains a REDG Grant or 
a REDL Loan.
    Part-Time Job. A job for which a worker is scheduled to work less 
than 35 hours per week, on a regular basis.
    Programs. The Rural Economic Development Loan (REDL) and the Rural 
Economic Development Grant (REDG) Programs.
    Project. The facility, equipment, or activity of the Ultimate 
Recipient that is funded under one of the Programs.
    REDG. The Rural Economic Development Grant Program.
    REDL. The Rural Economic Development Loan Program.
    Revolving Loan Fund (or Fund). A revolving loan fund that is created 
with Grant funds and the Intermediary's supplemental contribution under 
the REDG Program that makes loans and uses the loan repayments and 
interest earnings to make subsequent loans until the Fund is terminated.
    Revolving Loan Fund Plan. A plan developed by the Intermediary and 
approved by Rural Development that governs the use of the Revolving Loan 
Fund. The plan must at least include a detailed explanation of the 
Intermediary's Fund administration policies and procedures and planned

[[Page 763]]

Fund use after the funds in the Revolving Loan Fund have revolved. Fund 
administration policies and procedures must at least include information 
regarding the review and approval of loans from the Fund.
    Rural area. This information will be taken from the most recent 
census data. Any area other than:
    (1) A city or town that has a population of greater than 50,000 
inhabitants;
    (2) The urbanized area contiguous and adjacent to such a city or 
town; and
    (3) Which excludes certain populations pursuant to 7 U.S.C. 
1991(a)(13)(H) and (I).
    Rural Business-Cooperative Service (RBS). The Rural Business-
Cooperative Service, an agency within the Rural Development mission area 
of the USDA.
    Rural Development. For purposes of this regulation, The Rural 
Business-Cooperative Service (RBS), an Agency of the United States 
Department of Agriculture, or a successor Agency, will be referred to as 
Rural Development.
    Rural Utilities Service (RUS). The Rural Utilities Service, an 
Agency within the Rural Development mission area of the USDA.
    Seasonal Job. A job whether Part-Time or Full-Time that begins and 
ends in accordance with a specified time period of less than a year and 
generally within a range less than four months.
    Start-Up Venture(s). An entity that has engaged in the nature of the 
Project for less than one year. An entity that has operated in excess of 
one year, but which is about to enter into a new line of business, would 
be considered a Start-Up Venture.
    State. Any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, 
American Samoa, the Commonwealth of the Northern Marianas Islands, the 
Republic of Palau, the Federated States of Micronesia, and the Republic 
of the Marshall Islands.
    Technical Assistance. Managerial, financial and operational analysis 
and consultation by Independent Providers to assist Project owners in 
identifying and evaluating problems or potential problems and to provide 
training that enables Project owners to successfully implement, manage, 
operate and maintain viable Projects.
    Ultimate Recipient. An entity or individual that receives a loan 
from an Intermediary. The Ultimate Recipient may be a for profit or not-
for-profit entity such as, but not limited to, a sole proprietorship, a 
corporation, a cooperative, a partnership, or a Limited Liability 
Company. The Ultimate Recipient may also be a public body, such as, but 
not limited to, a political subdivision of a State or locality, or a 
Federally-recognized Indian tribe.
    Uniform Act. The Uniform Relocation Assistance and Real Property 
Acquisition Act of 1970 (42 U.S.C. 4601-4655).
    USDA. The United States Department of Agriculture.
    Zero-Interest Loan. A loan made by the Intermediary to the Ultimate 
Recipient with no interest and which will be repaid to the Intermediary 
by the Ultimate Recipient.

[72 FR 29843, May 30, 2007, as amended at 79 FR 76015, Dec. 19, 2014; 80 
FR 9913, Feb. 24, 2015; 80 FR 15885, Mar. 26, 2015; 87 FR 38644, June 
29, 2022]



Sec. Sec. 4280.4-4280.12  [Reserved]



Sec. 4280.13  Applicant eligibility.

    Applicants that are not delinquent on any Federal debt or otherwise 
disqualified from participation in these Programs are eligible to apply. 
An applicant must be eligible under 7 U.S.C. 940c.



Sec. 4280.14  [Reserved]



Sec. 4280.15  Ultimate Recipient Projects eligible for Rural Economic Development Loan funding.

    An Intermediary may receive REDL funds only when it has a pre-
approved Ultimate Recipient and Project that have an immediate need for 
the Zero-Interest Loan. REDL funds may only be used by the Intermediary 
to make a Zero-Interest Loan to the Ultimate Recipient to finance 
financially viable economic development or job creation Projects in a 
Rural Area. Funds may only be used to provide the following assistance:

[[Page 764]]

    (a) Start-Up Venture costs, including, but not limited to financing 
fixed assets such as real estate, buildings (new or existing), 
equipment, or working capital;
    (b) Business expansion;
    (c) Business Incubators;
    (d) Technical Assistance;
    (e) Project feasibility studies;
    (f) Advanced Telecommunications services and computer networks for 
medical, educational, and job training services;
    (g) Other Projects eligible under Sec. 4280.21; or
    (h) Community Facilities Projects.
    (i) A borrower is permitted to use up to 10 percent of the amount 
provided under this subpart to construct, improve, or acquire broadband 
infrastructure related to the project financed, subject to the 
requirements of 7 CFR part 1980, subpart M.

[72 FR 29843, May 30, 2007, as amended at 85 FR 57085, Sept. 15, 2020]



Sec. 4280.16  REDL and REDG Loan terms.

    REDL and REDG loans made by the Intermediary are governed by the 
following terms:
    (a) The maximum term of a loan is 10 years, including any principal 
deferment period. The Intermediary may choose a shorter term if desired.
    (b) Deferments on Zero-Interest Loans will automatically be granted 
by Rural Development upon request of the Intermediary as follows:
    (1) A deferral for up to 1 year for Projects involving an 
Established Operation; or
    (2) A deferral for up to 2 years for Projects involving a Start-Up 
venture or a Community Facilities Project whether or not such Project 
also receives funding under USDA Community Facilities funding programs.
    (c) The Intermediary must provide the Ultimate Recipient with the 
same loan terms as the Intermediary receives from Rural Development.
    (d) The Intermediary is solely responsible for the financial 
approval of Fund loans and all other Fund decisions and actions.



Sec. 4280.17  Additional REDL terms.

    (a) The Intermediary is responsible for fully repaying the Zero-
Interest Loan to RBS even if the Ultimate Recipient does not repay the 
Intermediary.
    (b) The Intermediary is responsible for remitting any partial or 
full payment to RBS at the time the Ultimate Recipient pays the 
Intermediary.
    (c) Unless deferred pursuant to Sec. 4280.16(b) of this subpart, 
loan payments to Rural Development under the REDL Program are due 
monthly.
    (d) If the Intermediary does not have an outstanding loan with RUS, 
the Intermediary must immediately provide, as security for any REDL loan 
it receives, a Rural Development-approved irrevocable letter of credit 
that remains in effect until the loan is repaid.



Sec. 4280.18  [Reserved]



Sec. 4280.19  REDG Grants.

    Intermediaries receiving Grants must partially finance a Revolving 
Loan Fund that the Intermediary will operate and administer, by 
providing supplemental funds of at least 20 percent of the Grant. Grants 
are subject to 2 CFR parts 200, 400, 415, 417, 418, 421 as applicable.

[79 FR 76015, Dec. 19, 2014]



Sec. 4280.20  [Reserved]



Sec. 4280.21  Eligible REDG Ultimate Recipients and Projects.

    The Intermediary may only make loans from the Revolving Loan Fund to 
entities located in a Rural area of a State. Eligible entities are as 
follows:
    (a) Non-profit entities, public bodies, or Federally-recognized 
Indian tribes Ultimate Recipients for:
    (1) Community development or Community Facility Projects that:
    (i) will create or save employment; and
    (ii) are open to and serve all Rural residents, and are owned by the 
Ultimate Recipient;
    (2) Business Incubators;
    (3) Facilities and equipment to provide education and training to 
residents of Rural Areas that will facilitate economic development;
    (4) Facilities and equipment to provide medical care to residents of 
Rural Areas. Equipment and facilities may be

[[Page 765]]

funded to enable eligible entities to provide medical training and 
related professional health care skills to rural health care providers;
    (5) Projects that utilize Advanced Telecommunications or computer 
networks to facilitate medical or educational services or job training; 
or
    (6) Project feasibility studies and Technical Assistance. A 
qualified Independent Provider must perform feasibility studies or 
Technical Assistance.
    (b) For-profit Ultimate Recipients for Projects under paragraphs 
(a)(3), (4), (5), or (6) of this section.



Sec. 4280.22  [Reserved]



Sec. 4280.23  Requirements for lending from Revolving Loan Fund.

    (a) Supplemental contribution. The Intermediary must establish a 
Revolving Loan Fund and contribute an amount equal to at least 20 
percent of the Grant. The supplemental contribution must come from 
Intermediary's funds which may not be from other Federal Grants, unless 
permitted by law.
    (b) Use of supplemental contribution. The Intermediary's 
contribution will only be used to make REDG loans and not other 
investment purposes. The Intermediary's contribution must remain a 
permanent part of the Revolving Loan Fund until the Fund is terminated.
    (c) REDG Zero-Interest Loan Requirements. The Fund is made up of 
Rural Development and Intermediary contributions and must be loaned in 
accordance with one of the following 2 options:
    (1) The contribution may be used to fund the same Project that Rural 
Development is funding. The interest rate on that portion of the 
financing using Rural Development funds will be at zero percent. The 
interest rate on that portion of the financing using the Intermediary's 
contribution may be greater than zero percent but must be less than, or 
equal to, the prevailing prime rate. Using this option, loan security 
and recovery of loan losses must provide for the pro rata recovery and 
distribution between the Intermediary and Rural Development based on the 
respective amounts of each contribution to the total loan amount for the 
Project.
    (2) The Intermediary's contribution may be used to fund Projects 
separate from the Project financed with Rural Development funds, 
provided that the Project is eligible in accordance with Sec. 4280.21.
    (3) Whether the Intermediary chooses the option under paragraph 
(c)(1) or paragraph (c)(2) of this section, its contribution must be 
used to fund an eligible Project within 3 years from the date of the 
Grant agreement. If the Intermediary fails to use its contribution 
within this 3-year period, Rural Development will terminate the Grant.
    (d) Intermediary's supplemental funds. Once revolved, monies from 
the Fund may be loaned at an interest rate called for in the Revolving 
Loan Fund Plan, not to exceed the prevailing prime rate.
    (e) Eligible purposes only. Until the total amount in the Fund has 
been loaned, all loans must be made for eligible purposes as stated in 
Sec. 4280.21. After the Fund has been loaned, in accordance with Sec. 
4280.21 of this subpart, the Intermediary shall make loans to finance 
rural economic development purposes in accordance with the Revolving 
Loan Fund Plan. All loan repayments, including interest earned, must be 
deposited into the Fund.
    (f) Termination for cause. Rural Development will terminate the Fund 
and require repayment of the Grant funds if Rural Development determines 
that the Fund is not being operated according to the approved Revolving 
Loan Fund Plan, this subpart, or for other good cause determined by 
Rural Development, such as questionable prepayment of initial loans. As 
applicable, Rural Development will follow remedies for noncompliance, 
closeout and post-closeout adjustments and continuing responsibilities 
in accordance with 2 CFR 200.338-200.344 as codified by 2 CFR 400.1.
    (g) All REDG Loans must be made to Rural Ultimate Recipients.

[72 FR 29843, May 30, 2007, as amended at 79 FR 76015, Dec. 19, 2014]



Sec. 4280.24  Revolved funds.

    Rural Development and the Intermediary's supplemental funds will

[[Page 766]]

be considered revolved after they have been loaned to Ultimate 
Recipients and subsequently repaid. Loans made from revolved funds will 
not require prior approval of Rural Development for creditworthiness or 
environmental clearance purposes. All other Federal compliance 
requirements, including those in this subpart, remain in effect.



Sec. 4280.25  Revolving Loan Fund Plan.

    Each REDG Intermediary must adopt a Rural Development-approved plan 
that specifies that:
    (a) The initial loan made from the Fund will be at zero percent 
interest and have a maximum term of 10 years;
    (b) Loans made from loan repayments may carry an interest rate less 
than, or equal to, the prevailing prime rate. The Intermediary 
determines repayment terms and security arrangements on these loans.
    (c) Loans made from repayments of REDG loans must be for eligible 
Program purposes;
    (d) The Intermediary is solely responsible for the financial 
approval of Fund loans and all other Fund decisions and actions; and
    (e) No changes will be made to a Rural Development-approved 
Revolving Loan Fund Plan without the prior written approval of Rural 
Development.



Sec. 4280.26  Administration and operation of the Revolving Loan Fund.

    (a) The Intermediary will operate and administer the Revolving Loan 
Fund. The Intermediary may contract with a third party for 
administrative services regarding the Fund. However, the Intermediary 
must permanently retain all Project review, approval, and monitoring 
authority and responsibility. This authority and responsibility cannot 
be delegated to any other person or entity.
    (b) Up to 10 percent of Rural Development Grant funds may be applied 
toward operating expenses over the life of the Fund. Operating expenses 
include the costs of administering the Fund and Technical Assistance 
provided to Project owners by Independent Providers.
    (c) In cases where the Intermediary uses its supplemental 
contribution to the Revolving Loan Fund for a Project other than the 
Project that resulted in the Intermediary being awarded the Grant, the 
loan terms must not exceed 10 years and the interest rate must be less 
than, or equal to, the prevailing prime rate.



Sec. 4280.27  Ineligible purposes.

    Zero-Interest Loans may not be used:
    (a) For activities that would adversely affect the environment, or 
activities that limit the choice of reasonable alternatives prior to 
satisfying Rural Development environmental requirements;
    (b) To pay off or refinance any existing indebtedness or costs of 
the Project that were incurred prior to Rural Development receipt of the 
Intermediary's completed application;
    (c) For any electric or telecommunications purpose or for the 
Intermediary's electric or telecommunications operations, for affiliated 
operations of the Intermediary, or for the benefit of other 
Intermediaries or their affiliated operations, except those purposes 
contained in Sec. 4280.15(f);
    (d) To pay the salaries of any employee or owner of the 
Intermediary, its subsidiaries, or affiliates, except for salaries 
incurred in administering a Revolving Loan Fund established under the 
REDG Program;
    (e) For community antenna or cable television systems or facilities;
    (f) For residential purposes such as residential dwellings and land 
sites; facilities to provide entertainment television; to transfer 
property between owners without making improvements that will promote or 
sustain economic development in Rural Areas; or for personal, non-
business related vehicles;
    (g) Where there is directly or indirectly a conflict of interest or 
the appearance of a conflict of interest in the Project; for 
Intermediaries this would include a situation in which the Intermediary, 
its officers, managers, Board of Directors, employees, their spouses, 
children, or close relatives, have a financial or ownership interest in 
the Project being funded, including its construction or development;
    (h) For any purpose when receipt of loan funds is conditioned upon 
the requirement that the Ultimate Recipient

[[Page 767]]

acquire electric or telecommunications service from the Intermediary or 
its affiliates;
    (i) For any gambling activity;
    (j) For a Project that would result in the transfer of existing 
employment or business activity more than 25 miles from its existing 
location;
    (k) For proposed Projects located in areas covered by the Coastal 
Barrier Resources Act (16 U.S.C. 3501-3510);
    (l) For any illegal activity or any activity involving prostitution;
    (m) For Agricultural Production, except where the Project is a 
farmer-owned cooperative or similar organization where the benefits of 
the Project are passed on to the farmer-owners, and the Agricultural 
Production is part of an integrated business that processes the 
agricultural products, and the Agricultural Production portion of the 
loan will not exceed 50% of the loan amount;
    (n) For any pass-through Grant funding activity (a Grant by the 
Intermediary to the Ultimate Recipient);
    (o) Provision of only local exchange voice telephone service; or
    (p) for any other purpose announced in a notice by Rural 
Development. This will not affect Grants that have already been awarded.



Sec. 4280.28  [Reserved]



Sec. 4280.29  Supplemental financing required for the Ultimate Recipient Project.

    (a) For REDL loans, either the Ultimate Recipient or the 
Intermediary must provide supplemental funds for the Project equal to at 
least 20 percent of the loan to the Intermediary. For REDG grants, the 
Intermediary must provide supplemental funds, to capitalize the 
Revolving Loan Fund, equal to at least 20 percent of the Grant to the 
Intermediary.
    (b) Funds provided by the Ultimate Recipient must be:
    (1) Cash or its equivalent;
    (2) Provided after Rural Development receives the completed 
application; and
    (3) Disbursed for an eligible Project within a three year period 
that begins on the day the Intermediary signs the Grant agreement.
    (c) Satisfactory evidence of the Ultimate Recipient's funds must be 
provided to Rural Development before it will advance any funds to the 
Intermediary.



Sec. 4280.30  Restrictions on the use of REDL or REDG funds.

    (a) Conflict of interest. The Intermediary must not own or manage 
any Ultimate Recipient Project, unless the Project is acquired as a 
result of servicing a loan made from the Revolving Loan Fund. Conflicts 
of interest and all appearances of a conflict of interest are not 
permitted. The intermediary must also disclose in writing any potential 
conflicts of interest to the USDA awarding agency and maintain written 
standards of conduct covering conflicts of interest, including 
organizational conflicts of interest in accordance with 2 CFR 400.2(b).
    (b) Fees. The Intermediary may charge reasonable loan servicing 
fees, which are limited to one percent per year of the principal amount 
outstanding on the loan; reasonable professional service fees that are 
customary for the service being provided and in accordance with any 
standard fee schedules that have been established for the service; and 
reasonable expenses the Intermediary has incurred from Independent 
Providers.
    (c) Interest earnings. Any interest earned by the Intermediary on 
advances of Rural Development REDG or REDL funds prior to the 
disbursement for the Project, must be returned to Rural Development.

[72 FR 29843, May 30, 2007, as amended at 79 FR 76015, Dec. 19, 2014]



Sec. Sec. 4280.31-4280.35  [Reserved]



Sec. 4280.36  Other laws that contain compliance requirements for these Programs.

    (a) Equal employment opportunity. For all construction contracts and 
Grants in excess of $10,000, the contractor must comply with Executive 
Order 11246, as amended by Executive Order 11375, and as supplemented by 
applicable Department of Labor regulations (41 CFR part 60). The 
applicant is responsible for ensuring that the contractor complies with 
these requirements.

[[Page 768]]

    (b) Equal opportunity and nondiscrimination. Rural Development will 
ensure that equal opportunity and nondiscriminatory requirements are met 
in accordance with the Equal Credit Opportunity Act and 7 CFR part 15d, 
conducted by USDA. Rural Development will not discriminate against 
applicants on the bases of race, color, religion, national origin, sex, 
marital status, or age (provided that the applicant has the capacity to 
contract); to the fact that all or part of the applicant's income 
derives from public assistance program; or to the fact that the 
applicant has in good faith exercised any right under the Consumer 
Credit Protection Act.
    (c) Civil rights compliance. Recipients of Grants must comply with 
the Americans with Disabilities Act of 1990, Title VI of the Civil 
Rights Act of 1964, and Section 504 of the Rehabilitation Act of 1973. 
This includes collection and maintenance of data on the race, sex, and 
national origin of the recipient's membership/ownership and employees. 
These data must be available to conduct compliance reviews in accordance 
with 7 CFR part 1901 subpart E, Sec. 1901.204. Initial compliance 
reviews will be conducted with the Intermediary when Form RD 400-4, 
``Assurance Agreement,'' is signed. For each loan or Grant an 
Intermediary receives, a new Form RD 400-4 must be completed. Each 
Ultimate Recipient must go through the same pre-award compliance review 
process and must also sign Form RD 400-4. For loans and Grants, a pre-
award review is required before loan or Grant approval or any 
disbursement of funds. For Intermediaries, a post-award compliance 
review is required 90 days after closing the loan or Grant. This review 
is not required for Ultimate Recipients. Subsequent compliance reviews 
will be conducted 3 years from the date the post-award compliance review 
is completed for Intermediaries and 3 years from the date the pre-award 
compliance review is completed for Ultimate Recipients. Where Grant 
funds are used for a Revolving Loan Fund, compliance reviews are 
required for the Intermediaries for as long as the Fund is in operation. 
For Ultimate Recipients, compliance reviews are conducted until the loan 
is repaid to the Fund.
    (d) Architectural barriers. All facilities financed with Zero-
Interest Loans that are open to the public or in which persons may be 
employed or reside must be designed, constructed, or altered to be 
readily accessible to and usable by disabled persons. Standards for 
these facilities must comply with the Architectural Barriers Act of 1968 
(42 U.S.C. 4151-4157) and the ``Uniform Federal Accessibility 
Standards'', (41 CFR part 101-19.6, Appendix A).
    (e) Uniform relocation assistance. Relocations in connection with 
these Programs are subject to 49 CFR part 24 as referenced by 7 CFR part 
21 except that the provisions in title III of the Uniform Act do not 
apply to these Programs.
    (f) Drug-free workplace. Grants made under these Programs are 
subject to the requirements contained in 2 CFR part 421 which implements 
the Drug-Free Workplace Act of 1988 (41 U.S.C. 8101 et seq.). An 
Intermediary requesting a REDG Grant will be required to certify that it 
will establish and make a good faith effort to maintain a drug-free 
workplace program.
    (g) Debarment and suspension. The requirements of 2 CFR part 180 and 
Departmental Regulations 2 CFR part 417, Nonprocurement Debarment, and 
Suspension are applicable to these Programs.
    (h) Intergovernmental review of Federal programs. These Programs are 
subject to the requirements of Executive Order 12372 (3 CFR 1982 Comp., 
p. 197) and 2 CFR part 415, subpart C, which implements Executive Order 
12372. Proposed Projects are subject to the State and local government 
review process contained in 2 CFR part 415, subpart C.
    (i) Restrictions on lobbying. The restrictions and requirements 
imposed by 31 U.S.C. 1352, and 2 CFR part 418, are applicable to these 
Programs.
    (j) Earthquake hazards. These Programs are subject to the seismic 
requirements of the Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 
7701-7706).
    (k) Environmental requirements. Actions taken under this subpart, 
including the loans made from the revolving loan fund using Agency 
funds, must

[[Page 769]]

comply with 7 CFR part 1970. However, revolving loan funds derived from 
repayments by third parties are not considered Federal financial 
assistance for the purposes of 7 CFR part 1970.
    (l) Affirmative fair housing. If applicable, the Intermediary will 
be required to comply with the Affirmative Fair Housing Act (42 U.S.C. 
3601-3631).
    (m) Flood hazard insurance. These Programs are subject to the 
National Flood Insurance Act of 1968 and the Flood Disaster Protection 
Act of 1973, as amended by 42 U.S.C. 4001-4129.
    (n) Audits. These Programs are subject to 2 CFR part 200, subpart F, 
as codified in 2 CFR part 400.1.

[72 FR 29843, May 30, 2007, as amended at 79 FR 76015, Dec. 19, 2014; 81 
FR 11052, Mar. 2, 2016]



Sec. 4280.37  Application forms and filing dates.

    (a) The Intermediary may obtain forms that supplement the written 
narrative sections of its application from the Rural Development State 
Office for the State where the Intermediary is located.
    (b) An original copy only of the application is to be filed with the 
Rural Development State Office. No other copies are required.



Sec. 4280.38  Maximum amount of loans or Grants.

    During any given fiscal year, Rural Development will publish an 
announcement of available loan and Grant funds and will indicate the 
maximum loan and Grant amounts for which an Intermediary or prospective 
Intermediary may apply. This announcement will also include contact 
information and application deadlines. All pending applications on file 
at RBS, including both loan and Grant applications, from the same 
Intermediary or prospective Intermediary for the same Project will be 
considered to be one application in determining that the maximum size of 
the application is in accordance with this section.



Sec. 4280.39  Contents of an application.

    An application for a loan or a Grant must contain the following:
    (a) Required forms and certifications:
    (1) Standard Form 424, ``Application for Federal Assistance,'' 
signed by an authorized representative of the Intermediary.
    (2) A Resolution of the Board of Directors signed by the directors 
and certified by the Intermediary's board secretary. The board 
resolution must indicate whether the Intermediary is requesting a loan 
or Grant, agree to the provisions of this subpart and the loan or Grant 
agreement including the Intermediary's 20 percent Fund contribution, and 
state that the Intermediary has the legal authority to enter into a loan 
or Grant agreement under these Programs;
    (3) Form AD 1047, ``Certification Regarding Debarment, Suspension, 
and other Responsibility Matters--Primary Covered Transactions,'' and 
Form AD-1048, ``Certification Regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion--Lower Tier Transactions.''
    (4) Assurance statement for the Uniform Act signed by the Ultimate 
Recipient. This statement provides Rural Development with the required 
assurance statement that any relocations of persons or acquisitions of 
real property, as part of completing the Ultimate Recipient Project, 
will be handled in accordance with this statute.
    (5) RD Instruction 1940-Q, Exhibit A-1, applies if the loan is 
greater than $150,000 or the Grant is greater than $100,000;
    (6) SF LLL, ``Disclosure of Lobbying Activities,'' (if the 
Intermediary or the Ultimate Recipient engages in lobbying activities);
    (7) Form AD 1049, ``Certification Regarding Drug-Free Workplace 
Requirements,'' for Grants only;
    (8) Seismic certification if construction of a building is proposed. 
The Project owner certifies that any building constructed will comply 
with standards that reduce the damage caused by earthquakes;
    (9) Environmental documentation in accordance with 7 CFR part 1970.
    (10) RUS Form 7, ``Financial and Statistical Report'' and RUS Form 
7a ``Investments, Loan Guarantees, and Loans,'' or similar information.

[[Page 770]]

    (b) A written narrative section must be provided. This section 
consists of the following:
    (1) A Project description, including details of the work to be 
performed with Rural Development funds, and a business plan, including a 
discussion of management and prior experience of the Ultimate Recipient.
    (2) A discussion of how the Project meets each selection factor in 
Sec. 4280.42(b).
    (3) A Revolving Loan Fund Plan is required if the Intermediary is 
applying for a Grant to establish a Revolving Loan Fund.

[72 FR 29843, May 30, 2007, as amended at 81 FR 11052, Mar. 2, 2016]



Sec. 4280.40  [Reserved]



Sec. 4280.41  Environmental review of the application.

    The Agency will review the environmental documentation in accordance 
with 7 CFR part 1970. Intermediaries will be informed by the Agency if 
additional information is required from the intermediary to complete the 
environmental review process. The environmental review process must be 
completed before the application can be considered for approval by the 
Agency.

[81 FR 11052, Mar. 2, 2016]



Sec. 4280.42  Application evaluation and selection.

    (a) Rural Development will evaluate the application and score it 
based on the selection factors in this section. All applications will be 
ranked on a nationwide basis, based on the total points scored.
    (b) The application will be evaluated and scored using the 
information provided in accordance with Sec. 4280.39(b)(2) of this 
subpart.
    (1) Nature of the Project. Rural Development will award up to 60 
points based on whether the Project:
    (i) Is a for-profit business, Business Incubator, industrial 
building or park, or an infrastructure connection project (such as 
streets or utilities)--20 points;
    (ii) Provides Technical Assistance to rural businesses or rural 
residents, or educates or provides medical care to rural residents--20 
points;
    (iii) Will enhance rural economic development by providing Advanced 
Telecommunications services and computer networks for medical, 
educational, and job training services. This review will be based on the 
application's telecommunications design--20 points.
    (2) Number of direct full-time equivalent jobs created or saved 
within a 3-year period. To calculate full-time equivalent Direct-Jobs, 
count two part-time jobs as one full-time job or three part-time or 
seasonal jobs as one full-time job. If the total numbers of part-time 
and seasonal jobs add up to a fraction, round up to the next whole 
number after combining same. Indirect-Jobs or non-Rural jobs cannot be 
used for this calculation.

------------------------------------------------------------------------
     If the number of Rural full-time
  equivalent direct-jobs jobs created or    Then Rural Development will
saved per $100,000 of total, Project cost              award:
                   is:
------------------------------------------------------------------------
(i) Greater than five....................  25 points.
(ii) From one to five....................  15 points.
------------------------------------------------------------------------

    (3) Supplemental funds for the Project. Points will be based on a 
calculation of the amount of supplemental funds to be provided to the 
Project. All supplemental funds used in the following calculation must 
be disbursed to the Project between the date of Rural Development 
receipt of the application and 1 year after the first advance of funds 
by Rural Development:

------------------------------------------------------------------------
 If supplemental funds as a percentage of
the Rural Development loan or grant to be   Then Rural Development will
       provided to the Project are:                    award:
------------------------------------------------------------------------
(i) Greater than 200%....................  20 points.
(ii) From 100% to 200%...................  10 points.
(iii) From 50% to less than 100%.........  5 points.
------------------------------------------------------------------------


[[Page 771]]

    (4) Unemployment rate for the county(ies) where the Project is 
physically located. Rural Development will compare the current 
unemployment rate(s) in the county(ies) to the State and national 
unemployment rates, and, if applicable, award points under the following 
categories, whichever is greater:

------------------------------------------------------------------------
    If the unemployment rate(s) in the
  county(ies) where the Project will be     Then Rural Development will
                 located:                              award:
------------------------------------------------------------------------
(i) Exceeds the national unemployment      15 points.
 rate by 30% or more.
(ii) Is greater than the national          5 points.
 unemployment rate, but exceeds it by
 less than 30%.
(iii) Exceeds the State unemployment rate  10 points.
 by 30% or more.
(iv) Is greater than the State             5 points.
 unemployment rate but exceeds it by less
 than 30%.
------------------------------------------------------------------------

    (5) Per capita personal income for the county(ies) where the Project 
is physically located. Rural Development will compare the per capita 
personal income in the county(ies) where the Project will be located to 
the national and State per capita personal income levels, and, if 
applicable, award points under the following categories, whichever is 
greater:

------------------------------------------------------------------------
 If the per capita personal income level    Then Rural Development will
          in the county(ies) is:                       award:
------------------------------------------------------------------------
(i) Less than or equal to 90% of the       15 points.
 national level.
(ii) Between 90 and 100% of the national   5 points.
 level.
(iii) Less than or equal to 90% of the     10 points.
 State level.
(iv) Between 90 and 100% of the State      5 points.
 level.
------------------------------------------------------------------------

    (6) Rural Area location. (i) If the Project is physically located in 
an incorporated city or town or equivalent having a population of 1,249 
or less, or if it is physically located in an unincorporated area, Rural 
Development will award 20 points.
    (ii) If the Project is physically located in an incorporated area 
having a population of 1,250 to 2500, Rural Development will award 10 
points.
    (7) Decline in population for the county where the Project is 
physically located. If there has been a decline in population in the 
county where the Project will be located over the time period covered by 
the two most recent decennial Censuses to the present (or equivalent 
time frame if using a data source other than the decennial Census), 
Rural Development will award 10 points.
    (8) Cushion of Credit Payments. Rural Development will determine the 
level of Cushion of Credit Payments on deposit by the Intermediary, as 
follows:

------------------------------------------------------------------------
 If the Intermediary's Cushion of Credit    Then Rural Development will
            account level is:                          award:
------------------------------------------------------------------------
(i) In excess of $300,000, or a dollar     15 points.
 amount in excess of 3 percent of the
 Intermediary's total assets, whichever
 is less.
(ii) Within the range of $100,000 to       10 points.
 $299,999.99, or a dollar amount that is
 within the range of one percent to 2.99
 percent of Intermediary's total assets,
 whichever is less.
(iii) Within the range of $10,000 to       5 points.
 $99,999.99, or a dollar amount that is
 within the range of 0.5 percent to .99
 percent of Intermediary's total assets,
 whichever is less.
------------------------------------------------------------------------

    (9) Initial loan and Grant. If the loan or Grant application will 
result in the first award to an Intermediary under these Programs, Rural 
Development will award 10 points.
    (10) County participation. If the Project will be the first REDLG 
Project financed in a county Rural Development will award 10 points.
    (11) The business plan for the Applicant's Ultimate Recipient will 
be evaluated by Rural Development and must include:

[[Page 772]]

    (i) A description of the business or Project plans, its management, 
and, if applicable, its products and operating plans. (The business plan 
evaluated by Rural Development for Advanced Telecommunications will be 
its telecommunications and engineering design)--up to 15 points; and
    (ii) An appropriate financial plan, including actual balance sheets 
and income statements covering the most recent 3-year period (for 
applicants who have been in business this long), and projected balance 
sheets, income statements, and cash flow statements for the ensuing 3-
year period, supported by assumptions showing the basis for the 
projections--up to 20 points.

[72 FR 29843, May 30, 2007, as amended at 80 FR 9913, Feb. 24, 2015]



Sec. 4280.43  Discretionary points.

    The RBS Administrator has the discretion to designate up to 25 
points (no more than 5 points for each of the following elements) based 
on whether the Project:
    (a) Is located in a Rural Empowerment Zone, Rural Economic Area 
Partnership Zone, Rural Enterprise Community, or Champion Community;
    (b) Is located in a county that has experienced the loss, removal, 
or closing of a major source or sources of employment in the last 3 
years which causes an increase of 2 percentage points or more in the 
county's most recent unemployment rate compared with the same period 
immediately before the dislocation;
    (c) Is located in a county that has experienced chronic or long-term 
economic deterioration;
    (d) Is located in a county that was designated a disaster area by 
the President of the United States that significantly affected rural 
economic development and job creation. The county must have been 
designated within 3 years prior to filing of the completed application 
with Rural Development; or
    (e) Is consistent with the Rural Development State Office's approved 
strategic plan and mission area objectives and is identified as a 
priority area for assistance in the States' plan.



Sec. 4280.44  Limitation on number of loans or Grants to an Intermediary.

    Depending on the amount of funds available, Rural Development may 
publish an announcement limiting an Intermediary to one selected Grant 
application and two selected loan applications in a fiscal year.



Sec. Sec. 4280.45-4280.46  [Reserved]



Sec. 4280.47  Non-selection of applications.

    Provided the application requirements have not changed, an 
application not selected will be reconsidered in 3 subsequent funding 
competitions for a total of four funding competitions. If an application 
is withdrawn, it can be resubmitted and will be evaluated as a new 
application.



Sec. 4280.48  Post selection period.

    Rural Development will notify the Intermediary in writing if the 
application is selected. The documents to be executed by the 
Intermediary will include:
    (a) For a loan:
    (1) A Letter of Conditions with Project-specific terms and 
conditions;
    (2) A loan agreement with general terms and conditions;
    (3) A note covering the repayment terms of the loan; and
    (4) A legal opinion concerning the authority of the Intermediary to 
engage in the Project.
    (b) For a Grant:
    (1) A Letter of Conditions with Project-specific terms and 
conditions;
    (2) A Grant agreement with general terms and conditions; and
    (3) A legal opinion concerning the authority of the Intermediary to 
participate in the Revolving Loan Fund and to engage in the Project.



Sec. 4280.49  [Reserved]



Sec. 4280.50  Disbursement of Zero-Interest Loan funds.

    (a) For a REDL loan, Rural Development will disburse Zero-Interest 
Loan funds to the Intermediary in accordance with the terms of the 
executed loan agreement. All loan funds will be disbursed either as an 
advance to the Intermediary, in multiple advances, or as a reimbursement 
for eligible project

[[Page 773]]

costs, once the Intermediary has complied with Rural Development 
requirements.
    (b) The Intermediary must provide to the Ultimate Recipient all loan 
funds that the Intermediary receives from Rural Development within one 
year of receiving them. If the Intermediary does not re-lend Rural 
Development funds within one year, the loan funds, and all interest 
earned on the loan funds, must be returned to the Agency.
    (c) For a REDG loan, Rural Development will disburse Grant funds to 
the Intermediary in accordance with 2 CFR 200 as adopted by USDA in 2 
CFR part 400 as applicable. Specifically, Rural Development will 
disburse the Grant funds in advance if the following requirements are 
met:
    (1) The Intermediary has established written procedures that will 
minimize the time elapsing between the transfer of funds from Rural 
Development and their disbursement to the Ultimate Recipient;
    (2) The management system of the Intermediary meets the requirements 
of 2 CFR part 200 as adopted by USDA in 2 CFR part 400, as applicable;
    (3) All necessary supplemental funds for the Project have been 
obligated or committed to the Revolving Loan Fund; and
    (4) The requests for cash advances made by the Intermediary are 
limited to the minimum amounts needed and timed to be in accordance with 
the actual immediate cash needs of the Ultimate Recipient for carrying 
out the Project.

[72 FR 29843, May 30, 2007, as amended at 79 FR 76015, Dec. 19, 2014]



Sec. Sec. 4280.51-4280.52  [Reserved]



Sec. 4280.53  Loan payments.

    The Intermediary must make all REDL payments to Rural Development by 
electronic funds transfer or other means as specified in the loan 
documents.



Sec. 4280.54  Construction procurement requirements.

    Construction, including bidding and awarding of contracts, must be 
conducted in a manner that provides maximum open and free competition.



Sec. 4280.55  Monitoring responsibilities.

    (a) The Intermediary must monitor the Project to ensure that:
    (1) Funds are used only for the approved purposes as specified in 
the legal documents;
    (2) Disbursements and expenditures of funds are properly supported 
with certifications, invoices, contracts, bills of sale, or other forms 
of evidence, which are maintained on the premises of the Intermediary;
    (3) Project time schedules are being met, projected work by time 
periods is being accomplished, and other performance objectives are 
being achieved; and
    (4) The Project is in compliance with all applicable regulations.
    (b) Rural Development may inspect and copy records and documents 
that pertain to the Project. The Intermediary must retain these records 
for the term of the Project loan plus 2 years. In addition, Rural 
Development may also perform Project site visits and reviews of the use 
of loan or Grant proceeds.
    (c) Rural Development will review and monitor Grants in accordance 
with 2 CFR part 200, as adopted by USDA in 2 CFR parts 400, 415, 417, 
418, and 421 as applicable.

[72 FR 29843, May 30, 2007, as amended at 79 FR 76015, Dec. 19, 2014]



Sec. 4280.56  Submission of reports and audits.

    (a) In addition to any reports and audits required by 2 CFR part 200 
and subpart F as adopted by USDA in 2 CFR part 400, the Intermediary 
must submit the following monitoring reports to Rural Development:
    (1) Loan. The Intermediary must submit Form RD 4280-1 ``Survey of 
Recipients of Rural Economic Development Loan and Grant Program'' to 
Rural Development on an annual basis until it no longer owes money to 
USDA under the REDLG Program.
    (2) Grant (Revolving Loan Fund). The Intermediary must submit the 
Form RD 4280-1 to Rural Development on an annual basis until all 
projects financed with Rural Development Grant proceeds have been repaid 
or are otherwise retired, whichever occurs last. Thereafter, on a 
triennial basis until the

[[Page 774]]

fund is terminated, the Intermediary will submit to Rural Development 
the Form RD 4280-1, reporting on the activity of all loans made from the 
Revolving Loan Fund.
    (b) If the Intermediary does not have an existing loan with RUS, the 
Intermediary will submit a copy of its annual audit to Rural Development 
within 90 days of its completion. All REDL audits must be conducted in 
accordance with Generally Accepted Government Auditing Standards or 
Generally Accepted Accounting Principles and REDG audits in accordance 
with 2 CFR part 200 as adopted by USDA in 2 CFR part 400.
    (c) Rural Development may require Ultimate Recipients that receive 
loans financed with Grant funds provided under the REDG Program to 
submit annual audits to comply with Federal audit regulations. In 
accordance with 2 CFR part 200, as adopted by USDA in 2 CFR part 400, 
Ultimate Recipients that are nonprofit entities, or a State or local 
government, may be required to submit an audit subject to the threshold 
established in 2 CFR part 200, as adopted by in 2 CFR part 400.

[72 FR 29843, May 30, 2007, as amended at 79 FR 76015, Dec. 19, 2014]



Sec. Sec. 4280.57-4280.61  [Reserved]



Sec. 4280.62  Appeals.

    An Intermediary may appeal any appealable adverse decision made by 
Rural Development that affects the Intermediary in accordance with 7 CFR 
part 11.



Sec. 4280.63  Exception authority.

    Except as specified in paragraphs (a) through (c) of this section, 
the RBS Administrator may, on a case-by-case basis, make exceptions to 
any requirement or provision of this subpart, if such exception is 
necessary to implement the intent of the authorizing statute in a time 
of national emergency or in accordance with a Presidentially-declared 
disaster, or when such an exception is in the best interests of the 
Federal Government and is otherwise not in conflict with applicable law.
    (a) Applicant eligibility. No exception to applicant eligibility can 
be made.
    (b) Project eligibility. No exception to project eligibility can be 
made.
    (c) Rural area definition. No exception to the definition of rural 
area, as defined, can be made.



Sec. Sec. 4280.64-4280.99  [Reserved]



Sec. 4280.100  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0035. A person is not required to 
respond to this collection of information unless it displays a currently 
valid OMB control number.



           Subpart B_Rural Energy for America Program General

    Source: 86 FR 22309, Apr. 27, 2021, unless otherwise noted.



Sec. 4280.101  Purpose.

    This subpart contains the procedures and requirements for providing 
the following financial assistance under the Rural Energy for America 
Program (REAP):
    (a) Grants, or a combination grant and guaranteed loan, for the 
purpose of purchasing and installing Renewable Energy Systems (RES) and 
Energy Efficiency Improvements (EEI);
    (b) Grants to assist agricultural producers and rural small 
businesses by conducting Energy Audits (EA) and providing 
recommendations and information on Renewable Energy Development 
Assistance (REDA); and
    (c) Grants or guaranteed loans, or a combination grant and 
guaranteed loan to an applicant or borrower pursuant to 7 CFR 1980, 
Subpart M Special Authority to Enable Funding of Broadband and Smart 
Utility Facilities Across Select Rural Development Programs. A Borrower 
or applicant receiving funding as referenced in paragraphs (a) or (b) of 
this section is permitted to use up to 10 percent of the amount provided 
under this subpart to construct, improve, or acquire broadband 
infrastructure related to the project financed, subject to the 
requirements of 7 CFR 1980, Subpart M.

[[Page 775]]



Sec. 4280.102  Organization of subpart.

    (a) Sections 4280.103 through 4280.111 discuss definitions; 
exception authority; review or appeal rights; conflict of interest; USDA 
Departmental Regulations; other applicable laws; ineligible applicants, 
grantees, and owners; general applicant, application, and funding 
provisions; and notifications, which are applicable to all of the 
funding programs under this subpart.
    (b) Sections 4280.112 through 4280.125 discuss the requirements 
specific to RES and EEI grants. Sections 4280.112 and 4280.113 discuss, 
respectively, applicant and project eligibility. Section 4280.114 
addresses ineligible projects. Section 4280.115 addresses funding 
provisions for these grants. Sections 4280.116 through 4280.120 address 
grant application content, technical merit determination, and required 
documentation. Sections 4280.121 through 4280.124 address the scoring, 
selection, awarding and administering, and servicing of these grant 
applications. Section 4280.125 addresses construction planning and 
development.
    (c) Section 4280.137 presents the process by which the Agency will 
make combined loan guarantee and grant funding available for RES and EEI 
projects.
    (d) Sections 4280.149 through 4280.159 present the process by which 
the Agency will make EA and REDA grant funding available. These sections 
cover applicant and project eligibility, grant funding, application 
content, evaluation, scoring, selection, awarding and administering, and 
servicing.
    (e) Appendices A through C cover technical report requirements. 
Appendix A applies to EEI projects; Appendix B applies to RES projects 
with Total Project Costs of Less Than $200,000, but more than $80,000; 
and Appendix C applies to RES projects with Total Project Costs $200,000 
and Greater. Appendices A and B do not apply to RES and EEI projects 
with Total Project Costs of $80,000 or less, respectively. Instead, 
technical report requirements for these projects are found in Sec. 
4280.120.
    (f) Appendix D covers contents of feasibility study.



Sec. 4280.103  Definitions.

    The following definitions are applicable to the capitalized terms 
used in this part.
    Administrator. The Administrator of Rural Business-Cooperative 
Service within the Rural Development Mission Area of the U.S. Department 
of Agriculture (USDA).
    Agency. The Rural Business-Cooperative Service or successor agency 
assigned by the Secretary of Agriculture to administer the Rural Energy 
for America Program. References to the National Office, Finance Office, 
State Office, or other Agency offices or officials should be read as 
prefaced by ``Agency'' or ``Rural Development'' as applicable.
    Agricultural producer. A person, including non-profits, directly 
engaged in the production of agricultural products through labor 
management and operations, including the cultivating, growing, and 
harvesting of plants and crops (including farming); breeding, raising, 
feeding, or housing of livestock (including ranching); forestry 
products; hydroponics; nursery stock; or aquaculture, whereby 50 percent 
or greater of their gross income is derived from the operations. The 
percentage is calculated as the average of gross agricultural operations 
income of the concern divided by the gross total income of the concern 
for the five most recent years. If the concern has been in operation for 
less than 60 months, use average gross agricultural operations income 
and gross total income for as long as the concern has been in operation.
    Anaerobic digester. A Renewable Energy System that uses animal waste 
or other renewable biomass and may include other organic substrates to 
produce digestate and biogas that may be sold in a gaseous or compressed 
liquid state or used to produce thermal or electrical energy.
    Applicant. (1) Except for EA and REDA grants, the agricultural 
producer or rural small business that is seeking a grant, or a 
combination of a grant and guaranteed loan, under this subpart.
    (2) For EA and REDA grants, a unit of State, Tribal, or local 
government; a land-grant college or university or

[[Page 776]]

other institution of higher education; a rural electric cooperative; a 
public power entity; council; or an Instrumentality of a State, Tribal, 
or local government that is seeking an EA or REDA grant under this 
subpart.
    Bioenergy project. A RES that produces fuel, biogas, thermal energy, 
or electric power from a renewable biomass source only.
    Biofuel. A fuel derived from renewable biomass.
    Biogas. Gaseous fuel (including landfill and sewage waste treatment 
gas) derived from the degradation and decomposition of renewable 
biomass.
    Byproduct. An incidental or secondary product, regardless of whether 
it has a readily identifiable commercial use or value, generated under 
normal operations of the proposed project that can be reasonably 
measured and monitored.
    Commercially available. A system that meets the requirements of 
either paragraph (1) or (2) of this definition.
    (1) A domestic or foreign system that:
    (i) Has both a proven and reliable operating history and proven 
performance data for at least 1 year specific to the use and operation 
to the proposed application;
    (ii) Is based on established design and installation procedures and 
practices and is replicable;
    (iii) Has professional service providers, trades, large construction 
equipment providers, and laborers who are familiar with installation 
procedures and practices;
    (iv) Has proprietary and balance of system equipment and spare parts 
that are readily available;
    (v) Has service that is readily available to properly maintain and 
operate the system; and
    (vi) Has an existing established warranty that is valid in the 
United States for major parts and labor; or
    (2) A domestic or foreign system that has been certified by a 
recognized industry organization whose certification standards are 
acceptable to the Agency.
    Complete application. An application that contains all parts 
necessary for the Agency to determine applicant and project eligibility, 
the financial feasibility and technical merit of the project, and 
contains sufficient information to determine a priority score for the 
application, if applicable.
    Costs incurred. A cost will be considered incurred when payment for 
costs associated with the project have been issued. If payment was in 
the form of a check, the date of the check will be considered the date 
the cost was incurred. If payment was in the form of an electronic 
payment, the date that the payment was issued from the grantee/producer/
borrower account will be considered the date the cost was incurred.
    Council. As defined, under the Resource Conservation and Development 
Program, at 16 U.S.C. 3451.
    Departmental regulations. The regulations of the Agency's Office of 
Chief Financial Officer (or successor office) as codified in 2 CFR 
chapter IV.
    Design/Build method. A method of project development whereby all 
design, engineering, procurement, construction, and other related 
project activities are performed under a single contract. The contractor 
is solely responsible and accountable for successful delivery of the 
project to the grantee as applicable.
    Eligible project costs. Those expenses approved by the Agency for 
the project as eligible uses of funds.
    Energy assessment. An Agency-approved report assessing energy use, 
cost, and efficiency by analyzing energy bills and surveying the target 
building and/or equipment sufficiently to provide an Agency-approved 
energy assessment.
    (1) If the project's total project cost is greater than $80,000, the 
energy assessment must be conducted by either an energy auditor or an 
energy assessor or an individual supervised by either an energy assessor 
or energy auditor. The final energy assessment must be validated and 
signed by the energy assessor or energy auditor who conducted the energy 
assessment or by the supervising energy assessor or energy auditor of 
the individual who conducted the assessment, as applicable.
    (2) If the project's total project cost is $80,000 or less, the 
energy assessment may be conducted in accordance with paragraph (1) of 
this definition or by an

[[Page 777]]

individual or entity that has at least 3 years of experience and 
completed at least five energy assessments or energy audits on similar 
type projects.
    Energy assessor. A qualified consultant who has at least 3 years of 
experience and completed at least five energy assessments or energy 
audits on similar type projects and who adheres to generally recognized 
engineering principles and practices.
    Energy audit. A comprehensive report that meets an Agency-approved 
standard prepared by an energy auditor or an individual supervised by an 
energy auditor that documents current energy usage; recommended 
potential improvements (typically called energy conservation measures) 
and their costs; energy savings from these improvements; dollars saved 
per year; and simple payback. The methodology of the energy audit must 
meet professional and industry standards. The final energy audit must be 
validated and signed off by the energy auditor who conducted the audit 
or by the supervising energy auditor of the individual who conducted the 
audit, as applicable.
    Energy auditor. A qualified consultant that meets one of the 
following criteria:
    (1) A certified energy auditor certified by the Association of 
Energy Engineers;
    (2) A certified energy manager certified by the Association of 
Energy Engineers;
    (3) A licensed professional engineer in the State in which the audit 
is conducted with at least 1-year experience and who has completed at 
least two similar type energy audits; or
    (4) An individual with a 4-year engineering or architectural degree 
with at least 3 years of experience and who has completed at least five 
similar type energy audits.
    Energy efficiency improvement (EEI). Improvements to or replacement 
of an existing building or systems and/or equipment, owned by the 
applicant, that reduces energy consumption on an annual basis.
    Existing business. A business that has been in operation for at 
least 1 full year. The following will be treated as existing businesses 
provided there is not a significant change in operations of the existing 
business: Mergers by an existing business with a new or existing 
business, a change in the business name, or a new business and an 
existing business applying as co-applicants.
    Feasibility study. A report including an opinion or finding 
conducted by an independent qualified consultant(s) evaluating the 
economic, market, technical, financial, and management feasibility of a 
proposed project or operation in terms of its expectation for success as 
outlined in Appendix D of this Subpart.
    Federal fiscal year. The 12-month period beginning October 1 of each 
year and ending on September 30 of the following year; it is designated 
by the calendar year in which it ends.
    Financial Assistance Agreement (Form RD 4280-2, Rural Business-
Cooperative Service Financial Assistance Agreement). An agreement 
between the Agency and the grantee setting forth the provisions under 
which the grant will be administered.
    Financial feasibility. The ability of a project to achieve 
sufficient income, credit, and cash flow to financially sustain a 
project over the long term and meet all debt obligations.
    Geothermal direct generation. A system that uses thermal energy 
directly from a geothermal source.
    Geothermal electric generation. A system that uses thermal energy 
from a geothermal source to produce electricity.
    Hybrid. A combination of two or more renewable energy technologies 
that are incorporated into a unified system to support a single project.
    Hydroelectric source. A RES producing electricity using various 
types of moving water including, but not limited to, diverted run-of-
river water, in-stream run-of-river water, and in-conduit water.
    Hydrogen project. A system that produces hydrogen derived from a 
renewable biomass or water using wind, solar, ocean (including tidal, 
wave, current, and thermal) geothermal or hydroelectric sources as an 
energy transport medium in the production of mechanical or electric 
power or thermal energy.
    Immediate family(ies). Individuals who live in the same household or 
who are

[[Page 778]]

closely related by blood, marriage, or adoption, such as a spouse, 
domestic partner, parent, child, sibling, aunt, uncle, grandparent, 
grandchild, niece, nephew, or first cousin.
    Inspector. A qualified consultant who has at least 3 years of 
experience and has completed at least five inspections on similar type 
projects.
    Institution of Higher Education. As defined in 20 U.S.C. 1002(a).
    Instrumentality. An organization recognized, established, and 
controlled by a State, Tribal, or local government, for a public purpose 
or to carry out special purposes.
    Interconnection agreement. A contract containing the terms and 
conditions governing the interconnection and parallel operation of the 
grantee's electric generation equipment and the utility's electric power 
system or a grantee's biogas production system and gas pipeline.
    Matching funds. Those project funds required by 7 U.S.C. 8107 to be 
made available by the applicant in order to be eligible to receive the 
grant, or combined grant and guaranteed loan. Funds provided by the 
applicant in excess of matching funds are not matching funds. Unless 
authorized by statute, other Federal grant funds cannot be used to meet 
a matching funds requirement.
    Ocean energy. Energy created by use of various types of moving water 
in the ocean and other large bodies of water (e.g., Great Lakes) 
including, but not limited to, tidal, wave, current, and thermal 
changes.
    Passive investor. An equity investor that does not actively 
participate in management and operation decisions of the applicant or 
any affiliate of the applicant as evidenced by a contractual agreement.
    Person. An individual or entity organized under the laws of a State 
or a Tribe.
    Power purchase agreement. The terms and conditions governing the 
sale and transportation of power produced by the applicant to another 
party.
    Public Power Entity. Is defined using the definition of ``State 
utility'' as defined in section 217(A)(4) of the Federal Power Act (16 
U.S.C. 824q(a)(4)). As of this writing, the definition ``means a State 
or any political subdivision of a State, or any agency, authority, or 
Instrumentality of any one or more of the foregoing, or a corporation 
that is wholly owned, directly or indirectly, by any one or more of the 
foregoing, competent to carry on the business of developing, 
transmitting, utilizing, or distributing power.''
    Qualified Consultant(s). An independent third-party person 
possessing the knowledge, expertise, and experience to perform the 
specific task required.
    Rated Power. The maximum amount of energy that can be created at any 
given time.
    Refurbished. Refers to a piece of equipment or RES that has been 
brought into a commercial facility, thoroughly inspected, and worn parts 
replaced and has a warranty that is approved by the Agency or its 
designee.
    Renewable biomass. (1) Materials, pre-commercial thinnings, or 
invasive species from National Forest System land or public lands (as 
defined in section 103 of the Federal Land Policy and Management Act of 
1976 (43 U.S.C. 1702)) that:
    (i) Are byproducts of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health;
    (ii) Would not otherwise be used for higher-value products; and
    (iii) Are harvested in accordance with applicable law and land 
management plans and the requirements for old-growth maintenance, 
restoration, and management direction of paragraphs (2), (3), and (4) of 
subsection (e) of section 102 of the Healthy Forests Restoration Act of 
2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of 
Section 102; or
    (2) Any organic matter that is available on a renewable or recurring 
basis from non-Federal land or land belonging to an Indian or Indian 
Tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including 
the following items:
    (i) Renewable plant material (including feed grains; other 
agricultural commodities; other plants and trees; and algae); and

[[Page 779]]

    (ii) Waste material including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and 
byproducts (including fats, oils, greases, and manure); and food waste 
and yard waste.
    Renewable energy. Energy derived from:
    (1) A wind, solar, renewable biomass, ocean (including tidal, wave, 
current, and thermal), geothermal or hydroelectric Source; or
    (2) Hydrogen derived from renewable biomass or water using an energy 
source described in paragraph (1).
    Renewable energy development assistance (REDA). Assistance provided 
by eligible grantees to agricultural producers and rural small 
businesses including education, applicability, and implementation of 
renewable energy technologies and resources. The REDA may consist of 
renewable energy site assessments or renewable energy technical 
assistance.
    Renewable energy site assessment. A report provided to an 
agricultural producer or rural small business providing information 
regarding and recommendations for the use of commercially available 
renewable energy technologies in its operation. The report must be 
prepared by a qualified consultant and must contain the information 
specified in Sections A through C of Appendix B.
    Renewable Energy System (RES). A system that produces usable energy 
from a renewable energy source and may include:
    (1) Distribution components necessary to move energy produced by 
such system to initial point of sale; and
    (2) other components and ancillary infrastructure of such system, 
such as a storage system; however, such system may not include a 
mechanism for dispensing energy at retail.
    Renewable energy technical assistance. Assistance provided to 
agricultural producers and rural small businesses on how to use 
renewable energy technologies and resources in their operations.
    Retrofitting. A modification to an existing building or installed 
equipment that incorporates a function or feature(s)not included in the 
original design when built or for the replacement of existing components 
with components that improve the original design and does not impact 
original warranty if the warranty is still in existence.
    Rural or rural area. Any area of a State not in a city or town that 
has a population of more than 50,000 inhabitants, not in the urbanized 
area contiguous and adjacent to a city or town that has a population of 
more than 50,000 inhabitants, and excluding certain populations pursuant 
to 7 U.S.C. 1991(a)(13)(H) and (I). In making this determination, the 
Agency will use the latest decennial census of the United States. The 
following exclusions apply:
    (1) Any area in the urbanized area contiguous and adjacent to a city 
or town that has a population of more than 50,000 inhabitants that has 
been determined to be ``rural in character'' as follows:
    (i) The determination that an area is ``rural in character'' will be 
made by the Under Secretary of Rural Development. The process to request 
a determination under this provision is outlined in paragraph (1)(ii) of 
this definition. The determination that an area is ``rural in 
character'' under this definition will apply to areas that are within:
    (A) An urbanized area that has two points on its boundary that are 
at least 40 miles apart, which is not contiguous or adjacent to a city 
or town that has a population of greater than 150,000 inhabitants or the 
urbanized area of such a city or town; or
    (B) An urbanized area contiguous and adjacent to a city or town of 
greater than 50,000 inhabitants that is within \1/4\ mile of a rural 
area.
    (ii) Units of local government may petition the Under Secretary of 
Rural Development for a ``rural in character'' designation by submitting 
a petition to the appropriate Rural Development State Director for 
recommendation to the Administrator on behalf of the Under Secretary. 
The petition shall document how the area meets the requirements of 
paragraph (1)(i)(A) or (B) of this definition and discuss why the 
petitioner believes the area is ``rural in character,'' including, but 
not limited to, the area's population density, demographics, and 
topography and how

[[Page 780]]

the local economy is tied to a rural economic base. Upon receiving a 
petition, the Under Secretary will consult with the applicable Governor 
or leader in a similar position and request comments to be submitted 
within 5 business days, unless such comments were submitted with the 
petition. The Under Secretary will release to the public a notice of a 
petition filed by a unit of local government not later than 30 days 
after receipt of the petition by way of publication in a local newspaper 
and posting on the Agency's website at https://www.rd.usda.gov, and the 
Under Secretary will make a determination not less than 15 days, but no 
more than 60 days, after the release of the notice. Upon a negative 
determination, the Under Secretary will provide to the petitioner an 
opportunity to appeal a determination to the Under Secretary, and the 
petitioner will have 10 business days to appeal the determination and 
provide further information for consideration. The Under Secretary will 
make a determination of the appeal in not less than 15 days, but no more 
than 30 days.
    (iii) Rural Development State Directors may also initiate a request 
to the Under Secretary to determine if an area is ``rural in 
character.'' A written recommendation should be sent to the 
Administrator, on behalf of the Under Secretary, that documents how the 
area meets the statutory requirements of paragraph (1)(i)(B) of this 
definition and discusses why the State Director believes the area is 
``rural in character,'' including, but not limited to, the area's 
population density, demographics, topography, and how the local economy 
is tied to a rural economic base. Upon receipt of such a request, the 
Administrator will review the request for compliance with the ``rural in 
character'' provisions and make a recommendation to the Under Secretary. 
Provided a favorable determination is made, the Under Secretary will 
consult with the applicable Governor or leader in a similar position and 
request comments within 10 business days, unless the comments were 
submitted with the request. A public notice will be published by the 
State Office in accordance with paragraph (1)(ii) of this definition. 
There is no appeal process for requests made on the initiative of the 
State Director.
    (2) An area that is attached to the urbanized area of a city or town 
with more than 50,000 inhabitants by a contiguous area of urbanized 
census blocks that is not more than two census blocks wide. Applicants 
from such an area should work with their Rural Development State Office 
to request a determination of whether their project is located in a 
rural area under this provision.
    (3) For the Commonwealth of Puerto Rico, the island is considered 
rural and eligible except for the San Juan Census Designated Place (CDP) 
and any other CDP with greater than 50,000 inhabitants. Areas within 
CDPs with greater than 50,000 inhabitants, other than the San Juan CDP, 
may be determined to be rural if they are ``not urban in character.''
    (4) For the State of Hawaii, all areas within the State are 
considered rural and eligible except for the Honolulu CDP within the 
County of Honolulu and any other CDP with greater than 50,000 
inhabitants. Areas within CDPs with greater than 50,000 inhabitants, 
other than the Honolulu CDP, may be determined to be rural if they are 
``not urban in character.''
    (5) For the purpose of defining a rural area in the Republic of 
Palau, the Federated States of Micronesia, and the Republic of the 
Marshall Islands, the Agency shall determine what constitutes rural and 
rural area based on available population data.
    Rural small business. A small business that is located in a rural 
area or that can demonstrate the proposed project for which assistance 
is being applied for under this part is located in a rural area.
    Simple payback. The estimated simple payback of a project funded 
under this part as calculated using paragraphs (1) or (2), as 
applicable, of this definition.
    (1) EEI projects simple payback = (total project costs) / (dollar 
value of energy saved).
    (i) Energy saved will be determined by subtracting the projected 
energy (determined by the method in paragraph (1)(i)(B) of this 
definition) to be consumed from the historical energy consumed 
(determined by the method

[[Page 781]]

in paragraph (1)(i)(A) of this definition), and converting the result to 
a monetary value using a constant value or price of energy (determined 
by the method in paragraph (1)(i)(C) of this definition).
    (A) Actual energy used in the original building and/or equipment, as 
applicable, prior to the EEI project, must be based on the actual 
average annual total energy used in British thermal units (BTU) over the 
most recent 12, 24, 36, 48, or 60 consecutive months of operation. 
Attach utility bills to document applicant entity's historical energy 
consumption quantity.
    (B) Projected energy use if the proposed EEI project had been in 
place for the original building and/or equipment, as applicable, for the 
same time period used to determine that actual energy use under 
paragraph (1)(i)(A) of this definition.
    (C) Value or price of energy must be the actual average price paid 
over the same time period used to calculate the actual energy used under 
paragraph (1)(i)(A) of this definition. When calculating the actual 
average price of energy, only include energy charges directly reduced by 
the unit of energy being replaced or saved. Attach utility bills to 
document applicant entity's average price of energy.
    (ii) The EEI projects simple payback calculation does not allow 
applicants to monetize EEI benefits other than the dollar amount of the 
energy savings the agricultural producer or rural small business 
realizes as a result of the improvement.
    (2) RES projects simple payback = (total project costs) / (dollar 
value of energy units replaced, credited, sold, or used and fair market 
value of byproducts as applicable in a typical year).
    (i) Value of energy replaced will be calculated based on the 
applicant entity's historical energy consumption with actual average 
price paid for the energy replaced, following the methodology outlined 
in paragraph (1)(i) of this definition. Attach utility bills to document 
applicant entity's historical energy consumption quantity and actual 
average price of energy.
    (ii) Value of energy credited or sold will be calculated based on 
the amount of energy units to be credited or sold at the proposed rate 
per unit, as documented in utility net metering or crediting policies 
and/or a power purchase agreement. Attach utility net metering or 
crediting policies and/or a power purchase agreement to document energy 
quantity and proposed rate for energy credited or sold.
    (iii) If proposed energy will be used in a new facility, value of 
energy used will be calculated based on the amount of energy units to be 
used at the documented price per unit of conventional fuel alternative. 
Attach documentation of market price per unit of conventional fuel 
alternative.
    (iv) Value of byproducts produced by and used in the project or 
related enterprises should be documented at the fair market value to be 
received for the byproducts in a typical year. Attach documentation of 
market value price to be received for byproducts and documentation to 
support byproduct sales or direct use.
    (v) The RES projects simple payback calculation does not include any 
one-time benefits such as but not limited to construction and 
investment-related benefits, nor credits which do not provide annual 
income to the project, such as tax credits.
    Small business means,
    (1) An entity or utility, as applicable, as further defined in 
subparagraphs (i) through (iv) and paragraph (2) of this definition. 
With the exception of the entities identified in this paragraph, all 
other non-profit entities are not small businesses for the purposes of 
REAP program eligibility:
    (i) A private for-profit entity, including a sole proprietorship, 
partnership, or corporation;
    (ii) A cooperative (including a cooperative qualified under section 
501(c)(12) of the Internal Revenue Code);
    (iii) An electric utility (including a Tribal or governmental 
electric utility) that provides service to rural consumers and operates 
independent of direct government control; or
    (iv) A Tribal corporation or other Tribal business entities that are 
chartered under Section 17 of the Indian Reorganization Act (25 U.S.C. 
477) or have similar structures and relationships with their Tribal 
governments

[[Page 782]]

and are acceptable to the Agency. The Agency will determine the small 
business status of such Tribal entity without regard to the resources of 
the Tribal government; and
    (2) An entity that meets Small Business Administration size 
standards in accordance with 13 CFR part 121 and criteria of Sec. 
121.301 as applicable to financial assistance programs, including (i) or 
(ii) below. The size of the concern alone and the size of the concern 
combined with other entity(ies) it controls or entity(ies) it is 
controlled by, must not exceed the size standard thresholds designated 
for the industry in which the concern alone or the concern and its 
controlling entity(ies), whichever is higher, is primarily engaged.
    (i) The concern's tangible net worth is not in excess of $15 million 
and average net income (excluding carry-over losses) for the preceding 
two completed fiscal years is not in excess of $5.0 million; or
    (ii) The size of the concern does not exceed the Small Business 
Administration (SBA) size standard thresholds designated for the 
industry in which it is primarily engaged, as measured by number of 
employees or annual receipts. Industry size standard designations to be 
utilized are listed in the Small Business Administration's (SBA) table 
of size standards found in 13 CFR part 121.201. Number of employees and 
annuals receipts are calculated as follows:
    (A) Number of employees is calculated as the average number of all 
individuals employed by a concern on a full-time, part-time, or other 
basis, based upon numbers of employees for each of the pay periods for 
the preceding completed 12 calendar months. If a concern has not been in 
business for 12 months, the average number of employees is used for each 
of the pay periods during which it has been in business.
    (B) Annual receipts are calculated as average total income plus cost 
of goods sold for the for the five most recent years. If a concern has 
been in operation for less than 60 months, average annual receipts for 
as long as the concern has been in operation are used.
    Smart Utility. The use of broadband facilities and equipment that is 
only available internally by a recipient during the economic life of the 
assets financed by an Agency loan, grant, or loan guarantee.
    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the District of Columbia, the U.S. Virgin Islands, Guam, 
American Samoa, the Commonwealth of the Northern Mariana Islands, the 
Republic of Palau, the Federated States of Micronesia, and the Republic 
of the Marshall Islands.
    Steady state operating level means that there is an adequate and 
consistent supply of the applicable renewable energy resource(s) for the 
project, both on a short-term (current) and long-term basis, and the 
renewable energy system and process(es) are operating at projected 
capacity, consistently yielding an adequate quantity and quality of 
renewable energy.
    Total eligible project costs. The sum of all eligible project costs.
    Total project costs. The sum of all costs associated with a 
completed project.
    Underserved community(ies). Communities (including urban or rural 
communities and Indian tribal communities) that have limited access to 
affordable, healthy foods, including fresh fruits and vegetables, in 
grocery retail stores or farmer-to-consumer direct markets and that have 
either a high rate of hunger or food insecurity or a high poverty rate 
as reflected in the most recent decennial census or other Agency-
approved census.
    Used equipment. Any equipment that has been used and is provided in 
an ``as is'' condition.
    Useful life means estimated durations of utility placed on a variety 
of assets, including buildings, machinery, equipment, vehicles, 
electronics, and furniture. Useful life estimations terminate at the 
point when assets are expected to become obsolete, require major 
repairs, or cease to deliver economical results.
    Veteran. A veteran is a person who served in the active military, 
naval, or air service, and who was discharged or released therefrom 
under conditions

[[Page 783]]

other than dishonorable as defined in title 38 U.S.C. 101(2).

[86 FR 22309, Apr. 27, 2021, as amended at 87 FR 38644, June 29, 2022]



Sec. 4280.104  Exception authority.

    The Administrator may, on a case-by-case basis, grant an exception 
to any requirement or provision of this subpart provided that such an 
exception is in the best financial interests of the Federal Government. 
Exercise of this authority cannot be in conflict with applicable law.



Sec. 4280.105  Review or appeal rights.

    Agency Applicants or grantees may have appeal or review rights for 
Agency decisions made under this part. Agency decisions that are adverse 
to the individual participant are appealable, while matters of general 
applicability are not subject to appeal; however, such decisions are 
reviewable for appealability by the National Appeals Division (NAD). All 
appeals will be conducted by NAD and will be handled in accordance with 
7 CFR part 11. The applicant or grantee can appeal any Agency decision 
that directly and adversely affects them.



Sec. 4280.106  Conflict of interest.

    (a) General. No conflict of interest or appearance of conflict of 
interest will be allowed. Conflict of interest means a situation in 
which a person has personal, professional, or financial interests that 
prevent, or appears to prevent the person from acting impartially. For 
purposes of this subpart, conflict of interest includes, but is not 
limited to, distribution or payment of grant, guaranteed loan funds, and 
matching funds to a beneficiary or immediate family member of the 
applicant.
    (b) Assistance to employees, relatives, and associates. The Agency 
will process any requests for assistance under this subpart in 
accordance with 7 CFR part 1900, subpart D.
    (c) Member/delegate clause. No member of or delegate to Congress 
shall receive any share or part of this grant or any benefit that may 
arise there from; but this provision shall not be construed to bar, as a 
contractor under the grant, a publicly held corporation whose ownership 
might include a member of Congress.



Sec. 4280.107  [Reserved]



Sec. 4280.108  U.S. Department of Agriculture departmental regulations and laws that contain other compliance requirements.

    (a) Departmental regulations. All projects funded under this subpart 
are subject to the provisions of the Departmental regulations, as 
applicable, which are incorporated by reference herein.
    (b) Equal opportunity and nondiscrimination. The Agency will ensure 
that equal opportunity and nondiscrimination requirements are met in 
accordance with the Equal Credit Opportunity Act, 15 U.S.C. 1691 et seq. 
and 7 CFR part 15d, Nondiscrimination in Programs and Activities 
Conducted by the United States Department of Agriculture. The Agency 
will not discriminate against applicants on the basis of race, color, 
religion, national origin, sex, marital status, disability, or age 
(provided that the applicant has the capacity to contract); because all 
or part of the applicant's income derives from any public assistance 
program; or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act, 15 U.S.C. 1601 et seq.
    (c) Civil rights compliance. Recipients of grants must comply with 
the Americans with Disabilities Act of 1990, 42 U.S.C. 12101 et seq., 
Title VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d et seq., and 
Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. 794. This 
includes collection and maintenance of data on the race, sex, and 
national origin of the recipient's membership/ownership and employees. 
These data must be available to conduct compliance reviews in accordance 
with 7 CFR 1901.204.
    (1) Initial compliance reviews will be conducted by the Agency prior 
to funds being obligated for programs.
    (2) When compliance reviews are applicable to the grant, one 
subsequent compliance review following project completion is required. 
This will occur after the last disbursement of grant funds has been 
made.

[[Page 784]]

    (d) Environmental analysis. Actions taken under this subpart must 
comply with 7 CFR part 1970. Prospective applicants are advised to 
contact the Agency to determine environmental requirements as soon as 
practicable after they decide to pursue any form of financial assistance 
directly or indirectly available through the Agency.
    (1) Any required environmental review must be completed by the 
Agency prior to the Agency obligating any funds.
    (2) The applicant will be notified of all specific compliance 
requirements, including, but not limited to, the publication of public 
notices, and consultation with State or Tribal Historic Preservation 
Offices and the U.S. Fish and Wildlife Service.
    (3) A site visit by the Agency may be scheduled, if necessary, to 
determine the scope of the review.
    (e) Discrimination complaints--(1) Who may file. Persons or a 
specific class of persons believing they have been subjected to 
discrimination prohibited by this section may file a complaint 
personally, or by an authorized representative with USDA, Director, 
Office of Adjudication, 1400 Independence Avenue SW, Washington, DC 
20250.
    (2) Time for filing. A complaint must be filed no later than 180 
days from the date of the alleged discrimination, unless the time for 
filing is extended by the designated officials of USDA or Rural 
Development.



Sec. 4280.109  Ineligible applicants, grantees, and owners.

    Applicants, grantees, and owners will be ineligible to receive funds 
under this subpart as discussed in paragraphs (a) and (b) of this 
section.
    (a) If an applicant, grantee, or owner has an outstanding judgment 
obtained by the U.S. in a Federal Court (other than in the United States 
Tax Court), is delinquent in the payment of Federal income taxes, or is 
delinquent on a Federal debt, the applicant, grantee, or owner is not 
eligible to receive a grant or combined grant and guaranteed loan until 
the judgment is paid in full or otherwise satisfied or the delinquency 
is resolved.
    (b) If an applicant, grantee, or owner is debarred from receiving 
Federal assistance, the applicant, grantee, or owner is not eligible to 
receive a grant or combined grant and guaranteed loan under this 
subpart.



Sec. 4280.110  General applicant, application, and funding provisions.

    (a) Satisfactory progress. An applicant that has received one or 
more grants and/or guaranteed loans under this program must make 
satisfactory progress, as determined by the Agency, toward completion of 
any previously funded projects before the applicant will be considered 
for subsequent funding. This may include a review of the applicant 
compliance with Agency reporting requirements. Satisfactory progress for 
EA and REDA grants is defined as at least 50 percent of previous EA or 
REDA awards expended at the time the Agency makes its eligibility 
determination.
    (b) Application submittal. Applications must be submitted in 
accordance with the provisions of this subpart unless otherwise 
specified in a Federal Register notice. Grant applications and combined 
grant and guaranteed loan applications for financial assistance under 
this subpart may be submitted at any time.
    (1) Grant applications. Complete grant applications will be accepted 
on a continuous basis, with awards made based on the application's score 
and subject to available funding.
    (2) Combined grant and guaranteed loan applications. Applications 
requesting a RES or EEI grant and a guaranteed loan under this subpart 
will be accepted on a continuous basis, with awards made based on the 
grant application's score and subject to available funding.
    (c) Application limits. An applicant applying for a grant or a 
combined grant and guaranteed loan is limited to competing one RES 
application and one EEI application under this subpart in any one 
Federal fiscal year. An applicant that proposes to install the same EEI 
or RES (including hybrid) across multiple facilities can be considered 
one project and be submitted in one application.
    (d) Application modification. Once submitted and prior to Agency 
award, if an applicant modifies the scope of the

[[Page 785]]

project described in its application, the application will be treated as 
a new application. The submission date of record for such modified 
applications will be the date the Agency receives the modified 
information, and the application will be processed and scored by the 
Agency as a new application under this subpart.
    (e) Incomplete applications. Applicants must submit complete 
applications in order to be considered for funding. If an application is 
incomplete, the Agency will identify those parts of the application that 
are incomplete and provide a written explanation to the applicant for 
possible future resubmission. Upon receipt of a complete application by 
the appropriate Agency office, the Agency will complete its evaluation 
and will compete the application in accordance with the procedures 
specified in Sec. Sec. 4280.122 or 4280.156 as applicable.
    (f) Application withdrawal. During the period between the submission 
of an application and the execution of award documents for an 
application selected for funding, the applicant must notify the Agency, 
in writing, if the project is no longer viable or the applicant no 
longer is requesting financial assistance for the project. When the 
applicant notifies the Agency, the selection will be rescinded and/or 
the application withdrawn.
    (g) Technical report. The following technologies: Hydrogen, ocean 
energy, geothermal electric generation, anaerobic digesters and biogas, 
biomass, hybrid applications, RES with storage components, and EEI or 
technologies as amended via Federal Register notification or posted on 
the Agency's website, must provide a technical report as specified in 
Sec. Sec. 4280.118(d) 4280.119(b)(4), and 4280.120(b)(3) and 
4280.120(b)(4), and must comply with the provisions specified in 
paragraphs (g)(1) through (3), as applicable, of this section:
    (1) Technical report format and detail. The information in the 
technical report must follow the format specified in Sec. 
4280.120(b)(3), Sec. 4280.120(b)(4), and Appendices A through C of this 
subpart, as applicable. Supporting information may be submitted in other 
formats. Design drawings and process flowcharts are encouraged as 
exhibits. In addition, information must be provided, in sufficient 
detail, to:
    (i) Allow the Agency to determine the technical merit of the 
applicant's project under Sec. 4280.117;
    (ii) Allow the calculation of simple payback as defined in Sec. 
4280.103;
    (iii) For RES Projects, enable the calculation of the percentage of 
historical use of energy compared to the amount of renewable energy that 
will be generated once the project is operating at its steady state 
operating level. If the project is closely associated with a residence, 
demonstration must be made that 50 percent or more of the projected 
renewable energy will benefit the agricultural operation or rural small 
business; and
    (iv) Demonstrate that the RES or EEI will operate or perform over 
the project's useful life in a reliable, safe, and a cost-effective 
manner, which may include but is not limited to addressing project 
design, installation, operation, maintenance, and warranties.
    (2) Technical report modifications. If a technical report is 
prepared prior to the applicant's selection of a final design, equipment 
vendor, or contractor, or other significant decision, it may be modified 
and resubmitted to the Agency, provided that the overall scope of the 
project is not materially changed as determined by the Agency. Changes 
in the technical report may require additional environmental 
documentation in accordance with 7 CFR part 1970.
    (3) Hybrid projects. If the application is for a hybrid project, 
technical reports as applicable must be prepared for each technology 
that comprises the hybrid project.
    (h) Time limit on use of grant funds. Except as provided in 
paragraph (h)(1) of this section, grant funds not expended within 2 
years from the date the Financial Assistance Agreement was signed by the 
Agency will be returned to the Agency.
    (1) Time extensions. The Agency may extend the 2-year time limit for 
a period not to exceed 24 months if the Agency determines, at its sole 
discretion, that the grantee is unable to complete the project for 
reasons beyond the grantee's control. Grantees must

[[Page 786]]

submit a request for the no-cost extension no later than 30 days before 
the two-year anniversary of executing the Financial Assistance 
Agreement. This request must describe the extenuating circumstances that 
were beyond their control to complete the project for which the grant 
was awarded, and why an approval is in the government's best interest.
    (2) Return of funds to the Agency. Funds remaining after grant 
closeout that exceed the amount the grantee is entitled to receive under 
the Financial Assistance Agreement will be returned to the Agency.



Sec. 4280.111  Notifications.

    (a) Eligibility. If an applicant and/or their application are 
determined by the Agency to be eligible for participation, the Agency 
will notify the applicant or lender in writing of the eligibility 
determination.
    (b) Ineligibility. If an applicant and/or their application are 
determined to be ineligible at any time, the Agency will inform the 
applicant or lender, as applicable, in writing of the decision, reasons 
therefore, and any appeal rights, if applicable. No further processing 
of the application will occur.
    (c) Funding determinations. Each applicant and/or lender, as 
applicable, will be notified of the Agency's decision on their 
application. If unfunded in a competition, the application will compete 
in the next available competition and will continue competing until 
either awarded or the application has competed in the maximum number of 
competitions in a fiscal year. The Agency will then issue an adverse 
funding determination for the unsuccessful application. If the Agency's 
decision is not to fund an application, the Agency will include in the 
notification any applicable appeal or review rights.

    Renewable Energy System and Energy Efficiency Improvement Grants



Sec. 4280.112  Applicant eligibility.

    To receive a RES or EEI grant under this subpart, an applicant must 
meet the requirements specified in paragraphs (a) through (g) of this 
section.
    (a) Type of applicant. The applicant must be an agricultural 
producer or rural small business at the time of application.
    (b) Ownership and control. The applicant must at the time of 
application and, if an award is made, for the useful life of the project 
as described in the Financial Assistance Agreement:
    (1) Own the project; and
    (2) Own or control the site for the project. If the grantee does not 
maintain ownership of the project and ownership or control of the site, 
then grant funds may be recovered from the grantee by the Agency in 
accordance with Departmental Regulations.
    (c) End Users. If the controlling interest in the applicant entity 
is otherwise eligible and a legal transaction between two parties for 
the sale of energy in an open market is being proposed, the Agency will 
not consider the energy end-users as part of the analysis of the 
eligibility of the applicant. If the proposed end-user would be an 
ineligible applicant, such as an entity which is residential in nature 
or a non-profit entity, and the REAP applicant entity is a newly formed 
special-purpose entity with substantially the same ownership as the sole 
proposed end-user, then the REAP applicant entity is not eligible.
    (d) Revenues and expenses. The applicant must have available at the 
time of application satisfactory sources of revenue in an amount 
sufficient to provide for the operation, management, maintenance, and 
any debt service of the project for the useful life of the project. In 
addition, the applicant must control the revenues and expenses of the 
project, including its operation and maintenance. Notwithstanding the 
provisions of this paragraph, the applicant may employ a qualified 
consultant under contract to manage revenues and expenses of the project 
and its operation and/or maintenance.
    (e) Legal authority and responsibility. Each applicant must have the 
legal authority necessary to apply for and carry out the purpose of the 
grant.
    (f) Unique Entity Identifier (UEI). All applicants must register for 
a UEI as part of the registration process. Generally, the UEI number is 
included on

[[Page 787]]

Standard Form-424, ``Application for Federal Assistance.''
    (g) System for Awards Management (SAM). Unless exempt under 2 CFR 
25.110, the applicant must:
    (1) Be registered in the SAM prior to submitting an application;
    (2) Maintain an active SAM registration with current information at 
all times while an application is pending and until final fund 
disbursement has been made.



Sec. 4280.113  Project eligibility.

    For a project to be eligible to receive a RES or EEI grant under 
this subpart, the proposed project must meet each of the requirements 
specified in paragraphs (a) through (e) of this section. Subsequent EEI 
projects must meet the requirements specified in paragraph (a)(5)(ii) of 
this section. The applicant is cautioned against taking any actions or 
incurring any obligations prior to the Agency completing the 
environmental review that would either limit the range of alternatives 
to be considered or that would have an adverse effect on the 
environment, such as the initiation of construction. If the applicant 
takes any such actions or incurs any such obligations, it could result 
in project ineligibility.
    (a) The project must be for:
    (1) The purchase of a new RES;
    (2) The purchase of a refurbished RES;
    (3) The retrofitting of an existing RES;
    (4) For the purposes of this subpart, only those hydroelectric 
sources with a rated power of 30 megawatts or less are eligible, or
    (5) Making an EEI that will allow less energy to be used on an 
annual basis than the original building and/or equipment being improved 
or replaced as provided in a vendor/installer certification or as 
demonstrated in an energy assessment or energy audit as applicable.
    (i) Types of improvements. Eligible EEI include, but are not limited 
to:
    (A) Efficiency improvements to existing RES; and
    (B) Construction of a new energy efficient building only when the 
building is used for the same purpose as the existing building, and, 
based on an energy assessment or energy audit, as applicable, it will be 
more cost effective to construct a new building and will use less energy 
on annual basis than improving the existing building.
    (ii) Subsequent EEI projects. A proposed EEI project that replaces 
an EEI project previously funded under this subpart may or may not be 
eligible for funding.
    (A) If the proposed EEI project would replace the same specific EEI 
equipment that had previously received funds under this subpart prior to 
the end of the useful life, as specified in the Financial Assistance 
Agreement, then the proposed improvement project, even if it is more 
energy efficient than the previously funded improvement, is ineligible.
    (B) If the proposed EEI project would replace the same specific EEI 
equipment that had previously received funds under this subpart at or 
after the end of the useful life, as specified in the Financial 
Assistance Agreement, then the proposed improvement is eligible for 
funding under this subpart provided the EEI is more energy efficient 
than the previously funded improvement. If the proposed EEI is not more 
energy efficient than the previously funded improvement, then it is not 
eligible for funding under this subpart.
    (b) The project must utilize commercially available technology;
    (c) The project must have technical merit, as determined using the 
procedures specified in Sec. 4280.117; and
    (d) The project must be located in a rural area in a State if the 
type of applicant is a rural small business, or in a rural or non-rural 
area in a State if the type of applicant is an agricultural producer and 
the application supports the production, processing, vertical 
integration, or marketing of agricultural products. If the agricultural 
producer's operation is in a non-rural area, then the application can 
only be for RES or EEI components of the business operation that are 
directly related to and their use and purpose is limited to the 
agricultural production operation, such as vertically integrated 
operations, and are part of and co-located with the agricultural 
production operation.

[[Page 788]]

    (e) For a RES project, where a residence is closely associated with 
and shares an energy metering device with an agricultural operation or 
rural small business to be served by the RES project, 50 percent or more 
of the energy to be generated by the RES project must be used by the 
agricultural operation or rural small business. This also includes 
projects which will virtually net meter or credit energy to be generated 
by the RES project to a residence off-site from the project and owned by 
the applicant. The application must contain sufficient documentation to 
evaluate this provision which may include using either of the methods 
identified in paragraphs (e)(1) through (2) of this section.
    (1) Provide a renewable energy site assessment or other 
documentation including calculations that demonstrate, based on 
historical energy use, that 50 percent or more of the energy to be 
produced by the RES project will be used in the agricultural operation 
or rural small business. This includes documentation on historical 
residential energy use. The Agency may request additional data to 
determine residential versus business or agricultural operation usage. 
The actual percentage of energy determined to benefit the rural small 
business or agricultural operation will be used to determine eligible 
project costs; or
    (2) The applicant may install, or elect to conditionalize funding 
upon the installation of, a device (such as a second meter) that 
restricts 100 percent of the energy generated by the RES project to be 
used only by the agricultural operation or rural small business.
    (f) An applicant is permitted to use up to 10 percent of the amount 
provided under this subpart to construct, improve, or acquire broadband 
infrastructure, subject to the requirements of 7 CFR 1980, Subpart M, 
Special Authority to Enable Funding of Broadband and Smart Utility 
Facilities Across Select Rural Development Programs.



Sec. 4280.114  Ineligible projects.

    The Agency will not award funding under this part for any projects 
identified in this section, unless otherwise noted.
    (a) Research and development projects and projects that involve 
technology that is not commercially available;
    (b) Business operations that derive more than 10 percent of annual 
gross revenue from gambling activity. Gambling activities include any 
lease income from space or machines used for gambling activities. State 
or Tribal-authorized lottery proceeds, as approved by the Agency, 
conducted for the purpose of raising funds for the approved project are 
excluded;
    (c) Business operations deriving income from activities of a sexual 
nature or illegal activities;
    (d) Residential RES or EEI projects, including farm labor housing, 
apartment complexes, and owner-occupied bed and breakfasts, except for-
profit nursing homes and assisted living facilities that provide full-
time medical care for residents, and for-profit hotels that provide 
short-term housing;
    (e) Racetracks or facilities for conducting either professional or 
amateur races of animals, or by professional or amateur drivers or 
jockeys, or any other type of racing;
    (f) RES projects that co-fire with fossil fuels, natural gas or 
petroleum-based products or materials such as coal and other non-
renewable fuels, oils, and chemicals, and tires or plastic;
    (g) Projects where 50 percent or more of the costs are ineligible or 
where project costs as defined in the application do not meet the 
definition of a renewable energy system or energy efficiency 
improvement, including projects submitted for labor costs only. Project 
costs associated with an EEI that are not clearly identified in the 
energy assessment or audit will be considered ineligible costs; and
    (h) Projects proposing two or more different types of RES 
technologies that are not incorporated into a unified system and 
projects proposing two or more different types of RES technologies at 
two or more locations.



Sec. 4280.115  RES and EEI grant funding.

    (a) Grant amounts. The amount of grant funds that will be made 
available to an eligible RES or EEI project under this subpart will not 
exceed 25 percent

[[Page 789]]

of eligible project costs. Eligible project costs are specified in 
paragraph (c) of this section.
    (1) Minimum request. Unless otherwise specified in a Federal 
Register notice, the minimum request for a RES grant application is 
$2,500 and the minimum request for an EEI grant application is $1,500.
    (2) Maximum request. Unless otherwise specified in a Federal 
Register notice, the maximum request for a RES grant application is 
$500,000 and the maximum request for an EEI grant application is 
$250,000.
    (3) Maximum grant assistance. Unless otherwise specified in a 
Federal Register notice, the maximum amount of grant assistance to one 
person or entity under this subpart will not exceed $750,000 per Federal 
fiscal year.
    (b) Matching funds and other funds. The applicant is responsible for 
securing the remainder of the total project costs not covered by grant 
funds.
    (1) Without specific statutory authority, other Federal grant funds 
cannot be used to meet the matching funds requirement. A copy of the 
statutory authority must be provided to the Agency to verify if the 
other Federal grant funds can be used to meet the matching funds 
requirement under this subpart.
    (2) Passive third-party equity contributions are acceptable for RES 
projects, including equity raised from the sale of Federal tax credits.
    (c) Eligible Project Costs. Eligible project costs are only those 
costs incurred after a complete application has been received by the 
Agency and are associated with the items identified in paragraphs (c)(1) 
through (6) of this section. Each item identified in paragraphs (c)(1) 
through (6) of this section is only an eligible project cost if it is 
directly related to and its use and purpose is limited to the RES or 
EEI.
    (1) Purchase and installation of new or refurbished equipment.
    (2) Construction, retrofitting, replacement, and improvements.
    (3) EEI identified by vendor/installer certification or in the 
applicable energy assessment or energy audit.
    (4) Fees for construction permits and licenses and fees required by 
an interconnection agreement.
    (5) Professional service fees related to the project for qualified 
consultants, contractors, installers, and other third-party services.
    (6) For an eligible RES in which a residence is closely associated 
with the rural small business or agricultural operation the installation 
of a second meter to separate the residence from the portion of the 
project that benefits the rural small business or agricultural 
operation, as applicable.
    (d) Ineligible project costs. Ineligible project costs for RES and 
EEI projects include, but are not limited to:
    (1) Costs for agricultural tillage equipment, used equipment, and 
vehicles;
    (2) Construction or equipment costs that would be incurred 
regardless of the installation of a RES or EEI.
    (3) Lease payments, including lease to own or capitalized leases;
    (4) Any project cost that creates a conflict of interest or an 
appearance of a conflict of interest as provided in Sec. 4280.106;
    (5) Funds used for political or lobbying activities; and
    (6) Funds used to pay off any Federal direct or guaranteed loans or 
other Federal debts.
    (e) Award amount considerations. In determining the amount of a RES 
or EEI grant awarded, the Agency will take into consideration the 
following six criteria:
    (1) The type of RES to be purchased;
    (2) The estimated quantity of energy to be generated by the RES;
    (3) The expected environmental benefits of the RES;
    (4) The quantity of energy savings expected to be derived from the 
activity, as certified by the vendor/installer as applicable, or 
demonstrated by an energy audit or energy assessment;
    (5) The estimated period of time for the energy savings generated by 
the activity to equal the cost of the activity; and
    (6) The expected energy efficiency of the RES.



Sec. 4280.116  Grant applications--general.

    (a) General. Separate applications must be submitted for RES and EEI 
projects. An original, hardcopy or electronic, of each application is 
required.

[[Page 790]]

    (b) Application content. Applications for RES projects or EEI 
projects must contain the information specified in Sec. 4280.118 unless 
the requirements of either Sec. 4280.119(a) or Sec. 4280.120(a) are 
met. If the requirements of Sec. 4280.119(a) are met, the application 
may contain the information specified in Sec. 4280.119(b). If the 
requirements of Sec. 4280.120(a) are met, the application may contain 
the information specified in Sec. 4280.120(b). For RES Projects only, 
the Agency may require a feasibility study based on the scope of the 
project to the applicant's overall operations, including new facilities 
with significant impacts on an existing operation, or when the 
application information or technical report does not provide sufficient 
documentation and analysis of the project's engineering, technical, 
financial, or market feasibility, or the economic viability of the 
project including any feedstock or off-take agreements, that are needed 
to evaluate whether a project will be successful. The elements of an 
acceptable feasibility study may vary by project scope and should be 
prepared by a qualified and independent third party.
    (c) Evaluation of applications. The Agency will evaluate each RES 
and EEI grant application and make a determination as to whether the 
application meets the criteria specified in paragraphs (c)(1) through 
(4).
    (1) The application is complete, as defined in Sec. 4280.103;
    (2) The Applicant is eligible according to Sec. 4280.112;
    (3) The project is eligible according to Sec. 4280.113; and
    (4) The proposed project has technical merit as determined under 
Sec. 4280.117.



Sec. 4280.117  Determination of technical merit.

    The Agency will determine the technical merit of all proposed 
projects for which complete applications are submitted under Sec. Sec. 
4280.118, 4280.119, and 4280.120 under this subpart using the procedures 
specified in this section. Only projects that have been determined by 
the Agency to have technical merit are eligible for funding under this 
subpart.
    (a) General. The Agency will use the information provided in the 
applicant's application and/or technical report to determine whether or 
not the project has technical merit. In making this determination, the 
Agency may engage the services of other Government agencies or other 
recognized industry experts in the applicable technology field, at its 
discretion, to evaluate and rate the technical report. The technical 
report can also be provided in the technical feasibility section of the 
feasibility study, when required, instead of completing a separate 
technical report.
    (b) Technical report areas. The areas that the Agency will evaluate 
in the technical reports when making the technical merit determination 
are specified in paragraphs (b)(1) through (5) of this section.
    (1) EEI whose total project costs are $80,000 or less. The following 
areas will be evaluated in making the technical merit determination:
    (i) Project description;
    (ii) Qualifications of EEI provider(s); and
    (iii) Vender/Installer certification, energy assessment, or energy 
audit.
    (2) RES whose total project costs are $80,000 or less. The following 
areas will be evaluated in making the technical merit determination:
    (i) Project description;
    (ii) Resource assessment;
    (iii) Project economic assessment; and
    (iv) Qualifications of key service providers.
    (3) EEI whose total project costs are greater than $80,000. The 
following areas will be evaluated in making the technical merit 
determination:
    (i) Project information;
    (ii) Energy assessment or energy audit; and
    (iii) Qualifications of the contractor or installers.
    (4) RES whose total project costs are less than $200,000, but more 
than $80,000. The following areas will be evaluated in making the 
technical merit determination:
    (i) Project description;
    (ii) Resource assessment;
    (iii) Project economic assessment;

[[Page 791]]

    (iv) Project construction and equipment; and
    (v) Qualifications of key service providers.
    (5) RES whose total project costs are $200,000 and greater. The 
following areas will be evaluated in making the technical merit 
determination:
    (i) Qualifications of the project team;
    (ii) Agreements and permits;
    (iii) Resource assessment;
    (iv) Design and engineering;
    (v) Project development;
    (vi) Equipment procurement and installation; and
    (vii) Operations and maintenance.
    (c) Pass/Pass with conditions/fail assignments. The Agency will 
assign each area of the technical report, as specified in paragraph (b) 
of this section, a ``pass,'' ``pass with conditions,'' or ``fail.'' An 
area will receive a ``pass'' if the information provided for the area 
has no weaknesses and meets or exceeds any requirements specified for 
the area. An area will receive a ``pass with conditions'' if the 
information provided for the area has minor weaknesses which could be 
conditionalized and reasonably resolved by the applicant. Otherwise, if 
the information provided for the area is conclusively deemed to be a 
major weakness or if the area has not been addressed by the applicant, 
the area will receive a ``fail.''
    (d) Determination. The Agency will compile the results for each area 
of the technical report to determine if the project has technical merit.
    (1) A project whose technical report receives a ``pass'' in each of 
the applicable technical report areas will be considered to have 
``technical merit.''
    (2) A project whose technical report receives a ``pass with 
conditions'' in one or more the applicable areas will be considered to 
have ``conditional technical merit.''
    (3) A project whose technical report receives a ``fail'' in any one 
technical report area will be considered to be without technical merit.
    (e) Further processing of applications. A project that is determined 
to have ``technical merit'' or ``conditional technical merit'' is 
eligible for further consideration for funding. Projects with 
``conditional technical merit'' would be subject to funding conditions 
that would need to be met to ensure full technical merit prior to 
completion of the project. A project that is determined to be ``without 
technical merit'' is considered to be an incomplete application and 
therefore is not eligible to compete for funding.



Sec. 4280.118  Grant applications for RES and EEI projects with total project costs of $200,000 and greater.

    Grant applications for RES and EEI projects with total project costs 
of $200,000 and greater must provide the information specified in 
paragraphs (a) through (c) of this section, as applicable. Each 
applicant is encouraged, but is not required, to self-score the project 
using the evaluation criteria in Sec. 4280.121.
    (a) Forms and certifications. Each application must contain the 
forms and certifications specified in paragraphs (a)(1) through (10), as 
applicable, of this section, except paragraph (a)(5) is optional.
    (1) Form RD 4280-3C, ``Application for Renewable Energy Systems and 
Energy Efficiency Improvement Projects Total Project Costs of $200,000 
or Greater''.
    (2) Form SF-424, ``Application for Federal Assistance.''
    (3) Form SF-424C, ``Budget Information--Construction Programs.''
    (4) Form SF-424D, ``Assurances--Construction Programs.''
    (5) Identify the ethnicity, race, and gender of the applicant. 
Identify if the borrower is a veteran. This information is optional and 
is not required for a complete application but may be used by the Agency 
to award priority points.
    (6) Environmental documentation in accordance with 7 CFR part 1970. 
The applicant should contact the Agency to determine what documentation 
is required to be provided.
    (7) The applicant must identify whether or not the applicant has a 
known relationship or association with an Agency employee. If there is a 
known relationship, the applicant must identify each Agency employee 
with whom the applicant has a known relationship.

[[Page 792]]

    (8) Certification that the applicant is a legal entity in good 
standing (as applicable) and operating in accordance with the laws of 
the State(s) or Tribe(s) where the applicant has a place of business.
    (9) Certification by the applicant that the equipment required for 
the project is available, can be procured and delivered within the 
proposed project development schedule, and will be installed in 
conformance with manufacturer's specifications and design requirements. 
This would not be applicable when equipment is not part of the project.
    (10) Certification by the applicant that the project will be 
constructed in accordance with applicable laws, regulations, agreements, 
permits, codes, and standards.
    (b) Applicant information. Provide information specified in 
paragraphs (b)(1) through (4) of this section to allow the Agency to 
determine the eligibility of the applicant.
    (1) Type of applicant. Eligible applicants must meet the definition 
of agricultural producer or rural small business as defined in Sec. 
4280.103. Agricultural producers seeking funding for a RES or EEI 
project may apply as either a rural small business or as an agricultural 
producer, provided they meet the applicable eligibility requirements. 
The applicant must provide the primary North American Industry 
Classification System (NAICS) code applicable to the applicant's 
business concern and certify on the Agency approved application form 
that they meet the definition of agricultural producer or rural small 
business. The Agency reserves the right to request supporting 
documentation to verify applicant eligibility.
    (2) Applicant description. Describe the ownership of the applicant, 
including the information specified in paragraphs (b)(2)(i) and (ii) of 
this section as applicable. Include a description of the applicant's 
farm/ranch/business operation, including how long the applicant has been 
in operation.
    (i) Describe how the applicant meets the ownership and control 
requirements as identified in Sec. 4280.112(b).
    (ii) For each entity(ies) it controls or entity(ies) it is 
controlled by, provide a list of the individual owners with their 
contact information. Describe the relationship between the applicant and 
the other entity(ies), including percent ownership and control, 
management, passive investor ownership, and as applicable products 
exchanged. Organizational charts to demonstrate structure should be 
submitted when applicable.
    (3) Financial information. Financial information is required on the 
total operation of the applicant and all entity(ies) it controls or 
entity(ies) that control the applicant.
    (i) All financial information (e.g., financial statements, balance 
sheets, financial projections, income statements) must be submitted in 
accordance with accounting practices acceptable to the Agency. Such 
practices can include, but are not limited to, Generally Accepted 
Accounting Principles (GAAP) and the industry's standard accounting 
practice.
    (ii) For sole proprietorships and other situations where business 
assets are held personally, financial statements must be prepared using 
only the assets and liabilities directly attributable to the business. 
Assets, plus any improvements must be valued at the lower of cost or 
market value.
    (iii) The Agency may request additional financial statements, 
financial models, cash flow information, updated financial statements, 
and other related financial information to determine the financial 
feasibility of a Project. Required financial statements:
    (A) Historical financial statements. Provide Agency-acceptable 
historical balance sheets and income statements the lesser of the last 3 
fiscal years or all years of operation.
    (B) Current balance sheet and income statement. Provide a current 
Agency-acceptable balance sheet and year-to-date income statement dated 
within 90 days of submission of the complete application.
    (C) Pro forma financial statements. Provide balance sheets, income 
statements, and cash flow statements or financial model starting from 
the current financial statements through a minimum of 2 years of the 
project performing at full operational capacity or

[[Page 793]]

stable operations. Financial projections must be supported by a list of 
assumptions showing the basis for the projections.
    (4) Previous grants and loans. State whether the applicant has 
received and accepted any grants or guaranteed loan commitments under 
this subpart or any guaranteed loans under 7 CFR 5001. If the applicant 
has, identify each such grant award or guaranteed loan commitment and 
describe the progress the applicant has made on each project for which 
the grant or loan was received, including projected schedules and actual 
completion dates.
    (c) Project information. Provide information concerning the proposed 
project as a whole and its relationship to the applicant's operations, 
including the following:
    (1) Identification as to whether the project is for a RES or an EEI 
project. Include a description and the location of the project.
    (2) A description of the process that will be used to conduct all 
procurement transactions to demonstrate compliance with Sec. 
4280.125(a)(1).
    (3) Indicate if the proposed project will have a positive effect on 
resource conservation (e.g., water, soil, forest), public health (e.g., 
potable water, air quality), and the environment (e.g., compliance with 
the U.S. Environmental Protection Agency's (EPA) renewable fuel 
standard(s), greenhouse gases, emissions, particulate matter).
    (4) Identify the amount of funds and the source(s) the applicant is 
proposing to use for the project. Provide written commitments for funds 
at the time the application is submitted to receive points under this 
scoring criterion.
    (i) If financial resources come from the applicant, documentation 
may include bank statements that demonstrates availability of funds.
    (ii) If a third party is providing financial assistance, the 
applicant must submit a commitment letter signed by an authorized 
official of the third party. The letter must be specific to the project 
and must identify the dollar amount and any applicable rates and terms. 
If the third-party commitment is a loan, the commitment must be firm; a 
letter-of-intent or pre-qualification letter subject to underwriting 
requirements or contingencies are not acceptable. An acceptable 
condition may be based on the receipt of the REAP grant or an appraisal.
    (d) Technical report. Each application must contain a technical 
report prepared in accordance with Sec. 4280.110(g) and Appendix A or 
C, as applicable, of this subpart.
    (e) Construction planning and performing development. Each 
application submitted must be in accordance with Sec. 4280.125 for 
planning, designing, bidding, contracting, and constructing RES and EEI 
projects as applicable.



Sec. 4280.119  Grant applications for RES and EEI projects with total project costs of less than $200,000, but more than $80,000.

    Grant applications for RES and EEI projects with total project costs 
of less than $200,000, but more than $80,000, may provide the 
information specified in this section or, if the applicant elects to do 
so, the information specified in Sec. 4280.118. In order to submit an 
application under this section, the criteria specified in paragraph (a) 
of this section must be met. The content for applications submitted 
under this section is specified in paragraph (b) of this section. Unless 
otherwise specified in this subpart, the construction planning and 
performing development procedures and the payment process that will be 
used for awards for applications submitted under this section are 
specified in paragraphs (c) and (d), respectively, of this section.
    (a) Criteria for submitting applications for projects with total 
project costs of less than $200,000, but more than $80,000. In order to 
submit an application under this section, each of the conditions 
specified in paragraphs (a)(1) through (7) of this section must be met.
    (1) The applicant must be eligible in accordance with Sec. 
4280.112.
    (2) The project must be eligible in accordance with Sec. 4280.113.
    (3) Total project costs must be less than $200,000, but more than 
$80,000.
    (4) Construction planning and performing development must be 
performed in compliance with paragraph (c) of this section. The 
applicant or the applicant's prime contractor assumes

[[Page 794]]

all risks and responsibilities of project development.
    (5) The applicant or the applicant's prime contractor is responsible 
for all interim financing, including during construction.
    (6) The applicant agrees not to request reimbursement from funds 
obligated under this program until after project completion and is 
operating in accordance with the information provided in the application 
for the project.
    (7) The applicant must maintain insurance as required under Sec. 
4280.123(b), except business interruption insurance is not required.
    (b) Application content. Applications submitted under this section 
must contain the information specified in paragraphs (b)(1) through (4) 
of this section. Each applicant is encouraged, but is not required, to 
self-score the project using the evaluation criteria in Sec. 4280.121.
    (1) Forms and certifications. The application must contain the items 
identified in Sec. 4280.118(a), except that Form RD 4280-3B, 
``Application for Renewable Energy Systems and Energy Efficiency 
Improvement Projects Total Project Costs of Less than $200,000, But More 
Than $80,000'' may be used instead of the form noted in Sec. 4280.118 
(a)(1). In addition, the applicant must submit a certification that the 
applicant meets each of the criteria for submitting an application under 
this section as specified in paragraph (a) of this section.
    (2) Applicant information. The application must contain the items 
identified in Sec. 4280.118(b), except that the information specified 
in Sec. 4280.118(b)(3) is not required. The Agency reserves the right 
to request supporting documentation to verify applicant eligibility.
    (3) Project information. The application must contain the items 
identified in Sec. 4280.118(c).
    (4) Technical report. Each application must contain a technical 
report in accordance with Sec. 4280.110(g) and Appendix A or B, as 
applicable, of this subpart.
    (c) Construction planning and performing development. Applicants 
submitting applications under this section must comply with the 
requirements specified in paragraphs (c)(1) through (3) of this section 
for construction planning and performing development.
    (1) General. Paragraphs (a)(1), (2), and (4) of Sec. 4280.125 
apply.
    (2) Small acquisition and construction procedures. Small acquisition 
and construction procedures are those relatively simple and informal 
procurement methods that are sound and appropriate for a procurement of 
services, equipment, and construction of a RES or EEI project with a 
total project cost of not more than $200,000. The applicant is solely 
responsible for the execution of all contracts under this procedure, and 
Agency review and approval is not required.
    (3) Contractor forms. Applicants must have each contractor sign, as 
applicable:
    (i) Form RD 400-6, ``Compliance Statement,'' for contracts exceeding 
$10,000; and
    (ii) Form AD-1048, ``Certification Regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion--Lower Tier Covered 
Transactions,'' for contracts exceeding $25,000.
    (d) Payment process for applications for RES and EEI projects with 
total project costs of less than $200,000, but more than $80,000.
    (1) Upon completion of the project, the grantee must submit to the 
Agency a copy of the contractor's certification of final completion for 
the project and a statement that the grantee accepts the work completed. 
At its discretion, the Agency may require the applicant to have an 
inspector certify that the project is constructed and installed 
correctly.
    (2) The RES or EEI project must be constructed, installed, and 
operating as described in the technical report prior to disbursement of 
funds. For RES, the system must be operating at the steady state 
operating level described in the technical report for a period of not 
less than 30 days, unless this requirement is modified by the Agency, 
prior to disbursement of funds. Any modification to the 30-day steady 
state operating level requirement will be based on the Agency's review 
of the technical report and will be incorporated into the Letter of 
Conditions.
    (3) Prior to making payment, the Agency will be provided with Form 
RD

[[Page 795]]

1924-9, ``Certificate of Contractor's Release,'' and Form RD 1924-10, 
``Release by Claimants,'' or similar forms, executed by all persons who 
furnished materials or labor in connection with the contract.



Sec. 4280.120  Grant applications for RES and EEI projects with total project costs of $80,000 or less.

    Grant applications for RES and EEI projects with total project costs 
of $80,000 or less must provide the information specified in this 
section or, if the applicant elects to do so, the information specified 
in either Sec. Sec. 4280.118 or 4280.119. In order to submit an 
application under this section, the criteria specified in paragraph (a) 
of this section must be met. The content for applications submitted 
under this section is specified in paragraph (b) of this section. Unless 
otherwise specified in this subpart, the construction planning and 
performing development procedures and the payment process that will be 
used for awards for applications submitted under this section are 
specified in paragraphs (c) and (d), respectively, of this section.
    (a) Criteria for submitting applications for RES and EEI projects 
with total project costs of $80,000 or less. In order to submit an 
application under this section, each of the conditions specified in 
paragraphs (a)(1) through (7) of this section must be met.
    (1) The applicant must be eligible in accordance with Sec. 
4280.112.
    (2) The project must be eligible in accordance with Sec. 4280.113.
    (3) Total project costs must be $80,000 or less.
    (4) Construction planning and performing development must be 
performed in compliance with paragraph (c) of this section. The 
applicant or the applicant's prime contractor assumes all risks and 
responsibilities of project development.
    (5) The applicant or the applicant's prime contractor is responsible 
for all interim financing, including during construction.
    (6) The applicant agrees not to request reimbursement from funds 
obligated under this program until after the project has been completed 
and is operating in accordance with the information provided in the 
application for the project.
    (7) The applicant must maintain insurance as required under Sec. 
4280.123(b), except business interruption insurance is not required.
    (b) Application content. Applications submitted under this section 
must contain the information specified in paragraphs (b)(1) through (4), 
as applicable. Each applicant is encouraged, but is not required, to 
self-score the project using the evaluation criteria in Sec. 4280.121.
    (1) Forms and certifications. Each application must contain the 
forms and certifications specified in paragraphs (b)(1)(i) through (x), 
as applicable, of this section except that paragraph (b)(1)(v) is 
optional.
    (i) Form RD 4280-3A, ``Application for Renewable Energy Systems and 
Energy Efficiency Improvement Projects Total Project Costs of $80,000 or 
Less''.
    (ii) Form SF-424, ``Application for Federal Assistance''.
    (iii) Form SF-424C, ``Budget Information for Construction 
Programs''.
    (iv) Form SF-424D, ``Assurances for Construction Programs''.
    (v) Identify the ethnicity, race, and gender of the applicant. 
Identify if the borrower is a veteran. This information is optional and 
is not required for a complete application but may be used by the Agency 
to award priority points.
    (vi) Environmental documentation in accordance with 7 CFR part 1970. 
The applicant should contact the Agency to determine what documentation 
is required to be provided.
    (vii) Certification by the applicant that:
    (A) The applicant meets each of the applicant eligibility criteria 
found in Sec. 4280.112. The Agency reserves the right to request 
supporting documentation to verify applicant eligibility;
    (B) The proposed project meets each of the project eligibility 
requirements found in Sec. 4280.113;
    (C) The design, engineering, testing, and monitoring will be 
sufficient to demonstrate that the proposed project will meet its 
intended purpose;
    (D) The equipment required for the project is available, can be 
procured and delivered within the proposed

[[Page 796]]

project development schedule, and will be installed in conformance with 
manufacturer's specifications and design requirements. This would not be 
applicable when equipment is not part of the project;
    (E) The project will be constructed in accordance with applicable 
laws, regulations, agreements, permits, codes, and standards;
    (F) The applicant meets the criteria for submitting an application 
for projects with total project costs of $80,000 or less;
    (G) The applicant will abide by the open and free competition 
requirements in compliance with Sec. 4280.125(a)(1); and
    (H) For bioenergy projects, any and all woody biomass feedstock from 
National Forest System land or public lands cannot be otherwise used as 
a higher value wood-based product.
    (viii) State whether the applicant has received any grants and/or 
guaranteed loans under this subpart, or any guaranteed loans under 7 CFR 
part 5001. If the applicant has, identify each such grant and/or loan 
and describe the progress the applicant has made on each project for 
which the grant and/or loan was received, including projected schedules 
and actual completion dates.
    (ix) The applicant must identify whether or not the applicant has a 
known relationship or association with an Agency employee. If there is a 
known relationship, the applicant must identify each Agency employee 
with whom the applicant has a known relationship.
    (x) The applicant is a legal entity in good standing (as applicable) 
and operating in accordance with the laws of the State(s) or Tribe where 
the applicant has a place of business.
    (2) General. For both RES and EEI project applications:
    (i) Identify whether the project is for a RES or an EEI project;
    (ii) Identify the primary NAICS code applicable to the applicant's 
operation if known or a description of the operation in enough detail 
for the Agency to determine the primary NAICS code;
    (iii) Indicate if the proposed project will have a positive effect 
on resource conservation (e.g., water, soil, forest), public health 
(e.g., potable water, air quality), and the environment (e.g., 
compliance with the EPA's renewable fuel standard(s), greenhouse gases, 
emissions, particulate matter); and
    (iv) Identify the amount of matching funds and other funds and the 
source(s) the applicant is proposing to use for the project. In order to 
receive points under this scoring criterion, written commitments for 
funds (e.g., a Letter of commitment, bank statement) must be submitted 
when the application is submitted.
    (A) If financial resources come from the applicant, documentation 
may include a bank statement that demonstrates availability of funds.
    (B) If a third party is providing financial assistance, the 
applicant must submit a commitment letter signed by an authorized 
official of the third party. The letter must be specific to the project, 
identify the dollar amount and any applicable rates and terms. If the 
third-party commitment is a loan, the commitment must be firm, a letter-
of-intent or pre-qualification letter, subject to underwriting 
requirements or contingencies are not acceptable. An acceptable 
condition may be based on the receipt of the REAP grant or an appraisal.
    (3) Technical report for EEI. Each EEI application submitted under 
this section must include a technical report in accordance with Sec. 
4280.110(g) and paragraphs (b)(3)(i) through (iv) of this section.
    (i) Project description. Provide a description of the proposed EEI, 
including its intended purpose and a vendor/installer certification that 
the EEI project meets the requirements for being commercially available.
    (ii) Qualifications of EEI provider(s). Provide a certification by 
the vendor/installer that:
    (A) They are qualified to complete the project as intended, 
including the number of years of experience with the proposed EEI 
technology. Any contractor or installer with less than 2 years of 
experience may be required to provide additional information in order 
for the Agency to determine if they are a qualified installer/
contractor.
    (B) The EEI system will operate and perform over the project's 
useful life in

[[Page 797]]

a reliable and cost-effective manner; and
    (iii) Energy assessment. Provide a copy of the energy assessment (or 
energy audit) performed for the project as required under Section C of 
Appendix A to this subpart and the qualifications of the person which 
completed the energy assessment.
    (iv) Simple payback. Provide an estimate of simple payback, 
including all calculations, documentation, and any assumptions.
    (4) Technical report for RES. Each RES application submitted under 
this section must include a technical report in accordance with Sec. 
4280.110(g) and paragraphs (b)(4)(i) through (iv) of this section.
    (i) Project description. Provide a description of the project, 
including its intended purpose and a vendor/installer certification that 
the RES project meets the requirements for being commercially available. 
Appendix B contains instructions for how a project is to be constructed 
and installed. Identify the project's location and describe the project 
site.
    (ii) Resource assessment. Provide vendor/installer certified 
projections on energy to be replaced and/or generated once the proposed 
system is operating at its steady state operating level, including the 
quality and availability of the renewable resource to the project. If 
there is a residence closely associated with the RES project, include 
the historical amount of energy used by the residence and the historical 
amount of energy used by the agricultural operation or rural small 
business, as applicable, to satisfactorily demonstrate 50% or more of 
proposed generation will benefit the agricultural operation or rural 
small business;
    (iii) Project economic assessment. Describe the projected financial 
performance of the proposed project. The description must address total 
project costs, revenues accrued from the sale or crediting of energy, 
quantity and value of energy offset, and revenue from byproducts. 
Include applicable investment and other production incentives and 
indicate if they are a one time or reoccurring incentive. Provide an 
estimate of simple payback, including all calculations, documentation, 
and any assumptions; and
    (iv) Qualifications of key service providers. Provide a 
certification by the vendor/installer that:
    (A) They are qualified to complete the project as intended, 
including the number of similar systems installed previously and any 
professional credentials, licenses, and relevant experience. If specific 
numbers are not available for similar systems, you may submit an 
estimation of the number of similar systems; and
    (B) The RES system will operate and perform over the project's 
useful life in a reliable and cost-effective manner.
    (c) Construction planning and performing development for 
applications submitted under this section. All applicants submitting 
applications under this section must comply with the requirements 
specified in paragraphs (c)(1) through (3) of this section for 
construction planning and performing development.
    (1) General. Paragraphs (a)(1), (2), and (4) of Sec. 4280.125 
apply.
    (2) Small acquisition and construction procedures. Small acquisition 
and construction procedures are those relatively simple and informal 
procurement methods that are sound and appropriate for a procurement of 
services, equipment and construction of a RES or EEI project with a 
total project cost of not more than $80,000. The applicant is solely 
responsible for the execution of all contracts under this procedure, and 
Agency review and approval is not required.
    (3) Contractor forms. Applicants must have each contractor sign, as 
applicable:
    (i) Form RD 400-6, ``Compliance Statement'' for contracts exceeding 
$10,000; and
    (ii) Form AD-1048, ``Certification Regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion lower Tier Covered Transactions'' 
for contracts exceeding $25,000.
    (d) Payment process for applications for RES and EEI projects with 
total project costs of $80,000 or less. (1) Upon completion of the 
project, the grantee must submit to the Agency a copy of the 
contractor's certification of final completion for the project and a 
statement

[[Page 798]]

that the grantee accepts the work completed. At its discretion, the 
Agency may require the applicant to have an inspector certify that the 
project is constructed and installed correctly.
    (2) The RES or EEI project must be constructed, installed, and 
currently be operating as described in the technical report prior to 
disbursement of funds. For RES, the system must be operating at the 
steady state operating level described in the technical report for a 
period of not less than 30 days, unless this requirement is modified by 
the Agency, prior to disbursement of funds. Any modification to the 30-
day steady state operating level requirement will be based on the 
Agency's review of the technical report and will be incorporated into 
the Letter of Conditions.
    (3) Prior to making payment, the grantee must provide the Agency 
with Form RD 1924-9 and Form RD 1924-10, or similar forms, executed by 
all persons who furnished materials or labor in connection with the 
contract.



Sec. 4280.121  Scoring RES and EEI grant applications.

    Agency personnel will score each complete and eligible RES and EEI 
application based on the scoring criteria specified in this section, 
unless otherwise specified in a Federal Register notice, with a maximum 
score of 100 points possible.
    (a) Environmental benefits. A maximum of 5 points will be awarded 
for this criterion based on whether the applicant has indicated in the 
application that the proposed project will have a positive effect on 
resource conservation (e.g., water, soil, forest), public health (e.g., 
potable water, air quality), and the environment (e.g., compliance with 
EPA's renewable fuel standard(s), greenhouse gases, emissions, 
particulate matter). If the project will have a positive impact on:
    (1) Any one of the three impact areas, 1 point will be awarded.
    (2) Any two of the three impact areas, 3 points will be awarded.
    (3) All three impact areas, 5 points will be awarded.
    (b) Energy generated, replaced, or saved. A maximum of 25 points 
will be awarded for this criterion. Applications for RES and EEI 
projects are eligible for points under both paragraphs (b)(1) and (2) of 
this section.
    (1) Quantity of energy generated or saved per REAP grant dollar 
requested. A maximum of 10 points will be awarded for this sub-
criterion. For RES and EEI projects, points will be awarded for either 
the amount of renewable energy generation per grant dollar requested, 
which includes those projects that are replacing energy usage with a 
renewable source; or the actual annual average energy savings over the 
most recent 12, 24, 36, 48, or 60 consecutive months of operation per 
grant dollar requested. Points will not be awarded for more than one 
category.
    (i) RES. The quantity of energy generated or replaced per grant 
dollar requested will be determined by dividing the projected total 
annual energy generated or replaced by the RES or RES retrofit (minus 
energy for residential use), which will be converted to BTUs, by the 
grant dollars requested. Points will be awarded based on the annual 
amount of energy generated or replaced (minus energy for residential 
use) per grant dollar requested for the proposed RES project. In cases 
where there are ineligible pre-application costs, the entire quantity of 
energy produced by the system is utilized for this scoring criteria as 
long as the use of energy produced is eligible. The Agency will award up 
to 10 points as determined using paragraphs (b)(1)(i)(A) and (B) of this 
section. If the annual amount of energy generated or replaced per grant 
dollar requested is:
    (A) 50,000 BTUs average annual energy generated or replaced per 
grant dollar requested or higher, 10 points will be awarded; or
    (B) Less than 50,000 BTUs annual energy generated or replaced per 
grant dollar requested, points will be awarded according to the results 
of taking the energy generated or replaced per grant dollar requested/
50,000 x 10 points. The points awarded are rounded to the nearest 
hundredth of a point.
    (ii) EEI. The Agency will award up to 10 points under this sub-
criterion based on the average annual energy saved per grant dollar 
requested for the EEI project. The Agency will award up to 10 points as 
determined under paragraph

[[Page 799]]

(b)(1)(ii)(A) and (B) of this section. If the average annual energy 
saved per grant dollar requested is:
    (A) 50,000 BTUs average annual energy saved per grant dollar 
requested or higher, 10 points will be awarded; or
    (B) Less than 50,000 BTUs average annual energy saved per grant 
dollar requested, points will be awarded according to the result of 
taking the energy saved per grant dollar requested/50,000 x 10 points. 
The points awarded are rounded to the nearest hundredth of a point.
    (2) Quantity of energy replaced, generated, or saved. A maximum of 
15 points will be awarded for this sub-criterion. Points will be awarded 
on the basis of whether the project is for energy replacement, energy 
savings, or energy generation; points will not be awarded for more than 
one category.
    (i) Energy replacement. The Agency will award points under this sub-
criterion for a RES project based on the amount of energy replaced by 
the project compared to the amount of energy used by the applicable 
process(es) over a 12-month period. If the estimated energy produced is 
more than 150 percent of the energy used by the applicable process(es), 
the project will be scored as an energy generation project under 
paragraph (b)(2)(ii) of this section.
    (A) Documentation for energy replacement. For a RES project to 
qualify as energy replacement, the applicant must provide documentation 
in its application on prior energy use incurred by the applicant. 
Proposed energy use, such as that attributed to an expansion, is not 
considered in the replacement calculation. For a RES project involving 
new construction and being installed to serve the new facility, the 
project can be classified as energy replacement only if the applicant 
can document prior energy use from a facility that is within plus or 
minus 10 percent of the size of the facility it is replacing. The 
estimated quantities of energy must be converted to either BTUs, watts, 
or similar energy equivalents to facilitate scoring.
    (B) Calculation. Energy replacement is determined by dividing the 
quantity of renewable energy that the RES project is estimated would 
have been generated if it were in place over the most recent 12-month 
period by the quantity of energy actually consumed over the same period 
by the applicable energy process(es) that is(are) consuming energy.
    (C) Awarding of points. Using the results from paragraph 
(b)(2)(i)(B) of this section, if the percentage of energy replacement 
is:
    (1) Greater than 50 percent, 15 points will be awarded;
    (2) Greater than 25 percent, but equal to or less than 50 percent, 
10 points will be awarded; or
    (3) Equal to or less than 25 percent, 5 points will be awarded.
    (ii) Energy generation. If the proposed RES is intended for 
production of energy or is a proposed retrofitting of an existing RES 
which increases the amount of energy generated, the Agency will award 10 
points.
    (iii) Energy saved. The Agency will award up to 15 points under this 
sub-criterion for an EEI project based on the percentage of estimated 
energy saved by the installation of the project as determined by the 
projections in the applicable energy assessment or energy audit. If the 
estimated energy expected to be saved over the same period used in the 
energy assessment or energy audit, as applicable, will be:
    (A) 50 percent or greater, 15 points will be awarded;
    (B) 35 percent up to, but not including 50 percent, 10 points will 
be awarded;
    (C) 20 percent up to, but not including 35 percent, 5 points will be 
awarded; or
    (D) Less than 20 percent, no points will be awarded.
    (c) Commitment of funds. A maximum of 15 points will be awarded for 
this criterion based on the percentage of written commitment an 
applicant has from its fund sources that are documented with a complete 
application.
    (1) Calculation. The percentage of written commitment is calculated 
as follows: Percentage of written commitment = total amount of funds for 
which written commitments have been submitted with the application/total 
amount of matching funds and other funds required.

[[Page 800]]

    (2) Awarding of points. Using the result from paragraph (c)(1) of 
this section, the Agency will award points as shown in paragraphs 
(c)(2)(i) through (iii) of this section.
    (i) If the percentage of written commitments is 100 percent of the 
matching funds, 15 points will be awarded.
    (ii) If the percentage of written commitments is less than 100 
percent, but more than 50 percent, points will be awarded as follows: 
((Percentage of written commitments -50 percent)/(50 percent)) x 15 
points, where points awarded are rounded to the nearest hundredth of a 
point.
    (iii) If the percentage of written commitments is 50 percent or 
less, no points will be awarded.
    (d) Previous grantees and borrowers. A maximum of 15 points will be 
awarded for this criterion based on whether the applicant has received 
and accepted a REAP grant award or guaranteed loan commitment under 7 
CFR part 4280 of this title or a guaranteed loan commitment under either 
this part or 7 CFR part 5001 of this title.
    (1) If the applicant has never received and accepted a grant award 
or a guaranteed loan commitment under either this part or 7 CFR part 
5001 of this title, 15 points will be awarded.
    (2) If the applicant has not received and accepted a grant award or 
guaranteed loan commitment under this subpart, or a guaranteed loan 
commitment under 7 CFR part 5001 of this title within the 2 previous 
Federal fiscal years, 5 points will be awarded.
    (3) If the applicant has received a grant award or guaranteed loan 
commitment under this subpart, or a guaranteed loan commitment under 7 
CFR part 5001 of this title within the 2 previous Federal fiscal years, 
no points will be awarded.
    (e) Existing business. A maximum of 5 points will be awarded for an 
existing agricultural producer business or rural small business that 
meets the definition of existing business in Sec. 4280.103 of this 
part.
    (f) Simple payback. A maximum of 15 points will be awarded for this 
criterion based on the simple payback of the project as defined in Sec. 
4280.103. Points will be awarded for either RES or EEI; points will not 
be awarded for more than one category.
    (1) RES. If the simple payback of the proposed project is:
    (i) Less than 10 years, 15 points will be awarded;
    (ii) 10 years up to but not including 15 years, 10 points will be 
awarded;
    (iii) 15 years up to and including 25 years, 5 points will be 
awarded; or
    (iv) Longer than 25 years, no points will be awarded.
    (2) EEI. If the simple payback of the proposed project is:
    (i) Less than 4 years, 15 points will be awarded;
    (ii) 4 years up to but not including 8 years, 10 points will be 
awarded;
    (iii) 8 years up to and including 12 years, 5 points will be 
awarded; or
    (iv) Longer than 12 years, no points will be awarded.
    (g) Size of request. For grant applications requesting $250,000 or 
less for RES, or $125,000 or less for EEI, an additional 10 points may 
be awarded such that a maximum score of 100 points is possible. All 
other applications will have a maximum possible score of 90 points.
    (h) State Director and Administrator priority points. A maximum of 
10 points are available for this criterion. A State Director, for its 
State allocation under this subpart, or the Administrator, for making 
awards from the National Office reserve, may award up to 10 points to an 
application based on the conditions specified in paragraphs (h)(1) 
through (5) of this section. In no case shall an application receive 
more than 10 points under this criterion.
    (1) The application is for an under-represented technology.
    (2) Selecting the application helps achieve geographic diversity, 
which may include points based upon the size of the funding request.
    (3) The applicant is a member of an unserved or under-served 
population described as follows:
    (i) Owned by a veteran, including but not limited to individuals as 
sole proprietors, members, partners, stockholders, etc., of not less 
than 20 percent. In order to receive points, applicants must provide a 
statement in

[[Page 801]]

their applications to indicate that owners of the project have Veteran 
status; or
    (ii) Owned by a member of a socially-disadvantaged group, which are 
groups whose members have been subjected to racial, ethnic, or gender 
prejudice because of their identity as members of a group without regard 
to their individual qualities. In order to receive points, the 
application must include a statement to indicate that the owners of the 
project are members of a socially disadvantaged group.
    (4) Selecting the application helps further a Presidential 
initiative or a Secretary of Agriculture priority.
    (5) The proposed project is located in a Federally declared disaster 
area. Declarations must be within the last 2 calendar years.
    (6) The proposed project is located in an area where 20 percent or 
more of its population is living in poverty, as defined by the United 
States Census Bureau, underserved community(ies) or has experienced 
long-term population decline, or loss of employment.



Sec. 4280.122  Selecting RES and EEI grant applications for award.

    Unless otherwise provided for in a Federal Register notice, RES and 
EEI grant applications will be processed in accordance with this 
section. Complete applications will be evaluated, processed, and 
subsequently ranked, and will compete for funding, subject to the 
availability of grant funding. Each State will receive two grant 
allocations, an allocation of grant funds restricted to funding requests 
of $20,000 or less, and an allocation of grant funds which are 
unrestricted and can fund any size funding request.
    (a) RES and EEI grant applications. Complete RES and EEI grant 
applications, including combination grant and guaranteed loan requests, 
regardless of the amount of funding requested, are eligible to compete 
in two competitions within a Federal fiscal year--a State competition 
and a National competition.
    (1) To be competed in the State and National competitions, complete 
applications must be received by the applicable State Office by 4:30 
p.m. local time no later than March 31. If March 31 falls on a non-
business day or a federally-observed holiday, the next Federal business 
day will be considered the last day for receipt of a complete 
application. Complete applications received after this date and time 
will be processed in the subsequent fiscal year.
    (2) All eligible RES and EEI grant applications that remain unfunded 
after completion of the State competition will be competed in a National 
competition.
    (b) RES and EEI grant applications requesting $20,000 or less. 
Complete RES and EEI grant applications, including combination grant and 
guaranteed loan requests, requesting $20,000 or less are eligible to 
compete in up to five competitions--two State competitions and a 
National set-aside competition for grants of $20,000 or less, as well as 
the two competitions referenced in paragraph (a) of this section.
    (1) For complete RES and EEI grant applications for grants 
requesting $20,000 or less, there will be two State competitions each 
Federal fiscal year. Complete applications for $20,000 or less that are 
received by the Agency by 4:30 p.m. local time on October 31 of the 
Federal fiscal year will be competed against each other. Complete 
applications for $20,000 or less that are received by the Agency by 4:30 
p.m. local time on March 31 of the Federal fiscal year and any 
applications for $20,000 or less that were not ready to compete or were 
not funded from the prior competition, will be competed against each 
other. If either October 31 or March 31 falls on a weekend or a 
federally observed holiday, the next Federal business day will be 
considered the last day for receipt of a complete application. Complete 
applications received after 4:30 p.m. local time on March 31, regardless 
of the postmark on the application, will be processed in the subsequent 
fiscal year.
    (2) All eligible RES and EEI grant applications requesting $20,000 
or less that remain unfunded after completion of the State competition 
for applications received by March 31 will be competed in the National 
competition.
    (c) Ranking of applications. The Agency will rank complete eligible 
applications using the scoring criteria specific

[[Page 802]]

in Sec. 4280.121. Higher scoring applications will receive first 
consideration.
    (d) Funding selected applications. As applications are funded, if 
insufficient funds remain to fund the next highest scoring application, 
the Agency may elect to fund a lower scoring application. Before this 
occurs, the Agency will provide the applicant of the higher scoring 
application the opportunity to reduce the amount of the applicant's 
grant request to the amount of funds available. If the applicant agrees 
to lower its grant request, the applicant must certify that the purposes 
of the project will be met and provide the remaining total funds needed 
to complete the project. If two or more applications score the same and 
if remaining funds are insufficient to fund each such application, the 
Agency will notify the applicants that they may either accept a 
proportional amount of funds or submit their total request for the next 
available competition. At its discretion, the Agency may also elect to 
allow any remaining multi-year funds to be carried over to the next 
fiscal year rather than selecting a lower scoring application.
    (e) Handling of ranked applications not funded. Based on the 
availability of funding, a ranked application might not be funded. 
Handling of unfunded applications depends on whether the request is more 
or less than $20,000.
    (1) All complete and eligible applications requesting $20,000 or 
less may be competed in up to five competitions within a Federal fiscal 
year and if not selected for funding, the Agency will discontinue 
consideration of the applications.
    (2) The Agency will discontinue consideration for funding all 
complete and eligible applications requesting more than $20,000 that are 
not selected for funding after the State and National competitions for 
the Federal fiscal year.
    (f) Commencement of the project. Not all grant applications that 
compete for funding will receive an award. Thus, the applicant assumes 
all risks if the applicant chooses to purchase the proposed equipment or 
start construction of the proposed project after the complete 
application has been received by the Agency, but before the applicant is 
notified as to whether or not they have been selected for an award.



Sec. 4280.123  Awarding and administering RES and EEI grants.

    The Agency will award and administer RES and EEI grants in 
accordance with Departmental Regulations and with paragraphs (a) through 
(h) of this section.
    (a) Letter of Conditions. A Letter of Conditions will be prepared by 
the Agency, establishing conditions that must be agreed to by the 
applicant before any obligation of funds can occur. Upon reviewing the 
conditions and requirements in the Letter of Conditions, the applicant 
must complete, sign, and return the Form RD 1942-46, ``Letter of Intent 
to Meet Conditions,'' and Form RD 1940-1, ``Request for Obligation of 
Funds,'' to the Agency if they accept the conditions of the grant; or if 
certain conditions cannot be met, the applicant may propose alternate 
conditions to the Agency. The Agency must concur with any changes 
proposed to the Letter of Conditions by the applicant before the 
application will be further processed.
    (b) Insurance requirements. Agency approved insurance coverage must 
be maintained for 3 years after the Agency has approved the final 
performance report unless this requirement is waived or modified by the 
Agency in writing. Insurance coverage shall include, but is not limited 
to:
    (1) Property insurance, such as fire and extended coverage, will 
normally be maintained on all structures and equipment.
    (2) Liability.
    (3) National flood insurance is required in accordance with 7 CFR 
part 1806, subpart B, if applicable.
    (4) Business interruption insurance for projects with total project 
costs of more than $200,000.
    (c) Forms and certifications. The forms specified in paragraphs 
(c)(1) through (5) of this section will be attached to the Letter of 
Conditions referenced in paragraph (a) of this section. The forms 
specified in paragraphs (c)(1) through (4) of this section and all of 
the certifications must be submitted prior to grant approval. The form 
specified in paragraph (c)(5) of this section, which

[[Page 803]]

is to be completed by contractors, does not need to be returned to the 
Agency, but must be kept on file by the grantee.
    (1) Form RD 1942-46, ``Letter of Intent to Meet Conditions.''
    (2) Form RD 1940-1.
    (3) Form SF-LLL, ``Disclosure of Lobbying Activities,'' if the grant 
exceeds $100,000 and/or if the grantee has made or agreed to make 
payment using funds other than Federal appropriated funds to influence 
or attempt to influence a decision in connection with the application.
    (4) Form RD 400-4, ``Assurance Agreement,'' or successor form.
    (5) Form AD-1048, as signed by the contractor or other lower tier 
party.
    (d) Evidence of matching funds and other funds. If an applicant 
submitted written evidence of matching funds and other funds with the 
application, the applicant is responsible for ensuring that such written 
evidence is still in effect (i.e., not expired) when the grant is 
executed. If the applicant did not submit written evidence of matching 
funds and other funds with the application, the applicant must submit 
such written evidence that is in effect before the Agency will execute 
the Financial Assistance Agreement. In either case, written evidence of 
matching funds and other funds needed to complete the project must be 
provided to the Agency before execution of the Financial Assistance 
Agreement and must be in effect (i.e., must not have expired) at the 
time Financial Assistance Agreement is executed.
    (e) System for Award Management (SAM) registration. Before the 
Financial Assistance Agreement can be executed, the applicant's UEI 
number must be registered in the SAM and a valid (e.g. non-expired) 
Commercial and Government Entity (CAGE) code must be submitted to the 
Agency.
    (f) Financial Assistance Agreement. Once the requirements specified 
in paragraphs (a) through (e) of this section have been met, the 
Financial Assistance Agreement can be executed by the grantee and the 
Agency. The Agreement should be signed as soon as possible, but no later 
than within 6 months of obligation of funds or grant funds may be de-
obligated by the Agency. The grantee must abide by all requirements 
contained in the Financial Assistance Agreement, this subpart, and any 
other applicable Federal statutes or regulations. Failure to follow 
these requirements might result in termination of the grant and adoption 
of other available remedies.
    (g) Grant approval. The grantee will be sent a copy of the executed 
Form RD 1940-1 and the Financial Assistance Agreement.
    (h) Power purchase agreement. Where applicable, the grantee shall 
provide to the Agency a copy of the executed power purchase agreement 
within 12 months from the date that the Financial Assistance Agreement 
is executed, unless otherwise approved by the Agency.



Sec. 4280.124  Servicing RES and EEI grants.

    The Agency will service RES and EEI grants in accordance with the 
requirements specified in Departmental Regulations; 7 CFR part 3; 7 CFR 
1951 Subparts E and O; the Financial Assistance Agreement; and 
paragraphs (a) through (k) of this section.
    (a) Inspections. Grantees must permit periodic inspection of the 
project records and operations by a representative of the Agency.
    (b) Programmatic changes. Grantees may make changes to an approved 
project's costs, scope, contractor, or vendor subject to the provisions 
specified in paragraphs (b)(1) through (3) of this section. If the 
changes result in lowering the project's score to below what would have 
qualified the application for award, the Agency will not approve the 
changes.
    (1) Prior approval. The grantee must obtain prior Agency approval 
for any change to the scope, contractor, or vendor of the approved 
project. Changes in project cost will require Agency approval as 
outlined in paragraph (b)(1)(iii) of this section.
    (i) Grantees must submit requests for programmatic changes in 
writing to the Agency for Agency approval.
    (ii) Failure to obtain prior Agency approval of any such change 
could result in such remedies as suspension, termination, and recovery 
of grant funds.

[[Page 804]]

    (iii) Prior Agency approval is required for all increases in project 
costs. Prior Agency approval is required for a decrease in project cost 
only if the decrease would have a negative effect on the long-term 
viability of the project. A decrease in project cost that does not have 
a negative impact on long-term viability requires Agency review and 
approval prior to disbursement of funds.
    (2) Changes in project cost or scope. If there is a significant 
change in project cost or any change in project scope, then the 
grantee's funding needs, eligibility, and scoring, as applicable, will 
be reassessed. Decreases in Agency funds will be based on revised 
project costs and other factors, including Agency regulations used at 
the time of grant approval.
    (3) Change of contractor or vendor. When seeking a change, the 
grantee must submit to the Agency a written request for approval. The 
proposed contractor or vendor must have qualifications and experience 
acceptable to the Agency. The written request must contain sufficient 
information, which may include a revised technical report as required 
under Sec. 4280.118(e), 4280.119(b)(4), 4280.120(b)(3), or 
4280.120(b)(4), as applicable, to demonstrate to the Agency's 
satisfaction that such change maintains project integrity. If the Agency 
determines that project integrity continues to be demonstrated, the 
grantee may make the change. If the Agency determines that project 
integrity is no longer demonstrated, the change will not be approved and 
the grantee has the following options: Continue with the original 
contractor or vendor; find another contractor or vendor that has 
qualifications and experience acceptable to the Agency to complete the 
project; or terminate the grant by providing a written request to the 
Agency. No additional funding will be available from the Agency if costs 
for the project have increased. The Agency decision will be provided in 
writing.
    (c) Transfer of ownership. After the Financial Assistance Agreement 
for the project has been executed, the grantee may request, in writing, 
a transfer of the Financial Assistance Agreement to another entity. 
Subject to Agency approval provided in writing, the Financial Assistance 
Agreement may be transferred to another entity provided:
    (1) The entity is determined by the Agency to be an eligible entity 
under this subpart; and
    (2) The type of RES or EEI technology and the scope of the project 
for which the Agency funds will be used remain unchanged.
    (d) Disposition of acquired property. Grantees must abide by the 
disposition requirements outlined in Departmental Regulations.
    (e) Financial management system and records. The grantee must 
provide for financial management systems and maintain records as 
specified in paragraphs (f)(1) and (2) of this section.
    (1) Financial management system. The grantee will provide for a 
financial system that will include:
    (i) Accurate, current, and complete disclosure of the financial 
results of each grant;
    (ii) Records that identify adequately the source and application of 
funds for grant-supporting activities, together with documentation to 
support the records. Those records must contain information pertaining 
to grant awards and authorizations, obligations, unobligated balances, 
assets, liabilities, outlays, and income; and
    (iii) Effective control over and accountability for all funds. The 
grantee must adequately safeguard all such assets and must ensure that 
funds are used solely for authorized purposes.
    (2) Records. The grantee will retain financial records, supporting 
documents, statistical records, and all other records pertinent to the 
grant for a period of at least 3 years after completion of grant 
activities except that the records must be retained beyond the 3-year 
period if audit findings have not been resolved or if directed by the 
United States. The Agency and the Comptroller General of the United 
States, or any of their duly authorized representatives, must have 
access to any books, documents, papers, and records of the grantee that 
are pertinent to the specific grant for the purpose of making audit, 
examination, excerpts, and transcripts.

[[Page 805]]

    (f) Audit requirements. If applicable, grantees must provide an 
annual audit in accordance with 7 CFR part 3052. The Agency may exercise 
its right to do a program audit after the end of the project to ensure 
that all funding supported eligible project costs.
    (g) Grant disbursement. As applicable, grantees must disburse grant 
funds as scheduled in accordance with the appropriate construction and 
inspection requirements in Sec. Sec. 4280.119, 4280.120 or 4280.125 as 
applicable. Unless required by third parties providing cost sharing 
payments to be provided on a pro-rata basis with other funds, grant 
funds will be disbursed after all other funds have been expended.
    (1) Unless authorized by the Agency to do so, grantees may submit 
requests for reimbursement no more frequently than monthly. Ordinarily, 
payment will be made within 30 days after receipt of a proper request 
for reimbursement.
    (2) Grantees must not request reimbursement for the Federal share of 
amounts withheld from contractors to ensure satisfactory completion of 
work until after it makes those payments.
    (3) Payments will be made by electronic funds transfer.
    (4) Grantees must use SF-271, ``Outlay Report and Request for 
Reimbursement for Construction Programs,'' or other format prescribed by 
the Agency to request grant reimbursements. Fund requests must at a 
minimum include documentation of costs and evidence of payment(s), 
including payment date(s). Failure to provide sufficient documentation 
of costs and evidence of payment, including payment date, may result in 
denied reimbursement.
    (5) For a grant awarded to a project with total project costs of 
$200,000 and greater, grant funds will be disbursed in full after the 
project is completed, is operational, and has met or exceeded the steady 
state operating level as set out in the grant award requirements. Grant 
funds may also be disbursed through 90 percent of grant disbursement. 
The final 10 percent of grant funds will be held by the Agency until 
construction of the project is completed, the project is operational, 
and the project has met or exceeded the steady state operating level as 
set out in the grant award requirements. In addition, the Agency 
reserves the right to request additional information or testing if upon 
a final site visit or review of documentation, the 30-day steady state 
operating level is not found acceptable to the Agency.
    (h) Monitoring of project. Grantees are responsible for ensuring 
that all activities are performed within the approved scope of work and 
that funds are only used for approved purposes.
    (1) Grantees shall constantly monitor performance to ensure that:
    (i) Time schedules are being met;
    (ii) Projected work is being accomplished by projected time periods;
    (iii) Financial resources are being appropriately expended by 
contractors (if applicable); and
    (iv) Any other performance objectives identified in the scope of 
work are being achieved.
    (2) To the extent that resources are available, the Agency will 
monitor grantees to ensure that activities are performed in accordance 
with the Agency-approved scope of work and to ensure that funds are 
expended for approved purposes. The Agency's monitoring of grantees 
neither:
    (i) Relieves the grantee of its responsibilities to ensure that 
activities are performed within the scope of work approved by the Agency 
and that funds are expended for approved purposes only; nor
    (ii) Provides recourse or a defense to the grantee should the 
grantee conduct unapproved activities, engage in unethical conduct, 
engage in activities that are or that give the appearance of a conflict 
of interest, or expend funds for unapproved purposes.
    (i) Reporting requirements. Financial and project performance 
reports must be provided by grantees and contain the information 
specified in paragraphs (i)(1) through (3) of this section.
    (1) Federal financial reports. Between grant approval and completion 
of project (i.e., construction), SF-425, ``Federal Financial Report'' 
will be required of all grantees as applicable on a semiannual basis. 
The grantee will complete the project within the total sums available to 
it, including the grant, in accordance with the scope of work and any 
necessary modifications

[[Page 806]]

thereof prepared by grantee and approved by the Agency.
    (2) Project performance reports. Between grant approval and 
completion of project (i.e., construction), grantees must provide 
semiannual project performance reports and a final project development 
report containing the information specified in paragraphs (i)(2)(i) and 
(ii) of this section. These reports are due 30 working days after June 
30 and December 31 of each year.
    (i) Semiannual project performance reports. Each semiannual project 
performance report must include the following:
    (A) A comparison of actual accomplishments to the objectives for 
that period;
    (B) Reasons why established objectives were not met, if applicable;
    (C) Reasons for any problems, delays, or adverse conditions which 
will affect attainment of overall program objectives, prevent meeting 
time schedules or objectives, or preclude the attainment of particular 
objectives during established time periods. This disclosure must be 
accompanied by a statement of the action taken or planned to resolve the 
situation; and
    (D) Objectives and timetables established for the next reporting 
period.
    (ii) Final project development report. The final project development 
report must be submitted 90 days after project completion and include:
    (A) A detailed project funding and expense summary; and
    (B) A summary of the project's installation/construction process, 
including recommendations for development of similar projects by future 
Applicants to the program.
    (3) Project completion requirements. Once the project has been 
constructed, the grantee must provide the Agency as applicable via form 
RD 4280-3D ``Annual Outcome Project Performance Certification'', a 
certification that their system has for the past year performed at the 
steady operating level as described in the technical report of their 
application, and whether projected jobs created or saved have occurred, 
or certify that it has not performed as described. If it has not 
performed, a description of the circumstances which have occurred and 
affected system performance must be reported, along with the actual 
performance of the subject REAP project, and the actual number of jobs 
created or saved as a direct result of the REAP project.
    (i) RES. Three total annual outcome project performance 
certifications or reports are required for RES projects. The first is 
due at the completion of the first full calendar year following the year 
in which the project was completed. The remaining are required for 
subsequent calendar years.
    (ii) EEI. Two total annual outcome performance certifications or 
reports are required for EEI projects. The first is due at completion of 
the first full calendar year following the year in which the project was 
completed. The second is required for the subsequent calendar year.
    (j) Grant close-out. Grant close-out must be performed in accordance 
with the requirements specified in 2 CFR part 200.



Sec. 4280.125  Construction planning and performing development.

    (a) General. The following requirements are applicable to all 
procurement methods specified in paragraph (f) of this section.
    (1) Maximum open and free competition. All procurement transactions, 
regardless of procurement method and dollar value, must be conducted in 
a manner that provides maximum open and free competition. Procurement 
procedures must not restrict or eliminate competition. Competitive 
restriction examples include, but are not limited to, the following: 
Placing unreasonable requirements on firms in order for them to qualify 
to do business; noncompetitive practices between firms; organizational 
conflicts of interest; and unnecessary experience or excessive bonding 
requirements. In specifying material(s), the grantee and its consultant 
will consider all materials normally suitable for the project 
commensurate with sound engineering practices and project requirements. 
The Agency will consider any recommendation made by the grantee's 
consultant concerning the technical design and choice of materials to be 
used for such a project. If the Agency determines that a design or

[[Page 807]]

material, other than those that were recommended, should be considered 
by including them in the procurement process as an acceptable design or 
material in the project, the Agency will provide such applicant or 
grantee with a comprehensive justification for such a determination. The 
justification will be documented in writing.
    (2) Equal employment opportunity. For all construction contracts and 
grants in excess of $10,000, the contractor must comply with Executive 
Order 11246, as amended by Executive Order 11375 and Executive Order 
13672, and as supplemented by applicable Department of Labor regulations 
(41 CFR part 60). The applicant, or the lender and borrower, as 
applicable, is responsible for ensuring that the contractor complies 
with these requirements.
    (3) Surety. The Agency will require surety on any contract for 
procurement exceeding $100,000, except as provided for in paragraph 
(a)(3)(iv) of this section. For contracts of lesser amounts, the grantee 
may require surety.
    (i) Surety covering both performance and payment will be required. 
The United States, acting through the Agency, will be named as co-
obligee on all surety unless prohibited by State or Tribal law. Surety 
may be provided as specified in paragraphs (a)(3)(i)(A) or (B) of this 
section.
    (A) Surety in the amount of 100 percent of the contract cost may be 
provided using either:
    (1) A bank letter of credit; or
    (2) Performance bonds and payment bonds. Companies providing 
performance bonds and payment bonds must hold a certificate of authority 
as an acceptable surety on Federal bonds as listed in Treasury Circular 
570 as amended and be legally doing business in the State where the 
project is located.
    (B) Cash deposit in escrow of at least 50 percent of the contract 
amount. The cash deposit cannot be from funds awarded under this 
subpart.
    (ii) The surety will normally be in the form of performance bonds 
and payment bonds; however, when other methods of surety are necessary, 
bid documents must contain provisions for such alternative types of 
surety. The use of surety other than performance bonds and payment bonds 
requires concurrence by the Agency after submission of a justification 
to the Agency together with the proposed form of escrow agreement or 
letter of credit.
    (iii) When surety is not provided, contractors must furnish evidence 
of payment in full for all materials, labor, and any other items 
procured under the contract in an Agency-approved form.
    (iv) The Agency may make exceptions to surety for any of the 
situations identified in paragraphs (a)(3)(iv)(A) through (E) of this 
section.
    (A) Small acquisition and construction procedures as specified in 
Sec. 4280.119(c) and (d) or Sec. 4280.120(c) and (d) as applicable are 
used.
    (B) The proposed project is for equipment purchase and installation 
only and the contract costs for the equipment purchase and installation 
are $200,000 or less.
    (C) The proposed project is for equipment purchase and installation 
only and the contract costs for the equipment purchase and installation 
are more than $200,000 and the following requirements can be met:
    (1) The project involves two or fewer subcontractors; and
    (2) The equipment manufacturer or provider must act as the general 
contractor.
    (D) Other construction projects that have only one contractor 
performing work.
    (E) The grantee agrees to request reimbursement of grant funds only 
after the contractors have furnished evidence of payment in full and 
evidence there are no outstanding liens regarding any materials, labor, 
and any other items procured under the contract, and the systems are 
deemed operational.
    (4) Grantees accomplishing work. In some instances, grantees may 
wish to perform a part of the work themselves. Grantees may accomplish 
construction by using their own personnel and equipment, provided the 
grantees possess the necessary skills, abilities, and resources to 
perform the work and there is not a negative impact to their business 
operation. For a grantee to provide a portion of the work, with the

[[Page 808]]

remainder to be completed by a contractor:
    (i) A clear understanding of the division of work must be 
established and delineated in the contract;
    (ii) Grantees are not eligible for payment for their own work as it 
is not an eligible project cost;
    (iii) Warranty requirements applicable to the technology must cover 
the grantee's work; and
    (iv) Inspection and acceptance of the grantee's work must be 
completed by either:
    (A) An inspector that will:
    (1) Inspect, as applicable, and accept construction; and
    (2) Furnish inspection reports; or
    (B) A licensed engineer that will:
    (1) Prepare design drawings and specifications;
    (2) Inspect, as applicable, and accept construction; and
    (3) Furnish inspection reports.
    (b) Forms used. Technical service and procurement documents must be 
approved by the Agency and may be used only if they are customarily used 
in the area and protect the interest of the applicant and the Government 
with respect to compliance with items such as the drawings, 
specifications, payments for work, inspections, completion, 
nondiscrimination in construction work and acceptance of the work. The 
Agency will not become a party to a construction contract or incur any 
liability under it. No contract will become effective until concurred in 
writing by the Agency. Such concurrence statement must be attached to 
and made a part of the contract.
    (c) Technical services. Unless the requirements of paragraph (c)(4) 
of this section can be met, all RES and EEI projects with total project 
costs greater than $1,000,000 require:
    (1) The design, installation monitoring, testing prior to commercial 
operation, and project completion certification be completed by a 
licensed professional engineer (PE) or team of licensed PEs. Licensed 
PEs may be ``in-house'' PEs or contracted PEs.
    (2) Any contract for design services must be subject to Agency 
concurrence.
    (3) Engineers must be licensed in the State where the project is to 
be constructed.
    (4) The Agency may grant an exception to the requirements of 
paragraphs (c)(1) through (3) of this section if the following 
requirements are met:
    (i) State or Tribal law does not require the use of a licensed PE; 
and
    (ii) The project is not complex, as determined by the Agency, and 
can be completed to meet the requirements of this program without the 
services of a licensed PE.
    (d) Design policies. Unless the applicant plans to request a lump 
sum reimbursement of grant funds at the end of construction and 30 days 
of successful operation, regardless of total project costs, final plans 
and specifications must be reviewed by the Agency and approved prior to 
the start of construction. Facilities funded by the Agency must meet the 
following design requirements, as applicable:
    (1) Environmental requirements. Actions taken under this subpart 
must comply with the environmental review requirements in accordance 
with 7 CFR part 1970. Project planning and design must not only be 
responsive to the grantee's needs but must consider the environmental 
consequences of the proposed project. Project design must incorporate 
and integrate, where practicable, mitigation measures that avoid or 
minimize adverse environmental impacts. Environmental reviews serve as a 
means of assessing environmental impacts of project proposals, rather 
than justifying decisions already made. Applicants may not take any 
action on a project proposal that will have an adverse environmental 
impact or limit the choice of reasonable project alternatives being 
reviewed prior to the completion of the Agency's environmental review. 
If such actions are taken, the Agency has the right to withdraw and 
discontinue processing the application.
    (2) Architectural barriers. All facilities intended for or 
accessible to the public or in which physically handicapped persons may 
be employed must be developed in compliance with the Architectural 
Barriers Act of 1968 (42 U.S.C. 4151 et seq.) as implemented by 41 CFR

[[Page 809]]

101-196, section 504 of the Rehabilitation Act of 1973 (42 U.S.C. 1474 
et seq.) as implemented by 7 CFR parts 15 and 15b, and Titles II and III 
of the Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et 
seq.).
    (3) Energy/environment. Project design shall consider cost effective 
energy-efficient and environmentally-sound products and services.
    (4) Seismic safety. All new structures, fully or partially enclosed, 
used or intended for sheltering persons or property will be designed 
with appropriate seismic safety provisions in compliance with the 
Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 et seq.), and 
E.O. 12699, Seismic Safety of Federal and Federally Assisted or 
Regulated New Building Construction. Designs of components essential for 
system operation and substantial rehabilitation of structures that are 
used for sheltering persons or property shall incorporate seismic safety 
provisions to the extent practicable as specified in 7 CFR part 1792, 
subpart C.
    (e) Contract methods. This paragraph identifies the three types of 
contract methods that can be used for projects funded under this 
subpart. The procurement methods, which are applicable to each of these 
contract methods, are specified in paragraph (f) of this section.
    (1) Traditional method or design-bid-build. The services of the 
consulting engineer or architect and the general construction contractor 
must be procured in accordance with the following paragraphs.
    (i) Solicitation of offers. Solicitation of offers must:
    (A) Incorporate a clear and accurate description of the technical 
requirements for the material, product, or service to be procured. The 
description must not, in competitive procurements, contain features that 
unduly restrict competition. The description may include a statement of 
the qualitative nature of the material, product or service to be 
procured, and when necessary will set forth those minimum essential 
characteristics and standards to which it must conform if it is to 
satisfy its intended use. When it is impractical or uneconomical to make 
a clear and accurate description of the technical requirements, a 
``brand name or equal'' description may be used to define the 
performance or other salient requirements of a procurement. The specific 
features of the named brands which must be met by offerors must be 
clearly stated.
    (B) Clearly specify all requirements which offerors must fulfill and 
all other factors to be used in evaluating bids or proposals.
    (ii) Contract pricing. Cost plus a percentage of cost method of 
contracting must not be used.
    (iii) Unacceptable bidders. The following will not be allowed to bid 
on, or negotiate for, a contract or subcontract related to the 
construction of the project:
    (A) An engineer or architect as a person who has prepared plans and 
specifications or who will be responsible for monitoring the 
construction;
    (B) Any entity in which the grantee's architect or engineer is an 
officer, employee, or holds or controls a substantial interest in the 
grantee;
    (C) The grantee's governing body officers, employees, or agents;
    (D) Any member of the grantee's immediate family or partners in 
paragraphs (e)(1)(iii)(A), (B), or (C) of this section; or
    (E) An entity which employs, or is about to employ, any person in 
paragraph (e)(1)(iii)(A), (B), (C), or (D) of this section.
    (iv) Contract award. Contracts must be made only with responsible 
parties possessing the potential ability to perform successfully under 
the terms and conditions of a proposed procurement. Consideration must 
include, but not be limited to, matters such as integrity, record of 
past performance, financial and technical resources, and accessibility 
to other necessary resources. Contracts must not be made with parties 
who are suspended or debarred.
    (2) Design/build method. The design/build method, where the same 
person or entity provides design and engineering work, as well as 
construction or installation, may be used with Agency written approval.
    (i) Concurrence information. The applicant will request Agency 
concurrence by providing the Agency at least the

[[Page 810]]

information specified in paragraphs (e)(2)(i)(A) through (H) of this 
section.
    (A) The grantee's written request to use the design/build method 
with a description of the proposed method.
    (B) A proposed scope of work describing in clear, concise terms the 
technical requirements for the contract. It shall include a nontechnical 
statement summarizing the work to be performed by the contractor, the 
results expected, and a proposed construction schedule showing the 
sequence in which the work is to be performed.
    (C) A proposed firm-fixed-price contract for the entire project 
which provides that the contractor will be responsible for any extra 
cost which result from errors or omissions in the services provided 
under the contract, as well as compliance with all Federal, State, 
local, and Tribal requirements effective on the contract execution date.
    (D) Where noncompetitive negotiation is proposed and found, by the 
Agency, to be an acceptable procurement method, then the Agency will 
evaluate documents indicating the contractor's performance on previous 
similar projects in which the contractor acted in a similar capacity.
    (E) A detailed listing and cost estimate of equipment and supplies 
not included in the construction contract but which are necessary to 
properly operate the project.
    (F) Evidence that a qualified construction inspector who is 
independent of the contractor has or will be hired.
    (G) Preliminary plans and outline specifications. However, final 
plans and specifications must be completed and reviewed by the Agency 
prior to the start of construction.
    (H) The grantee's attorney's opinion and comments regarding the 
legal adequacy of the proposed contract documents and evidence that the 
grantee has the legal authority to enter into and fulfill the contract.
    (ii) Agency concurrence of design/build method. The Agency will 
review the material submitted by the applicant. When all items are 
acceptable, the Agency approval official will concur in the use of the 
design/build method for the proposal.
    (iii) Forms used. Agency approved contract documents must be used 
provided they are customarily used in the area and protect the interest 
of the applicant and the Agency with respect to compliance with items 
such as the drawings, specifications, payments for work, inspections, 
completion, nondiscrimination in construction work, and acceptance of 
the work. The Agency will not become a party to a construction contract 
or incur any liability under it. No contract shall become effective 
until concurred, in writing, by the Agency. Such concurrence statement 
must be attached to and made a part of the contract.
    (iv) Contract provisions. Contracts will have a listing of 
attachments and must contain the following:
    (A) The contract sum;
    (B) The dates for starting and completing the work;
    (C) The amount of liquidated damages, if any, to be charged;
    (D) The amount, method, and frequency of payment;
    (E) Surety provisions that meet the requirements of paragraph (a)(3) 
of this section;
    (F) The requirement that changes or additions must have prior 
written approval of the Agency as identified in the letter of 
conditions;
    (G) Contract review and concurrence. The grantee's attorney will 
review the executed contract documents, including performance and 
payment bonds, and will certify that they are in compliance with 
Federal, State, or Tribal law, and that the persons executing these 
documents have been properly authorized to do so. The contract 
documents, engineer's recommendation for award, and bid tabulation 
sheets will be forwarded to the Agency for concurrence prior to awarding 
the contract. All contracts will contain a provision that they are not 
effective until they have been concurred, in writing, by the Agency;
    (H) This part does not relieve the grantee of any responsibilities 
under its contract. The grantee is responsible for the settlement of all 
contractual and administrative issues arising out of procurement entered 
into in support of Agency funding. These include, but are not limited 
to, source evaluation,

[[Page 811]]

protests, disputes, and claims. Matters concerning violation of laws are 
to be referred to the applicable local, State, Tribal, or Federal 
authority; and
    (3) Construction management. Construction managers as a constructor 
(CMc) acts in the capacity of a general contractor and is financially 
and professionally responsible for the construction. This type of 
construction management is also referred to as construction manager ``At 
Risk.'' The construction contract is between the grantee and the CMc. 
The CMc in turn subcontracts for some or all of the work. The CMc will 
need to carry the Agency required 100 percent surety and insurance, as 
required under paragraph (a)(3) of this section. Projects using 
construction management must follow the requirements of (e)(2)(i) 
through (iv) of this section.
    (f) Procurement methods. Procurement must be made by one of the 
following methods: Competitive sealed bids (formal advertising); 
competitive negotiation; or noncompetitive negotiation. Competitive 
sealed bids (formal advertising) are the preferred procurement method 
for construction contracts.
    (1) Competitive sealed bids. In competitive sealed bids (formal 
advertising), sealed bids are publicly solicited and a firm-fixed-price 
contract (lump sum or unit price) is awarded to the responsible bidder 
whose bid, conforming with all the material terms and conditions of the 
invitation for bids, is lowest, price and other factors considered. When 
using this method, the following will apply:
    (i) At a sufficient time prior to the date set for opening of bids, 
bids must be solicited from an adequate number of qualified sources. In 
addition, the invitation must be publicly advertised.
    (ii) The invitation for bids, including specifications and pertinent 
attachments, must clearly define the items or services needed in order 
for the bidders to properly respond to the invitation under paragraph 
(f)(1) of this section.
    (iii) All bids must be opened publicly at the time and place stated 
in the invitation for bids.
    (iv) A firm-fixed-price contract award must be made by written 
notice to that responsible bidder whose bid, conforming to the 
invitation for bids, is lowest. When specified in the bidding documents, 
factors such as discounts and transportation costs will be considered in 
determining which bid is lowest.
    (v) The applicant, with the concurrence of the Agency, will consider 
the amount of the bids or proposals, and all conditions listed in the 
invitation. On the basis of these considerations, the applicant will 
select and notify the lowest responsible bidder. The contract will be 
awarded using an Agency-approved form.
    (vi) Any or all bids may be rejected by the grantee when it is in 
their best interest.
    (2) Competitive negotiation. In competitive negotiations, proposals 
are requested from a number of sources. Negotiations are normally 
conducted with more than one of the sources submitting offers 
(offerors). Competitive negotiation may be used if conditions are not 
appropriate for the use of formal advertising and where discussions and 
bargaining with a view to reaching agreement on the technical quality, 
price, other terms of the proposed contract and specifications are 
necessary. If competitive negotiation is used for procurement, the 
following requirements will apply:
    (i) Proposals must be solicited from two qualified sources, unless 
otherwise approved by the Agency, to permit reasonable competition 
consistent with the nature and requirements of the procurement.
    (ii) The request for proposal must identify all significant 
evaluation factors, including price or cost where required, and their 
relative importance.
    (iii) The grantee must provide mechanisms for technical evaluation 
of the proposals received, determination of responsible offerors for the 
purpose of written or oral discussions, and selection for contract 
award.
    (iv) Award may be made to the responsible offeror whose proposal 
will be most advantageous to the grantee, price and other factors 
considered. Unsuccessful offerors must be promptly notified.
    (v) Owners may utilize competitive negotiation procedures for 
procurement of architectural/engineering and other professional 
services, whereby

[[Page 812]]

the offerors' qualifications are evaluated, and the most qualified 
offeror is selected, subject to negotiations of fair and reasonable 
compensation.
    (3) Noncompetitive negotiation. Noncompetitive negotiation is 
procurement through solicitation of a proposal from only one source. 
Noncompetitive negotiation may be used when the award of a contract is 
not feasible under small acquisition and construction procedures, 
competitive sealed bids (formal advertising) or competitive negotiation 
procedures. Circumstances under which a contract may be awarded by 
noncompetitive negotiations are limited to the following:
    (i) After solicitation of a number of sources, competition is 
determined inadequate; or
    (ii) No acceptable bids have been received after formal advertising.
    (4) Additional procurement methods. The grantee may use additional 
innovative procurement methods provided the grantee receives prior 
written approval from the Agency. Contracts will have a listing of 
attachments and the minimum provisions of the contract will include:
    (i) The contract sum;
    (ii) The dates for starting and completing the work;
    (iii) The amount of liquidated damages to be charged;
    (iv) The amount, method, and frequency of payment;
    (v) Whether or not surety bonds will be provided; and
    (vi) The requirement that changes or additions must have prior 
written approval of the Agency.
    (g) Contracts awarded prior to applications. Owners awarding 
construction or other procurement contracts prior to filing an 
application, must provide evidence that is satisfactory to the Agency 
that the contract was entered into without intent to circumvent the 
requirements of Agency regulations.
    (1) Modifications. The contract shall be modified to conform to the 
provisions of this subpart. Where this is not possible, modifications 
will be made to the extent practicable and, as a minimum, the contract 
must comply with all State and local laws and regulations as well as 
statutory requirements and executive orders related to the Agency 
financing.
    (2) Consultant's certification. Provide a certification by an 
engineer, licensed in the State where the facility is constructed, that 
any construction performed complies fully with the plans and 
specifications.
    (3) Owner's certification. Provide a certification by the owner that 
the contractor has complied with applicable statutory and executive 
requirements related to Agency financing.
    (h) Contract administration. Contract administration must comply 
with 7 CFR 1780.76. If another authority, such as a Federal, State, or 
Tribal agency, is providing funding and requires oversight of 
inspections, change orders, and pay requests, the Agency will accept 
copies of their reports or forms as meeting oversight requirements of 
the Agency.



Sec. Sec. 4280.126-4280.136  [Reserved]

  Combined Funding for Renewable Energy Systems and Energy Efficiency 
                              Improvements



Sec. 4280.137  Combined grant and guaranteed loan funding requirements.

    The requirements for a RES or EEI project for which an applicant is 
seeking a combined grant and guaranteed loan are specified in this 
section.
    (a) Eligibility. All applicants must be eligible under the 
requirements specified in Sec. 4280.112. If the applicant is seeking a 
loan, the applicant must also meet the borrower eligibility requirements 
specified in 7 CFR 5001.126. Lenders must meet eligibility requirements 
specified in 7 CFR 5001.130-132. Projects must meet the project 
eligibility requirements specified in Sec. Sec. 4280.113, 7 CFR parts 
5001.102 (b) and (c) and 5001.106-107, as applicable. For projects that 
include New Markets Tax Credits, the guaranteed loan portion of the 
combined funding request must meet provisions found in 5001.141.
    (b) Funding. Funding provided under this section is subject to the 
limits described in paragraphs (b)(1) through (2) of this section.
    (1) The amount of any combined grant and guaranteed loan shall not 
exceed 75 percent of eligible project costs and the grant portion shall 
not exceed

[[Page 813]]

25 percent of eligible project costs. Loan amount provisions of 7 CFR 
part 5001.406(d) apply, except for (d)(2). For purposes of combined 
funding requests, eligible project costs are based on the total costs 
associated with those items specified in Sec. 4280.115(c) and 7 CFR 
part 5001.121(d), except for (d)(2). The applicant must provide the 
remaining total funds needed to complete the project.
    (2) The minimum guaranteed loan request allowed is $5,000, with the 
grant portion of the funding request being at least $1,500 for EEI 
projects and at least $2,500 for RES projects.
    (c) Loan origination provisions. Provisions found in 7 CFR parts 
5001.201 through 5001.208 apply to the guaranteed loan portion of a 
combined grant and guaranteed loan funding request.
    (d) Application provisions and documentation. When applying for 
combined funding, the applicant/borrower must provide all documentation 
outlined in this section and the lender must submit grant and guaranteed 
loan application information simultaneously.
    (1) Applications must include the following documentation, including 
the requisite forms and certifications, specified in Sec. Sec. 
4280.118, 4280.119, or 4280.120 as applicable, for the grant request, 
except that applicants submitting a properly completed 5001-1 form only 
need to submit the applicable RD 4280-3 form containing the applicant's 
CAGE code and properly signed certifications. The guaranteed loan 
applications are filed in accordance with 7 CFR part 5001.301 where they 
will be processed in accordance with 7 CFR parts 5001.303 and 5001.307, 
and as follows:
    (2) Where both the grant application and the guaranteed loan 
application provisions request the same documentation, form, or 
certification, such documentation, form, or certification may be 
submitted once; the combined application does not need to contain 
duplicate documentation, forms, and certifications.
    (e) Loan provisions. Provisions found in 7 CFR parts 5001.401 
through 5001.408 apply to the guaranteed loan portion of a combined 
funding request.
    (f) Guarantee provisions. Provisions found in 7 CFR parts 5001.450 
through 5001.459 apply to the guarantee on the guaranteed loan portion 
of a combined funding request.
    (g) Servicing provisions. Provisions found in 7 CFR parts 5001.501 
through 5001.524 apply to the guaranteed loan portion of a combined 
funding request.
    (h) Evaluation, scoring, and award. The Agency will evaluate each 
combined application according to Sec. 4280.116(c) and 7 CFR part 
5001.315 (a) and (b). The Agency will select applications according to 
applicable procedures specified in Sec. 4280.122(a) and (b) unless 
modified by this section. A combination loan and grant request will be 
selected based upon the grant score of the project. The Agency will 
score combined funding applications based upon the grant score as noted 
in Sec. 4280.121. Projects will be ranked and selected for award 
according to applicable competition procedures specified in Sec. 
4280.122 (c), unless modified by this section or via a Federal Register 
notification.
    (i) Interest rate and terms of loan. The interest rate and terms of 
the guaranteed loan for the loan portion of the combined funding request 
will be determined based on the procedures specified in 7 CFR parts 
5001.401 and 5001.402.
    (j) Other provisions. In addition to the requirements specified in 
paragraphs (a) through (i) of this section, the combined funding request 
is subject to the other requirements specified in this subpart, 
including, but not limited to, processing and servicing requirements, as 
applicable, as described in paragraphs (j)(1) through (4) of this 
section.
    (1) All other provisions of Sec. Sec. 4280.101 through 4280.111 
apply to the grant portion of the combined funding request and all other 
provisions as applicable of 7 CFR parts 5001.1 through 5001.10 apply to 
the guaranteed loan portion of the combined funding request.
    (2) All other provisions of Sec. Sec. 4280.112 through 4280.124 
apply to the grant portion of the combined funding request and Sec. 
4280.125 applies if the project for which the grant is sought has a 
total project cost of $200,000 and greater.
    (3) All guarantee loan and grant combination applications that are 
ranked, but not funded, will be processed in accordance with provisions 
found in Sec. 4280.122(d), (e), and (f).

[[Page 814]]

    (4) Applicants whose combination applications are approved for 
funding must utilize both the loan and the grant. The guaranteed loan 
will be closed prior to grant funds being disbursed. The Agency reserves 
the right to reduce the total loan guarantee and grant award, as 
appropriate, if construction costs are less than projected or if funding 
sources differ from those provided in the application.
    (5) Ineligible project provisions of Sec. Sec. 5001.115 and 
5001.119, and ineligible use of funds provision of Sec. 5001.122 apply 
to the guaranteed loan portion of the combined funding request. Borrower 
ineligibility provisions of Sec. 5001.127 are also applicable.



Sec. Sec. 4280.138-4280.148  [Reserved]

     Energy Audit and Renewable Energy Development Assistance Grants



Sec. 4280.149  Applicant eligibility.

    To be eligible for an EA grant or a REDA grant under this subpart, 
the applicant must meet each of the criteria, as applicable, specified 
in paragraphs (a) through (d) of this section. The Agency will determine 
an applicant's eligibility.
    (a) The applicant must be one of the following:
    (1) A unit of State, Tribal, or local government;
    (2) A land-grant college or university, or other institution of 
higher education;
    (3) A rural electric cooperative;
    (4) A public power entity;
    (5) An instrumentality of a State, Tribal, or local government; or
    (6) A council, as defined under the Resource Conservation and 
Development Program, at 16 U.S. C. 3451.
    (b) The applicant must have sufficient capacity to perform the EA or 
REDA activities proposed in the application to ensure success. The 
Agency will make this assessment based on the information provided in 
the application.
    (c) The applicant must have the legal authority necessary to apply 
for and carry out the purpose of the grant.
    (d) The applicant must:
    (1) Be registered in the SAM prior to submitting an application;
    (2) Maintain an active SAM registration with current information at 
all times until final fund disbursement has been made.
    (3) Provide its UEI number in each application it submits to the 
Agency. Generally, the UEI number is included on SF-424.



Sec. 4280.150  Project eligibility.

    To be eligible for an EA or a REDA grant, the grant funds for a 
project must be used by the grantee to assist agricultural producers or 
rural small businesses in one of the purposes specified in paragraphs 
(a) and (b) of this section, and must also comply with paragraphs (c) 
through (f) of this section.
    (a) Conducting and promoting energy audits as defined in 4280.103.
    (b) Conducting and promoting REDA by providing to agricultural 
producers and rural small businesses recommendations and information on 
how to improve the energy efficiency of the operations and to use 
renewable energy technologies and resources in their operations.
    (c) EA and REDA can be provided only to a project located in a rural 
area unless the grantee of such project is an agricultural producer. If 
the project is owned by an agricultural producer, the project for which 
such services are being provided may be located in either a rural or 
non-rural area and the EA or REDA can only be for an EEI or RES on 
components that support the production, processing, vertical 
integration, or marketing of agricultural products. If the agricultural 
producer's operation is in a non-rural area, then the Energy Audit or 
REDA can only be for RES or EEI components of the business operation 
that are directly related to and their use and purpose is limited to the 
agricultural production operation, such as vertically integrated 
operations, and are part of and co-located with the agricultural 
production operation.
    (d) The EA or REDA must be provided to a recipient in a State.
    (e) The applicant must have a place of business in a State.

[[Page 815]]

    (f) The applicant is cautioned against taking any actions or 
incurring any obligations prior to the Agency completing the 
environmental review that would either limit the range of alternatives 
to be considered or that would have an adverse effect on the 
environment, such as the initiation of construction. If the applicant 
takes any such actions or incurs any such obligations, it could result 
in project ineligibility.



Sec. 4280.151  Ineligible projects.

    Ineligible projects for EA and REDA grants include, but are not 
limited to:
    (a) Research related projects.
    (b) Feasibility studies of any nature.
    (c) Projects where funding is not targeted directly to assisting 
agricultural producers or rural small businesses.
    (d) Projects to develop computer software or programs.
    (e) Projects where 50 percent or more of the costs are in-eligible 
or where project costs as defined in the application do not meet the 
definition of providing energy audits or renewable energy development 
assistance.
    (f) Projects which propose to provide energy audits or renewable 
energy development assistant for residential purposes.



Sec. 4280.152  Grant funding for Energy Audit and Renewable Energy Development Assistance.

    (a) Maximum grant amount. The maximum aggregate amount of EA and 
REDA grants awarded to any one recipient under this subpart cannot 
exceed $100,000 in a Federal fiscal year. Grant funds awarded for EA and 
REDA projects may be used only to pay eligible project costs, as 
described in paragraph (b) of this section. Ineligible project costs are 
listed in paragraph (c) of this section. Provisions for EA applications 
are listed in paragraph (d)of this section.
    (b) Eligible project costs. Eligible project costs for EA and REDA 
are those costs incurred after the date a complete application has been 
received by the Agency and that are directly related to conducting and 
promoting EA and REDA, which include but are not limited to:
    (1) Salaries;
    (2) Travel expenses;
    (3) Office supplies (e.g., paper, pens, file folders); and
    (4) Expenses charged as a direct cost or as an indirect cost of up 
to a maximum of 5 percent for administering the grant.
    (c) Ineligible project costs. Ineligible project costs for EA and 
REDA grants include, but are not limited to:
    (1) Payment for any construction-related activities;
    (2) Purchase or lease of equipment;
    (3) Payment of any judgment or debt owed to the United States;
    (4) Any goods or services provided by a person or entity who has a 
conflict of interest as provided in Sec. 4280.106;
    (5) Any costs of preparing the application package for funding under 
this subpart; and
    (6) Funding of political or lobbying activities.
    (7) Funding to train individuals to become qualified to perform EA 
or REDA assistance.
    (8) Payment or waiver of student tuition.
    (d) EA. A grantee that conducts energy audits must require that, as 
a condition of providing the EA assistance, the agricultural producer or 
rural small business pay at least 25 percent of the cost of the energy 
audit. Further, the amount paid by the agricultural producer or rural 
small business will be retained by the grantee as a contribution towards 
the cost of the energy audit and considered program income. The grantee 
may use the program income to further the objectives of their project or 
EA services offered during the grant period in accordance with 
Departmental Regulations. The 25% to be paid by an agricultural producer 
or rural small business does not count towards the commitment of funds 
scoring criteria noted in 4280.155(f).



Sec. 4280.153  EA and REDA grant applications--content.

    (a) Unless otherwise specified in a Federal Register notice, 
applicants may only submit one EA grant application and one REDA grant 
application each Federal fiscal year. No combination (EA and REDA) 
applications will be accepted.

[[Page 816]]

    (b) Applicants must submit complete applications consisting of the 
elements specified in paragraphs (b)(1) through (7) of this section, 
except that paragraph (b)(3), is optional. Applications will be 
evaluated based only on information submitted by the applicant in the 
application.
    (1) Form SF-424.
    (2) Form SF-424A, ``Budget Information--Non Construction Programs.''
    (3) Identify the ethnicity, race, and gender of the applicant. This 
information is optional and is not required for a complete application.
    (4) Certification that the applicant is a legal entity in good 
standing (as applicable) and operating in accordance with the laws of 
the State(s) or Tribe where the applicant has a place of business.
    (5) The applicant must identify whether or not the applicant has a 
known relationship or association with an Agency employee. If there is a 
known relationship, the applicant must identify each Agency employee 
with whom the applicant has a known relationship.
    (6) A proposed scope of work to include the following items:
    (i) A brief summary including a project title describing the 
proposed project;
    (ii) Goals of the proposed project;
    (iii) Geographic scope or service area of the proposed project and 
the method and rationale used to select the service area;
    (iv) Identification of the specific needs for the service area and 
the target audience to be served. The number of agricultural producers 
and/or rural small businesses to be served must be identified including 
name and contact information, if available, as well as the method and 
rationale used to select the agricultural producers and/or rural small 
businesses;
    (v) Timeline describing the proposed tasks to be accomplished and 
the schedule for implementation of each task. Include whether 
organizational staff, consultants, or contractors will be used to 
perform each task. If a project is located in multiple States, resources 
must be sufficient to complete all projects;
    (vi) Marketing strategies to include a discussion on how the 
applicant will be marketing and providing outreach activities to the 
proposed service area ensuring that agricultural producers and/or rural 
small businesses are served;
    (vii) Applicant's experience as follows:
    (A) If applying for a REDA grant, the applicant's experience in 
completing similar REDA activities, such as renewable energy site 
assessments and renewable energy technical assistance provided directly 
to agricultural producers and rural small businesses, including the 
number of similar projects the applicant has performed and the number of 
years the applicant has been performing a similar service.
    (B) If applying for an EA grant, the number of energy audits the 
applicant has completed and the number of years the applicant has been 
performing those services;
    (C) For all applicants, the amount of experience in administering 
EA, REDA, or similar activities as applicable to the purpose of the 
proposed project. Provide discussion if the applicant has any existing 
programs that can demonstrate the achievement of energy savings or 
energy generation with the agricultural producers and/or rural small 
businesses the applicant has served. If the applicant has received one 
or more awards within the last 5 years in recognition of its renewable 
energy, energy savings, or energy-based technical assistance, please 
describe the achievement;
    (viii) Itemized budget; and
    (ix) Identify the amount of matching funds and other funds and the 
source(s) the applicant is proposing to use for the project. Provide 
written commitments for matching funds and other funds at the time the 
application is submitted.
    (A) If financial resources come from the applicant, documentation 
may include a bank statement that demonstrates availability of funds.
    (B) If a third party is providing financial assistance to the 
project, the applicant must submit a commitment letter signed by an 
authorized official of the third party. The letter must be

[[Page 817]]

specific to the project, identify the dollar amount being provided and 
any applicable rates and terms.



Sec. 4280.154  Evaluation of EA and REDA grant applications.

    The Agency will evaluate EA and REDA grant applications, based only 
upon information submitted in the application, to determine if:
    (a) The application is complete, as defined in Sec. 4280.103 and as 
per Sec. 4280.153;
    (b) The applicant is eligible according to Sec. 4280.149;
    (c) The project is eligible according to Sec. 4280.150 and 
4280.151, including 50% or more of proposed project costs are eligible; 
and
    (d) Grant funding provisions according to Sec. 4280.152 are met.



Sec. 4280.155  Scoring EA and REDA grant applications.

    The Agency will score each EA and REDA application using the 
criteria specified in paragraphs (a) through (f) of this section, with a 
maximum score of 100 points possible. Unless otherwise altered via a 
Federal Register notification, the project must score a minimum of 40 
points to be eligible to compete for funding.
    (a) Geographic scope of project in relation to identified need. A 
maximum of 20 points can be awarded.
    (1) If the applicant's proposed or existing service area is state-
wide or includes all or parts of multiple states, and the scope of work 
has identified needs throughout that service area, 20 points will be 
awarded.
    (2) If the applicant's proposed or existing service area consists of 
multiple counties in a single state and the scope of work has identified 
needs throughout that service area, 15 points will be awarded.
    (3) If the applicant's service area consists of a single county or 
municipality and the scope of work has identified needs throughout that 
service area, 10 points will be awarded.
    (b) Number of agricultural producers/rural small businesses to be 
served. A maximum of 20 points will be awarded for this criterion based 
on the proposed number of ultimate recipients to be assisted and if the 
applicant has provided the names and contact information for the 
ultimate recipients to be assisted.
    (1) If the applicant plans to provide EA or REDA to:
    (i) Up to 10 ultimate recipients, 2 points will be awarded.
    (ii) Between 11 and up to and including 25 ultimate recipients, 5 
points will be awarded.
    (iii) More than 25 ultimate recipients, 10 points will be awarded.
    (2) If the applicant provides a list with at least 50 percent of the 
total number of proposed ultimate recipients ready to be assisted, 
including their name and contact information, an additional 10 points 
may be awarded.
    (c) Marketing and outreach plan. A maximum of 5 points will be 
awarded for this criterion. If the scope of work included in the 
application provides a satisfactory discussion of each of the following 
criteria, one point for each can be awarded.
    (1) The goals of the project;
    (2) Identified need;
    (3) Targeted ultimate recipients;
    (4) Timeline and action plan; and
    (5) Marketing and outreach strategies and supporting data for 
strategies.
    (d) Applicant's organizational experience in completing the EA or 
REDA proposed activity. A maximum of 25 points will be awarded for this 
criterion based on the experience of the organization in providing EA or 
REDA as applicable to the purpose of the proposed project. The 
organization must have been in business and provided services for the 
number of years as identified in the paragraphs below. Experience of 
contractors proposed in the application to perform the services may be 
applied to this scoring criteria as long as the experience relates to 
the same type of activity, e.g., energy audit experience for an EA 
application.
    (1) More than 10 years of experience, 25 points will be awarded.
    (2) At least 5 years and up to and including 10 years of experience, 
20 points will be awarded.
    (3) At least 2 years and up to and including 5 years of experience, 
10 points will be awarded.
    (4) Less than 2 years of experience, no points will be awarded.

[[Page 818]]

    (e) Potential of project to produce energy savings or generation and 
its attending environmental benefits. A maximum of 10 points will be 
awarded for this criterion under both paragraphs (e)(1) and (2) of this 
section
    (1) If the applicant (does not include entities the applicant will 
contract with) has an existing program that can demonstrate the 
achievement of energy savings or energy generation with the agricultural 
producers and/or rural small businesses it has served, 5 points will be 
awarded.
    (2) If the applicant (does not include entities the applicant will 
contract with) provides evidence that it has received one or more awards 
(e.g., recognition, not funding awards) within the last 5 years in 
recognition of its renewable energy, energy savings, or energy-based 
technical assistance, up to a maximum of 5 points will be awarded as 
follows:
    (i) International/national--3 points for each.
    (ii) Regional/State--2 points for each.
    (iii) Local--1 point for each.
    (f) Commitment of funds. A maximum of 20 points will be awarded for 
this criterion if written documentation from each source providing 
matching funds and other funds are submitted with the application. 
Compare eligible commitment of funds to the amount of grant requested to 
derive percentage to be used for scoring.
    (1) If the applicant proposes to match 50 percent or more of the 
grant funds requested, 20 points will be awarded.
    (2) If the applicant proposes to match 20 percent or more but less 
than 50 percent of the grant funds requested, 15 points will be awarded.
    (3) If the applicant proposes to match 5 percent or more but less 
than 20 percent of the grant funds requested, 10 points will be awarded.
    (4) If the applicant proposes to match less than 5 percent of the 
grant funds requested, no points will be awarded.



Sec. 4280.156  Selecting EA and REDA grant applications for award.

    Unless otherwise provided for in a Federal Register notice, EA and 
REDA grant applications will be processed in accordance with this 
section. EA and REDA grant funding is maintained at the National Office 
and applications compete for funds only once in a nationwide 
competition.
    (a) Application competition. Complete EA and REDA applications 
received by the Agency by 4:30 p.m. local time on January 31 will be 
competed against each other. If January 31 falls on a weekend or a 
Federally observed holiday, the next Federal business day will be 
considered the last day for receipt of a complete application. Complete 
applications received after 4:30 p.m. local time on January 31, 
regardless of the postmark on the application, will be processed in the 
subsequent fiscal year. Unless otherwise specified in a Federal Register 
notice, the two highest scoring applications from each State, based on 
the scoring criteria established under Sec. 4280.155, will compete for 
initial funding. If undersubscribed on eligible applications, the third 
highest scoring application from each state shall be requested for 
National Office review and potential competition, ranking and funding, 
until funds are expended.
    (b) Ranking of applications. All applications submitted to the 
National Office under paragraph (a) of this section will be ranked in 
priority score order. All applications that are ranked and meet the 
minimum scoring threshold will be considered for selection for funding.
    (c) Selection of applications for funding. Using the ranking created 
under paragraph (a) of this section, the Agency will consider the score 
an application has received compared to the scores of other ranked 
applications, with higher scoring applications receiving first 
consideration for funding. If two or more applications score the same 
and if remaining funds are insufficient to fund each such application, 
the Agency will distribute the remaining funds to each such application 
on a pro-rata basis. At its discretion, the Agency may also elect to 
redirect unused funds into the RES/EEI program or allow any remaining 
multi-year funds to be carried over to the next fiscal year rather than 
funding on a pro-rata basis.
    (d) Handling of ranked applications not funded. Based on the 
availability of

[[Page 819]]

funding, a ranked application submitted for EA or REDA funds may not be 
funded. Such ranked applications will not be carried forward into the 
next Federal fiscal year's competition.



Sec. 4280.157  [Reserved]



Sec. 4280.158  Awarding and administering EA and REDA grants.

    The Agency will award and administer EA and REDA grants in 
accordance with Departmental Regulations and with the procedures and 
requirements specified in Sec. 4280.123, except as specified in 
paragraphs (a) through (b) of this section.
    (a) Instead of complying with Sec. 4280.123(b), the grantee must 
provide satisfactory evidence to the Agency that all officers of grantee 
organization authorized to receive and/or disburse Federal funds are 
covered by such bonding and/or insurance requirements as are normally 
required by the grantee.
    (b) The power purchase agreement specified in Sec. 4280.123 (h) is 
not required.



Sec. 4280.159  Servicing EA and REDA grants.

    The Agency will service EA and REDA grants in accordance with the 
requirements specified in Departmental Regulations, the Financial 
Assistance Agreement, 7 CFR part 3, 7 CFR 1951 Subparts E and O, and the 
requirements in Sec. 4280.124, except as specified in paragraphs (a) 
through (d) of this section.
    (a) Grant disbursement. The Agency will determine, based on the 
applicable Departmental Regulations, whether disbursement of a grant 
will be by advance or reimbursement. Form SF-270, Request for Advance or 
Reimbursement, must be completed by the grantee and submitted to the 
Agency no more often than monthly to request either advance or 
reimbursement of funds.
    (b) Semiannual performance reports. Project performance reports 
shall include, but not be limited to, the following:
    (1) A comparison of actual accomplishments to the objectives 
established for that period (e.g., the number of EA performed, number of 
recipients assisted, and the type of assistance provided for REDA);
    (2) A list of recipients, each recipient's location, and each 
recipient's NAICS code;
    (3) Problems, delays, or adverse conditions, if any, that have in 
the past or will in the future affect attainment of overall project 
objectives, prevent meeting time schedules or objectives, or preclude 
the attainment of particular project work elements during established 
time periods. This disclosure shall be accompanied by a statement of the 
action taken or planned to resolve the situation;
    (4) Objectives and timetable established for the next reporting 
period.
    (c) Final performance report. A final performance report will be 
required with the final Federal financial report within 90 days after 
project completion. The final performance report must contain the 
information specified in paragraphs (c)(1)(i) or (ii) of this section, 
as applicable.
    (1) For EA projects, the final performance report must provide 
complete information regarding:
    (i) The number of audits conducted,
    (ii) A list of recipients (agricultural producers and rural small 
businesses) with each recipient's NAICS code,
    (iii) The location of each recipient,
    (iv) The cost of each audit and documentation showing that the 
recipient of the EA provided 25 percent of the cost of the audit, and
    (v) The expected energy saved for each audit conducted if the audit 
is implemented.
    (2) For REDA projects, the final performance report must provide 
complete information regarding:
    (i) The number of recipients assisted, and the type of assistance 
provided,
    (ii) A list of recipients with each recipient's NAICS code,
    (iii) The location of each recipient, and
    (iv) The expected renewable energy that would be generated if the 
projects were implemented.
    (d) Outcome project performance report. One year after submittal of 
the final performance report, the grantee will provide the Agency a 
final status report on the number of projects that are

[[Page 820]]

proceeding with the grantee's recommendations, including the amount of 
energy saved and the amount of renewable energy generated, as 
applicable.



Sec. Sec. 4280.160-4280.165  [Reserved]



Sec. 4280.166  OMB control number.

    The report and recordkeeping requirements contained in this part 
have been approved by the Office of Management and Budget and have been 
assigned OMB control number 0570-0067



Sec. Appendix A to Subpart B of Part 4280--Technical Reports for Energy 
                  Efficiency Improvement (EEI) Projects

    For all EEI projects with total project costs of more than $80,000, 
provide the information specified in Sections A and D and in Section B 
or Section C, as applicable. If the application is for an EEI project 
with total project costs of $80,000 or less, please see Sec. 4280.120 
(b)(3) for the technical report information to be submitted with your 
application.
    If the application is for an EEI project with total project costs of 
$200,000 and greater, you must conduct an energy audit. However, if the 
application is for an EEI project with a total project costs of less 
than $200,000, you may conduct either an energy assessment or an energy 
audit.
    Section A--Project Information. Describe how all the improvements to 
or replacement of an existing building and/or equipment meet the 
requirements of being commercially available. Describe how the design, 
engineering, testing, and monitoring are sufficient to demonstrate that 
the proposed project will meet its intended purpose, ensure public 
safety, and comply with applicable laws, regulations, agreements, 
permits, codes, and standards. Describe how all equipment required for 
the EEI(s) is available and able to be procured and delivered within the 
proposed project development schedule. In addition, present information 
regarding component warranties and the availability of spare parts.
    Section B--Energy audit. If conducting an energy audit, provide the 
following information.
    (1) Situation report. Provide a narrative description of the 
existing building and/or equipment, its energy system(s) and usage, and 
activity profile. Also include average price per unit of energy 
(electricity, natural gas, propane, fuel oil, renewable energy, etc.) 
paid by the customer for the most recent 12 months, or an average of 2, 
3, 4, or 5 years, for the building and equipment being audited. Any 
energy conversion should be based on use rather than source.
    (2) Potential improvement description. Provide a narrative summary 
of the potential improvement and its ability to reduce energy 
consumption or improve energy efficiency, including a discussion of 
reliability and durability of the improvements.
    (i) Provide preliminary specifications for critical components.
    (ii) Provide preliminary drawings of project layout, including any 
related structural changes.
    (iii) Identify significant changes in future related operations and 
maintenance costs.
    (iv) Describe explicitly how outcomes will be measured.
    (3) Technical analysis. Give consideration to the interactions among 
the potential improvements and the current energy system(s).
    (i) For the most recent 12 months, or an average of 2, 3, 4, or 5 
years, prior to the date the application is submitted, provide both the 
total amount and the total cost of energy used for the original building 
and/or equipment, as applicable, for each improvement identified in the 
potential project. In addition, provide for each improvement identified 
in the potential project an estimate of the total amount of energy that 
would have been used and the total cost that would have been incurred if 
the proposed project were in operation for this same time period.
    (ii) Calculate all direct and attendant indirect costs of each 
improvement;
    (iii) Rank potential improvements measures by cost-effectiveness; 
and
    (iv) Provide an estimate of Simple Payback, including all 
calculations, documentation, and any assumptions.
    (4) Qualifications of the auditor. Provide the qualifications of the 
person which completed the energy audit.
    Section C--Energy Assessment. If conducting an Energy Assessment, 
provide the following information.
    (1) Situation report. Provide a narrative description of the 
existing building and/or equipment, its energy system(s) and usage, and 
activity profile. Also include average price per unit of energy 
(electricity, natural gas, propane, fuel oil, renewable energy, etc.) 
paid by the customer for the most recent 12 months, or an average of 2, 
3, 4, or 5 years, for the building and equipment being evaluated. Any 
energy conversion shall be based on use rather than source.
    (2) Potential improvement description. Provide a narrative summary 
of the potential improvement and its ability to reduce energy 
consumption or improve energy efficiency.

[[Page 821]]

    (3) Technical analysis. Giving consideration to the interactions 
among the potential improvements and the current energy system(s), 
provide the information specified in section C(3)(i) through (iii) of 
this appendix.
    (i) For the most recent 12 months, or an average of 2, 3, 4, or 5 
years, prior to the date the application is submitted, provide both the 
total amount and the total cost of energy used for the original building 
and/or equipment, as applicable, for each improvement identified in the 
potential project. In addition, provide for each improvement identified 
in the potential project an estimate of the total amount of energy that 
would have been used and the total cost that would have been incurred if 
the proposed project were in operation for this same time period.
    (ii) Document baseline data compared to projected consumption, 
together with any explanatory notes on source of the projected 
consumption data. When appropriate, show before-and-after data in terms 
of consumption per unit of production, time, or area.
    (iii) Provide an estimate of Simple Payback, including all 
calculations, documentation, and any assumptions.
    (4) Qualifications of the assessor. Provide the qualifications of 
the person that completed the assessment. If the energy assessment for a 
project with total project costs of $80,000 or less is not conducted by 
Energy Auditor or Energy Assessor, then the person must have at least 3 
years of experience and completed at least five energy assessments or 
energy audits on similar type projects.
    Section D--Qualifications. Provide a resume or other evidence of the 
contractor or installer's qualifications and experience with the 
proposed EEI technology. Any contractor or installer with less than 2 
years of experience may be required to provide additional information in 
order for the Agency to determine if they are qualified installer/
contractor.



    Sec. Appendix B to Subpart B of Part 4280--Technical Reports for 
Renewable Energy System (RES) Projects With Total Project Costs of Less 
                  Than $200,000, but More Than $80,000

    Provide the information specified in Sections A through D for each 
technical report prepared under this appendix. A renewable energy site 
assessment may be used in lieu of Sections A through C if the renewable 
energy site assessment contains the information requested in Sections A 
through C. In such instances, the technical report would consist of 
Section D and the renewable energy site assessment.
    Note: If the total project cost for the RES project is $80,000 or 
less, this appendix does not apply. Instead, for such projects, please 
provide the information specified in Sec. 4280.120 (b)(4).
    Section A--Project Description. Provide a description of the 
project, including its intended purpose and a summary of how the project 
will be constructed and installed. Describe how the system meets the 
definition of commercially available. Identify the project's location 
and describe the project site.
    Section B--Resource Assessment. Describe the quality and 
availability of the renewable resource to the project. Identify the 
amount of renewable energy generated that will be generated once the 
proposed project is operating at its steady state operating level. If 
applicable, also identify the percentage of energy being replaced by the 
system.
    If the application is for a bioenergy project, provide documentation 
that demonstrates that any and all woody biomass feedstock from National 
Forest System land or public lands cannot be used as a higher value 
wood-based product.
    Section C--Project Economic Assessment. Describe the projected 
financial performance of the proposed project. The description must 
address total project costs, energy savings, and revenues, including 
applicable investment and other production incentives accruing from 
Government entities. Revenues to be considered shall accrue from the 
sale of energy, offset or savings in energy costs, and byproducts. 
Provide an estimate of Simple Payback, including all calculations, 
documentation, and any assumptions.
    Section D--Project Construction and Equipment Information. Describe 
how the design, engineering, testing, and monitoring are sufficient to 
demonstrate that the proposed project will meet its intended purpose, 
ensure public safety, and comply with applicable laws, regulations, 
agreements, permits, codes, and standards. Describe how all equipment 
required for the RES is available and able to be procured and delivered 
within the proposed project development schedule. In addition, present 
information regarding component warranties and the availability of spare 
parts.
    Section E--Qualifications of Key Service Providers. Describe the key 
service providers, including the number of similar systems installed 
and/or manufactured previously, professional credentials, licenses, and 
relevant experience. When specific numbers are not available for similar 
systems, estimations will be acceptable.



    Sec. Appendix C to Subpart B of Part 4280--Technical Reports for 
   Renewable Energy System (RES) Projects With Total Project Costs of 
                          $200,000 and Greater

    Provide the information specified in Sections A through G for each 
technical report

[[Page 822]]

prepared under this appendix. Provide the resource assessment under 
Section C that is applicable to the project. For hybrid projects, 
technical reports must be prepared for each technology that comprises 
the hybrid project.
    Section A--Qualifications of the Project Team. Describe the project 
team, their professional credentials, and relevant experience. The 
description shall support that the project team key service providers 
have the necessary professional credentials, licenses, certifications, 
and relevant experience to develop the proposed project.
    Section B--Agreements and Permits. Describe the necessary agreements 
and permits (including any for local zoning requirements) required for 
the project and the anticipated schedule for securing those agreements 
and permits. For example, interconnection agreements and power purchase 
agreements are necessary for all renewable energy projects electrically 
interconnected to the utility grid.
    Section C--Resource Assessment. Describe the quality and 
availability of the renewable resource and the amount of renewable 
energy generated through the deployment of the proposed system. For all 
bioenergy projects, except anaerobic digesters projects, complete 
Section C.3 of this appendix. For anaerobic digester projects, complete 
Section C.6 of this appendix.
    1. Wind. Provide adequate and appropriate data to demonstrate the 
amount of renewable resource available. Indicate the source of the wind 
data and the conditions of the wind monitoring when collected at the 
site or assumptions made when applying nearby wind data to the site.
    2. Solar. Provide adequate and appropriate data to demonstrate the 
amount of renewable resource available. Indicate the source of the solar 
data and assumptions.
    3. Bioenergy/Biomass Project. Provide adequate and appropriate data 
to demonstrate the amount of renewable resource available. Indicate the 
type, quantity, quality, and seasonality of the renewable biomass 
resource, including harvest and storage, where applicable. Where 
applicable, also indicate shipping or receiving method and required 
infrastructure for shipping. For proposed projects with an established 
resource, provide a summary of the resource. Document that any and all 
woody biomass feedstock from National Forest System land or public lands 
cannot be used as a higher value wood-based product.
    4. Geothermal Electric Generation. Provide adequate and appropriate 
data to demonstrate the amount of renewable resource available. Indicate 
the quality of the geothermal resource, including temperature, flow, and 
sustainability and what conversion system is to be installed. Describe 
any special handling of cooled geothermal waters that may be necessary. 
Describe the process for determining the geothermal resource, including 
measurement setup for the collection of the geothermal resource data. 
For proposed projects with an established resource, provide a summary of 
the resource and the specifications of the measurement setup.
    5. Geothermal Direct Generation. Provide adequate and appropriate 
data to demonstrate the amount of renewable resource available. Indicate 
the quality of the geothermal resource, including temperature, flow, and 
sustainability and what direct use system is to be installed. Describe 
any special handling of cooled geothermal waters that may be necessary. 
Describe the process for determining the geothermal resource, including 
measurement setup for the collection of the geothermal resource data. 
For proposed projects with an established resource, provide a summary of 
the resource and the specifications of the measurement setup.
    6. Anaerobic Digester Project/Biogas. Provide adequate and 
appropriate data to demonstrate the amount of renewable resource 
available. Indicate the substrates used as digester inputs, including 
animal wastes or other Renewable Biomass in terms of type, quantity, 
seasonality, and frequency of collection. Describe any special handling 
of feedstock that may be necessary. Describe the process for determining 
the feedstock resource. Provide either tabular values or laboratory 
analysis of representative samples that include biodegradability studies 
to produce gas production estimates for the project on daily, monthly, 
and seasonal basis. If an anerobic digester project, identify the type 
of operation (e.g., dairy, swine, layer, etc.), along with breed, herd 
population size and demographics, and the type of waste collection 
method and frequency information available. For the biogas produced, 
identify the type of digester (e.g., mixed, plug-flow, attached film, 
covered lagoon, etc.), if applicable, or the method of capture 
(landfill, sewage waste treatment, etc.) and treatment. Identify the 
system designer and determine the digester design assumptions such as 
the number and type of animals, the bedding type and estimated annual 
quantity used, the manure and wastewater volumes, and the treatment of 
digester effluent (e.g., none, solids separation by screening, etc. with 
details including use or method of disposal).
    7. Hydrogen Project. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
type, quantity, quality, and seasonality of the renewable biomass 
resource. For solar, wind, or geothermal sources of energy used to 
generate hydrogen, indicate the renewable resource where the hydrogen 
system is to be installed. Local resource maps may be used

[[Page 823]]

as an acceptable preliminary source of renewable resource data. For 
proposed projects with an established renewable resource, provide a 
summary of the resource.
    8. Hydroelectric/Ocean Energy Projects. Provide adequate and 
appropriate data to demonstrate the amount of renewable resource 
available. Indicate the quality of the resource, including temperature 
(if applicable), flow, and sustainability of the resource, including a 
summary of the resource evaluation process and the specifications of the 
measurement setup and the date and duration of the evaluation process 
and proximity to the proposed site. If less than 1 year of data is used, 
a qualified consultant must provide a detailed analysis of the 
correlation between the site data and a nearby, long-term measurement 
site.
    (9) RES with storage components. Provide adequate and appropriate 
data to demonstrate the amount of renewable resource available. Indicate 
the type, quantity, quality, and seasonality of the renewable energy 
resource, where applicable. Indicate the storage system specifications 
and the integrity of the system in conjunction with the RES it is 
integrated with, including application, size, lifetime, response time, 
capital and maintenance costs associated with the operation as well as 
the distribution of the stored resource(s).
    Section D--Design and Engineering. Describe the intended purpose of 
the project and the design, engineering, testing, and monitoring needed 
for the proposed project. The description shall support that the system 
will be designed, engineered, tested, and monitored so as to meet its 
intended purpose, ensure public safety, and comply with applicable laws, 
regulations, agreements, permits, codes, and standards. In addition, 
identify that all major equipment is commercially available, including 
proprietary equipment, and justify how this unique equipment is needed 
to meet the requirements of the proposed design. In addition, 
information regarding component warranties and the availability of spare 
parts must be presented.
    Section E--Project Development. Describe the overall project 
development method, including the key project development activities and 
the proposed schedule, including proposed dates for each activity. The 
description shall identify each significant historical and projected 
activity, its beginning and end, and its relationship to the time needed 
to initiate and carry the activity through to successful project 
completion. The description shall address applicant project development 
cash flow requirements. Details for equipment procurement and 
installation shall be addressed in Section F of this appendix.
    Section F--Equipment Procurement and Installation. Describe the 
availability of the equipment required by the system. The description 
shall support that the required equipment is available and can be 
procured and delivered within the proposed project development schedule. 
Describe the plan for site development and system installation, 
including any special equipment requirements. In all cases, the system 
or improvement shall be installed in conformance with manufacturer's 
specifications and design requirements, and comply with applicable laws, 
regulations, agreements, permits, codes, and standards.
    Section G--Operations and Maintenance. Describe the operations and 
maintenance requirements of the system, including major rebuilds and 
component replacements necessary for the system to operate as designed 
over its useful life. The warranty must cover and provide protection 
against both breakdown and a degradation of performance. The performance 
of the RES or EEI shall be monitored and recorded as appropriate to the 
specific technology.



 Sec. Appendix D to Subpart B of Part 4280--Feasibility Study Components

                            Executive Summary
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Provide an overview to describe the nature and scope of the proposed
 project, including the purpose, project location, design features,
 capacity, and estimated capital costs. Include a summary of the
 feasibility determinations made for each applicable component.
------------------------------------------------------------------------


                                Economic
------------------------------------------------------------------------
 
------------------------------------------------------------------------
What is it?..................  Cost benefit analysis.
What are the factors to        Minimum amount of inputs (labor,
 consider?.                     infrastructure, utilities, renewable
                                resources, feedstocks) to operate
                                successfully.
                               Contracts in place and contracts to be
                                negotiated, including terms and
                                renewals.
                               Environmental risks.
                               Cost of project relative to the increase
                                in revenues or benefits provided.

[[Page 824]]

 
                               Overall economic impact of project
                                including new markets created and
                                economic development.
------------------------------------------------------------------------


                                 Market
------------------------------------------------------------------------
 
------------------------------------------------------------------------
What is it?..................  Analysis of the current and future market
                                potential, competition, sales or service
                                estimations including current and
                                prospective buyers or users.
What are the factors to        Competition.
 consider?.
                               Type of project: Service, product or
                                commodity based.
                               Target market, new versus established.
                               End user analysis, captive versus
                                competitive.
                               By-product revenue streams.
                               Industry risk.
------------------------------------------------------------------------


                                Technical
------------------------------------------------------------------------
 
------------------------------------------------------------------------
What is it?..................  Analyzing the reliability of the
                                technology to be used and/or the
                                analysis of the delivery of goods or
                                services, including transportation,
                                business location, and the need for
                                technology, materials, and labor.
What are the factors to        Commercial availability.
 consider?.
                               Product and process success record and
                                duplication of results.
                               Experience of the service providers.
                               Roads, rail, airport infrastructure.
                               Need for local transportation.
                               Labor market.
                               Availability of materials.
                               Use, age, and reliability of technology.
                               Construction risk.
------------------------------------------------------------------------


                                Financial
------------------------------------------------------------------------
 
------------------------------------------------------------------------
What is it?..................  Analysis of the operation to achieve
                                sufficient income, credit, and cashflow
                                to financially sustain the project over
                                the long term and meet all debt
                                obligations.
What are the factors to        Commercial or project underwriting.
 consider?.
                               Management's assumptions.
                               Accounting policies.
                               Source of repayment.
                               Dependency on other entities.
                               Equity contribution.
                               Market demand forecast.
                               Peer industry comparison.
                               Cost-accounting system.
                               Availability of short-term credit.
                               Adequacy of raw materials and supplies.
                               Sensitivity analysis.
------------------------------------------------------------------------


[[Page 825]]


                               Management
------------------------------------------------------------------------
 
------------------------------------------------------------------------
What is it?..................  Analysis of the legal structure of the
                                business or operation; ownership, board
                                and management analysis.
What are the factors to        History of the business or organization.
 consider?.
                               Professional and educational background.
                               Experience.
                               Skills.
                               Qualifications necessary to implement the
                                project.
------------------------------------------------------------------------


                             Recommendation
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Conclude with an opinion and recommendation presented by the consultant.
------------------------------------------------------------------------


                             Qualifications
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Provide a resume or statement of qualifications of the author of the
 feasibility study, including prior experience.
------------------------------------------------------------------------

Subpart C [Reserved]



          Subpart D_Rural Microentrepreneur Assistance Program

    Source: 86 FR 26353, May 14, 2021, unless otherwise noted.



Sec. 4280.301  Purpose and scope.

    (a) This subpart contains the policies and procedures by which the 
Agency will administer the Rural Microentrepreneur Assistance Program 
(RMAP). The purpose of the Program is to support the development and 
ongoing success of rural microentrepreneurs and microenterprises. To 
accomplish this purpose, the Program will make direct loans and provide 
grants to selected Microenterprise Development Organizations. Selected 
Microenterprise Development Organization will use the funds to:
    (1) Provide microloans to rural microentrepreneurs and 
microenterprises;
    (2) Provide business-based training and technical assistance to 
rural microborrowers and potential microborrowers as an essential part 
of the microlending process;
    (3) Perform other such activities as deemed appropriate by the 
Secretary to ensure the development and ongoing success of rural 
microenterprises.
    (b) The Agency will make direct loans to microlenders for the 
purpose of providing fixed interest rate microloans to rural 
microentrepreneurs for business startup and for growing microenterprises 
in compliance with Sec. Sec. 4280.311 and 4280.312. Eligible 
microlenders will also be eligible to receive microlender technical 
assistance grants to provide technical assistance and training to 
microenterprises that have received or are seeking a microloan under 
this program in compliance with Sec. 4280.313.
    (c) To allow for extended opportunities for technical assistance and 
training, the Agency will make technical assistance-only grants to 
Microenterprise Development Organizations that have sources of funding 
other than program funds for making or facilitating microloans.



Sec. 4280.302  Definitions and abbreviations.

    (a) General definitions. The following definitions apply to the 
terms used in this subpart.
    Administrative expenses. Those expenses incurred by a 
Microenterprise Development Organization for the operation of services 
under this program. Not more than 10 percent of technical assistance 
grant funds may be used for such expenses.

[[Page 826]]

    Agency. USDA Rural Development, Rural Business-Cooperative Service 
or its successor organization.
    Agricultural production. The cultivation, growing, or harvesting of 
plants and crops (including farming), breeding, raising, feeding, or 
housing of livestock (including ranching).
    Applicant. The legal entity, also referred to as a Microenterprise 
Development Organization, submitting an application to participate in 
the program.
    Application. The required forms and documentation submitted by a 
Microenterprise Development Organization for acceptance into the 
program.
    Award. The written documentation, executed by the Agency after the 
application is approved, containing the terms and conditions for 
provision of financial assistance to the applicant. Financial assistance 
may constitute a loan or a grant, or both.
    Business incubator. An organization that provides temporary premises 
at below market rates, technical assistance in developing business or 
marketing plans, technical services, use of equipment, or other 
facilities or services to rural microentrepreneurs and microenterprises 
starting or growing a business. The business incubator may also provide 
access to capital through direct loans or referrals to loan programs.
    Close relative. Individuals who live in the same household or who 
are closely related by blood, marriage, or adoption, such as a spouse, 
domestic partner, parent, child, sibling, aunt, uncle, grandparent, 
grandchild, niece, nephew, or first cousin.
    Default. The condition that exists when a borrower is not in 
compliance with the promissory note, the loan and/or grant agreement, or 
other related documents evidencing the loan from the Agency or the 
Microenterprise Development Organization.
    Delinquency. Failure by a Microenterprise Development Organization 
or microborrower to make a scheduled loan payment by the due date or 
within any grace period as stipulated in the promissory note and loan 
agreement.
    Eligible project cost. The total cost of a microborrower's project 
for which a microloan is being sought from a microlender, less any costs 
identified as ineligible in Sec. 4280.323.
    Facilitation of access to capital. For purposes of this program, 
facilitation of access to capital means assisting a client of the 
technical assistance only grantee in obtaining a microloan, whether or 
not the microloan is wholly or partially capitalized by funds provided 
under this program.
    Federal fiscal year (FY). The 12-month period beginning October 1 of 
any given year and ending on September 30 of the following year.
    Full-time equivalent employee (FTE). The Agency uses the Bureau of 
Labor Statistics definition of full-time jobs as its standard 
definition. For purposes of this program, a full-time job is a job that 
has at least 35 hours in a work week. As such, one full-time job with at 
least 35 hours in a work week equals one FTE; two part-time jobs with 
combined hours of at least 35 hours in a work week equals one FTE, and 
three seasonal jobs equals one FTE. If an FTE calculation results in a 
fraction, it should be rounded up to the next whole number.
    Indian tribe. Means the term as defined in 25 U.S.C. 5304(e).
    Loan loss reserve fund (LLRF). A deposit account that each 
microlender must establish and maintain in an amount equal to not less 
than 5 percent of the total amount owed by the microlender under this 
program to the Agency. This account can be used to pay any shortage in 
the rural microloan revolving fund caused by delinquencies or losses on 
microloans.
    Microborrower. A microentrepreneur or microenterprise that has 
received loans or financial assistance from a microlender under this 
program in an amount of $50,000 or less.
    Microenterprise. Microenterprise means:
    (i) A sole proprietorship located in a rural area, as defined; or
    (ii) A business entity located in a rural area, as defined, with not 
more than 10 full-time-equivalent employees. Such businesses may include 
any type of legal business that meets local standards of decency, though 
certain business types may be ineligible as defined in Sec. 4280.323 
Business types may also include agricultural producers

[[Page 827]]

provided they meet the stipulations in this definition.
    Microenterprise development organization (MDO). A domestic 
organization that is a non-profit entity; an Indian tribe; or a public 
institution of higher education with loan or assistance programs for the 
benefit of rural microentrepreneurs and microenterprises. An MDO will:
    (i) Provide training and technical assistance;
    (ii) Make microloans or facilitate access to capital or other 
related services; and
    (iii) Have a demonstrated record of delivering services to rural 
microentrepreneurs, or an effective plan to develop a program to deliver 
services to rural microentrepreneurs.
    Microentrepreneur. An owner and operator, or prospective owner and 
operator, of a rural microenterprise who is unable to obtain sufficient 
training, technical assistance, or credit other than under this section. 
All microentrepreneurs assisted under this regulation must be located in 
rural areas.
    Microlender. An MDO that has been approved by the Agency for 
participation under this subpart to make microloans and provide an 
integrated program of training and technical assistance to its 
microborrowers and prospective microborrowers.
    Microloan. A business loan of not more than $50,000 for eligible 
purposes to a microborrower with a fixed interest rate and a term not to 
exceed 10 years.
    Military personnel. Individuals, regardless of rank or grade, 
currently in active United States military service with less than 6 
months remaining in their active duty service requirement.
    Nonprofit entity. An entity chartered as a nonprofit entity under 
State or Tribal Law.
    Program. The Rural Microentrepreneur Assistance Program (RMAP).
    Rural Microloan Revolving Fund (RMRF). An exclusive account on which 
the Agency will hold a first lien and from which microloans will be made 
by the MDO. All payments from microborrowers and reimbursements from the 
LLRF will be deposited into the RMRF account. Loan payments will be made 
to the Agency by the microlender from the RMRF.
    Rural or rural area. Any area of a State not in a city or town that 
has a population of more than 50,000 inhabitants, not in the urbanized 
area contiguous and adjacent to a city or town that has a population of 
more than 50,000 inhabitants, and excluding certain populations pursuant 
to 7 U.S.C. 1991(a)(13)(H) and (I). In making this determination, the 
Agency will use the latest decennial census of the United States. The 
following exclusions apply:
    (i) Any area in the urbanized area contiguous and adjacent to a city 
or town that has a population of more than 50,000 inhabitants that is 
attached to the urbanized area of a city or town with more than 50,000 
inhabitants by a contiguous area of urbanized census blocks that is not 
more than two census blocks wide. Applicants from such an area should 
work with their Rural Development State Office to request a 
determination of whether their project is located in a rural area under 
this provision.
    (ii) For the Commonwealth of Puerto Rico, the island is considered 
Rural and eligible except for the San Juan Census Designated Place (CDP) 
and any other CDP with greater than 50,000 inhabitants. Areas within 
CDPs with greater than 50,000 inhabitants, other than the San Juan CDP, 
may be determined to be rural if they are ``not urban in character.''
    (iii) For the State of Hawaii, all areas within the State are 
considered rural and eligible except for the Honolulu CDP within the 
County of Honolulu and any other CDP with greater than 50,000 
inhabitants. Areas within CDPs with greater than 50,000 inhabitants, 
other than the Honolulu CDP, may be determined to be rural if they are 
``not urban in character.''
    (iv) For the purpose of defining a rural area in the Republic of 
Palau, the Federated States of Micronesia, and the Republic of the 
Marshall Islands, the Agency shall determine what constitutes rural and 
rural area based on available population data.
    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the District of Columbia,

[[Page 828]]

the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the 
Northern Mariana Islands, the Republic of Palau, the Federated States of 
Micronesia, and the Republic of the Marshall Islands.
    Technical assistance (TA) and training. A function performed for the 
benefit of a private business enterprise or a community which is a 
problem-solving activity such as market research, product and/or service 
improvement, feasibility study, worker training programs, etc., to 
assist in the economic development of a rural area.
    Technical assistance grant. A grant from the Agency, the funds of 
which are used to provide TA and training.
    (b) Abbreviations. The following abbreviations apply to the terms 
used in this subpart.
    FTE--Full-time employee.
    FY--Fiscal year.
    LLRF--Loan loss reserve fund.
    MDO--Microenterprise Development Organization.
    RMAP--Rural Microentrepreneur Assistance Program.
    RMRF--Rural microloan revolving fund.
    TA--Technical assistance.

[86 FR 26353, May 14, 2021, as amended at 87 FR 38644, June 29, 2022]



Sec. 4280.303  Exception authority.

    The Administrator may make limited exceptions to the requirements or 
provisions of this subpart. Such exceptions must be in the best 
financial interest of the Federal government and may not conflict with 
applicable law. No exceptions may be made regarding applicant 
eligibility, project eligibility, or the rural area definition. In 
addition, exceptions may not be made:
    (a) To accept an applicant into the program that would not normally 
be accepted under the eligibility criteria; or
    (b) To fund an interested party or applicant that has not 
successfully competed for funding in accordance with this subpart.



Sec. 4280.304  Review or appeal rights and administrative concerns.

    (a) Review or appeal rights. An applicant MDO, a microlender, or 
grantee MDO may seek a review of an adverse Agency decision under this 
subpart from the appropriate Agency official that oversees the program 
in question, and/or appeal the Agency decision to the National Appeals 
Division in accordance with 7 CFR part 11.
    (b) Administrative concerns. Any questions or concerns regarding the 
administration of the program, including any action of the microlender, 
may be sent to: USDA Rural Development, Rural Business-Cooperative 
Service, Program Management Division at 1400 Independence Avenue SW, 
Room 5160-S, Mail Stop 3226, Washington, DC 20250-3226 or its successor 
agency, or the local USDA Rural Development office.



Sec. 4280.305  Nondiscrimination and compliance with other Federal laws.

    (a) Any entity receiving funds under this subpart must comply with 
other applicable Federal laws, including the Equal Employment 
Opportunities Act of 1972, the Americans with Disabilities Act, the 
Equal Credit Opportunity Act, the Civil Rights Act of 1964, Section 504 
of the Rehabilitation Act of 1973, the Age Discrimination Act of 1975, 
and 7 CFR part 1901, subpart E.
    (b) The U.S. Department of Agriculture (USDA) prohibits 
discrimination in all its programs and activities on the basis of race, 
color, national origin, age, disability, and where applicable, sex, 
marital status, familial status, parental status, religion, sexual 
orientation, genetic information, political beliefs, reprisal, or 
because all or part of an individual's income is derived from any public 
assistance program. (Not all prohibited bases apply to all programs.) 
Persons with disabilities who require alternative means for 
communication of program information (Braille, large print, audiotape, 
etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and 
TDD). Any applicant that believes it has been discriminated against as a 
result of applying for funds under this program should contact: USDA, 
Director, Office of Adjudication, 1400 Independence Avenue SW, 
Washington, DC 20250-9410, or call (866) 632-9992 (toll free) or (202) 
401-0216 (TDD) for information and instructions regarding the filing of 
a Civil Rights complaint.

[[Page 829]]

USDA is an equal opportunity provider, employer, and lender.
    (c) A pre-award compliance review will take place at the time of 
application when the applicant completes or provides the Agency with 
sufficient demographic information to complete Form RD 400-8, 
``Compliance Review''. Post-award compliance reviews will take place 
once every three years after the beginning of participation in the 
program and until such time as a microlender leaves the program.



Sec. 4280.306  Forms, regulations, and instructions.

    Copies of all forms, regulations, and instructions referenced in 
this subpart are available in any Agency office, the Agency's website 
at: https://www.rd.usda.gov/ page/regulations -and-guidance/ and for 
grants on the internet at www.grants.gov.



Sec. Sec. 4280.307-4280.309  [Reserved]



Sec. 4280.310  Program requirements for MDOs.

    (a) Eligibility requirements for applicant MDOs. To be eligible for 
a direct loan or grant award under this subpart, an applicant must meet 
each of the criteria set forth in paragraphs (a)(1) through (4) of this 
section, as applicable.
    (1) Type of applicant. The applicant must meet the definition of an 
MDO as provided in Sec. 4280.302.
    (2) Citizenship. Non-profit entities, to be eligible to apply for 
status as an MDO, must be at least 51 percent controlled by persons who 
are either:
    (i) Citizens of the United States, the Republic of Palau, the 
Federated States of Micronesia, the Republic of the Marshall Islands, 
American Samoa, or the Commonwealth of Puerto Rico; or
    (ii) Legally admitted permanent residents residing in the United 
States.
    (3) Legal authority and responsibility. The applicant must have the 
legal authority necessary to carry out the purpose of the award.
    (4) Other eligibility requirements. The applicant must also provide 
evidence that it:
    (i) Has demonstrated experience in the management of a revolving 
loan fund; or
    (ii) Certifies that it, or its employees, have received education 
and training from a qualified microenterprise development training 
entity so that the applicant has the capacity to manage such a revolving 
loan fund;
    (iii) Is actively and successfully participating as an intermediary 
lender in good standing under similar loan programs; and
    (iv) Provides an attorney's opinion regarding the potential 
microlender's legal status and its ability to enter into program 
transactions at the time of initial entry into the program. Subsequent 
to acceptance into the program, an attorney's opinion will not be 
required unless the Agency determines significant changes to the 
microlender have occurred.
    (b) System for Awards Management. All applicants must be registered 
in the System for Awards Management (SAM) prior to submitting an 
application, unless determined exempt under 2 CFR 25.110. Loan and grant 
recipients must maintain an active SAM registration with current 
information at all times during which it has an active Federal award or 
an application under consideration by the Agency. The applicant must 
ensure that the information in the database is current, accurate, and 
complete. Applicants must ensure that they complete the Financial 
Assistance General Certifications and Representations in SAM.
    (c) Minimum score. Once deemed eligible, an entity will be evaluated 
based on the scoring criteria in Sec. 4280.316 for adequate 
qualification to participate in the program. Eligible MDOs must score a 
minimum of sixty (60) points in order to be considered to receive an 
award under this subpart.
    (d) Ineligible applicants. An applicant will be considered 
ineligible if it:
    (1) Does not meet the definition of an MDO as provided in Sec. 
4280.302;
    (2) Is debarred, suspended or otherwise excluded from, or ineligible 
for, participation in Federal assistance programs; or
    (3) Has an outstanding judgment against it, obtained by the United

[[Page 830]]

States in a Federal Court (other than U.S. Tax Court).
    (e) Delinquencies. No applicant will be eligible to receive a loan 
if it is delinquent on a Federal debt.
    (f) Application eligibility and qualification. An application will 
only be considered eligible for funding if it is submitted by an 
eligible MDO. The applicant will qualify for funding based on the 
results of review, scoring, and other procedures as indicated in this 
subpart, and the applicant will further:
    (1) Establish an RMRF, or add capital to an RMRF originally 
capitalized under this program, and establish or continue a training and 
TA program for its microborrowers and prospective microborrowers; or
    (2) Fund a TA-only grant program to provide services to rural 
microentrepreneurs and microenterprises.
    (g) Business incubators. Because the purpose of a business incubator 
is to provide business-based TA and an environment in which micro-level, 
very small, and small businesses may thrive, a microlender that meets 
all other eligibility requirements and owns and operates a small 
business incubator will be considered eligible to apply. In addition, a 
business incubator selected to participate as a microlender may use RMAP 
funds to lend to an eligible microenterprise tenant, without creating a 
conflict of interest under Sec. 4280.323(c).



Sec. 4280.311  Loan provisions for Agency loans to microlenders.

    (a) Purpose of the loan. Loans will be made to eligible and 
qualified microlenders to capitalize RMRFs that it will administer by 
making and servicing microloans in one or more rural areas.
    (b) Eligible activities. Microlenders may make microloans for 
qualified business activities and use Agency loan funds only as provided 
in Sec. 4280.322.
    (c) Ineligible activities. Microlenders may not use RMRF funds for 
administrative costs or expenses and may not make microloans under this 
program for ineligible businesses or purposes as specified in Sec. 
4280.323.
    (d) Cost share. The Federal share of the eligible project cost of a 
microborrower's project funded under this section shall not exceed 75 
percent. The cost share requirement shall be met by the microlender 
using either of the options identified in paragraphs (d)(1) and (2) of 
this section in establishing an RMRF. A microlender may establish 
multiple RMRFs utilizing either option. Whichever option is selected for 
an RMRF, it must apply to the entire RMRF and all microloans made with 
funds from that RMRF.
    (1) Microborrower project level option. The loan covenants between 
the Agency and the microlender and the microlender's lending policies 
and procedures shall limit the microlender's loan to the microborrower 
to no more than 75 percent of the eligible project costs and require 
that the microborrower obtain the remaining 25 percent of the eligible 
project cost from non-Federal sources. The non-Federal share of the 
eligible project cost of the project may be provided in cash (including 
through fees, grants, and gifts) or in the form of in-kind 
contributions.
    (2) RMRF level option. The microlender shall capitalize the RMRF at 
no more than 75 percent Agency loan funds and not less than 25 percent 
non-Federal funds, thereby allowing the microlender to finance 100 
percent of the microborrower's eligible project costs. All contributed 
funds shall be maintained in the RMRF.
    (e) Loan terms and conditions for microlenders. Program loans will 
be made to microlenders under the following terms and conditions:
    (1) Funds received from the Agency and any non-Federal share will be 
deposited into an account that will be the RMRF account and shall not be 
mingled with other MDO funds. The Agency will hold first lien position 
on the RMRF account, the LLRF account, and all notes receivable from 
microloans using Agency funds.
    (2) The RMRF account will be used to make fixed-rate microloans, 
accept repayments from microborrowers and reimbursements from the LLRF, 
to repay the Agency loan and, with the advance written approval of the 
Agency, to supplement the LLRF with interest or fee earnings from the 
RMRF.

[[Page 831]]

    (3) The term of an Agency loan made to a microlender will be 20 
years. If requested by the applicant MDO, a shorter term may be agreed 
upon by the microlender and the Agency. If a repayment workout is 
required after loan closing, the term of the loan may not exceed a 20-
year period from the loan origination date.
    (4) Each RMAP loan made to a microlender during its first five years 
of participation in the program will bear an interest rate of 2 percent 
for the life of the loan. After the fifth year of an MDO's continuous 
and satisfactory participation in the program, each new loan made to the 
microlender will bear interest at a rate of 1 percent. The interest rate 
on previous loans will remain unchanged. Satisfactory participation 
requires a loan default rate of 5 percent or less, a pattern of 
delinquencies of 10 percent or less in the MDO's RMRF account(s), and 
timely submission of reports to the Agency as required by Sec. 
4280.311(h).
    (5) Each loan made to a microlender will automatically receive a 2-
year deferral during which time no repayment to the Agency will be 
required. The deferral period will begin on the day the Agency's loan to 
the microlender is closed. During the initial 2-year deferral period, 
each loan to a microlender will accrue interest only on funds disbursed 
by the Agency. Interest accrued during the 2-year deferral period will 
be capitalized to the loan's principal balance during the 24th month of 
the loan unless the microlender chooses to make a voluntary payment of 
the accrued interest. The required monthly payments to amortize the loan 
after the 2-year deferral period will be based on the full loan amount 
plus capitalized interest, not just the amount disbursed to the 
microlender, even in cases where the Agency's loan has not been fully 
advanced to the microlender.
    (6) Except in the case of liquidation or early repayment, loans to 
microlenders must fully amortize over the life of the loan. The first 
payment will be due to the Agency on the last day of the 24th month of 
the life of the loan.
    (7) The microlender is responsible for full repayment of its loan to 
the Agency regardless of the performance of its microloan portfolio. 
Partial or full repayment of debt to the Agency under the program may be 
made at any time, including during the deferral period, without any pre-
payment penalties being assessed.
    (8) The Agency may call the entire loan due and payable prior to the 
end of the full term due to any non-performance, delinquency, or default 
on the loan.
    (9) The loan closing between the microlender and the Agency should 
take place within 90 days from the execution of Form RD 1940-1, 
``Request for Obligation of Funds.'' Microlenders that are unable to 
close the loan within 90 days of obligation must provide justification 
for the delay or loan funds will be forfeited through a de-obligation of 
funds.
    (10) Microlenders will be eligible to receive a disbursement of up 
to 25 percent of the total loan amount at the time of loan closing. 
Funds disbursed at loan closing exceeding 25 percent of the loan amount 
will only be made if and to the extent that the MDO has made a funding 
commitment to an eligible microborrower that will be closed within 60 
days from the Agency loan date. Interest will accrue on all funds 
disbursed to the microlender beginning on the date of disbursement.
    (11) Microlenders may request in writing and receive additional loan 
disbursements until the full amount of the loan to the microlender is 
disbursed, or until the end of the 36th month of the loan, whichever 
occurs first. Letters of request for disbursement should be made not 
more often than quarterly and must be accompanied by a description of 
the microlender's anticipated need. Such description will indicate the 
amount and number of microloans anticipated to be made with the loan 
disbursement.
    (12) Funds not disbursed to the microlender by the end of the 36th 
month of the loan from the Agency will be de-obligated and no longer 
available for disbursement to the MDO. In such cases where loan funds 
are deobligated, the Agency will establish a revised payment schedule to 
fully amortize the loan balance by its maturity date.

[[Page 832]]

    (13) In the event a microlender fails to meet its payment or 
reporting obligations to the Agency, the Agency may pursue any 
combination of the following:
    (i) Take possession of the RMRF and/or any microloans outstanding, 
and/or the LLRF;
    (ii) Call the loan due and payable in full; and/or
    (iii) Enter into a workout agreement acceptable to the Agency, which 
may or may not include transfer or sale of the portfolio to another 
microlender (whether or not funded under the program) deemed acceptable 
to the Agency.
    (14) If a microlender makes a withdrawal from the RMRF for any 
purpose other than to make a microloan, repay the Agency, or, with 
advance written approval, transfer an appropriate amount of non-Federal 
funds to the LLRF, the Agency may take actions including the restriction 
of further access to withdrawals from the account by the microlender or 
declaring the loan in default due to improper use of loan funds.
    (f) Loan funding limitations--(1) Minimum and maximum loan amounts. 
The minimum loan amount that a microlender may borrow under this program 
will be $50,000. The maximum amount any microlender may borrow on a 
single loan under this program, or in any given Federal FY, will be 
$500,000. In no case will the aggregate outstanding balance owed to the 
program by any single microlender exceed $2,500,000.
    (2) Use of funds. Agency loan funds must be used only to establish 
or recapitalize an existing Agency funded RMRF account out of which 
microloans will be made, into which microloan payments will be 
deposited, and from which repayments to the Agency will be made.
    (g) Loan loss reserve fund (LLRF). Each microlender that receives 
one or more loans under the program will be required to establish an 
LLRF account.
    (1) Purpose. The purpose of the LLRF is to protect the microlender 
and the Agency against losses that may occur as the result of the 
failure of one or more microborrowers to repay their loans on a timely 
basis.
    (2) Capitalization and maintenance. The LLRF is subject to each of 
the following conditions:
    (i) The microlender must maintain the LLRF at a minimum of 5 percent 
of the total amount owed by the microlender under the program to the 
Agency. If the LLRF falls below the required amount, the microlender 
will have 30 days to replenish the LLRF. The Agency will hold a security 
interest in the account and all funds therein until the MDO has repaid 
its debt to the Agency under this program.
    (ii) No Agency loan funds may be used to capitalize the LLRF.
    (iii) The LLRF must be held in a Federally insured deposit account 
separate and distinct from any other fund owned by the microlender.
    (iv) The LLRF must remain open, appropriately capitalized, and 
active until such time as any loans owed to the Agency by the 
microlender under the program related to such LLRF are paid in full.
    (3) Use of LLRF. The LLRF must be used only to:
    (i) Recapitalize the RMRF in the event of the loss and write-off of 
a microloan;
    (ii) Accept Non-Federal deposits as required for maintenance of the 
fund at a level equal to 5 percent or more of the amount owed to the 
Agency by the microlender under the program; and
    (iii) Prepay or repay the Agency program loan.
    (4) LLRF funded at time of closing. The LLRF account must be 
established by the microlender prior to the closing of the loan from the 
Agency. At the time of initial loan closing, sources of funding for the 
LLRF must be identified by the microlender and funds equal to 5 percent 
of the initial loan disbursement, if made at loan closing, must be made 
to the LLRF by the microlender. The amount in the LLRF can be built over 
time and must be maintained in an amount greater than or equal to 5 
percent of the amount owed to the Agency by the microlender under the 
program. After the first disbursement is made to a microlender, further 
disbursements will only be made if the LLRF is funded at the appropriate 
amount. After the initial loan is made

[[Page 833]]

to a microlender, subsequent loan closings may require a deposit of 
additional funds to the LLRF to maintain an amount equal to 5 percent of 
the total loan balance owed to the Agency under the program. Federal 
funds, except where specifically permitted by other laws, may not be 
used to fund the LLRF.
    (5) Additional LLRF funding. In the event of exhibited weaknesses, 
such as losses that are greater than 5 percent of the microloan 
portfolio or a microborrower delinquency rate in excess of 10 percent, 
the Agency may require the microlender to deposit additional funds into 
the LLRF; however, the Agency may never require an LLRF balance of more 
than 10 percent of the total amount owed to the Agency by the 
microlender.
    (h) Recordkeeping, reporting, and oversight. Microlenders must 
maintain all records applicable to the program and make them available 
to the Agency upon request. Microlenders must submit quarterly reports 
as specified in paragraphs (h)(1) through (4) of this section. Portfolio 
reporting requirements must be met via the electronic reporting system. 
Other reports, such as narrative information, may be submitted as hard 
copy in the event the microlender or grantee does not have the 
capability to submit or accept such reports electronically.
    (1) Periodic reports. On a quarterly basis, within 30 days of the 
end of each Federal FY calendar quarter, each microlender that has an 
outstanding loan under this section must provide to the Agency:
    (i) An Agency-approved form containing such information as the 
Agency may require, and in accordance with OMB circulars and guidance, 
to ensure that funds provided are being used for the purposes for which 
the loan to the microlender was made;
    (ii) Listing of each microborrower under this program, their loan 
balance and payment status; and
    (iii) A discussion reconciling the microlender's actual results for 
the period against its goals, milestones, and objectives as provided in 
the application package.
    (2) Minimum retention. Microlenders must provide evidence in their 
quarterly reports that the sum of the unexpended amount in the RMRF, 
plus the amount in the LLRF, plus debt owed by the microborrowers is 
equal to a minimum of 105 percent of the amount owed by the microlender 
to the Agency, unless the Agency has established a higher LLRF reserve 
requirement for a specific microlender.
    (3) Combining accounts and reports. If a microlender has more than 
one loan from the Agency, a separate report must be made for each loan 
except when RMRF accounts have been combined. A microlender may combine 
RMRF accounts only when the Agency approves the combining of accounts 
and reports in writing before such accounts are combined and reports are 
submitted, and:
    (i) The underlying loans have the same rates, terms and conditions, 
including the method of determining matching funds for a microborrower's 
project; and
    (ii) The combined report allows the Agency to effectively administer 
the program, including providing the same level of transparency and 
information for each loan as if separate RMRF and LLRF reports had been 
prepared.
    (4) Delinquency. In the event that a microlender has delinquent 
loans in its RMAP portfolio, quarterly reports will include narrative 
explanation of the steps being taken to cure the delinquency.
    (5) Other reports. Other reports may be required by the Agency from 
time to time in the event of poor performance, one or more work-out 
agreements, or other such occurrences that require more than the usual 
set of program servicing.
    (6) Access to microlender's records. Upon request by the Agency, the 
microlender will permit representatives of the Agency to inspect and 
make copies of any records pertaining to operation and administration of 
the program. Such inspection and copying may be made during regular 
office hours of the microlender or at any other time agreed upon between 
the microlender and the Agency.
    (7) Changes in key personnel. Before any additions or changes are 
made to key personnel, the microlender must notify, and the Agency must 
approve,

[[Page 834]]

such changes. Such approval shall not be unreasonably withheld by the 
Agency.



Sec. 4280.312  Loan approval and closing.

    (a) Loan approval and obligating funds. The loan will be considered 
approved on the date the signed copy of Form RD 1940-1, ``Request for 
Obligation of Funds,'' is executed by the Agency. Form RD 1940-1 
authorizes funds to be obligated and may be executed by the Agency after 
the microlender has signed the document, provided that the microlender 
has the legal authority to contract for a loan and to enter into 
required agreements, including an Agency-approved loan agreement, and 
meets all program loan requirements.
    (b) Letter of conditions. Upon reviewing the conditions and 
requirements in the letter of conditions, the applicant must complete, 
sign, and return Form RD 1942-46, ``Letter of Intent to Meet 
Conditions,'' to the Agency; or if certain conditions cannot be met, the 
applicant may propose alternate conditions. The Agency will review any 
requests for changes to the letter of conditions and may approve only 
minor changes that do not materially affect the microlender and remain 
within the program requirements. Changes in legal entities prior to loan 
closing will not be approved.
    (c) Loan closing. (1) Prior to loan closing, microlenders must 
provide evidence that the RMRF and LLRF bank accounts have been set up 
and the LLRF has been or will be funded as described in Sec. 
4280.311(g)(4). Such evidence shall consist of:
    (i) A pre-authorized debit form allowing the Agency to withdraw 
payments from the RMRF account, and in the event of a repayment workout, 
from the LLRF account;
    (ii) An Agency-approved automatic deposit authorization form, from 
the depository institution providing the Agency with the RMRF account 
number, into which funds may be deposited at time of disbursement to the 
microlender;
    (iii) A statement from the depository institution as to the amount 
of cash in the LLRF account;
    (iv) An Agency-approved promissory note and a loan agreement for 
each loan to the MDO must be executed at loan closing. The loan 
agreement will be prepared by the Agency using Form RD 4274-4, 
``Intermediary Relending Program/Rural Microentrepreneur Assistance 
Program Loan Agreement,'' and reviewed by the MDO prior to loan closing; 
and
    (v) An appropriate security agreement on the LLRF and RMRF accounts 
must be executed at loan closing.
    (2) At loan closing, the microlender must certify that:
    (i) All requirements of the letter of conditions have been met; and
    (ii) There has been no material adverse change in the microlender, 
its key personnel, or its financial condition since the issuance of the 
letter of conditions. If one or more adverse changes have occurred, the 
microlender must explain the changes and the Agency must determine that 
the microlender remains eligible and qualified to participate as an MDO.
    (3) The microlender will provide sufficient evidence that no 
lawsuits or other legal issues are pending or threatened that would 
adversely affect the security of the microlender when Agency security 
instruments are filed.



Sec. 4280.313  Grant provisions.

    Grants offered under this program will be made to eligible MDOs in 
such amounts and requirements for microlenders with a loan(s) from the 
Agency, and for MDOs that seek only a TA grant from the Agency. 
Competition for these funds will occur as a part of the application and 
qualification process of becoming a microlender or grant recipient. No 
entity will receive grant funding as both a microlender and a TA-only 
provider. RMAP microlenders are not eligible for TA-only grant funding 
and an MDO receiving TA-only grant funding is not eligible for 
microlender grant funding. Failure to meet scoring benchmarks will 
preclude an applicant from receiving loan and/or grant dollars. Once an 
MDO is participating as a microlender, TA grant funds will be made 
available annually based on the MDO's lending balances and the 
availability of funds.
    (a) Microlender grants. The Agency shall make microlender TA grants 
to

[[Page 835]]

microlenders to assist them in providing marketing, management, and 
other TA to rural microentrepreneurs and microenterprises that have 
received or are seeking one or more microloans from the microlender. The 
capacity of a microlender to provide an integrated program of 
microlending and TA will be evaluated during the scoring process with 
their loan application and then annually in determining the amount of 
annual grant funds. An eligible MDO selected to be a microlender will be 
eligible to receive a microlending TA grant if it receives funding to 
provide microloans under this program. Microlender applicants for loan 
funding to establish or replenish a revolving loan fund originally 
capitalized under this program, may simultaneously apply for TA grant 
funds in an amount not to exceed 25 percent of the requested loan 
amount.
    (1) Technical assistance grants to microlenders will be awarded 
annually on a non-competitive basis in an amount based on the MDO's 
outstanding loan balance as of June 30, subject to satisfactory program 
performance of the microlender and the availability of funds. 
Satisfactory performance includes the timely payment of program loan(s) 
and the submission of periodic reports to the Agency. Annual TA grants 
to a microlender, subject to the availability of funds, will be made in 
an amount to replenish the microlender's TA fund to an amount equal to 
20 percent of the outstanding principal balance of loans made by the 
microlender to ultimate recipients unless otherwise published in an 
annual program funding notice. If available grant funds are not 
sufficient to fully replenish each microlender's TA funds to 20 percent 
of their outstanding loan balance, the available funds will be 
distributed proportionately based on the percentage of available funds 
to the total amount of annual TA grant funds requested.
    (2) Any grant dollars obligated but not spent by the microlender 
from their initial or subsequent grants will be subtracted from the 
subsequent year's grant eligibility calculation to ensure that 
obligations cover only microloans made and active and that the MDO's 
total grant funds available for TA do not exceed the established 20 
percent threshold.
    (3) The microlender will agree to use TA grant funds exclusively for 
providing TA assistance and training to eligible microentrepreneurs and 
microenterprises, with the exception that up to 10 percent of the grant 
funds may be used to cover the microlender's administrative expenses. 
Grant funds may not be used to make loan payments.
    (b) Technical assistance only grants. Grants will be competitively 
made to MDOs for the purpose of providing TA and training to prospective 
microborrowers. Technical assistance-only grants will be provided to 
eligible MDOs that seek to provide business-based TA and training to 
eligible microentrepreneurs and microenterprises, but do not seek 
funding as a microlender for an RMRF.
    (1) The amount of a TA-only grant under this program will not exceed 
10 percent of the amount of authorized appropriations available in any 
Federal FY for TA-only grants.
    (2) Technical assistance only grants will have a grant term not to 
exceed 12 months from the date the grant agreement is signed.
    (3) Technical assistance only grantees will be required to:
    (i) Refer clients to internal or external non-program funded lenders 
for loans of $50,000 or less, and
    (ii) Collect data regarding such clients. Technical assistance-only 
grantees will be considered successful if a minimum of 1-in-5 TA clients 
are referred for a microloan and are operating a business within 18 
months of receiving TA from the MDO.
    (c) Matching requirement. The MDO is required to provide a match of 
not less than 15 percent of the total amount of the grant in the form of 
matching funds, indirect costs, or in-kind goods or services. Unless 
specifically permitted by laws other than the statute authorizing RMAP, 
matching contributions must be made up of non-Federal funds.
    (d) Administrative expenses. Not more than 10 percent of a grant 
received by an MDO for a Federal FY may be used to pay administrative 
expenses. Microlenders must annually submit a budget of proposed 
administrative expenses for

[[Page 836]]

Agency approval. The Agency has the right to deny the requested amount, 
even if it is at 10 percent or less, and to fund administrative expenses 
at a lower level.
    (1) Administrative expenses should be kept to a minimum. As such, 
the applicant MDO is required in the application materials to provide an 
administrative budget plan indicating the amount of funding it will need 
for administrative purposes. Applicants will be scored accordingly, with 
those using less than 10 percent of the grant funds for administrative 
purposes being scored higher than those using 10 percent of the grant 
funds for administrative purposes.
    (2) While operating the program, the selected grantee will be 
expected to adhere to the estimates it provides in its application and 
annual budget. If for any reason the MDO cannot meet those expectations, 
it must contact the Agency in writing with justification to request a 
budget adjustment. Budget adjustments will be considered only if the 
adjustment result for administrative expenses is within the 10 percent 
limitation.
    (3) Microlenders that exceed 10 percent for administrative expenses 
will be considered in performance default and may be subject to Agency 
actions including the forfeiting of funds.
    (e) Ineligible grant purposes. Grant funds, matching funds, indirect 
costs, and in-kind goods and services may not be used for:
    (1) Grant application preparation costs;
    (2) Costs incurred prior to the obligation date of the grant;
    (3) Capital improvements;
    (4) Political or lobbying activities;
    (5) Assistance to any ineligible entity;
    (6) Payment of any judgment or debt owed; or
    (7) Payment of any loan.
    (f) Facilitation of access to capital. Technical assistance-only 
grantees will be expected to provide training and TA services to the 
extent that access to capital for eligible microentrepreneurs and 
microenterprises is facilitated by referral to either an internal or 
external non-program loan fund so that these clients may take advantage 
of available financing programs.
    (g) Grant agreement. For any grant to an MDO or microlender, the 
Agency will notify the approved applicant in writing, using an Agency-
approved grant agreement, setting out the conditions under which the 
grant will be made. The form will include those matters necessary to 
ensure that the proposed grant is completed in accordance with the 
proposed project, that grant funds are expended for authorized purposes, 
and that the applicable requirements prescribed in the relevant Agency 
regulations are complied with.



Sec. 4280.314  [Reserved]



Sec. 4280.315  MDO application and submission information.

    (a) Initial and subsequent applications. Applications shall be 
submitted in accordance with the provisions of this subpart unless 
adjusted by the Agency in an annual Federal Register document. The 
information required in Sec. Sec. 4280.315 and 4280.316 is necessary 
for an application to be considered complete. Only those applicants that 
meet the basic eligibility requirements in Sec. 4280.310 will have 
their applications fully scored and considered for participation in the 
program under this section. When preparing applications, applicants are 
strongly encouraged to review the application requirements and scoring 
criteria in Sec. 4280.316 and provide documentation that will support a 
competitive score.
    (b) Content and form of submission. All applicants must provide the 
information specified in paragraph (c) of this section. Additional 
application information is required in paragraph (d) of this section 
depending on the type of application being submitted.
    (c) Application information for all applicants. All applicants must 
provide the following information and forms fully completed and with all 
attachments:
    (1) Standard Form-424, ``Application for Federal Assistance'' for 
grants.
    (2) Standard Form-424A, ``Budget Information--Non-Construction 
Programs.''

[[Page 837]]

    (3) For entities applying for program loan funds to become an RMAP 
microlender only, Form RD 1910-11, ``Certification of No Federal Debt.''
    (4) Form RD 400-8, ``Compliance Review'' or sufficient demographic 
information for Agency completion of Form RD 400-8.
    (5) Demonstration that the applicant is eligible to apply to 
participate in the program by submission of documentation as follows:
    (i) If a nonprofit entity, evidence that the applicant organization 
meets the citizenship requirements and a copy of the applicant's bylaws 
and articles of incorporation, which include evidence that the applicant 
is legally considered a non-profit organization;
    (ii) If an Indian tribe, evidence that the applicant is a federally 
recognized Indian tribe, and that the Indian tribe neither operates nor 
is currently served by an existing MDO;
    (iii) If a public institution of higher education, evidence that the 
applicant is a public institution of higher education; and
    (iv) For nonprofit applicants only, a Certificate of Good Standing, 
not more than six (6) months old, from the Office of the Secretary of 
State in the State, or tribal equivalent, in which the applicant is 
located. If the applicant has offices in more than one state, then the 
state in which the applicant is organized and licensed will be 
considered the home location.
    (6) Certification by the applicant that it cannot obtain sufficient 
credit elsewhere to fund the activities called for under the program 
with similar rates and terms.
    (d) Type of application specific information. In addition to the 
information required under paragraph (c) of this section, the following 
information is also required, as applicable:
    (1) An applicant with more than 3 years of experience as an MDO 
outside of the program seeking to participate as an RMAP microlender 
must provide sufficient documentation to validate its years of 
experience.
    (2) An applicant with 3 years or less experience as an MDO outside 
of the program seeking to participate as an RMAP microlender must 
provide the additional information specified in Sec. 4280.316(c).
    (3) An applicant seeking status as a microlender must identify in 
its application which cost-share option(s) the applicant will utilize, 
as described in Sec. 4280.311(d), to meet the Federal cost-share 
requirement. If the applicant will utilize the RMRF-level option, the 
applicant shall identify the amount(s) and source(s) of the non-Federal 
share.
    (4) An applicant seeking TA-only grant funds must provide the 
additional information specified in Sec. 4280.316(d).
    (e) Application limits. Microenterprise Development Organizations 
may only submit and have pending for consideration one application at 
any given time, which is for either microlender funds or TA-only funds.
    (f) Completed applications. Applications that fulfill the 
requirements specified in paragraphs (a) through (e) of this section 
will be fully reviewed, scored, and ranked by the Agency in accordance 
with the provisions of Sec. 4280.316.



Sec. 4280.316  Application scoring.

    Applications will be scored based on the criteria specified in this 
section using only the information submitted in the application. The 
total available points per application are 100 as shown in paragraphs 
(a) through (e) of this section. Awards will be based on the points 
ranking, with the highest scoring applications being funded first from 
the available funding.
    (a) Application requirements for all applicants. All applicants must 
submit the eligibility and application information described in Sec. 
4280.315. The maximum points available in this part of the application 
are 45. In addition to the eligibility information, all applicants will 
submit:
    (1) An organizational chart clearly showing the positions and naming 
the individuals in those positions. Of particular interest to the Agency 
are management positions and those positions essential to the operation 
of microlending and TA programming. Up to 5 points will be awarded based 
on the completeness of the organizational chart and management 
experience.

[[Page 838]]

    (2) Resumes for each of the individuals shown on the organizational 
chart and indicated as key to the operation of the activities to be 
funded under the program. There should be a corresponding resume for 
each of the key individuals noted and named on the organizational chart. 
Points will be awarded based on the quality of the resumes and on the 
ability of the key personnel to administer the program. Up to 5 points 
will be awarded.
    (3) A succession plan to be followed in the event of the departure 
of personnel key to the operation of the applicant's RMAP activities. Up 
to 5 points will be awarded.
    (4) Information indicating an understanding of microenterprise 
development concepts. Provide those parts of your policy and procedures 
manual that deal with the provision of loans, management of loan funds, 
and provision of TA. Up to 5 points will be awarded.
    (5) The applicant's most recent, and two-year's previous, financial 
statements. Points will be awarded based on the demonstrated ability of 
the applicant to maintain or grow its fund balance, its ability to 
manage one or more federal programs, and its capacity to manage multiple 
funding sources, including restricted and non-restricted funding 
sources, income, earnings, and expenditures. Up to 10 points will be 
awarded.
    (6) A copy of the applicant's organizational mission statement. The 
mission statement will be rated based on its relative connectivity to 
microenterprise development and general economic development and may or 
may not be a part of a larger statement. Up to 5 points will be awarded.
    (7) Information regarding the geographic service area to be served, 
which must be rural as defined, and include the number of counties or 
other jurisdictions to be served. Note that the applicant will not be 
scored on the size of the service area, but on its ability to fully 
cover the service area as described. Up to 10 points will be awarded.
    (b) Program loan application requirements for MDOs seeking to 
participate as RMAP microlenders with more than 3 years of experience. 
In addition to the information required under paragraph (a) of this 
section, applicants with more than three (3) years of experience as a 
microlender, including non-RMAP microloans, must also provide the 
information specified in paragraphs (b)(1) through (5) of this section. 
The total number of points available under this section (in addition to 
the up to 45 points available in paragraph (a) of this section) is 55.
    (1) History of provision of microloans. The applicant must provide 
data regarding its history of making microloans for the three years 
previous to this application by answering the questions in paragraphs 
(b)(1)(i) through (v) of this section. This information should be 
provided clearly and concisely in numerical format as the data will be 
used to calculate points as noted. Up to a maximum of 20 points may be 
awarded under this criterion.
    (i) Number and amount of microloans made during each of the three 
previous years.
    (ii) Number and amount of microloans made in rural areas, as 
defined, in each of the three years prior to the year in which the 
application is submitted. If the history of providing microloans in 
rural areas shows at least one loan made in:
    (A) Three or more consecutive years immediately prior to the 
application, 5 points will be awarded;
    (B) At least two of the years but not more than the three 
consecutive years immediately prior to this application, 3 points will 
be awarded;
    (C) At least 6 months, but not more than one year immediately prior 
to this application, 1 point will be awarded.
    (iii) Calculate and enter the total number of microloans made in 
rural areas as a percentage of the total number of all microloans made 
for each of the past three years. If the percentage of the total number 
of microloans made in rural areas is:
    (A) 75 percent or more, 5 points will be awarded;
    (B) At least 50 percent but less than 75 percent, 3 points will be 
awarded;
    (C) At least 25 percent but less than 50 percent, 1 point will be 
awarded.
    (iv) Enter the dollar amount of microloans made in rural areas as a

[[Page 839]]

percentage of the dollar amount of the total portfolio (rural and non-
rural) of microloans made for each of the previous three years. If the 
percentage of the dollar amount of the microloans made in rural areas 
is:
    (A) 75 percent or more of the total amount, 5 points will be 
awarded;
    (B) At least 50 percent but less than 75 percent, 3 points will be 
awarded;
    (C) At least 25 percent but less than 50 percent, 1 point will be 
awarded.
    (v) Each applicant shall compare the diversity of its entire 
microloan portfolio to the demographic makeup of its service area (as 
determined by the latest applicable decennial census for the state) 
based on the number of microloans made during the three years preceding 
the subject application. Demographic groups shall include gender, racial 
and ethnic minority status, and disability (as defined in the Americans 
with Disabilities Act). Points will be awarded on the basis of how close 
the MDO's microloan portfolio matches the demographic makeup of its 
service area. A maximum of 5 points will be awarded.
    (A) If at least one loan has been made to each of the three 
demographic groups and if the percentage of loans made to each 
demographic group is 5 percent or less of their demographic makeup, 5 
points will be awarded.
    (B) If at least one loan has been made to each demographic group and 
if the percentage of loans made to each demographic group is each 
between 5 to 10 percent or less of the demographic makeup, 3 points will 
be awarded.
    (C) If at least one loan has been made to each demographic group and 
if the percentage of loans made to one or more of the demographic groups 
is greater than 10 percent of the demographic makeup, 1 point will be 
awarded.
    (D) If no loans have been made to two or more demographic groups, no 
points will be awarded.
    (2) Portfolio management. The applicant's ability to manage its 
portfolio will be determined based on the data provided in response to 
paragraphs (b)(2)(i) and (ii) of this section and scored accordingly. 
The maximum number of points under this criterion is 10.
    (i) Enter the total number of the applicant's microloans paying on 
time for the three previous years. If the total number of microloans 
paying on time at the end of each year over the prior three years is:
    (A) 95 percent or more, 5 points will be awarded;
    (B) At least 85 percent but less than 95 percent, 3 points will be 
awarded;
    (C) Less than 85 percent, 0 points will be awarded.
    (ii) Enter the total number of microloans currently 30 to 90 days in 
arrears, or that have been written off over the three previous years. If 
the total number of these microloans is:
    (A) 5 percent or less of the total portfolio, 5 points will be 
awarded;
    (B) More than 5 percent, 0 points will be awarded.
    (3) History of provision of technical assistance. The Applicant's 
history of provision of TA to microentrepreneurs and microenterprises, 
and its ability to reach diverse communities, will be scored based on 
the data specified in paragraphs (b)(3)(i) through (iii) of this 
section. Applicants may use a chart to provide this information as they 
deem appropriate. The maximum number of points under this criterion is 
15.
    (i) Provide the total number of rural and non-rural 
microentrepreneurs and microenterprises that received both microloans 
and TA services for each of the previous three years. Of this total 
number, provide the percentage of rural microentrepreneurs and rural 
microenterprises that received both microloans and TA services for each 
of the previous three years. If the provision of both microloans and TA 
services to rural microentrepreneurs and rural microenterprises is 
demonstrated at a rate of:
    (A) 75 percent or more, 5 points will be awarded;
    (B) At least 50 percent but less than 75 percent, 3 points will be 
awarded;
    (C) At least 25 percent but less than 50 percent, 1 point will be 
awarded.
    (ii) Provide the percentage of the total number of rural 
microentrepreneurs and rural microenterprises by racial and ethnic 
minority, disabled, and/or gender that received both microloans and TA 
services for each of

[[Page 840]]

the previous three years. If the demonstrated provision of microloans 
and TA services to these rural microentrepreneurs and rural 
microenterprises is at a rate of:
    (A) 75 percent or more, 5 points will be awarded;
    (B) At least 50 percent but less than 75 percent, 3 points will be 
awarded;
    (C) At least 25 percent but less than 50 percent, 1 point will be 
awarded.
    (iii) Provide the ratio of TA clients that also received microloans, 
rounding to the nearest whole number, during each of the previous three 
years. If the ratio of clients receiving TA services to clients 
receiving microloans is:
    (A) Between 1:1 and 1:5, 5 points will be awarded.
    (B) Between 1:6 and 1:8, 3 points will be awarded.
    (C) A ratio of either 1:9 or 1:10, 1 point will be awarded.
    (4) Ability to provide technical assistance. In addition to 
providing a statistical history of their provision of TA to 
microentrepreneurs, microenterprises, and microborrowers, applicants 
must provide a narrative of not more than five pages describing the 
teaching and training methods used by the applicant organization to 
provide such TA and discussing the outcomes of their endeavors. 
Technical assistance is defined in Sec. 4280.302. The narrative will be 
scored as specified in paragraphs (b)(4)(i) through (iii) of this 
section. Points may be awarded for each of the categories. The maximum 
number of points under this criterion is 5.
    (i) Applicants that have used more than one method of training and 
TA (e.g., classroom training, peer-to-peer discussion groups, individual 
assistance, distance learning) will be awarded 2 points.
    (ii) Applicants that provide success stories to demonstrate the 
effects of TA on their clients will be awarded 2 points.
    (iii) Applicants that provide evidence that they require evaluations 
by the clients of their training programs and indicate that the average 
level of evaluation scores is ``good'' or higher will be awarded 1 
point.
    (5) Proposed administrative expenses to be spent from TA grant 
funds. The maximum number of points under this criterion is 5. If the 
percentage of grant funds to be used for administrative purposes is:
    (i) Less than 5 percent of the TA grant funds, 5 points will be 
awarded;
    (ii) Equal to 5 percent but less than 8 percent, 3 points will be 
awarded;
    (iii) Equal to 8 percent or greater, 0 points will be awarded.
    (c) Application requirements for MDOs seeking to participate as RMAP 
microlenders with 3 years or less experience. In addition to the 
information required under paragraph (a) of this section, an applicant 
MDO with 3 years or less experience that is applying to be a microlender 
must submit the information specified in paragraphs (c)(1) through (8) 
of this section. The total number of points available under this 
paragraph, in addition to the maximum of 45 points available in 
paragraph (a) of this section, is 55, for a total of 100.
    (1) The applicant must provide a narrative work plan that clearly 
indicates its intention for the use of loan and grant funds. Provide 
goals and milestones for planned microlending and TA activities. In 
relation to the information requested in paragraph (a) of this section, 
the applicant must describe how it will incorporate its mission 
statement, utilize its employees, and maximize its human and capital 
assets to meet the goals of this program. The applicant must provide its 
strategic plan and organizational development goals and clearly indicate 
its lending goals for the five years after the date of application. The 
narrative work plan should be not more than five pages in length. Up to 
a maximum of 10 points will be awarded.
    (2) The applicant will provide the date that it began business as an 
MDO or other provider of business education and/or facilitator of 
capital. This date will reflect when the applicant became licensed to do 
business by the Secretary of State, or tribal equivalent, in which it is 
registered and engaged regularly paid staff to conduct business on a 
daily basis. If the applicant has been in business for:
    (i) More than 2 years but less than 3 years, 5 points will be 
awarded;
    (ii) At least 1 year, but not more than 2 years, 3 points will be 
awarded;

[[Page 841]]

    (iii) At least 6 months, but not more than 1 year, 1 point will be 
awarded;
    (iv) Less than 6 months, or more than 3 full years, 0 points will be 
awarded. (If more than 3 full years, the applicant must apply under the 
provisions for MDOs with more than 3 years of experience as specified in 
paragraph (b) of this section.)
    (3) The applicant must describe in detail any microenterprise 
development training received by it as a whole, or its employees as 
individuals, to date. The narrative may refer reviewers to already 
submitted resumes to save space. The training received will be rated on 
its topical variety, the quality of the description, and its relevance 
to the organization's strategic plan. The applicant should not submit 
training brochures or conference announcements. Up to a maximum of 10 
points will be awarded.
    (4) The applicant must indicate its current number of employees, 
those that concentrate on rural microentrepreneurial development, and 
the current average caseload for each. Indicate how the caseload ratio 
does or does not optimize the applicant's ability to perform the 
services described in the work plan. Discuss how Agency grant funds will 
be used to assist with TA program delivery and how funding of the 
program loan application will affect the portfolio. Up to 5 points will 
be awarded.
    (5) Applicants may submit a maximum of five (5) letters of support 
with one point awarded for each letter. Support letters should be signed 
and dated and come from potential beneficiaries and other local 
organizations. Letters received from Congressional members and technical 
assistance providers will not be included in the count of support 
letters received. Additionally, identical form letters signed by 
multiple potential beneficiaries and/or local organizations will not be 
included in the count of support letters received. The applicant must 
indicate any training organizations with which it has a working 
relationship. Provide contact information for references regarding the 
applicant's capacity to perform the work in the plan provided. Up to a 
maximum of five (5) points will be awarded.
    (6) Describe any plans for continuing training relationship(s), 
including ongoing or future training plans and goals, and the timeline 
for the same. Up to 5 points will be awarded.
    (7) The applicant will describe its internal benchmarking system for 
determining client success, reporting on client success, and following 
client success for up to 5 years after completion of a training 
relationship. Up to 10 points will be awarded.
    (8) The applicant will identify its proposed administrative expenses 
to be spent from TA grant funds. The maximum total number of points 
under this criterion is 5. If the percentage of grant funds to be used 
for administrative purposes is:
    (i) Less than or equal to 5 percent of the TA grant funds, 5 points 
will be awarded;
    (ii) More than 5 percent but less than 8 percent, 3 points will be 
awarded;
    (iii) Equal to 8 percent or greater, 0 points will be awarded.
    (d) Application requirements for MDOs seeking TA-only grants. 
Technical assistance-only grants may be provided to MDOs that are not 
RMAP microlenders seeking to provide training and technical assistance 
to rural microentrepreneurs and rural microenterprises. An applicant 
seeking a TA-only grant must submit the information specified in 
paragraphs (d)(1) through (4) of this section. The total number of 
points available under this section, in addition to the 45 points 
available in paragraph (a) of this section, is 55, for a total of 100 
points.
    (1) History of provision of TA. Each applicant's history of 
provision of TA to microentrepreneurs and microenterprises, and its 
ability to reach diverse communities, will be scored based on the data 
specified in paragraphs (d)(1)(i) through (iii) of this section. The 
maximum number of points under this criterion is 20.
    (i) Provide the total number of rural and non-rural 
microentrepreneurs and microenterprises that received both TA services 
and resultant microloans for each of the previous three years. Of this 
total number, provide the percentage of rural microentrepreneurs and 
rural microenterprises that received both TA services and resultant

[[Page 842]]

microloans for each of the previous three years. If the provision of 
both TA services and resultant microloans to rural microentrepreneurs 
and rural microenterprises is demonstrated at a rate of:
    (A) 75 percent or more, 5 points will be awarded;
    (B) At least 50 percent but less than 75 percent, 3 points will be 
awarded;
    (C) At least 25 percent but less than 50 percent, 1 point will be 
awarded.
    (ii) Provide the percentage of the total number of rural 
microentrepreneurs by racial and ethnic minority, disabled, and/or 
gender that received both microloans and TA services for each of the 
previous three years. If the demonstrated provision of TA and resultant 
microloans to these rural microentrepreneurs when compared to the total 
number of microentrepreneurs assisted, is at a rate of:
    (A) 75 percent or more, 10 points will be awarded;
    (B) At least 50 percent but less than 75 percent, 7 points will be 
awarded;
    (C) At least 25 percent but less than 50 percent, 5 points will be 
awarded.
    (iii) Provide the ratio of TA clients that also received microloans 
during each of the last three years, rounded to the nearest whole 
number. If the ratio of clients receiving TA to clients receiving 
microloans is:
    (A) Between 1:1 and 1:5, 5 points will be awarded.
    (B) Between 1:6 and 1:8, 3 points will be awarded.
    (C) Either 1:9 or 1:10, 1 point will be awarded.
    (2) Ability to provide TA. In addition to providing a statistical 
history of their provision of TA to microentrepreneurs, 
microenterprises, and microborrowers, applicants must provide a 
narrative of not more than five pages describing the teaching and 
training method(s) used by the applicant organization to provide TA and 
discussing the outcomes of their endeavors. The narrative will be scored 
as specified in paragraphs (d)(2)(i) through (iv) of this section. The 
maximum number of points under this criterion is 20.
    (i) Applicants that have used more than one method of training and 
TA (e.g., classroom training, peer-to-peer discussion groups, individual 
assistance, and distance learning) will be awarded 5 points.
    (ii) Applicants that provide success stories to demonstrate the 
effects of TA on their clients will be awarded points under either of 
the following paragraphs, but not both:
    (A) News stories that highlight businesses made successful as a 
result of the applicant's TA; 5 points will be awarded.
    (B) Internal stories that highlight businesses made successful as a 
result of TA, 3 points.
    (iii) Applicants that provide evidence that they require evaluations 
by the clients of their training programs will be awarded 3 points. 
Applicants will provide the total number of evaluations received and the 
average score from the evaluations received. An additional two points 
will be awarded if the total evaluation scores are above an average of 
3.0 on a five-point scale, with points determined by the client ratings 
on a declining scale as follows:
    (A) Extremely Satisfied, 5 points.
    (B) Satisfied, 4 points.
    (C) Average, 3 points.
    (D) Dissatisfied, 2 points.
    (E) Very Unsatisfied, 1 point.
    (iv) Applicants that present well-written narrative information 
regarding their programs and services to be delivered and their outreach 
efforts within the service area that is clearly and concisely written 
and is five pages or less will be awarded up to a maximum of 5 points.
    (3) Technical assistance plan. Submit a concise plan for the 
provision of TA explaining how the funds will benefit the current 
program and how it will allow the applicant to expand its non-program 
microlending activities. Up to 10 points will be awarded.
    (4) Proposed administrative expenses to be spent from TA grant 
funds. The maximum number of points under this criterion is 5. If the 
percentage of grant funds to be used for administrative purposes is:
    (i) Less than or equal to 5 percent of the TA grant funds, 5 points 
will be awarded;
    (ii) More than 5 percent but less than 8 percent, 3 points will be 
awarded;
    (iii) Equal to 8 percent or greater, 0 points will be awarded.

[[Page 843]]

    (e) Re-application requirements for participating microlenders with 
more than 5 years of experience as a microlender under this program. (1) 
Microlender applicants with more than 5 years of experience as an MDO 
under this program may choose to submit a shortened loan/grant 
application that includes the following:
    (i) A letter of request for funding stating the amount of loan and/
or grant funds being requested;
    (ii) An indication of the loan and/or grant amounts being requested 
accompanied by a completed Form SF 424 and any pertinent attachments;
    (iii) An indication of the number and percent of the MDO's 
microentrepreneurs and microenterprises remaining in business for two 
years or more after microloan disbursement from program funds; and
    (iv) A recent resolution of the applicant's Board of Directors 
approving the application for debt.
    (2) The Agency, using this request and data available in the reports 
submitted under previous funding(s), will review the overall program 
performance of the applicant over the life of its participation in the 
program to determine its continued qualification for subsequent funds. 
Requirements include:
    (i) A loan default rate of 5 percent or less;
    (ii) A pattern of delinquencies during the period of participation 
in this program of 10 percent or less;
    (iii) A pattern of use of TA dollars that indicates at least one in 
ten TA clients receive a microloan;
    (iv) A statement discussing the need for more funding, accompanied 
by account documentation showing the amounts in each of the RMRF and 
LLRF accounts established to date; and
    (v) A pattern of compliance with program reporting requirements.
    (3) Shortened applications under this section will be rated on a 
pass or fail basis. Passing applications will be assigned a score of 90 
points and will be ranked accordingly in the quarterly competitions. 
Failing applications under this section will be scored 0 and experienced 
MDOs may be required to complete the application requirements of 
paragraph (b) of this section.



Sec. 4280.317  Selection of applications for funding.

    All eligible applications received will be scored using the scoring 
criteria specified in Sec. 4280.316 and funded in descending order from 
the highest total score to applications receiving 60 points, subject to 
the authorization of appropriations for the Federal FY. If two or more 
applications have the same score and available funds cannot fund the 
individual projects, the Administrator may prioritize such applications 
to help the program achieve overall geographic diversity.
    (a) Timing and submission of applications. (1) All applications must 
be submitted as a complete application in one package of materials. 
Packages must be in the order of appearance in Sec. 4280.315. 
Applications that are disorganized or otherwise not ready for evaluation 
will be returned to the applicant and not considered for funding.
    (2) Applications will be accepted on a continuing basis at any Rural 
Development State Office and will compete nationally for available funds 
on a quarterly basis using Federal fiscal quarters.
    (3) Applications received will be reviewed, scored, and ranked 
quarterly. Unless withdrawn by the applicant, the Agency will retain 
unsuccessful applications that score 60 points or more for consideration 
in subsequent reviews, through a total of four quarterly reviews. 
Applications unsuccessful after competing for funds in four quarters 
will be returned to the applicant.
    (b) Availability of funds. If an Application is received, scored, 
and ranked, but insufficient funds remain to fully fund the project, the 
Agency may elect to fund an Application requesting a smaller amount that 
has a lower score. Before this occurs, the Agency, as applicable, will 
provide the higher scoring applicant the opportunity to reduce the 
amount of its request to the amount of funds available. If the applicant 
agrees to lower its request, it must certify that the purposes of the 
project can be met, and the project is financially feasible at the lower 
amount.

[[Page 844]]

    (c) Applicant notification. The Agency will notify applicants 
regarding their selection or non-selection, provide appeal rights of 
unsuccessful applicants, and provide closing procedures for the loan 
and/or grant awardees.
    (d) Closing. Awardees unable to complete closing for an approved 
obligation within 90 days or an extended date approved by the Agency 
will forfeit their funding award in accordance with Sec. 
4280.311(e)(9).



Sec. Sec. 4280.318-4280.319  [Reserved]



Sec. 4280.320  Grant administration.

    (a) Oversight. Any MDO receiving a grant under this program is 
subject to Agency oversight, with site visits and inspection of records 
occurring at the discretion of the Agency. In addition, MDOs receiving a 
grant under this subpart must submit reports, as specified in paragraphs 
(a)(1) through (3) of this section.
    (1) On a quarterly basis, within 30 days after the end of each 
Federal fiscal quarter, the microlender will provide to the Agency an 
Agency-approved quarterly report containing such information as the 
Agency may require to ensure that funds provided are being used for the 
purposes for which the grant was made, including:
    (i) Narrative reporting information as required by Office of 
Management and Budget (OMB) circulars and successor regulations. This 
narrative will include information on the MDO's TA, training, and/or 
enhancement activity, and grant expenses, milestones met, or unmet, 
explanation of difficulties, observations and other such information;
    (ii) If requesting grant funds at the time of reporting, an executed 
SF-270 form and a brief description of the proposed activity-based 
expenditures are required.
    (2) If a microlender has more than one grant from the Agency, a 
separate report must be made for each grant.
    (3) Other reports may be required by the Agency from time to time in 
the event of poor performance or other such occurrences that require 
more than the usual set of reporting information.
    (b) Payments. The Agency will make grant payments not more often 
than quarterly. The first grant payment may be made in advance and will 
equal no more than one fourth of the grant award. Other payment requests 
must be submitted on Standard Form 270 and will only be paid if the 
MDO's reports are up to date and approved.



Sec. 4280.321  Grant and loan servicing.

    In addition to the ongoing oversight of the participating MDOs, all 
grants will be serviced in accordance with applicable regulations, 
including 7 CFR part 1951, subparts E and O, 7 CFR part 3, and the 
Office of Management and Budget (OMB) regulations including, but not 
limited to, 2 CFR parts 200, 215, 220, 230, and OMB Circulars A-110 and 
A-133. Loans to microlenders will be serviced in accordance with 7 CFR 
part 1951, subparts E, O, and R, and OMB Circular A-129.



Sec. 4280.322  Loans from the microlenders to microentrepreneurs.

    The primary purpose of making a program loan to a microlender is to 
enable that microlender to make microloans to rural microenterprises and 
microentrepreneurs. It is the responsibility of each microlender to make 
microloans in such a fashion that the terms and conditions of the 
microloan will support microborrower success while enabling the 
microlender to repay its loan from the Agency. It is the responsibility 
of each microborrower to repay the microlender in accordance with the 
terms and conditions agreed to with the microlender. The microlender is 
responsible for full repayment to the Agency of its loan regardless of 
the performance of its microloan portfolio.
    (a) Maximum microloan amount. The maximum amount of a microloan made 
under this program will be $50,000. The total outstanding balance of 
microloans to any microborrower may not exceed $50,000.
    (b) Microloan terms and conditions. The terms and conditions for 
microloans made by microlenders will be negotiated between the 
prospective microborrower and the microlender, with the following 
limitations:
    (1) No microloan may have a term of more than 10 years;

[[Page 845]]

    (2) The interest rate charged to the microborrower will be 
established at or before the microloan closing and at such a rate that 
the microloan is affordable to the microborrower and provides a 
reasonable margin of earnings to the microlender.
    (c) Microloan insurance requirements. The microlender has full 
discretion to require reasonable hazard, key person, and other insurance 
coverage from the microborrower as part of the loan transaction.
    (d) Credit elsewhere test. Microborrowers will be subject to a 
``credit elsewhere'' test so that the microlender will make loans only 
to those borrowers that cannot obtain business funding of $50,000 or 
less at affordable rates and on acceptable repayment terms. Each 
microborrower file must contain evidence that the microborrower has 
sought credit elsewhere or that the rates and terms available within the 
community at the time were outside the range of the microborrower's 
affordability. Evidence may include a comparison of rates, loan 
limitations, terms, or other requirements from other funding sources. 
Denial letters from other lenders are not required.
    (e) Fair credit requirements. To ensure fairness, microlenders must 
publicize their rates and terms on a regular basis. Microlenders are 
also subject to Fair Credit lending practices and Federal 
nondiscrimination requirements as stated in Sec. 4280.305.
    (f) Eligible microloan purposes. Agency loan funds may be used to 
make microloans as defined in Sec. 4280.302 for any legal business 
purpose not identified in Sec. 4280.323 as an ineligible purpose. 
Microlenders may make microloans for qualified business activities and 
expenses including, but not limited to:
    (1) Working capital;
    (2) The purchase of furniture, fixtures, supplies, inventory or 
equipment;
    (3) Debt refinancing;
    (4) Business acquisitions; and
    (5) The purchase or lease of real estate that is already improved 
and will be used for the location of the subject business only, provided 
no demolition or construction will be accomplished with program funds. 
Neither interior decorating, nor the affixing of chattel to walls, 
floors, or ceilings are considered to be demolition or construction.
    (g) Military personnel. Military personnel who are or seek to be a 
microentrepreneur and are on active duty with six months or less 
remaining in their active duty status may receive a microloan and/or TA 
and training if they are otherwise qualified to participate in the 
program.



Sec. 4280.323  Ineligible microloan purposes and uses.

    Agency loan funds will not be used for the payment of microlender 
administrative costs or expenses and microlenders may not make 
microloans under the program for any of the purposes and uses identified 
as ineligible in paragraphs (a) through (n) of this section.
    (a) Construction costs including property demolition, renovation, 
elimination of walls, or property additions.
    (b) The financing of timeshares, apartments, duplexes, or other 
residential housing.
    (c) Assistance that will cause a conflict of interest or the 
appearance of a conflict of interest including but not limited to:
    (1) Financial assistance to principals, directors, officers, or 
employees of the microlender, or their close relatives, as defined; or
    (2) Financial assistance to any entity which would appear to benefit 
the microlender or its principals, directors, or employees, or their 
close relatives, as defined, in any way other than the normal repayment 
of debt.
    (d) Distribution or payment to a microborrower when such will use 
any portion of the microloan for other than business purposes.
    (e) Microloans to a charitable institution not gaining sufficient 
revenue from business sales or services to support the operation and 
repay the microloan.
    (f) Microloans to a fraternal organization.
    (g) Any microloan to an applicant that has an RMAP-funded microloan 
application pending with another microlender or that has an RMAP-

[[Page 846]]

funded microloan outstanding with another microlender that would cause 
the applicant to owe a combined amount of more than $50,000 to one or 
more microlenders under the program.
    (h) Assistance to USDA Rural Development employees, or their close 
relatives, as defined.
    (i) Microloans for any illegal activity.
    (j) Any project that is in violation of either a Federal, State, or 
local environmental protection law, regulation, or enforceable land use 
restriction unless the microloan will result in curing or removing the 
violation.
    (k) Loans supporting explicitly religious activities, such as 
worship, religious instruction or proselytization.
    (l) Golf courses, race tracks, or gambling facilities.
    (m) Funding of any political or lobbying activities.
    (n) Lines of credit.



Sec. Sec. 4280.324-4280.399  [Reserved]



Sec. 4280.400  OMB control number.

    The information collection requirements contained in this subpart 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0570-0062. A person is not required to 
respond to this collection of information unless it displays a currently 
valid OMB control number.



               Subpart E_Rural Business Development Grants

    Source: 80 FR 15667, Mar. 25, 2015, unless otherwise noted.

                                 General



Sec. 4280.401  Purpose.

    This subpart implements the RBDG program administered by the Agency. 
Grants made under this subpart will be made to eligible entities for use 
in funding various business opportunity and business enterprise Projects 
that serve Rural Areas.



Sec. 4280.402  [Reserved]



Sec. 4280.403  Definitions.

    Administrator. The Administrator of RBS or designees or successors.
    Agency. Rural Business-Cooperative Service (RBS) or successor.
    Agriculture Production. The cultivation, production, growing, 
raising, feeding, housing, breeding, hatching, or managing of crops, 
plants, animals or birds, either for fiber, food for human consumption, 
or livestock feed.
    Arm's-length Transaction. The sale, release, or disposition of 
assets in which the title to the property passes to a ready, willing, 
and able disinterested third party that is not affiliated with or 
related to and has no security, monetary, or stockholder interest in the 
grantee or transferor at the time of the transaction.
    Business Support Centers. Centers established to provide assistance 
to businesses in such areas as counseling, business planning, training, 
management assistance, marketing information, and locating financing for 
business operations. The centers need not be located in a Rural Area, 
but must provide assistance to businesses located in Rural Areas.
    Departmental Grant Regulations. The USDA grant regulations at 2 CFR 
chapter IV.
    Economic Development. The industrial, business and financial 
augmentation of an area as evidenced by increases in total income, 
employment opportunities, value of production, duration of employment, 
or diversification of industry, reduced outmigration, higher labor force 
participation rates or wage levels or gains in other measurements of 
economic activity, such as land values.
    Indian Tribe (Tribal). Indian Tribes on Federal and State 
reservations and other federally recognized Indian Tribal groups.
    Industrial Site. The development of undeveloped real estate for uses 
which will assist Small and Emerging Businesses.
    Long-term. The period of time covered by the three most recent 
decennial censuses of the United States to the present.

[[Page 847]]

    Nonprofit. An entity chartered as a nonprofit organization under 
applicable State or Tribal law.
    Other Business Development. Any business related activity that will 
assist Small and Emerging Businesses and may include but is not limited 
to business incubators, business training centers, and other training 
activity which leads directly to Small and Emerging Business 
development.
    Planning. A process to coordinate Economic Development activities, 
develop guides for action, or otherwise assist local community leaders 
in the Economic Development of Rural Areas.
    Priority Communities. Communities targeted for Agency assistance as 
determined by the U.S. Department of Agriculture Under Secretary for 
Rural Development that are experiencing trauma due to natural disasters 
or are undertaking or completing fundamental structural changes, have 
remained persistently poor, or have experienced Long-Term population 
decline or job deterioration.
    Project. The result of the use of grant funds provided under this 
subpart through Technical Assistance or Planning relating to the 
Economic Development of a Rural Area; or the result of the use of 
program funds (i.e., a facility whether constructed by the applicant or 
a third party made with grant funds, Technical Assistance, startup 
operating costs, or working capital). A revolving fund established in 
whole or in part with grant funds will also be considered a Project.
    Public Bodies/Government Entity. Public Bodies include States, 
counties, cities, townships, and incorporated towns and villages, 
boroughs, authorities, districts, and education institutions organized 
under State and Federal laws, and Indian Tribes.
    Rural and Rural Area. As described in 7 U.S.C. 1991(a)(13)(A) and 
(D) et seq.
    Small and Emerging Business. Any private and/or Nonprofit business 
which will employ 50 or fewer new employees and has less than $1 million 
in gross revenue; for retail operations, total sales minus cost of goods 
sold minus returns or for a service organizations, gross revenue minus 
cost of providing service or for a manufacturing operation it will be 
total sales minus cost of raw materials minus the cost of production.
    State. Any of the 50 States, the Commonwealth of Puerto Rico, the 
U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the 
Northern Mariana Islands, the Republic of Palau, the Federated States of 
Micronesia, and the Republic of the Marshall Islands.
    Technical Assistance. A function performed for the benefit of a 
private business enterprise or a community and which is a problem 
solving activity, such as market research, product and/or service 
improvement, feasibility study, etc., to assist in the Economic 
Development of a Rural Area.



Sec. 4280.404  Exception authority.

    The Administrator may make an exception, on a case-by-case basis, to 
any requirement or provision of this subpart that is not inconsistent 
with any authorizing statute or applicable law if the Administrator 
determines that application of the requirement or provision would 
adversely affect the Government's financial interest.



Sec. 4280.405  Review or appeal rights.

    A person may seek a review of an Agency decision under this subpart 
from the appropriate Agency official that oversees the program in 
question or appeal to the National Appeals Division in accordance with 7 
CFR part 11.



Sec. 4280.406  Conflict of interest.

    (a) General. No conflict of interest or appearance of conflict of 
interest will be allowed. For purposes of this subpart, Conflict of 
Interest includes, but is not limited to, distribution or payment of 
grant, guaranteed loan funds, and matching funds or award of Project 
construction contracts to an individual owner, partner, or stockholder, 
or to a beneficiary or immediate family of the applicant or grantee when 
the recipient will retain any portion of ownership in the applicant's or 
grantee's Project. Grant and matching funds may not be used to support 
costs for services or goods going to, or coming from, a person or entity 
with a real or apparent conflict of interest. All transactions must be 
Arm's-length Transactions.

[[Page 848]]

    (b) Assistance to employees, relatives, and associates. The Agency 
will process any requests for assistance under this subpart in 
accordance with 7 CFR part 1900, subpart D.
    (c) Member/delegate clause. No member of or delegate to Congress 
shall receive any share or part of this grant or any benefit that may 
arise therefrom; but this provision shall not be construed to bar, as a 
contractor under the grant, a publicly held corporation whose ownership 
might include a member of Congress so long as the member's ownership is 
less than 10 percent.



Sec. 4280.407  Statute and regulation references.

    All references to statutes and regulations are to include any and 
all successor statutes and regulations.



Sec. 4280.408  U.S. Department of Agriculture departmental regulations and laws that contain other compliance requirements.

    (a) Departmental regulations. All funded under this subpart are 
subject to the provisions of the Departmental Regulations, as 
applicable, which are incorporated by reference herein.
    (b) Equal opportunity and nondiscrimination. The Agency will ensure 
that equal opportunity and nondiscrimination requirements are met in 
accordance with the Equal Credit Opportunity Act, 15 U.S.C. 1691 et seq. 
and 7 CFR part 15d, ``Nondiscrimination in Programs and Activities 
Conducted by the United State Department of Agriculture.'' The Agency 
will not discriminate against applicants on the basis of race, color, 
religion, national origin, sex, marital status, or age (provided that 
the applicant has the capacity to contract); because all or part of the 
applicant's income derives from any public assistance program; or 
because the applicant has in good faith exercised any right under the 
Consumer Credit Protection Act, 15 U.S.C. 1601 et seq.
    (c) Civil rights compliance. Recipients of grants must comply with 
the Americans with Disabilities Act of 1990, 42 U.S.C. 12101 et seq., 
Title VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d et seq., and 
section 504 of the Rehabilitation Act of 1973, 29 U.S.C. 794. This may 
include collection and maintenance of data on the race, sex, and 
national origin of the recipient's membership/ownership and employees. 
The data must be available to conduct compliance reviews.
    (1) Initial compliance reviews will be conducted by the Agency prior 
to funds being obligated.
    (2) Grants will require one subsequent compliance review following 
Project completion. This will occur prior to the last disbursement of 
grant funds.
    (d) Environmental requirements. Actions taken under this subpart 
must comply with 7 CFR part 1970. Prospective applicants are advised to 
contact the Agency to determine environmental requirements as soon as 
practicable after they decide to pursue any form of financial assistance 
directly or indirectly available through the Agency.
    (1) Any required environmental review must be completed by the 
Agency prior to the Agency obligating any funds.
    (2) The applicant will be notified of all specific compliance 
requirements, including, but not limited to, the publication of public 
notices, and consultation with State Historic Preservation Offices (or 
Tribal Historic Preservation Offices where appropriate) and the U.S. 
Fish and Wildlife Service.
    (3) A site visit by the Agency may be scheduled, if necessary, to 
determine the scope of the review.
    (4) Applications for Technical Assistance or Planning Projects are 
generally excluded from the environmental review process by 7 CFR 
1970.53 provided the assistance is not related to the development of a 
specific site. However, as further specified in 7 CFR 1970.53, the 
grantee for a Technical Assistance grant, in the process of providing 
Technical Assistance, must consider the potential environmental impacts 
of the recommendations provided to the recipient of the Technical 
Assistance as requested by the Agency and in accordance with 7 CFR part 
1970.
    (5) Applicants for grant funds must consider and document within 
their plans the important environmental factors within the Planning area 
and the potential environmental impacts of the

[[Page 849]]

plan on the Planning area, as well as the alternative Planning 
strategies that were reviewed.
    (6) Whenever an applicant files an application that includes a 
direct construction Project and a plan, they must have a separate 
environmental evaluation.
    (e) Discrimination complaints--(1) Who may file. Persons or a 
specific class of persons believing they have been subjected to 
discrimination prohibited by this section may file a complaint 
personally, or by an authorized representative with USDA, Director, 
Office of Adjudication, 1400 Independence Avenue SW., Washington, DC 
20250.
    (2) Time for filing. A complaint must be filed no later than 180 
days from the date of the alleged discrimination, unless the time for 
filing is extended by the designated officials of USDA or the Agency.
    (f) Uniform Relocation and Real Property Acquisition Policies Act. 
All Projects must comply with the requirements set forth in 7 CFR part 
21.
    (g) Floodplains and wetlands. All Projects must comply with 
Executive Order 11988 ``Floodplain Management'' and Executive Order 
11990 ``Protection of Wetlands.'' The applicable regulations are 
codified at 44 CFR parts 59 through 80.

[80 FR 15667, Mar. 25, 2015, as amended at 81 FR 11052, Mar. 2, 2016]



Sec. 4280.409  [Reserved]



Sec. 4280.410  Other laws and regulations that contain compliance requirements for this program.

    (a) Equal employment opportunity. For all construction contracts and 
grants in excess of $10,000, the contractor must comply with Executive 
Order 11246, as amended by Executive Order 11375, and as supplemented by 
applicable Department of Labor regulations (41 CFR part 60-1). The 
applicant is responsible for ensuring that the contractor complies with 
these requirements.
    (b) Architectural barriers. All facilities financed with Zero-
Interest Loans that are open to the public or in which persons may be 
employed or reside must be designed, constructed, or altered to be 
readily accessible to and usable by disabled persons. Standards for 
these facilities must comply with the Architectural Barriers Act of 
1968, as amended, (42 U.S.C. 4151-4157).
    (c) Uniform relocation assistance. Relocations in connection with 
these programs are subject to 49 CFR part 24 as referenced by 7 CFR part 
21 except that the provisions in title III of the Uniform Act do not 
apply to these programs.
    (d) Drug-free workplace. Grants made under these programs are 
subject to the requirements contained in 2 CFR chapter IV which 
implements the Drug-Free Workplace Act. RBDG recipients will be required 
to certify that it will establish and make a good faith effort to 
maintain a drug-free workplace program.
    (e) Debarment and suspension. The requirements of 2 CFR chapter IV 
are applicable to this program.
    (f) Intergovernmental review of Federal programs. These programs are 
subject to the requirements of Executive Order 12372 and 2 CFR chapter 
IV. Proposed Projects are subject to the State and local government 
review process contained in 2 CFR chapter IV.
    (g) Restrictions on lobbying. The restrictions and requirements 
imposed by 31 U.S.C. 1352, and 2 CFR chapter IV, are applicable to these 
programs.
    (h) Earthquake hazards. These programs are subject to the seismic 
requirements of the Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 
7701-7706).
    (i) Affirmative fair housing. If applicable, the grantee will be 
required to comply with the Affirmative Fair Housing Act (42 U.S.C. 
3601-3631 and 24 CFR part 100).
    (j) Flood hazard insurance. The RBDG program is subject to the 
National Flood Insurance Act of 1968 and the Flood Disaster Protection 
Act of 1973, as amended by 42 U.S.C. 4001-4129 and 7 CFR part 1806, 
subpart B.
    (k) Uniform administrative requirements, cost principles, and audit 
requirements for Federal awards. The requirements of 2 CFR chapter IV, 
or its successor regulations are applicable to this program.
    (l) Planning and performing construction and other development. The 
requirements of 7 CFR part 1924, subpart A, or

[[Page 850]]

its successor regulations, are applicable to this program.
    (m) Transparency Act. The requirements of 2 CFR part 170 are 
applicable to this program.



Sec. 4280.411  Forms, guides, and attachments.

    All forms, guides, and attachments referenced in this subpart are 
available online at: http://forms.sc.egov.usda.gov/eForms/ or in any 
Rural Development State office.



Sec. Sec. 4280.412-4280.414  [Reserved]

                    Rural Business Development Grants



Sec. 4280.415  Rural Business Development Grants.

    Sections 4280.416 through 4280.439 identify the provisions that the 
Agency will use for making awards for Rural Business Development Grants.

                               Eligibility



Sec. 4280.416  Applicant eligibility.

    To receive an RBDG under this subpart, an applicant must meet the 
requirements specified in paragraphs (a) through (e) of this section. If 
an award is made to an applicant, that applicant (grantee) must continue 
to meet the requirements specified in this section. If the grantee does 
not, then grant funds may be recovered from the grantee by the Agency in 
accordance with Departmental Regulations.
    (a) Type of applicant. The Applicant must be one of the following:
    (1) A Public Body/Government Entity;
    (2) An Indian Tribe; or
    (3) A Nonprofit entity.
    (b) Financial strength and expertise. The Applicant must have 
sufficient financial strength and expertise in activities proposed in 
the application to ensure accomplishment of the described activities and 
objectives.
    (1) Financial strength will be analyzed by the Agency based on 
financial data provided in the application. The analysis will consider 
the applicant's tangible net worth, which must be positive, and whether 
the applicant has dependable sources of revenue or a successful history 
of raising revenue sufficient to meet cash requirements.
    (2) Expertise will be analyzed by the Agency based on the applicant 
staff's training and experience in activities similar to those proposed 
in the application and, if consultants will be used, on the staff's 
experience in choosing and supervising consultants.
    (c) Universal identifier and system for awards management. Unless 
exempt under 2 CFR 25.110, the Applicant must:
    (1) Be registered in the System for Awards Management (SAM) prior to 
submitting an application;
    (2) Maintain an active SAM registration with current information at 
all times during which it has an active Federal award or an application 
under consideration by the Agency; and
    (3) Provide its Dun and Bradstreet Data Universal Numbering System 
(DUNS) number in each application it submits to the Agency. Generally, 
the DUNS number is included on Standard Form (SF) 424, ``Application for 
Federal Assistance.''
    (d) Delinquent debt. The applicant must not have any delinquent debt 
to the Federal Government. If an applicant has any delinquent debt to 
the Federal Government, the applicant will be ineligible to receive any 
funds obligated under this subpart until the debt has been paid.
    (e) Legal authority and responsibility. Each Applicant must have the 
legal authority necessary to apply for and carry out the purpose of the 
grant.



Sec. 4280.417  Project eligibility.

    For a Project to be eligible for funding under this subpart, the 
proposed Project must meet each of the requirements specified in 
paragraphs (a) through (e) of this section.
    (a) Types of projects. Grant funds may be used for Projects 
identified in either paragraph (a)(1) of this section, business 
opportunity type grants, or paragraph (a)(2) of this section, business 
enterprise type grants. Unless otherwise announced in a Notice of 
Solicitation of Applications, the Agency will set aside 10 percent of 
its RBDG appropriation for business opportunity type grants. The Agency 
reserves the right to reallocate funds set aside for business 
opportunity type grants to business enterprise type grants if it becomes 
apparent to the Agency that

[[Page 851]]

there is insufficient demand for the funds set aside for the business 
opportunity type grants.
    (1) Business opportunity Projects. Grant funds may be used for 
business opportunity Projects that include one or more of the following 
activities:
    (i) Identify and analyze business opportunities that will use local 
rural materials or human resources. This includes opportunities in 
export markets, as well as feasibility and business plan studies;
    (ii) Identify, train, and provide Technical Assistance to existing 
or prospective rural entrepreneurs and managers;
    (iii) Establish Business Support Centers and otherwise assist in the 
creation of new Rural businesses;
    (iv) Conduct local community or multi-county Economic Development 
Planning;
    (v) Conduct leadership development training of existing or 
prospective adult rural entrepreneurs and managers;
    (vi) Establish centers for training, technology, and trade that will 
provide training to Rural businesses in the utilization of interactive 
communications technologies to develop international trade opportunities 
and markets; or
    (vii) Pay reasonable fees and charges for professional services 
necessary to conduct the Technical Assistance, training, or planning 
functions.
    (2) Business enterprise projects. Grant funds may be used to finance 
and/or develop Small and Emerging Businesses in Rural Areas including, 
but not limited to, the following activities:
    (i) Acquisition and development of land, easements and rights-of-
way;
    (ii) Construction, conversion, enlargement, repairs or modernization 
of buildings, plants, machinery, equipment, access streets and roads, 
parking areas, utilities, and pollution control and abatement 
facilities;
    (iii) Provision of loans for startup operating cost and working 
capital;
    (iv) Reasonable fees and charges for professional services necessary 
for the planning and development of the Project;
    (v) Establishment of a revolving loan fund to provide financial 
assistance to third parties through a loan; and
    (vi) Establishment, expansion, and operation of Rural distance 
learning networks or development of Rural learning programs that provide 
educational instruction or job training instruction related to potential 
employment or job advancements for adult students;
    (vii) Provision of Technical Assistance for Small and Emerging 
Businesses, including but not limited to feasibility studies and 
business plans; and/or
    (viii) Provision of Technical Assistance and training to rural 
communities for the purpose of improving passenger transportation 
services or facilities.
    (b) Result of projects. (1) For business opportunity type grants, 
the Project must have a reasonable prospect that the Project will result 
in the Economic Development of a Rural Area.
    (2) For business enterprise type grants, the Project must have a 
reasonable prospect that it will result in the development or financing 
of Small and Emerging Businesses.
    (c) Basis for success or failure. Grants may be made only when the 
application demonstrates a need for the Project and includes a basis for 
determining the success or failure of the Project and individual major 
elements of the Project and outlines procedures that will be taken to 
assess the Project's impact at its conclusion.
    (d) Local and area-wide strategic plans. Business opportunity type 
grants may be made only when the proposed Project is consistent with any 
local and area-wide strategic plans for community and Economic 
Development, coordinated with other Economic Development activities in 
the Project area, and consistent with any Rural Development State 
Strategic Plan.
    (e) An applicant is permitted to use up to 10 percent of the amount 
provided under this subpart to construct, improve, or acquire broadband 
infrastructure related to the project financed, subject to the 
requirements of 7 CFR part 1980, subpart M.

[80 FR 15667, Mar. 25, 2015, as amended at 85 FR 57085, Sept. 15, 2020]

[[Page 852]]



Sec. Sec. 4280.418-4280.420  [Reserved]

                           Funding Provisions



Sec. 4280.421  Term requirement.

    A grant may be considered for the amount needed to assist with the 
completion of a proposed Project, provided that the Project can 
reasonably be expected to be completed within 1 full year after it has 
begun.



Sec. 4280.422  Joint funding.

    To the extent permitted by law, Agency grant funds may be used 
jointly and in proportion with funds furnished by the grantee or from 
other sources including Agency loan funds.



Sec. 4280.423  Ineligible uses of grant funds.

    Grant funds may not be used towards any of the uses identified in 
paragraphs (a) through (n) of this section.
    (a) Duplicate current services or substitute support previously 
provided. If the current service is inadequate, however, grant funds may 
be used to expand the level of effort or services beyond what is 
currently being provided.
    (b) Pay costs of preparing the application package for funding under 
this program or any other program.
    (c) Pay costs for any expenses incurred prior to receipt of a full 
application, except for those permitted under Departmental Regulations.
    (d) Fund political activities.
    (e) Pay for assistance to any private business enterprise which does 
not create and/or support jobs in the United States.
    (f) Pay any judgment or debt owed to the United States.
    (g) Fund Agriculture Production either directly or through 
horizontally integrated livestock operations except for commercial 
nurseries, timber operations or limited Agricultural Production related 
to Technical Assistance Projects. The following are not considered 
Agriculture Production:
    (1) Aquaculture, including conservation, development, and 
utilization of water for aquaculture;
    (2) Commercial fishing;
    (3) Commercial nurseries engaged in the production of ornamental 
plants and trees and other nursery products such as bulbs, flowers, 
shrubbery, flower and vegetable seeds, sod, and the growing of plants 
from seed to the transplant stage;
    (4) Forestry, which includes businesses primarily engaged in the 
operation of timber tracts, tree farms, and forest nurseries and related 
activities such as reforestation; or
    (5) The growing of mushrooms or hydroponics.
    (h) To finance comprehensive area-wide type Planning. This does not 
preclude the use of grant funds for Planning for a given Project.
    (i) To make loans when the rates, terms, and charges for those loans 
are not reasonable or would be for purposes not eligible under 7 CFR 
part 4274, subpart D.
    (j) For programs operated by cable television systems.
    (k) To fund a part of a Project that is dependent on other funding 
unless there is a firm commitment of the other funding to ensure 
completion of the Project.
    (l) To pay for Technical Assistance that duplicates assistance 
provided to implement an action plan funded by the Forest Service (FS) 
under the National Forest-Dependent Rural Communities Economic 
Diversification Act for 5 continuous years from the date of grant 
approval by the FS. To avoid duplicate assistance, the grantee shall 
coordinate with FS and the Agency to ascertain if a grant has been made 
in a substantially similar geographical or defined local area in a State 
for Technical Assistance under the FS program. The grantee will provide 
documentation to FS and the Agency regarding the contact with each 
agency.
    (m) Pass through grants. Pass through grants are for, but not 
limited to:
    (1) The purchase, refurbishing, or remodeling of real estate for use 
as a business incubator without charging a fair market rental;
    (2) The purchase of equipment for use by an ultimate recipient 
without charging a fair market rental; and
    (3) The making of a Revolving Loan Fund (RLF) loan without taking 
appropriate security to reasonably assure repayment of the loan.

[[Page 853]]

    (n) For a Project that would result in the transfer of existing 
employment or business activity more than 25 miles from its existing 
location.



Sec. Sec. 4280.424-4280.426  [Reserved]

                          Applying for a Grant



Sec. 4280.427  Application.

    Applications for an RBDG grant as specified in Sec. 4280.417(a)(1) 
and (2) must contain the following:
    (a) An original and one copy of SF 424, ``Application For Federal 
Assistance (For Non-construction);''
    (b) Copies of applicant's organizational documents showing the 
applicant's legal existence and authority to perform the activities 
under the grant;
    (c) A proposed scope of work, including a description of the 
proposed Project, e.g., RLF, Technical Assistance, Industrial Site, 
Business Opportunity and Other Business Development, details of the 
proposed activities to be accomplished and timeframes for completion of 
each task, the number of months duration of the Project, and the 
estimated time it will take from grant approval to beginning of Project 
implementation;
    (d) A written narrative that includes, at a minimum, the following 
items:
    (1) An explanation of why the Project is needed, the benefits of the 
proposed Project, and how the Project meets the grant eligible purposes;
    (2) Area to be served, identifying each governmental unit, i.e. 
town, county, etc., to be affected by the Project;
    (3) Description of how the Project will coordinate Economic 
Development activities with other Economic Development activities within 
the Project area;
    (4) Business to be assisted, if appropriate, and Economic 
Development to be accomplished;
    (5) An explanation of how the proposed Project will result in newly 
created, increased, or supported jobs in the area and the number of 
projected new and supported jobs within the next 3 years;
    (6) A description of the applicant's demonstrated capability and 
experience in providing the proposed Project assistance or similar 
Economic Development activities, including experience of key staff 
members and persons who will be providing the proposed Project 
activities and managing the Project;
    (7) The method and rationale used to select the areas and businesses 
that will receive the service;
    (8) A brief description of how the work will be performed including 
whether organizational staff or consultants or contractors will be used; 
and
    (9) Other information the Agency may request to assist it in making 
a grant award determination;
    (e) The latest 3 years of financial information to show the 
applicant's financial capacity to carry out the proposed work. If the 
applicant is less than 3 years old, at a minimum, the information should 
include all balance sheet(s), income statement(s) and cash flow 
statement(s). A current audited report is required if available;
    (f) Intergovernmental review comments from the State Single Point of 
Contact, or evidence that the State has elected not to review the 
program under Executive Order 12372;
    (g) Documentation regarding the availability and amount of other 
funds to be used in conjunction with the funds from the RBDG;
    (h) A budget which includes salaries, fringe benefits, consultant 
costs, indirect costs, and other appropriate direct costs for the 
Project; and
    (i) RBDG construction Project grants must conform with 7 CFR part 
1924, subpart A requirements.



Sec. 4280.428  Strategic economic and community development.

    Applicants with projects that support the implementation of 
Strategic Community Investment Plans are encouraged to review and 
consider 7 CFR part 1980, subpart K, which contains provisions for 
providing priority to projects that support the implementation of 
Strategic Community Investment Plans on a multi-jurisdictional and 
multi-sectoral basis.

[85 FR 59395, Sept. 22, 2020]

[[Page 854]]



Sec. 4280.429  [Reserved]



Sec. 4280.430  Notification of decision.

    When the Agency has determined that an application is not eligible 
or that no further action will be taken, the Agency will notify the 
applicant in writing of the reasons why the application was not 
favorably considered and provide any appeal rights.



Sec. Sec. 4280.431-4280.433  [Reserved]

                   Processing and Scoring Applications



Sec. 4280.434  General processing and scoring provisions.

    The Agency will review each application for assistance in accordance 
with the priorities established in Sec. 4280.435. The Agency will 
assign each application a priority rating and will select applications 
for funding based on the priority ratings and the total funds available 
to the program.
    (a) Applications. The Agency will score each application based on 
the information contained in the application and its supporting 
information. All applications submitted for funding must contain 
sufficient information to permit the Agency to complete a thorough 
priority rating.
    (b) Unfunded applications. The Agency will notify eligible 
applicants if funds are not available. If an applicant wishes to have 
their application maintained in an active file for future consideration, 
the applicant must revise and update their application in writing for 
the Agency to reconsider in a future funding cycle.



Sec. 4280.435  Scoring criteria.

    The Agency will use the criteria in this section to score 
applications for purposes identified under Sec. 4280.417(a)(1)and (2).
    (a) Leveraging. If the grant will fund a critical element of a 
larger program of Economic Development, without which the overall 
program either could not proceed or would be far less effective, or if 
the program to be assisted by the grant will also be partially funded 
from other sources, points will be awarded as follows. If points are 
awarded for leveraging, funds must be spent proportionally, and if 
leveraged funds are not utilized proportionately with the grant, the 
Agency reserves the right to take any legal action, including 
terminating the grant.
    (1) If Rural Development's portion of Project funding is:
    (i) Less than 20 percent--30 points;
    (ii) 20 but less than 50 percent--20 points;
    (iii) 50 but less than 75 percent--10 points; or
    (iv) 75 percent or more--0 points.
    (2) [Reserved]
    (b) Points will be awarded for each of the following criteria met by 
the community or communities that will receive the benefit of the grant. 
However, regardless of the mathematical total of points indicated by 
paragraphs (b)(1) through (4) of this section, total points awarded 
under this paragraph (b) must not exceed 40.
    (1) Trauma. Experiencing trauma due to a major natural disaster that 
occurred not more than 3 years prior to the filing of the application 
for assistance--15 points;
    (2) Economic distress. The community has suffered a loss of 20 
percent or more in their total jobs caused by the closure of a military 
facility or other employers within the last 3 years--15 points;
    (3) Long-term poverty. Has experienced Long-Term poverty as 
demonstrated by being a former Rural empowerment zone, Rural economic 
area partnership zone, Rural enterprise community, champion community, 
or a persistent poverty county as determined by USDA's Economic Research 
Serviced--10 points;
    (4) Population decline. Has experienced Long-Term population 
decline--10 points as demonstrated by the latest three decennial 
censuses.
    (c) Population. Proposed Project(s) will be located in a community 
of:
    (1) Under 5,000 population--15 points;
    (2) Between 5,000 and less than 15,000 population--10 points; or
    (3) Between 15,000 and 25,000 population--5 points.
    (d) Unemployment. Proposed Project(s) will be located in areas where 
the unemployment rate:
    (1) exceeds the State rate by 25 percent or more--20 points;

[[Page 855]]

    (2) exceeds the State rate by less than 25 percent--10 points; or
    (3) is equal to or less than the State rate--0 points.
    (e) Median household income. Proposed Project(s) will be located in 
areas where Median Household Income (MHI) as prescribed by section 
673(2) of the Community Services Block Grant Act for a family of 4 for 
the State is:
    (1) Less than poverty line--25 points;
    (2) More than poverty line but less than 65 percent of State MHI--15 
points;
    (3) Between 65 and 85 percent of State MHI--10 points; or
    (4) Greater than 85 percent State MHI--0 points.
    (f) Experience. Applicant has evidence of successful experience in 
the type of activity. Evidence of successful experience may be a 
description of experience supplied and certified by the applicant based 
upon its current employees' resumes:
    (1) 10 or more years-30 points;
    (2) At least 5 but less than 10 years-20 points;
    (3) At least 3 but less than 5 years-10 points; or
    (4) At least 1 but less than 3 years-5 points.
    (g) Small business start-up or expansion. Applicant has evidence 
that small business development will be supported by startup or 
expansion as a result of the activities to be carried out under the 
grant. Written evidence of commitment by a small, or a Small and 
Emerging Business must be provided to the Agency, and should include the 
number of jobs that will be supported and created. 5 points for each 
letter up to 25 points.
    (h) Jobs created or supported. The anticipated development, 
expansion, or furtherance of business enterprises as a result of the 
proposed Project will create and/or support existing jobs associated 
with the affected businesses. The number of jobs must be evidenced by a 
written commitment from the business to be assisted.
    (1) One job for less than $5,000--25 points;
    (2) one job for $5,000 but less than $10,000--20 points;
    (3) one job for $10,000 but less than $15,000--15 points;
    (4) one job for $15,000 but less than $20,000--10 points; or
    (5) one job for $20,000 but less than $25,000--5 points.
    (i) Size of grant request. Grant Projects utilizing funds available 
under this subpart of:
    (1) less than $100,000--25 points;
    (2) $100,000 to $200,000--15 points; or
    (3) more than $200,000 but not more than $500,000--10 points.
    (j) Indirect cost. Applicant is not requesting grant funds to cover 
their administrative or indirect costs-5 points.
    (k) Discretionary points. Either the State Director or Administrator 
may assign up to 50 discretionary points to an application. Assignment 
of discretionary points must include a written justification. 
Permissible justifications are geographic distribution of funds, special 
Secretary of Agriculture initiatives such as Priority Communities, or a 
state's strategic goals. Discretionary points may only be assigned to 
initial grants. However, in the case where two Projects have the same 
score, the State Director may add one point to the Project that best 
fits the State's strategic plan regardless of whether the Project is an 
initial or subsequent grant.



Sec. Sec. 4280.436-4280.438  [Reserved]

                       Grant Awards and Agreement



Sec. 4280.439  Grant awards and agreements.

    The Agency will award and administer RBDG grants in accordance with 
applicable Departmental regulations, this subpart, and the unauthorized 
grant provisions of 7 CFR part 1951, subpart O.
    (a) Letter of conditions. The Agency will provide each approved 
applicant a letter of conditions, which sets out the conditions under 
which the grant will be made, including, but not limited to, an Agency 
grant agreement.
    (b) Applicant's intent to meet conditions. The applicant must 
complete, sign and return a ``Letter of Intent to Meet Conditions,'' to 
the Agency. If applicant identifies certain conditions that the 
applicant cannot meet, the applicant may propose alternate conditions to 
the Agency. The Agency must concur with any changes proposed by

[[Page 856]]

the letter of conditions by the applicant before the any grant will be 
made.



Sec. Sec. 4280.440-4280.442  [Reserved]

                 Post Award Activities and Requirements



Sec. 4280.443  Grant monitoring and servicing.

    RBDG grants will be monitored and serviced in accordance with the 
grant agreement, this subpart, and 2 CFR chapter IV.



Sec. Sec. 4280.444-4280.447  [Reserved]



Sec. 4280.448  Transfers and assumptions.

    The Agency will approve transfer and assumption requests on grants 
awarded under this subpart on a case by case basis, and then only to 
eligible entities under Sec. 4280.416.



Sec. Sec. 4280.449-4280.499  [Reserved]



Sec. 4280.500  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) under the provisions of 44 U.S.C. chapter 35 and have been 
assigned OMB control numbers 0570-0022 and 0570-0024 in accordance with 
the Paperwork Reduction Act of 1995. You are not required to respond to 
this collection of information unless it displays a valid OMB control 
number.



PART 4284_GRANTS--Table of Contents



 Subpart A_General Requirements for Cooperative Services Grant Programs

Sec.
4284.1 Purpose.
4284.2 Policy.
4284.3 Definitions.
4284.4 Appeals.
4284.5 [Reserved]
4284.6 Applicant eligibility.
4284.7 Electronic submission.
4284.8 Grant approval and obligation of funds.
4284.9 Grant disbursement.
4284.10 Ineligible grant purposes.
4284.11 Award requirements.
4284.12 Reporting requirements.
4284.13 Confidentiality of reports.
4284.14 Grant servicing.
4284.15 Performance reviews.
4284.16 Other considerations.
4284.17 Member delegate clause.
4284.18 Audit requirements.
4284.19 Programmatic changes.
4284.20-4284.99 [Reserved]
4284.100 OMB control number.

Subparts B-E [Reserved]

             Subpart F_Rural Cooperative Development Grants

4284.501 Purpose.
4284.502 Policy.
4284.503 Program administration.
4284.504 Definitions.
4284.505-4284.506 [Reserved]
4284.507 Eligibility for grant assistance.
4284.508 Use of grant funds.
4284.509 Limitations on grants.
4284.510 Application processing.
4284.511 Evaluation screening.
4284.512 Evaluation process.
4284.513 Evaluation criteria and weights.
4284.514 Grant closing.
4284.515-4284.599 [Reserved]
4284.600 OMB control number.

Subparts G-I [Reserved]

              Subpart J_Value-Added Producer Grant Program

                                 General

4284.901 Purpose.
4284.902 Definitions.
4284.903 Review or appeal rights.
4284.904 Exception authority.
4284.905 Nondiscrimination and compliance with other Federal laws.
4284.906 State laws, local laws, regulatory commission regulations.
4284.907 Environmental requirements.
4284.908 Compliance with other regulations.
4284.909 Forms, regulations, and instructions.
4284.910-4284.914 [Reserved]

              Funding and Programmatic Change Notifications

4284.915 Notifications.
4284.916-4284.919 [Reserved]

                               Eligibility

4284.920 Applicant eligibility.
4284.921 Ineligible applicants.
4284.922 Project eligibility.
4284.923 Reserved funds eligibility.
4284.924 Priority scoring eligibility.
4284.925 Eligible uses of grant and matching funds.
4284.926 Ineligible uses of grant and matching funds.
4284.927 Funding limitations.
4284.928-4284.929 [Reserved]

[[Page 857]]

                          Applying for a Grant

4284.930 Preliminary review.
4284.931 Application package.
4284.932 Simplified application.
4284.933 Filing instructions.
4284.934-4284.939 [Reserved]

                   Processing and Scoring Applications

4284.940 Processing applications.
4284.941 Application withdrawal.
4284.942 Proposal evaluation criteria and scoring applications.
4284.943-4284.949 [Reserved]

                       Grant Awards and Agreement

4284.950 Award process.
4284.951 Obligate and award funds.
4284.952-4284.959 [Reserved]

                 Post Award Activities and Requirements

4284.960 Monitoring and reporting program performance.
4284.961 Grant servicing.
4284.962 Transfer of obligations.
4284.963 Grant close out and related activities.
4284.964-4284.999 [Reserved]

         Subpart K_Agriculture Innovation Demonstration Centers

4284.1001 Purpose.
4284.1002 Policy.
4284.1003 Program administration.
4284.1004 Definitions.
4284.1005-4284.1006 [Reserved]
4284.1007 Eligibility for grant assistance.
4284.1008 Use of grant funds.
4284.1009 Limitations on awards.
4284.1010 Application processing.
4284.1011 Evaluation screening.
4284.1012 Evaluation process.
4284.1013 Evaluation criteria and weights.
4284.1014 Grant closing.
4284.1015-4284.1099 [Reserved]
4284.1100 OMB control number.

    Subpart L_Rural Innovation Stronger Economy (RISE) Grant Program

4284.1101 Purpose.
4284.1102 Organization of subpart.
4284.1103 Definitions.
4284.1104 Exception authority.
4284.1105 Review or appeal rights.
4284.1106 Conflict of interest.
4284.1107 Statute and regulation references.
4284.1108 U.S. Department of Agriculture departmental regulations and 
          laws that contain other compliance requirements
4284.1109 Ineligible applicants
4284.1110 General applicant, application, and funding provisions.
4284.1111 Notifications.
4284.1112 Rural jobs accelerator partnership eligibility.
4284.1113 Project eligibility.
4284.1114 RISE grant funding.
4284.1115 RISE grant applications--content.
4284.1116 [Reserved]
4284.1117 Scoring RISE grant applications.
4284.1118 Selecting RISE grant applications for award.
4284.1119 Awarding and administering RISE grants.
4284.1120 Servicing RISE grants.
4284.1121-4284.1130 [Reserved]
4284.1131 OMB control number.

    Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
    Subpart F also issued under 7 U.S.C 1932(e).
    Subpart G also issued under 7 U.S.C 1926(a)(11).
    Subpart J also issued under 7 U.S.C. 1632(a).
    Subpart K also issued under 7 U.S.C. 1621 note.

    Source: 62 FR 42387, Aug. 7, 1997, unless otherwise noted.



 Subpart A_General Requirements for Cooperative Services Grant Programs

    Source: 69 FR 23425, Apr. 29, 2004, unless otherwise noted.



Sec. 4284.1  Purpose.

    The purpose of this subpart is to set forth definitions and 
requirements which are common to all grant programs set forth in this 
part administered by Cooperative Services within the Rural Business-
Cooperative Service (RBS). Programs administered by the Business 
Programs within RBS are not affected by this subpart.



Sec. 4284.2  Policy.

    It is the policy of Cooperative Services to administer grant 
programs as uniformly as possible to minimize unnecessary 
inconsistencies in the administration of the grant programs provided for 
in this part. The specific provisions or definitions provided in the 
subparts that are specific to Cooperative Services are supplemental to 
these general provisions. Where a specific program provision is 
expressly different from what is provided in this subpart, the program 
specific subpart shall prevail.



Sec. 4284.3  Definitions.

    Agency--Rural Business-Cooperative Service (RBS), an agency of the 
United

[[Page 858]]

States Department of Agriculture (USDA), or a successor agency.
    Agricultural Producer--Persons or entities, including farmers, 
ranchers, loggers, agricultural harvesters and fishermen, that engage in 
the production or harvesting of an agricultural product. Producers may 
or may not own the land or other production resources, but must have 
majority ownership interest in the agricultural product to which Value-
Added is to accrue as a result of the project. Examples of agricultural 
producers include: a logger who has a majority interest in the logs 
harvested that are then converted to boards, a fisherman that has a 
majority interest in the fish caught that are then smoked, a wild herb 
gatherer that has a majority interest in the gathered herbs that are 
then converted into essential oils, a cattle feeder that has a majority 
interest in the cattle that are fed, slaughtered and sold as boxed beef, 
and a corn grower that has a majority interest in the corn produced that 
is then converted into corn meal.
    Agricultural Product--Plant and animal products and their by-
products to include forestry products, fish and seafood products.
    Conflict of interest--A situation in which a person or entity has 
competing personal, professional, or financial interests that make it 
difficult for the person or business to act impartially. Regarding use 
of both grant and matching funds, Federal procurement standards prohibit 
transactions that involve a real or apparent conflict of interest for 
owners, employees, officers, agents, their immediate family members, 
partners, or an organization which is about to employ any of the parties 
indicated herein, having a financial or other interest in or a tangible 
personal benefit from the outcome of the project; or that restrict open 
and free competition for unrestrained trade. Specifically, project funds 
may not be used for services or goods going to, or coming from, a person 
or entity with a real or apparent conflict of interest, including, but 
not limited to, owner(s) and their immediate family members. In cases of 
tribally-owned businesses, to avoid a conflict of interest, any business 
assisted by a tribe must be held through a separate entity, such as a 
tribal corporation. The separate entity may be owned by the tribe and 
distribute profits to the tribe. However, the entity's governing board 
must be independent from the tribal government and be elected or 
appointed for a specific time period. These board members must not be 
subject to removal without cause by the tribal government. The entity's 
board members must not, now or in the future, make up the majority of 
members of the tribal council or be members of the tribal council or 
other governing board of the tribe.
    Cooperative Services--The office within RBS, and its successor 
organization, that administers programs authorized by the Cooperative 
Marketing Act of 1926 (7 U.S.C. 451 et seq.) and such other programs so 
identified in USDA regulations.
    Economic development--The economic growth of an area as evidenced by 
increase in total income, employment opportunities, decreased out-
migration of population, value of production, increased diversification 
of industry, higher labor force participation rates, increased duration 
of employment, higher wage levels, or gains in other measurements of 
economic activity, such as land values.
    Farmer or Rancher Cooperative--A farmer or rancher-owned and 
controlled business from which benefits are derived and distributed 
equitably on the basis of use by each of the farmer or rancher owners.
    Fixed equipment--Tangible personal property used in trade or 
business that would ordinarily be subject to depreciation under the 
Internal Revenue Code, including processing equipment, but not including 
property for equipping and furnishing offices such as computers, office 
equipment, desks or file cabinets.
    Independent Producers--Agricultural producers, individuals or 
entities (including for profit and not for profit corporations, LLCs, 
partnerships or LLPs), where the entities are solely owned or controlled 
by Agricultural Producers who own a majority ownership interest in the 
agricultural product that is produced. An independent

[[Page 859]]

producer can also be a steering committee composed of independent 
producers in the process of organizing an association to operate a 
Value-Added venture that will be owned and controlled by the independent 
producers supplying the agricultural product to the market. Independent 
Producers must produce and own the agricultural product to which value 
is being added. Producers who produce the agricultural product under 
contract for another entity but do not own the product produced are not 
independent producers.
    Majority-Controlled Producer-Based Business Venture--A venture where 
more than 50% of the ownership and control is held by Independent 
Producers, or, partnerships, LLCs, LLPs, corporations or cooperatives 
that are themselves 100 percent owned and controlled by Independent 
Producers.
    Matching Funds--Cash or confirmed funding commitments from non-
Federal sources unless otherwise provided by law. Unless otherwise 
provided, in-kind contributions that conform to the provisions of 2 CFR 
part 200 as adopted by USDA in 2 CFR part 400 can be used as matching 
funds. Examples of in-kind contributions include volunteer services 
furnished by professional and technical personnel, donated supplies and 
equipment, and donated office space. Matching funds must be provided in 
advance of grant funding, such that for every dollar of grant that is 
advanced, not less than the pro-rata portion of matching funds shall 
have been expended prior to submitting the request for reimbursement. 
Matching funds are subject to the same use restrictions as grant funds.
    National Office--USDA RBS headquarters in Washington, DC.
    Nonprofit institution--Any organization or institution, including an 
accredited institution of higher education, no part of the net earnings 
of which may inure, to the benefit of any private shareholder or 
individual.
    Product segregation--Physical separation of a product or commodity 
from similar products. Physical separation requires a barrier to prevent 
mixing with the similar product.
    Public body--Any state, county, city, township, incorporated town or 
village, borough, authority, district, economic development authority, 
or Indian tribe on federal or state reservations or other federally 
recognized Indian tribe in rural areas.
    RFP--Request for Proposals.
    Rural and rural area--includes all the territory of a state that is 
not within the outer boundary of any city or town having a population of 
50,000 or more and the urbanized area contiguous and adjacent to such 
city or town, as defined by the U.S. Bureau of the Census using the most 
recent decennial Census of the United States, and which excludes certain 
populations pursuant to 7 U.S.C. 1991(a)(13)(H) and (I).
    Rural Development--A mission area within the USDA consisting of the 
Office of Under Secretary for Rural Development, Office of Community 
Development, Rural Business-Cooperative Service, Rural Housing Service 
and Rural Utilities Service and their successors.
    State--includes each of the several States, the Commonwealth of 
Puerto Rico, the Virgin Islands of the United States, Guam, American 
Samoa, the Commonwealth of the Northern Mariana Islands, and, as may be 
determined by the Secretary to be feasible, appropriate and lawful, the 
Freely Associated States and the Federated States of Micronesia.
    State Office--USDA Rural Development offices located in each state.
    Value-Added--The incremental value that is realized by the producer 
from an agricultural commodity or product as the result of a change in 
its physical state, differentiated production or marketing, as 
demonstrated in a business plan, or Product segregation. Also, the 
economic benefit realized from the production of farm or ranch-based 
renewable energy. Incremental value may be realized by the producer as a 
result of either an increase in value to buyers or the expansion of the 
overall market for the product. Examples include milling wheat into 
flour, slaughtering livestock or poultry, making strawberries into jam, 
the marketing of organic products, an identity-preserved marketing 
system, wind or hydro power produced on land that is farmed and 
collecting and converting methane from animal waste to

[[Page 860]]

generate energy. Identity-preserved marketing systems include labeling 
that identifies how the product was produced and by whom.

[69 FR 23425, Apr. 29, 2004, as amended at 79 FR 76016, Dec. 19, 2014; 
80 FR 9913, Feb. 24, 2015; 87 FR 38644, June 29, 2022]



Sec. 4284.4  Appeals.

    Any appealable adverse decision made by the Agency may be appealed 
in accordance with USDA appeal regulations found at 7 CFR part 11 and 
subpart B of part 1900. If the Agency makes a determination that a 
decision is not appealable, a participant may request that it be 
reviewed by the Director of the National Appeals Division.



Sec. 4284.5  [Reserved]



Sec. 4284.6  Applicant eligibility.

    An outstanding judgment obtained against an applicant by the United 
States in a Federal Court (other than in the United States Tax Court), 
which has been recorded, shall cause the applicant to be ineligible to 
receive any assistance until the judgment is paid in full or otherwise 
satisfied. RBS grant funds may not be used to satisfy the judgment.



Sec. 4284.7  Electronic submission.

    Applicants and grant awardees are encouraged, but not required, to 
submit applications and reports in electronic form as prescribed in 
requests for proposals issued by USDA and in the applicable grant 
agreements.



Sec. 4284.8  Grant approval and obligation of funds.

    The following statement will be entered in the comment section of 
the Request for Obligation of Funds, which must be signed by the 
grantee:
    The grantee certifies that it is in compliance with and will 
continue to comply with all applicable laws, regulations, Executive 
Orders and other generally applicable requirements, including those 
contained in the applicable 7 CFR part 4284 and the Grants and 
Agreements Departmental Regulations as currently codified in 2 CFR parts 
400, 415, 417, 418, and 421, in effect on the date of grant approval, 
and the approved Letter of Conditions.

[79 FR 76017, Dec. 19, 2014]



Sec. 4284.9  Grant disbursement.

    The Agency will determine, based on 2 CFR part 200 as adopted by 
USDA in 2 CFR part 400 whether disbursement of a grant will be by 
advance or reimbursement.

[79 FR 76017, Dec. 19, 2014]



Sec. 4284.10  Ineligible grant purposes.

    Grant funds may not be used to:
    (a) Duplicate current services or replace or substitute support 
previously provided. If the current service is inadequate, however, 
grant funds may be used to expand the level of effort or services beyond 
what is currently being provided;
    (b) Pay costs of preparing the application package for funding under 
this program;
    (c) Pay costs of the project incurred prior to the date of grant 
approval;
    (d) Fund political activities;
    (e) Pay for assistance to any private business enterprise which does 
not have a least 51 percent ownership by those who are either citizens 
of the United States or reside in the United States after being legally 
admitted for permanent residence;
    (f) Pay any judgment or debt owed to the United States;
    (g) Plan, repair, rehabilitate, acquire, or construct a building or 
facility (including a processing facility);
    (h) Purchase, rent or install Fixed Equipment;
    (i) Pay for the repair of privately owned vehicles; or
    (j) Fund research and development.



Sec. 4284.11  Award requirements.

    In addition to specific grant requirements, all approved applicants 
will be required to do the following:
    (a) Enter into an Agency-approved grant agreement with RBS;
    (b) Disclose in writing any potential conflicts of interest and 
maintain written standards of conduct covering conflicts of interest, 
including organizational conflicts of interest in accordance with 2 CFR 
400.2;

[[Page 861]]

    (c) Use ``Request for Advance or Reimbursement'' to request advances 
or reimbursements, as applicable, but not more frequently than once a 
month;
    (d) Maintain a financial management system that is acceptable to the 
Agency; and
    (e) Collect and maintain data on race, sex and national origin of 
the beneficiaries of the project.

[69 FR 23425, Apr. 29, 2004, as amended at 79 FR 76017, Dec. 19, 2014]



Sec. 4284.12  Reporting requirements.

    Grantees must submit the following to USDA:
    (a) A ``Financial Status Report'' listing expenditures according to 
agreed upon budget categories, on a semi-annual basis. Reporting periods 
end as identified in the grant agreement or applicable program 
attachment. Reports are due 30 days after the reporting period ends. 
Failure to submit the required reports within the specified time frame 
is considered cause for suspension or termination of the grant.
    (b) Semi-annual performance reports that compare accomplishments to 
the objectives stated in the proposal. Identify all tasks completed to 
date and provide documentation supporting the reported results. If the 
original schedule provided in the work plan is not being met, the report 
should discuss the problems or delays that may affect completion of the 
project. Objectives for the next reporting period should be listed. 
Compliance with any special condition on the use of award funds should 
be discussed. Reports are due as provided in paragraph (a) of this 
section. The supporting documentation for completed tasks include, but 
are not limited to, feasibility studies, marketing plans, business 
plans, articles of incorporation and bylaws and an accounting of how 
working capital funds were spent.
    (c) Final project performance reports, inclusive of supporting 
documentation. The final performance report is due within 30 days of the 
completion of the project.

[69 FR 23425, Apr. 29, 2004, as amended at 79 FR 76017, Dec. 19, 2014]



Sec. 4284.13  Confidentiality of reports.

    All reports submitted to the Agency will be held in confidence to 
the extent permitted by law.



Sec. 4284.14  Grant servicing.

    Grants will be serviced in accordance with 7 CFR part 1951, subparts 
E and O and the Departmental Grants and Agreements Regulations as 
currently codified in 2 CFR parts 400, 415, 417, 418, and 421. The only 
exception is that the delegation of post-award servicing does not 
require the prior approval of the Administrator. Grantees will permit 
periodic inspection of the program operations by a representative of the 
Agency. All non-confidential information resulting from the Grantee's 
activities shall be made available to the general public on an equal 
basis.

[79 FR 76017, Dec. 19, 2014]



Sec. 4284.15  Performance reviews.

    (a) USDA will incorporate performance criteria in grant award 
documentation and will regularly evaluate the progress and performance 
of grant awardees.
    (b) USDA may elect to suspend or terminate a grant in all or part, 
or funding of a particular workplan activity, but nevertheless fund the 
remainder of a request for an advance or reimbursement, as applicable, 
where USDA has determined:
    (1) That the grantee or subrecipient of grant funds has demonstrated 
insufficient progress in complying with the terms of the grant 
agreement;
    (2) There is reason to believe that other sources of joint funding 
have not been or will not be forthcoming on a timely basis; or
    (3) Such other cause as USDA identifies in writing to the grantee 
(including but not limited to the use of Federal grant funds for 
ineligible purposes).



Sec. 4284.16  Other considerations.

    (a) Environmental requirements. Grants made under this subpart must 
comply with 7 CFR part 1970. Applications for technical assistance or 
planning projects are generally excluded from the environmental review 
process by Sec. 1970.53, provided the assistance is not

[[Page 862]]

related to the development of a specific site. Applicants for grant 
funds must consider and document within their plans the important 
environmental factors within the planning area and the potential 
environmental impacts of the plan on the planning area, as well as the 
alternative planning strategies that were reviewed.
    (b) Civil rights. All grants made under this subpart are subject to 
the requirements of title VI of the Civil Rights Act of 1964, which 
prohibits discrimination on the basis of race, color and national origin 
as outlined in 7 CFR part 1901, subpart E. In addition, the grants made 
under this subpart are subject to the requirements of section 504 of the 
Rehabilitation Act of 1973, as amended, which prohibits discrimination 
on the basis of disability; the requirements of the Age Discrimination 
Act of 1975, which prohibits discrimination on the basis of age; and 
title III of the Americans with Disabilities Act, which prohibits 
discrimination on the basis of disability by private entities in places 
of public accommodations. This program will also be administered in 
accordance with all other applicable civil rights law.
    (c) Other USDA regulations. The grant programs under this part are 
subject to the provisions of the following regulations, as applicable:
    (1) 2 CFR part 400, Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards;
    (2) 2 CFR part 415, General Program Administrative Regulations;
    (3) 2 CFR part 417, Nonprocurement Debarment and Suspension;
    (4) 2 CFR part 418, New Restrictions on Lobbying; and
    (5) 2 CFR part 421, Requirements for Drug-Free Workplace (Financial 
Assistance).

[69 FR 23425, Apr. 29, 2004, as amended at 79 FR 76017, Dec. 19, 2014; 
81 FR 11053, Mar. 2, 2016]



Sec. 4284.17  Member delegate clause.

    No Member of Congress shall be admitted to any share or part of a 
grant program or any benefit that may arise there from, but this 
provision shall not be construed to bar as a contractor under a grant a 
publicly held corporation whose ownership might include a Member of 
Congress.



Sec. 4284.18  Audit requirements.

    Grantees must comply with the audit requirements of 2 CFR part 200 
as adopted by USDA in 2 CFR part 400. The audit requirements apply to 
the years in which grant funds are received and years in which work is 
accomplished using grant funds.

[79 FR 76017, Dec. 19, 2014]



Sec. 4284.19  Programmatic changes.

    The Grantee shall obtain prior approval for any change to the scope 
or objectives of the approved project. Failure to obtain prior approval 
of changes to the scope of work or budget may result in suspension, 
termination and recovery of grant funds.



Sec. Sec. 4284.20-4284.99  [Reserved]



Sec. 4284.100  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0570-0045.

Subparts B-E [Reserved]



             Subpart F_Rural Cooperative Development Grants

    Source: 69 FR 23428, Apr. 29, 2004, unless otherwise noted.



Sec. 4284.501  Purpose.

    This subpart outlines the Agency's polices and procedures for making 
grants for cooperative development in rural areas.



Sec. 4284.502  Policy.

    Rural cooperative development grants will be used to facilitate the 
creation or retention of jobs in rural areas through the development of 
new rural cooperatives, Value-Added processing and rural businesses.



Sec. 4284.503  Program administration.

    The rural cooperative development grant program is administered by 
Cooperative Services within the Agency.

[[Page 863]]



Sec. 4284.504  Definitions.

    Center--The entity established or operated by the grantee for rural 
cooperative development. It may or may not be an independent legal 
entity separate from the grantee.
    Cooperative development--The startup, expansion or operational 
improvement of a cooperative to promote development in rural areas of 
services and products, processes that can be used in the marketing of 
products, or enterprises that create Value-Added to farm products 
through processing or marketing activities. Development activities may 
include, but are not limited to, technical assistance, research 
services, educational services and advisory services. Operational 
improvement includes making the cooperative more efficient or better 
managed.
    1994 Institution--means a college identified as such for purposes of 
the Equity in Educational Land-Grant Status Act of 1994 (7 U.S.C. 301 
note). Contact the Agency for a list of currently eligible colleges.
    Project--A planned undertaking by a Center that utilizes the funds 
provided to it to promote economic development in rural areas through 
the creation and enhancement of cooperatives.



Sec. Sec. 4284.505-4284.506  [Reserved]



Sec. 4284.507  Eligibility for grant assistance.

    Grants may be made to Nonprofit corporations and institutions of 
higher education. Grants may not be made to Public bodies.



Sec. 4284.508  Use of grant funds.

    Grant funds may be used to pay up to 75 percent (95 percent where 
the grantee is a 1994 Institution) of the cost of establishing and 
operating centers for rural cooperative development. Matching funds 
contributed by the applicant may include a loan from another federal 
source. Grant funds may be used for, but are not limited to, providing 
the following to individuals, cooperatives, small businesses and other 
similar entities in rural areas served by the Center:
    (a) Applied research, feasibility, environmental and other studies 
that may be useful for the purpose of cooperative development.
    (b) Collection, interpretation and dissemination of principles, 
facts, technical knowledge, or other information for the purpose of 
cooperative development.
    (c) Providing training and instruction for the purpose of 
cooperative development.
    (d) Providing loans and grants for the purpose of cooperative 
development in accordance with the subpart.
    (e) Providing technical assistance, research services and advisory 
services for the purpose of cooperative development.



Sec. 4284.509  Limitations on grants.

    Grants made pursuant to this subpart shall be for one year or less.



Sec. 4284.510  Application processing.

    (a) Applications. USDA will solicit applications on a competitive 
basis by publication of one or more Requests for Proposals (RFPs). 
Unless otherwise specified in the applicable RFP, applicants must file 
an original and one hard copy of the required forms and a proposal.
    (b) Required forms. The following forms must be completed, signed 
and submitted as part of the application package. Other forms may be 
required. This will be published in the applicable RFP.
    (1) ``Application for Federal Assistance''
    (2) ``Budget Information--Non-Construction Programs''
    (3) ``Assurances--Non-Construction Programs''
    (c) Proposal. Each proposal must contain the following elements. 
Additional elements may be published in the applicable RFP.
    (1) Title Page.
    (2) Table of Contents.
    (3) Executive Summary. A summary of the proposal should briefly 
describe the Center, including goals and tasks to be accomplished, the 
amount requested, how the work will be performed and whether 
organizational staff, consultants or contractors will be used.
    (4) Eligibility. A detailed discussion describing how the applicant 
meets the eligibility requirements.

[[Page 864]]

    (5) Proposal Narrative. The narrative portion of the proposal must 
include, but is not limited to, the following:
    (i) Project Title. The title of the proposed project must be brief, 
not to exceed 75 characters, yet describe the essentials of the project.
    (ii) Information Sheet. A separate one-page information sheet 
listing each of the evaluation criteria referenced in the RFP, followed 
by the page numbers of all relevant material and documentation contained 
in the proposal that address or support the criteria.
    (iii) Goals of the Project. This section must include the following:
    (A) A provision that substantiates that the Center will effectively 
serve rural areas in the United States;
    (B) A provision that the primary objective of the Center will be to 
improve the economic condition of rural areas through cooperative 
development;
    (C) A description of the contributions that the proposed activities 
are likely to make to the improvement of the economic conditions of the 
rural areas for which the Center will provide services.
    (D) Provisions that the Center, in carrying out the activities, will 
seek, where appropriate, the advice, participation, expertise, and 
assistance of representatives of business, industry, educational 
institutions, the Federal Government, and State and local governments.
    (iv) Work Plan. Applicants must discuss the specific tasks to be 
completed using grant and matching funds. The work plan should show how 
customers will be identified, key personnel to be involved, and the 
evaluation methods to be used to determine the success of specific tasks 
and overall objectives of Center operations. The budget must present a 
breakdown of the estimated costs associated with cooperative development 
activities as well as the operation of the Center and allocate these 
costs to each of the tasks to be undertaken. Matching funds as well as 
grant funds must be accounted for in the budget.
    (v) Performance Evaluation Criteria. Performance criteria suggested 
by the applicant for incorporation in the grant award in the event the 
proposal receives grant funding under this subpart. These suggested 
criteria are not binding on USDA.
    (vi) Undertakings. The applicant must expressly undertake to do the 
following:
    (A) Take all practicable steps to develop continuing sources of 
financial support for the Center, particularly from sources in the 
private sector;
    (B) Make arrangements for the activities by the nonprofit 
institution operating the Center to be monitored and evaluated; and
    (C) Provide an accounting for the money received by the grantee 
under this subpart.
    (vii) Delivery of Cooperative development assistance. The applicant 
must describe its previous accomplishments and outcomes in Cooperative 
development activities and/or its potential for effective delivery of 
Cooperative development services to rural areas. The applicant should 
also describe the type(s) of assistance to be provided, the expected 
impacts of that assistance, the sustainability of cooperative 
organizations receiving the assistance, and the transferability of its 
Cooperative development strategy and focus to other areas of the U.S.
    (viii) Qualifications of Personnel. Applicants must describe the 
qualifications of personnel expected to perform key center tasks, and 
whether these personnel are to be full/part-time Center employees or 
contract personnel. Those personnel having a track record of positive 
solutions for complex cooperative development or marketing problems, or 
those with a record of conducting feasibility studies that later proved 
to be accurate, business planning, marketing analysis, or other 
activities relevant to the Center's success should be highlighted.
    (ix) Support and commitments. Applicants must describe the level of 
support and commitment in the community for the proposed Center and the 
services it would provide. Plans for coordinating with other 
developmental organizations in the proposed service area, or with state 
and local government institutions should be included. Letters supporting 
cooperation and coordination from potential local customers should be 
provided.

[[Page 865]]

    (x) Future support. Applicants should describe their vision for 
Center operations beyond the first year, including issues such as 
sources and uses of alternative funding; reliance on Federal, state, and 
local grants; and the use of in-house personnel for providing services 
versus contracting out for that expertise. To the extent possible, 
applicants should document future funding sources that will help achieve 
long-term sustainability of the Center.
    (xi) Evaluation criteria. Each of the evaluation criteria referenced 
in the RFP must be specifically and individually addressed in narrative 
form.
    (6) Verification of Matching Funds. Applicants must provide a budget 
to support the work plan showing all sources and uses of funds during 
the project period. Applicants will be required to verify matching 
funds, both cash and in-kind. Sufficient information should be included 
such that USDA can verify all representations.
    (7) Certification. Applicants must certify that matching funds will 
be available at the same time grant funds are anticipated to be spent 
and that matching funds will be spent in advance of grant funding, such 
that for every dollar of grant that is advanced, not less than an equal 
amount of match funds will have been funded prior to submitting the 
request for advance.



Sec. 4284.511  Evaluation screening.

    The Agency will conduct an initial screening of all proposals to 
determine whether the applicant is eligible and whether the application 
is complete and sufficiently responsive to the requirements set forth in 
the applicable RFP so as to allow for an informed review. Incomplete or 
non-responsive applications will not be evaluated further. Applicants 
may revise their applications and re-submit them prior to the published 
deadline if there is sufficient time to do so.



Sec. 4284.512  Evaluation process.

    (a) Applications will be evaluated by qualified reviewers appointed 
by the Agency.
    (b) After all proposals have been evaluated using the evaluation 
criteria and scored in accordance with the point allocation specified in 
the applicable RFP, the Agency will present to the Administrator of RBS 
a list of all applications in rank order, together with funding level 
recommendations.



Sec. 4284.513  Evaluation criteria and weights.

    Unless supplemented in a RFP, the criteria listed in this section 
will be used to evaluate grants under this subpart. Preference will be 
given to items in paragraphs (a) through (f) of this section. The 
distribution of points to be awarded per criterion will be identified in 
the applicable RFP.
    (a) Administrative capabilities. The application will be evaluated 
to determine whether the subject Center has a track record of 
administering a nationally coordinated, regional or state-wide operated 
project. Centers that have capable financial systems and audit controls, 
personnel and program administration performance measures and clear 
rules of governance will receive more points than those not evidencing 
this capacity.
    (b) Technical assistance and other services. The Agency will 
evaluate the applicant's demonstrated expertise in providing technical 
assistance in Rural areas.
    (c) Economic development. The Agency will evaluate the applicant's 
demonstrated ability to assist in the retention of businesses, 
facilitate the establishment of cooperatives and new cooperative 
approaches and generate employment opportunities that will improve the 
economic conditions of rural areas.
    (d) Linkages. The Agency will evaluate the applicant's demonstrated 
ability to create horizontal linkages among businesses within and among 
various sectors in rural areas of the United States and vertical 
linkages to domestic and international markets.
    (e) Commitment. The Agency will evaluate the applicant's commitment 
to providing technical assistance and other services to underserved and 
economically distressed areas in rural areas of the United States.
    (f) Matching Funds. All applicants must demonstrate Matching Funds 
equal to at least 25 percent (5 percent for 1994 Institutions) of the 
grant

[[Page 866]]

amount requested. Applications exceeding these minimum commitment levels 
will receive more points.
    (g) Delivery. The Agency will evaluate whether the Center has a 
track record in providing technical assistance in rural areas and 
accomplishing effective outcomes in cooperative development. The 
Center's potential for delivering effective cooperative development 
assistance, the expected effects of that assistance, the sustainability 
of cooperative organizations receiving the assistance, and the 
transferability of the Center's cooperative development strategy and 
focus to other States will also be assessed.
    (h) Work Plan/Budget. The work plan will be reviewed for detailed 
actions and an accompanying timetable for implementing the proposal. 
Clear, logical, realistic and efficient plans will result in a higher 
score. Budgets will be reviewed for completeness and the quality of non 
Federal funding commitments.
    (i) Qualifications of those Performing the Tasks. The application 
will be evaluated to determine if the personnel expected to perform key 
center tasks have a track record of positive solutions for complex 
Cooperative development or marketing problems, or a successful record of 
conducting accurate feasibility studies, business plans, marketing 
analysis, or other activities relevant to Cooperative development center 
success.
    (j) Local support. Applications will be reviewed for previous and 
expected local support for the Center, plans for coordinating with other 
developmental organizations in the proposed service area and 
coordination with state and local institutions. Support documentation 
should include recognition of rural values that balance employment 
opportunities with environmental stewardship and other positive rural 
amenities. Centers that demonstrate strong support from potential 
beneficiaries and formal evidence of the Center's intent to coordinate 
with other developmental organizations will receive more points than 
those not evidencing such support and formal intent.
    (k) Future support. Applications that demonstrate their vision for 
funding center operations for future years, including diversification of 
funding sources and building in-house technical assistance capacity, 
will receive more points for this criterion.



Sec. 4284.514  Grant closing.

    (a) Letter of Conditions. The Agency will notify an approved 
applicant in writing, setting out the conditions under which the grant 
will be made.
    (b) Applicant's intent to meet conditions. Upon reviewing the 
conditions and requirements in the letter of conditions, the applicant 
must complete, sign and return the Agency's ``Letter of Intent to Meet 
Conditions,'' or, if certain conditions cannot be met, the applicant may 
propose alternate conditions to the Agency. The Agency must concur with 
any changes proposed to the letter of conditions by the applicant before 
the application will be further processed.
    (c) Grant agreement. The Agency and the grantee must enter into the 
Agency's ``Agriculture Innovation Center Grant Agreement'' prior to the 
advance of funds.



Sec. Sec. 4284.515-4284.599  [Reserved]



Sec. 4284.600  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget and 
have been assigned OMB control number 0570-0006 in accordance with the 
Paperwork Reduction Act of 1995.

Subparts G-I [Reserved]



              Subpart J_Value-Added Producer Grant Program

    Source: 80 FR 26799, May 8, 2015, unless otherwise noted.

                                 General



Sec. 4284.901  Purpose.

    This subpart implements the Value-Added Agricultural Product Market 
Development grant program (Value-Added Producer Grants (VAPG)) 
administered by the Rural Business-Cooperative Service whereby grants 
are made to enable viable Agricultural Producers (those who are prepared 
to

[[Page 867]]

progress to the next business level of planning for, or engaging in, 
Value-Added Agricultural Production) to develop businesses that produce 
and market Value-Added Agricultural Products and to create marketing 
opportunities for such businesses. The provisions of this subpart 
constitute the entire provisions applicable to this Program; the 
provisions of subpart A of this part do not apply to this subpart.



Sec. 4284.902  Definitions.

    The following definitions apply to this subpart:
    Administrator. The Administrator of the Rural Business-Cooperative 
Service or designees or successors.
    Agency. The Rural Business-Cooperative Service or successor for the 
programs it administers.
    Agricultural commodity. An unprocessed product of farms, ranches, 
nurseries, and forests and natural and man-made bodies of water, that 
the Independent Producer has cultivated, raised, or harvested with legal 
access rights. Agricultural commodities include plant and animal 
products and their by-products, such as crops, forestry products, 
hydroponics, nursery stock, aquaculture, meat, on-farm generated manure, 
and fish and seafood products. Agricultural commodities do not include 
horses or other animals raised or sold as pets, such as cats, dogs, and 
ferrets.
    Agricultural food product. Agricultural food products can be raw, 
cooked, or processed edible substances, beverages, or ingredients 
intended for human consumption. These products cannot be animal feed, 
live animals (except for seafood products customarily sold and/or 
consumed live), non-harvested plants, fiber, medicinal products, 
cosmetics, tobacco products, or narcotics.
    Agricultural producer. (1) An individual or entity that produces an 
Agricultural Commodity through participation in the day-to-day labor, 
management, and field operations; or that has the legal right to harvest 
an Agricultural Commodity that is the subject of the VAPG project.
    (2) The Agency shall determine the Agricultural producer status of 
Tribes and Tribal entities without regard to day-to-day labor, 
management, and field operation and right to harvest status.
    Agricultural producer group. A non-profit membership organization 
that represents Independent Producers and whose mission includes working 
on behalf of Independent Producers and the majority of whose membership 
and board of directors is comprised of Independent Producers. The 
Independent Producers, on whose behalf the value-added work will be 
done, must be confirmed as eligible and identified by name or class.
    Applicant. The legal entity submitting an application to participate 
in the competition for program funding. The Applicant must be legally 
structured to meet one of the four eligible Applicant types: Independent 
Producer, Agricultural Producer Group, Farmer or Rancher Cooperative, or 
Majority-Controlled Producer-Based Business Venture.
    Beginning farmer or rancher. (1) For the purposes of determining 
eligibility to receive priority points under Sec. 4284.924, a Beginning 
Farmer or Rancher is either:
    (i) An individual Independent Producer (other than a Harvester) that 
has operated a Farm or Ranch for no more than 10 years or
    (ii) An eligible Applicant entity, other than a Harvester, that has 
an Applicant ownership or membership of more than 50 percent farmers or 
ranchers each of whom have operated a Farm or Ranch for no more than 10 
years.
    (2) For the purposes of determining eligibility to receive funding 
reserved for Beginning Farmers and Ranchers under Sec. 4284.923, a 
Beginning Farmer or Rancher is either:
    (i) An individual Independent Producer (other than a Harvester) that 
has operated a Farm or Ranch for no more than 10 years or
    (ii) An eligible Applicant entity, other than a Harvester, that has 
an Applicant ownership or membership comprised entirely of (i.e., 100 
percent) farmers or ranchers that have operated a Farm or Ranch for no 
more than 10 years.
    Business plan. A formal statement of a set of business goals, the 
reasons why they are believed attainable, and the plan for reaching 
those goals, including

[[Page 868]]

Pro Forma Financial Statements appropriate to the term and scope of the 
Project and sufficient to evidence the viability of the Venture. It may 
also contain background information about the organization or team 
attempting to reach those goals.
    Change in physical state. An irreversible processing activity that 
alters the raw Agricultural Commodity into a marketable Value-Added 
Agricultural Product. This processing activity must be something other 
than a post-harvest process that primarily acts to preserve the 
commodity for later sale. Examples of eligible Value-Added Agricultural 
Products in this category include, but are not limited to, fish fillets, 
diced tomatoes, bio-diesel fuel, cheese, jam, and wool rugs. Examples of 
ineligible products include, but are not limited to, pressure-ripened 
produce; raw bottled milk; container grown trees; young plants, 
seedlings or plugs; and cut flowers.
    Conflict of interest. A situation in which a person or entity has 
competing personal, professional, or financial interests that make it 
difficult for the person or business to act impartially. Regarding use 
of both grant and Matching Funds, Federal procurement standards apply to 
the use of grant funds for purchases and hires, and prohibit 
transactions that involve a real or apparent Conflict of Interest for 
owners, employees, officers, agents, or their Immediate Family members 
having a financial or other interest in the outcome of the Project; or 
that restrict open and free competition for unrestrained trade. 
Specifically, grant and Matching Funds may not be used to support costs 
for services or goods going to, or coming from, a person or entity with 
a real or apparent Conflict of Interest, including, but not limited to, 
owner(s) and their Immediate Family members. See Sec. 4284.925(a) and 
(b) for limited exceptions to this definition and practice for VAPG.
    Departmental regulations. The regulations of the Department of 
Agriculture's Office of Chief Financial Officer (or successor office) as 
codified in 2 CFR parts 200 and 400 and any successor regulations to 
these parts.
    Emerging market. A new or developing, geographic or demographic 
market that is new to the Applicant or the Applicant's product. To 
qualify as new, the Applicant cannot have supplied this product, 
geographic, or demographic market for more than two years at time of 
application submission.
    Family farm. A Farm (or Ranch) that produces agricultural 
commodities for sale in sufficient quantity to be recognized as a farm 
and not a rural residence; whose owners are primarily responsible for 
daily physical labor and strategic management; whose hired help only 
supplements family labor; and, whose owners are related by blood or 
marriage or are Immediate Family.
    Farm or ranch. Any place from which $1,000 or more of agricultural 
products were raised and sold or would have been raised and sold during 
the previous year, but for an event beyond the control of the farmer or 
rancher.
    Farm- or Ranch-based renewable energy. An Agricultural Commodity 
that is used to generate renewable energy on a Farm or Ranch owned or 
leased by the Independent Producer Applicant that produces the 
Agricultural Commodity, such that the generated renewable energy, is 
utilized in such a way that the applicant can demonstrate expanded 
customer base and increased revenues returning to the producers of the 
agricultural commodity as a result of the project. On-farm generation of 
energy from wind, solar, geothermal or hydro sources is not eligible for 
this program.
    Farmer or rancher cooperative. A business owned and controlled by 
Independent Producers that is incorporated, or otherwise identified by 
the state in which it operates, as a cooperatively operated business. 
The Independent Producers, on whose behalf the value-added work will be 
done, must be confirmed as eligible and identified by name or class.
    Feasibility study. An analysis of the economic, market, technical, 
financial, and management capabilities of a proposed Project or business 
in terms of the Project's expectation for success.
    Fiscal year. The Federal government's fiscal year.
    Harvester. An Independent Producer of an Agricultural Commodity that 
is

[[Page 869]]

an individual or entity that can document that it has a legal right to 
access and harvest the majority of a primary Agricultural Commodity that 
will be used for the Value-Added Agricultural Product. Individuals and 
entities that merely glean, gather, or collect residual commodities that 
result from an initial harvesting or production of a primary 
Agricultural Commodity are not considered Harvesters and are not 
eligible for this program.
    Immediate family. Individuals who are closely related by blood, 
marriage, or adoption, or live within the same household, such as a 
spouse, domestic partner, parent, child, brother, sister, aunt, uncle, 
grandparent, grandchild, niece, or nephew.
    Independent Producer. (1) Individual Agricultural Producers or 
entities that are solely owned and controlled by Agricultural Producers. 
Independent Producers must produce and own more than 50 percent of the 
Agricultural Commodity to which value will be added as the subject of 
the Project proposal. Independent Producers must maintain ownership of 
the Agricultural Commodity or product from its raw state through the 
production and marketing of the Value-Added Agricultural Product. 
Producers who produce the Agricultural Commodity under contract for 
another entity, but do not own the Agricultural Commodity or Value-Added 
Agricultural Product produced, are not considered Independent Producers. 
Entities that contract out the production of an Agricultural Commodity 
are not considered Independent Producers. Independent Producer entities 
must confirm their owner members as eligible and must identify them by 
name or class.
    (2) A Steering Committee must apply as an Independent Producer and 
form a program-eligible legal entity prior to execution of the grant 
agreement by the Agency. The Steering Committee and entity subsequently 
formed must meet all other program eligibility requirements.
    (3) A Harvester must apply as an Independent Producer because 
harvester operations do not meet the definition requirements for a Farm 
or Ranch. Harvester applicants are therefore not eligible to receive 
Reserved Funds and/or Priority Points for a Beginning Farmer or Rancher, 
Socially-Disadvantaged Farmer or Rancher, operator of a Small- or 
Medium-sized farm or ranch that is structured as a Family Farm, or a 
Farmer or Rancher Cooperative, but may request Reserved Funds and/or 
Priority Points for qualified Mid-Tier Value Chain projects.
    (4) The Agency shall determine the Independent Producer status of 
Tribes or Tribal entities without regard to ownership of the commodity 
to which value will be added so long as the tribal member participant, 
tribal entity and/or Tribe own and control at least 50 percent of the 
raw commodity necessary for the project, per the definition of 
Independent Producer in Sec. 4284.902.
    Local or regional supply network. An interconnected group of 
individuals and/or entities through which agricultural based products 
move from production through consumption in a local or regional area of 
the United States. Examples of participants in a supply network may 
include Agricultural Producers, aggregators, processors, distributors, 
wholesalers, retailers, consumers, and entities that organize or provide 
facilitation services and technical assistance for development of such 
networks.
    Locally-produced Agricultural Food Product. Any Agricultural Food 
Product, as defined in this subpart, that is raised, produced, and 
distributed in:
    (1) The locality or region in which the final product is marketed, 
so that the total distance that the product is transported is less than 
400 miles from the origin of the product; or
    (2) The State in which the product is produced.
    Majority-controlled producer-based business venture. An entity 
(except Farmer or Rancher Cooperatives) in which more than 50 percent of 
the financial ownership and voting control is held by Independent 
Producers. Independent Producer members must be confirmed as eligible 
and must be identified by name or class, along with their percentage of 
ownership.

[[Page 870]]

    Marketing plan. A plan for the project that identifies a market 
window, potential buyers, a description of the distribution system and 
possible promotional campaigns.
    Matching funds. A cost-sharing contribution to the project via 
confirmed cash or funding commitments from eligible sources without a 
real or apparent Conflict of Interest, that are used for eligible 
project purposes during the grant funding period. Matching Funds must be 
at least equal to the grant amount, and combined grant and Matching 
Funds must equal 100 percent of the Total Project Costs. All Matching 
Funds must be provided for in the approved budget, must be necessary and 
reasonable for accomplishment of project or program objectives and can 
be verified by authentic documentation from the source as part of the 
application. Matching Funds must be provided in the form of confirmed 
Applicant cash, loan, or line of credit, or provided in the form of a 
confirmed Applicant or family member in-kind contribution that meets the 
requirements and limitations in Sec. 4284.925(a) and (b); or confirmed 
third-party cash or eligible third-party in-kind contribution; or 
confirmed non-federal grant sources (unless otherwise provided by law). 
Matching funds cannot be paid by the Federal Government under another 
Federal award and are not included as contributions for any other 
Federal Award. See examples of ineligible Matching Funds and Matching 
Funds verification requirements in Sec. Sec. 4284.926 and 4284.931.
    Medium-sized farm or ranch. A Farm or Ranch that is structured as a 
Family Farm that has averaged $500,001 to $1,000,000 in annual gross 
sales of agricultural commodities in the previous three years.
    Mid-tier value chain. Local and regional supply networks that link 
Independent Producers with businesses, cooperatives, or consumers that 
market Value-Added Agricultural Products in a manner that:
    (1) Targets and strengthens the profitability and competitiveness of 
Small- and Medium-sized Farms or Ranches that are structured as a Family 
Farm; and
    (2) Obtains agreement from an eligible Agricultural Producer Group, 
Farmer or Rancher Cooperative, or Majority-Controlled Producer-Based 
Business Venture that is engaged in the value chain on a marketing 
strategy.
    (3) For Mid-tier Value Chain projects, the Agency recognizes that, 
in a supply chain network, a variety of raw Agricultural Commodity and 
Value-Added Agricultural Product ownership and transfer arrangements may 
be necessary. Consequently, Applicant ownership of the raw Agricultural 
Commodity and Value-Added Agricultural Product from raw through value-
added stages is not necessarily required, as long as the Mid-tier Value 
Chain application can demonstrate an increase in customer base and an 
increase in revenue returns to the Applicant producers supplying the 
majority of the raw Agricultural Commodity for the project.
    Planning grant. A grant to facilitate the development of a defined 
program of economic planning activities to determine the viability of a 
potential value-added Venture, and specifically for the purpose of 
paying for conducting and developing a Feasibility Study, Business Plan, 
and/or Marketing Plan associated with the processing and/or marketing of 
a Value-Added Agricultural Product.
    Produced in a manner that enhances the value of the Agricultural 
Commodity. The use of a recognizably coherent set of agricultural 
production practices in the growing or raising of the raw commodity, 
such that a differentiated market identity is created for the resulting 
product. Examples of eligible products in this category include, but are 
not limited to, sustainably grown apples, eggs produced from free-range 
chickens, or organically grown carrots.
    Physical segregation. Separating an Agricultural Commodity or 
product on the same farm from other varieties of the same commodity or 
product on the same farm during production and harvesting, with 
assurance of continued separation from similar commodities during 
processing and marketing in a manner that results in the enhancement of 
the value of the separated commodity or product. An example of a

[[Page 871]]

segregated product is non-GMO corn separated from GMO corn.
    Pro forma financial statement. A financial statement that projects 
the future financial position of a company. The statement is part of the 
Business Plan and includes an explanation of all assumptions, such as 
input prices, finished product prices, and other economic factors used 
to generate the financial statements. The statement must include 
projections for a minimum of three years in the form of cash flow 
statements, income statements, and balance sheets.
    Project. All of the eligible activities to be funded by the grant 
under this subpart and Matching Funds.
    Qualified consultant. An independent, third-party, without a 
Conflict of Interest, possessing the knowledge, expertise, and 
experience to perform the specific task required in an efficient, 
effective, and authoritative manner.
    Rural Development. A mission area of the Under Secretary for Rural 
Development within the U.S. Department of Agriculture (USDA), which 
includes Rural Housing Service, Rural Utilities Service, and Rural 
Business-Cooperative Service and their successors.
    Small-sized farm or ranch. A Farm or Ranch that is structured as a 
Family Farm that has averaged $500,000 or less in annual gross sales of 
agricultural products in the previous three years.
    Socially-disadvantaged farmer or rancher. This term has the meaning 
given in section 355(e) of the Consolidated Farm and Rural Development 
Act (7 U.S.C. 2003(e)): Socially-Disadvantaged Farmer or Rancher means a 
farmer or rancher who is a member of a ``Socially-Disadvantaged Group.''
    (1) For the purposes of determining eligibility to receive priority 
points under Sec. 4284.924, if there are multiple farmer or rancher 
owners of the Applicant organization, more than 50 percent of the 
ownership must be held by members of a Socially-Disadvantaged Group.
    (2) For the purposes of determining eligibility to received funding 
reserved for Socially-Disadvantaged Farmers and Ranchers under Sec. 
4284.923, if there are multiple farmer or rancher owners of the 
Applicant organization, all farmer and rancher owners (i.e., 100 
percent) must be members of a Socially-Disadvantaged Group.
    Socially-Disadvantaged group. A group whose members have been 
subjected to racial, ethnic, or gender prejudice because of their 
identity as members of a group without regard to their individual 
qualities.
    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the Republic of Palau, the 
Federated States of Micronesia, and the Republic of the Marshall 
Islands.
    State office. USDA Rural Development offices located in each State.
    Steering committee. An unincorporated group comprised wholly of 
specifically identified Independent Producers in the process of 
organizing one of the four program eligible entity types (Independent 
Producer, Agricultural Producer Group, Farmer or Rancher Cooperative or 
Majority-Controlled Producer-Based Business Venture.
    Total project cost. The sum of all grant and Matching Funds in the 
project budget that reflects the eligible project tasks associated with 
the work plan.
    Value-added agricultural product. Any Agricultural Commodity 
produced in the U.S. (including the Republic of Palau, the Federated 
States of Micronesia, the Republic of the Marshall Islands, or American 
Samoa), that meets the requirements specified in paragraphs (1) and (2) 
of this definition.
    (1) The Agricultural Commodity must meet one of the following five 
value-added methodologies:
    (i) Has undergone a Change in Physical State;
    (ii) Was Produced in a Manner that Enhances the Value of the 
Agricultural Commodity;
    (iii) Is Physically Segregated in a manner that results in the 
enhancement of the value of the Agricultural Commodity;
    (iv) Is a source of Farm- or Ranch-based Renewable Energy, including 
E-85 fuel; or
    (v) Is aggregated and marketed as a Locally-Produced Agricultural 
Food Product.

[[Page 872]]

    (2) As a result of the Change in Physical State or the manner in 
which the Agricultural Commodity was produced, marketed, or segregated:
    (i) The customer base for the Agricultural Commodity is expanded and
    (ii) A greater portion of the revenue derived from the marketing, 
processing, or physical segregation of the Agricultural Commodity is 
available to the producer of the commodity.
    Venture. The business and its value-added undertakings, including 
the project and other related activities.
    Veteran farmer or rancher. A farmer or rancher who has served in the 
Armed Forces, as defined in section 101(10) of title 38 United States 
Code, and who either has not operated a Farm or Ranch or has operated a 
Farm or Ranch for not more than 10 years.
    (1) For the purposes of determining eligibility to receive priority 
points under Sec. 4284.924, a Veteran Farmer or Rancher is either:
    (i) An individual Independent Producer (other than a Harvester) that 
has either never operated a Farm or Ranch or has operated a Farm or 
Ranch for no more than 10 years or
    (ii) An eligible Applicant entity, other than a Harvester, that has 
an Applicant ownership or membership of more than 50 percent Veteran 
Farmers or Ranchers each of whom have either never operated a Farm or 
Ranch or operated a Farm or Ranch for no more than 10 years.
    (2) [Reserved]
    Working capital grant. A grant to provide funds to operate a value-
added project, specifically to pay the eligible project expenses related 
to the processing and/or marketing of the Value-Added Agricultural 
Product that are eligible uses of grant funds.



Sec. 4284.903  Review or appeal rights.

    A person may seek a review of an Agency decision under this subpart 
from the appropriate Agency official that oversees the program in 
question or appeal to the National Appeals Division in accordance with 7 
CFR part 11.



Sec. 4284.904  Exception authority.

    Except as specified in paragraphs (a) and (b) of this section, the 
Administrator may make exceptions to any requirement or provision of 
this subpart, if such exception is necessary to implement the intent of 
the authorizing statute in a time of national emergency or in accordance 
with a Presidentially-declared disaster, or, on a case-by-case basis, 
when such an exception is in the best financial interests of the Federal 
Government and is otherwise not in conflict with applicable laws.
    (a) Applicant eligibility. No exception to Applicant eligibility can 
be made.
    (b) Project eligibility. No exception to project eligibility can be 
made.



Sec. 4284.905  Nondiscrimination and compliance with other Federal laws.

    (a) Other Federal laws. Applicants must comply with other applicable 
Federal laws, including the Equal Employment Opportunities Act of 1972, 
the Americans with
    Disabilities Act, the Equal Credit Opportunity Act, Title VI of the 
Civil Rights Act of 1964, Section 504 of the Rehabilitation Act of 1973, 
the Age Discrimination Act of 1975, and 7 CFR part 1901, subpart E.
    (b) Nondiscrimination. The U.S. Department of Agriculture (USDA) 
prohibits discrimination in all its programs and activities on the basis 
of race, color, national origin, age, disability, and where applicable, 
sex, marital status, familial status, parental status, religion, sexual 
orientation, genetic information, political beliefs, reprisal, or 
because all or part of an individual's income is derived from any public 
assistance program. (Not all prohibited bases apply to all programs.) 
Persons with disabilities who require alternative means for 
communication of program information (Braille, large print, audiotape, 
etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and 
TDD). Any Applicant that believes it has been discriminated against as a 
result of applying for funds under this program should contact: USDA, 
Director, Office of Adjudication and Compliance, 1400 Independence 
Avenue SW., Washington, DC 20250-9410, or call (800) 795-3272 (voice) or 
(202) 720-6382 (TDD) for information and instructions regarding the 
filing of a Civil Rights complaint. USDA is an

[[Page 873]]

equal opportunity provider, employer, and lender.
    (c) Civil rights compliance. Recipients of grants must comply with 
Title VI of the Civil Rights Act of 1964, and Section 504 of the 
Rehabilitation Act of 1973. This includes collection and maintenance of 
data on the basis of race, sex and national origin of the recipient's 
membership/ownership and employees. These data must be available to 
conduct compliance reviews in accordance with 7 CFR part 1901, subpart 
E. For grants, compliance reviews will be conducted after the grantee 
signs the applicable Assurance Agreement, and after the last 
disbursement of grant funds have been made and the facility or program 
has been in full operations for 90 days.
    (d) Executive Order 12898. When a project is proposed and financial 
assistance is requested, the Agency will conduct a Civil Rights Impact 
Analysis (CRIA) with regards to environmental justice. Civil Rights 
certification must be done prior to grant approval, obligation of funds, 
or other commitments of Agency resources, including issuance of a Letter 
of Conditions, whichever occurs first.



Sec. 4284.906  State laws, local laws, regulatory commission regulations.

    If there are conflicts between this subpart and State or local laws 
or regulatory commission regulations, the provisions of this subpart 
will control.



Sec. 4284.907  Environmental requirements.

    Grants made under this subpart must comply with 7 CFR part 1970. 
Applications for both Planning and Working Capital grants are generally 
excluded from the environmental review process by Sec. 1970.53.

[81 FR 11053, Mar. 2, 2016]



Sec. 4284.908  Compliance with other regulations.

    (a) Departmental regulations. Applicants must comply with all 
applicable Departmental regulations and Office of Management and Budget 
regulations concerning grants in 2 CFR chapter IV.
    (b) Cost principles. Applicants must comply with the cost principles 
found in 2 CFR parts 200, subpart E, 2 CFR part 400, and in 48 CFR 
subpart 31.2.
    (c) Definitions. If a term is defined differently in the 
Departmental Regulations, 2 CFR parts 200 through 400 or 48 CFR subpart 
31.2 and in this subpart, such term shall have the meaning as found in 
this subpart.



Sec. 4284.909  Forms, regulations, and instructions.

    Copies of all forms, regulations, instructions, and other materials 
related to the program referenced in this subpart may be obtained 
through the Agency's Web site and at any Rural Development office.



Sec. Sec. 4284.910-4284.914  [Reserved]

              Funding and Programmatic Change Notifications



Sec. 4284.915  Notifications.

    In implementing this subpart, the Agency will issue public 
notifications addressing funding and programmatic changes, as specified 
in paragraphs (a) and (b) of this section, respectively. The methods 
that the Agency will use in making these notifications is specified in 
paragraph (c) of this section, and the timing of these notifications is 
specified in paragraph (d) of this section.
    (a) Funding and simplified applications. The Agency will issue 
notifications concerning:
    (1) The funding level, the minimum and maximum grant amounts, and 
any additional funding information as determined by the Agency; and
    (2) The contents of simplified applications, as provided for in 
Sec. 4284.932.
    (b) Programmatic changes. The Agency will issue notifications of any 
programmatic changes specified in paragraphs (b)(1) through (4) of this 
section.
    (1) Priority categories to be used for awarding Administrator or 
State Director points, which may include any of the following:
    (i) Unserved or underserved areas.
    (ii) Geographic diversity.
    (iii) Emergency conditions.
    (iv) Priority mission area plans, goals, and objectives.
    (2) Additional reports that are generally applicable across projects 
within

[[Page 874]]

a program associated with the monitoring of and reporting on project 
performance.
    (3) Any application filing instructions specified in Sec. 4284.933.
    (c) Notification methods. The Agency will issue the information 
specified in paragraphs (a) and (b) of this section in one or more 
Federal Register notices. If a funding level is not known at the time of 
notification, it will be posted to the program Web site once an 
appropriation is enacted. In addition, all information will be available 
at any Rural Development office.
    (d) Timing. The Agency will issue notices under this section as 
follows:
    (1) The Agency will make the information specified in paragraph (a) 
of this section available each Fiscal Year.
    (2) The Agency will make the information specified in paragraph 
(b)(1) of this section available at least 60 days prior to the 
application deadline, as applicable.
    (3) The Agency will make the information specified in paragraphs 
(b)(2) through (4) of this section available on an as needed basis.



Sec. Sec. 4284.916-4284.919  [Reserved]

                               Eligibility



Sec. 4284.920  Applicant eligibility.

    To be eligible for a grant under this subpart, an Applicant must 
demonstrate that they meet the requirements specified in paragraphs (a) 
through (d) of this section, as applicable, and are subject to the 
limitations specified in paragraphs (e) and (f) of this section.
    (a) Type of Applicant. The Applicant, including any Federally-
recognized Tribes and tribal entities (Rural Development State Offices 
and posted application guidelines will provide additional information on 
Tribal eligibility), must demonstrate that they meet all definition 
requirements for one of the following Applicant types:
    (1) An Independent Producer;
    (2) An Agricultural Producer Group;
    (3) A Farmer or Rancher Cooperative; or
    (4) A Majority-Controlled Producer-Based Business Venture.
    (b) Emerging market. An applicant that is an agricultural producer 
group, a farmer or rancher cooperative, or a majority-controlled 
producer-based business venture must demonstrate that they are entering 
into an emerging market as a result of the proposed project.
    (c) Citizenship. (1) Individual Applicants must certify that they:
    (i) Are citizens or nationals of the United States (U.S.), the 
Republic of Palau, the Federated States of Micronesia, the Republic of 
the Marshall Islands, or American Samoa; or
    (ii) Reside in the U.S. after legal admittance for permanent 
residence.
    (2) Entities other than individuals must certify that they are more 
than 50 percent owned by individuals who are either citizens as 
identified under paragraph (c)(1)(i) of this section or legally admitted 
permanent residents residing in the U.S.
    (d) Legal authority and responsibility. Each Applicant must 
demonstrate that they have, or can obtain, the legal authority necessary 
to carry out the purpose of the grant, and they must evidence good 
standing from the appropriate State agency or equivalent.
    (e) Multiple grant eligibility. An Applicant may submit only one 
application in response to a solicitation, and must explicitly direct 
that it compete in either the general funds competition or in one of the 
named reserved funds competitions. Multiple applications from separate 
entities with identical or greater than 75 percent common ownership, or 
from a parent, subsidiary or affiliated organization (with 
``affiliation'' defined by Small Business Administration regulation 13 
CFR 121.103, or successor regulation) are not permitted. Further, 
Applicants who have already received a Planning Grant for the proposed 
project cannot receive another Planning Grant for the same project. 
Applicants who have already received a Working Capital Grant for the 
proposed project cannot receive any additional grants for that project.
    (f) Active VAPG grant. If an Applicant has an active value-added 
grant at the time of a subsequent application, the currently active 
grant must be closed out within 90 days of the application submission 
deadline for the subsequent competition, as published in the annual 
solicitation.

[[Page 875]]



Sec. 4284.921  Ineligible Applicants.

    (a) Consistent with the Departmental Regulations, an Applicant is 
ineligible if the Applicant is debarred or suspended or is otherwise 
excluded from, or ineligible for participation in, Federal assistance 
programs under Executive Order 12549, ``Debarment and Suspension.''
    (b) An Applicant will be considered ineligible for a grant due to an 
outstanding judgment obtained by the U.S. in a Federal Court (other than 
U.S. Tax Court), is delinquent on the payment of Federal income taxes, 
or is delinquent on Federal debt.



Sec. 4284.922  Project eligibility.

    To be eligible for a VAPG grant, the application must demonstrate 
that the project meets the requirements specified in paragraphs (a) 
through (c) of this section, as applicable.
    (a) Product eligibility. Each product that is the subject of the 
proposed project must meet the definition of a Value-Added Agricultural 
Product
    (b) Purpose eligibility. (1) The grant funds requested must not 
exceed any maximum amounts specified in the annual solicitation for 
Planning and Working Capital Grant requests, per Sec. 4284.915.
    (2) The Matching Funds required for the project budget must be 
eligible and without a real or apparent Conflict of Interest, available 
during the project period, and source verified in the application.
    (3) The proposed project must be limited to eligible planning or 
working capital activities as defined at Sec. 4284.925, as applicable, 
with eligible tasks directly related to the processing and/or marketing 
of the subject Value-Added Agricultural Product, to be demonstrated in 
the required work plan and budget as described at Sec. 4284.922(b)(5).
    (4) Applications that propose ineligible expenses in excess of 10 
percent of Total Project Costs will be deemed ineligible to compete for 
funds. Applicants who submit applications containing ineligible expenses 
totaling less than 10 percent of Total Project Costs must remove those 
expenses from the project budget or replace with eligible expenses, if 
selected for an award.
    (5) The project work plan and budget must demonstrate eligible 
sources and uses of funds and must:
    (i) Present a detailed narrative description of the eligible 
activities and tasks related to the processing and/or marketing of the 
Value-Added Agricultural Product along with a detailed breakdown of all 
estimated costs allocated to those activities and tasks;
    (ii) Identify the key personnel that will be responsible for 
overseeing and/or conducting the activities or tasks and provide 
reasonable and specific timeframes for completion of the activities and 
tasks;
    (iii) Identify the sources and uses of grant and Matching Funds for 
all activities and tasks specified in the budget; and indicate that 
Matching Funds will be spent at a rate equal to or in advance of grant 
funds; and
    (iv) Present a project budget period that commences within the start 
date range specified in the annual solicitation, concludes not later 
than 36 months after the proposed start date, and is scaled to the 
complexity of the project.
    (6) Except as noted in paragraphs (b)(6)(i) and (ii) of this 
section, working capital applications must include a Feasibility Study 
and Business Plan completed specifically for the proposed value-added 
project by a Qualified Consultant. The Agency must concur in the 
acceptability or adequacy of the Feasibility Study and Business Plan for 
eligibility purposes.
    (i) An Independent Producer Applicant seeking a Working Capital 
Grant of $50,000 or more, who can demonstrate that they are proposing 
market expansion for an existing Value-Added Agricultural Product(s) 
that they currently own and produce from at least 50 percent of their 
own Agricultural Commodity and that they have produced and marketed for 
at least 2 years at time of application submission, may submit a 
Business Plan or Marketing Plan for the value-added project in lieu of a 
Feasibility Study. The Applicant must still adequately document 
increased customer base and increased revenues returning to the 
Applicant producers as a result of the project in their application, and 
meet

[[Page 876]]

all other eligibility requirements. Further, the waiver of the 
independent Feasibility Study does not change the proposal evaluation or 
scoring elements that pertain to issues that might be supported by an 
independent Feasibility Study, so Applicants are encouraged to well-
document their project plans and expectations for success in their 
proposals.
    (ii) All four Applicant types that submit a Simplified Application 
for Working Capital Grant funds of less than $50,000 are not required to 
provide an independent Feasibility Study or Business Plan for the 
Project/Venture, but must provide adequate documentation to demonstrate 
the expected increases in customer base and revenues resulting from the 
project that will benefit the producer Applicants supplying the majority 
of the Agricultural Commodity for the project. All other eligibility 
requirements remain the same. The waiver of the requirement to submit a 
Feasibility Study and Business Plan does not change the proposal 
evaluation or scoring elements that pertain to issues that might be 
supported by a Feasibility Study or Business Plan, so Applicants are 
encouraged to well-document their project plans and expectations for 
success in their proposals.
    (7) All applicants applying for Working Capital Grant funds must 
document the quantity of the raw Agricultural Commodity that will be 
used for the Value-Added Agricultural Product, expressed in an 
appropriate unit of measure (pounds, tons, bushels, etc.) to demonstrate 
the scale of the applicant's project. This quantification must include 
an estimated total quantity of the Agricultural Commodity needed for the 
project, the quantity that will be provided (produced and owned) by the 
Agricultural Producers of the applicant organization, and the quantity 
that will be purchased or donated from third-party sources.
    (8) All Applicants requesting Working Capital grant funds must 
either be currently marketing each Value-added Agricultural Product that 
is the subject of the grant application, or be ready to implement the 
working capital activities in accord with the budget and work plan 
timeline proposed.



Sec. 4284.923  Reserved funds eligibility.

    The Applicant must meet the requirements specified in this section, 
as applicable, if the Applicant chooses to compete for reserved funds. A 
Harvester is not eligible to compete for reserved funds under paragraph 
(a) of this section, but is eligible to compete for reserved funds under 
paragraph (b) of this section. In accordance with application deadlines, 
all eligible, but unfunded reserved funds applications will be eligible 
to compete for general funds in that same Fiscal Year, as funding levels 
permit.
    (a) If the Applicant is applying for Beginning Farmer or Rancher or 
Socially-Disadvantaged Farmer or Rancher reserved funds, the Applicant 
must provide the following documentation to demonstrate that the 
applicant meets all of the requirements for the applicable definition 
found in Sec. 4284.902.
    (1) For beginning farmers and ranchers (including veterans), 
documentation must include a description from each of the individual 
owner(s) of the applicant farm or ranch organization, addressing the 
qualifying elements in the beginning farmer or rancher definition, 
including the length and nature of their individual owner/operator 
experience at any farm in the previous 10 years, along with one IRS 
income tax form from the previous 10 years showing that each of the 
individual owner(s) did not file farm income; or a detailed letter from 
a certified public accountant or attorney certifying that each owner 
meets the reserved funds beginning farmer or rancher eligibility 
requirements. For applicant entities with multiple owners, all owners 
must be eligible beginning farmers or ranchers.
    (2) For Socially-Disadvantaged farmers and ranchers, documentation 
must include a description of the applicant's farm or ranch ownership 
structure and demographic profile that indicates the owner(s)' 
membership in a Socially-Disadvantaged group that has been subjected to 
racial, ethnic or gender prejudice; including identifying the total 
number of owners of the applicant organization; along with a self-
certification statement from the individual owner(s) evidencing their 
membership in a Socially-Disadvantaged group. All farmer and rancher 
owners

[[Page 877]]

must be members of a Socially-Disadvantaged group.
    (b) If the Applicant is applying for Mid-Tier Value Chain reserved 
funds, the Applicant must be one of the four VAPG Applicant types. The 
application must:
    (1) Provide documentation demonstrating that the project meets the 
definition of Mid-Tier Value Chain;
    (2) Demonstrate that the project proposes development of a Local or 
Regional Supply Network of an interconnected group of entities 
(including nonprofit organizations, as appropriate) through which 
agricultural commodities and Value-Added Agricultural Products move from 
production through consumption in a local or regional area of the United 
States, including a description of the network, its component members, 
either by name or by class, and its purpose;
    (3) Describe at least two alliances, linkages, or partnerships 
within the value chain that link Independent Producers with businesses, 
cooperatives, or consumers that market value-added agricultural 
commodities or Value-Added Agricultural Products in a manner that 
benefits Small- or Medium-sized Farms and Ranches that are structured as 
a Family Farm, including the names of the parties and the nature of 
their collaboration;
    (4) Demonstrate how the project, due to the manner in which the 
Value-Added Agricultural Product is marketed, will increase the 
profitability and competitiveness of at least two, eligible, Small- or 
Medium-sized Farms or Ranches that are structured as a Family Farm, 
including documentation to confirm that the participating Small- or 
Medium-sized Farms or Ranches are structured as a Family Farm and meet 
these program definitions. A description of the two farms or ranches 
confirming they meet the Family Farm requirements, and IRS income tax 
forms or appropriate certifications evidencing eligible farm income is 
sufficient.
    (5) Document that the eligible Agricultural Producer Group/Farmer or 
Rancher Cooperative/Majority-Controlled Producer-Based Business Venture 
Applicant organization has obtained at least one agreement with another 
member of the supply network that is engaged in the value chain on a 
marketing strategy; or that the eligible Independent Producer Applicant 
has obtained at least one agreement from an eligible Agricultural 
Producer Group/Farmer or Rancher Cooperative/Majority-Controlled 
Producer-Based Business Venture engaged in the value-chain on a 
marketing strategy;
    (i) For Planning Grants, agreements may include letters of 
commitment or intent to partner on marketing, distribution or 
processing; and should include the names of the parties with a 
description of the nature of their collaboration. For Working Capital 
grants, demonstration of the actual existence of the executed agreements 
is required.
    (ii) Independent Producer Applicants must provide documentation to 
confirm that the non-applicant Agricultural Producer Group/Farmer or 
Rancher Cooperative/majority-controlled partnering entity meets program 
eligibility definitions, except that, in this context, the partnering 
entity does not need to supply any of the raw Agricultural Commodity for 
the project;
    (6) Demonstrate that the members of the Applicant organization that 
are benefiting from the proposed project currently own and produce more 
than 50 percent of the raw Agricultural Commodity that will be used for 
the Value-Added Agricultural Product that is the subject of the 
proposal; and
    (7) Demonstrate that the project will result in an increase in 
customer base and an increase in revenue returns to the Applicant 
producers supplying the majority of the raw Agricultural Commodity for 
the project.



Sec. 4284.924  Priority scoring eligibility.

    Applicants that demonstrate eligibility may apply for priority 
points if their applications: Propose projects that contribute to 
increasing opportunities for Beginning Farmers or Ranchers, Socially-
Disadvantaged Farmers or Ranchers, Veteran Farmers or Ranchers, or 
Operators of Small- or Medium-sized Farms or Ranches that are structured 
as a Family Farm; or propose Mid-Tier Value Chain projects;

[[Page 878]]

or are a Farmer or Rancher Cooperative. A Harvester is eligible for 
priority points only if the Harvester is proposing a Mid-Tier Value 
Chain project.
    (a) Applicants seeking priority points as Beginning Farmers or 
Ranchers or as Socially Disadvantaged Farmers or Ranchers must provide 
the documentation specified in Sec. 4284.923(a)(1) or (2), as 
applicable.
    (b) Applicants seeking priority points as Veteran Farmers or 
Ranchers must provide the documentation specified in Sec. 
4284.923(a)(1) or (2), as applicable, and must submit form DD-214, 
``Report of Separation from the U.S. Military,'' or subsequent form.
    (c) Applicants seeking priority points as Operators of Small- or 
Medium-sized Farms or Ranches that are structured as a Family Farm must:
    (1) Be structured as a Family Farm;
    (2) Meet all requirements in the associated definitions; and
    (3) Provide the following documentation:
    (i) A description from the individual owner(s) of the Applicant 
organization addressing each qualifying element in the definitions, 
including identification of the average annual gross sales of 
agricultural commodities from the farm or ranch in the previous three 
years, not to exceed $500,000 for operators of small-sized farms or 
ranches or $1,000,000 for operators of medium-sized farms or ranches;
    (ii) The names and identification of the blood or marriage 
relationships of all Applicant/owners of the farm; and
    (iii) A statement that the Applicant/owners are primarily 
responsible for the daily physical labor and management of the farm with 
hired help merely supplementing the family labor.
    (d) Applicants seeking priority points for Mid-Tier Value Chain 
proposals must be one of the four eligible Applicant types and provide 
the documentation specified in Sec. 4284.923(b)(1) through (7), 
demonstrating that the project meets the Mid-Tier Value Chain 
definition.
    (e) Applicants seeking priority points for a Farmer or Rancher 
Cooperative must:
    (1) Demonstrate that it is a business owned and controlled by 
Independent Producers that is legally incorporated as a Cooperative; or 
that it is a business owned and controlled by Independent Producers that 
is not legally incorporated as a Cooperative, but is identified by the 
State in which it operates as a cooperatively operated business;
    (2) Identify, by name or class, and confirm that the Independent 
Producers on whose behalf the value-added work will be done meet the 
definition requirements for an Independent Producer, including that each 
member is an individual Agricultural Producer, or an entity that is 
solely owned and controlled by Agricultural Producers, that 
substantially participates in the production of the majority of the 
Agricultural Commodity to which value will be added; and
    (3) Provide evidence of ``good standing'' as a cooperatively 
operated business in the State of incorporation or operations, as 
applicable.
    (f) Applicants applying as Agricultural Producer Groups, Farmer and 
Rancher Cooperatives, or Majority-Controlled Producer-Based Business 
Ventures (group Applicants) may request additional priority points for 
projects that ``best contribute to creating or increasing marketing 
opportunities'' for operators of Small- and Medium-sized Farms and 
Ranches that are structured as Family Farms, Beginning Farmers and 
Ranchers, Socially-Disadvantaged Farmers and Ranchers, and Veteran 
Farmers and Ranchers. The annual solicitation and Agency application 
package will provide instructions and documentation requirements for 
group Applicants to apply for these additional priority points.



Sec. 4284.925  Eligible uses of grant and Matching Funds.

    In general, grant and cost-share Matching Funds have the same use 
restrictions and must be used to fund only the costs for eligible 
purposes as defined in paragraphs (a) and (b) of this section.
    (a) Planning Grant funds may be used to pay for a Qualified 
Consultant to conduct and develop a Feasibility Study, Business Plan, 
and/or Marketing Plan associated with the processing and/or marketing of 
a Value-added Agricultural Product.

[[Page 879]]

    (1) Planning Grant funds may not be used to compensate Applicants or 
family members for participation in Feasibility Studies.
    (2) In-kind contribution of Matching Funds to cover Applicant or 
family member participation in planning activities is allowed so long as 
the value of such contribution does not exceed a maximum of 25 percent 
of the Total Project Costs and an adequate explanation of the basis for 
the valuation, referencing comparable market values, salary and wage 
data, expertise or experience of the contributor, per unit costs, 
industry norms, etc., is provided. Final valuation for Applicant or 
family member in-kind contributions is at the discretion of the Agency. 
Planning funds may not be used to evaluate the agricultural production 
of the commodity itself, other than to determine the project's input 
costs related to the feasibility of processing and marketing the Value-
Added Agricultural Product.
    (b) Working capital funds may be used to pay the project's 
operational costs directly related to the processing and/or marketing of 
the Value-Added Agricultural Product.
    (1) Examples of eligible working capital expenses include designing 
or purchasing a financial accounting system for the project, paying 
salaries of employees without ownership or Immediate Family interest to 
process and/or market and deliver the Value-Added Agricultural Product 
to consumers, paying for raw commodity inventory (less than 50 percent 
of the amount required for the project) from an unaffiliated third 
party, necessary to produce the Value-Added Agricultural Product, and 
paying for a marketing campaign for the Value-Added Agricultural 
Product.
    (2) In-kind contributions may include appropriately valued inventory 
of raw commodity to be used in the project. In-kind contributions of 
Matching Funds may also include contributions of time spent on eligible 
tasks by Applicants or Applicant family members so long as the value of 
such contribution does not exceed a maximum of 25 percent of the Total 
Project Costs and an adequate explanation of the basis for the 
valuation, referencing comparable market values, salary and wage data, 
expertise or experience of the contributor, per unit costs, industry 
norms, etc. is provided. Final valuation for Applicant or family member 
in-kind contributions is at the discretion of the Agency.



Sec. 4284.926  Ineligible uses of grant and Matching Funds.

    Federal procurement standards prohibit transactions that involve a 
real or apparent Conflict of Interest for owners, employees, officers, 
agents, or their Immediate Family members having a personal, 
professional, financial or other interest in the outcome of the project; 
including organizational conflicts, and conflicts that restrict open and 
free competition for unrestrained trade. In addition, the use of funds 
is limited to only the eligible activities identified in Sec. 4284.925 
and prohibits other uses of funds. Ineligible uses of grant and Matching 
Funds awarded under this subpart include, but are not limited to:
    (a) Support costs for services or goods going to or coming from a 
person or entity with a real or apparent Conflict of Interest, except as 
specifically noted for limited in-kind Matching Funds in Sec. 
4284.925(a) and (b);
    (b) Pay costs for scenarios with noncompetitive trade practices;
    (c) Plan, repair, rehabilitate, acquire, or construct a building or 
facility (including a processing facility);
    (d) Purchase, lease purchase, or install fixed equipment, including 
processing equipment;
    (e) Purchase or repair vehicles, including boats;
    (f) Pay for the preparation of the grant application;
    (g) Pay expenses not directly related to the funded project for the 
processing and marketing of the Value-Added Agricultural Product;
    (h) Fund research and development;
    (i) Fund political or lobbying activities;
    (j) Fund any activities prohibited by 2 CFR parts 200 through 400, 
and 48 CFR subpart 31.2;
    (k) Fund architectural or engineering design work;
    (l) Fund expenses related to the production of any Agricultural 
Commodity or product, including, but not

[[Page 880]]

limited to production planning, purchase of seed or rootstock or other 
production inputs, labor for cultivation or harvesting crops, and 
delivery of raw commodity to a processing facility;
    (m) Conduct activities on behalf of anyone other than a specifically 
identified Independent Producer or group of Independent Producers, as 
identified by name or class. The Agency considers conducting industry-
level feasibility studies or business plans, that are also known as 
feasibility study templates or guides or business plan templates or 
guides, to be ineligible because the assistance is not provided to a 
specific group of Independent Producers;
    (n) Pay for goods or services from a person or entity that employs 
the owner or an Immediate Family member;
    (o) Duplicate current services or replace or substitute support 
previously provided;
    (p) Pay any costs of the project incurred prior to the date of grant 
approval, including legal or other expenses needed to incorporate or 
organize a business;
    (q) Pay any judgment or debt owed to the United States;
    (r) Purchase land;
    (s) Pay for costs associated with illegal activities; or
    (t) Purchase the Agricultural Commodity to which value will be added 
(raw commodity) from the applicant entity; applicant-owned or related 
entity, or members of the applicant entity.



Sec. 4284.927  Funding limitations.

    (a) Grant funds may be used to pay up to 50 percent of the Total 
Project Costs, subject to the limitations established for maximum total 
grant amount.
    (b) The maximum total grant amount provided to a grantee in any one 
year shall not exceed the amount announced in an annual notice issued 
pursuant to Sec. 4284.915, but in no event may the total amount of 
grant funds provided to a grant recipient exceed $500,000.
    (c) A grant shall have a term that does not exceed 3 years, and a 
project start date within 90 days of the date of award, unless otherwise 
specified in a notice pursuant to Sec. 4284.915. Grant project periods 
should be scaled to the complexity of the objectives for the project. 
The Agency may extend the term of the grant period, not to exceed the 3-
year maximum.
    (d) The aggregate amount of awards to Majority-Controlled Producer-
Based Business Ventures may not exceed 10 percent of the total funds 
obligated under this subpart during any Fiscal Year.
    (e) Not more than 5 percent of funds appropriated each year may be 
used to fund the Agricultural Marketing Resource Center, to support 
electronic capabilities to provide information regarding research, 
business, legal, financial, or logistical assistance to Independent 
Producers and processors.
    (f) Each Fiscal Year, the following amounts of reserved funds will 
be made available:
    (1) 10 percent of total program funding to fund projects that 
benefit Beginning Farmers or Ranchers or Socially-Disadvantaged Farmers 
or Ranchers; and
    (2) 10 percent of total program funding to fund projects that 
propose development of Mid-tier Value Chains.
    (3) Funds not obligated by June 30 of each Fiscal Year shall be 
available to the Secretary to make grants under this subpart to eligible 
applicants in the general funds competition.



Sec. Sec. 4284.928-4284.929  [Reserved]

                          Applying for a Grant



Sec. 4284.930  Preliminary review.

    The Agency encourages Applicants to contact their State Office well 
in advance of the application submission deadline, to ask questions and 
to discuss Applicant and Project eligibility potential. At its option, 
the Agency may establish a preliminary review deadline in accordance 
with Sec. 4284.915, so that it may informally assess the eligibility of 
the application and its completeness. The result of the preliminary 
review is not binding on the Agency.



Sec. 4284.931  Application package.

    All Applicants are required to submit a complete application package 
that is

[[Page 881]]

comprised of all of the elements in this section.
    (a) Application forms. The application must include all forms listed 
in the annually published notice for the program. The following 
application forms (or their successor forms) must be completed when 
applying for a grant under this subpart.
    (1) ``Application for Federal Assistance.''
    (2) ``Budget Information-Non-Construction Programs.''
    (3) ``Assurances--Non-Construction Programs.''
    (4) All Applicants (including individuals and sole proprietorships) 
are required to have a DUNS number and maintain registration with the 
System for Award Management (SAM).
    (b) Application content. The following content items must be 
completed when applying for a grant under this subpart:
    (1) Eligibility discussion. The Applicant must demonstrate in detail 
how the:
    (i) Applicant eligibility requirements in Sec. Sec. 4284.920 and 
4284.921 are met;
    (ii) Project eligibility requirements in Sec. 4284.922 are met;
    (iii) Eligible use of grant and Matching Funds requirements in 
Sec. Sec. 4284.925 and 4284.926 are met; and
    (iv) Funding limitation requirements in Sec. 4284.927 are met.
    (2) Evaluation criteria. Using the format prescribed by the 
application package, the Applicant must address each evaluation 
criterion identified below.
    (i) Performance Evaluation Criteria. The overall goal of this 
program and the projects it supports is to create and serve new markets, 
with a resulting increase in jobs, customer base and revenues returning 
to the producer. Applicants must provide specific information about 
plans to track and evaluate progress toward these outcomes as a way for 
the Agency to ascertain whether or not the primary program goals and 
project goals proposed in the work plan are likely to be accomplished 
during the project period. The application package will provide 
additional instruction to assist Applicants when responding to this 
criterion. The required data, including accomplishments as outlined in 
Sec. 4284.960 and Applicant-suggested performance criteria, will be 
incorporated into the Applicant's semi-annual and final reporting 
requirements if selected for award, and will be specified in the grant 
agreement associated with each award. At a minimum, data included in 
each application submission must include both target outcomes and 
timeframes for achieving results:
    (A) The number of jobs anticipated to be created or saved as a 
direct result of the project.
    (B) The current baseline number of customers.
    (C) The estimated expansion of customer base as a direct result of 
the project.
    (D) The current baseline of revenue.
    (E) The estimated increase in revenue as a direct result of the 
project.
    (F) Applicants for both Working Capital and Planning Grants are 
invited to suggest additional benchmarks for evaluation that are 
specific to proposed project activities or outcomes and the 
corresponding timeframes for accomplishing them; these should be 
informed by the program objectives, stated above, related to new 
markets, expansion of customer base, and revenues returning to producer 
Applicants; as well as to the practical and/or logistical activities and 
tasks to be accomplished during the project period.
    (ii) Proposal evaluation criteria. Applicants for both Planning and 
Working Capital Grants must address each proposal evaluation criterion 
identified in Sec. 4284.942 in narrative form, in the application 
package.
    (3) Certification of Matching Funds. Using the format prescribed by 
the application package, Applicants must certify that:
    (i) Cost-share Matching Funds will be spent in advance of grant 
funding, such that for every dollar of grant funds disbursed, not less 
than an equal amount of Matching Funds will have been expended prior to 
submitting the request for reimbursement; and
    (ii) If Matching Funds are proposed in an amount exceeding the grant 
amount, those Matching Funds must be spent at a proportional rate equal 
to the match-to-grant ratio identified in the proposed budget.

[[Page 882]]

    (4) Verification of cost-share Matching Funds. Using the format 
prescribed by the application package, the Applicant must demonstrate 
and provide authentic documentation from the source to confirm the 
eligibility and availability of both cash and in-kind contributions that 
meet the definition requirements for Matching Funds and Conflict of 
Interest in Sec. 4284.902, as well as the following criteria:
    (i) Except as provided at Sec. 4284.925(a) and (b), Matching Funds 
are subject to the same use restrictions as grant funds, and must be 
spent on eligible project expenses during the grant funding period.
    (ii) Matching Funds must be from eligible sources without a real or 
apparent Conflict of Interest.
    (iii) Matching Funds must be at least equal to the amount of grant 
funds requested, and combined grant and Matching Funds must equal 100 
percent of the Total Project Costs.
    (iv) Unless provided by other authorizing legislation, other Federal 
grant funds cannot be used as Matching Funds.
    (v) Matching Funds must be provided in the form of confirmed 
Applicant cash, loan, or line of credit; or provided in the form of a 
confirmed Applicant or family member in-kind contribution that meets the 
requirements and limitations specified in Sec. 4284.925(a) and (b); or 
provided in the form of confirmed third-party cash or eligible third-
party in-kind contribution; or non-federal grant sources (unless 
otherwise provided by law).
    (vi) Examples of ineligible Matching Funds include funds used for an 
ineligible purpose, contributions donated outside the proposed grant 
funding period, applicant and third-party in-kind contributions that are 
over-valued, or are without substantive documentation for an independent 
reviewer to confirm a valuation, conducting activities on behalf of 
anyone other than a specific Independent Producer or group of 
Independent Producers, expected program income at time of application, 
or instances where a real or apparent Conflict of Interest exists, 
except as detailed in Sec. 4284.925(a) and (b).
    (5) Business plan. For Working Capital Grant applications, 
Applicants must provide a copy of the Business Plan that was completed 
for the proposed value-added Venture, except as provided for in 
Sec. Sec. 4284.922(b)(6) and 4284.932. The Agency must concur in the 
acceptability or adequacy of the Business Plan. For all planning grant 
applications including those proposing product eligibility under 
``Produced in a Manner that Enhances the Value of the Agricultural 
Commodity,'' a Business Plan is not required as part of the grant 
application.
    (6) Feasibility study. As part of the application package, 
Applicants for Working Capital Grants must provide a copy of the third-
party Feasibility Study that was completed for the proposed value-added 
project, except as provided for at Sec. Sec. 4284.922(b)(6) and 
4284.932. The Agency must concur in the acceptability or adequacy of the 
Feasibility Study.



Sec. 4284.932  Simplified application.

    Applicants requesting less than $50,000 will be allowed to submit a 
simplified application, the contents of which will be announced in an 
annual solicitation issued pursuant to Sec. 4284.915. Applicants 
requesting Working Capital Grants of less than $50,000 are not required 
to provide Feasibility Studies or Business Plans, but must provide 
information demonstrating increases in customer base and revenue returns 
to the producers supplying the majority of the Agricultural Commodity as 
a result of the project. See Sec. 4284.922(b)(6)(ii).



Sec. 4284.933  Filing instructions.

    Unless otherwise specified in a notification issued under Sec. 
4284.915, the requirements specified in paragraphs (a) through (e) of 
this section apply to all applications.
    (a) When to submit. Complete applications must be received by the 
Agency on or before the application deadline established for a Fiscal 
Year to be considered for funding for that Fiscal Year. Applications 
received by the Agency after the application deadline established for a 
Fiscal Year will not be considered. Revisions or additional information 
will not be accepted after the application deadline.

[[Page 883]]

    (b) Incomplete applications. Incomplete applications will be 
rejected. Applicants will be informed of the elements that made the 
application incomplete. If a resubmitted application is received by the 
applicable application deadline, the Agency will reconsider the 
application.
    (c) Where to submit. All applications must be submitted to the State 
Office of Rural Development in the State where the project primarily 
takes place, or on-line through grants.gov.
    (d) Format. Applications may be submitted as paper copy, or 
electronically via grants.gov. If submitted as paper copy, only one 
original copy should be submitted. An application submission must 
contain all required components in their entirety. Emailed or faxed 
submissions will not be acknowledged, accepted or processed by the 
Agency.
    (e) Other forms and instructions. Upon request, the Agency will make 
available to the public the necessary forms and instructions for filing 
applications. These forms and instructions may be obtained from any 
State Office of Rural Development, or the Agency's Value-Added Producer 
Grant program Web site in http://www.rurdev.usda.gov/ BCP_VAPG.html.



Sec. Sec. 4284.934-4284.939  [Reserved]

                   Processing and Scoring Applications



Sec. 4284.940  Processing applications.

    (a) Initial review. Upon receipt of an application on or before the 
application submission deadline for each Fiscal Year, the Agency will 
conduct a review to determine if the Applicant and project are eligible, 
and if the application is complete and sufficiently responsive to 
program requirements.
    (b) Notifications. After the review in paragraph (a) of this section 
has been conducted, if the Agency has determined that either the 
Applicant or project is ineligible or that the application is not 
complete to allow evaluation of the application or sufficiently 
responsive to program requirements, the Agency will notify the Applicant 
in writing and will include in the notification the reason(s) for its 
determination(s).
    (c) Resubmittal by Applicants. Applicants may submit revised 
applications to the Agency in response to the notification received 
under paragraph (b) of this section. If a revised grant application is 
received on or before the application deadline, it will be processed by 
the Agency. If a revised application is not received by the specified 
application deadline, the Agency will not process the application and 
will inform the Applicant that their application was not reviewed due to 
tardiness.
    (d) Subsequent ineligibility determinations. If at any time an 
application is determined to be ineligible, the Agency will notify the 
Applicant in writing of its determination.



Sec. 4284.941  Application withdrawal.

    During the period between the submission of an application and the 
execution of award documents, the Applicant must notify the Agency in 
writing if the project is no longer viable or the Applicant no longer is 
requesting financial assistance for the project. When the Applicant 
notifies the Agency, the selection will be rescinded or the application 
withdrawn.



Sec. 4284.942  Proposal evaluation criteria and scoring applications.

    (a) General. The Agency will only score applications for which it 
has determined that the Applicant and project are eligible, the 
application is complete and sufficiently responsive to program 
requirements. Any Applicant whose application will not be reviewed 
because the Agency has determined it fails to meet the preceding 
criteria will be notified of appeal rights pursuant to Sec. 4284.903. 
Each such viable application the Agency receives on or before the 
application deadline in a Fiscal Year will be scored in the Fiscal Year 
in which it was received. Each application will be scored based on the 
information provided and adequately referenced in the scoring section of 
the application at the time the Applicant submits the application to the 
Agency. Scoring information must be readily identifiable in the 
application or it will not be considered.
    (b) Scoring Applications. The criteria specified in paragraphs 
(b)(1) through (6) of this section will be used to score all 
applications. For each criterion, Applicants must demonstrate how the

[[Page 884]]

project has merit, and provide rationale for the likelihood of project 
success. Responses that do not address all aspects of the criterion, or 
that do not comprehensively convey pertinent project information will 
receive lower scores. The maximum number of points that will be awarded 
to an application is 100. Points may be awarded lump sum or on a 
graduated basis. The Agency application package will provide additional 
instruction to assist Applicants when responding to the criteria below.
    (1) Nature of the Proposed Venture (graduated score 0-30 points). 
Describe the technological feasibility of the project, as well as the 
operational efficiency, profitability, and overall economic 
sustainability resulting from the project. In addition, demonstrate the 
potential for expanding the customer base for the Value-Added 
Agricultural Product, and the expected increase in revenue returns to 
the producer-owners providing the majority of the raw Agricultural 
Commodity to the project. Applications that demonstrate high likelihood 
of success in these areas will receive more points than those that 
demonstrate less potential in these areas.
    (2) Qualifications of Project Personnel (graduated score 0-20 
points). Identify the individuals who will be responsible for completing 
the proposed tasks in the work plan, including the roles and activities 
that owners, staff, contractors, consultants or new hires may perform; 
and demonstrate that these individuals have the necessary qualifications 
and expertise, including those hired to do market or feasibility 
analyses, or to develop a business operations plan for the value-added 
venture. Include the qualifications of those individuals responsible to 
lead or manage the total project (Applicant owners or project managers), 
as well as those individuals responsible for actually conducting the 
various individual tasks in the work plan (such as consultants, 
contractors, staff or new hires). Demonstrate the commitment and the 
availability of any consultants or other professionals to be hired for 
the project. If staff or consultants have not been selected at the time 
of application, provide specific descriptions of the qualifications 
required for the positions to be filled. Applications that demonstrate 
the strong credentials, education, capabilities, experience and 
availability of project personnel that will contribute to a high 
likelihood of project success will receive more points than those that 
demonstrate less potential for success in these areas.
    (3) Commitments and Support (graduated score 0-10 points). Producer 
commitments to the project will be evaluated based on the number of 
Independent Producers currently involved in the project; and the nature, 
level and quality of their contributions. End-user commitments will be 
evaluated on the basis of potential or identified markets and the 
potential amount of output to be purchased, as evidenced by letters of 
intent or contracts from potential buyers referenced within the 
application. Other Third-Party commitments to the project will be 
evaluated based on the critical and tangible nature of the contribution 
to the project, such as technical assistance, storage, processing, 
marketing, or distribution arrangements that are necessary for the 
project to proceed; and the level and quality of these contributions. 
Applications that demonstrate the project has strong direct financial, 
technical and logistical support to successfully complete the project 
will receive more points than those that demonstrate less potential for 
success in these areas.
    (4) Work Plan and Budget (graduated score 0-20 points). In accord 
with Sec. 4284.922(b)(5), Applicants must submit a comprehensive work 
plan and budget. The work plan must provide specific and detailed 
narrative descriptions of the tasks and the key project personnel that 
will accomplish the project's goals. The budget must present a detailed 
breakdown of all estimated costs associated with the activities and 
allocate those costs among the listed tasks. The source and use of both 
grant and Matching Funds must be specified for all tasks. An eligible 
start and end date for the project itself and for individual project 
tasks must be clearly indicated and may not exceed Agency specified 
timeframes for the grant period. Points may not be awarded unless

[[Page 885]]

sufficient detail is provided to determine that both grant and Matching 
Funds are being used for qualified purposes and are from eligible 
sources without a Conflict of Interest. It is recommended that 
Applicants utilize the budget format templates provided in the Agency's 
application package.
    (5) Priority Points (up to 10 points). Priority points may be 
awarded in both the General Funds competition and the Reserved Funds 
competitions. Qualifying applications may be awarded priority points 
under paragraphs (b)(5)(i) and (ii) of this section, for up to a total 
of 10 points.
    (i) Priority categories (lump sum score of 0 or 5 points). 
Qualifying Applicants may request priority points under this paragraph 
if they meet the requirements for one of the following categories and 
provide the documentation specified in Sec. 4284.924, as applicable. 
Priority categories are: Beginning Farmer or Rancher, Socially-
Disadvantaged Farmer or Rancher, Veteran Farmer or Rancher, Operator of 
a Small- or Medium-sized Farm or Ranch that is structured as a Family 
Farm, Mid-Tier Value Chain proposals, and Farmer or Rancher Cooperative. 
It is recommended that Applicants utilize the Agency application package 
when documenting for priority points and refer to the documentation 
requirements specified in Sec. 4284.924. Applications from qualifying 
priority categories will be awarded 5 points. Applicants will not be 
awarded more than 5 points even if they qualify for more than one of the 
priority categories.
    (ii) Best contributing (up to 5 points). Applications from 
Agricultural Producer Groups, Farmer or Rancher Cooperatives, and 
Majority-Controlled Producer-Based Business Ventures (applicant groups) 
may be awarded up to 5 additional points for contributing to the 
creation of or increase in marketing opportunities for Beginning Farmers 
or Ranchers, Socially-Disadvantaged Farmers or Ranchers, Veteran Farmers 
or Ranchers, or Operators of a Small- or Medium-sized Farm or Ranch that 
are structured as a Family Farm (priority groups). Applicant groups must 
submit documentation on the percentage of existing membership that is 
comprised of one or a combination of the above priority groups and on 
the anticipated expansion of membership to one or more additional 
priority groups. Applications must contain sufficient information as 
described in the annual solicitation and application package to enable 
the Agency to make the appropriate determinations for awarding points. 
If the application does not contain sufficient information, the Agency 
will not award points accordingly.
    (6) Priority Categories (graduated score 0-10 points). Unless 
otherwise specified in a notification issued under Sec. 4284.915(b)(1), 
the Administrator or State Director has discretion to award up to 10 
points to an application to improve the geographic diversity of awardees 
in a Fiscal Year. In the event of a National competition, the 
Administrator will award points and for a State-allocated competition, 
the State Director will award points.



Sec. Sec. 4284.943-4284.949  [Reserved]

                       Grant Awards and Agreement



Sec. 4284.950  Award process.

    (a) Selection of applications for funding and for potential funding. 
The Agency will select and rank applications for funding based on the 
score an application has received in response to the proposal evaluation 
criteria, compared to the scores of other value-added applications 
received in the same Fiscal Year. Higher scoring applications will 
receive first consideration for funding. The Agency may set a minimally 
acceptable score for funding, which will be noted in the published 
program notice. The Agency will notify Applicants, in writing, whether 
or not they have been selected for funding. For those Applicants not 
selected for funding, the Agency will provide a brief explanation for 
why they were not selected.
    (b) Ranked applications not funded. A ranked application that is not 
funded in the Fiscal Year in which it was submitted will not be carried 
forward into the next Fiscal Year. The Agency will notify the Applicant 
in writing.
    (c) Intergovernmental review. If State or local governments raise 
objections to a proposed project under the intergovernmental review 
process that are

[[Page 886]]

not resolved within 90 days of the Agency's award announcement date, the 
Agency will rescind the award and will provide the Applicant with a 
written notice to that effect. This is prior to the signing of a Grant 
Agreement. The Agency, in its sole discretion, may extend the 90-day 
period if it appears resolution is imminent.



Sec. 4284.951  Obligate and award funds.

    (a) Letter of conditions. When an application is selected subject to 
conditions established by the Agency, the Agency will notify the 
Applicant using a Letter of Conditions, which defines the conditions 
under which the grant will be made. Each grantee will be required to 
meet all terms and conditions of the award within 90 days of receiving a 
Letter of Conditions unless otherwise specified by the Agency at the 
time of the award. If the Applicant agrees with the conditions, the 
Applicant must complete, an applicable Letter of Intent to Meet 
Conditions. If the Applicant believes that certain conditions cannot be 
met, the Applicant may propose alternate conditions to the Agency. The 
Agency must concur with any proposed changes to the Letter of Conditions 
by the Applicant before the application will be further processed. If 
the Agency agrees to any proposed changes, the Agency will issue a 
revised or amended Letter of Conditions that defines the final 
conditions under which the grant will be made.
    (b) Grant agreement and conditions. Each grantee will be required to 
sign a grant agreement that outlines the approved use of funds and 
actions under the award, as well as the restrictions and applicable laws 
and regulations that pertain to the award.
    (c) Other documentation. The grantee will execute additional 
documentation in order to obligate the award of funds; including, but 
not limited to:
    (1) ``Request for Obligation of Funds;''
    (2) ``Certification Regarding Debarment, Suspension, and Other 
Responsibility Matters-Primary Covered Transaction;''
    (3) ``Certification Regarding Drug-Free Workplace Requirements;''
    (4) ``Assurance Agreement (under Title VI, Civil Rights Act of 
1964);''
    (5) ``ACH Vendor/Miscellaneous Payment Enrollment Form;'' or
    (6) ``Disclosure of Lobbying Activities.''
    (d) Grant disbursements. Grant disbursements will be made in 
accordance with the Letter of Conditions, and/or the grant agreement, as 
applicable.



Sec. Sec. 4284.952-4284.959  [Reserved]

                 Post Award Activities and Requirements



Sec. 4284.960  Monitoring and reporting program performance.

    The requirements specified in this section shall apply to grants 
made under this subpart.
    (a) Grantees must complete the project per the terms and conditions 
specified in the approved work plan and budget, and in the grant 
agreement and letter of conditions. Grantees will expend funds only for 
eligible purposes and will be monitored by Agency staff for compliance. 
Grantees must maintain a financial management system, and property and 
procurement standards in accordance with Departmental Regulations.
    (b) Grantees must submit narrative and financial performance 
reports, as prescribed by the Agency in the grant agreement, that 
include required data elements related to achieving programmatic 
objectives and a comparison of accomplishments with the objectives 
stated in the application. At a minimum, these include comparisons of 
anticipated activies and outcomes and timeframes for achieving:
    (1) Expansion of customer base as a result of the project;
    (2) Increased revenue returned to the producer as a result of the 
project;
    (3) Jobs created or saved as a result of the project;
    (4) Evidence of receipt of matching funds, if included or provided 
for in project.
    (i) Semi-annual performance reports shall be submitted within 45 
days following March 31 and September 30 each Fiscal Year. A final 
performance report shall be submitted to the Agency within 90 days of 
project completion. Failure to submit a performance report within the 
specified timeframes may

[[Page 887]]

result in the Agency withholding grant funds.
    (ii) Additional reports shall be submitted as specified in the grant 
agreement or Letter of Conditions, or as otherwise provided in a 
notification issued under Sec. 4284.915.
    (iii) Copies of supporting documentation and/or project deliverables 
for completed tasks must be provided to the Agency in a timely manner in 
accord with the development or completion of materials and in 
conjunction with the budget and project timeline. Examples include, but 
are not limited to, a Feasibility Study, Marketing Plan, Business Plan, 
success story, distribution network study, or best practice.
    (iv) The Agency may request any additional project and/or 
performance data for the project for which grant funds have been 
received, including but not limited to:
    (A) Information that will enable evaluation of the economic impact 
of program awards, such as:
    (1) Business starts and clients served;
    (2) Data associated with producer market expansion, new market 
penetration, and changes in customer base or revenues.
    (B) Information that would promote greater understanding of the key 
determinants of the success of individual projects or inform program 
administration and evaluation, such as:
    (1) The producer's experience related to financial management, 
budgeting, and running a business enterprise.
    (2) The nature of, and advantages or disadvantages of, supply chain 
arrangements or equitable distribution of rewards and responsibilities 
for Mid-tier Value Chain projects; and
    (3) Recommendations from Beginning Farmers or Ranchers, Socially-
Disadvantaged Farmers or Ranchers, or Veteran Farmers or Ranchers.
    (C) Information that would inform or enable the aggregation of data 
for program administration or evaluation purposes.
    (v) The Agency may terminate or suspend the grant for lack of 
adequate or timely progress, reporting, or documentation, or for failure 
to comply with Agency requirements.



Sec. 4284.961  Grant servicing.

    All grants awarded under this subpart shall be serviced in 
accordance with 7 CFR part 1951, subparts E and O, and the Departmental 
Regulations with the exception that delegation of the post-award 
servicing of the program does not require the prior approval of the 
Administrator.



Sec. 4284.962  Transfer of obligations.

    At the discretion of the Agency and on a case-by-case basis, an 
obligation of funds established for an Applicant may be transferred to a 
different (substituted) Applicant provided:
    (a) The substituted Applicant:
    (1) Is eligible;
    (2) Has a close and genuine relationship with the original 
Applicant; and
    (3) Has the authority to receive the assistance approved for the 
original Applicant; and
    (b) The project continues to meet all product, purpose, and reserved 
funds eligibility requirements so that the need, purpose(s), and scope 
of the project for which the Agency funds will be used remain 
substantially unchanged.



Sec. Sec. 4284.963-4284.999  [Reserved]



         Subpart K_Agriculture Innovation Demonstration Centers

    Source: 69 FR 23433, Apr. 29, 2004, unless otherwise noted.



Sec. 4284.1001  Purpose.

    This subpart implements a demonstration program administered by the 
Rural Business-Cooperative Service whereby grants are made to innovation 
centers responsible for providing technical and business development 
assistance to agricultural producers seeking to engage in the marketing 
or the production of Value-Added products.



Sec. 4284.1002  Policy.

    It is the policy of the Secretary of Agriculture to fund Centers 
which evidence broad support from the agricultural community in the 
state or region, significant coordination with end users (processing and 
distribution companies and regional grocers), strategic

[[Page 888]]

alliances with entities having technical research capabilities and a 
focused delivery plan for reaching out to the producer community. It is 
also the policy of the Secretary, using the research and technical 
services of the U.S. Department of Agriculture, to assist the grantees 
in establishing Centers. This program is not intended to fund scientific 
research.



Sec. 4284.1003  Program administration.

    The Agriculture Innovation Demonstration Center program is 
administered by Cooperative Services within the Agency.



Sec. 4284.1004  Definitions.

    Board of Directors--The group of individuals that govern the Center.
    Center--The Agriculture Innovation Center to be established and 
operated by the grantees. It may or may not be an independent legal 
entity, but it must be independently governed in accordance with the 
requirements of this subpart.
    Producer Services--Services to be provided by the Centers to 
agricultural producers. Producer Services consist of the following types 
of services:
    (1) Technical assistance, consisting of engineering services, 
applied research, Scale Production Assessments, and similar services, to 
enable the agricultural producers to establish businesses to produce 
Value-Added agricultural commodities or products;
    (2) Assistance in marketing, market development and business 
planning, including advisory services with respect to leveraging capital 
assets; and
    (3) Organizational, outreach and development assistance to increase 
the viability, growth and sustainability of businesses that produce 
Value-Added agricultural commodities or products.
    Qualified Board of Directors--A Board of Directors that includes 
representatives from each of the following groups:
    (1) The two general agricultural organizations with the greatest 
number of members in the State in which the Center is located;
    (2) The State department of agriculture, or equivalent, of the State 
in which the Center is located; and
    (3) Entities representing the four highest grossing commodities 
produced in the State in which the Center is located, as determined on 
the basis of annual gross cash sales.
    Scale Production Assessments--Studies that analyze facilities, 
including processing facilities, for potential Value-added activities in 
order to determine the size that optimizes construction and other cost 
efficiencies.



Sec. Sec. 4284.1005-4284.1006  [Reserved]



Sec. 4284.1007  Eligibility for grant assistance.

    Non-profit and for-profit corporations, institutions of higher 
learning and other entities, including a consortium where a lead entity 
has been designated and agrees to act as funding agent, that meet the 
following requirements are eligible for grant assistance:
    (a) The entity--
    (1) Has provided services similar to those listed for Producer 
Services; or
    (2) Demonstrates the capability of providing Producer Services;
    (b) The application includes a plan that meets the requirements of 
Sec. 4284.1010(c)(5)(iv) that also outlines--
    (1) The support for the entity in the agricultural community;
    (2) The technical and other expertise of the entity; and
    (3) The goals of the entity for increasing and improving the ability 
of local agricultural producers to develop markets and processes for 
Value-Added agricultural commodities or products;
    (c) The entity demonstrates that adequate resources (in cash or in 
kind) are available, or have been committed to be made available to the 
entity, to increase and improve the ability of local agricultural 
producers to develop markets and processes for Value-Added agricultural 
commodities or products; and
    (d) The proposed Center has a Qualified Board of Directors.



Sec. 4284.1008  Use of grant funds.

    Grant funds may be used to assist eligible recipients in 
establishing Centers that provide Producer Services and may only be used 
to support operations of the Center that directly relate to providing 
Producer Services. Grant funds may be used for the following

[[Page 889]]

purposes, subject to the limitations set forth in Sec. 4284.10:
    (a) Consulting services for legal, accounting and technical services 
to be used by the grantee in establishing and operating a Center;
    (b) Hiring of employees, at the discretion of the Qualified Board of 
Directors;
    (c) The making of matching grants to agricultural producers, 
individually not to exceed $5,000, where the aggregate amount of all 
such matching grants made by the grantee does not exceed $50,000;
    (d) Applied research;
    (e) Legal services; and
    (f) Such other related purposes as the Agency may announce in the 
RFP.



Sec. 4284.1009  Limitations on awards.

    The maximum grant award for an agriculture innovation center shall 
be in an amount that does not exceed the lesser of $1,000,000 or twice 
the dollar amount of the resources (in cash or in kind) that the 
eligible entity demonstrates are available, or have been committed to be 
made available, to the eligible entity.



Sec. 4284.1010  Application processing.

    (a) Applications. USDA will solicit applications on a competitive 
basis by publication of one or more Requests for Proposals (RFPs). 
Unless otherwise specified in the applicable RFP, applicants must file 
an original and one copy of the required forms and a proposal.
    (b) Required forms. The following forms must be completed, signed 
and submitted as part of the application package. Other OMB approved 
forms may be required. This will be published in the applicable RFP.
    (1) ``Application for Federal Assistance.''
    (2) ``Budget Information--Non-Construction Programs.''
    (3) ``Assurances--Non-Construction Programs.''
    (c) Proposal. Each proposal must contain the following elements. 
Additional elements may be published in the applicable RFP.
    (1) Title Page.
    (2) Table of Contents.
    (3) Executive Summary. A summary of the proposal should briefly 
describe the project including goals, tasks to be completed and other 
relevant information that provides a general overview of the project and 
the amount requested.
    (4) Eligibility. A detailed discussion describing how the applicant 
meets the eligibility requirements.
    (5) Proposal Narrative. The narrative portion of the proposal must 
include, but is not limited to, the following:
    (i) Project Title. The title of the proposed project must be brief, 
not to exceed 75 characters, yet describe the essentials of the project.
    (ii) Information Sheet. A separate one page information sheet 
listing each of the evaluation criteria referenced in the RFP followed 
by the page numbers of all relevant material and documentation contained 
in the proposal that address or support the criteria.
    (iii) Goals of the Project. The first part of this section should 
list each Producer Service to be offered by the Center. The second part 
of this section should list one or more specific goals relating to 
increasing and improving the ability of identified local agricultural 
producers to develop a market or process for Value-Added agricultural 
commodities or products.
    (iv) Work Plan. Actions that must be taken in order for the Producer 
Services to be available from the Center. Each action listed should 
include a target date by which it will be completed. General start up 
tasks should be listed, followed by specific tasks listed for each 
Producer Service to be offered, as well as tasks associated with the 
start of operations. The tasks associated with the start of operations 
should include a focused marketing and delivery plan directed to the 
local agricultural producers that were identified in paragraph 
(c)(5)(iii) of this section. The actions to be taken should include 
steps for identifying customers, acquiring personnel and contracting for 
services to the Center, including arrangements for strategic alliances.
    (v) Performance Evaluation Criteria. Performance criteria suggested 
by the applicant for incorporation in the grant award in the event the 
proposal

[[Page 890]]

receives grant funding under this subpart. These suggested criteria are 
not binding on USDA.
    (vi) Agricultural Community Support. Evidence of support from the 
local agricultural community should be included in this section. Letters 
in support should reflect that the writer is familiar with the 
provisions of the Plan for the Center, including the stated goals.
    Evidence of support can take the form of making employees available 
to the Center, service as a board member and other in-kind 
contributions.
    (vii) Strategic Coordination and Alliances. Describe arrangements in 
place or planned with end users (processing and distribution companies 
and regional grocers) as well as arrangements with entities having 
technical research capabilities, broad support from the agricultural 
community in the state or region, significant coordination with end 
users (processing and distribution companies and regional grocers), 
strategic alliances with entities having technical research capabilities 
and a focused delivery plan for reaching out to the producer community.
    (viii) Capacity. Evidence of the ability of the grantee(s) to 
successfully establish and operate a Center. A description of the 
grantee's track record in providing services similar to those listed for 
Producer Services or evidence that the entity has the capability to 
provide Producer Services. Resumes of key personnel should be included 
in this section. Past successes should be described in detail, with a 
focus on lessons learned, best practices, familiarity with producer 
problems in Value-Added ventures, and how these barriers are best 
overcome should be elaborated on in this section. For every challenge 
identified, the applicant should demonstrate how they are addressed in 
the Work Plan (see paragraph (c)(5)(iv) of this section). All successes 
should include a monetary estimate of the Value-Added achieved.
    (ix) Legal structure. Provide a description of the legal 
relationship between the grantee(s) and the proposed Center. If the 
Center is to be an independent corporate entity, provide copies of the 
corporate charter, bylaws and other relevant organizational documents. 
Describe how funds for the Center will be handled and include copies of 
the agreements documenting the legal relationships between the Center 
and related parties. If the Center is not to be an independent legal 
entity, provide copies of the corporate governance documents that 
describe how members of the Board of Directors for the Center are to be 
determined.
    (x) Evaluation Criteria. Each of the evaluation criteria referenced 
in the RFP must be specifically and individually addressed in narrative 
form. Supporting documentation, as applicable, should be included in 
this section, or a cross reference to other sections in the application 
should be provided, as applicable.
    (xi) Verification of Adequate Resources. Present a budget to support 
the work plan showing sources and uses of funds during the start up 
period prior to the start of operations and for the first year of full 
operations. Present a copy of a bank statement evidencing sources of 
funds equal to amounts required in excess of the grant requested, or, in 
the alternative, a copy of confirmed funding commitments from credible 
sources such that USDA is satisfied that the Center has adequate 
resources to complete a full year of operation. Include information 
sufficient to facilitate verification by USDA of all representations.
    (xii) Certification of Adequate Resources Applicants must certify 
that non-Federal funds identified in the budget pursuant to paragraph 
(c)(5)(xi) of this section will be available and funded commensurately 
with grant funds.



Sec. 4284.1011  Evaluation screening.

    The Agency will conduct an initial screening of all proposals to 
determine whether the applicant is eligible and whether the application 
is complete and sufficiently responsive to the requirements set forth in 
the applicable RFP so as to allow for an informed review. Incomplete or 
non-responsive applications will not be evaluated further, and may be 
returned to the applicant. Applicants may revise their applications and 
re-submit them prior to the published deadline if there is sufficient 
time to do so.

[[Page 891]]



Sec. 4284.1012  Evaluation process.

    (a) Applications will be evaluated by qualified reviewers appointed 
by the Agency.
    (b) After all proposals have been evaluated using the evaluation 
criteria and scored in accordance with the point allocation specified in 
the applicable RFP, Agency officials will present to the Administrator 
of RBS a list of all applications in rank order, together with funding 
level recommendations.
    (c) The Administrator reserves the right to award additional points, 
as specified in the applicable RFP, to accomplish agency objectives 
(e.g., to ensure geographic distribution, put emphasis on a specific 
commodity, or to accomplish presidential initiatives.) The maximum 
number of points that can be added to an application under this 
paragraph cannot exceed ten percent of the total points the application 
originally scored.
    (d) After giving effect to the Administrator's point awards, 
applications will be funded in rank order until all available funds have 
been obligated.



Sec. 4284.1013  Evaluation criteria and weights.

    Unless supplemented in a RFP, the criteria listed in this section 
will be used to evaluate grants under this subpart. The distribution of 
points to be awarded per criterion will be identified in the applicable 
RFP.
    (a) Ability to Deliver. The application will be evaluated as to 
whether it evidences unique abilities to deliver Producer Services so as 
to create sustainable Value-Added ventures. Abilities that are 
transferable to a wide range of agricultural Value-Added commodities are 
preferred over highly specialized skills. Strong skills must be 
accompanied by a credible and thoughtful plan.
    (b) Successful Track Record. The applicant's track record in 
achieving Value-Added successes.
    (c) Work Plan/Budget. The work plan will be reviewed for detailed 
actions and an accompanying timetable for implementing the proposal. 
Clear, logical, realistic and efficient plans will result in a higher 
score. Budgets will be reviewed for completeness and the strength of 
non-Federal funding commitments.
    (d) Qualifications of personnel. Proposals will be reviewed for 
whether the key personnel who are to be responsible for performing the 
proposed tasks have the necessary qualifications and whether they have a 
track record of performing activities similar to those being proposed. 
If a consultant or others are to be hired, points may be awarded for 
consultants only if the proposal includes evidence of their availability 
and commitment as well. Proposals using in-house employees with strong 
track records in innovative activities will receive higher points 
relative to proposals that out-source expertise.
    (e) Local support. Proposed Centers must show local support and 
coordination with other developmental organizations in the proposed 
service area and with state and local institutions. Support 
documentation should include recognition of rural values that balance 
employment opportunities with environmental stewardship and other rural 
amenities. Proposed Centers that show strong support from potential 
beneficiaries and coordination with other developmental organizations 
will receive more points than those not evidencing such support.
    (f) Future support. Applicants that can demonstrate their vision for 
funding center operations for future years, including diversification of 
funding sources and building in-house technical assistance capacity, 
will receive more points for this criterion.



Sec. 4284.1014  Grant closing.

    (a) Letter of Conditions. The Agency will notify an approved 
applicant in writing, setting out the conditions under which the grant 
will be made.
    (b) Applicant's intent to meet conditions. Upon reviewing the 
conditions and requirements in the letter of conditions, the applicant 
must complete, sign and return the Agency's ``Letter of Intent to Meet 
Conditions,'' or, if certain conditions cannot be met, the applicant may 
propose alternate conditions to the Agency. The Agency must concur with 
any changes proposed to

[[Page 892]]

the letter of conditions by the applicant before the application will be 
further processed.
    (c) Grant agreement. The Agency and the grantee must enter into an 
``Agriculture Innovation Center Grant Agreement'' prior to the advance 
of funds.



Sec. Sec. 4284.1015-4284.1099  [Reserved]



Sec. 4284.1100  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget and 
have been assigned OMB control number 0570-0045.



    Subpart L_Rural Innovation Stronger Economy (RISE) Grant Program

    Source: 86 FR 31589, June 15, 2021, unless otherwise noted.



Sec. 4284.1101  Purpose.

    This subpart contains the procedures and requirements for providing 
the following financial assistance under the Rural Innovation Stronger 
Economy (RISE) program:
    (a) Grants for the purpose of constructing, purchasing, or equipping 
a building to serve as an innovation center in order to establish job 
accelerators.
    (b) Grants for the purpose of establishing and supporting job 
accelerators and related programs.



Sec. 4284.1102  Organization of subpart.

    This subpart is organized into distinct sections as described in 
paragraphs (a) and (b) of this section.
    (a) Sections 4284.1103 through 4284.1111 discuss definitions; 
exception authority; review or appeal rights; conflict of interest; USDA 
departmental regulations; other applicable laws; ineligible applicants; 
general applicant, application, and funding provisions; and 
notifications, which are applicable to funding the program under this 
subpart.
    (b) Sections 4284.1112 and 4284.1113 discuss, respectively, 
applicant and project eligibility. Section 4284.1114 addresses funding 
provisions for these grants. Sections 4284.1115 through 4284.1120 
address grant application content and required documentation, scoring, 
selection, awarding and administering grant applications, and servicing 
of grant awards.



Sec. 4284.1103  Definitions.

    The following definitions are applicable to the terms used in this 
subpart.
    Administrator means the Administrator of Rural Business-Cooperative 
Service (RBCS) within the Rural Development mission area of the U.S. 
Department of Agriculture (USDA).
    Agency means RBCS or its successor agency assigned by the Secretary 
of Agriculture to administer the RISE grant program. References to the 
National Office, Finance Office, State Office, or other Agency offices 
or officials should be read as prefaced by ``Agency'' or ``Rural 
Development'' as applicable.
    Applicant means the lead applicant acting on behalf of a rural jobs 
accelerator partnership as stated in 4282.1112, that is seeking a RISE 
grant. The lead applicant will enter into a financial assistance 
agreement with the Agency, receive the RISE grant funding and take 
ownership of any assets purchased with grant funds.
    Broadband service. Defined within the meaning of Title VI of the 
Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.), broadband 
service means any technology identified by the Administrator as having 
the capacity to provide transmission facilities and capacity that enable 
the subscriber to receive a minimum level of broadband service. The 
minimum level of broadband service for the purpose of reviewing the 
application will be defined by the minimum transmission capacity that 
was required by Title VI of the Rural Electrification Act of 1936 (7 
U.S.C. 901 et seq.) at the time the application was received by the 
Agency.
    Complete application means an application that contains all parts 
necessary for the Agency to determine applicant and project eligibility, 
the financial feasibility and technical merit of the project, and 
contains sufficient information to determine a priority score for the 
application.
    Departmental regulations mean the regulations of the Agency's Office 
of

[[Page 893]]

Chief Financial Officer (or successor office) as codified in 2 CFR 
chapter IV.
    District organization means an organization as defined in Section 
300.3 of Title 13, Code of Federal Regulations (or a successor 
regulation).
    Eligible project costs means the portion of total project costs 
approved by the Agency for projects that are eligible to be paid with 
RISE funds.
    Federal fiscal year (FY) means the 12-month period beginning October 
1 of any given year and ending on September 30 of the following year; it 
is designated by the calendar year in which it ends.
    Financial assistance agreement means Form RD 4280-2, ``Rural 
Business-Cooperative Service Financial Assistance Agreement, or 
successor form and is an agreement between the Agency and the grantee 
setting forth the provisions under which the grant will be administered.
    High-wage job means a job that provides a wage that is greater than 
the median wage for the applicable region, as determined by the 
Department of Labor.
    Indian tribe means the term as defined in 25 U.S.C. 5304(e).
    Industry cluster means a broadly defined network of interconnected 
firms and supporting institutions in related industries that accelerate 
innovation, business formation, and job creation by taking advantage of 
assets and strengths of a region in the business environment.
    Innovation center means a cross-functional place for the planning 
and creation of new ideas and opportunities for individual and group 
collaboration that leads to supporting deployment of innovative 
processes, technologies, services and products for economic development. 
Innovation centers may be utilized for a wide array of purposes 
including short-term housing for business owners or workers; co-working 
space, which may include space for remote work; space for business 
utilization with a focus on entrepreneurs and small and disadvantaged 
businesses but may include collaboration with companies of all sizes; 
job training programs; and efforts to utilize the innovation center as 
part of the development of a community, among other uses deemed 
appropriate by the Agency.
    Institution of higher education means the term as defined in 20 
U.S.C. 1002(a).
    Instrumentality means an organization recognized, established, and 
controlled by a State, Tribal, or local government for a public purpose 
or to carry out special purposes.
    Jobs accelerator means a center or program located in or serving a 
rural low-income community that may provide co-working space, in-demand 
skills training, entrepreneurship and business support, and other 
initiatives as described in Part 4284.1113(b).
    Lead applicant means an entity as defined in Part 4284.1112(b) and 
is responsible for the rural jobs accelerator partnership plus 
administration of the grant proceeds and activities.
    Letter of conditions means a document prepared by the Agency 
establishing conditions that must be agreed to by the applicant before 
any obligation of grant funds can occur.
    Low income community means a community as defined in section 45D(e) 
of the Internal Revenue Code of 1986, and any amendments thereto.
    Matching funds means non-federal funds provided to meet the total 
eligible project costs that are not covered by the RISE grant proceeds.
    Person means an individual or an entity organized under the laws of 
a state or a Tribe.
    Region means an area identified by the applicant that meets the 
criteria of Sec. 4284.1112(d) with a population of 50,000 or fewer 
inhabitants, or for a region with a population of more than 50,000 
inhabitants, is comprised of rural areas and urbanized areas, if any, 
are the subject of a positive determination by the Under Secretary for 
Rural Development with respect to a rural-in-character petition, 
including such a petition submitted concurrently with the application of 
the partnership for a grant under this section.
    Rural and rural area means any area of a state not in a city or town 
that has a population of more than 50,000 inhabitants according to the 
latest decennial census of the United States and not in the urbanized 
area contiguous and adjacent to a city or town that has a population of 
more than 50,000 inhabitants.

[[Page 894]]

A rural and rural area shall be determined as defined in 7 U.S.C. 
1991(a)(13).
    Rural in character means:
    (1) A determination that an area is ``rural in character'' will be 
made by the Under Secretary of Rural Development in compliance with 7 
U.S.C. 1991(a)(13)(D). The process to request a determination under this 
provision is outlined in this definition. Units of local government may 
petition the Under Secretary of Rural Development for a ``rural in 
character'' designation by submitting a petition to the Administrator on 
behalf of the Under Secretary. The petition shall document why the 
petitioner believes the area is ``rural in character'' including, but 
not limited to, the area's population density, demographics, and 
topography and how the local economy is tied to a rural economic base. 
Upon receiving a petition, the Administrator will review its merits and 
consult with the applicable governor or leader in a similar position and 
request comments to be submitted within 5 business days, unless such 
comments were submitted with the petition. The petition will be 
forwarded to the Under Secretary who will release to the public a notice 
of a petition filed by a unit of local government not later than 30 days 
after receipt of the petition by way of publication in a local newspaper 
and posting on the Agency's website. The Under Secretary will make a 
determination not less than 15 days, but no more than 60 days, after the 
release of the notice. Upon a negative determination, the Under 
Secretary will provide to the petitioner an opportunity to appeal a 
determination to the Under Secretary, and the petitioner will have 10 
business days to appeal the determination and provide further 
information for consideration. The Under Secretary will make a 
determination of the appeal in not less than 15 days, but no more than 
30 days.
    (2) Rural Development State Directors may also initiate a request to 
the Under Secretary to determine if an area is ``rural in character.'' A 
written recommendation should be sent to the Administrator, on behalf of 
the Under Secretary, that documents how the area meets the statutory 
requirements and discusses why the State Director believes the area is 
``rural in character'' including, but not limited to, the area's 
population density, demographics, topography, and how the local economy 
is tied to a rural economic base. Upon receipt of such a request, the 
Administrator will review the request for compliance with the ``rural in 
character'' provisions and make a recommendation to the Under Secretary. 
Provided a favorable determination is made, the Under Secretary will 
consult with the applicable governor or leader in a similar position and 
request comments within 10 business days, unless gubernatorial comments 
were submitted with the request. A public notice will be published by 
the State Office in a local newspaper and the request will be posted on 
the Agency's website. There is no appeal process for requests made on 
the initiative of the State Director.
    Rural jobs accelerator partnership means a partnership formed on or 
after December 20, 2018, which meets eligibility criteria found in Sec. 
4284.1112.
    Secretary means the Secretary of Agriculture and, to the extent of 
delegated authorities, the Under Secretary for Rural Development.
    Small and disadvantaged business means a small business concern 
owned and controlled by socially and economically disadvantaged 
individuals as defined in Section 8(d)(3)(C) of the Small Business Act 
(15 U.S.C. 637(d)(3)(C)).
    Small business means:
    (1) An entity that meets Small Business Administration (SBA) size 
standards in accordance with 13 CFR part 121 and criteria of 13 CFR 
121.301 as applicable to financial assistance programs, including 
paragraph (i) or (ii) of this definition. The size of the concern alone 
and the size of the concern combined with other entity(ies) it controls 
or entity(ies) it is controlled by, must not exceed the size standard 
thresholds designated for the industry in which the concern alone or the 
concern and its controlling entity(ies), whichever is higher, is 
primarily engaged.
    (2) To be considered a small business, either of the following 
conditions must be met:

[[Page 895]]

    (i) The concern's tangible net worth is not in excess of $15 million 
and average net income (excluding carry-over losses) for the preceding 
two completed fiscal years is not in excess of $5.0 million; or
    (ii) The size of the concern does not exceed the SBA size standard 
thresholds designated for the industry in which it is primarily engaged, 
as measured by number of employees or annual receipts. Industry size 
standard designations to be utilized are listed in the SBA's table of 
size standards found in 13 CFR 121.201. Number of employees and annuals 
receipts are calculated as follows:
    (A) Number of employees is calculated as the average number of all 
individuals employed by a concern on a full-time, part-time, or other 
basis, based upon numbers of employees for each of the pay periods for 
the preceding completed 12 calendar months. If a concern has not been in 
business for 12 months, the average number of employees is used for each 
of the pay periods during which it has been in business.
    (B) Annual receipts are calculated as average total income plus cost 
of goods sold for the five most recent years. If a concern has been in 
operation for less than 60 months, average annual receipts for as long 
as the concern has been in operation are used.
    State means any of the 50 States of the United States, the 
Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, American 
Samoa, the Commonwealth of the Northern Mariana Islands, the Republic of 
Palau, the Federated States of Micronesia, and the Republic of the 
Marshall Islands.
    Total project costs mean the sum of all costs associated with a 
completed project.



Sec. 4284.1104  Exception authority.

    The Administrator may, on a case-by-case basis, grant an exception 
to any requirement or provision of this subpart provided that such an 
exception is in the best financial interests of the Federal government. 
Exercise of this authority cannot conflict with applicable law.



Sec. 4284.1105  Review or appeal rights.

    Agency decisions that are adverse to the individual participant are 
appealable, while matters of general applicability are not subject to 
appeal; however, such decisions are reviewable for appealability by the 
National Appeals Division (NAD). All appeals will be conducted by NAD 
and will be handled in accordance with 7 CFR part 11.



Sec. 4284.1106  Conflict of interest.

    (a) General. A situation in which a person has competing personal, 
professional, or financial interests that prevents the person from 
acting impartially.
    (b) Assistance to employees, relatives, and associates. The Agency 
will process any requests for assistance under this subpart in 
accordance with 7 CFR part 1900, subpart D.
    (c) Member/Delegate clause. No member of or delegate to Congress 
shall receive any share or part of this grant or any benefit that may 
arise therefrom; but this provision shall not be construed to bar, as a 
contractor under the grant, a publicly held corporation whose ownership 
might include a member of Congress.



Sec. 4284.1107  Statute and regulation references.

    All references to statutes and regulations are to include any and 
all successor statutes and regulations.



Sec. 4284.1108  U.S. Department of Agriculture departmental regulations and laws that contain other compliance requirements.

    (a) Departmental regulations. All projects funded under this subpart 
are subject to the provisions of the departmental regulations, as 
applicable, which are incorporated by reference herein.
    (b) Equal opportunity and nondiscrimination. The Agency will ensure 
that equal opportunity and nondiscrimination requirements are met in 
accordance with the Equal Credit Opportunity Act, 15 U.S.C. 1691 et seq. 
and 7 CFR part 15d, Nondiscrimination in Programs or Activities 
Conducted by the United States Department of Agriculture. The Agency 
will not discriminate against applicants on the

[[Page 896]]

basis of race, color, religion, national origin, sex, marital status, or 
age (provided that the applicant has the capacity to contract); because 
all or part of the applicant's income derives from any public assistance 
program; or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act, 15 U.S.C. 1601 et seq.
    (c) Civil rights compliance. Recipients of grants must comply with 
the Americans with Disabilities Act of 1990, 42 U.S.C. 12101 et seq., 
Title VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d et seq., and 
Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. 794. This 
includes collection and maintenance of data on the race, sex, and 
national origin of the recipient's membership/ownership and employees. 
These data must be available to conduct compliance reviews in accordance 
with 7 CFR 1901.204.
    (1) Initial compliance reviews will be conducted by the Agency prior 
to funds being obligated.
    (2) Grants will require one subsequent compliance review following 
project completion. This will occur after the last disbursement of grant 
funds has been made.
    (d) Environmental analysis. 7 CFR part 1970 outlines environmental 
procedures and requirements for this subpart. Prospective applicants are 
advised to contact the Agency to determine environmental requirements as 
soon as practicable after they decide to pursue any form of financial 
assistance directly or indirectly available through the Agency. The 
applicant will be notified of all specific compliance requirements, 
including:
    (1) Any required environmental review must be completed by the 
Agency prior to the Agency obligating any funds or the applicant taking 
any action;
    (2) A site visit by the Agency may be scheduled, if necessary, to 
determine the scope of the review. An environmental review may include 
the publication of public notices, and consultation with State and 
Tribal Historic Preservation Offices and the U.S. Fish and Wildlife 
Service.
    (e) Discrimination complaints--(1) Who may file. Persons or a 
specific class of persons believing they have been subjected to 
discrimination prohibited by this section may file a complaint 
personally, or by an authorized representative with USDA, Director, 
Office of Adjudication, 1400 Independence Avenue SW, Washington, DC 
20250.
    (2) Time for filing. A complaint must be filed no later than 180 
days from the date of the alleged discrimination, unless a request for a 
waiver of the 180-day timeline is requested and the time for filing is 
extended by the designated officials of USDA or the Agency.
    (3) Filing a complaint. To file a program discrimination complaint, 
complete the USDA Program Discrimination Complaint Form, AD-3027, found 
online at https://www.usda.gov/ oascr/ how-to-file-a-program -
discrimination-complaint and at any USDA office or write a letter 
addressed to USDA and provide in the letter all of the information 
requested in the form. To request a copy of the complaint form, call 
(866) 632-9992. Submit your completed form or letter to USDA by:
    (i) Mail: U.S. Department of Agriculture, Office of Adjudication, 
1400 Independence Avenue SW, Washington, DC 20250-9410;
    (ii) Fax: (202) 690-7442; or
    (iii) Email: [email protected].



Sec. 4284.1109  Ineligible applicants.

    Applicants will be ineligible to receive funds under this subpart as 
discussed in paragraphs (a) and (b) of this section.
    (a) If the applicant has an outstanding judgment obtained by the 
U.S. in a Federal Court (other than in the United States Tax Court), is 
delinquent in the payment of Federal income taxes, or is delinquent on a 
Federal debt, the applicant is not eligible to receive a grant until the 
judgment is paid in full or otherwise satisfied or the delinquency is 
resolved. The Agency will check the Do Not Pay System to verify this 
information.
    (b) If the applicant is debarred or suspended from receiving Federal 
assistance, the applicant is not eligible to receive a grant under this 
subpart. The Agency will check the System for Award Management (SAM) to 
determine if the applicant has been debarred or suspended.

[[Page 897]]



Sec. 4284.1110  General applicant, application, and funding provisions.

    (a) Satisfactory progress. A lead applicant that has received one or 
more grants under this program must make satisfactory progress toward 
completion of any previously funded projects before the lead applicant 
will be considered for subsequent funding. Satisfactory progress is 
defined as 50% or greater of the previous RISE award being expended at 
the time the Agency makes its eligibility determination for a subsequent 
application.
    (b) Application submittal. Applications must be submitted in 
accordance with the provisions of this subpart unless otherwise 
specified in a Federal Register notice. Grant applications for financial 
assistance under this subpart may be submitted at any time with awards 
made annually based on the application's score and subject to available 
funding.
    (c) Limit on number of applications. An applicant can apply for and 
compete only one RISE project under this subpart per Federal fiscal 
year, unless otherwise noted in a Federal Register notice.
    (d) Application modification. Once submitted and prior to Agency 
award, if an applicant significantly modifies its application or scope 
of work, the application will be treated as a new application. The 
submission date of record for such modified applications will be the 
date the Agency receives the modified application, and the application 
will be processed by the Agency as a new application under this subpart. 
Applications that are modified due only to partial funding being 
available for the selected award are not subject to this provision.
    (e) Incomplete applications. Applicants must submit a complete 
application in compliance with Sec. 4284.1115 in order to be considered 
for funding. If an application is incomplete, the Agency will identify 
those parts of the application that are incomplete and return the 
documents, with a written explanation, to the applicant for possible 
future resubmission. Upon receipt of a complete application by the 
appropriate Agency office, the Agency will complete its evaluation and 
will compete the application in accordance with the procedures specified 
in Sec. 4284.1118, as applicable.
    (f) Application withdrawal. During the period between the submission 
of an application and the execution of grant award documents for an 
application selected for funding, the applicant must notify the Agency, 
in writing, if the project is no longer viable or the applicant is no 
longer requesting financial assistance for the project. When an 
applicant withdrawal request is received by the Agency, the selection 
will be rescinded and/or the application withdrawn from further 
processing and funding consideration.
    (g) Time limit on use of grant funds. Except as provided in 
paragraph (g)(1) of this section, grant funds not expended within the 
initial grant term of 4 years from the date the financial assistance 
agreement was signed by the Agency will be returned to the Agency.
    (1) Time extensions. The Agency may extend the 4-year grant time 
limit if the Agency determines, at its sole discretion, that the grantee 
is unable to complete the project for reasons beyond the grantee's 
control and that the grantee has established an active jobs accelerator 
and related programming. Grantees must submit a request for the no-cost 
extension no later than 90 days before the expiration date of the 
Financial Assistance Agreement. This request must describe the 
extenuating circumstances that were beyond its control to complete the 
project for which the grant was awarded, elements of completion that are 
required and their timeframe, and why an approval is in the government's 
best interest. The Agency may extend the grant term up to an additional 
two-year period. Additional extensions will not be granted.
    (2) Return of funds to the Agency. Funds that exceed the amount the 
grantee is entitled to receive under the financial assistance agreement 
or that are remaining after grant closeout will be returned to the 
Agency.



Sec. 4284.1111  Notifications.

    (a) Eligibility. If an applicant or its project is determined by the 
Agency to be ineligible at any time, the Agency will inform the 
applicant, as applicable, in writing of the decision, reasons

[[Page 898]]

therefore, and any applicable appeal rights. No further processing of 
the application or disbursement of grant proceeds, if funds have been 
previously awarded, will occur.
    (b) Funding determinations. Each applicant, as applicable, will be 
notified of the Agency's funding decision on its application. If the 
Agency's decision is to not fund an application, the Agency will notify 
the applicant in writing including the reasons for the determination and 
any applicable appeal or review rights.



Sec. 4284.1112  Rural jobs accelerator partnership eligibility.

    A rural jobs accelerator partnership (Partnership) organizes key 
community and regional stakeholders into a working group that focuses on 
the shared goals and needs of the targeted industry cluster(s). To be 
eligible for a RISE grant under this subpart, the Partnership must be 
formed on or after December 20, 2018, and meet each of the criteria 
specified in paragraphs (a) through (d) of this section. The Agency will 
determine a Partnership's eligibility based on the criteria herein.
    (a) The Partnership must include one or more representatives of the 
following:
    (1) A State, Tribal or local government;
    (2) A State, Tribal, or local government entity;
    (3) A land-grant college or university or other institution of 
higher education, as defined in the Higher Education Act of 1965 (20 
U.S.C. 1001);
    (4) A rural non-profit cooperative; or
    (5) A private entity, which may include a business in an industry 
cluster, economic development or community development organization, 
financial institution including a community development financial 
institution, philanthropic organization or labor organization.
    (b) The Partnership must have a lead applicant represented by one of 
the following:
    (1) A district organization;
    (2) An Indian Tribe or a political subdivision of a Tribe, including 
a special purpose unit of a tribal government engaged in economic 
development activities, or a consortium of Indian Tribes;
    (3) A State or a political subdivision of a State, including a 
special purpose unit of a State or local government engaged in economic 
development activities, or a consortium of political subdivisions;
    (4) An institution of higher education (as defined in section 101 of 
the Higher Education Act of 1965 (20 U.S.C. 1001)) or a consortium of 
institutions of higher education; or
    (5) A public or private nonprofit organization.
    (c) The Partnership and its project must serve a rural region, as 
defined.
    (d) The Partnership must clearly define the region that the 
partnership represents and ensure that the Region encompasses each of 
the following:
    (1) Is large enough to contain critical elements of the industry 
cluster prioritized by the partnership;
    (2) Is small enough to enable close collaboration among members of 
the partnership;
    (3) Includes a majority of communities that are located in the 
following:
    (i) A nonmetropolitan area that qualifies as a low-income community; 
and
    (ii) An area that has access to or has a plan to achieve broadband 
service, as defined; and
    (4) Has a population of 50,000 or fewer inhabitants or, for a region 
with a population of more than 50,000 inhabitants, is comprised of rural 
areas and urbanized areas, if any, are the subject of a positive 
determination by the Under Secretary for Rural Development with respect 
to a rural-in-character petition, including such a petition submitted 
concurrently with the application of the partnership for a grant under 
this section.
    (e) One or more members of the Partnership must be located in the 
targeted region. The Partnership may consist of industry entities and 
other partners outside of the targeted region.



Sec. 4284.1113  Project eligibility.

    For a project to be eligible to receive a RISE grant under this 
subpart, the proposed project must meet the requirements specified in 
paragraphs (a) through (e) of this section. The applicant project 
outcome must accelerate the formation of new businesses with

[[Page 899]]

high-growth potential, improve the ability of rural businesses and 
distressed rural communities to create high-wage jobs, and strengthen 
rural regional economies by engaging in one or more of the following 
eligible uses:
    (a) The construction or purchase of a building to serve as an 
innovation center located in a rural low-income community which 
establishes and/or supports a jobs accelerator and any equipment needs 
of the innovation center to support the jobs accelerator;
    (b) Be for the support of programs to be carried out at or in direct 
partnership with the jobs accelerator or in support of jobs accelerator 
initiatives including one or more of the following:
    (1) Linking rural communities and entrepreneurs to markets, 
networks, industry clusters, and other regional opportunities to support 
high-wage job creation, new business formation, business expansion, and 
economic growth of rural communities;
    (2) Integrating rural small businesses into a supply chain;
    (3) Creating or expanding commercialization activities for new 
business formation in rural areas;
    (4) Identifying and building assets in rural communities that are 
crucial to supporting regional economies;
    (5) Facilitating the repatriations of high-wage jobs to the United 
States;
    (6) Supporting the deployment of innovative processes, technologies, 
and products;
    (7) Enhancing the capacity of rural small businesses in regional 
industry clusters, including small and disadvantaged businesses;
    (8) Increasing United States exports and business interaction with 
international buyers and suppliers;
    (9) Developing the skills and expertise of local workforces, 
entrepreneurs, and institutional partners in the region to meet the 
needs of employers and prepare workers for high-wage jobs in the 
identified industry clusters, including the upskilling of incumbent 
workers;
    (10) Ensuring rural communities have the capacity and ability to 
carry out projects relating to housing, community facilities, 
infrastructure, or community and economic development to support 
regional industry cluster growth;
    (11) Any activities that the Agency may determine to be appropriate, 
as specified in a Federal Register notice.
    (c) Not more than 10 percent of a RISE grant awarded under this 
section shall be used for indirect costs of the applicant associated 
with administering the RISE grant. The Agency may increase this 
percentage as a documented exception on a case by case basis.
    (d) The innovation center may be physically located in a rural area 
as defined in Sec. 4284.1103 or in a non-rural area; as long as 
assistance being provided is to residents located in a rural area. The 
innovation center must be located in a rural low-income community if 
grant funds are used for the construction or purchase of an innovation 
center.
    (e) The applicant is cautioned against taking any actions or 
incurring any obligations prior to the Agency completing the 
environmental review that would either limit the range of alternatives 
to be considered or that would have an adverse effect on the 
environment, such as the initiation of construction. If the applicant 
takes any such actions or incurs any such obligations, it could result 
in project ineligibility. Projects involving the construction of an 
innovation center as an eligible purpose are subject to the 
environmental requirements of 7 CFR part 1970.



Sec. 4284.1114  RISE grant funding.

    (a) Grant amounts. The amount of grant funds that will be made 
available to a Partnership under this subpart will not exceed 80 percent 
of eligible project costs. The Federal share of the cost of any activity 
carried out using a grant under this section shall not be greater than 
80 percent.
    (1) Minimum request. Unless otherwise specified in a Federal 
Register notice, the minimum request for a RISE grant application is 
$500,000.
    (2) Maximum request. Unless otherwise specified in a Federal 
Register notice, the maximum request for a RISE grant application is 
$2,000,000.

[[Page 900]]

    (b) Matching funds. The applicant is responsible for securing the 
matching funds for total eligible project costs that are not covered by 
grant funds. The non-Federal share of the total eligible project costs 
of any activity carried out using a grant under this section may be in 
the form of third-party equity contributions including donations and in-
kind contributions of fairly-valued goods or services.
    (c) Eligible project costs. Eligible project costs are only those 
costs incurred after a complete application has been received by the 
Agency and are associated with the items identified in paragraphs (c)(1) 
through (6) of this section. The applicant is responsible for any 
expenses incurred in developing its application. Each item identified in 
paragraphs (c)(1) through (6) of this section is only an eligible 
project cost if it is directly related to, and its use and purpose is 
limited to the RISE grant project. Any building or equipment purchased 
with grant proceeds must be owned and controlled by the lead applicant. 
The following is a list of eligible project costs:
    (1) Costs directly related to the purchase or construction of an 
innovation center;
    (2) Costs directly related to operations of an innovation center 
including purchase of equipment, office supplies, and administrative 
costs including salaries directly related to the project;
    (3) Costs directly associated with support programs to be carried 
out at or in direct partnership with job accelerators;
    (4) Reasonable and customary travel expenses directly related to job 
accelerators and at rates in compliance with 2 CFR 200.474;
    (5) Utility costs, operating expenses of the innovation center and 
job accelerator programs and associated programs;
    (6) Administrative costs of the grantee will not exceed 10% of the 
grant amount for the duration of the project.
    (d) Ineligible project costs. Ineligible project costs and uses of 
funds for RISE projects include, but are not limited to:
    (1) Costs associated with preparation of an application package 
under this notice;
    (2) Costs incurred prior to Agency receipt of a complete application 
for the grant request made under a funding notice;
    (3) Funding of any political or lobbying activities;
    (4) Payment for assistance to any private business enterprise which 
does not create and/or support jobs in a rural area of the United 
States;
    (5) Payment of any judgment or debt owed to the United States;
    (6) Duplicate current services or substitute support previously 
provided. If the current service is inadequate, however, grant funds may 
be used to expand the level of effort or services beyond what is 
currently being provided;
    (7) To fund a part of a project that is dependent on other funding 
unless there is a firm commitment of the other funding to ensure 
completion of the project;
    (8) Pass through grants; and
    (9) costs associated with hemp production, unless a hemp producer 
has a valid license issued from an approved State, Tribal or Federal 
plan as per Section 10113 of the Agriculture Improvement Act of 2018, 
Public Law 115-334 (verification of valid hemp licenses will occur at 
the time of award).



Sec. 4284.1115  RISE grant applications--content.

    (a) A potential applicant for RISE may submit a concept proposal not 
less than 60 days in advance of the application submittal deadline as 
published in the Federal Register for review by the Agency. This concept 
proposal will be evaluated, and an encouragement or discouragement 
letter will be issued to the potential applicant. If a discouragement 
letter is issued, it will detail any weaknesses evaluated in the 
Agency's review, though a complete application may still be submitted 
prior to the application deadline. The concept proposal may be up to 10 
pages in length using a minimum of 11-point font. The concept proposal 
should be in a narrative format and must include the following:

[[Page 901]]

    (1) Partnership information including the members and structure of 
the Partnership, the date formalized, and the governance or leadership 
board. The information will identify the lead applicant and each 
partner's ties to the region, their roles in the delivery of the RISE 
program and any history of previous collaboration between partners. The 
amount and source of anticipated matching funds will also be provided.
    (2) Describe the geographic region to be served including the total 
population, economic characteristics of the region such as unemployment 
rates and income levels. Industry sectors, their status, size and 
economic contribution to the region and all communities including 
metropolitan statistical areas and nonmetro low income communities 
within the region should be identified. The availability and planned 
enhancements of broadband service and other assets of the region should 
also be identified. If the region to be served has a population of more 
than 50,000 inhabitants, the applicant must document why they believe 
the area is ``rural in character'' including, but not limited to, the 
area's population density, demographics, and topography and how the 
local economy is tied to a rural economic base.
    (3) Identify the industry cluster(s) that will be prioritized by the 
Partnership with information on the firms and support industries in 
those clusters. Describe the status of the industry (as emerging, 
existing, or declining) any existing interconnection and networks within 
the industry cluster and describe participation and scale of small and 
disadvantaged businesses within the industry cluster. Describe the 
opportunities or potential of industry growth in the region and 
competitive advantages of the region and industry cluster should be 
highlighted along with opportunities within the industry for the 
creation of or upgrading to high-wage jobs.
    (4) An executive summary, project plan and scope of work must be 
provided with the applicant's strategy, activities, budget, goals and 
objectives for the use of RISE funds. The applicant should also provide 
information on the sustainability of the partnership and jobs 
accelerator at the conclusion of the RISE grant period.
    (b) Unless otherwise specified in a Federal Register notice, 
applicants may only submit one RISE grant application each Federal 
fiscal year.
    (1) The lead applicant must be registered in the System for Award 
Management (SAM) and is responsible for submitting a complete 
application as specified in (b)(2)(i) through (b)(2)(xiv) of this 
section.
    (2) There are no specific limitations on the number of pages or 
other formatting requirements of an application. Applicants, who 
submitted a concept proposal to the Agency, will not need to resubmit 
the information found in (b)(2)(ix) below. The Agency will review and 
retain this information for application submittal. A complete 
application will consist of the following components unless otherwise 
specified in a Federal Register notice:
    (i) Form SF-424, ``Application for Federal Assistance;''
    (ii) Form SF-424A, ``Budget Information--Non-Construction 
Programs,'' if applicable;
    (iii) Form SF-424C, ``Budget Information--Construction Programs,'' 
if applicable;
    (iv) Form SF-424D, ``Assurances--Construction Programs,'' if 
applicable;
    (v) RD Form 400-1, ``Equal Opportunity Agreement,'' for construction 
projects only;
    (vi) Identify the ethnicity, race, and gender characteristics of the 
lead applicant's leadership. This information is optional and is not a 
required component for a complete application;
    (vii) Certification that the lead applicant is a legal entity in 
good standing (as applicable) and operating in accordance with the laws 
of the State(s) or Tribe where the applicant exists;
    (viii) The lead applicant must identify whether or not the lead 
applicant has a known relationship or association with an Agency 
employee and, if there is a known relationship, the lead applicant must 
identify each Agency employee with whom the lead applicant has a known 
relationship;
    (ix) All items required in paragraph (a) of this section must be 
provided with the application (applicants must provide updates, as 
appropriate, to any

[[Page 902]]

items previously submitted as a concept proposal under paragraph (a));
    (x) Readiness demonstration, which shall be comprised of the 
following items:
    (A) Description of readiness of all partners of the Partnership to 
contribute to the project including their ability to coordinate 
activities, finances and outcomes of the project.
    (B) Evidence of a formal agreement among partners of the Partnership 
for delivery of the RISE program.
    (C) Evidence of demonstrated readiness in administering the RISE 
grant, if awarded, including demonstration of potential success in 
establishment of a jobs accelerator project, which targets an industry 
cluster and the initiatives of the RISE grant. The application should 
indicate when activities related to the expected outcomes will commence.
    (D) Description of how the project will be marketed in the region 
and how the Partnership will capture any program impacts and success 
stories; and
    (E) Timeline describing the proposed tasks to be accomplished and 
the schedule for implementation of each task.
    (xi) Provide documentation on how the RISE project will impact the 
initiatives below, as applicable, including a brief description of how 
and when the initiative will be delivered:
    (A) Linking rural communities and entrepreneurs to markets, 
networks, industry clusters, and other regional opportunities to support 
high-wage job creation, new business formation, business expansion, and 
economic growth;
    (B) Integrating small businesses into a supply chain;
    (C) Creating or expanding commercialization activities for new 
business formation;
    (D) Identifying and building assets in rural communities that are 
crucial to supporting regional economies;
    (E) Facilitating the repatriation of high-wage jobs to the United 
States;
    (F) Supporting the deployment of innovative processes, technologies, 
and products;
    (G) Enhancing the capacity of small businesses in regional industry 
clusters, including small and disadvantaged businesses;
    (H) Increasing United States exports and business interaction with 
international buyers and suppliers;
    (I) Developing the skills and expertise of local workforces, 
entrepreneurs, and institutional partners to meet the needs of employers 
and prepare workers for high-wage jobs in the identified industry 
clusters, including the upskilling of incumbent workers;
    (J) Ensuring rural communities have the capacity and ability to 
carry out projects related to housing, community facilities, 
infrastructure, or community and economic development to support 
regional industry cluster growth;
    (xii) Potential to produce high-wage jobs and benefit rural small 
and disadvantaged businesses, including a description of the following:
    (A) Describe how the project will develop the skills and expertise 
of the local workforce, entrepreneurs and institutional partners to meet 
the needs of employers and prepare high-wage jobs in the targeted 
industry cluster(s), which may also include the upskilling of incumbent 
worker;
    (B) Demonstrate how the project will benefit the skills and 
expertise of small and disadvantaged businesses, as applicable;
    (C) Demonstrate any participation of higher education, applied 
research institutions, workforce development entities and community-
based organizations, that are willing to partner with the project to 
provide workers with skills relevant to the industry cluster needs of 
the region, with an emphasis on the use of on-the-job training, 
classroom occupational training or incumbent worker training, as 
applicable; and
    (D) Demonstrate any participation of investment organizations, 
venture development organizations, venture capital firms, revolving loan 
funders, angel investment groups, community lenders, community 
development financial institutions, rural business investment companies, 
small business companies (as defined in Section 103 of the Small 
Business Investment Act of 1958 (15 U.S.C. 662)), philanthropic 
organizations, and other institutions focused on expanding access to 
capital,

[[Page 903]]

are committed partners in the job accelerator partnership and willing to 
potentially invest in projects emerging from the jobs accelerator.
    (xiii) Describe the targeted region, including the following 
information:
    (A) Provide the latest Census Bureau information on the targeted 
region's median household income.
    (B) Provide the latest Census Bureau information on the targeted 
region's educational attainment, specifically the percentage of the 
population who hold a bachelor's degree.
    (C) Discuss how any direct career training will be provided to 
existing residents of the region (existing residents being those persons 
who live in the region at the time of application submission).
    (D) Discuss any local support for the RISE project.
    (E) Discuss the entrepreneurial commitment to the RISE project.
    (F) Discuss any innovative processes and technologies to be utilized 
in the targeted industry cluster(s) of the RISE project.
    (G) Discuss the initial and continuing capital investment in the 
RISE project.
    (H) Discuss any demand for regional and global markets of the 
product and/or service provided by the targeted industry cluster.
    (I) Discuss if the region contains any areas or communities that 
qualify for federal initiatives.
    (J) Elaborate on the current broadband service within the region and 
any plans to leverage the current broadband service or enhance broadband 
service in the region through the RISE project.
    (xiv) Financial information, including the following:
    (A) Identification of matching funds and other sources of funds for 
the project. Provide written commitments for matching funds and other 
sources of funds at the time the application is submitted.
    (B) Current financial statements and a narrative description 
demonstrating financial feasibility and sustainability of the project, 
all of which demonstrate sufficient resources and expertise to undertake 
and complete the project and how the project will be sustained following 
completion.
    (c) Upon receipt of a complete application, the Agency will 
determine if the applicant and project are eligible and whether the 
intended outcomes described meet the requirements of the RISE program. 
If the application is ineligible or not feasible, the Agency will inform 
the applicant in writing of the reasons for the Agency's determination 
and no further evaluation of the application will occur.



Sec. 4284.1116  [Reserved]



Sec. 4284.1117  Scoring RISE grant applications.

    The Agency will score each complete and eligible RISE application 
using the criteria specified in paragraphs (a) through (g) of this 
section, unless otherwise specified in a Federal Register notice, with a 
maximum score of 100 points possible. Points will be allowed only for 
factors indicated by well documented, reasonable plans which, in the 
opinion of the Agency, provide assurance that the items have a high 
probability of being accomplished. Points shall be awarded at the 
discretion of the Agency to scoring criteria with a minimum and maximum 
number of points available. Applicants that demonstrate the experience 
or ability to deliver the stated criteria will be awarded higher points 
in that criteria.
    (a) Demonstrated readiness. The Partnership demonstrated readiness 
in administering the RISE grant successfully and shows strong 
documentation indicating the potential for success in establishing a 
jobs accelerator project which targets an industry cluster and the 
initiative(s) of the RISE grant program. Points are awarded on a scale 
of 0 to 10 with a maximum of 10 points being awarded.
    (b) Targeted initiatives. A maximum of 15 points will be awarded for 
this criterion based on meeting the targeted initiatives as stated in 
Sec. 4284.1115(b)(2)(xi) with action narratives outlined in the 
application on how and when the initiatives will be delivered. More 
points will be awarded for reasonable initiatives that can be delivered 
within 12 months of the grant award and for those projects leveraging 
improvements in high-speed broadband service to the region.

[[Page 904]]

    (c) Project support. Points will be awarded for the strength of 
local support of the RISE project and entrepreneurial commitment. A 
maximum of 15 points can be awarded for application materials that 
indicate the strength of support for the RISE project. Points will be 
awarded from the partnership's demonstration of its sources of funding, 
personnel and technical resources committed to the project, and a focus 
on the inclusion of institutional partners expanding access to capital 
and willingness to potentially invest in projects emerging from the jobs 
accelerator. Points shall also be awarded for demonstrated resources 
that will sustain the project beyond the term of the RISE grant period.
    (d) Targeted region. A maximum of 20 points will be awarded for this 
criterion based on the region's demographics according to the latest 
census information. The applicant must provide adequate documentation to 
the latest census information to receive points.
    (1) If the targeted region has a median household income of:
    (i) 50% or less of state median household income; 5 points will be 
awarded;
    (ii) Over 50% and up to 80% of state median household income; 3 
points will be awarded.
    (2) If the targeted region residents have the educational attainment 
of a bachelor's degree by:
    (i) 10% or less of the population; 5 points will be awarded;
    (ii) Over 10% and up to 30% of the population; 3 points will be 
awarded.
    (3) Existing residents of the targeted region will receive direct 
career training for new employment or upscaling to a high-wage job; 5 
points will be awarded.
    (4) If the identified region has fewer than 50,000 residents 
according to the most recent decennial census; 5 points will be awarded.
    (e) RISE grant funds requested. A maximum of 10 points will be 
awarded for this criterion if:
    (1) The RISE grant request is for $500,000 to $750,000; 10 points 
will be awarded.
    (2) The RISE grant request is for over $750,000 and up to 
$1,000,000; 5 points will be awarded.
    (f) Regional impact. Points are awarded on a scale of 0 to 5 points 
for each category, with a total maximum of 20 points being awarded for 
this criterion. To receive points, the applicant must provide 
documentation to warrant strength on the following criteria, with points 
awarded for each:
    (1) Targeted industry(ies) in the region is classified as an 
emerging industry;
    (2) Applicant demonstrates that the targeted industry(ies) in the 
region hold a competitive advantage or will enhance their competitive 
advantage through the RISE project;
    (3) Applicant demonstrates that industry provides significant 
support of regional assets, including broadband, and provides community 
and economic development support within the region;
    (4) The RISE project's forecasted outcomes align with RISE 
objectives; and
    (5) The RISE project will target support to existing industry(ies), 
whose significance in the region may be stagnant or on the decline but 
can be enhanced through the benefits of the RISE project.
    (g) Administrator points. A maximum of 10 points will be awarded, 
with justification, at the discretion of the Agency Administrator, as 
announced in a Federal Register notice.



Sec. 4284.1118  Selecting RISE grant applications for award.

    Unless otherwise provided for in a Federal Register notice, RISE 
grant applications will be evaluated, assigned priority points as 
described in Sec. 4284.1117 and ranked from highest to lowest score for 
funding consideration, subject to the availability of funding.



Sec. 4284.1119  Awarding and Administering RISE Grants.

    The Agency will award and administer RISE grants in accordance with 
departmental regulations and with the procedures and requirements 
specified in this part.
    (a) Bonding and insurance. The applicant must provide satisfactory 
evidence to the Agency that all officers of the applicant organization 
are authorized to receive and/or disburse Federal funds and are covered 
by such bonding

[[Page 905]]

and/or insurance requirements as are normally required by the applicant.
    (b) Letter of conditions. A letter of conditions will be prepared by 
the Agency, establishing conditions that must be agreed to by the 
applicant before any obligation of funds can occur. Upon reviewing the 
conditions and requirements in the letter of conditions, the applicant 
must complete, sign, and return the Form RD 1942-46, ``Letter of Intent 
to Meet Conditions,'' and Form RD 1940-1, ``Request for Obligation of 
Funds,'' to the Agency if it accepts the conditions of the grant; or if 
certain conditions cannot be met, the applicant may propose alternate 
conditions in writing to the Agency. The Agency must resolve or concur 
with any changes proposed by the applicant to the letter of conditions 
before the application will be further processed.
    (c) Evidence of matching funds. The applicant is responsible for 
providing documentation that the required matching funds for the project 
have been received or remain committed at the date a financial 
assistance agreement is executed with the Agency.
    (d) SAM requirements. Each applicant applying for grant funds 
(unless an exception, as outlined in 2 CFR 25.110(a) through (d), is 
approved by the Agency) is required to:
    (1) Be registered in SAM before submitting its application;
    (2) Provide a valid unique entity identifier in its application; and
    (3) Continue to maintain an active SAM registration with current 
information at all times during which it has an active Federal award or 
an application or plan under consideration by a Federal awarding agency.
    (e) Financial assistance agreement. Once the requirements specified 
in paragraphs (a) through (d) of this section have been met, the 
financial assistance agreement can be executed by the lead applicant and 
the Agency. The applicant must abide by all requirements contained in 
the financial assistance agreement, this subpart, and any other 
applicable Federal statutes or regulations. Failure to follow these 
requirements might result in termination of the grant and adoption of 
other available remedies.
    (f) Grant approval. The lead applicant will be sent an executed copy 
of the executed Form RD 1940-1, ``Obligation of Funds,'' and the 
financial assistance agreement.



Sec. 4284.1120  Servicing RISE grants.

    The Agency will service RISE grants in accordance with the 
requirements specified in departmental regulations, the financial 
assistance agreement, 7 CFR part 1951, subparts E and O, other than 7 
CFR 1951.709(d)(1)(i)(B)(iv), and the requirements in Sec. 4284.1120, 
except as specified in paragraphs (a) through (d) of this section.
    (a) Inspections. Grantees must permit periodic inspection of the 
project records and operations by a representative of the Agency.
    (b) Programmatic changes. Grantees may make changes to an approved 
project's costs, scope, contractor, or vendor subject to the provisions 
specified in paragraphs (b)(1) through (3) of this section. If the 
changes result in lowering the project's score to below what would have 
qualified the application for an award, the Agency will not approve the 
changes.
    (1) Prior Agency approval. The grantee must obtain prior Agency 
approval for any change to the scope, contractor, or vendor of the 
approved project. Changes in project cost will require Agency approval 
as outlined in paragraph (b)(1)(iii) of this section.
    (i) Grantees must submit requests for programmatic changes in 
writing to the Agency for Agency approval.
    (ii) Failure to obtain prior Agency approval of any such change 
could result in such remedies as suspension, termination, and recovery 
of grant funds.
    (iii) Prior Agency approval is required for all increases in project 
costs. Prior Agency approval is required for a decrease in project cost 
only if the decrease would have a negative effect on the long-term 
viability of the project. A decrease in project cost that does not have 
a negative impact on long-term viability requires Agency notification 
prior to disbursement of funds. If project costs decrease, the Agency 
will reduce the grant amount, if necessary, to maintain a maximum grant 
amount of no greater than 80 percent of total

[[Page 906]]

project activities as required in Sec. 4284.1114(a).
    (2) Changes in project cost or scope. If there is a significant 
change in project cost or any change in project scope, then the 
grantee's funding needs, eligibility, and scoring, as applicable, will 
be reassessed. Any decreases in Agency funds will be based on revised 
project costs and other factors, including Agency regulations used at 
the time of grant approval.
    (3) Change of contractor or vendor. When seeking a change, the 
grantee must submit a written request to the Agency for approval. The 
proposed new contractor or vendor must have qualifications and 
experience acceptable to the Agency. The written request must contain 
sufficient information to demonstrate to the Agency's satisfaction that 
such change maintains project integrity. If the Agency determines that 
project integrity continues to be demonstrated, the grantee will be 
allowed to make the change. If the Agency determines that project 
integrity is no longer demonstrated, the change will not be approved and 
the grantee has the following options:
    (i) Continue with the original contractor or vendor;
    (ii) Find another contractor or vendor that has qualifications and 
experience acceptable to the Agency to complete the project; or
    (iii) Terminate the grant by providing a written request to the 
Agency. No additional funding will be available from the Agency if costs 
for the project have increased. Any Agency decision will be provided in 
writing to the lead applicant.
    (c) Transfer of Applicant or Ownership. Any change to the jobs 
accelerator partnership prior to the obligation of funds must be 
approved by the Agency and will only be considered if the partnership 
entities are eligible in accordance with Sec. 4284.1112. After the 
project is obligated and operational, the applicant grantee may request, 
in writing, a transfer of the financial assistance agreement to another 
entity. Subject to Agency approval provided in writing, the financial 
assistance agreement may be transferred to another entity provided:
    (1) The entity is determined by the Agency to be an eligible lead 
applicant entity under this subpart; and
    (2) The scope of the project for which the Agency funds will be used 
remain unchanged.
    (d) Disposition of acquired property. Grantees must abide by the 
disposition of acquired asset requirements as outlined in 2 CFR part 200 
and departmental regulations.
    (e) Financial management system and records. The grantee must 
provide for financial management systems and maintain records as 
specified in paragraphs (e)(1) and (2) of this section.
    (1) Financial management system. The grantee will provide for a 
financial system that will include:
    (i) Accurate, current, and complete disclosure of the financial 
results of each grant;
    (ii) Records that identify adequately the source and application of 
funds for grant-supporting activities, together with documentation to 
support the records. Those records must contain information pertaining 
to grant awards and authorizations, obligations, unobligated balances, 
assets, liabilities, outlays, and income; and
    (iii) Effective control over and accountability for all funds. The 
grantee must adequately safeguard all such assets and must ensure that 
funds are used solely for authorized purposes.
    (2) Records. The grantee will retain financial records, supporting 
documents, statistical records, and all other records pertinent to the 
grant for a period of at least three (3) years after completion of the 
grant period, except that the records must be retained beyond the 3-year 
period if audit findings have not been resolved or if directed by the 
United States. The Agency and the Comptroller General of the United 
States, or any of their duly authorized representatives, must have 
access to any books, documents, papers, and records of the grantee that 
are pertinent to the specific grant for the purpose of making audit, 
examination, excerpts, and transcripts.
    (f) Audit requirements. If applicable, grantees must provide an 
annual audit in accordance with 2 CFR part 200, subpart F. The Agency 
may exercise its right to do a program audit after the

[[Page 907]]

end of the project to ensure that all funding supported eligible project 
costs.
    (g) Grant disbursement. The Agency will determine, based on the 
applicable departmental regulations, whether disbursement of a grant 
will be by advance or reimbursement. Any funds disbursed in advance of 
the expense shall be used within three months and the financial need 
substantiated in writing by the grantee. Form SF-270 or Form SF-271 must 
be completed by the grantee and submitted to the Agency no more often 
than monthly to request either an advance or reimbursement of funds.
    (h) Reporting Requirements. Financial and project performance 
reports must be provided by grantees and contain the information 
specified in paragraphs (h) (1) and (2) of this section.
    (1) Federal Financial Reports. Between grant approval and completion 
of project (i.e., construction), SF-425, ``Federal Financial Report'' 
will be required of all grantees as applicable on a semiannual basis. 
The grantee will complete the project within the total sums available to 
it, including the grant, in accordance with the scope of work and any 
necessary modifications thereof prepared by grantee and approved by the 
Agency.
    (2) Performance reports. Grantees shall submit a performance report 
semi-annually for the first two years, and then annually thereafter, 
with the first report submitted no later than six months after receiving 
a grant under this section. This report will include, but not be limited 
to, the following:
    (i) All activities funded with the grant funds;
    (ii) Evaluation of progress towards strategic initiatives identified 
in the application for the grant, including a discussion of any issues 
which may have occurred;
    (iii) Measurement of progress using performance measures during the 
project period, which may include the following:
    (A) High-wage jobs created;
    (B) High-wage jobs retained;
    (C) Private investment leveraged;
    (D) Businesses improved;
    (E) Businesses retained;
    (F) New business formations;
    (G) New products, prototypes and/or services commercialized;
    (H) Improvement of the value of existing products or services under 
development;
    (I) Regional collaboration as measured by the number of 
organizations actively engaged in the industry cluster and/or the number 
of symposia held by the industry cluster, including organizations that 
are not located in the immediate region defined by the partnership and/
or the number of further cooperative agreements;
    (J) Number of educations and training activities relating to the 
innovation;
    (K) Number of innovative products, services and/or prototypes 
launched;
    (L) Number of jobs relocated from outside of the United States to 
the region;
    (M) Amount and number of new equity investments in industry cluster 
firms;
    (N) Amount and number of new loans to industry cluster firms;
    (O) Dollar increase in exports resulting from the project 
activities;
    (P) Percentage of employees for which training was provided;
    (Q) Improvement in sales of participating businesses;
    (R) Improvement in wages paid at participating businesses;
    (S) Improvement in income of participating workers;
    (T) Any measure determined appropriate by the Agency; and
    (U) Broadband development in the targeted region.
    (iv) Initiatives and timetable established for the next reporting 
period; and
    (v) Any additional information as found in the annual Federal 
Register notice.



Sec. Sec. 4284.1121--4284.1130  [Reserved]



Sec. 4284.1131  OMB control number.

    The information collection requirements in this subpart are approved 
by the Office of Management and Budget (OMB) and assigned OMB control 
number 0570-0075.

[[Page 908]]



PART 4285_COOPERATIVE AGREEMENTS--Table of Contents



        Subpart A_Federal-State Research on Cooperatives Program

Sec.
4285.1 Objective.
4285.2 Cooperative agreement purposes.
4285.3 Definitions.
4285.4-4285.23 [Reserved]
4285.24 Eligibility.
4285.25 Authorized use of cooperative agreement funds.
4285.26-4285.45 [Reserved]
4285.46 Prohibited use of cooperative agreement funds.
4285.47 Limitations.
4285.48-4285.57 [Reserved]
4285.58 How to apply for cooperative agreement funds.
4285.59-4285.68 [Reserved]
4285.69 Evaluation and disposition of applications.
4285.70 Evaluation criteria.
4285.71-4285.80 [Reserved]
4285.81 Cooperative agreement awards.
4285.82 Use of funds; changes.
4285.83-4285.92 [Reserved]
4285.93 Other Federal statutes and regulations that apply.
4285.94 Other conditions.
4285.95-4285.99 [Reserved]
4285.100 OMB control number.

    Authority: 7 U.S.C. 1623; Public Law 103-111, 107 Stat. 1046; 7 
U.S.C. 2201; USDA Secretary's Memorandum 1020-39, dated September 30, 
1993; and Public Law 103-211, 108 Stat. 3.

    Source: 59 FR 38342, July 28, 1994, unless otherwise noted.



        Subpart A_Federal-State Research on Cooperatives Program



Sec. 4285.1  Objective.

    This subpart sets forth the policies and procedures and delegates 
authority for providing Federal-State Research on Cooperatives 
cooperative agreement funds to finance programs of research on 
cooperatives as authorized under Section 204 (b) of the Agricultural 
Marketing Act of 1946 (7 U.S.C. 1623 (b)). The primary purpose of this 
matching fund program, via cooperative agreements, is to encourage State 
Departments of Agriculture and State Agricultural Experiment Stations in 
conducting research related to agricultural cooperatives.



Sec. 4285.2  Cooperative agreement purposes.

    Rural Development Administration (RDA) or its successor agency may 
enter into a cooperative agreement with a State agency to provide funds 
to the State agency to:
    (a) Conduct marketing research related to agricultural cooperatives.
    (b) Assist other organizations in conducting marketing research 
related to agricultural cooperatives.



Sec. 4285.3  Definitions.

    As used in this part:
    Agreement period. The total period of time approved by the Assistant 
Administrator for Cooperative Services for conducting the proposed 
project as outlined in an approved application. The time period is 
normally no more than 3 years, renewable for cause not to exceed a total 
of 4 fiscal years.
    Agricultural products. Agricultural products include agricultural, 
horticultural, viticultural, and dairy products, livestock and poultry, 
bees, forest products, fish and shellfish, and any products thereof, 
including processed or manufactured products, and any and all products 
raised or produced on farms and any processed or manufactured product 
thereof.
    Assistant Administrator for Cooperative Services. The Assistant 
Administrator for Cooperative Services, Rural Development Administration 
or its successor agency, USDA or any authorized delegate.
    Awarding official. The Assistant Administrator for Cooperative 
Services or authorized delegate.
    Cooperative agreement. A legal instrument reflecting a relationship 
between the United States Government and a State where:
    (1) The principal purpose of the relationship is the transfer of 
money, property, services, or anything of value to the State agency to 
carry out research related to cooperatives; and
    (2) Substantial involvement is anticipated between RDA or its 
successor agency, acting for the Federal Government, and the State or 
other recipient during performance of the research in the agreement.
    Cooperator. The State agency designated in the cooperative agreement

[[Page 909]]

award document as the responsible legal entity to whom a cooperative 
agreement is awarded under this part.
    Department. The U.S. Department of Agriculture.
    Methodology. The research approach to be followed to carry out the 
project.
    Principal investigator. A single individual who is responsible for 
the scientific and technical direction of the project, as designated by 
the cooperator in the cooperative agreement application and approved by 
the Assistant Administrator for Cooperative Services.
    Project. The particular activity within the scope of one or more of 
the research program areas identified in the annual program solicitation 
that is supported by a cooperative agreement under this part.
    State agencies. State agencies include, among others, State 
Agricultural Experiment Stations and State Departments of Agriculture in 
the 50 States, the Virgin Islands, and Guam, and other appropriate State 
agencies. Final determination of whether certain 1890 or 1862 Land Grant 
institutions qualify as state agencies will be determined on a case-by-
case basis by the Office of the General Counsel (OGC), USDA.



Sec. Sec. 4285.4-4285.23  [Reserved]



Sec. 4285.24  Eligibility.

    To enter into a cooperative agreement for these funds, the applicant 
must:
    (a) Be a State Agency as defined in Sec. 4285.3 of this subpart;
    (b) Have the financial, legal, administrative, and actual capacity 
to assume and carry out the responsibilities imposed by the Agreement. 
To meet the requirement of actual capacity it must either:
    (1) Have necessary background and experience with proven ability to 
perform responsibly in the field of economic, business management, or 
other needed research area; or
    (2) Have the necessary administrative and supervisory controls in 
place to assure an agreed upon contracting organization has the proven 
ability to perform responsibly in the field of economic, business 
management, or other needed research area;
    (c) Legally obligate itself to administer cooperative agreement 
funds, provide adequate accounting of the expenditure of such funds, and 
comply with the cooperative agreement;
    (d) Provide at least 50 percent of the funds necessary to conduct 
the research from non-federal funds; and
    (e) Agree to conduct proposed research related to cooperatives and 
agricultural marketing.



Sec. 4285.25  Authorized use of cooperative agreement funds.

    Funds received for research under cooperative agreements in this 
program shall only be used for:
    (a) Payment of salaries and necessary employee benefits of personnel 
as agreed upon in the Cooperative Agreement. Included are salaries and 
benefits of State employees assigned full-time to one or more projects, 
or the percent of the salaries and benefits related to project work for 
State employees assigned part-time to research on one or more projects. 
Salaries and benefits include basic salary, other compensation such as 
holiday pay, sick or annual leave, and personnel benefits (quarters 
allowance, payments to other funds such as employees' life insurance, 
health benefits, retirement, Federal Insurance Contributions Act (FICA), 
accident compensation, and similar payments). For any of the benefit 
items when the State usually pays the employer share, Federal funds may 
be used to pay the proportionate share of such employer contributions.
    (b) Payment of necessary and reasonable office expenses such as 
office rental, office utilities, and office equipment rental. The 
purchase of office equipment is permissible when the cooperator 
determines it to be more economical than renting. However, as a general 
rule, these types of expenses would be classified as indirect costs in 
multiple funded organizations and would not be an allowable expense. 
Planned purchases of equipment costing more than $200 per unit must be 
approved by RDA or its successor agency. Equipment purchased becomes 
State property pursuant to the cooperative agreement.
    (c) Payment of necessary and reasonable costs of printing 
publications of

[[Page 910]]

research project results. However, all such publications should show the 
RDA or its successor agency as cooperator in the project and bear the 
following statement: ``State funds for this project (publication) were 
matched with Federal funds under the Federal-State Research on 
Cooperatives Program of the U.S. Department of Agriculture, Rural 
Development Administration or its successor agency, Cooperative 
Services, as provided by the Agricultural Marketing Act of 1946 and 
(appropriate) fiscal year appropriations.''
    (d) Purchase of office supplies (such as paper, pens, pencils, and 
trade magazines) and postage needed for project activities.
    (e) Payment of necessary and reasonable travel expenses.



Sec. Sec. 4285.26-4285.45  [Reserved]



Sec. 4285.46  Prohibited use of cooperative agreement funds.

    (a) The Agricultural Marketing Act prohibits the use of Federal 
funds to pay for newspaper or periodical space and radio and television 
time, either directly to the media or indirectly though an advertising 
agency or other firm. County and State fair exhibits, as well as 
commodity months and weeks, are also excluded as the research on 
cooperatives program activities.
    (b) Federal funds cannot be used to purchase products or samples of 
products to give away to the public.
    (c) Federal program funds cannot be used to purchase:
    (1) Promotional pieces such as point-of-sale materials, promotional 
kits, billboard space and signs, streamers, automobile stickers, table 
tents, and placemats; or
    (2) Promotion items of a personal gift nature.
    (d) Cooperative agreement funds cannot be used to conduct general 
publicity or information programs designed to build the image of the 
State's agriculture or of a particular State Department of Agriculture 
or Agricultural Experiment Station.
    (e) Project funds cannot be used to pay for the salary and travel of 
employees of cooperatives, trade associations, commodity groups, and 
other industry organizations, or of State personnel while engaged in 
managing market orders, cooperatives, or other group endeavors.
    (f) Commissioners, Directors, and Secretaries of State Departments 
of Agriculture, Agricultural Experiment Stations, and other State 
agencies cannot charge their salaries and travel to project funds, with 
the exception of travel to workshops or conferences devoted to the 
Federal-State Research On Cooperatives Program.
    (g) Funds made available for this program shall not be subject to 
reduction for indirect costs or for tuition remission.



Sec. 4285.47  Limitations.

    The amount of funds available for the cooperative agreements under 
this program is limited to the amount appropriated for the fiscal year.



Sec. Sec. 4285.48-4285.57  [Reserved]



Sec. 4285.58  How to apply for cooperative agreement funds.

    (a) A program solicitation will be prepared and announced through 
publications such as the Federal Register, professional trade journals, 
agency or program handbooks, and/or any other appropriate means, as 
early as practicable each fiscal year in which funds are appropriated 
for the program.
    (b) The annual program solicitation will contain information 
sufficient to enable all eligible applicants to prepare proposals 
including:
    (1) Desired research topics. The FY-94 solicitation will encourage 
studies:
    (i) To improve the efficiency and effectiveness of marketing of 
agricultural cooperatives;
    (ii) To measure the impact of rural cooperatives on the local 
economies;
    (iii) That help identify opportunities to develop cooperatives for 
new or alternative market uses of agricultural products;
    (iv) That help identify ways to develop agricultural marketing 
cooperatives; and
    (v) Addressing other cooperative marketing objectives;
    (2) Explanation of eligibility requirements as outlined in Sec. 
4285.24 of this subpart;

[[Page 911]]

    (3) The notice of availability of application forms and instructions 
for submission of applications;
    (4) The notice of deadline dates for postmarking proposal packages.
    (c) Format for proposals. Unless otherwise indicated by the 
Department in the annual program solicitation, the following information 
must be submitted for the preparation of proposals under this program:
    (1) Form SF-424, ``Application for Federal Assistance.''
    (2) Form SF-424A, ``Budget Information--Non-Construction Programs.''
    (3) Form SF-424B, ``Assurances--Non-Construction Programs.''
    (4) Statement of Work. The application must include a narrative 
statement describing the nature of the proposed research. The Statement 
of Work must include at least the following:
    (i) Title of the Project. The title of the proposal must be brief, 
yet represent the major thrust of the project.
    (ii) Project Leaders. List the name(s) of the principal 
investigator(s). Minor collaborators or consultants should be so 
designated and not listed as principal investigators.
    (iii) Need for the Project. A concisely worded rationale behind the 
proposed research must be presented. The need for the proposed research 
must be clearly related to marketing and to the needs of agricultural 
cooperatives.
    (iv) Objectives of the project. The specific description of the 
overall project goal(s) and supporting objectives must be presented.
    (v) Procedures for conducting the research. The hypotheses or 
questions being asked and the methodology being applied to the proposed 
project must be described. A description of any subcontracting 
arrangements that will be used for conducting the research must be 
included. A tentative schedule for conducting major steps involved in 
the investigation must also be included.
    (vi) The expected output of the project. A description of how the 
results of the research will be disseminated should be presented. 
Responsibility for publishing any research reports or other types of 
output should also be identified.
    (5) Collaborative arrangements. If the nature of the proposed 
project requires collaboration or subcontractual arrangements with other 
research scientists, corporations, organizations, agencies, or entities, 
the applicant must identify the collaborator(s) and provide a full 
explanation of the nature of the collaboration. Evidence (i.e., letters 
of intent) should be provided to assure reviewers that the collaborators 
involved have agreed to render this service. In addition, the proposal 
must indicate whether or not such a collaborative arrangement(s) has the 
potential for conflict(s) of interest.
    (6) Personnel support. To assist reviewers in assessing the 
competence and experience of the proposed project staff, key personnel 
who will be involved in the proposed project must be identified clearly. 
For each principal investigator involved, and for all senior associates 
and other professional personnel who expect to work on the project, 
whether or not funds are sought for their support, the following must be 
included:
    (i) An estimate of the time commitments necessary;
    (ii) Curriculum Vitae. The curriculum vitae should be limited to a 
presentation of academic and research credentials, e.g., educational, 
employment and professional history, and honors and awards. Unless 
pertinent to the project, it should not include meetings attended, 
seminars given, or personal data such as birth date, martial status, or 
community activities; and
    (iii) Publication List(s). A chronological list of all publications 
in refereed journals during the past five years, including those in 
press, must be provided for each professional project member for whom a 
curriculum vitae is provided. Also list other non-refereed technical 
publications that have relevance to the proposed project. Authors should 
be listed in the same order as they appear on each paper cited, along 
with the title and complete reference as these usually appear in 
journals.



Sec. Sec. 4285.59-4285.68  [Reserved]



Sec. 4285.69  Evaluation and disposition of applications.

    (a) Evaluation. (1) All proposals received from eligible applicants 
and

[[Page 912]]

postmarked in accordance with deadlines established in the annual 
program solicitation shall be evaluated by the Assistant Administrator 
for Cooperative Services through an RDA or its successor agency staff 
panel. The Assistant Administrator for Cooperative Services will select 
the evaluation panel from staff determined to be highly qualified in the 
subject matter areas that were emphasized in the current year's 
solicitation and from those with no potential conflict of interest with 
the applicants.
    (2) Prior to technical examination, a preliminary review will be 
made for responsiveness to the program solicitation (e.g., relationship 
of proposal to research topic(s) listed in solicitation). Proposals that 
do not fall within the guidelines as stated in the program solicitation 
will be eliminated from competition and will be returned to the 
applicant.
    (3) Proposals will be ranked based on evaluation criteria 
established in Sec. 4285.70 of this subpart, and financial support 
levels will be recommended to the Assistant Administrator for 
Cooperative Services by the panel within the limitation of the total 
funding available in the fiscal year. The purpose of these evaluations 
is to provide information upon which the Assistant Administrator for 
Cooperative Services may make informed judgments in selecting proposals. 
Such recommendations are advisory only and are not binding on the 
awarding official of RDA or its successor agency. To ensure a 
comprehensive evaluation, all applications should be written with the 
care and thoroughness accorded papers for publication.
    (b) Disposition. (1) On the basis of the Assistant Administrator for 
Cooperative Services's evaluation of an application in accordance with 
paragraph (a) of this section, the Assistant Administrator for 
Cooperative Services will either:
    (i) Approve support using currently available funds;
    (ii) Defer support due to lack of funds or need for further 
evaluation; or
    (iii) Disapprove support for the proposed project in whole or in 
part.
    (2) With respect to any approved project, the Assistant 
Administrator for Cooperative Services will determine the project period 
during which the project may be funded.
    (3) Any deferral or disapproval of an application will not preclude 
its reconsideration or reapplication during subsequent fiscal years. 
However, applicants must reapply if reconsideration is desired.
    (4) The Assistant Administrator for Cooperative Services will not 
make a cooperative agreement funding award, based upon an application 
covered by this part, unless the application has been properly reviewed 
in accordance with the provisions of this part and unless said reviewers 
have made recommendations concerning the scientific merit and relevance 
to the program of such application.



Sec. 4285.70  Evaluation criteria.

    (a) In evaluating the proposal, the RDA or its successor agency 
staff review panel and the awarding official will take into account the 
degree to which the proposal demonstrates the following:
    (1) Focus on a practical solution to a significant problem involving 
one or more of the following on a cooperative business basis: the 
preparation for market, processing, packaging, handling, storing, 
transporting, distributing, or marketing of agricultural products. (35%)
    (2) Adequacy, soundness, and appropriateness of the proposed 
approach to solve the identified problem. (30%)
    (3) Feasibility and probability of success of project solving the 
problem. (10%)
    (4) Qualifications, experience in related work, competence, and 
availability of project personnel to direct and carry out the project. 
(25%)
    (b) In addition, the cost relative to the expected research results 
will be considered in determining the awarding of the agreements.



Sec. Sec. 4285.71-4285.80  [Reserved]



Sec. 4285.81  Cooperative agreement awards.

    (a) General. Within the limit of funds available for such purpose, 
the awarding official shall make awards for cooperative agreements to 
those applicants

[[Page 913]]

whose proposals are judged most meritorious in the announced program 
areas under the evaluation criteria and procedures set forth in this 
part. The date specified by the Assistant Administrator for Cooperative 
Services as the beginning of the project period shall be no later than 
September 30 of the Federal fiscal year in which the project is approved 
and funds are appropriated for such purpose, unless otherwise permitted 
by law. All funds awarded under this part shall be expended solely in 
accordance with the methods identified in approved application and 
budget, the regulations of this part, the terms and conditions of the 
award, the Grants and Agreements regulations of the Department of 
Agriculture as currently codified in 2 CFR parts 400, 415, 417, 418, and 
421.
    (b) Cooperative agreement award document and notice of award--(1) 
Cooperative agreement award document. The award document shall include 
at a minimum the following:
    (i) Legal name and address of performing organization or institution 
to whom the Assistant Administrator for Cooperative Services has 
competitively awarded funds under the terms of this part;
    (ii) Title of project;
    (iii) Name(s) and address(es) of principal investigator(s) chosen to 
direct and control approved activities;
    (iv) Identifying cooperative agreement number assigned by RDA or its 
successor agency;
    (v) Project period, specifying the amount of time the Agency intends 
to support the project without requiring recompetition for funds;
    (vi) Total amount of Agency financial assistance approved by the 
Assistant Administrator for Cooperative Services during the project 
period;
    (vii) Legal authority(ies) under which the cooperative agreement is 
awarded;
    (viii) Approved budget plan for categorizing allocable project funds 
to accomplish the stated purpose of the cooperative agreement award; and
    (ix) Other information or provisions deemed necessary by RDA or its 
successor agency to carry out its agreement activities or to accomplish 
the purpose of a particular cooperative agreement.
    (2) Notice of award. The notice of award of funds for the 
cooperative agreement will be in the form of a letter providing 
pertinent instructions or information to the cooperator.
    (c) Types of cooperative agreement instruments. The types of 
cooperative agreements shall be as follows:
    (1) New agreement. This is an agreement instrument by which RDA or 
its successor agency agrees to support a specified level of effort for a 
project not supported previously under this program. This type of 
agreement is approved on the basis of an RDA or its successor agency 
Staff evaluation review and recommendation.
    (2) Renewal agreement. This is an agreement instrument by which RDA 
or its successor agency agrees to provide additional funding for a 
project beyond the period approved in an original or amended agreement, 
provided that the cumulative period does not exceed the statutory 
limitation. When a renewal application is submitted, it must include a 
summary of progress to date from the previous agreement period. A 
renewal agreement shall be based upon new application, de novo review 
and staff evaluation, new recommendation and approval, and a new award 
instrument.
    (3) Supplemental agreement. This is an instrument by which RDA or 
its successor agency agrees to provide small amounts of additional 
funding under a new or renewal cooperative agreement as specified in 
paragraphs (c)(1) and (c)(2) of this section and may involve a short-
term (usually one year or less) extension of the project period beyond 
that approved in an original or amended award, but in no case may the 
cumulative period for the project exceed the statutory limitation. A 
supplement is awarded only if required to assure adequate completion of 
the original scope of work and if there is sufficient justification to 
warrant such action. A request of this nature will not require 
additional review.
    (d) Obligation of the Federal Government. The approval of any 
application or the award of any funds for a cooperative agreement shall 
not commit nor obligate the United States in any way to make any 
renewal, supplemental,

[[Page 914]]

continuation, or other award with respect to any approved application or 
portion of an approved application.
    (e) Obligation of the cooperator. The cooperator shall be 
responsible for:
    (1) Making a brief quarterly progress reports at the end of each 
December, March, June and September to the FSROC program staff for the 
duration of the research project;
    (2) Presenting a final administrative report on the project at the 
end of the research project; and
    (3) Preparing and publishing a report(s) of research findings for 
dissemination to interested producers, cooperatives, and agencies. 
Include recognition to financial and other assistance received from the 
FSROC program.

[59 FR 38342, July 28, 1994, as amended at 79 FR 76018, Dec. 19, 2014]



Sec. 4285.82  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The cooperator may not, in 
whole or in part, delegate or transfer to another person, institution, 
or organization the responsibility for use or expenditure of cooperative 
agreement funds.
    (b) Change in project plans. (1) The permissible changes by the 
cooperator, principal investigator(s), or other key project personnel in 
the approved cooperative agreement shall be limited to changes in 
methodology, techniques, or other aspects of the project to expedite 
achievement of the project's approved goals. If the cooperator and/or 
the principal investigator(s) is uncertain whether a particular change 
complies with this provision, the question must be referred to the 
Assistant Administrator for Cooperative Services for a final 
determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
cooperator and approved in writing by the Assistant Administrator for 
Cooperative Services, or authorized delegate, prior to effecting such 
changes. Normally, no requests for such changes outside the scope of the 
original approved project will be approved.
    (3) Changes in approved project leadership or the replacement or 
realignment of other key project personnel shall be requested by the 
cooperator and approved in writing by the Assistant Administrator for 
Cooperative Services, or authorized delegate, prior to effecting such 
changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the cooperator and 
approved in writing by the Assistant Administrator for Cooperative 
Services, or authorized delegate, prior to effecting such changes, 
except as may be allowed in the terms and conditions of a cooperative 
agreement award.
    (c) Changes in project period. The project period determined 
pursuant to Sec. 4285.81(b) of this subpart may be extended by the 
Assistant Administrator for Cooperative Services without additional 
financial support, for such additional period(s) as the Assistant 
Administrator for Cooperative Services determines may be necessary to 
complete, or fulfill the purposes of, an approved project. Any 
extension, when combined with the originally approved or amended project 
period, shall not exceed four (4) years and shall be further conditioned 
upon prior request by the cooperator and approval in writing by the 
Assistant Administrator for Cooperative Services, or authorized 
delegate, except as may be allowed in the terms and conditions of a 
cooperative agreement award.
    (d) Changes in approved budget. The terms and conditions of a 
cooperative agreement will prescribe circumstances under which written 
Agency approval must be requested and obtained prior to instituting 
changes in an approved budget.



Sec. Sec. 4285.83-4285.92  [Reserved]



Sec. 4285.93  Other Federal statutes and regulations that apply.

    Several other Federal statutes and regulations apply to cooperative 
agreement proposals considered for review or to agreements awarded under 
this part. These include but are not limited to:
    (a) 7 CFR Part 1, Subpart A--USDA implementation of the Freedom of 
Information Act;

[[Page 915]]

    (b) 7 CFR Part 3--USDA implementation of OMB Circular A-129 
regarding debt collection;
    (c) 7 CFR Part 15, Subpart A--USDA implementation of title VI of the 
Civil Rights Act of 1964 in order to assure nondiscrimination;
    (d) 7 CFR Part 1473--National Agricultural, Research, Extension, and 
Teaching Policy Act Amendments of 1981 if the project involves a college 
or university;
    (e) 2 CFR part 400, Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards;
    (f) 2 CFR part 415, General Program Administrative Regulations;
    (g) 2 CFR part 417, Nonprocurement Debarment and Suspension;
    (h) 2 CFR part 418, New Restrictions on Lobbying;
    (i) 2 CFR part 421, Requirements for Drug-Free Workplace (Financial 
Assistance);
    (j) 7 CFR part 3051--Audits of Institutions of Higher Education and 
Other Nonprofit Institutions; 29 U.S.C. 794, section 504--Rehabilitation 
Act of 1973, and 7 CFR part 15B prohibiting discrimination based upon 
physical or mental handicap in Federally assisted programs; and
    (k) 35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of 
rights to inventions made by employees of small business firms and 
domestic nonprofit organizations, including universities, in Federally 
assisted programs (implementing regulations are contained in 37 CFR part 
401).

[59 FR 38342, July 28, 1994, as amended at 79 FR 76018, Dec. 19, 2014]



Sec. 4285.94  Other conditions.

    Post-award requirements. Upon awarding the cooperative agreement, 
the post-award and audit requirements of 2 CFR part 200, as adopted by 
USDA in 2 CFR part 400 apply.

[79 FR 76018, Dec. 19, 2014]



Sec. Sec. 4285.95-4285.99  [Reserved]



Sec. 4285.100  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0570-0005. Public 
reporting burden for this collection of information is estimated to vary 
from 10 minutes to 36 hours per response with an average of 3.48 hours 
per response, including the time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing the collection of information. Send comments 
regarding this burden estimate or any other aspect of this collection of 
information, including suggestions for reducing this burden, to 
Department of Agriculture, Clearance Officer, OIRM, Ag Box 7630, 
Washington, DC 20250; and to the Office of Management and Budget, 
Paperwork Reduction Project (OMB 0570-0005), Washington, DC 20503.



PART 4287_SERVICING--Table of Contents



Subpart A [Reserved]

       Subpart B_Servicing Business and Industry Guaranteed Loans

Sec.
4287.101 Introduction.
4287.102 Definitions and abbreviations.
4287.103 Exception authority.
4287.104-4287.105 [Reserved]
4287.106 Appeals.
4287.107 Routine servicing.
4287.108-4287.111 [Reserved]
4287.112 Interest rate changes.
4287.113 Release of collateral.
4287.114-4287.122 [Reserved]
4287.123 Subordination of lien position.
4287.124 Alterations of loan instruments.
4287.125-4287.132 [Reserved]
4287.133 Sale of corporate stock.
4287.134 Transfer and assumption.
4287.135 Substitution of lender.
4287.136 Lender failure.
4287.137-4287.144 [Reserved]
4287.145 Default by borrower.
4287.146-4287.155 [Reserved]
4287.156 Protective advances.
4287.157 Liquidation.
4287.158 Determination of loss and payment.
4287.159-4287.168 [Reserved]
4287.169 Future recovery.
4287.170 Bankruptcy.
4287.171-4287.179 [Reserved]
4287.180 Termination of guarantee.
4287.181-4287.199 [Reserved]

[[Page 916]]

4287.200 OMB control number.

   Subpart D_Servicing Biorefinery, Renewable Chemical, and Biobased 
                Manufacturing Assistance Guaranteed Loans

4287.301 Introduction.
4287.302 Definitions.
4287.303 Exception authority.
4287.304-4287.305 [Reserved]
4287.306 Appeals.
4287.307 Routine servicing.
4287.308-4287.311 [Reserved]
4287.312 Interest rate changes.
4287.313 Release of Collateral.
4287.314-4287.322 [Reserved]
4287.323 Subordination of lien position.
4287.324 Alterations of loan instruments.
4287.325-4287.333 [Reserved]
4287.334 Transfer and Assumption.
4287.335 Substitution of Lender.
4287.336 Lender failure.
4287.337-4287.344 [Reserved]
4287.345 Default by Borrower.
4287.346-4287.355 [Reserved]
4287.356 Protective Advances.
4287.357 Liquidation.
4287.358 Determination of loss and payment.
4287.359-4287.368 [Reserved]
4287.369 Future recovery.
4287.370 Bankruptcy.
4287.371-4287.379 [Reserved]
4287.380 Termination of guarantee.
4287.381-4287.399 [Reserved]
4287.400 OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1932(a); 7 U.S.C. 1989.

    Source: 61 FR 67648, Dec. 23, 1996, unless otherwise noted.

Subpart A [Reserved]



       Subpart B_Servicing Business and Industry Guaranteed Loans

    Source: 81 FR 36020, June 3, 2016, unless otherwise noted.



Sec. 4287.101  Introduction.

    (a) As of October 1, 2020, this subpart is specifically applicable 
to and only contains regulations for servicing Business and Industry 
(B&I) Loans guaranteed by the Agency prior to October 1, 2020 and 
Business and Industry loans under the authority of the Coronavirus Aid, 
Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136) to 
provide B&I guarantees for loans needed as a result of the Coronavirus 
Disease 2019 (COVID-19) pandemic for working capital loan purposes to 
support business operations and facilities in rural areas (B&I CARES Act 
Program Loans). Other than B&I CARES Act Program Loans and B&I loans 
guaranteed by the Agency prior to October 1, 2020, this subpart is no 
longer used for servicing B&I loans guaranteed by the Agency. 
Requirements for B&I loans guaranteed by the Agency after October 1, 
2020 (other than B&I CARES Act Loans) may be found at 7 CFR part 5001.
    (b) The lender is responsible for servicing the entire loan and must 
remain mortgagee and secured party of record, notwithstanding the fact 
that another party may hold a portion of the loan.
    (c) Whether specifically stated or not, whenever Agency approval is 
required, it must be in writing. Copies of all forms and regulations 
referenced in this subpart may be obtained from any Agency office and 
from the USDA Rural Development Web site at http://www.rd.usda.gov/ 
publications. Whenever a form is designated in this subpart, that 
designation includes predecessor and successor forms, if applicable, as 
specified by the Agency.

[81 FR 36020, June 3, 2016, as amended at 85 FR 62196, Oct. 2, 2020]



Sec. 4287.102  Definitions and abbreviations.

    The definitions and abbreviations contained in Sec. 4279.2 of this 
chapter apply to this subpart.



Sec. 4287.103  Exception authority.

    Section 4279.15 of this chapter applies to this subpart.



Sec. Sec. 4287.104-4287.105  [Reserved]



Sec. 4287.106  Appeals.

    Section 4279.16 of this chapter applies to this subpart.



Sec. 4287.107  Routine servicing.

    The lender is responsible for servicing the entire loan and for 
taking all servicing actions that a reasonably prudent lender would 
perform in servicing its own portfolio of loans that are not guaranteed. 
The lender may contract for services but is ultimately responsible for 
underwriting, loan origination, loan servicing, and compliance with all 
Agency regulations. Form RD

[[Page 917]]

4279-4, ``Lender's Agreement,'' is the contractual agreement between the 
lender and the Agency that sets forth some of the lender's loan 
servicing responsibilities. These responsibilities include, but are not 
limited to, periodic borrower visits, the collection of payments, 
obtaining compliance with the covenants and provisions in the loan 
agreement, obtaining and analyzing financial statements, ensuring 
payment of taxes and insurance premiums, maintaining liens on 
collateral, keeping an inventory accounting of all collateral items, and 
reconciling the inventory of all collateral sold during loan servicing, 
including liquidation.
    (a) Lender reports and annual renewal fee. The lender must report 
the outstanding principal and interest balance and the current loan 
classification on each guaranteed loan semiannually (at June 30 and 
December 31), using either the USDA Lender Interactive Network 
Connection (LINC) system or Form RD 1980-41, ``Guaranteed Loan Status 
Report.'' The lender must transmit the annual renewal fee to the Agency 
in accordance with Sec. 4279.120(b) of this chapter calculated based on 
the December 31 semiannual status report.
    (b) Loan classification. The lender must provide the loan 
classification or rating under its regulatory standards as of loan 
closing, using either the LINC system or Form 1980-19, ``Guaranteed Loan 
Closing Report.'' When the lender changes the loan classification in the 
future, the lender must notify the Agency within 30 days, in writing, of 
any change in the loan classification.
    (c) Agency and lender conference. At the Agency's request, the 
lender must consult with the Agency to ascertain how the guaranteed loan 
is being serviced and that the conditions and covenants of the loan 
agreement are being enforced.
    (d) Borrower financial reports. The lender must obtain, analyze, and 
forward to the Agency the borrower's and any guarantor's annual 
financial statements required by the loan agreement within 120 days of 
the end of the borrower's fiscal year. States, local government, Indian 
tribes, institution of higher education, and nonprofit organization 
borrowers who meet the Federal awards expended threshold established in 
2 CFR part 200, subpart F, during their fiscal year must submit an audit 
conducted in accordance with 2 CFR part 200, subpart F. When the 
borrower's audit is conducted in accordance with 2 CFR part 200, subpart 
F, audits must be submitted no later than nine months after the end of 
the borrower's fiscal year or 30 days after the borrower's receipt of 
the auditor's report, whichever is earlier. The lender must analyze 
these financial statements and provide the Agency with a written summary 
of the lender's analysis, ratio analysis, and conclusions, which, at a 
minimum, must include trends, strengths, weaknesses, extraordinary 
transactions, violations of loan covenants and covenant waivers proposed 
by the lender, any routine servicing actions performed, and other 
indications of the financial condition of the borrower. Spreadsheets of 
the financial statements must also be included. Following the Agency's 
review of the lender's financial analysis, the Agency will provide a 
written report of any concerns to the lender. Any concerns based upon 
the Agency's review must be addressed by the lender. If the lender makes 
a reasonable attempt to obtain financial statements but is unable to 
obtain the borrower's cooperation, the failure to obtain financial 
statements will not impair the validity of the Loan Note Guarantee.
    (e) Protection of Agency interests. If the Agency determines that 
the lender is not in compliance with its servicing responsibilities, the 
Agency reserves the right to take any action the Agency determines 
necessary to protect the Agency's interests with respect to the loan. If 
the Agency exercises this right, the lender must cooperate with the 
Agency to rectify the situation. In determining any loss, the Agency 
will assess against the lender any cost to the Agency associated with 
such action.

[81 FR 36020, June 3, 2016, as amended at 87 FR 58021, Sept. 23, 2022]

[[Page 918]]



Sec. Sec. 4287.108-4287.111  [Reserved]



Sec. 4287.112  Interest rate changes.

    (a) The borrower, lender, and holder (if any) may collectively 
initiate a permanent or temporary reduction in the interest rate of the 
guaranteed loan at any time during the life of the loan upon written 
agreement among these parties. The lender must obtain prior Agency 
concurrence and provide a copy of the modification agreement to the 
Agency. If any of the guaranteed portion has been purchased by the 
Agency, the Agency (as a holder) will affirm or reject interest rate 
change proposals in writing.
    (b) No increases in interest rates will be permitted, except the 
normal fluctuations in approved variable interest rates, unless a 
temporary interest rate reduction occurred or to change from a variable 
rate to a fixed rate. Variable rates can be changed to a fixed rate at 
the request of the borrower, lender, agreement of the holder, if any, 
and with the Agency's prior written concurrence. After the rate change, 
the rate must meet the requirements of 7 CFR 4279.125.
    (c) The interest rate, after adjustments, must comply with the 
interest rate requirements set forth in Sec. 4279.125 of this chapter.
    (d) The lender is responsible for the legal documentation of 
interest-rate changes by an endorsement or any other legally effective 
amendment to the promissory note; however, no new notes shall be issued. 
The lender must provide copies of all legal documents to the Agency.

[81 FR 36020, June 3, 2016, as amended at 87 FR 58021, Sept. 23, 2022]



Sec. 4287.113  Release of collateral.

    (a) Within the parameters of paragraph (c) of this section, lenders 
may, over the life of the loan, release collateral (other than personal 
and corporate guarantees) without Agency concurrence if the proceeds 
generated are used to pay down debt in order of lien priority, reduce 
the guaranteed loan or to acquire replacement collateral. Working 
assets, such as accounts receivable, inventory, and work-in-progress 
that are routinely depleted or sold and proceeds used for the normal 
course of business operations may be used in and released for routine 
business purposes without prior concurrence of the Agency as long as the 
loan is not in monetary default or liquidation.
    (b) If a release of collateral does not meet the requirements of 
paragraph (a) of this section, the lender must complete a written 
evaluation to justify the release and obtain written Agency concurrence 
in advance of the release.
    (c) Collateral must remain sufficient to provide for adequate 
collateral coverage for the outstanding guaranteed loan(s). For a 
release of collateral request when the Borrower is not in monetary 
default or liquidation, the lender must support all releases of chattel 
collateral with a value exceeding $250,000 and real estate collateral 
with a value exceeding $500,000 with a current appraisal on the 
collateral being released and otherwise meets the requirements of Sec. 
4279.144 of this chapter. All other release of collateral requests must 
meet the appraisal requirements of Sec. 4279.144 of this chapter. The 
cost of this appraisal will not be paid for by the Agency. The Agency 
may, at its discretion, require an appraisal of the remaining collateral 
in cases where it has been determined that the Agency may be adversely 
affected by the release of collateral. The sale or release of the 
collateral must be based on an arm's length transaction, and there must 
be adequate consideration for the release of collateral. Such 
consideration may include, but is not limited to:
    (1) Application of the net proceeds from the sale of collateral to 
the borrower's debts in order of their lien priority against the sold 
collateral;
    (2) Use of the net proceeds from the sale of collateral to purchase 
other collateral of equal or greater value for which the lender will 
obtain as security for the benefit of the guaranteed loan with a lien 
position equal or superior to the position previously held;
    (3) Application of the net proceeds from the sale of collateral to 
the borrower's business operation in such a manner that a significant 
improvement to the borrower's debt service ability will be clearly 
demonstrated. The lender's written request must detail how

[[Page 919]]

the borrower's debt service ability will be improved; or
    (4) Assurance that the release of collateral is essential for the 
success of the business, thereby furthering the goals of the program. 
Such assurance must be supported by written documentation from the 
lender acceptable to the Agency.

[81 FR 36020, June 3, 2016, as amended at 87 FR 58021, Sept. 23, 2022]



Sec. Sec. 4287.114-4287.122  [Reserved]



Sec. 4287.123  Subordination of lien position.

    A subordination of the lender's lien position must be requested in 
writing by the lender and concurred with in writing by the Agency in 
advance of the subordination. The lender's subordination proposal must 
include a financial analysis of the servicing action and be fully 
supported by current financial statements of the borrower and guarantors 
that are less than 90 days old.
    (a) The subordination of lien position must enhance the borrower's 
business and not adversely affect the potential for collection of the 
B&I loan through repayment or liquidation.
    (b) The lien to which the guaranteed loan is subordinated is for a 
fixed dollar limit and for a fixed term after which the guaranteed loan 
lien priority will be restored.
    (c) Collateral must remain sufficient to provide for adequate 
collateral coverage. The Agency may require a current independent 
appraisal in accordance with Sec. 4279.144 of this chapter.
    (d) Lien priorities must remain for the portion of the collateral 
that was not subordinated.
    (e) A subordination to a line of credit cannot exceed 1 year. The 
term of the line of credit cannot be extended.



Sec. 4287.124  Alterations of loan instruments.

    The lender must neither alter nor approve any alterations or 
modifications of any loan instrument without the prior written approval 
of the Agency.



Sec. Sec. 4287.125-4287.132  [Reserved]



Sec. 4287.133  Sale of corporate stock.

    Any sale or transfer of corporate stock must be approved by the 
Agency in writing and must be to an eligible individual or entity in 
accordance with Sec. 4279.108(a) and 4279.108(b) of this chapter. In 
the event a portion of the borrower's stock is sold or transferred, the 
Agency may require personal or corporate guarantees from those then 
owning a 20 percent or more interest in the borrower in accordance with 
Sec. 4279.132 of this chapter.



Sec. 4287.134  Transfer and assumption.

    The lender may request a transfer and assumption of a guaranteed 
loan in situations where the total indebtedness, or less than the total 
indebtedness, is transferred to another eligible borrower on the same or 
different terms. A transfer and assumption of the borrower's operation 
can be accomplished before or after the loan goes into liquidation. 
However, if the collateral has been purchased through foreclosure or the 
borrower has conveyed title to the lender, no transfer and assumption is 
permitted. Additionally, no transfer and assumption is permitted when 
the Agency has repurchased 100 percent of the guaranteed portion of the 
loan.
    (a) Documentation of request. All transfers and assumptions must be 
approved in writing by the Agency and must be to an eligible borrower. 
The lender must provide credit reports for each individual or entity 
owning 20 percent or more interest in the transferee, along with such 
other documentation as the Agency may request to determine eligibility. 
In accordance with Sec. 4279.132 of this chapter, the Agency will 
require personal and/or corporate guarantee(s) from all owners that have 
a 20 percent or more ownership interest in the transferee. When 
warranted by an Agency assessment of potential financial risk, the 
Agency may also require guarantees of parent, subsidiaries, or 
affiliated companies (owning less than a 20 percent interest in the 
borrower) and may require security for any guarantee. The new borrower 
must sign Form RD 4279-1, ``Application for Loan Guarantee,'' and any

[[Page 920]]

guarantors of the guaranteed loan must sign Form RD 4279-14, 
``Unconditional Guarantee.''
    (b) Terms. Loan terms may be changed with the concurrence of the 
Agency, all holders, and the transferor (including guarantors) if the 
transferor has not been or will not be released from liability. Any new 
loan terms must be within the terms authorized by Sec. 4279.126 of this 
chapter.
    (c) Release of liability. The transferor, including any guarantor, 
may be released from liability only with prior Agency written 
concurrence and only when the fair market value of the collateral being 
transferred is at least equal to the amount of the loan being assumed 
and is supported by a current appraisal and a current financial 
statement of the transferee. The Agency will not pay for the appraisal. 
If the transfer is for less than the debt, for a release of liability, 
the lender must demonstrate to the Agency that the transferor and 
guarantors have no reasonable debt-paying ability considering their 
assets and income in the foreseeable future.
    (d) Proceeds. The lender must credit any proceeds received from the 
sale of collateral before a transfer and assumption to the transferor's 
guaranteed loan debt in order of lien priority before the transfer and 
assumption is closed.
    (e) Additional loans. Loans to provide additional funds in 
connection with a transfer and assumption must be considered a new loan 
application, which requires submission of a complete Agency application 
in accordance with Sec. 4279.161(b) of this chapter.
    (f) Credit quality. The lender will provide a credit analysis of the 
proposal that addresses capacity (sufficient cash flow to service the 
debt), capital (net worth), collateral (assets to secure the debt), 
conditions (of the borrower, industry trends, and the overall economy), 
and character (integrity of the transferee management) in accordance 
with Sec. 4279.131 of this chapter.
    (g) Appraisals. If the proposed transfer and assumption is for the 
full amount of the Agency guaranteed loan, the Agency will not require 
an appraisal, unless a guarantor is being released from liability in 
accordance with paragraph (c) of this section. If the proposed transfer 
and assumption is for less than the full amount of the Agency guaranteed 
loan, the Agency will require an appraisal on all of the collateral 
being transferred, and the amount of the assumption must not be less 
than this appraised value. The lender is responsible for obtaining this 
appraisal, which must conform to the requirements of Sec. 4279.144 of 
this chapter. The Agency will not pay the appraisal fee or any other 
costs associated with this transfer.
    (h) Documents. Prior to Agency approval, the lender must provide the 
Agency a written legal opinion that the transaction can be properly and 
legally transferred and assurance that the conveyance instruments will 
be appropriately filed, registered, and recorded.
    (1) The lender must not issue any new promissory notes. The 
assumption must be completed in accordance with applicable law and must 
contain the Agency case number of the transferor and transferee. The 
lender must provide the Agency with a copy of the transfer and 
assumption agreement. The lender must ensure that all transfers and 
assumptions are noted on all original Loan Note Guarantees.
    (2) A new loan agreement, consistent in principle with the original 
loan agreement, must be executed to establish the terms and conditions 
of the loan being assumed. An assumption agreement can be used to 
establish the loan covenants.
    (3) Upon execution of the transfer and assumption, the lender must 
provide the Agency with a written legal opinion that the transfer and 
assumption is completed, valid, and enforceable, and certification that 
the transfer and assumption is consistent with the conditions outlined 
in the Agency's conditions of approval for the transfer and complies 
with all Agency regulations.
    (i) Loss/repurchase resulting from transfer. (1) Any resulting loss 
must be processed in accordance with Sec. 4287.158.
    (2) If a holder owns any of the guaranteed portion, such portion 
must be repurchased by the lender or the Agency in accordance with Sec. 
4279.78 of this chapter.

[[Page 921]]

    (j) Related party. If the transferor and transferee are affiliated 
or related parties, any transfer and assumption must be for the full 
amount of the debt.
    (k) Cash downpayment. The lender may allow the transferee to make 
cash downpayments directly to the transferor provided:
    (1) The transfer and assumption is made for the total indebtedness;
    (2) The lender recommends that the cash be released, and the Agency 
concurs prior to the transaction being completed. The lender may require 
that an amount be retained for a defined period of time as a reserve 
against future defaults. Interest on such account may be paid 
periodically to the transferor or transferee as agreed;
    (3) The lender determines that the transferee has the repayment 
ability to meet the obligations of the assumed guaranteed loan, as well 
as any other indebtedness; and
    (4) Any payments by the transferee to the transferor will not 
suspend the transferee's obligations to continue to meet the guaranteed 
loan payments as they come due under the terms of the assumption.
    (l) Annual renewal fees. The lender must pay any annual renewal fee 
published in the Federal Register and then in effect at the time the 
loan is closed for the duration of the Loan Note Guarantee. Annual 
renewal fees are due for the entire year even if the Loan Note Guarantee 
is terminated before the end of the year.



Sec. 4287.135  Substitution of lender.

    After the issuance of a Loan Note Guarantee, the lender is 
prohibited from selling or transferring the entire loan without the 
prior written approval of the Agency. Because the Loan Note Guarantee is 
associated with a specific promissory note and cannot be transferred to 
a new promissory note, the lender must transfer the original promissory 
note to the new lender, who must agree to its current loan terms, 
including the interest rate, secondary market holder (if any), 
collateral, loan agreement terms, and guarantors. The new lender must 
also obtain the original Loan Note Guarantee, original personal and 
corporate guarantee(s), and the loan payment history from the transferor 
lender. If the new lender wishes to modify the loan terms after 
acquisition, the new lender must submit a request to the Agency.
    (a) The Agency may approve the substitution of a new lender if:
    (1) The proposed substitute lender:
    (i) Is an eligible lender in accordance with Sec. 4279.29 of this 
chapter and is approved as such;
    (ii) Is able to service the loan in accordance with the original 
loan documents; and
    (iii) Agrees in writing to acquire title to the unguaranteed portion 
of the loan held by the original lender and assumes all original loan 
requirements, including liabilities and servicing responsibilities.
    (2) The substitution of the lender is requested in writing by the 
borrower, the proposed substitute lender, and the original lender of 
record, if still in existence.
    (b) The Agency will not pay any loss or share in any costs (e.g., 
appraisal fees and environmental assessments) with a new lender unless a 
relationship is established through a substitution of lender in 
accordance with paragraph (a) of this section. This includes situations 
where a lender is merged with or acquired by another lender and 
situations where the lender has failed and been taken over by a 
regulatory agency such as the Federal Deposit Insurance Corporation 
(FDIC) and the loan is subsequently sold to another lender.
    (c) Where the lender has failed and been taken over by the FDIC and 
the loan is liquidated by the FDIC rather than being sold to another 
lender, the Agency will pay losses and share in costs as if the FDIC 
were an approved substitute lender.
    (d) In cases where there is a substitution of the lender, the Agency 
and the new lender must execute a new Form RD 4279-4, ``Lender's 
Agreement,'' unless a valid Lender's Agreement already exists with the 
new lender.



Sec. 4287.136  Lender failure.

    (a) Uninsured lender. The lender or insuring agency cannot 
arbitrarily change the Lender's Agreement and related documents on the 
guaranteed

[[Page 922]]

loan, and the Agency will make the successor to the failed institution 
aware of the statutory and regulatory requirements. If the acquiring 
institution is not an eligible lender as set forth in Sec. 4279.29 of 
this chapter, the Loan Note Guarantee will not be enforceable, and the 
institution must promptly apply to become an eligible lender. The 
failure of the uninsured lender to become an eligible lender will result 
in the Loan Note Guarantee being unenforceable. A new lender approved by 
the Agency will be afforded the benefits of the Loan Note Guarantee in 
the sharing of any loss and eligible expenses subject to the limits that 
are set forth in the regulations governing the program.
    (b) Insured lender. The FDIC and the Agency have entered into an 
Inter-Agency Agreement and all parties are to abide by this Agreement or 
successor document(s). This document sets forth the duties and 
responsibilities of each Agency when an institution fails. The lender 
must take such action that a reasonably prudent lender would take if it 
did not have a Loan Note Guarantee to protect the lender and Agency's 
mutual interest.



Sec. Sec. 4287.137-4287.144  [Reserved]



Sec. 4287.145  Default by borrower.

    The lender's primary responsibilities in default are to act 
prudently and expeditiously, to work with the borrower to bring the 
account current or cure the default through restructuring if a realistic 
plan can be developed, or to accelerate the account and conduct a 
liquidation in a manner that will minimize any potential loss. The 
lender may initiate liquidation subject to submission and approval of a 
complete liquidation plan.
    (a) The lender must notify the Agency when a borrower is more than 
30 days past due on a payment and the delinquency cannot be cured within 
30 days or when a borrower is otherwise in default of covenants in the 
loan agreement by promptly submitting Form RD 1980-44, ``Guaranteed Loan 
Borrower Default Status,'' or processing the Default Status report in 
LINC. The lender must update the loan's status each month using either 
Form RD 1980-44 or the LINC Default Status report until such time as the 
loan is no longer in default. If a monetary default exceeds 60 days, the 
lender must meet with the Agency and, if practical, the borrower to 
discuss the situation.
    (b) In considering options, the prospects for providing a permanent 
cure without adversely affecting the risk to the Agency and the lender 
is the paramount objective.
    (1) Curative actions (subject to the rights of any holder and Agency 
concurrence) include, but are not limited to:
    (i) Deferment of principal and/or interest payments;
    (ii) An additional unguaranteed temporary loan by the lender to 
bring the account current;
    (iii) Reamortization of or rescheduling the payments on the loan;
    (iv) Transfer and assumption of the loan in accordance with Sec. 
4287.134;
    (v) Reorganization;
    (vi) Liquidation; and
    (vii) Changes in interest rates with the Agency's, the lender's, and 
any holder's approval. Any interest payments must be adjusted 
proportionately between the guaranteed and unguaranteed portion of the 
loan.
    (2) The term of any deferment, rescheduling, reamortization, or 
moratorium will be limited to the lesser of the remaining useful life of 
the collateral or remaining limits as set forth in Sec. 4279.126 of 
this chapter (excluding paragraph (c)). During a period of deferment or 
moratorium on the guaranteed loan, the lender's unguaranteed loan(s) and 
any stockholder loans must also be under deferment or moratorium. 
Balloon payments are permitted as a loan servicing option as long as 
there is a reasonable prospect for success and the remaining life of the 
collateral supports the action.
    (3) In the event of a loss or a repurchase, the lender cannot claim 
default or penalty interest, late payment fees, or interest on interest. 
If the restructuring includes the capitalization of interest, interest 
accrued on the capitalized interest will not be covered by the 
guarantee. Consequently, it is not eligible for repurchase from the 
holder and cannot be included in the loss claim.

[[Page 923]]

    (c) Debt write-downs for an existing borrower, where the same 
principals retain control of and decisionmaking authority for the 
business, are prohibited, except as directed or ordered under the 
Bankruptcy Code.
    (d) For loans closed on or after August 2, 2016, in the event of a 
loss, the guarantee will not cover note interest to the lender accruing 
after 90 days from the most recent delinquency effective date.
    (e) For loans closed on or after August 2, 2016, the lender or the 
Agency will issue an interest termination letter to the holder(s) 
establishing the termination date for interest accrual. The guarantee 
will not cover interest to any holder accruing after the greater of: 90 
days from the date of the most recent delinquency effective date as 
reported by the lender or 30 days from the date of the interest 
termination letter.
    (f) For repurchases of guaranteed loans, refer to Sec. 4279.78 of 
this chapter.



Sec. Sec. 4286.146-4287.155  [Reserved]



Sec. 4287.156  Protective advances.

    Protective advances are advances made by the lender for the purpose 
of preserving and protecting the collateral where the debtor has failed 
to, will not, or cannot meet its obligations. Lenders must exercise 
sound judgment in determining that the protective advance preserves 
collateral and recovery is actually enhanced by making the advance. 
Lenders cannot make protective advances in lieu of additional loans. A 
protective advance claim will be paid only at the time of the final 
report of loss payment.
    (a) The maximum loss to be paid by the Agency will never exceed the 
original loan amount plus accrued interest times the percentage of 
guarantee regardless of any protective advances made.
    (b) In the event of a final loss, protective advances will accrue 
interest at the note rate and will be guaranteed at the same percentage 
of guarantee as provided for in the Loan Note Guarantee. The guarantee 
will not cover interest on the protective advance accruing after 90 days 
from the most recent delinquency effective date.
    (c) Protective advances must constitute an indebtedness of the 
borrower to the lender and be secured by the security instruments. 
Agency written authorization is required when the cumulative total of 
protective advances exceeds $200,000 or 10 percent of the aggregate 
outstanding balance of principal and interest, whichever is less.



Sec. 4287.157  Liquidation.

    In the event of one or more incidents of default or third party 
actions that the borrower cannot or will not cure within a reasonable 
period of time, the lender, with Agency consent, must liquidate the 
loan. In accordance with Sec. 4287.145(d), for loans closed on or after 
August 2, 2016, in the event of a loss, the guarantee will not cover 
note interest to the lender accruing after 90 days from the most recent 
delinquency effective date.
    (a) Decision to liquidate. A decision to liquidate must be made when 
the lender determines that the default cannot be cured through actions 
such as those contained in Sec. 4287.145, or it has been determined 
that it is in the best interest of the Agency and the lender to 
liquidate. The decision to liquidate or continue with the borrower must 
be made as soon as possible when one or more of the following exist:
    (1) A loan is 90 days behind on any scheduled payment and the lender 
and the borrower have not been able to cure the delinquency through 
actions such as those contained in Sec. 4287.145.
    (2) It is determined that delaying liquidation will jeopardize full 
recovery on the loan.
    (3) The borrower or lender is uncooperative in resolving the problem 
or the Agency or lender has reason to believe the borrower is not acting 
in good faith, and it would improve the position of the guarantee to 
liquidate immediately.
    (b) Repurchase of loan. When the decision to liquidate is made, if 
any portion of the loan has been sold or assigned under Sec. 4279.75 of 
this chapter and not already repurchased, provisions will be made for 
repurchase in accordance with Sec. 4279.78 of this chapter.
    (c) Lender's liquidation plan. The lender is responsible for 
initiating actions immediately and as necessary to assure

[[Page 924]]

a prompt, orderly liquidation that will provide maximum recovery. Within 
30 days after a decision to liquidate, the lender must submit a written, 
proposed plan of liquidation to the Agency for approval. The liquidation 
plan must be detailed and include at least the following:
    (1) Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan promissory note and related security 
instruments and a copy of the payment ledger, if available, that 
reflects the current loan balance, accrued interest to date, and the 
method of computing the interest;
    (2) A full and complete list of all collateral, including any 
personal and corporate guarantees;
    (3) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including recommended action for acquiring and disposing of all 
collateral and collecting from guarantors;
    (4) Necessary steps for preservation of the collateral;
    (5) Copies of the borrower's most recently available financial 
statements;
    (6) Copies of each guarantor's most recently available financial 
statements;
    (7) An itemized list of estimated liquidation expenses expected to 
be incurred along with justification for each expense;
    (8) A schedule to periodically report to the Agency on the progress 
of liquidation, not to exceed every 60 days;
    (9) Estimated protective advance amounts with justification;
    (10) Proposed protective bid amounts on collateral to be sold at 
auction and a breakdown to show how the amounts were determined. A 
protective bid may be made by the lender, with prior Agency written 
approval, at a foreclosure sale to protect the lender's and the Agency's 
interest. The protective bid will not exceed the amount of the loan, 
including expenses of foreclosure, and must be based on the liquidation 
value considering estimated expenses for holding and reselling the 
property. These expenses include, but are not limited to, expenses for 
resale, interest accrual, length of time necessary for resale, 
maintenance, guard service, weatherization, and prior liens;
    (11) If a voluntary conveyance is considered, the proposed amount to 
be credited to the guaranteed debt;
    (12) Legal opinions, if needed by the lender's legal counsel; and
    (13) An estimate of fair market and potential liquidation value of 
the collateral. If the value of the collateral is $250,000 or more, the 
lender must obtain an independent appraisal report meeting the 
requirements of Sec. 4279.144 of this chapter for the collateral 
securing the loan, which reflects the fair market value and potential 
liquidation value. For collateral values under this threshold, lenders 
must follow their primary regulator's policies relating to appraisals 
and evaluations or, if the lender is not regulated, normal banking 
practices and generally accepted methods of determining value. The 
liquidation appraisal of the collateral must evaluate the impact on 
market value of any release of hazardous substances, petroleum products, 
or other environmental hazards. The independent appraiser's fee, 
including the cost of the environmental site assessment, will be shared 
equally by the Agency and the lender. In order to assure prompt action, 
the liquidation plan can be submitted with an estimate of collateral 
value, and the liquidation plan may be approved by the Agency subject to 
the results of the final liquidation appraisal.
    (d) Approval of liquidation plan. The lender's liquidation plan must 
be approved by the Agency in writing. The lender and Agency must attempt 
to resolve any Agency concerns. If the liquidation plan is approved by 
the Agency, the lender must proceed expeditiously with liquidation and 
must take all legal action necessary to liquidate the loan in accordance 
with the approved liquidation plan. The lender must update or modify the 
liquidation plan when conditions warrant, including a change in value 
based on a liquidation appraisal. If the liquidation plan is not 
approved by the Agency, the lender must take such actions that a 
reasonably prudent lender would take without a guarantee and keep the 
Agency informed in writing. The lender

[[Page 925]]

must continue to develop a liquidation plan in accordance with this 
section.
    (e) Acceleration. The lender will proceed to accelerate the 
indebtedness as expeditiously as possible when acceleration is 
necessary, including giving any notices and taking any other legal 
actions required. The guaranteed loan will be considered in liquidation 
once the loan has been accelerated and a demand for payment has been 
made upon the borrower. The lender must obtain Agency concurrence prior 
to the acceleration of the loan if the sole basis for acceleration is a 
nonmonetary default. In the case of monetary default, prior approval by 
the Agency of the lender's acceleration is not required, although Agency 
concurrence must still be given not later than at the time the 
liquidation plan is approved. The lender will provide a copy of the 
acceleration notice or other acceleration document to the Agency.
    (f) Filing an estimated loss claim. When the lender owns any of the 
guaranteed portion of the loan, the lender must file an estimated loss 
claim once a decision has been made to liquidate if the liquidation is 
expected to exceed 90 days. The estimated loss payment will be based on 
the liquidation value of the collateral. For the purpose of reporting 
and loss claim computation, for loans closed on or after August 2, 2016, 
the guarantee will not cover note interest to the lender accruing after 
90 days from the most recent delinquency effective date. The Agency will 
promptly process the loss claim in accordance with applicable Agency 
regulations as set forth in Sec. 4287.158.
    (g) Accounting and reports. The lender must account for funds during 
the period of liquidation and must, in accordance with the Agency-
approved liquidation plan, provide the Agency with reports on the 
progress of liquidation including disposition of collateral, resulting 
costs, and additional procedures necessary for successful completion of 
the liquidation.
    (h) Transmitting payments and proceeds to the Agency. When the 
Agency is the holder of a portion of the guaranteed loan, the lender 
must transmit to the Agency its pro rata share of any payments received 
from the borrower, liquidation, or other proceeds using Form RD 1980-43, 
``Lender's Guaranteed Loan Payment to Rural Development.''
    (i) Abandonment of collateral. When the lender adequately documents 
that the cost of liquidation would exceed the potential recovery value 
of certain collateral and receives Agency concurrence, the lender may 
abandon that collateral. When the lender makes a recommendation for 
abandonment of collateral, it must comply with 7 CFR part 1970, 
``Environmental Policies and Procedures.''
    (j) Personal or corporate guarantees. The lender must take action to 
maximize recovery from all personal and corporate guarantees, including 
seeking deficiency judgments when there is a reasonable chance of future 
collection.
    (k) Compromise settlement. Compromise settlements must be approved 
by the lender and the Agency. Complete current financial information on 
all parties obligated for the loan must be provided. At a minimum, the 
compromise settlement must be equivalent to the value and timeliness of 
that which would be received from attempting to collect on the 
guarantee. The guarantor cannot be released from liability until the 
full amount of the compromise settlement has been received. In weighing 
whether the compromise settlement should be accepted, among other 
things, the Agency will weigh whether the comparison is more financially 
advantageous than collecting on the guarantee.
    (l) Litigation. In all litigation proceedings involving the 
borrower, the lender is responsible for protecting the rights of the 
lender and the Agency with respect to the loan and keeping the Agency 
adequately and regularly informed, in writing, of all aspects of the 
proceedings. If the Agency determines that the lender is not adequately 
protecting the rights of the lender or the Agency with respect to the 
loan, the Agency reserves the right to take any legal action the Agency 
determines necessary to protect the rights of the lender, on behalf of 
the lender, or the Agency with respect to the loan. If the Agency 
exercises this right, the lender must cooperate with the Agency. Any 
cost to the Agency associated

[[Page 926]]

with such action will be assessed against the lender.



Sec. 4287.158  Determination of loss and payment.

    Unless the Agency anticipates a future recovery, the Agency will 
make a final settlement with the lender after the collateral is 
liquidated or after settlement and compromise of all parties has been 
completed. The Agency has the right to recover losses paid under the 
guarantee from any party that may be liable.
    (a) Report of loss form. Form RD 449-30, ``Loan Note Guarantee 
Report of Loss,'' will be used for reporting and calculating all 
estimated and final loss determinations.
    (b) Estimated loss. In accordance with the requirements of Sec. 
4287.157(f), the lender must prepare an estimated loss claim, based on 
liquidation appraisal value, and submit it to the Agency. When the 
lender is conducting the liquidation and owns any or all of the 
guaranteed portion of the loan, the lender must file an estimated loss 
claim once a decision has been made to liquidate if the liquidation will 
exceed 90 days. The estimated loss payment will be based on the 
liquidation value of the collateral.
    (1) Such estimate will be prepared and submitted by the lender on 
Form RD 449-30 using the basic formula as provided on the report, except 
that the liquidation appraisal value will be used in lieu of the amount 
received from the sale of collateral. Interest accrual eligible for 
payment under the guarantee on the defaulted loan will be discontinued 
when the estimated loss is paid.
    (2) A protective advance claim will be paid only at the time of the 
final report of loss payment.
    (c) Final loss. Within 30 days after liquidation of all collateral 
is completed (except for certain unsecured personal or corporate 
guarantees as provided for in this section), the lender must prepare a 
final report of loss and submit it to the Agency. If the lender holds 
all or a portion of the guaranteed loan, the Agency will not guarantee 
interest to the lender accruing after 90 days from the most recent 
delinquency effective date. The Agency will not guarantee interest to 
any holder accruing after the greater of: 90 days from the date of the 
most recent delinquency effective date as reported by the lender or 30 
days from the date of the interest termination letter. Before approval 
by the Agency of any final loss report, the lender must account for all 
funds during the period of liquidation, disposition of the collateral, 
all costs incurred, and any other information necessary for the 
successful completion of liquidation. Upon receipt of the final 
accounting and report of loss, the Agency may audit all applicable 
documentation to determine the final loss. The lender must make its 
records available and otherwise assist the Agency in making any 
investigation. The documentation accompanying the report of loss must 
support the amounts reported as losses on Form RD 449-30.
    (1) The lender must make a determination regarding the 
collectability of unsecured personal and corporate guarantees. If 
reasonably possible, the lender must promptly collect or otherwise 
dispose of such guarantees in accordance with Sec. 4287.157(j) prior to 
completion of the final loss report. However, in the event that 
collection from the guarantors appears unlikely or will require a 
prolonged period of time, the lender must file the report of loss when 
all other collateral has been liquidated. Unsecured personal or 
corporate guarantees outstanding at the time of the submission of the 
final loss claim will be treated as a future recovery with the net 
proceeds to be shared on a pro rata basis by the lender and the Agency. 
Debts owed to the Agency (Federal debt) may be collected using DCIA 
authority. The Agency may consider a compromise settlement of Federal 
debt after it has processed a final report of loss and issued a 60 day 
due process letter. Any funds collected on Federal debt will not be 
shared with the lender.
    (2) The lender must document that all of the collateral has been 
accounted for and properly liquidated and that liquidation proceeds have 
been accounted for and applied correctly to the loan.
    (3) The lender must provide receipts and a breakdown of any 
protective advance amount as to the payee, purpose

[[Page 927]]

of the expenditure, date paid, and evidence that the amount expended was 
proper.
    (4) The lender must provide receipts and a breakdown of liquidation 
expenses as to the payee, purpose of the expenditure, date paid, and 
evidence that the amount expended was proper. Liquidation expenses are 
recoverable only from liquidation proceeds. The Agency may approve 
attorney/legal fees as liquidation expenses provided that the fees are 
reasonable, require the assistance of attorneys, and cover legal issues 
pertaining to the liquidation that could not be properly handled by the 
lender and its employees.
    (5) The lender must support accrued interest by documenting how the 
amount was accrued. If the interest rate was a variable rate, the lender 
must include documentation of changes in both the selected base rate and 
the loan rate.
    (6) The Agency will pay loss payments within 60 days after it has 
reviewed the complete final loss report and accounting of the 
collateral.
    (d) Loss limit. The amount payable by the Agency to the lender 
cannot exceed the limits set forth in the Loan Note Guarantee.
    (e) Liquidation expenses. The Agency will deduct liquidation 
expenses from the liquidation proceeds of the collateral. The lender 
cannot claim any liquidation expenses in excess of liquidation proceeds. 
Any changes to the liquidation expenses that exceed 10 percent of the 
amount proposed in the liquidation plan must be approved by the Agency. 
Reasonable attorney/legal expenses will be shared by the lender and 
Agency equally, including those instances where the lender has incurred 
such expenses from a trustee conducting the liquidation of assets. The 
lender cannot claim the guarantee fee or the annual renewal fee as 
authorized liquidation expenses, and no in-house expenses of the lender 
will be allowed. In-house expenses include, but are not limited to, 
employee's salaries, staff lawyers, travel, and overhead.
    (f) Rent. The lender must apply any net rental or other income that 
it receives from the collateral to the guaranteed loan debt.
    (g) Payment. Once the Agency approves Form RD 449-30 and supporting 
documents submitted by the lender:
    (1) If the loss is greater than any estimated loss payment, the 
Agency will pay the additional amount owed by the Agency to the lender.
    (2) If the loss is less than the estimated loss payment, the lender 
must reimburse the Agency for the overpayment plus interest at the note 
rate from the date of payment.



Sec. Sec. 4287.159-4287.168  [Reserved]



Sec. 4287.169  Future recovery.

    Unless notified otherwise by the Agency, after the final loss claim 
has been paid, the lender must use reasonable efforts to attempt 
collection from any party still liable on any loan that was guaranteed. 
Any net proceeds from that effort must be split pro rata between the 
lender and the Agency based on the percentage of guarantee. Any 
collection of Federal debt made by the United State from any liable 
party to the guaranteed loan will not be split with the lender.



Sec. 4287.170  Bankruptcy.

    (a) Lender's responsibilities. It is the lender's responsibility to 
protect the guaranteed loan and all of the collateral securing it in 
bankruptcy proceedings, including taking actions that result in greater 
recoveries and not taking actions that would not likely be cost-
effective. These responsibilities include, but are not limited to, the 
following:
    (1) Monitoring confirmed bankruptcy plans to determine borrower 
compliance, and, if the borrower fails to comply, seeking a dismissal of 
the bankruptcy plan;
    (2) Filing a proof of claim, where necessary, and all the necessary 
papers and pleadings concerning the case;
    (3) Attending and, where necessary, participating in meetings of the 
creditors and all court proceedings;
    (4) Requesting modifications of any bankruptcy plan whenever it 
appears that additional recoveries are likely; and
    (5) Keeping the Agency adequately and regularly informed in writing 
of all aspects of the proceedings.

[[Page 928]]

    (6) The lender must submit a default status report when the borrower 
defaults and every 30 days until the default is resolved or a final loss 
claim is paid by the Agency. The default status report will be used to 
inform the Agency of the bankruptcy filing, the plan confirmation date, 
when the plan is complete, and when the borrower is not in compliance 
with the plan.
    (7) With written Agency consent, the lender and Agency will equally 
share the cost of any independent appraisal fee to protect the 
guaranteed loan in any bankruptcy proceedings.
    (b) Reports of loss during bankruptcy. In bankruptcy proceedings, 
payment of loss claims will be made as provided in this section. 
Attorney/legal fees and protective advances as a result of a bankruptcy 
are only recoverable from liquidation proceeds.
    (1) Estimated loss payments. (i) If a borrower has filed for 
bankruptcy and all or a portion of the debt has been discharged, the 
lender must request an estimated loss payment of the guaranteed portion 
of the accrued interest and principal discharged by the court. Only one 
estimated loss payment is allowed during the bankruptcy. All subsequent 
claims of the lender during bankruptcy will be considered revisions to 
the initial estimated loss. A revised estimated loss payment may be 
processed by the Agency, at its option, in accordance with any court-
approved changes in the bankruptcy plan. Once the bankruptcy plan has 
been completed, the lender is responsible for submitting the 
documentation necessary for the Agency to review and adjust the 
estimated loss claim to reflect any actual discharge of principal and 
interest and to reimburse the lender for any court-ordered interest-rate 
reduction under the terms of the bankruptcy plan.
    (ii) The lender must use Form RD 449-30 to request an estimated loss 
payment and to revise any estimated loss payments during the course of 
the bankruptcy plan. The estimated loss claim, as well as any revisions 
to this claim, must be accompanied by documentation to support the 
claim.
    (iii) Upon completion of a bankruptcy plan, the lender must complete 
Form RD 1980-44 and forward it to the Agency.
    (iv) Upon completion of the bankruptcy plan, the lender must provide 
the Agency with the documentation necessary to determine whether the 
estimated loss paid equals the actual loss sustained. If the actual loss 
sustained as a result of the bankruptcy is less than the estimated loss, 
the lender must reimburse the Agency for the overpayment plus interest 
at the note rate from the date of payment of the estimated loss. If the 
actual loss is greater than the estimated loss payment, the lender must 
submit a revised estimated loss claim in order to obtain payment of the 
additional amount owed by the Agency to the lender.
    (2) Bankruptcy loss payments. (i) The lender must request a 
bankruptcy loss payment of the guaranteed portion of the accrued 
interest and principal discharged by the court for all bankruptcies when 
all or a portion of the debt has been discharged. Unless a court 
approves a subsequent change to the bankruptcy plan that is adverse to 
the lender, only one bankruptcy loss payment is allowed during the 
bankruptcy. Once the court has discharged all or part of the guaranteed 
loan and any appeal period has run, the lender must submit the 
documentation necessary for the Agency to review and adjust the 
bankruptcy loss claim to reflect any actual discharge of principal and 
interest.
    (ii) The lender must use Form RD 449-30 to request a bankruptcy loss 
payment and to revise any bankruptcy loss payments during the course of 
the bankruptcy. The lender must include with the bankruptcy loss claim 
documentation to support the claim, as well as any revisions to this 
claim.
    (iii) Upon completion of a bankruptcy plan, restructure, or 
liquidation, the lender must either complete Form RD 1980-44 and forward 
it to the Agency or enter the data directly into LINC.
    (iv) If an estimated loss claim is paid during a bankruptcy and the 
borrower repays in full the remaining balance without an additional loss 
sustained by the lender, a final report of loss is not necessary.

[[Page 929]]

    (3) Interest rate losses as a result of bankruptcy reorganization. 
(i) For guaranteed loans closed prior to August 2, 2016:
    (A) Interest losses sustained during the period of the bankruptcy 
plan will be processed in accordance with paragraph (b)(1) of this 
section.
    (B) Interest losses sustained after the bankruptcy plan is confirmed 
will be processed annually when the lender sustains a loss as a result 
of a permanent interest rate reduction that extends beyond the period of 
the bankruptcy plan.
    (C) If a bankruptcy loss claim is paid during the operation of the 
bankruptcy plan and the borrower repays in full the remaining balance 
without an additional loss sustained by the lender, a final report of 
loss is not necessary.
    (ii) For guaranteed loans closed on or after August 2, 2016, the 
Agency will not compensate the lender for any difference in the interest 
rate specified in the Loan Note Guarantee and the rate of interest 
specified in the bankruptcy plan.
    (4) Final bankruptcy loss payments. The Agency will process final 
bankruptcy loss payments when the loan is fully liquidated.
    (5) Application of loss claim payments. The lender must apply 
estimated loss payments first to the unsecured principal of the 
guaranteed portion of the debt and then to the unsecured interest of the 
guaranteed portion of the debt. In the event a court attempts to direct 
the payments to be applied in a different manner, the lender must 
immediately notify the Agency in writing.
    (6) Protective advances. If approved protective advances, as 
authorized by Sec. 4287.156, were incurred in connection with the 
initiation of liquidation action and were required to provide repairs, 
insurance, etc., to protect the collateral as a result of delays in the 
case of failure of the borrower to maintain the security prior to the 
borrower having filed bankruptcy, the protective advances together with 
accrued interest, are payable under the guarantee in the final loss 
claim.
    (c) Expenses during bankruptcy proceedings. (1) Under no 
circumstances will the guarantee cover liquidation expenses in excess of 
liquidation proceeds.
    (2) Expenses, such as reasonable attorney/legal fees and the cost of 
appraisals incurred by the lender as a direct result of the borrower's 
bankruptcy filing, are considered liquidation expenses. Liquidation 
expenses must be reasonable, customary, and provide a demonstrated 
economic benefit to the lender and the Agency. Lender's in-house 
expenses, which are those expenses that would normally be incurred for 
administration of the loan, including in-house lawyers, are not covered 
by the guarantee. Liquidation expenses must be deducted from collateral 
sale proceeds. The lender and Agency will share liquidation expenses 
equally. To accomplish this, the lender will deduct 50 percent of the 
liquidation expenses from the collateral sale proceeds.
    (3) When a bankruptcy proceeding results in a liquidation of the 
borrower by a bankruptcy trustee, expenses will be handled as directed 
by the court, and the lender cannot claim liquidation expenses for the 
sale of the assets.
    (4) If the property is abandoned by the bankruptcy trustee and any 
relief from the stay has been obtained, the lender will conduct the 
liquidation in accordance with Sec. 4287.157.
    (5) Proceeds received from the partial sale of collateral during 
bankruptcy may be used by the lender to pay reasonable costs associated 
with the partial sale, such as freight, labor, and sales commissions. 
Reasonable use of proceeds for this purpose must be documented with the 
final loss claim.
    (6) Reasonable and customary liquidation expenses in bankruptcy may 
be deducted from liquidation proceeds of collateral.

[81 FR 36020, June 3, 2016, as amended at 81 FR 54477, Aug. 16, 2016]



Sec. Sec. 4287.171-4287.179  [Reserved]



Sec. 4287.180  Termination of guarantee.

    The Loan Note Guarantee will terminate under any of the following 
conditions:
    (a) Upon full payment of the guaranteed loan;
    (b) Upon full payment of any loss obligation; or

[[Page 930]]

    (c) Upon written notice from the lender to the Agency that the 
guarantee will terminate 30 days after the date of notice, provided that 
the lender holds all of the guaranteed portion and the Loan Note 
Guarantee is returned to the Agency to be canceled.



Sec. Sec. 4287.181-4287.199  [Reserved]



Sec. 4287.200  OMB control number.

    In accordance with the Paperwork Reduction Act of 1995, the 
information collection requirements contained in this rule have been 
submitted to the Office of Management and Budget (OMB) under OMB Control 
Number 0570-0069 for OMB approval.



   Subpart D_Servicing Biorefinery, Renewable Chemical, and Biobased 
                Manufacturing Assistance Guaranteed Loans

    Source: 80 FR 36447, June 24, 2015, unless otherwise noted.



Sec. 4287.301  Introduction.

    (a) This subpart supplements 7 CFR part 4279, subpart C by providing 
additional requirements and instructions for servicing and liquidating 
all loans guaranteed under 7 CFR part 4279, subpart C.
    (b) The Lender is responsible for servicing the entire loan and will 
remain mortgagee and secured party of record notwithstanding the fact 
that another party may hold a portion of the loan. The entire loan must 
continue to be secured by the same security with equal lien priority for 
the guaranteed and unguaranteed portions of the loan. The unguaranteed 
portion of a loan will neither be paid first nor given any preference or 
priority over the guaranteed portion of the loan.
    (c) All loan servicing actions under this subpart, except for those 
identified in Sec. 4287.307(a) through (g), are subject to Agency 
concurrence. Whether specifically stated or not, whenever Agency 
approval is required, it must be in writing. Whenever Agency approval is 
required, such servicing action must be for Good Cause.
    (d) Copies of all forms, regulations, and Instructions referenced in 
this subpart may be obtained from any Agency office and from the USDA 
Rural Development Web site at http://www.rd.usda.gov/ programs-services/ 
biorefinery-assistance -program. Whenever a form is designated in this 
subpart, that designation includes predecessor and successor forms, if 
applicable, as specified by the Agency.



Sec. 4287.302  Definitions.

    The definitions and abbreviations contained in Sec. 4279.202 of 
this chapter apply to this subpart.



Sec. 4287.303  Exception authority.

    The Administrator may, with the concurrence of the Secretary of 
Agriculture, make an exception, on a case-by-case basis, to any 
requirement or provision of this subpart that is not inconsistent with 
any authorizing statute or applicable law, if the Administrator 
determines that application of the requirement or provision would 
adversely affect the Federal government's interest.



Sec. Sec. 4287.304-4287.305  [Reserved]



Sec. 4287.306  Appeals.

    Borrowers, Lenders, and Holders have appeal or review rights for 
Agency decisions made under this subpart. Programmatic decisions based 
on clear and objective statutory or regulatory requirements are not 
appealable; however, such decisions are reviewable for appealability by 
the National Appeals Division (NAD). The Borrower, Lender, and Holder 
can appeal any Agency decision that directly and adversely impacts them. 
For an adverse decision that impacts the Borrower, the Lender and 
Borrower must jointly execute a written request for appeal for an 
alleged adverse decision made by the Agency. An adverse decision that 
only impacts the Lender may be appealed by the Lender only. An adverse 
decision that only impacts the Holder may be appealed by the Holder 
only. A decision by a Lender adverse to the interest of the Borrower is 
not a decision by the Agency, whether or not concurred in by the Agency. 
Appeals will be conducted by NAD and will be handled in accordance with 
7 CFR part 11.

[[Page 931]]



Sec. 4287.307  Routine servicing.

    The Lender is responsible for servicing the entire loan and for 
taking all servicing actions that a reasonable Lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The 
guarantee is unenforceable by the Lender to the extent any loss is 
occasioned by violation of usury laws, use of loan funds for 
unauthorized purposes, Negligent Loan Servicing or Grossly Negligent 
Loan Servicing as established in the Loan Note Guarantee, or failure to 
maintain the required security interest regardless of the time at which 
the Agency acquires knowledge of the foregoing. The Lender may contract 
for services and may rely on certain written materials (including but 
not limited to certifications, evaluations, appraisals, financial 
statements and other reports) to be provided by the Borrower or other 
qualified third parties (including, among others, one or more 
independent engineers, appraisers, accountants, consultants or other 
experts) but is ultimately responsible for underwriting, loan 
origination, loan servicing, and compliance with all Agency regulations. 
The Lender's Agreement is the contractual agreement between the Lender 
and the Agency that sets forth some of the Lender's loan servicing 
responsibilities. This responsibility includes but is not limited to 
periodic Borrower visits, the collection of payments, obtaining 
compliance with the covenants and provisions in the Loan Agreement, 
obtaining and analyzing financial statements, ensuring payment of taxes 
and insurance premiums, and maintaining liens on Collateral, and keeping 
an inventory accounting of all Collateral items and reconciling the 
inventory of all Collateral sold during loan servicing, including 
liquidation.
    (a) Periodic reports. Each Lender must submit reports by the end of 
each Calendar Quarter, unless more frequent ones are needed as 
determined by the Agency to meet the financial interests of the United 
States, regarding the condition of its Agency guaranteed loan portfolio 
(including Borrower status and Loan Classification) and any Material 
Adverse Change in the general financial condition of the Borrower since 
the last report was submitted. The Lender must report the outstanding 
principal and Interest balance and the current Loan Classification on 
each guaranteed loan using either the USDA Lender Interactive Network 
Connection (LINC) system or Form RD 1980-41, ``Guaranteed Loan Status 
Report.''
    (b) Default reports. Lenders must submit monthly Default reports, 
including Borrower payment history, for each loan in monetary Default 
using a form approved by the Agency.
    (c) Annual Renewal Fee. The Lender must transmit the Annual Renewal 
Fee to the Agency in accordance with Sec. 4279.231(b) of this chapter 
calculated based on the December 31 loan status report.
    (d) Agency and Lender conference. At the Agency's request, the 
Lender must consult with the Agency to ascertain how the guaranteed loan 
is being serviced and that the conditions and covenants of the Loan 
Agreement are being enforced.
    (e) Borrower Financial reports. The Lender must obtain, analyze, and 
forward to the Agency the Borrower's and any guarantor's financial 
statements required by the Loan Agreement within 45 days of the end of 
each Calendar Quarter and audited financial statements within 180 days 
of the end of the Borrower's fiscal year. The Lender must analyze these 
financial statements and provide the Agency with a written summary of 
the Lender's analysis, ratio analysis, and conclusions, which, at a 
minimum, must include trends, strengths, weaknesses, extraordinary 
transactions, violations of loan covenants and covenant waivers proposed 
by the Lender, any routine servicing actions performed, and other 
indications of the financial condition of the Borrower. Spreadsheets of 
the financial statements must also be included. Following the Agency's 
review of the Lender's financial analysis, the Agency will provide a 
written report of any concerns to the Lender. Any concerns based upon 
the Agency's review must be addressed by the Lender. If the Lender makes 
a reasonable attempt to obtain financial statements, but is unable to 
obtain the Borrower's cooperation, the failure to obtain financial

[[Page 932]]

statements will not impair the validity of the Loan Note Guarantee.
    (f) Audits. Any Public Body, nonprofit corporation or Indian Tribe 
that receives a guaranteed loan that meets the thresholds established by 
2 CFR part 200, subpart F, must provide an audit for the fiscal year (of 
the borrower) in which the Loan Note Guarantee is issued. If the loan is 
for development or purchases made in a previous fiscal year through 
interim financing, an audit will also be provided for the fiscal year in 
which the development or purchases occurred. Any audit provided by a 
Public Body, nonprofit corporation, or Indian Tribe in accordance with 
this paragraph (f) will be considered adequate to meet the audit 
requirements of the Program for that year.
    (g) Protection of Agency interests. If the Agency determines that 
the Lender is not in compliance with its servicing responsibilities, the 
Agency reserves the right to take any action the Agency determines 
necessary to protect the Agency's interests with respect to the loan. If 
the Agency exercises this right, the Lender must cooperate with the 
Agency to rectify the situation. In determining any loss, the Agency 
will assess against the Lender any cost to the Agency associated with 
such action.
    (h) Additional loans. The Lender must notify the Agency in writing 
when the Lender makes any additional expenditures or new loans to the 
Borrower. The Lender may make additional expenditures or new loans to a 
Borrower with an outstanding loan guaranteed only with prior written 
Agency approval. The Agency will only approve additional expenditures or 
new loans where the expenditure or loan will not violate one or more of 
the loan covenants of the Borrower's Loan Agreement. Any additional 
expenditure or loan made by the Lender must be junior in priority to the 
BAP loan guaranteed under 7 CFR part 4279 except for Working Capital 
loans for which the Agency may consider a subordinate lien provided it 
is consistent with the conditional provisions specified in Sec. 
4279.235(a) of this chapter and in Sec. 4287.323.



Sec. Sec. 4287.308-4287.311  [Reserved]



Sec. 4287.312  Interest rate changes.

    (a) Reductions. The Borrower, Lender, and Holder (if any) may 
collectively initiate a permanent or temporary reduction in the Interest 
rate of the guaranteed loan at any time during the life of the loan upon 
written agreement among these parties. The Lender must obtain prior 
Agency concurrence and must provide a copy of the modification agreement 
to the Agency. If any of the guaranteed portion has been purchased by 
the Agency, the Agency (as a Holder) will affirm or reject Interest rate 
change proposals in writing.
    (1) Fixed rates can be changed to variable rates to reduce the 
Borrower's Interest rate only when the variable rate has a ceiling which 
is less than or equal to the original fixed rate.
    (2) The Interest rates, after adjustments, must comply with the 
requirements for Interest rates on new loans as established by Sec. 
4279.233 of this chapter.
    (3) The Lender is responsible for the legal documentation of 
Interest rate changes by an endorsement or any other legally effective 
amendment to the Promissory Note; however, no new Promissory Notes may 
be issued. The Lender must provide copies of all legal documents to the 
Agency.
    (b) Increases. Increases in fixed Interest rates and increases in 
variable rate basis are not permitted (except the normal fluctuations in 
approved variable Interest rates), unless a temporary Interest rate 
reduction occurred. Any increase in rates must be for Good Cause.



Sec. 4287.313  Release of Collateral.

    The Lender must inspect the Collateral as often as necessary to 
properly service the loan. The Agency must give prior written approval 
for the release of Collateral, except as specified in paragraph (a) of 
this section or where the release of Collateral is made of Collateral 
under the abundance of caution provision of the applicable security 
agreement, subject to the provisions of paragraph (c) of this section. 
Appraisals on the Collateral being released are required on all 
transactions exceeding $250,000 and will be at the expense of

[[Page 933]]

the Borrower. The appraisal must meet the requirements of Sec. 4279.244 
of this chapter. The sale or release of Collateral must be based on an 
Arm's Length Transaction, unless otherwise approved by the Agency in 
writing.
    (a) Within the parameters of paragraph (c) of this section, Lenders 
may, over the life of the guaranteed loan, release Collateral (other 
than personal and corporate guarantees) with a cumulative value of up to 
20 percent of the original loan amount without Agency concurrence if the 
proceeds generated are used to reduce the guaranteed loan or to buy 
replacement Collateral. Working assets, such as accounts receivable, 
inventory, and work-in-progress that are routinely depleted or sold and 
the proceeds used for the normal course of business operations, may be 
used in and released for routine business purposes without prior 
concurrence of the Agency as long as the loan has not been accelerated.
    (b) If a release of Collateral does not meet the requirements of 
paragraph (a) of this section, the Lender must complete a written 
evaluation to justify the release and must obtain written Agency 
concurrence in advance of the release.
    (c) The Lender must support all releases of Collateral with a value 
exceeding $250,000 with a current appraisal on the Collateral being 
released. The appraisal must meet the requirements of Sec. 4279.244 of 
this chapter. The cost of this appraisal will not be paid for by the 
Agency. The Agency may, at its discretion, require an appraisal of the 
remaining Collateral in cases where it has been determined that the 
Agency may be adversely affected by the release of Collateral. The sale 
or release of the Collateral must be at Fair Market Value based on an 
Arm's Length Transaction, and there must be adequate consideration for 
the release of Collateral. Such consideration may include, but is not 
limited to:
    (1) Application of the net proceeds from the sale of Collateral to 
the Borrower's debts in order of their lien priority in the sold 
Collateral;
    (2) Use of the net proceeds from the sale of Collateral to purchase 
other Collateral of equal or greater value which the Lender will obtain 
as security for the benefit of the guaranteed loan with a lien position 
equal or superior to the position previously held;
    (3) Application of the net proceeds from the sale of Collateral to 
the Borrower's business operation in such a manner that a significant 
improvement to the Borrower's debt service ability is clearly 
demonstrated. The Lender's written request must detail how the 
Borrower's debt service ability will be improved; and
    (4) Assurance that the release of Collateral is essential for the 
success of the business, thereby furthering the goals of the Program. 
Such assurance must be supported by written documentation from the 
Lender acceptable to the Agency.
    (d) Any release of Collateral must not adversely affect the 
Project's operation or financial condition.



Sec. Sec. 4287.314-4287.322  [Reserved]



Sec. 4287.323  Subordination of lien position.

    A Subordination of the Lender's lien position must be requested in 
writing by the Lender and concurred with in writing by the Agency in 
advance of the Subordination. The Lender's Subordination proposal must 
include a financial analysis of the servicing action and be fully 
supported by current financial statements of the Borrower and guarantors 
that are less than 90 days old.
    (a) The Subordination of the Lender's lien position must enhance the 
Borrower's business and be in the best financial interest of the Agency.
    (b) The lien to which the guaranteed loan is subordinated is for a 
fixed dollar limit and for a fixed term after which the guaranteed loan 
lien priority will be restored. Notwithstanding, a Subordination of lien 
position on inventory and accounts receivable may be made to a line of 
credit.
    (c) Collateral must remain sufficient to provide for adequate 
Collateral coverage. The Agency may require a current independent 
appraisal in accordance with Sec. 4279.244 of this chapter.

[[Page 934]]

    (d) Lien priorities must remain for the portion of the loan 
Collateral that was not subordinated.
    (e) Subordination of the Lender's lien position must be for Good 
Cause.



Sec. 4287.324  Alterations of loan instruments.

    The Lender must neither alter nor approve any alterations or 
modifications of any loan instrument without the prior written approval 
of the Agency.



Sec. Sec. 4287.325-4287.333  [Reserved]



Sec. 4287.334  Transfer and Assumption.

    The Lender may request a Transfer and Assumption of a guaranteed 
loan when the total indebtedness, or less than the total indebtedness, 
is assumed by another Borrower. If the assumption is for less than the 
total indebtedness of the guaranteed loan, the Transfer and Assumption 
must be an Arm's Length Transaction and the transfer must be of all loan 
Collateral. In the event of Default of the guaranteed loan, a Transfer 
and Assumption of the Borrower's operation and guaranteed loan can be 
accomplished before or after the loan goes into liquidation. However, if 
the Collateral has been purchased through foreclosure or the Borrower 
has conveyed title to the Lender, no Transfer and Assumption is 
permitted.
    (a) Documentation of request. All Transfers and Assumptions cannot 
be conducted unless the Agency gives prior written approval. An 
individual credit report must be provided for transferee and its 
partners, officers, directors, and stockholders with 20 percent or more 
interest in the business, along with such other documentation as the 
Agency may request to determine eligibility and credit worthiness. The 
new Borrower must sign Form RD 4279-1.
    (b) Terms. Loan terms may be changed for Transfer and Assumptions to 
eligible Borrowers continuing the Project for eligible purposes with the 
concurrence of the Agency, all Holders, and the transferor (including 
guarantors). If the transferor has been or will be released from 
liability, the transferor's concurrence is not required. Any new loan 
terms must be within the terms authorized by Sec. 4279.234 of this 
chapter and must be for Good Cause.
    (c) Release of liability. The transferor, including any guarantor, 
may be released from liability only with prior Agency written 
concurrence when the Transfer and Assumption is an Arm's Length 
Transaction and:
    (1) The assumption is for the full amount of the loan and all of the 
loan Collateral is transferred to the transferee; or
    (2) The assumption is for less than the full amount of the loan, all 
of the loan Collateral is transferred to the transferee, and the Lender 
demonstrates to the Agency that the transferor and guarantors have no 
reasonable debt-paying ability considering their assets and income in 
the foreseeable future.
    (d) Proceeds. The Lender must credit any proceeds received from the 
sale of Collateral before a Transfer and Assumption to the transferor's 
guaranteed loan debt in order of lien priority before the Transfer and 
Assumption are closed.
    (e) Additional loans. Guaranteed loans to provide additional funds 
in connection with a Transfer and Assumption must be considered a new 
loan application, which requires submission of a complete Agency 
application in accordance with Sec. Sec. 4279.260 and 4279.261 of this 
chapter.
    (f) Credit quality. The Lender must make a complete credit analysis 
in accordance with Sec. 4279.215 of this chapter.
    (g) Appraisals. If the proposed Transfer and Assumption is for the 
full amount of the Agency guaranteed loan and all loan Collateral, the 
Agency will not require an appraisal. If the proposed Transfer and 
Assumption is for less than the full amount of the Agency guaranteed 
loan, the Agency will require an appraisal on all of the Collateral 
being transferred, and the amount of the assumption must not be less 
than this appraised value. The Lender is responsible for obtaining this 
appraisal, which must conform to the requirements of Sec. 4279.244 of 
this chapter. The Agency will not pay the appraisal fee or any other 
costs associated with this transfer.

[[Page 935]]

    (h) Documents. Prior to Agency approval, the Lender must provide the 
Agency a written legal opinion that the transaction can be properly and 
legally transferred and assurance that the conveyance instruments will 
be appropriately filed, registered, and recorded.
    (1) The Lender must not issue any new Promissory Notes. The 
assumption must be completed in accordance with applicable law and must 
contain the Agency case number of the transferor and transferee. The 
Lender will provide the Agency with a copy of the Transfer and 
Assumption agreement. The Lender must ensure that all Transfers and 
Assumptions are noted on all original Loan Note Guarantees.
    (2) A new Loan Agreement, consistent in principle with the original 
Loan Agreement, must be executed to establish the terms and conditions 
of the loan being assumed. An assumption agreement can be used to 
establish the loan covenants.
    (3) Upon execution of the Transfer and Assumption, the Lender must 
provide the Agency with a written legal opinion that the Transfer and 
Assumption is completed, valid, enforceable, and certification that the 
Transfer and Assumption is consistent with the conditions outlined in 
the Agency's conditions of approval for the transfer and complies with 
all Agency regulations.
    (i) Loss resulting from transfer. (1) Any resulting loss must be 
processed in accordance with Sec. 4287.358.
    (2) If a Holder owns any of the guaranteed portion, such portion 
must be repurchased by the Lender or the Agency in accordance with Sec. 
4279.225 of this chapter.
    (j) Related party. If the transferor and transferee are Affiliates 
or related parties, any Transfer and Assumption must be to an eligible 
Borrower to continue the Project for eligible purposes, must transfer 
all of the loan Collateral, and must be for the full amount of the 
guaranteed loan indebtedness.
    (k) Cash down payment. The Lender may allow the transferee to make 
cash down payments directly to the transferor provided:
    (1) The Transfer and Assumption is made for the total indebtedness 
to an eligible Borrower to continue the Project for eligible purposes;
    (2) The Lender recommends that the cash be released, and the Agency 
concurs prior to the transaction being completed. The Lender may require 
that an amount be retained for a defined period of time as a reserve 
against future Defaults. Interest on such account may be paid 
periodically to the transferor or transferee as agreed;
    (3) The Lender determines that the transferee has the repayment 
ability to meet the obligations of the assumed guaranteed loan as well 
as any other indebtedness; and
    (4) Any payments by the transferee to the transferor will not 
suspend the transferee's obligations to continue to meet the guaranteed 
loan payments as they come due under the terms of the assumption.
    (l) Transfer/Annual Renewal Fees. (1) The Agency will charge a 
nonrefundable transfer fee at the time of transfer, which may be passed 
on to the Borrower by the Lender. The transfer fee rate will be equal to 
the rate of the guarantee fee authorized in Sec. 4279.231(a) of this 
chapter for the fiscal year in which the transfer occurs. The amount of 
the transfer fee is determined by multiplying the principal balance at 
the time of the transfer by the transfer fee rate by the percentage of 
guarantee on the original loan.
    (2) The Lender must pay any Annual Renewal Fee in accordance with 
Sec. 4279.231(b) of this chapter.
    (m) Change in control of Borrower. Transfer and Assumption shall be 
deemed to occur in the event of a change in the control of the Borrower.
    (n) Personal and corporate guarantees. Guarantees from owners are 
required in accordance with Sec. 4279.245 of this chapter.



Sec. 4287.335  Substitution of Lender.

    The Lender is prohibited from selling or transferring the entire 
loan without the prior written approval of the Agency. Because the Loan 
Note Guarantee is associated with a specific Promissory Note and cannot 
be transferred to a new Promissory Note, the Lender must transfer the 
original Promissory Note and loan security documents to

[[Page 936]]

the new Lender, who must agree to its current loan terms, including the 
Interest rate, secondary market Holder (if any), Collateral, Loan 
Agreement terms, and guarantors. The new Lender must also obtain the 
original Loan Note Guarantee, original personal and corporate 
guarantee(s), and the loan payment history from the transferor Lender. 
If the new Lender wishes to modify the loan terms after acquisition, the 
new Lender must submit a request to the Agency.
    (a) The Agency may approve the substitution of a new Lender if:
    (1) The proposed substitute Lender:
    (i) Is an eligible Lender in accordance with Sec. 4279.208 of this 
chapter;
    (ii) Is able to service the loan in accordance with the original 
loan documents; and
    (iii) Agrees to acquire title to the unguaranteed portion of the 
loan held by the original Lender and assumes all original loan 
requirements, including liabilities and servicing responsibilities; and
    (2) The substitution of the Lender is requested in writing by the 
Borrower, the proposed substitute Lender, and the original Lender if 
still in existence.
    (b) The Agency will not pay any loss or share in any costs (e.g., 
appraisal fees and environmental assessments) with a new Lender unless a 
relationship is established through a substitution of Lender in 
accordance with paragraph (a) of this section. This includes situations 
where a Lender is acquired by another Lender and situations where the 
Lender has failed and been taken over by a regulatory agency such as the 
Federal Deposit Insurance Corporation (FDIC) and the loan is 
subsequently sold to another Lender.
    (c) In cases when there is a substitution of Lender or when a Lender 
has been merged with or acquired by another Lender, the Agency and the 
new Lender must execute a new Lender's Agreement, unless a valid 
Lender's Agreement already exists with the new Lender.



Sec. 4287.336  Lender failure.

    (a) The acquiring Lender must comply with 7 CFR parts 4279, subpart 
C and 4287, subpart D and must take such action that a reasonable Lender 
would take if it did not have a Loan Note Guarantee to protect the 
Lender and Agency's mutual interest. The Lender cannot arbitrarily 
change the Lender's Agreement and related documents on the guaranteed 
loan, and the Agency will make the successor to the failed institution 
aware of the statutory and regulatory requirements.
    (b) In the event of a Default and the guaranteed loan is liquidated 
by the FDIC rather than being sold to another Lender, the Agency will 
pay losses and share in costs as if the FDIC were an approved new 
Lender.



Sec. Sec. 4287.337-4287.344  [Reserved]



Sec. 4287.345  Default by Borrower.

    The Lender's primary responsibilities in Default are to act 
reasonably and expeditiously, to work with the Borrower to bring the 
account current or cure the Default through restructuring if a realistic 
plan can be developed, or to accelerate the account and conduct a 
liquidation in a manner that will minimize any potential loss. The 
Lender may initiate liquidation in accordance with Sec. 4287.357.
    (a) The Lender must notify the Agency in writing when a Borrower is 
more than 30 days past due on a payment and the Delinquency cannot be 
cured within 30 days or when a Borrower is otherwise in Default of 
covenants in the Loan Agreement by submitting Form RD 1980-44, 
``Guaranteed Loan Borrower Default Status,'' or processing the Default 
Status report in LINC. The Lender must provide this notification to the 
Agency within 15 calendar days of when a Borrower is 30 days past due on 
a payment or is otherwise in Default of the Loan Agreement. The Lender 
must update the loan's status each month using either Form RD 1980-44 or 
the LINC Default Status report until such time as the loan is no longer 
in Default. If a monetary Default exceeds 60 days, the Lender must meet 
with the Agency and, if practical, the Borrower to discuss the 
situation.
    (b) In considering options, the prospects for providing a permanent 
cure without adversely affecting the risk to the Agency and the Lender 
are the paramount objective.

[[Page 937]]

    (1) Curative actions (subject to the rights of any Holder) include, 
but are not limited to:
    (i) Deferment of principal or Interest payments;
    (ii) An additional unguaranteed temporary loan by the Lender to 
bring the account current;
    (iii) Reamortization of or rescheduling the payments on the loan 
(subject to the rights of any Holder) excluding capitalization of 
accrued Interest;
    (iv) Transfer and Assumption of the loan in accordance with Sec. 
4287.334;
    (v) Reorganization;
    (vi) Liquidation; and
    (vii) Changes in Interest rates with the Agency's, the Lender's, and 
Holder's approval. Any Interest rate changes must be adjusted 
proportionately between the guaranteed and unguaranteed portion of the 
loan.
    (2) The term of any deferment, rescheduling, reamortization, or 
moratorium will be limited to the lesser of the remaining life of the 
Collateral or remaining limits as set forth in Sec. 4279.234 of this 
chapter (excluding paragraph (d)). Balloon payments are permitted as a 
loan servicing option as long as there is a reasonable prospect for 
success and the remaining life of the Collateral supports the action.
    (3) In the event of a loss or a repurchase, the Lender cannot claim 
Default or penalty Interest, late payment fees, or Interest on Interest.
    (c) Debt write-downs by the lender are prohibited when the Lender 
will continue with the Project loan, except as directed or ordered by a 
final court order.
    (d) In the event of a loss, the guarantee will not cover Interest to 
the Lender accruing after the Interest Termination Date.
    (e) For repurchases of guaranteed loans, refer to Sec. 4279.225 of 
this chapter.



Sec. Sec. 4287.346-4287.355  [Reserved]



Sec. 4287.356  Protective Advances.

    Protective Advances are advances made by the Lender for the purpose 
of preserving and protecting the Collateral where the Borrower has 
failed to, will not, or cannot meet its obligations. Lenders must 
exercise sound judgment in determining that the Protective Advance 
preserves Collateral and recovery is actually enhanced by making the 
advance. Lenders cannot make Protective Advances in lieu of additional 
loans. A Protective Advance claim will be paid only at the time of the 
final payment as indicated in the Guaranteed Loan Report of Loss.
    (a) The maximum loss to be paid by the Agency will never exceed the 
original loan amount plus accrued Interest times the percentage of 
guarantee regardless of any Protective Advances made.
    (b) In the event of a final loss, Protective Advances will accrue 
Interest at the Promissory Note rate and will be guaranteed at the same 
percentage of loss as provided in the Loan Note Guarantee. The guarantee 
will not cover Interest on the Protective Advance accruing after the 
Interest Termination Date.
    (c) Protective Advances must constitute an indebtedness of the 
Borrower to the Lender and be secured by the security instruments. 
Agency written authorization is required when the cumulative total of 
Protective Advances exceeds $200,000 or 10 percent of the outstanding 
balance of principal, whichever is less.



Sec. 4287.357  Liquidation.

    In the event of one or more incidents of Default or third party 
actions that the Borrower cannot or will not cure or eliminate within a 
reasonable period of time, the Lender, with Agency consent, must provide 
for liquidation.
    (a) Decision to liquidate. A decision to liquidate or proceed 
otherwise must be made when the Lender determines that the Default 
cannot be cured through actions such as those contained in Sec. 
4287.345, or it has been determined that it is in the best interest of 
the Agency and the Lender to liquidate. The decision to liquidate or 
proceed otherwise with the Borrower must be made as soon as possible 
when one or more of the following exist:
    (1) A loan is 90 days behind on any scheduled payment and the Lender 
and the Borrower have not been able to cure the Delinquency through 
actions such as those contained in Sec. 4287.345.

[[Page 938]]

    (2) It is determined that delaying liquidation will jeopardize full 
recovery on the loan.
    (3) The Borrower or Lender is uncooperative in resolving the problem 
or the Agency or Lender has reason to believe the Borrower is not acting 
in good faith, and immediate liquidation would minimize loss to the 
Agency.
    (b) Repurchase of loan. When the decision to liquidate is made, if 
any portion of the loan has been sold or assigned under Sec. 4279.223 
of this chapter and not already repurchased, provisions will be made for 
repurchase in accordance with Sec. 4279.225 of this chapter.
    (c) Lender's liquidation plan. The Lender is responsible for 
initiating actions immediately and as necessary to ensure a prompt, 
orderly liquidation that will provide maximum recovery. Within 30 days 
after a decision to liquidate, the Lender must submit a written, 
proposed plan of liquidation to the Agency for approval. The liquidation 
plan must be detailed and include at least the following:
    (1) Such proof as the Agency requires to establish the Lender's 
ownership of the guaranteed loan Promissory Note and related security 
instruments and a copy of the payment ledger, if available, that 
reflects the current loan balance, accrued Interest to date, and the 
method of computing the Interest;
    (2) A full and complete list of all Collateral, including any 
personal and corporate guarantees;
    (3) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including recommended action for acquiring and disposing of all 
Collateral and collecting from guarantors;
    (4) Necessary steps for preservation of the Collateral;
    (5) Copies of the Borrower's most recently available financial 
statements;
    (6) Copies of each guarantor's most recently available financial 
statements;
    (7) An itemized list of estimated Liquidation Expenses expected to 
be incurred along with justification for each expense;
    (8) A schedule to periodically report to the Agency on the progress 
of liquidation;
    (9) Estimated Protective Advance amounts with justification;
    (10) Proposed protective bid amounts on Collateral to be sold at 
auction and a breakdown to show how the amounts were determined. A 
protective bid may be made by the Lender, with prior Agency written 
approval, at a foreclosure sale to protect the Lender's and the Agency's 
interest. The protective bid will be based on the liquidation value and 
estimated net recovery considering prior liens and outstanding taxes, 
expenses of foreclosure, and estimated expenses for holding and 
reselling the property. These expenses include, but are not limited to, 
expenses for resale, Interest accrual, length of time necessary for 
resale, maintenance, guard service, weatherization, and prior liens;
    (11) If a voluntary conveyance is considered, the proposed amount to 
be credited to the guaranteed debt;
    (12) Legal opinions, if needed by the Lender's legal counsel; and
    (13) An estimate of Fair Market Value and potential liquidation 
value of the Collateral. If the value of the Collateral is $250,000 or 
more, the Lender must obtain an independent appraisal report meeting the 
requirements of Sec. 4279.244 of this chapter on the Collateral 
securing the loan, which reflects the Fair Market Value and potential 
liquidation value. The liquidation appraisal must evaluate the impact on 
Market Value of any release of hazardous substances, petroleum products, 
or other environmental hazards. The independent appraiser's fee, 
including the cost of the environmental site assessment, will be shared 
equally by the Agency and the Lender. In order to ensure prompt action, 
the liquidation plan can be submitted with an estimate of Collateral 
value, and the liquidation plan may be approved by the Agency subject to 
the results of the final liquidation appraisal.
    (d) Approval of liquidation plan. The Lender cannot implement its 
liquidation plan before obtaining written approval from the Agency. The 
Lender and Agency must attempt to resolve any Agency concerns.
    (1) If the liquidation plan is approved by the Agency, the Lender 
must proceed expeditiously with liquidation and

[[Page 939]]

must take all legal action necessary to liquidate the loan in accordance 
with the approved liquidation plan. The Lender must update or modify the 
liquidation plan when conditions warrant, including a change in value 
based on a liquidation appraisal.
    (2) Should the Agency and the Lender not agree on the liquidation 
plan, negotiations will take place between the Agency and the Lender to 
resolve the disagreement. The Lender must take such actions that a 
reasonable Lender would take without a guarantee and keep the Agency 
informed in writing. When the liquidation plan is approved by the 
Agency, the Lender will proceed expeditiously with liquidation.
    (e) Acceleration. The Lender will proceed to accelerate the 
indebtedness as expeditiously as possible when acceleration is 
necessary, including giving any notices and taking any other legal 
actions required. The guaranteed loan will be considered in liquidation 
once the loan has been accelerated and a demand for payment has been 
made upon the Borrower. The Lender must obtain from the Agency 
concurrence prior to the acceleration of the loan if the sole basis for 
acceleration is a nonmonetary Default. In the case of monetary Default, 
prior approval by the Agency of the Lender's acceleration is not 
required, although Agency concurrence must still be given not later than 
at the time the liquidation plan is approved. The Lender will provide a 
copy of the acceleration notice or other acceleration document to the 
Agency.
    (f) Filing an estimated loss claim. When the Lender owns any of the 
guaranteed portion of the loan, the Lender must file an estimated loss 
claim once a decision has been made to liquidate if the liquidation is 
expected to exceed 90 days. When calculating the estimated loss payment, 
the value of the Collateral must be based on its estimated net 
liquidation value. For the purpose of reporting and loss claim 
computation, the guarantee will not cover Interest to the Lender 
accruing after the Interest Termination Date. The Agency will promptly 
process the loss claim in accordance with applicable Agency regulations 
as set forth in Sec. 4287.358.
    (g) Accounting and reports. The Lender must account for funds during 
the period of liquidation and must, in accordance with the Agency-
approved liquidation plan, provide the Agency with reports on the 
progress of liquidation including disposition of Collateral, resulting 
costs, and additional procedures necessary for successful completion of 
the liquidation.
    (h) Transmitting payments and proceeds to the Agency. When the 
Agency is the Holder of a portion of the guaranteed loan, the Lender 
must transmit to the Agency within 14 calendar days its Pro Rata share 
of any payments received from the Borrower, liquidation, or other 
proceeds using Form RD 1980-43, ``Lender's Guaranteed Loan Payment to 
Rural Development.''
    (i) Abandonment of collateral. When the Lender adequately documents 
that the cost of liquidation would exceed the potential recovery value 
of certain Collateral and receives Agency concurrence, the Lender may 
abandon that Collateral. When the Lender makes a recommendation for 
abandonment of Collateral, it will be considered a servicing action 
under 7 CFR 1970.8(e), and will not require separate NEPA review.
    (j) Disposition of personal or corporate guarantees. The Lender must 
take action to maximize recovery from all personal and corporate 
guarantees, including seeking Deficiency Judgments when there is a 
reasonable chance of future collection.
    (k) Compromise settlement. Compromise settlements must be approved 
by the Lender and the Agency. Complete current financial information on 
all parties obligated for the loan must be provided. At a minimum, the 
compromise settlement must be equivalent to the value and timeliness of 
that which would be received from attempting to collect on the 
guarantee. The guarantor cannot be released from liability until the 
full amount of the compromise settlement has been received. In weighing 
whether the compromise settlement should be accepted, among other 
things, the Agency will weigh whether the compromise is more financially 
advantageous than collecting on the guarantee.
    (l) Litigation. In all litigation proceedings involving the 
Borrower, the Lender is responsible for protecting the rights of the 
Lender with respect to the

[[Page 940]]

loan and keeping the Agency adequately and regularly informed, in 
writing, of all aspects of the proceedings. If the Agency determines 
that the Lender is not adequately protecting the rights of the Lender or 
the Agency with respect to the loan, the Agency reserves the right to 
take any legal action the Agency determines necessary to protect the 
rights of the Lender, on behalf of the Lender, or the Agency with 
respect to the loan. If the Agency exercises this right, the Lender must 
cooperate with the Agency. Any cost to the Agency associated with such 
action will be assessed against the Lender.

[80 FR 36447, June 24, 2015, as amended at 81 FR 11053, Mar. 2, 2016]



Sec. 4287.358  Determination of loss and payment.

    Unless the Agency anticipates a Future Recovery, the Agency will 
make a final settlement with the Lender after the Collateral is 
liquidated and settlement and compromise of all parties has been 
completed. The Agency has the right to recover losses paid under the 
guarantee from any party that may be liable.
    (a) Report of loss form. Form RD 449-30, ``Guaranteed Loan Report of 
Loss,'' will be used for reporting and calculating all estimated and 
final loss determinations.
    (b) Estimated loss. In accordance with the requirements of Sec. 
4287.357(f), the Lender must prepare an estimated loss claim and submit 
it to the Agency.
    (1) Interest accrual eligible for payment under the guarantee on the 
Defaulted loan will be discontinued when the estimated loss is paid.
    (2) A Protective Advance claim will be paid only at the time of the 
final payment as indicated in the Guaranteed Loan Report of Loss.
    (3) The estimated loss payment is a payment to the Lender and is not 
to be applied as a payment on the loan for purposes of reducing the 
unpaid balance owed by the Borrower or for status reporting (semi-annual 
status/Default status reports).
    (c) Final loss. Except for certain unsecured personal or corporate 
guarantees as provided for in this section, the Lender must prepare a 
final Guaranteed Loan Report of Loss and submit it to the Agency within 
30 days after liquidation of all Collateral is completed. Interest will 
not be paid beyond the Interest Termination Date. Before approval by the 
Agency of any final loss report, the Lender must account for all funds 
during the period of liquidation, disposition of the Collateral, all 
costs incurred, and any other information necessary for the successful 
completion of liquidation. Upon receipt of the final accounting and 
Guaranteed Loan Report of Loss, the Agency may audit all applicable 
documentation to determine the final loss. The Lender must make its 
records available and otherwise assist the Agency in making any 
investigation. The documentation accompanying the Guaranteed Loan Report 
of Loss must support the amounts reported as losses on the Guaranteed 
Loan Report of Loss.
    (1) The Lender must make a determination regarding the 
collectability of unsecured personal and corporate guarantees. If 
reasonably possible, the Lender must promptly collect or otherwise 
dispose of such guarantees in accordance with Sec. 4287.357(j) prior to 
completion of the final loss report. However, in the event that 
collection from the guarantors appears unlikely or will require a 
prolonged period of time, the Lender must file the Guaranteed Loan 
Report of Loss when all other Collateral has been liquidated. Unsecured 
personal or corporate guarantees outstanding at the time of the 
submission of the final loss claim will be treated as a Future Recovery 
with the net proceeds to be shared on a Pro Rata basis by the Lender and 
the Agency. The Agency may consider a compromise settlement of Federal 
Debt after it has processed a final Guaranteed Loan Report of Loss and 
issued a 60 day due process letter. Any funds collected on Federal Debt 
will not be shared with the Lender.
    (2) The Lender must document that all of the Collateral has been 
accounted for and properly liquidated and liquidation proceeds have been 
accounted for and applied correctly to the loan.
    (3) The Lender must provide receipts and a breakdown of any 
Protective Advance amount as to the payee, purpose

[[Page 941]]

of the expenditure, date paid, and evidence that the amount expended was 
proper.
    (4) The Lender must provide receipts and a breakdown of Liquidation 
Expenses as to the payee, purpose of the expenditure, date paid, and 
evidence that the amount expended was proper. Liquidation Expenses are 
recoverable only from liquidation proceeds. The Agency may approve 
attorney/legal fees as Liquidation Expenses provided that the fees are 
reasonable, require the assistance of attorneys, and cover legal issues 
pertaining to the liquidation that could not be properly handled by the 
Lender and its employees.
    (5) The Lender must support accrued Interest by documenting how the 
amount was accrued. If the Interest rate was a variable rate, the Lender 
must include documentation of changes in both the selected base rate and 
the loan rate.
    (6) The Agency will pay loss payments within 60 days after it has 
reviewed the complete final loss report and accounting of the 
Collateral.
    (7) If a Lender receives a final loss payment and the Agency 
determines there is Future Recovery, the Lender must submit to the 
Agency an annual report on its collection activities for each 
unsatisfied account for 3 years following payment of the final loss 
claim.
    (d) Loss limit. The amount payable by the Agency to the Lender 
cannot exceed the limits set forth in the Loan Note Guarantee.
    (e) Liquidation Expenses. The Agency will deduct Liquidation 
Expenses from the liquidation proceeds of the Collateral. The Lender 
cannot claim any Liquidation Expenses in excess of liquidation proceeds. 
Any changes to the Liquidation Expenses that exceed 10 percent of the 
amount proposed in the liquidation plan must be approved by the Agency. 
Reasonable attorney/legal expenses will be shared by the Lender and 
Agency equally, including those instances where the Lender has incurred 
such expenses from a trustee conducting the liquidation of assets. The 
Lender cannot claim the guarantee fee or the Annual Renewal Fee as 
authorized Liquidation Expenses, and no In-House Expenses of the Lender 
will be allowed. In-House Expenses include, but are not limited to, 
employee's salaries, staff lawyers, travel, and overhead.
    (f) Rent. The Lender must apply any net rental or other income that 
it receives from the Collateral to the guaranteed loan debt.
    (g) Payment. Once the Agency approves the Guaranteed Loan Report of 
Loss and supporting documents submitted by the Lender:
    (1) If the loss is greater than any estimated loss payment, the 
Agency will pay the additional amount owed by the Agency to the Lender.
    (2) If the loss is less than the estimated loss payment, the Lender 
must reimburse the Agency for the overpayment plus Interest at the 
Promissory Note rate from the date of payment.



Sec. Sec. 4287.359-4287.368  [Reserved]



Sec. 4287.369  Future recovery.

    Unless notified otherwise by the Agency, after the final loss claim 
has been paid, the Lender must use reasonable efforts to attempt 
collection from any party still liable for Future Recovery. Any net 
proceeds from Future Recovery must be split Pro Rata between the Lender 
and the Agency based on the original amount of the loan guarantee. Any 
collection of Federal Debt made by the Federal Government from any 
liable party to the guaranteed loan will not be split with the Lender.



Sec. 4287.370  Bankruptcy.

    (a) Lender's responsibilities. It is the Lender's responsibility to 
protect the guaranteed loan and all of the Collateral securing it in 
bankruptcy and any related appellate proceedings. These responsibilities 
include, but are not limited to the following:
    (1) Monitoring confirmed bankruptcy plans to determine Borrower 
compliance, and, if the Borrower fails to comply, pursue appropriate 
relief;
    (2) Filing all the necessary papers and pleadings concerning the 
case, including where appropriate a proof of claim;
    (3) Attending and, where necessary, participating in meetings of the 
creditors and all court proceedings;

[[Page 942]]

    (4) Requesting modifications of any proposed bankruptcy plan 
whenever it appears that the Lender could obtain additional recoveries 
via plan modification;
    (5) Keeping the Agency adequately and regularly informed in writing 
of all aspects of the proceedings;
    (6) Submitting a Default status report within 15 days after the date 
when the Borrower Defaults and every 30 days thereafter until the 
Default is resolved or a final loss claim is paid by the Agency. The 
Default status report will be used to inform the Agency of the 
bankruptcy filing, the plan confirmation date, when the plan is 
complete, and when the Borrower is not in compliance with the plan; and
    (7) With written Agency consent, the Lender and Agency will equally 
share the cost of any independent appraisal fee to protect the 
guaranteed loan in any bankruptcy proceedings.
    (b) Reports of loss during bankruptcy. In bankruptcy proceedings, 
payment of loss claims will be made as provided in this section.
    (1) Estimated loss payments. (i) If a Borrower has filed for 
bankruptcy and all or a portion of the debt has been discharged, the 
Lender must request an estimated loss payment of the guaranteed portion 
of the accrued Interest and principal discharged by the court. Only one 
estimated loss payment is allowed during the bankruptcy and any related 
appellate proceedings. All subsequent claims of the Lender during 
bankruptcy and any related appellate proceedings will be considered 
revisions to the initial estimated loss. A revised estimated loss 
payment may be processed by the Agency, at its option, in accordance 
with any court-approved changes in the bankruptcy plan. Once the 
bankruptcy plan has been completed, the Lender is responsible for 
submitting the documentation necessary for the Agency to review and 
adjust the estimated loss claim to reflect any actual discharge of 
principal and Interest and to reimburse the Lender for any court-ordered 
Interest rate reduction under the terms of the bankruptcy plan.
    (ii) The Lender must use the Guaranteed Loan Report of Loss to 
request an estimated loss payment and to revise any estimated loss 
payments during the course of the bankruptcy plan. The estimated loss 
claim, as well as any revisions to this claim, must be accompanied by 
documentation to support the claim.
    (iii) Upon completion of a bankruptcy plan, the Lender must:
    (A) Complete a Form RD 1980-44 and forward this form to the Agency; 
and
    (B) Provide the Agency with the documentation necessary to determine 
whether the estimated loss paid equals the actual loss sustained.
    (1) If the actual loss sustained as a result of the bankruptcy is 
less than the estimated loss, the Lender must reimburse the Agency for 
the overpayment plus Interest at the Promissory Note rate from the date 
of payment of the estimated loss.
    (2) If the actual loss is greater than the estimated loss payment, 
the Lender must submit a revised estimated loss claim in order to obtain 
payment of the additional amount owed by the Agency to the Lender.
    (2) Bankruptcy loss payments. (i) The Lender must request a 
bankruptcy loss payment of the guaranteed portion of the accrued 
Interest and principal discharged by the court for all bankruptcies when 
all or a portion of the debt has been discharged. Unless a final court 
decree approves a subsequent change to the bankruptcy plan that is 
adverse to the Lender, only one bankruptcy loss payment is allowed 
during the bankruptcy. Once a final court decree has discharged all or 
part of the guaranteed loan and any appeal period has run, the Lender 
must submit the documentation necessary for the Agency to review and 
adjust the bankruptcy loss claim to reflect any actual discharge of 
principal and Interest.
    (ii) The Lender must use the Guaranteed Loan Report of Loss to 
request a bankruptcy loss payment and to revise any bankruptcy loss 
payments during the course of the bankruptcy. The Lender must include 
with the bankruptcy loss claim documentation to support the claim, as 
well as any revisions to this claim.
    (iii) Upon completion of a bankruptcy plan, restructuring, or 
liquidation, the Lender must either complete a Form RD 1980-44 and 
forward this

[[Page 943]]

form to the Agency or enter the data directly into LINC.
    (iv) If an estimated loss claim is paid during a bankruptcy and the 
Borrower repays in full the remaining balance without an additional loss 
sustained by the Lender, a final Guaranteed Loan Report of Loss is not 
necessary.
    (3) Interest rate losses as a result of bankruptcy reorganization. 
Interest rate losses as a result of bankruptcy reorganization will be 
paid as follows:
    (i) Interest losses sustained during the period of the bankruptcy 
plan will be processed in accordance with paragraph (b)(1) of this 
section;
    (ii) Interest losses sustained after the bankruptcy plan is 
confirmed will be processed annually when the Lender sustains a loss as 
a result of a permanent Interest rate reduction that extends beyond the 
period of the bankruptcy plan; and
    (iii) If a bankruptcy loss claim is paid during the operation of the 
bankruptcy plan and the Borrower repays in full the remaining balance 
without an additional loss sustained by the Lender, a final Guaranteed 
Loan Report of Loss is not necessary.
    (4) Final bankruptcy loss payments. The Agency will process final 
bankruptcy loss payments when the loan is fully liquidated.
    (5) Application of loss claim payments. The Lender must apply 
estimated loss payments first to the unsecured principal of the 
guaranteed portion of the debt and then to the unsecured interest of the 
guaranteed portion of the debt. In the event a court attempts to direct 
the payments to be applied in a different manner, the Lender must 
immediately notify the Agency in writing.
    (6) Protective Advances. If approved Protective Advances, as 
authorized by Sec. 4287.356, were incurred in connection with the 
initiation of liquidation action and were required to provide repairs, 
insurance, etc., to protect the Collateral as result of delays in the 
case of failure of the Borrower to maintain the security prior to the 
Borrower having filed bankruptcy, the Protective Advances together with 
accrued Interest are payable under the guarantee in the final loss 
claim.
    (c) Expenses during bankruptcy proceedings. (1) Under no 
circumstances will the guarantee cover Liquidation Expenses in excess of 
liquidation proceeds.
    (2) Expenses, such as reasonable attorney/legal fees and the cost of 
appraisals incurred by the Lender as a direct result of the Borrower's 
bankruptcy filing, will be shared equally by the Lender and the Agency.
    (3) Reasonable and customary Liquidation Expenses must be deducted 
from Collateral sale proceeds. Liquidation Expenses are covered under 
the guarantee, provided they are reasonable, customary, and provide a 
demonstrated economic benefit to the Lender and the Agency. Lender's In-
House Expenses, which are those expenses that would normally be incurred 
for administration of the loan, including in-house lawyers, are not 
covered by the guarantee.
    (4) When a bankruptcy proceeding results in a liquidation of the 
Borrower by a bankruptcy trustee appointed under 11 U.S.C. 701, 702, 703 
or 1104, expenses will be handled as directed by the court, and the 
Lender cannot claim Liquidation Expenses for the sale of the assets.
    (5) If the property is abandoned by the bankruptcy trustee, the 
Lender will conduct the liquidation in accordance with Sec. 4287.357.
    (6) Proceeds received from partial sale of Collateral during 
bankruptcy may be used by the Lender to pay reasonable costs, such as 
freight, labor and sales commissions, associated with the partial sale. 
Reasonable use of proceeds for this purpose must be documented with the 
final loss claim.



Sec. Sec. 4287.371-4287.379  [Reserved]



Sec. 4287.380  Termination of guarantee.

    The Loan Note Guarantee will terminate under any of the following 
conditions:
    (a) Upon full payment of the guaranteed loan;
    (b) Upon full payment of any loss obligation; or
    (c) Upon written notice from the Lender to the Agency that the 
guarantee will terminate 30 days after the date of notice, provided that 
the Lender owns the entire guaranteed interest

[[Page 944]]

in the loan and the Loan Note Guarantee is returned to the Agency to be 
canceled.



Sec. Sec. 4287.381-4287.399  [Reserved]



Sec. 4287.400  OMB control number.

    In accordance with the Paperwork Reduction Act of 1995, the 
information collection requirements contained in the subsequent interim 
rule have been submitted to the Office of Management and Budget (OMB) 
under OMB Control Number 0570-0065 for approval. A person is not 
required to respond to a collection of information unless it displays a 
currently valid OMB control number.



PART 4288_PAYMENT PROGRAMS--Table of Contents



   Subpart A_Repowering Assistance Payments to Eligible Biorefineries

Sec.
4288.1 Purpose and scope.
4288.2 Definitions.
4288.3 Review or appeal rights.
4288.4 Compliance with other laws and regulations.
4288.5 Oversight, monitoring, and reporting requirements.
4288.6 Forms, regulations, and instructions.
4288.7 Exception authority.
4288.8-4288.9 [Reserved]
4288.10 Applicant eligibility.
4288.11 Eligible project costs.
4288.12 Ineligible project costs.
4288.13 Payment information.
4288.14-4288.19 [Reserved]
4288.20 Submittal of applications.
4288.21 Application review and scoring.
4288.22 Ranking of applications.
4288.23 Notifications.
4288.24 Program payment provisions.
4288.25 Succession and control of facilities and production.
4288.26 Fiscal Year 2009 and Fiscal Year 2010 applications.
4288.27-4288.100 [Reserved]

               Subpart B_Advanced Biofuel Payment Program

                           General Provisions

4288.101 Purpose and scope.
4288.102 Definitions.
4288.103 Review or appeal rights.
4288.104 Compliance with other laws and regulations.
4288.105 Oversight and monitoring.
4288.106 Forms, regulations, and instructions.
4288.107 Exception authority.
4288.108-4288.109 [Reserved]

                         Eligibility Provisions

4288.110 Applicant eligibility.
4288.111 Biofuel eligibility.
4288.112 Eligibility notifications.
4288.113 Payment record requirements.
4288.114-4288.119 [Reserved]

                          Enrollment Provisions

4288.120 Enrollment.
4288.121 Contract.
4288.122-4288.129 [Reserved]

                           Payment Provisions

4288.130 Payment applications.
4288.131 Payment provisions.
4288.132 Payment adjustments.
4288.133 Payment liability.
4288.134 Refunds and interest payments.
4288.135 Unauthorized payments and offsets.
4288.136 Remedies.
4288.137 Succession and loss of control of advanced biofuel facilities 
          and production.
4288.138-4288.200 [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989.

    Source: 76 FR 7926, Feb. 11, 2011, unless otherwise noted.



   Subpart A_Repowering Assistance Payments to Eligible Biorefineries



Sec. 4288.1  Purpose and scope.

    (a) Purpose. The purpose of this program is to provide financial 
incentives to biorefineries in existence on June 18, 2008, the date of 
the enactment of the Food, Conservation, and Energy Act of 2008 (the 
2008 Farm Bill) (Pub. L. 110-246), to replace the use of fossil fuels 
used to produce heat or power at their facilities by installing new 
systems that use renewable biomass, or to produce new energy from 
renewable biomass.
    (b) Scope. The Agency may make payments under this program to any 
biorefinery that meets the requirements of the program up to the limits 
established for the program. Based on our research and survey of medium-
sized project costs, the Agency has determined that the dollar amount 
identified will provide adequate incentive for biorefineries to apply.
    (1) The Agency will determine the amount of payments to be made to a 
biorefinery taking into consideration the percentage reduction in fossil 
fuel

[[Page 945]]

used by the biorefinery (including the quantity of fossil fuels a 
renewable biomass system is replacing), and the cost and cost-
effectiveness of the renewable biomass system.
    (2) The Agency will determine who receives payment under this 
program based on the percentage reduction in fossil fuel used by the 
biorefinery that will result from the installation of the renewable 
biomass system; the cost and cost-effectiveness of the renewable biomass 
system; and other scoring criteria identified in Sec. 4288.21. The 
above criteria will be used to determine priority for awards of 50 
percent of total eligible project costs, up to the maximum award 
applicable for the fiscal year.



Sec. 4288.2  Definitions.

    The definitions set forth in this section are applicable for all 
purposes of program administration under this subpart.
    Agency. The USDA Rural Development, Rural Business-Cooperative 
Service or its successor organization.
    Application period. The time period announced by the Agency during 
which the Agency will accept applications.
    Base energy use. The amount of documented fossil fuel energy use 
over an extended operating period.
    (1) The extended operating period must be at least 24 months of 
recorded usage, and requires metered utility records for electric 
energy, natural gas consumption, fuel oil, coal shipments and propane 
use, as applicable for providing heat or power for the operation of the 
biorefinery.
    (2) Utility billing, oil and coal shipments must be actual bills, 
with meter readings, applicable rates and tariffs, costs and usage. 
Billing must be complete, without gaps and arranged in chronological 
order. Drop shipments of coal or oil can be substituted for metered 
readings, provided the biorefinery documents the usage and its 
relationship to providing heat or power to the biorefinery.
    (3) A biorefinery in existence on or before June 18, 2008 with less 
than 24 months of actual operating data must provide at least 12 months 
of data supported by engineering and design calculations, and site 
plans, prepared by the construction engineering firm.
    Biobased products. Products determined by the Secretary to be 
commercial or industrial products (other than food or feed) that are:
    (1) Composed, in whole or in significant part, of biological 
products, including renewable domestic agricultural materials and 
forestry materials; or
    (2) Intermediate ingredients or feedstocks.
    Biofuel. Fuel derived from renewable biomass.
    Biorefinery. A facility (including equipment and processes) that 
converts renewable biomass into biofuels and biobased products, and may 
produce electricity.
    Eligible biorefinery. A biorefinery that has been in existence on or 
before June 18, 2008.
    Energy Information Agency (EIA). The statistical agency of the 
Department of Energy and source of official energy statistics from the 
U.S. Government.
    Feasibility study. An Agency-acceptable analysis of the economic, 
environmental, technical, financial, and management capabilities of a 
proposed project or business in terms of its expected success. A list of 
items that must be included in a feasibility study is presented in Sec. 
4288.20(c)(9) of this subpart.
    Financial interest. Any ownership, creditor, or management interest 
in the biorefinery.
    Fiscal year. A 12-month period beginning each October 1 and ending 
September 30 of the following calendar year.
    Fossil fuel. Coal, oil, propane, and natural gas.
    Renewable biomass.
    (1) Materials, pre-commercial thinnings, or invasive species from 
National Forest System land or public lands (as defined in section 103 
of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702)) 
that:
    (i) Are byproducts of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health; and
    (ii) Would not otherwise be used for higher value products; and

[[Page 946]]

    (iii) Are harvested in accordance with applicable law and land 
management plans and the requirements for old growth maintenance, 
restoration, and management direction as per paragraphs (e)(2), (e)(3), 
and (e)(4), and large tree retention as per paragraph (f), of section 
102 of the Healthy Forests Restoration Act of 2003 (16 U.S.C. 6512); or
    (2) Any organic matter that is available on a renewable or recurring 
basis from non-Federal land or land belonging to an Indian or Indian 
Tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including:
    (i) Renewable plant material, including feed grains; other 
agricultural commodities; other plants and trees; and algae; and
    (ii) Waste material, including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and 
byproducts (including fats, oils, greases, and manure); and food waste 
and yard waste.
    Rural or rural area. Any area of a State not in a city or town that 
has a population of more than 50,000 inhabitants according to the most 
recent decennial Census of the United States, not in the urbanized area 
contiguous and adjacent to a city or town that has a population of more 
than 50,000 inhabitants, and which excludes certain populations pursuant 
to 7 U.S.C. 1991(a)(13)(H) and (I), as well as any area that has been 
determined to be ``rural in character'' by the Under Secretary for Rural 
Development, or as otherwise identified in this definition.
    (1) An area that is attached to the urbanized area of a city or town 
with more than 50,000 inhabitants by a contiguous area of urbanized 
census blocks that is not more than 2 census blocks wide. Applicants 
from such an area should work with their Rural Development State Office 
to request a determination of whether their project is located in a 
rural area under this provision.
    (2) For the purposes of this definition, cities and towns are 
incorporated population centers with definite boundaries, local self 
government, and legal powers set forth in a charter granted by the 
State.
    (3) For the Commonwealth of Puerto Rico, the island is considered 
rural and eligible for Business Programs assistance, except for the San 
Juan Census Designated Place (CDP) and any other CDP with greater than 
50,000 inhabitants. CDPs with greater than 50,000 inhabitants, other 
than the San Juan CDP, may be determined to be eligible if they are 
``not urban in character.''
    (4) For the State of Hawaii, all areas within the State are 
considered rural and eligible for Business Programs assistance, except 
for the Honolulu CDP within the County of Honolulu.
    (5) For the purpose of defining a rural area in the Republic of 
Palau, the Federated States of Micronesia, and the Republic of the 
Marshall Islands, the Agency shall determine what constitutes rural and 
rural area based on available population data.
    (6) The determination that an area is ``rural in character'' will be 
made by the Under Secretary of Rural Development. The process to request 
a determination under this provision is outlined in paragraph (6)(ii) of 
this definition.
    (i) The determination that an area is ``rural in character'' under 
this definition will apply to areas that are within:
    (A) An urbanized area that has two points on its boundary that are 
at least 40 miles apart, which is not contiguous or adjacent to a city 
or town that has a population of greater than 150,000 inhabitants or the 
urbanized area of such a city or town; or
    (B) An urbanized area contiguous and adjacent to a city or town of 
greater than 50,000 inhabitants that is within one-quarter mile of a 
rural area.
    (ii) Units of local government may petition the Under Secretary of 
Rural Development for a ``rural in character'' designation by submitting 
a petition to both the appropriate Rural Development State Director and 
the Administrator on behalf of the Under Secretary. The petition shall 
document how the area meets the requirements of paragraph (6)(i)(A) or 
(6)(i)(B) of this definition and discuss why the petitioner believes the 
area is ``rural in character,'' including, but not limited to, the 
area's population density, demographics, and topography and how

[[Page 947]]

the local economy is tied to a rural economic base. Upon receiving a 
petition, the Under Secretary will consult with the applicable Governor 
or leader in a similar position and request comments to be submitted 
within 5 business days, unless such comments were submitted with the 
petition. The Under Secretary will release to the public a notice of a 
petition filed by a unit of local government not later than 30 days 
after receipt of the petition by way of publication in a local newspaper 
and posting on the Agency's Web site, and the Under Secretary will make 
a determination not less than 15 days, but no more than 60 days, after 
the release of the notice. Upon a negative determination, the Under 
Secretary will provide to the petitioner an opportunity to appeal a 
determination to the Under Secretary, and the petitioner will have 10 
business days to appeal the determination and provide further 
information for consideration.

[76 FR 7926, Feb. 11, 2011, as amended at 80 FR 9913, Feb. 24, 2015; 87 
FR 38645, June 29, 2022]



Sec. 4288.3  Review or appeal rights.

    A person may seek a review of an Agency decision or appeal to the 
National Appeals Division in accordance with 7 CFR part 11 of this 
title.



Sec. 4288.4  Compliance with other laws and regulations.

    Participating biorefineries must comply with other applicable 
Federal, State, and local laws, including, but not limited to, the Equal 
Employment Opportunities Act, the Equal Credit Opportunity Act, Title VI 
of the Civil Rights Act of 1964, 7 CFR Part 1901, subpart E, Section 504 
of the Rehabilitation Act of 1973, and the Age Discrimination Act of 
1975. Applicants must submit and will be subject to pre-award and post 
award compliance reviews with the terms and conditions set forth in Form 
RD 400-1, ``Equal Opportunity Agreement'' and Form RD 400-4, ``Assurance 
Agreement.''



Sec. 4288.5  Oversight, monitoring, and reporting requirements.

    (a) Verification. The Agency reserves the right to verify all 
payment requests and subsequent payments made under this program, 
including field visits, as frequently as necessary to ensure the 
integrity of the program. Documentation provided will be used to verify, 
reconcile, and enforce the payment terms of Form RD 4288-5, ``Repowering 
Assistance Program--Agreement,'' along with any potential refunds that 
the recipient will be required to make should they fail to adequately 
document their request.
    (b) Records. (1) For purposes of verifying the eligible project 
costs supporting payments under this subpart, each biorefinery must 
maintain in one place such books, documents, papers, receipts, payroll 
records and bills of sale adequate to identify the purposes for which, 
and the manner in which funds were expended for eligible project costs. 
The biorefinery must maintain copies of all documents submitted to the 
Agency in connection with payments made hereunder. These records must be 
available at all reasonable times for examination by the Agency and must 
be held and be available for Agency examination for a period of not less 
than 3 years from the final payment date.
    (2) For the purpose of verifying compliance with the fossil fuel 
reduction and energy production requirements of this subpart, each 
biorefinery must make available and provide for the metering of all 
power and heat producing boilers, containment vessels, generators and 
any other equipment related to the production of heat or power required 
to displace fossil fuel loads with renewable biomass. These records must 
be held in one place and be available at all reasonable times for 
examination by the Agency. Such records include all books, papers, 
contracts, scale tickets, settlement sheets, invoices, and any other 
documents related to the program that are within the control of the 
biorefinery. These records must be held and made available for Agency 
examination for a period of not less than 3 years from the date the 
repowering project becomes operational.
    (c) Reporting. Upon completion of the repowering project, the 
biorefinery must submit a report using Form RD 4288-6, ``Repowering 
Assistance Programs--Reporting Form,'' to the Agency annually for the 
first 3 years after

[[Page 948]]

completion of the project. The reports are to be submitted as of October 
1 of each year. The report must include the items specified in 
paragraphs (c)(1) and (c)(2) of this section.
    (1) Documentation regarding the usage and production of energy at 
the biorefinery during the previous year, including both the previous 
and current fossil fuel load and the renewable biomass energy 
production.
    (i) Metered data documenting the production of heat, steam, gas and 
power must be obtained utilizing an Agency approved measurement device.
    (ii) Metered data must be verifiable and subject to independent 
calibration testing.
    (2) Current utility billing data, indentifying metered loads, from 
the base energy use period.



Sec. 4288.6  Forms, regulations, and instructions.

    Copies of all forms, regulations, instructions, and other materials 
related to this program may be obtained from the USDA Rural Development 
State Office, Renewable Energy Coordinator and the USDA Rural 
Development Web site at http://www.rurdev.usda .gov/regs/.



Sec. 4288.7  Exception authority.

    The Administrator of the Agency (``Administrator'') may, with the 
concurrence of the Secretary of Agriculture, make an exception, on a 
case-by-case basis, to any requirement or provision of this subpart that 
is not inconsistent with any authorizing statute or applicable law, if 
the Administrator determines that application of the requirement or 
provision would adversely affect the Federal government's interest.



Sec. Sec. 4288.8-4288.9  [Reserved]



Sec. 4288.10  Applicant eligibility.

    (a) Eligible projects. To be eligible for this program, the 
applicant must be an eligible biorefinery utilizing only renewable 
biomass for replacement fuel, and must meet the requirements specified 
in paragraphs (a)(1) through (a)(5) of this section.
    (1) Timely complete application submission. To be eligible for this 
program, the applicant must submit a complete application within the 
application period. Projects will be selected based on ranking which is 
derived from the application of the selection criteria stated in Sec. 
4288.21.
    (2) Multiple biorefineries. Corporations and entities with more than 
one biorefinery can submit an application for only one of their 
biorefineries. However, if a corporation or entity has multiple 
biorefineries located at the same location, the entity may submit an 
application that covers such biorefineries provided the heat and power 
used in the multiple biorefineries are centrally produced.
    (3) Cost-effectiveness. The application must be awarded at least 
minimum points for cost-effectiveness under Sec. 4288.21(b)(1).
    (4) Percentage of reduction of fossil fuel use. The application must 
be awarded at least minimum points for percentage of reduction of fossil 
fuel use under Sec. 4288.21(b)(2).
    (5) Full project financing. The applicant must demonstrate that it 
has sufficient funds or has obtained commitments for sufficient funds to 
complete the repowering project taking into account the amount of the 
payment request in the application.
    (b) Ineligible projects. A project is not eligible under this 
subpart if it is using feedstocks for repowering that are feed grain 
commodities that received benefits under Title I of the Food, 
Conservation, and Energy Act of 2008.



Sec. 4288.11  Eligible project costs.

    Eligible project costs will be only for project related construction 
costs for repowering improvements associated with the equipment, 
installation, engineering, design, site plans, associated professional 
fees, permits and financing fees.



Sec. 4288.12  Ineligible project costs.

    Any project costs incurred by the applicant prior to application for 
payment assistance under this program will be ineligible for payment 
assistance.



Sec. 4288.13  Payment information.

    (a) Maximum payment. For purposes of this program, the maximum 
payment

[[Page 949]]

an applicant may receive will be 50 percent of total eligible project 
costs up to the applicable fiscal year's maximum award as announced in 
an annual Federal Register notice. There is no minimum payment to an 
applicant.
    (b) Reimbursement payments. The Agency shall only make payments 
based on the biorefinery's expenditures on eligible project costs. 
Payments shall be determined by multiplying the amount of eligible 
expenditures stated on the payment request by a percentage obtained by 
dividing the aggregate payment award by total eligible project costs.
    (c) Timing of payments. The Applicant may request payments not more 
frequently than once a month by submitting an original, completed, 
validly signed Standard Form (SF) 271, ``Outlay Report and Request for 
Reimbursement for Construction Programs'' including the supporting 
documentation identified in Sec. 4288.23, to reimburse the applicant 
for the Agency's pro rata share of funds expended on eligible project 
costs. The Agency shall make such payments until 90 percent of the total 
payment award has been expended. The final 10 percent of the payment 
award will be paid upon completion of the repowering project and 
satisfactory evidence has been received by the Agency demonstrating that 
the biorefinery is operating as described in the Agency approved 
application.



Sec. Sec. 4288.14-4288.19  [Reserved]



Sec. 4288.20  Submittal of applications.

    (a) Address to make application. Application must be submitted to 
USDA, Rural Development-Energy Division, Program Branch, Attention: 
Repowering Assistance Program, 1400 Independence Avenue, SW., Stop 3225, 
Washington, DC 20250-3225.
    (b) Content and form of submission. Applicants must submit a signed 
original and one copy of an application containing the information 
specified in this section. The applicant must also furnish the Agency 
the required documentation identified in Form RD 4288-4, ``Repowering 
Assistance Program Application,'' to verify compliance with program 
provisions before acceptance into the program. Note that applicants are 
required to have a Dun and Bradstreet Universal Numbering System (DUNS) 
number (unless the applicant is an individual). The DUNS number is a 
nine-digit identification number, which uniquely identifies business 
entities. A DUNS number can be obtained at no cost via a toll-free 
request line at 1-866-705-5711, or online at http://fedgov.dnb.com/
webform. Applicants must submit to the Agency the documents specified in 
paragraphs (b)(1) through (b)(6) of this section.
    (1) Form RD 4288-4. Applicants must submit this form and all 
necessary attachments providing project information on the biorefinery; 
the facility at which the biorefinery operates, including location and 
products produced; and the types and quantities of renewable biomass 
feedstock being proposed to produce heat or power. This form requires 
the applicant to provide relevant data to allow for technical analysis 
of their existing facility to demonstrate replacement of fossil fuel by 
renewable biomass with reasonable costs and maximum efficiencies. The 
applicant must also submit evidence that the biorefinery was in 
existence on or before June 18, 2008. The applicant is required to 
certify the information provided.
    (2) RD Instruction 1940-Q, Exhibit A-1, ``Certification for 
Contracts, Grants and Loans.''
    (3) Form RD 400-1.
    (4) Form RD 400-4.
    (5) Environmental documentation in accordance with 7 CFR part 1970.
    (6) Certifications. The applicant must furnish the Agency all 
required certifications before acceptance into the program, and furnish 
access to records required by the Agency to verify compliance with 
program provisions. The applicant must submit forms or other written 
documentation certifying to the following:
    (i) AD-1047, ``Certification Regarding Debarment, Suspension, and 
Other Responsibility Matters--Primary Covered Transactions'' or other 
written documentation.
    (ii) AD-1048, ``Certification Regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion--Lower Tier Covered Transactions'' 
or other written documentation.

[[Page 950]]

    (iii) SF-LLL, ``Disclosure of Lobbying Activities.''
    (c) Application package contents. Applicants are required to provide 
relevant data to allow for technical analysis of their existing 
facilities to demonstrate replacement of fossil fuel by renewable 
biomass with reasonable costs and maximum efficiencies. Applicants in 
existence on or before June 18, 2008 with more than 24 months of actual 
operating data must provide data for the most recent 24-month period. 
Applicants in existence on or before June 18, 2008 with less than 24 
months of actual operating data must provide 12 months of data supported 
by engineering and design calculations, and site plans, prepared by the 
construction engineering firm. All applicants must submit the 
information specified in paragraphs (c)(1) through (c)(9) of this 
section as part of their application package.
    (1) Contact data. Contact information for the primary technical 
contact for the biorefinery.
    (2) Biorefinery data. Basic information on facility operations over 
time (hours/day, days/year).
    (3) Electric use data. Information on existing electric service to 
the facility, data on consumption, peak and average demand, and monthly/
seasonal use patterns.
    (4) Fuel use data. Information on natural gas and current fuel use 
for boilers and heaters, including fuel type, costs, and use patterns.
    (5) Thermal loads. Information on existing thermal loads, including 
type (steam, hot water, direct heat), conditions (temperature, pressure) 
and use patterns.
    (6) Existing equipment. Information on existing heating and cooling 
equipment, including type, capacities, efficiencies and emissions.
    (7) Site-specific data. Information on other site-specific issues, 
such as expansion plans or neighborhood considerations that might impact 
the proposed new system design or operation; or environmental impacts.
    (8) Biofuel and biobased product production. Information on biofuel 
and biobased product production, including quantity and units of 
production.
    (9) Feasibility study. The applicant must submit a feasibility study 
by an independent qualified consultant, which has no financial interest 
in the biorefinery, and demonstrates that the renewable biomass system 
of the biorefinery is feasible, taking into account the economic, 
technical and environmental aspects of the system. The feasibility study 
must include the components specified in paragraphs (c)(9)(i) through 
(c)(9)(x) of this section.
    (i) An executive summary, including resume of the consultant, and an 
introduction/project overview (brief general overview of project 
location, size, etc.).
    (ii) An economic feasibility determination, including:
    (A) Information regarding the project site;
    (B) Information on the availability of trained or trainable labor; 
and
    (C) Information on the availability of infrastructure and rail and 
road service to the site.
    (iii) A technical feasibility determination, including a report 
that:
    (A) Describes the repowering project, including:
    (1) Information on heating and cooling equipment, including type, 
capacities, efficiencies and emissions;
    (2) Anticipated impacts of the repowering project on the information 
requested above relating to electric use data, fuel use data, thermal 
loads and biofuel and biobased product production; and
    (3) A project development schedule as more fully described in Sec. 
4288.21(b)(4)(iv);
    (B) Is based upon verifiable data and contains sufficient 
information and analysis so that a determination may be made on the 
technical feasibility of achieving the levels of energy production that 
are projected in the statements. The report must provide the information 
in a format that is responsive to the scoring criteria specified in 
Sec. 4288.21(b)(1) through (5) and applicants should identify in their 
report the information that corresponds to each of the scoring criteria; 
and
    (C) Identifies and estimates project operation and development costs 
and specifies the level of accuracy of these estimates and the 
assumptions on which these estimates have been based.

[[Page 951]]

    (iv) A financial feasibility determination that discusses the 
following:
    (A) Repowering project construction funding, including repayment 
terms and security arrangements. Attach any documents relating to the 
project financing;
    (B) The reliability of the financial projections and assumptions on 
which the project is based including all sources of project capital, 
both private and public, such as Federal funds;
    (C) Projected balance sheets and costs associated with project 
operations;
    (D) Cash flow projections for 3 years;
    (E) The adequacy of raw materials and supplies;
    (F) A sensitivity analysis, including feedstock and energy costs, 
product/co-product prices;
    (G) Risks related to the project; and
    (H) The continuity, maintenance and availability of records.
    (v) A management feasibility determination.
    (vi) Recommendations for implementation.
    (vii) The environmental concerns and issues of the system.
    (viii) The availability of feedstock, including discussions of:
    (A) Feedstock source management;
    (B) Estimates of feedstock volumes and costs;
    (C) Collection, pre-treatment, transportation, and storage; and
    (D) Impacts on existing manufacturing plants or other facilities 
that use similar feedstock.
    (ix) The feasibility/plans of project to work with producer 
associations or cooperatives including estimated amount of annual 
feedstock from those entities.
    (x) If woody biomass from National forest system lands or public 
lands is proposed as the feedstock, documentation must be provided that 
it cannot be used as a higher value wood-based product.

[76 FR 7926, Feb. 11, 2011, as amended at 81 FR 11053, Mar. 2, 2016]



Sec. 4288.21  Application review and scoring.

    The Agency will evaluate projects based on the cost, cost-
effectiveness, and capacity of projects to reduce fossil fuels. The cost 
of the project will be taken into consideration in the context of each 
project's ability to economically produce energy from renewable biomass 
to replace its dependence on fossil fuels. Projects with higher costs 
that are less efficient will not score well. The scoring criteria are 
designed to evaluate projects on simple payback as well as the 
percentage of fossil fuel reduction.
    (a) Review. The Agency will evaluate each application and make a 
determination as to whether the applicant is eligible, whether the 
proposed project is eligible, and whether the proposed payment request 
complies with all applicable statutes and regulations. This evaluation 
will be conducted by experts in the Agency and other Federal agencies, 
including the U.S. Department of Energy based on the information 
provided by the applicant.
    (b) Scoring. The Agency will score each application in order to 
prioritize each proposed project. The maximum number of points awardable 
to any applicant will be 100. The evaluation criteria that the Agency 
will use to score these projects are specified in paragraphs (b)(1) 
through (b)(6) of this section.
    (1) Cost-effectiveness. Cost-effectiveness will be scored based on 
the anticipated simple payback period, or ``simple payback.'' 
Anticipated simple payback will be demonstrated by calculating 
documented base energy use costs for the 24-month period prior to 
submission of the application or at least 12 months of data supported by 
engineering and design calculations, and site plans, prepared by the 
construction engineering firm.
    (i) The simple payback period is calculated as follows:

 Simple payback = C/S

Where:

C = eligible capital expenses of the repowering project
S = savings in annual operating costs.

    Example: Eligible capital expenses of the repowering project, 
including handling equipment, biomass boiler, piping improvements and 
plant modifications, are equal to $5,300,500. The annual difference in 
fossil fuel cost versus the cost for renewable biomass is $990,500. 
Assume these costs and uses are based on a yearly operating cycle, which

[[Page 952]]

may include handling, storage and treatment costs. In this example, C = 
$5,300,500; S = $990,500; simple payback = 5.35 years (C/S = simple 
payback).

    (ii) A maximum of 20 points will be awarded as follows:
    (A) If the anticipated simple payback is less than or equal to 4 
years, award 20 points.
    (B) If the anticipated simple payback is greater than 4 years but 
less than or equal to 6 years, award 10 points.
    (C) If the anticipated simple payback will be greater than 6 years 
but less than or equal to 10 years, award 5 points.
    (D) If the anticipated simple payback will be greater than 10 years, 
award 0 points.
    (2) Percentage of reduction of fossil fuel use. The anticipated 
percent reduction in the use of fossil fuels will be measured using the 
same evidence provided by the applicant for measuring cost-
effectiveness. However, this set of criteria will measure actual fossil 
fuel use for the 24-month period prior to submission of the application 
or for at least 12 months of data supported by engineering and design 
calculations, and site plans, prepared by the construction engineering 
firm. All fossil fuel use, for thermal loads as well as for electric 
use, will be evaluated by using information provided by the Energy 
Information Agency (EIA). The Agency will determine the percentage 
reduction of fossil fuel use based on and in cooperation with the 
applicant's submission of electric power provider contracts, power 
agreements, and utility billings in relation to available information 
from the EIA. A maximum of 35 points will be awarded as follows:
    (i) Applicant demonstrates an anticipated annual reduction in fossil 
fuel use of 100 percent, award 35 points.
    (ii) Applicant demonstrates an anticipated annual reduction in 
fossil fuel use of at least 80 percent but less than 100 percent, award 
25 points.
    (iii) Applicant demonstrates an anticipated annual reduction in 
fossil fuel use of at least 60 percent but less than 80 percent, award 
15 points.
    (iv) Applicant demonstrates an anticipated annual reduction in 
fossil fuel use of at least 40 percent but less than 60 percent, award 5 
points.
    (v) Applicant demonstrates an anticipated annual reduction in fossil 
fuel use of less than 40 percent, award 0 points.
    (vi) If any of the fossil fuel being replaced is natural gas, deduct 
5 points.
    (3) Renewable biomass factors. If an applicant demonstrates at the 
time of application that it has on site available access to renewable 
biomass or enforceable third party commitments to supply renewable 
biomass for the repowering project for at least 3 years, 5 points will 
be awarded. If an applicant cannot demonstrate this, no points will be 
awarded.
    (4) Technical review factors. Technical reviews will be conducted by 
a team of experts, including rural energy coordinators and State 
engineers. The Agency may engage the services of other government 
agencies or other recognized industry experts in the applicable 
technology field, at its discretion, to evaluate and rate the 
application. Each section of the technical review will be scored within 
a range of possible points available within that section. A maximum of 
25 points will be awarded as follows:
    (i) Qualifications of the applicant's project team. The applicant 
must describe the qualifications of those individuals who will be 
essential to successful performance of the proposed project. This will 
include information regarding professional credentials, relevant 
experience, and education, and must be supported with documentation of 
service capabilities, professional credentials, licenses, 
certifications, and resumes, as applicable. Award 0-5 points.
    (ii) Agreements and permits. The applicant must describe the 
agreements and permits necessary for project implementation. An Agency-
acceptable schedule for securing the required documents and permits must 
be provided. Award 0-4 points.
    (iii) Design and engineering. The applicant must describe the 
design, engineering, and testing needed for the proposed project. The 
Design and Engineering documents shall demonstrate that they meet the 
intended purpose, ensure public safety, and comply with

[[Page 953]]

all applicable laws, regulations, agreements, permits, codes, and 
standards. Award 0-4 points.
    (iv) Project development schedule. The applicant must provide a 
detailed plan for project development including a proposed schedule of 
activities, a description of each significant task, its beginning and 
end, and its relationship to the time needed to initiate and carry the 
project through to successful completion. This description must address 
the applicant's project development cash flow requirements. Award 0-3 
points.
    (v) Equipment procurement. The applicant must describe the equipment 
needed, and the availability of the equipment needed, to complete 
installation and activation of the new system. The description supports 
that the required equipment is available, and can be procured and 
delivered within the proposed project development schedule. Award 0-3 
points.
    (vi) Equipment installation. The applicant must provide a 
satisfactory description of the plan for site development and system 
installation that reflects the soundness of the project plan. Award 0-3 
points.
    (vii) Operations and maintenance. The applicant must describe the 
operations and maintenance requirements of the system necessary for the 
system to operate as designed and provide the savings and efficiencies 
as described. The description and requirements noted must be supportable 
by the technical review. Award 0-3 points.
    (5) Liquid transportation fuels. If the biorefinery primarily 
produces liquid transportation fuels, award 10 points.
    (6) Rural area. If the biorefinery is located in a Rural Area, award 
5 points.



Sec. 4288.22  Ranking of applications.

    All scored applications will be ranked by the Agency as soon after 
the application deadline as possible. The Agency will consider the score 
an application has received compared to the scores of other applications 
in the priority list, with higher scoring applications receiving first 
consideration for payments.
    (a) Selection of applications for payments. Using the application 
scoring criteria point values specified in Sec. 4288.21 of this 
subpart, the Agency will select applications for payments.
    (b) Availability of funds. As applications are funded, if 
insufficient funds remain to pay the next highest scoring application, 
the Agency may elect to pay a lower scoring application. Before this 
occurs, the Agency will provide the applicant of the higher scoring 
application the opportunity to reduce the amount of its payment request 
to the amount of funds available. If the applicant agrees to lower its 
payment request, it must certify that the purposes of the project can be 
met, and the Agency must determine the project is feasible at the lower 
amount.



Sec. 4288.23  Notifications.

    (a) Successful applicants. Successful applicants will receive an 
award letter notifying them of the award, including the terms and 
conditions, and Form RD 4288-5. Each funded project is unique, and, 
therefore, conditions of Form RD 4288-5 may vary among projects. 
Successful applicants must execute and return the Form RD 4288-5, 
accompanied by any additional items identified in the award letter.
    (b) Unsuccessful applicants. Unsuccessful applicants will receive a 
letter notifying them of their application score and ranking and the 
score necessary to qualify for payments.



Sec. 4288.24  Program payment provisions.

    The procedure the Agency will use to make payments to eligible 
biorefineries is specified in paragraphs (a) through (e) of this 
section.
    (a) Payment applications. The Agency shall make payments based on 
the biorefinery's expenditures on eligible project costs. To request 
payments under this program during a fiscal year, an eligible 
biorefinery must:
    (1) Submit an original, validly signed and completed SF 271 to the 
Agency not more frequently than once a month with the following 
supporting documentation:
    (i) Evidence of expenditure of funds on eligible project costs which 
shall include paid third party invoices, receipts, bills of sale, and/or 
payroll records. Such records must be adequate to identify that funds to 
be reimbursed

[[Page 954]]

were spent on eligible project costs; and
    (ii) Evidence that construction of the repowering project is in 
compliance with the project development schedule.
    (2) Certify that the request is accurate.
    (3) Furnish the Agency such certifications as required in Form RD 
4288-4, Part C, and access to records that verify compliance with 
program provisions.
    (b) Clarifying information. After payment applications are 
submitted, eligible biorefineries may be required to submit additional 
supporting clarification if their original submittal is not sufficient 
to verify eligibility for payment.
    (c) Notification. The Agency will notify the biorefinery, in 
writing, whenever the Agency determines that a payment request is 
ineligible and why the request was determined ineligible.
    (d) Refunds and interest payments. An eligible biorefinery that has 
received a payment under this program may be required to refund such 
payment as specified in paragraphs (d)(1) through (d)(5) of this 
section.
    (1) An eligible biorefinery receiving payment under this program 
will become ineligible for payments if the Agency determines the 
biorefinery has:
    (i) Made any material fraudulent representation;
    (ii) Misrepresented any material fact affecting a program 
determination; or
    (iii) Upon completion of the repowering project, failed to reduce 
its fossil fuel consumption, produce energy from renewal biomass or 
otherwise operate as described in its Agency approved application.
    (2) All payments made to a biorefinery determined by the Agency to 
be ineligible must be refunded to the Agency with interest and other 
such sums as may become due, including, but not limited to, any 
interest, penalties, and administrative costs, as determined appropriate 
under 31 CFR 901.9.
    (3) When a refund is due, it must be paid promptly. If a refund is 
not made promptly, the Agency may use all remedies available to it, 
including Treasury offset under the Debt Collection Improvement Act of 
1996, financial judgment against the biorefinery, and sharing 
information with the Department of Justice.
    (4) Late payment interest will be assessed on each refund in 
accordance with provisions and rates as determined by the Agency.
    (i) Interest charged by the Agency under this program will be at the 
rate established annually by the Secretary of the U.S. Treasury pursuant 
to 31 U.S.C. 3717. Interest will accrue from the date payments were 
received by the biorefinery to the date of repayment, and the rate will 
adjust in accordance with applicable regulations.
    (ii) The Agency may waive the accrual of interest and/or damages if 
the Agency determines that the cause of the erroneous determination was 
not due to any fraudulent or negligent action of the biorefinery.
    (5) A biorefinery or person receiving payment under this program 
will be liable for any refund or related charges associated with their 
project due under this program.
    (e) Remedies. The remedies provided in this subpart will be in 
addition to other civil, criminal, or administrative remedies that may 
apply.



Sec. 4288.25  Succession and control of facilities and production.

    Any party obtaining a biorefinery that is participating in this 
program must request permission to participate in this program as a 
successor. The Agency may grant such request if it is determined that, 
the party is eligible, and permitting such succession would serve the 
purposes of the program. If appropriate, the Agency will require the 
consent of the previous party to such succession. Also, the Agency may 
terminate payments and demand full refund of payments made if a party 
loses control of a biorefinery whose production of heat or power from 
renewable biomass is the basis of a program payment, or otherwise fails 
to retain the ability to assure that all program obligations and 
requirements will be met.



Sec. 4288.26  Fiscal Year 2009 and Fiscal Year 2010 applications.

    Any entity that submitted an application for payment to the Agency

[[Page 955]]

under this program prior to March 14, 2011 will have their payments made 
and serviced in accordance with the provisions specified in this 
subpart.



Sec. Sec. 4288.27-4288.100  [Reserved]



      Subpart B_Advanced Biofuel Payment Program General Provisions

    Authority: 5 U.S.C. 301.

    Source: 76 FR 7967, Feb. 11, 2011, unless otherwise noted.



Sec. 4288.101  Purpose and scope.

    (a) Purpose. The purpose of this subpart is to support and ensure an 
expanding production of advanced biofuels by providing payments to 
eligible advanced biofuel producers.
    (b) Scope. This subpart sets forth, subject to the availability of 
funds as provided herein, or as may be limited by law, the terms and 
conditions an advanced biofuel producer must meet to obtain payments 
under this Program from the United States Department of Agriculture for 
eligible advanced biofuel production. Additional terms and conditions 
may be set forth in the Program contract and payment agreement 
prescribed by the Agency.



Sec. 4288.102  Definitions.

    The definitions set forth in this section are applicable for all 
purposes of program administration under this subpart.
    Advanced biofuel. A fuel that is derived from renewable biomass, 
other than corn kernel starch, to include:
    (1) Biofuel derived from cellulose, hemicellulose, or lignin;
    (2) Biofuel derived from sugar and starch (other than ethanol 
derived from corn kernel starch);
    (3) Biofuel derived from waste material, including crop residue, 
other vegetative waste material, animal waste, food waste, and yard 
waste;
    (4) Diesel-equivalent fuel derived from renewable biomass, including 
vegetable oil and animal fat;
    (5) Biogas (including landfill gas and sewage waste treatment gas) 
produced through the conversion of organic matter from renewable 
biomass;
    (6) Butanol or other alcohols produced through the conversion of 
organic matter from renewable biomass; or
    (7) Other fuel derived from cellulosic biomass.
    Advanced biofuel producer. An individual, corporation, company, 
foundation, governmental entity, school or other educational facility, 
association, labor organization, firm, partnership, society, joint stock 
company, group of organizations, or non-profit entity that produces 
advanced biofuel. An entity that blends or otherwise combines advanced 
biofuels into a blended biofuel is not considered an advanced biofuel 
producer under this subpart. An entity that produces biofuel exclusively 
under a toll/bailment arrangement/third part production contract is not 
considered an advanced biofuel producer under this subpart.
    Agency. The USDA Rural Development, Rural Business-Cooperative 
Service or its successor organization.
    Alcohol. Anhydrous ethyl alcohol manufactured in the United States 
and its territories and sold either:
    (1) For fuel use, rendered unfit for beverage use, produced at a 
biofuel facility and in a manner approved by the Bureau of Alcohol, 
Tobacco, Firearms, and Explosives for the production of alcohol for 
fuel; or
    (2) As denatured alcohol used by blenders and refiners and rendered 
unfit for beverage use.
    Alcohol producer. An advanced biofuel producer authorized by ATF to 
produce alcohol.
    ATF. The Bureau of Alcohol, Tobacco, Firearms, and Explosives of the 
United States Department of Justice.
    Bailment. The temporary placement of control over, or possession of 
property by an individual or entity, the bailor, into the hands of 
another, the bailee, for a designated purpose upon which the parties 
have agreed. For purposes of this Program any advanced biofuel produced 
by a toll producer of any form, or under any form of third-party 
production agreement, is regarded/considered as produced under bailment 
and is ineligible for payment; to either bailor or bailee.
    Biodiesel. A mono alkyl ester, manufactured in the United States and 
its

[[Page 956]]

territories, that meets the requirements of the appropriate ASTM 
International standard.
    Biofuel. Fuel derived from renewable biomass.
    Biorefinery. The term ``biorefinery'' means a facility (including 
equipment and processes) that--
    (1) Converts renewable biomass or an intermediate ingredient or 
feedstock of renewable biomass into any 1 or more, or a combination, 
of--
    (i) Biofuels;
    (ii) Renewable chemicals; or
    (iii) Biobased products; and
    (2) May produce electricity.
    Blender. A blender is a processor of fuels who combines two or more 
fuels, one of which must be an advanced biofuel, for distribution and 
sale. Producers who blend one or more of their own fuels are not 
blenders under this definition.
    Certificate of analysis. A document approved by the Agency that 
certifies the quality and purity of the advanced biofuel being produced. 
The document must be from a qualified, independent third party.
    Commodity. Renewable biomass, other than corn kernel starch, used 
primarily for the purposes of this Program, by advanced biofuel 
producers as feedstock from which to produce/derive advanced biofuel. 
Eligible renewable biomass is organized into the following commodity 
categories:
    (1) Title I grains and oilseeds including: Wheat, corn, grain 
sorghum, barley, oats, and rice; sugars, and starches (other than corn 
kernel starch); Soybeans, sunflower seed, rapeseed, canola, safflower, 
flaxseed, mustard, crambe, sesame, and peanuts; as identified under 
Title I, Public Law 115-334, and as determined by the Secretary;
    (2) Other oilseeds and nuts including cottonseed, palm, camelina, 
coconut, and olive; and algae;
    (3) A cellulosic commodity grown for energy purposes, such as, 
hybrid poplar and other energy trees, switch grass and other energy 
grasses; cellulose, hemicellulose, or lignin;
    (4) Waste material, including crop residue/Stover, other vegetative 
waste material/orchard waste, animal waste/manure, food waste/food 
processing waste, and yard waste/biodegradable solid waste/organic 
matter;
    (5) Fats, oils, and greases, derived from an agricultural product, 
including: Recycled fats, oils, and greases, such as used cooking oil 
and reclaimed-industrial grade-distillers' corn/sorghum oil; tallow, 
white grease, yellow grease, and other livestock renderings; and
    (6) Any animal byproduct (in addition to oils, fats, and greases) 
that may be used to produce bioenergy, as determined by the Secretary.
    Contract. Form RD 4288-2, ``Advanced Biofuel Payment Program 
Contract,'' signed by the eligible advanced biofuel producer and the 
Agency, that defines the terms and conditions for participating in and 
receiving payment under this Program.
    Derived. A process that creates a physical, and/or chemical, and/or 
biological change in renewable biomass/feedstock.
    Eligible advanced biofuel producer. A producer of advanced biofuels 
that meets all requirements of Sec. 4288.110 of this subpart.
    Eligible renewable biomass. Renewable biomass, as defined in this 
section, excluding corn kernel starch. See also commodity.
    Eligible renewable energy content. That portion of an advanced 
biofuel's energy content derived from eligible renewable biomass 
feedstock. The energy content from any portion of the biofuel, whether 
from, for example, blending with another fuel or a denaturant, that is 
derived from a non-eligible renewable biomass feedstock (e.g., corn 
kernel starch) is not eligible for payment under this Program.
    Enrollment application. Form RD 4288-1, ``Advanced Biofuel Payment 
Program Annual Application,'' which is submitted by advanced biofuel 
producers for participation in this Program.
    Ethanol. Anhydrous ethyl alcohol manufactured in the United States 
and its territories and sold either:
    (1) For fuel use, and which has been rendered unfit for beverage use 
and produced at an advanced biofuel facility approved by the ATF for the 
production of ethanol for fuel, or

[[Page 957]]

    (2) As denatured ethanol used by blenders and energy refiners, which 
has been rendered unfit for beverage use.
    Ethanol producer. An advanced biofuel producer authorized by ATF to 
produce ethanol.
    Final Product. A product of a biorefinery that is ready for sale/
distribution without further processing. For purposes of this Program, 
an advanced biofuel is a Final Product eligible for payment if it is 
ready for distribution and sale as a fuel.
    Fiscal Year. A 12-month period beginning each October 1 and ending 
September 30 of the following calendar year.
    Flared gas. The burning of unwanted gas through a pipe (also called 
a flare). Flaring is a means of disposal used when the operator cannot 
transport the gas to market or convert to electricity and cannot use the 
gas for any other purpose.
    Incremental production. The quantity of eligible advanced biofuel 
produced at an advanced biofuel biorefinery in the fiscal year for which 
payment is sought that exceeds the quantity of advanced biofuel produced 
at the biorefinery over the prior fiscal year.
    Large producer. (1) An advanced biofuel producer which in the prior 
fiscal year, produced more than:
    (i) 150,000,000 gallons of liquid advanced biofuel per year; or
    (ii) 15,900,000 Million British Thermal Units (MMBTU) of biogas and/
or solid advanced biofuel per year.
    (2) The amount of gallons and MMBTUs listed in paragraphs (1)(i) and 
(ii) of this definition include the advanced biofuel production at all 
facilities, in the United States, in which the producer and/or its 
parent company(ies) have a 50-percent or greater ownership.
    Parent company. A company/corporation that has a controlling 
interest in another company/corporation, giving it control of its 
operations. The company is deemed a subsidiary of the parent company.
    Payment application. Form RD 4288-3, ``Advanced Biofuel Payment 
Program--Payment Request,'' which is submitted by an eligible advance 
producer to the Agency in order to receive payment under this Program.
    Quarter. The Federal fiscal time period for any fiscal year as 
follows:
    (1) 1st Quarter: October 1 through December 31;
    (2) 2nd Quarter: January 1 through March 31;
    (3) 3rd Quarter: April 1 through June 30; and
    (4) 4th Quarter: July 1 through September 30.
    Renewable biomass.
    (1) Materials, pre-commercial thinnings, or invasive species from 
National Forest System land and public lands (as defined in section 103 
of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702)) 
that:
    (i) Are byproducts of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health;
    (ii) Would not otherwise be used for higher-value products; and
    (iii) Are harvested in accordance with applicable law and land 
management plans and the requirements for old-growth maintenance, 
restoration, and management direction of paragraphs (e)(2), (e)(3), and 
(e)(4) and large-tree retention of paragraph (f) of section 102 of the 
Healthy Forests Restoration Act of 2003 (16 U.S.C. 6512); or
    (2) Any organic matter that is available on a renewable or recurring 
basis from non-Federal land or land belonging to an Indian or Indian 
Tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including:
    (i) Renewable plant material, including feed grains; other 
agricultural commodities; other plants and trees; and algae; and
    (ii) Waste material, including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and 
byproducts (including fats, oils, greases, and manure); and food waste 
and yard waste.
    Sale. A transaction between two or more parties, typically a buyer 
and a seller, in which goods or services are exchanged for money or 
other assets.
    Sign-up period. The time period during which the Agency will accept 
enrollment applications.

[[Page 958]]

    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the Republic of Palau, the 
Federated States of Micronesia, and the Republic of the Marshall 
Islands.
    Third party production. Third party production involves outsourcing 
production processes to a third-party company whereby the third-party 
company, hired to produce, is supplying the manufacturing process as 
well as sourcing the raw materials/commodity feedstock. The contract 
producer is responsible for manufacturing the product to specification 
and disposition/delivery requirements. For purposes of this Program, any 
advanced biofuel produced under a contractual third-party production 
agreement is ineligible for payment. A producer that is strictly a 
third-party contractor produces no eligible advanced biofuel.
    Toll producer. See also bailment. Toll production/manufacturing is 
an arrangement, where a company with specialised equipment processes raw 
materials or unfinished goods for a different company. A toll producer 
of advanced biofuels produces advanced biofuels for another company. For 
purposes of this Program, any advanced biofuel produced by a toll 
producer of any form, or under any form of third-party production 
agreement, is regarded/considered as produced under bailment and is 
ineligible for payment.
    USDA. The United States Department of Agriculture.

[76 FR 7967, Feb. 11, 2011, as amended at 84 FR 71301, Dec. 27, 2019]



Sec. 4288.103  Review or appeal rights.

    A person may seek a review of an Agency decision or appeal to the 
National Appeals Division in accordance with 7 CFR part 11 of this 
title.



Sec. 4288.104  Compliance with other laws and regulations.

    (a) Advanced biofuel producers must comply with other applicable 
Federal, State, and local laws, including, but not limited to, the Equal 
Employment Opportunity Act, Title VI of the Civil Rights Act of 1964, 
Section 504 of the Rehabilitation Act of 1973, The Age Discrimination 
Act of 1975, the Americans with Disabilities Act of 1990, and 7 CFR part 
1901, subpart E. This includes collection and maintenance of race, sex, 
and national origin data of the recipient's employee.
    (b) Producers must comply with equal opportunity and 
nondiscriminatory requirements in accordance with 7 CFR 15d. Rural 
Development will not discriminate against an applicant on the bases of 
race, color, religion, national origin, sex, sexual orientation, marital 
status, familial status, disability, or age (provided that the applicant 
has the capacity to contract); to the fact that all or part of the 
applicant's income derives from public assistance program; or to the 
fact that the applicant has in good faith exercised any right under the 
Consumer Credit Protection Act.



Sec. 4288.105  Oversight and monitoring.

    (a) Verification. The Agency reserves the right to verify all 
payment applications and subsequent payments made under this subpart, as 
frequently as necessary, to ensure the integrity of the Program. The 
Agency will conduct site visits as necessary.
    (1) Production and feedstock verification. The Agency will review 
producer records to verify the type and amount of biofuel produced and 
the type and amount of commodity/eligible renewable biomass used.
    (2) Blending verification. The Agency will review the producer's 
certificates of analysis and feedstock records to verify the portion of 
the advanced biofuel eligible for payment.
    (3) Certificate of Analysis. The Agency will review the producer 
records for quarterly payments to ensure that each Certificate of 
Analysis has been issued by an Agency-approved qualified entity, which 
may include the blender only if the blender is not associated with the 
biorefinery.
    (b) Records. For the purpose of verifying compliance with the 
requirements of this subpart, each eligible advanced biofuel producer 
shall make available at one place at a reasonable time for examination 
by representatives of USDA, all books, papers, records, contracts, scale 
tickets, settlement sheets, invoices, written price

[[Page 959]]

quotations, and other documents related to the Program that is within 
the control of such advanced biofuel producer for not less than 3 years 
from each Program payment date.

[76 FR 7967, Feb. 11, 2011, as amended at 84 FR 71302, Dec. 27, 2019]



Sec. 4288.106  Forms, regulations, and instructions.

    Copies of all forms, regulations, instructions, and other materials 
related to this Program may be obtained from the USDA Rural Development 
State Office, Rural Energy Coordinator and the USDA Rural Development 
website at https://www.rd.usda.gov/.

[84 FR 71302, Dec. 27, 2019]



Sec. 4288.107  Exception authority.

    The Administrator of the Agency (``Administrator'') may, with the 
concurrence of the Secretary of Agriculture, make an exception, on a 
case-by-case basis, to any requirement or provision of this subpart that 
is not inconsistent with any authorizing statute or applicable law, if 
the Administrator determines that application of the requirement or 
provision would adversely affect the Federal government's interest.



Sec. Sec. 4288.108-4288.109  [Reserved]

                         Eligibility Provisions



Sec. 4288.110  Applicant eligibility.

    Sections 4288.110 through 4288.119 present the requirements 
associated with advanced biofuel producer eligibility, biofuel 
eligibility, eligibility notifications, and payment record requirements. 
To be eligible for this Program, the applicant must meet the 
requirements specified in paragraph (a) of this section and must provide 
additional information as may be requested by the Agency under paragraph 
(b) of this section. Public bodies and educational institutions are not 
eligible for this Program.
    (a) Eligible producer. The applicant must be an advanced biofuel 
producer, as defined in this subpart.
    (b) Eligibility determination. The Agency will determine an 
applicant's eligibility for participation in this Program. If an 
applicant's original submittal is not sufficient to verify an 
applicant's eligibility, the Agency will notify the applicant, in 
writing, as soon as practicable after receipt of the application. This 
notification will identify, at a minimum, the additional information 
being requested to enable the Agency to determine the applicant's 
eligibility and a timeframe in which to supply the information.
    (1) If the applicant provides the requested information to the 
Agency within the specified timeframe, the Agency will determine the 
applicant's eligibility for the upcoming fiscal year.
    (2) If the applicant does not provide the requested information to 
the Agency within the specified timeframe, the Agency will not consider 
the applicant any further for participation in the upcoming fiscal year. 
Such applicants may elect to enroll during the next sign-up period.
    (c) Ineligibility determination. An otherwise eligible producer will 
be determined to be ineligible if the producer:
    (1) Refuses to allow the Agency to verify any information provided 
by the producer under this subpart, including information for 
determining applicant eligibility, advanced biofuel eligibility, and 
application payments;
    (2) Fails to meet any of the conditions set out in this subpart, in 
the contract, or in other Program documents; or
    (3) Fails to comply with all applicable Federal, State, or local 
laws.

[76 FR 7967, Feb. 11, 2011, as amended at 84 FR 71302, Dec. 27, 2019]



Sec. 4288.111  Biofuel eligibility.

    To be eligible for this Program, a biofuel must meet the 
requirements specified in paragraph (a) of this section, and must not be 
listed in paragraph (b) of this section, and the biofuel's producer must 
provide additional information as may be requested by the Agency under 
paragraph (c) of this section.
    (a) Eligible advanced biofuel. For an advanced biofuel to be 
eligible, each of the following conditions must be met, as applicable:
    (1) The advanced biofuel must meet the definition of advanced 
biofuel and be produced in a State;

[[Page 960]]

    (2) The advanced biofuel must be a solid, liquid, or gaseous 
advanced biofuel;
    (3) The advanced biofuel must be a Final Product; and
    (4) The advanced biofuel must be sold as an advanced biofuel through 
an arm's length transaction to a third party.
    (b) Ineligible fuels. Notwithstanding the provisions of paragraph 
(a) of this section, for the purposes of this Program, the following 
fuels, and as may be supplemented by the Agency through the publication 
of documents in the Federal Register, are not eligible for payment:
    (1) Flared gases;
    (2) Fuels derived from paper milling and other processes commonly 
ascribed to wood products manufacturing and generically referred to as 
``liquor'' (e.g., black liquor, red liquor, brown liquor, white liquor, 
green liquor, etc.), which typically are blended with diesel and burned 
as boiler fuel;
    (3) Biofuels produced from solid eligible renewable biomass 
primarily by mechanical means, whether by hand or by machine, such as 
collecting, baling, bundling, chopping, screening, and chipping of the 
renewable biomass. Examples of ineligible biofuels that are not eligible 
advanced biofuels for the purposes of this subpart include, but are not 
limited to, baled energy grasses, chipped or chunked woody biomass, and 
chopped or split firewood; and
    (4) Any advanced biofuel produced under bailment or third-party 
production contract and/or any variation thereof.
    (c) Eligibility determination. The Agency will determine a biofuel's 
eligibility for payment under this Program. If an applicant's original 
submittal is not sufficient to verify a biofuel's eligibility, the 
Agency will notify the applicant, in writing, as soon as practicable 
after receipt of the application. This notification will identify, at a 
minimum, the additional information being requested to enable the Agency 
to determine the biofuel's eligibility and a timeframe in which to 
supply the information.
    (1) If the applicant provides the requested information to the 
Agency within the specified timeframe, the Agency will determine the 
biofuel's eligibility for the upcoming fiscal year.
    (2) If the applicant does not provide the requested information to 
the Agency within the specified timeframe, the biofuel will not be 
eligible for payment under this Program in the upcoming fiscal year. 
Applicants may elect to include such biofuels in the application form 
submitted during the next sign-up period.

[76 FR 7967, Feb. 11, 2011, as amended at 84 FR 71302, Dec. 27, 2019]



Sec. 4288.112  Eligibility notifications.

    (a) Applicant eligibility. If an applicant is determined by the 
Agency to be eligible for participation, the Agency will notify the 
applicant, in writing, as soon as practicable after receipt of the 
application and will assign the applicant a contract number.
    (b) Ineligibility notifications. If an applicant or a biofuel is 
determined by the Agency to be ineligible, the Agency will notify the 
applicant, in writing, as soon as practicable after receipt of the 
application, as to the reason(s) the applicant or biofuel was determined 
to be ineligible. Such applicant will have appeal rights as specified in 
this subpart.
    (c) Subsequent ineligibility determinations. If at any time a 
producer or an advanced biofuel is determined to be ineligible, the 
Agency will notify the producer in writing of its determination.



Sec. 4288.113  Payment record requirements.

    To be eligible for Program payments, an advanced biofuel producer 
must maintain records for all relevant fiscal years and fiscal year 
quarters for each advanced biofuel facility indicating:
    (a) The type of eligible renewable biomass used in the production of 
advanced biofuel;
    (b) The quantity of advanced biofuel produced from eligible 
renewable biomass at each advanced biofuel facility;
    (c) The quantity of eligible renewable biomass used at each advanced 
biofuel facility to produce the advanced biofuel; and
    (d) All other records required to establish Program eligibility and 
compliance.

[[Page 961]]



Sec. Sec. 4288.114-4288.119  [Reserved]

                          Enrollment Provisions



Sec. 4288.120  Enrollment.

    In order to participate in the Program, a producer of advanced 
biofuels must be approved by the Agency and enter into a contract with 
the Agency. The process for enrolling in the Program is presented in 
this section. Advanced biofuel producers who expect to produce eligible 
advanced biofuels at any time during a fiscal year must enroll in the 
Program as described in this section.
    (a) Enrollment. To enroll in the Program, an advanced biofuel 
producer must submit to the Agency a completed enrollment application 
during the applicable sign-up period, as specified in paragraph (b) of 
this section. Applicants must be registered in the System for Award 
Management (SAM) prior to submitting an application; which can be 
obtained at no cost via a toll-free request line at (866) 705-5711 or 
online at www.sam.gov/SAM. Registration of a new entity in SAM requires 
an original, signed, and notarized letter stating that the applicant is 
the authorized Entity Administrator, before the registration will be 
activated.
    (1) Eligible advanced biofuel producers must submit enrollment 
applications during each sign-up period in order to continue 
participating in this Program. If a participating producer fails to 
submit the enrollment application during a fiscal year's applicable 
sign-up period, the producer's contract will be terminated and the 
producer will be ineligible to receive payments for that fiscal year. 
Such a producer must reapply, and sign a new contract, to participate in 
the Program for future fiscal years.
    (2) Eligible advanced biofuel producers may submit an enrollment 
application during a fiscal year's sign-up period even if the advanced 
biofuel facility is not currently producing, but is scheduled to start 
producing advanced biofuel in that fiscal year.
    (3) The producer must furnish the Agency all required certifications 
before acceptance into the Program, and furnish access to the advanced 
biofuel producer's records required by the Agency to verify compliance 
with Program provisions. The required certifications depend on the type 
of biofuel produced. Certifications specified in paragraphs (a)(3)(i) 
through (a)(3)(iv) of this section are to be completed and provided by 
an accredited independent third party.
    (i) Alcohol. For alcohol producers with authority from ATF to 
produce alcohol, copies of either
    (A) The Alcohol Fuel Producers Permit (TTB F 5110.74) or
    (B) The registration of Distilled Spirits Plant (TTB F 5110.41) and 
Operating Permit (TTB F 5110.25).
    (ii) Hydrous ethanol. For hydrous ethanol that is upgraded by 
another distiller to anhydrous ethyl alcohol, the increased ethanol 
production is eligible for payment one time only. If the advanced 
biofuel producer entering into this agreement is:
    (A) The hydrous ethanol producer, then the advanced biofuel producer 
shall include with the contract an affidavit, acceptable to the Agency, 
from the distiller stating that the:
    (1) Applicable hydrous ethanol produced is distilled and denatured 
for fuel use according to ATF requirements, and
    (2) Distiller will not include the applicable ethanol in any payment 
requests that the distiller may make under this Program.
    (B) The distiller that upgrades hydrous ethanol to anhydrous ethyl 
alcohol, then the advanced biofuel producer shall include with the 
contract an affidavit, acceptable to the Agency, from the hydrous 
ethanol producer stating that the hydrous ethanol producer will not 
include the applicable ethanol in any payment requests that may be made 
under this Program.
    (iii) Biodiesel, biomass-based diesel, and liquid hydrocarbons 
derived from biomass. For these fuels, the advanced biofuel producer 
shall certify that the producer, the advanced biofuel facility, and the 
biofuel meet the definitions of these terms as defined in Sec. 
4288.102, the applicable registration requirements under the Energy 
Independence and Security Act and the Clean Air Act and under the 
applicable regulations of the U.S. Environmental Protection Agency and 
Internal Revenue Service, and the

[[Page 962]]

quality requirements per applicable ASTM International standards (e.g., 
ASTM D6751) and commercially acceptable quality standards of the local 
market. If a Renewable Identification Number has been established, the 
advanced biofuel producer shall also provide documentation of the most 
recent Renewable Identification Number for a typical gallon of each type 
of advanced biofuel produced.
    (iv) Gaseous advanced biofuel. For gaseous advanced biofuel 
producers, certification that the biofuel meets commercially acceptable 
pipeline quality standards of the local market; that the flow meters 
used to determine the quantity of advanced biofuel produced are industry 
standard and properly calibrated by a third-party professional; and that 
the readings have been taken by a qualified individual.
    (v) Woody biomass feedstock. If the feedstock is from National 
Forest system land or public lands, documentation must be provided that 
it cannot be used as a higher value wood-based product.
    (4) Applicants must submit the forms specified in this paragraph 
(a)(4) with the enrollment application when applying for participation 
under this subpart and as needed when re-enrolling in the program.
    (i) RD Instruction 1940-Q, Exhibit A-1, ``Certification for 
Contracts, Grants and Loans.''
    (ii) SF-LLL, ``Disclosure of Lobbying Activities.''
    (iii) Form RD 400-4, ``Assurance Agreement.''
    (b) Sign-up period. The sign-up period is October 1 to October 31 of 
the fiscal year for which payment is sought, unless otherwise announced 
by the Agency in a Federal Register notice.

[76 FR 7967, Feb. 11, 2011, as amended at 84 FR 71302, Dec. 27, 2019]



Sec. 4288.121  Contract.

    Advanced biofuel producers determined to be eligible to receive 
payments must then enter into a contract with the Agency in order to 
participate in this Program.
    (a) Contract. The Agency will forward the contract to the advanced 
biofuel producer. The advanced biofuel producer must agree to the terms 
and conditions of the contract, sign, date, and return it to the Agency 
within the time provided by the Agency.
    (b) Length of contract. Once signed, a contract will remain in 
effect until terminated as specified in paragraph (d) of this section.
    (c) Contract review. All contracts will be reviewed at least 
annually to ensure compliance with the contract and ensure the integrity 
of the program.
    (d) Contract termination. Contracts under this Program will be 
terminated in writing by the Agency. Contracts may be terminated under 
any one of the following conditions:
    (1) At the mutual agreement of the parties;
    (2) In accordance with applicable Program notices and regulations;
    (3) The advanced biofuel producer withdraws from the Program and so 
notifies the Agency, in writing;
    (4) The advanced biofuel producer fails to submit the enrollment 
application during a sign-up period;
    (5) The Program is discontinued or not funded;
    (6) All of a participating advanced biofuel producer's advanced 
biofuel facilities no longer exist or no longer produce any eligible 
advanced biofuel; or
    (7) The Agency determines that the advanced biofuel producer is 
ineligible for participation.



Sec. Sec. 4288.122-4288.129  [Reserved]

                           Payment Provisions



Sec. 4288.130  Payment applications.

    Sections 4288.130 through 4288.189 identify the process and 
procedures the Agency will use to make payments to eligible advanced 
biofuel producers. In order to receive payments under this Program, 
eligible advanced biofuel producers with valid contracts must submit a 
payment application, as required under paragraph (a) of this section. 
The Agency will review the payment application and, if necessary, may 
request additional information, as specified under paragraph (b) of this 
section.
    (a) Applying for payment. To apply for payments under this subpart 
for a fiscal year, an eligible advanced biofuel producer must:

[[Page 963]]

    (1) After a quarter has been completed, submit a payment application 
covering the quarter;
    (2) Certify that the request is accurate;
    (3) Furnish the Agency such certification, and access to such 
records, as the Agency considers necessary to verify compliance with 
Program provisions; and
    (4) Provide documentation as requested by the Agency of the net 
production of advanced biofuel at all advanced biofuel facilities during 
the relevant quarter.
    (b) Review of payment applications. The Agency will review each 
payment application it receives to determine if it is eligible for 
payment.
    (1) Review factors. Factors that the Agency will consider in 
reviewing payments applications include, but are not necessarily limited 
to:
    (i) Contract validity. Whether the entity submitting the payment 
application has a valid contract with the Agency under this Program;
    (ii) Biofuel eligibility. Whether the biofuel for which payment is 
sought is an eligible advanced biofuel; and
    (iii) Calculations. Whether the calculations for determining the 
requested payment are complete and accurate.
    (2) Additional documentation. If the Agency determines additional 
information is required for the Agency to complete its review of a 
payment application, eligible advanced biofuel producers shall submit 
such additional supporting documentation as requested by the Agency. If 
the producer does not provide the requested information within the 
required time period, the Agency will not make payment.
    (c) Payment application eligibility. The Agency will notify the 
advanced biofuel producer, in writing, as soon as practicable after the 
payment application, whenever the Agency determines that a payment 
application, or any portion thereof, is ineligible for payment and the 
basis for the Agency's determination of ineligibility.
    (d) Submittal information. Unless otherwise specified in a notice 
published in the Federal Register, eligible advanced biofuel producers 
must submit payment applications for this Program no later than 4:30 
p.m. local time on the last day of the calendar month following the 
quarter for which payment is being requested. No payment applications 
received after the specified date and time will be considered, 
regardless of the postmark on the application.
    (1) Any payment application form that is received by the Agency 
after October 31 of the calendar year for the preceding fiscal year is 
ineligible for payment.
    (2) If the actual deadline falls on a weekend or a Federally-
observed holiday, the deadline is the next Federal business day.

[76 FR 7967, Feb. 11, 2011, as amended at 84 FR 71302, Dec. 27, 2019]



Sec. 4288.131  Payment provisions.

    Payments to advanced biofuel producers for eligible advanced biofuel 
production will be determined in accordance with the provisions of this 
section.
    (a) Actual production. Participating producers will be paid on a 
quarterly basis for the actual quantity of eligible advanced biofuel 
produced during the quarter. Payment for actual production will be 
determined according to paragraph (d) of this section.
    (b) Amount of payment funds available. Based on the amount of funds 
made available to this Program each fiscal year, the Agency will 
allocate available program funds according to paragraphs (c), (d), and 
(e) of this section.
    (c) Quarterly allocations. For each fiscal year, the Agency will 
allocate in each quarter one-fourth of the funds identified in paragraph 
(b) of this section allocated for the entire fiscal year.
    (d) Determination of payment rate. Each quarter, the Agency will 
establish an actual production payment rate using the procedures 
specified in paragraphs (d)(1) through (4) of this section. This rate 
will be applied to the actual quantity of eligible advanced biofuel 
produced to determine payments to eligible advanced biofuel producers.
    (1) Based on the information provided in each payment application, 
the Agency will determine the eligible advanced biofuel production. If 
the Agency determines that the amount of advanced

[[Page 964]]

biofuel production reported in a payment application is not supported by 
the documentation submitted with the payment application, the Agency may 
revise the reported production to an amount that is commensurate with 
the submitted documentation.
    (2) For each producer, the Agency will convert the production 
determined to be eligible under paragraph (c) of this section into 
British Thermal Unit (BTU) equivalent using factors published by the 
Energy Information Administration (EIA) (or successor organization). If 
the Energy Information Administration does not publish such conversion 
factor for a specific type of advanced biofuel, the Agency will use a 
conversion factor developed by another appropriate entity. If no such 
conversion factor exists, the Agency, in consultation with other Federal 
agencies, will establish and use a conversion formula as appropriate, 
until the Energy Information Administration or other appropriate entity 
publishes a conversion factor for said advanced biofuel. The Agency will 
then calculate the total eligible BTUs across all eligible applications.
    (3) For each quarter, the Agency will determine the actual 
production payment rate ($/BTU) based on paragraphs (b), (c), and (d) of 
this section. The rate will be calculated such that all quarterly funds 
for actual production will be distributed, subject to the payment 
provisions specified in paragraph (e) of this section.
    (4) Using the actual production payment rate determined and the 
actual production for each type of advanced biofuel produced at a 
biorefinery, the Agency will calculate each quarter payment for each 
eligible advanced biofuel producer for that quarter.
    (e) Other payment provisions. The following provisions apply:
    (1) Notwithstanding any other provisions in this section, the Agency 
will provide payments to one or more eligible advanced biofuel producers 
from a single eligible Commodity, including intermediate ingredients of 
that single Commodity or use of that single Commodity and its 
intermediate ingredients in combination with another Commodity, of not 
more than one-third of available program funds in each quarter.
    (i) Payments to producers for advanced biofuel derived from a 
commodity listed in Title I grains and oilseeds (as defined paragraph 
(1) of the defintion of commodity in Sec. 4288.102), are subject to the 
one-third limitation as tracked individually for each commodity. For 
example, with respect to the Title I grains and oilseeds commodity--
grain sorghum, all payments for the quarter to producers of advanced 
biofuel derived from grain sorghum are tabulated and subject to the one-
third payment limitation. This is similarly true for each commodity 
listed under Title I grains and oilseeds--barley, oats, rice, soybeans, 
etc.
    (ii) Payments to producers for advanced biofuel derived from a 
commodity listed in paragraphs (2) through (6) of the defintion of 
commodity in Sec. 4288.102, inclusively, are subject to the one-third 
limitation as tracked cumulatively with each commodity group. For 
example, with respect to the commodity in paragraph (2) of the 
definition of commodity (other oilseeds and nuts including cottonseed, 
palm, camelina, coconut, and olive and algae), all payments for the 
quarter to producers of fuel derived from ``other oilseeds, nuts and 
algae'' are tabulated cumulatively (all are tracked as ``other oilseeds, 
nuts, and algae'' whether olive, or coconut, or camelina, etc.) and 
subject cumulatively to the one-third payment limitation. This is 
similarly true for the commodity in paragraphs (3) through (6) of the 
definition of commodity.
    (2) Notwithstanding any other provision of this section, the Agency 
will provide payments to large producers of not more than five (5) 
percent of available program funds in any fiscal year. At any time 
during the year, if the limit on payments to large producers would be 
reached, the Agency will pro-rate payments to large producers based on 
the BTU content of their eligible advanced biofuel production so as not 
to exceed the limit.
    (3) Notwithstanding any other provision of this section, the Agency 
will provide payments to any eligible advanced biofuel producer, that is 
not a large producer, of not more than eight

[[Page 965]]

(8) percent of available funds in any fiscal year. At any time during 
the year, if the eight percent to the advanced biofuel producer would be 
reached, the Agency will pro-rate payments based on the BTU content of 
the eligible advanced biofuel production so as not to exceed the limit.
    (4) Advanced biofuel producers will be paid based on the amount of 
eligible renewable energy content of the advanced biofuels only if the 
producer provides sufficient documentation, including a Certificate of 
Analysis, for the Agency to determine the eligible renewable energy 
content for which payment is being requested, and quantity produced 
through such documentation as, but not limited to, records of sale and 
calibrated flow meter records.
    (5) Payment will be made to only one eligible advanced biofuel 
producer per biorefinery. If a producer owns more than one facility, the 
Agency's tracking system will add all actual BTUs and calculate one 
payment amount. For facilities owned by more than one producer, only one 
payment will be issued per facility.
    (6) Subject to other provisions of this section, advanced biofuel 
producers shall be paid any sum due.
    (7) A producer will be paid only for the advanced biofuels 
identified in the enrollment application submitted during the sign-up 
period and which are produced during the fiscal year. If the producer 
starts producing a new advanced biofuel or changes the type of advanced 
biofuel during the fiscal year, the producer will not receive any 
payments for those new advanced biofuels. However, during each sign-up 
period, a producer may identify new advanced biofuels and production 
levels compared to the previous year.
    (8) When determining the quantity of eligible advanced biofuel, if 
an applicant is blending its advanced biofuel using ineligible 
feedstocks (e.g., fossil gasoline or methanol, corn kernel starch), only 
the quantity of advanced biofuel being produced from Renewable Biomass, 
other than corn kernel starch, will be used in determining the payment 
rates and for which payments will be made.

[84 FR 71302, Dec. 27, 2019]



Sec. 4288.132  Payment adjustments.

    The Agency will adjust the payments otherwise payable to the 
advanced biofuel producer if there is a difference between the amount 
actually produced and the amount determined by the Agency to be eligible 
for payment.



Sec. 4288.133  Payment liability.

    Any payment, or portion thereof, made under this subpart shall be 
made without regard to questions of title under State law and without 
regard to any claim or lien against the advanced biofuel, or proceeds 
thereof, in favor of the owner or any other creditor except agencies of 
the U.S. Government.



Sec. 4288.134  Refunds and interest payments.

    An eligible advanced biofuel producer who receives payments under 
this subpart may be required to refund such payments as specified in 
this section. If the Agency suspects fraudulent representation through 
its site visits and records inspections under Sec. 4288.105(b), it will 
be referred to the Office of Inspector General for appropriate action.
    (a) An eligible advanced biofuel producer receiving payments under 
this subpart shall become ineligible if the Agency determines the 
advanced biofuel producer has:
    (1) Made any fraudulent representation; or
    (2) Misrepresented any material fact affecting a Program 
determination.
    (b) If an Agency determination that a producer is not eligible for 
participation under this subpart is appealed and overturned, the Agency 
will make appropriate and applicable payments to the producer from 
Program funds, to the extent such funds are available, that remain from 
the fiscal year in which the original adverse Agency decision was made.
    (c) All payments made to an entity determined by the Agency to be 
ineligible shall be refunded to the Agency with interest and other such 
sums as may become due, including, but not limited to, any interest, 
penalties, and administrative costs as determined appropriate under 31 
CFR 901.9.
    (d) When a refund is due, it shall be paid promptly. If a refund is 
not made

[[Page 966]]

promptly, the Agency may use all remedies available to it, including 
Treasury offset under the Debt Collection Improvement Act of 1996, 
financial judgment against the producer, and referral to the Department 
of Justice.
    (e) Late payment interest shall be assessed on each refund in 
accordance with the provisions and rates as established by the United 
States Treasury.
    (1) Interest charged by the Agency under this subpart shall be 
established by the United States Treasury. Such interest shall accrue 
from the date such payments were made by the Agency to the date of 
repayment by the producer.
    (2) The Agency may waive the accrual of interest or damages if the 
Agency determines that the cause of the erroneous payment was not due to 
any action of the advanced biofuel producer.
    (f) Any advanced biofuel producer or person engaged in an act 
prohibited by this section and any advanced biofuel producer or person 
receiving payment under this subpart shall be jointly and severally 
liable for any refund due under this subpart and for related charges.



Sec. 4288.135  Unauthorized payments and offsets.

    When unauthorized assistance has been made to an advanced biofuel 
producer under this Program, the Agency reserves the right to collect 
from the recipient the sum that is determined to be unauthorized. If the 
recipient fails to pay the Agency the unauthorized assistance plus other 
sums due under this section, the Agency reserves the right to offset 
that amount against Program payments.
    (a) Unauthorized assistance. The Agency will seek to collect from 
recipients all unauthorized assistance made under this Program using the 
procedures specified in paragraphs (a)(1) through (a)(4) of this 
section.
    (1) Notification to the producer. Upon determination that 
unauthorized assistance has been made to an advanced biofuel producer 
under this Program, the Agency will send a demand letter to the 
producer. Unless the Agency modifies the original demand, it will remain 
in full force and effect. The demand letter will:
    (i) Specify the amount of unauthorized assistance, including any 
accrued interest to be repaid, and the standards for imposing accrued 
interest;
    (ii) State the amount of penalties and administrative costs to be 
paid, the standards for imposing them and the date on which they will 
begin to accrue;
    (iii) Provide detailed reason(s) why the assistance was determined 
to be unauthorized;
    (iv) State the amount is immediately due and payable to the Agency;
    (v) Describe the rights the producer has for seeking review or 
appeal of the Agency's determination pursuant to 7 CFR part 11;
    (vi) Describe the Agency's available remedies regarding enforced 
collection, including referral of debt delinquent after due process for 
Federal salary, benefit and tax offset under the Department of Treasury 
Offset Program; and
    (vii) Provide an opportunity for the producer to meet with the 
Agency and to provide to the Agency facts, figures, written records, or 
other information that might refute the Agency's determination.
    (A) If the producer meets with the Agency, the producer will be 
given an opportunity to provide information to refute the Agency's 
findings.
    (B) When requested by the producer, the Agency may grant additional 
time for the producer to assemble documentation. Such extension of time 
for payment will be valid only if the Agency documents the extension in 
writing and specifies the period in days during which period the payment 
obligation created by the demand letter (but not the ongoing accrual of 
interest) will be suspended. Interest and other charges will continue to 
accrue pursuant to the initial demand letter during any extension period 
unless the terms of the demand letter are modified in writing by the 
Agency.

[[Page 967]]

    (2) Payment in full. If the producer agrees with the Agency's 
determination or will pay the amount in question, the Agency may allow a 
reasonable period of time (usually not to exceed 90 days) for the 
producer to arrange for repayment. The amount due will be the 
unauthorized payments made plus interest accrued beginning on the date 
of the demand letter at the interest rate stipulated until the date paid 
unless otherwise agreed, in writing, by the Agency.
    (3) Promissory note. If the producer agrees with the Agency's 
determination or is willing to pay the amount in question, but cannot 
repay the unauthorized assistance within a reasonable period of time, 
the Agency will convert the unauthorized assistance amount to a loan 
provided all of the conditions specified in paragraphs (a)(3)(i) through 
(a)(3)(iii) of this section are met. Loans established under this 
paragraph will be at the Treasury interest rate in effect on the date 
the financial assistance was provided and that is consistent with the 
term length of the promissory note. In all cases, the receivable will be 
amortized per a repayment schedule satisfactory to the Agency that has 
the producer pay the unauthorized assistance as quickly as possible, but 
in no event will the amortization period exceed fifteen (15) years. The 
producer will be required to execute a debt instrument to evidence this 
receivable, and the best security position practicable in a manner that 
will adequately protect the Agency's interest during the repayment 
period will be taken as security.
    (i) The producer did not provide false information;
    (ii) It would be highly inequitable to require prompt repayment of 
the unauthorized assistance; and
    (iii) Failure to collect the unauthorized assistance immediately 
will not adversely affect the Agency's interests.
    (4) Appeals. Appeals resulting from the demand letter prescribed in 
paragraph (a)(1) of this section will be handled according to the 
provisions of Sec. 4288.103. All appeal provisions will be concluded 
before proceeding with further actions.
    (b) Offsets. Failure to make payment as determined under paragraph 
(a) of this section will be treated by the Agency as a debt that can be 
collected by an Administrative offset, unless written agreements to 
repay such debt as an alternative to administrative offset is agreed to 
between the Agency and the producer.
    (1) Any debtor who wishes to reach a written agreement to repay the 
debt as an alternative to administrative offset must submit a written 
proposal for repayment of the debt, which must be received by the Agency 
within 20 calendar days of the date the notice was delivered to the 
debtor. In response, the Agency will notify the debtor in writing 
whether the proposed agreement is acceptable. In exercising its 
discretion, the Agency will balance the Government's interest in 
collecting the debt against fairness to the debtor.
    (2) When the Agency receives a debtor's proposal for a repayment 
agreement, the offset is stayed until the debtor is notified as to 
whether the initial agreement is acceptable. If a Government payment 
will be made before the end of the fiscal year and the review is not yet 
completed, payment will be deferred pending resolution of the review.



Sec. 4288.136  Remedies.

    In addition to the steps available under the provisions of 
Sec. Sec. 4288.134 and 4288.135, if the Agency has determined that a 
producer has misrepresented the information or defrauded the Government, 
the Agency will take one of the following steps in accordance with 2 CFR 
part 417:
    (a) Suspend payments on the Contract until the violation has been 
reconciled;
    (b) Terminate the Contract; or
    (c) Debarment to participate in any Federal Government program.

[76 FR 7967, Feb. 11, 2011, as amended at 85 FR 31939, May 28, 2020]



Sec. 4288.137  Succession and loss of control of advanced biofuel facilities and production.

    (a) Contract succession. An entity who becomes the eligible advanced 
biofuel producer for an advanced biofuel facility that is under contract 
under this subpart must request permission from the Agency to succeed to 
the Program

[[Page 968]]

contract and the Agency may grant such request if it is determined that 
the entity is an eligible producer and permitting such succession would 
serve the purposes of the Program. If appropriate, the Agency may 
require the consent of the previous eligible advanced biofuel producer 
to such succession.
    (b) Loss of control. Payments will be made only for eligible 
advanced biofuels produced at an advanced biofuel facility owned or 
controlled by an eligible advanced biofuel producer with a valid 
contract. If payments are made to an advanced biofuel producer for 
production at an advanced biofuel facility no longer owned or controlled 
by said producer or to an otherwise ineligible advanced biofuel 
producer, the Agency will demand full refund of all such payments.



Sec. Sec. 4288.138-4288.200  [Reserved]



PART 4290_RURAL BUSINESS INVESTMENT COMPANY (``RBIC'') PROGRAM--Table of Contents



                   Subpart A_Introduction to Part 4290

Sec.
4290.10 Description of the Rural Business Investment Company Program.
4290.15 Leveraged and Non-leveraged Rural Business Investment Companies.
4290.20 Legal basis and applicability of this part 4290.
4290.30 Amendments to Act and regulations.
4290.40 How to read this part 4290.
4290.45 Responsibility for implementing this part 4290.

             Subpart B_Definition of Terms Used in Part 4290

4290.50 Definition of terms.

              Subpart C_Qualifications for the RBIC Program

                            Organizing a RBIC

4290.100 Business form.
4290.110 Qualified management.
4290.120 Plan to invest in Rural Areas.
4290.130 Identified Rural Areas.
4290.140 Approval of initial Management Expenses.
4290.150 Management and ownership diversity requirement.
4290.160 Special rules for Partnership RBICs and LLC RBICs.
4290.165 Obligations of Control Persons.

                           Capitalizing a RBIC

4290.200 Adequate capital for RBICs.
4290.210 Minimum capital requirements for RBICs.
4290.230 Private Capital for RBICs.
4290.240 Limitations on non-cash capital contributions in Private 
          Capital.

      Subpart D_Application and Approval Process for RBIC Licensing

4290.300 When and how to apply for a RBIC License.
4290.310 Contents of application.
4290.320 Contents of comprehensive business plan.
4290.330 Guarantee fee.

               Subpart E_Evaluation and Selection of RBICs

4290.340 Evaluation and selection--general.
4290.350 Eligibility and completeness.
4290.360 Initial review of Applicant's management team's qualifications.
4290.370 Evaluation criteria.
4290.380 Selection.
4290.390 Licensing as a RBIC.

          Subpart F_Changes in Ownership, Structure, or Control

                Changes in ControL or Ownership of a RBIC

4290.400 Changes in ownership of 10 percent or more of RBIC but no 
          change of Control.
4290.410 Changes in Control of RBIC (through change in ownership or 
          otherwise).
4290.420 Prohibition on exercise of ownership or Control rights in RBIC 
          before approval.
4290.430 Notification of transactions that may change ownership or 
          Control.
4290.440 Standards governing prior approval for a proposed transfer of 
          Control.
4290.450 Notification of pledge of RBIC's shares.

    Restrictions on Common Control or Ownership of Two or More RBICs

4290.460 Restrictions on Common Control or ownership of two (or more) 
          RBICs.

                       Change in Structure of RBIC

4290.470 Prior approval of merger, consolidation, or reorganization of 
          RBIC.
4290.480 Prior approval of changes to RBIC's business plan.

[[Page 969]]

               Subpart G_Managing the Operations of a RBIC

                          General Requirements

4290.500 Lawful operations under the Act.
4290.502 Representations to the public.
4290.503 RBIC's adoption of an approved valuation policy.
4290.504 Equipment of USDA or SBA officials.
4290.506 Safeguarding the RBIC's assets/Internal controls.
4290.507 Violations based on false filings and nonperformance of 
          agreements with the Agency or SBA.
4290.508 Compliance with non-discrimination laws and regulations 
          applicable to federally-assisted programs.
4290.509 Employment of USDA or SBA officials.

                       Management and Compensation

4290.510 Approval of RBIC's Investment Adviser/Manager.
4290.520 Management Expenses of a RBIC.

                        Cash Management by a RBIC

4290.530 Restrictions on investments of idle funds by RBICs.

                       Secured Borrowing by RBICs

4290.550 Prior approval of secured third-party debt of RBICs.

                Voluntary Decrease in Regulatory Capital

4290.585 Voluntary decrease in RBIC's Regulatory Capital.

  Subpart H_Recordkeeping, Reporting, and Examination Requirements for 
                                  RBICs

                  Recordkeeping Requirements for RBICs

4290.600 General requirement for RBIC to maintain and preserve records.
4290.610 Required certifications for Loans and Investments.
4290.620 Requirement to obtain information from Portfolio Concerns.

                    Reporting Requirements for RBICs

4290.630 Requirement for RBICs to file financial statements and 
          supplementary information with the Agency.
4290.640 Requirement to file portfolio financing reports with the 
          Agency.
4290.650 Requirement to report portfolio valuations to the Agency.
4290.660 Other items required to be filed by RBIC with the Agency.
4290.680 Reporting changes in RBIC not subject to prior approval.

      Examinations of RBICS by the Agency for Regulatory Compliance

4290.690 Examinations.
4290.691 Responsibilities of RBIC during examination.
4290.692 Examination fees.

               Subpart I_Financing of Enterprises by RBICs

       Determining Eligibility of an Enterprise for RBIC Financing

4290.700 Requirements concerning types of enterprises to receive 
          financing.
4290.720 Enterprises that may be ineligible for Financing.
4290.730 Financings which constitute conflicts of interest.
4290.740 Portfolio diversification (``overline'' limitation).
4290.760 How a change in size or activity of a Portfolio Concern affects 
          the RBIC and the Portfolio Concern.

 Structuring RBIC Financing of Eligible Enterprises--Types of Financings

4290.800 Financings in the form of Equity Securities.
4290.810 Financings in the form of Loans.
4290.815 Financings in the form of Debt Securities.
4290.820 Financings in the form of guarantees.
4290.825 Purchasing securities from an underwriter or other third party.
4290.830 Minimum term of Financing.
4290.835 Exception to minimum term of Financing.
4290.840 Maximum term of Financing.
4290.845 Maximum rate of amortization on Loans and Debt Securities.
4290.850 Restrictions on redemption of Equity Securities.
4290.860 Financing fees and expense reimbursements a RBIC may receive 
          from an Enterprise.
4290.880 Assets acquired in liquidation of Portfolio securities.

                  Limitations on Disposition of Assets

4290.885 Disposition of assets to RBIC's Associates or to competitors of 
          Portfolio Concerns.
4290.900 Management fees for services provided to an Enterprise by RBIC 
          or its Associate.

           Subpart J_Financial Assistance for RBICs (Leverage)

              General Information About Obtaining Leverage

4290.1100 Type of Leverage and application procedures.

[[Page 970]]

4290.1120 General eligibility requirements for Leverage.
4290.1130 Leverage fees payable by RBIC.
4290.1140 RBIC's acceptance of remedies under Sec. 4290.1810.

         Maximum Amount of Leverage for Which a RBIC is Eligible

4290.1150 Maximum amount of Leverage for a RBIC.

         Conditional Commitments To Reserve Leverage for a RBIC

4290.1200 Leverage commitment to a RBIC--application procedure, amount, 
          and term.
4290.1220 Requirement for RBIC to file financial statements at the time 
          of request for a draw.
4290.1230 Draw-downs by RBIC under Leverage commitment.
4290.1240 Funding of RBIC's draw request through sale to third party.

            Distributions by RBICs With Outstanding Leverage

4290.1500 Restrictions on distributions to RBIC investors while RBIC has 
          outstanding Leverage.

         Funding Leverage by Use of Trust Certificates (``TCs'')

4290.1600 Agency's authority to issue and guarantee Trust Certificates.
4290.1610 Effect of prepayment or early redemption of Leverage on a 
          Trust Certificate.
4290.1620 Functions of agents, including Central Registration Agent, 
          Selling Agent and Fiscal Agent.
4290.1630 Regulation of Brokers and Dealers and disclosure to purchasers 
          of Leverage or Trust Certificates.
4290.1640 Agency's access to records of the CRA, Brokers, Dealers and 
          Pool or Trust assemblers.

                              Miscellaneous

4290.1700 Agency's transfer of interest in a RBIC's Leverage security.
4290.1710 Agency's authority to collect or compromise claims.
4290.1720 Characteristics of Agency's guarantee.

          Subpart K_RBIC's Noncompliance With Terms of Leverage

4290.1810 Events of default and the Agency's remedies for RBIC's 
          noncompliance with terms of Debentures.

                Computation of RBIC's Capital Impairment

4290.1830 RBIC's Capital Impairment definition and general requirements.
4290.1840 Computation of RBIC's Capital Impairment Percentage.

                  Subpart L_Ending Operations as a RBIC

4290.1900 Termination of participation as a RBIC.

                         Subpart M_Miscellaneous

4290.1910 Non-waiver of rights or terms of Leverage security.
4290.1920 RBIC's application for exemption from a regulation in this 
          part 4290.
4290.1930 Effect of changes in this part 4290 on transactions previously 
          consummated.
4290.1940 Integration of this part with other regulations applicable to 
          USDA's programs.

    Subpart N_Requirements for Operational Assistance Grants to RBICs

4290.2000 Operational Assistance grants to RBICs.

   Subpart O_Additional Requirements for Non-Leveraged Licensees and 
                        Exceptions to Regulations

4290.3000 Non-leveraged RBICs--General.
4290.3001-4290.3002 [Reserved]
4290.3003 Responsibilities for implementing Non-leveraged RBICs.
4290.3004 [Reserved]
4290.3005 Qualifications for the Non-leveraged RBIC Program.
4290.3006-4290.3009 [Reserved]
4290.3010 Application and Approval Process for RBIC licensing without 
          Leverage.
4290.3011-4290.3014 [Reserved]
4290.3015 Evaluation and selection of Non-leveraged RBICs.
4290.3016-4290.3019 [Reserved]
4290.3020 Changes in Ownership, Structure, or Control.
4290.3021-4290.3024 [Reserved]
4290.3025 Managing the Operations of a RBIC.
4290.3026-4290.3029 [Reserved]
4290.3030 Financing of Enterprises by RBICs.
4290.3031-4290.3034 [Reserved]
4290.3035 Recordkeeping, Reporting, and Examination Requirements for 
          RBICs.
4290.3036-4290.3039 [Reserved]
4290.3040 Financial Assistance for RBICs.
4290.3041 Events of default and the Agency's remedies for RBIC's 
          noncompliance with terms of licensure.
4290.3042-4290.3044 [Reserved]
4290.3045 Computation of RBIC's Capital Impairment.
4290.3046-4290.3049 [Reserved]
4290.3050 Operational Assistance Grants for RBICs.

[[Page 971]]

4290.3051-4290.3099 [Reserved]

    Authority: 7 U.S.C. 1989 and 2009cc et seq.

    Source: 69 FR 32204, June 8, 2004, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 4290 appear at 85 FR 
16522, Mar. 24, 2020.



                   Subpart A_Introduction to Part 4290



Sec. 4290.10  Description of the Rural Business Investment Company Program.

    The Rural Business Investment Company (``RBIC'') Program is a 
Developmental Capital program for the purpose of promoting economic 
development and the creation of wealth and job opportunities in Rural 
Areas and among individuals living in such Areas. To this end, the 
Agency will select and license RBIC Applicants that will agree to 
address the unmet Equity Capital needs of Smaller Enterprises primarily 
located in Rural Areas.



Sec. 4290.15  Leveraged and Non-leveraged Rural Business Investment Companies.

    The regulations in this part apply to rural business investment 
companies (RBICs) that seek leverage and to RBICs that do not seek 
leverage. The provisions of subparts A through N of this part apply to 
Leveraged RBICs and, except as indicated or as otherwise modified by 
subpart O of this part, to Non-leveraged RBICs. The provisions in 
subpart O of this part apply to Non-leveraged RBICs and, in addition, 
modify certain provisions in subparts A through N of this part as they 
apply to Non-leveraged RBICs.

[76 FR 80221, Dec. 23, 2011]



Sec. 4290.20  Legal basis and applicability of this part 4290.

    The regulations in this part implement Subtitle H of the 
Consolidated Farm and Rural Development Act, as amended (7 U.S.C. 2009cc 
et seq.) (``Act''). All RBICs must comply with all applicable 
regulations, accounting guidelines and valuation guidelines for RBICs.



Sec. 4290.30  Amendments to Act and regulations.

    A RBIC is subject to all existing and future provisions of the Act 
and part 4290 of title 7 of the Code of Federal Regulations.



Sec. 4290.40  How to read this part 4290.

    (a) Center Headings. Center headings are descriptive and are used 
for convenience only. They have no regulatory effect.
    (b) Capitalizing defined terms. Terms defined in Sec. 4290.50 have 
initial capitalization in this part 4290.
    (c) ``You.'' The pronoun ``you'' as used in this part 4290 means a 
RBIC unless otherwise noted.
    (d) Forms. All references in this part to forms, and instructions 
for their preparation, are to the current issue of such forms.



Sec. 4290.45  Responsibility for implementing this part 4290.

    The Agency has delegated to the U.S. Small Business Administration 
(SBA), pursuant to an agreement under the Economy Act (31 U.S.C. 1535), 
the authority to implement the RBIC program, including implementing and 
enforcing the regulations in this part 4290. Therefore, unless 
specifically stated otherwise, SBA will exercise on behalf of the Agency 
all responsibilities and authorities assigned to the Agency in this part 
4290.



             Subpart B_Definition of Terms Used in Part 4290



Sec. 4290.50  Definition of terms.

    Act means Subtitle H of the Consolidated Farm and Rural Development 
Act, as amended (7 U.S.C. 2009cc et seq.).
    Administrator means the Administrator of SBA.
    Affiliate or Affiliates has the meaning set forth in title 13 CFR 
121.103.
    Agency means the Rural Business-Cooperative Service (RBS) an agency 
of the U.S. Department of Agriculture.
    Applicant means any entity submitting an application to be licensed 
as a RBIC.

[[Page 972]]

    Articles mean articles of incorporation or charter and bylaws for a 
Corporate RBIC, the certificate and limited partnership agreement for a 
Partnership RBIC, and the operating agreement or other organizational 
documents for an LLC RBIC.
    Assistance or Assisted means Financing of or management services 
rendered to a Portfolio Concern by or through a RBIC pursuant to the Act 
and this part.
    Associate of a RBIC means any of the following:
    (1)(i) An officer, director, employee or agent of a Corporate RBIC;
    (ii) A Control Person, employee or agent of a Partnership RBIC;
    (iii) A managing member of an LLC RBIC;
    (iv) An Investment Adviser/Manager of any RBIC, including any Person 
who contracts with a Control Person of a RBIC to be the Investment 
Adviser/Manager of such RBIC; or
    (v) Any Person regularly serving a RBIC on retainer in the capacity 
of attorney at law.
    (2) Any Person who owns or controls, or who has entered into an 
agreement to own or control, directly or indirectly, at least 10 percent 
of any class of stock of a Corporate RBIC or 10 percent of the 
membership interests of an LLC RBIC, or a limited partner's interest of 
at least 10 percent of the partnership capital of a Partnership RBIC. 
However, neither a limited partner in a Partnership RBIC nor a non-
managing member in an LLC RBIC is considered an Associate if such Person 
is an Entity Institutional Investor whose investment in the Partnership, 
including commitments, represents no more than 33 percent of the capital 
of the RBIC and no more than five percent of such Person's net worth.
    (3) Any officer, director, partner (other than a limited partner), 
manager, agent, or employee of any Associate described in paragraph (1) 
or (2) of this definition.
    (4) Any Person that directly or indirectly Controls, or is 
Controlled by, or is under Common Control with, a RBIC.
    (5) Any Person that directly or indirectly Controls, or is 
Controlled by, or is under Common Control with, any Person described in 
paragraphs (1) and (2) of this definition.
    (6) Any Close Relative of any Person described in paragraphs (1), 
(2), (4), and (5) of this definition.
    (7) Any Secondary Relative of any Person described in paragraphs 
(1), (2), (4), and (5) of this definition.
    (8) Any concern in which--
    (i) Any person described in paragraphs (1) through (6) of this 
definition is an officer; general partner, or managing member; or
    (ii) Any such Person(s) singly or collectively Control or own, 
directly or indirectly, an equity interest of at least 10 percent 
(excluding interests that such Person(s) own indirectly through 
ownership interests in the RBIC).
    (9) Any concern in which any Person(s) described in paragraph (7) of 
this definition singly or collectively own (including beneficial 
ownership) a majority equity interest, or otherwise have Control. As 
used in this paragraph (9), ``collectively'' means together with any 
Person(s) described in paragraphs (1) though (7) of this definition.
    (10) For the purposes of this definition, any Associate relationship 
described in paragraphs (1) through (7) of this definition that exists 
at any time within six months before or after the date that a RBIC 
provides Financing, will be considered to exist on the date of the 
Financing.
    Capital Impairment has the meaning set forth in Sec. 4290.1830(b).
    Central Registration Agent or CRA means one or more agents appointed 
for the purpose of issuing Trust Certificates (TCs) and performing the 
functions enumerated in Sec. 4290.1620 and performing similar functions 
for Debentures funded outside the pooling process.
    Close Relative of an individual means:
    (1) A current or former spouse;
    (2) A father, mother, guardian, brother, sister, son, daughter; or
    (3) A father-in-law, mother-in-law, brother-in-law, sister-in-law, 
son-in-law, or daughter-in-law.
    Commitment means a written agreement between a RBIC and an 
Enterprise that obligates the RBIC to provide Financing (except a 
guarantee) to

[[Page 973]]

that Enterprise in a fixed or determinable sum, by a fixed or 
determinable future date. In this context the term ``agreement'' means 
that there has been agreement on the principal economic terms of the 
Financing. The agreement may include reasonable conditions precedent to 
the RBIC's obligation to fund the Commitment, but these conditions must 
be outside the RBIC's control.
    Common Control means a condition such that two or more Persons, 
either through ownership, management, contract, or otherwise, are under 
the Control of one group or Person. Two or more RBICs are presumed to be 
under Common Control if they are Affiliates of each other by reason of 
common ownership or common officers, directors, or general partners; or 
if they are managed or their investments are significantly directed 
either by a common independent Investment Advisor/Manager or managerial 
contractor, or by two or more such advisors or contractors that are 
Affiliates of each other. This presumption may be rebutted by evidence 
satisfactory to the Agency.
    Community Development Finance means debt securities or equity-type 
investments in Rural Areas.
    Conflict of interest means a situation in which a person or entity 
has competing personal, professional, or financial interests that make 
it difficult for the person or business to act impartially. Regarding 
use of both grant and matching funds, Federal procurement standards 
prohibit transactions that involve a real or apparent conflict of 
interest for owners, employees, officers, agents, their immediate family 
members, partners or an organization which is about to employ any of the 
parties indicated herein, having a financial or other interest in or a 
tangible personal benefit from the outcome of the project; or that 
restrict open and free competition for unrestrained trade. Specifically, 
project funds may not be used for services or goods going to, or coming 
from, a person or entity with a real or apparent conflict of interest, 
including, but not limited to, owner(s) and their immediate family 
members.
    Control means the possession, direct or indirect, of the power to 
direct or cause, or the power to stop or hinder (also referred to as 
``negative Control''), the direction of the management and policies of a 
RBIC or other concern, whether through the ownership of voting 
securities, by contract, or otherwise.
    Control Person means any Person that controls a RBIC, either 
directly or through an intervening entity. A Control Person includes:
    (1) A general partner of a Partnership RBIC;
    (2) Any Person serving as a general partner (in the case of a 
partnership), an officer or director (in the case of a corporation), or 
a manager (in the case of a limited liability company) of any entity 
that controls a RBIC, either directly or through an intervening entity;
    (3) Any Person that--
    (i) Controls or owns, directly or through an intervening entity, at 
least 10 percent of a Partnership RBIC, a LLC RBIC, or any entity 
described in paragraphs (1) or (2) of this definition; and
    (ii) Participates in the investment decisions of a general partner 
of such Partnership RBIC or of a managing member of such LLC RBIC;
    (4) Any Person that controls or owns, directly or through an 
intervening entity, at least 50 percent of a RBIC or any entity 
described in paragraphs (1) or (2) of this definition.
    Corporate RBIC has the meaning set forth in the definition of RBIC 
in this section.
    Debenture means a debt obligation issued by RBICs pursuant to 
section 384E of the Act and held or guaranteed by the Agency. A 
Debenture may be prepaid at any time without penalty.
    Debt Securities means instruments evidencing a loan with an option 
or any other right to acquire Equity Securities in an Enterprise or its 
Affiliates, or a loan which by its terms is convertible into an equity 
position. Consideration must be paid for all options acquired.
    Developmental Capital means Equity Capital invested in Rural 
Business Concerns, with an objective of fostering economic development 
in Rural Areas.
    Distribution means any transfer of cash or non-cash assets to the 
Agency,

[[Page 974]]

the Agency's agent or Trustee, or to partners in a Partnership RBIC, or 
to shareholders in a Corporate RBIC, or to members in an LLC RBIC. 
Capitalization of Retained Earnings Available for Distribution 
constitutes a Distribution to the RBIC's partners, shareholders, or 
members.
    Enterprise means a Person engaged in a business or commercial 
activity which charges for the goods and services it provides, whether 
such Person is operating for profit or is subject to any legal 
restrictions on the distribution of profits to its owners, members, or 
suppliers of its equity or quasi-equity capital. An Enterprise includes:
    (1) A public, private, or cooperative for-profit or non-profit 
organization;
    (2) A for-profit or nonprofit business controlled by an Indian tribe 
on a Federal or State reservation or other federally recognized Indian 
tribal group; or
    (3) Any other Person.
    Entity General Partner has the meaning set forth in Sec. 4290.160.
    Entity Managing Member has the meaning set forth in Sec. 4290.160.
    Equity Capital means Equity Securities or Subordinated Debt With 
Equity Features.
    Equity Securities means stock of any class in a corporation, stock 
options, warrants, limited partnership interests in a limited 
partnership, membership interests in a limited liability company, or 
joint interests.
    Farm Credit System Institution means an institution defined in 
section 1.2(a) of the Farm Credit Act of 1971 (12 U.S.C. 2002(a)).
    Financing or Financed means outstanding financial assistance 
provided to a Portfolio Concern by a RBIC, whether through:
    (1) Loans, with or without a right to acquire Equity Securities;
    (2) Debt Securities;
    (3) Equity Securities;
    (3) Subordinated Debt With Equity Features;
    (4) Guarantees; or
    (5) Purchases of securities of an Enterprise through or from an 
underwriter as permitted by Sec. 4290.825.
    Guaranty Agreement means the contract entered into by the Agency 
which is a guarantee backed by the full faith and credit of the United 
States Government as to timely payment of principal and interest on 
Debentures and the Agency's rights in connection with such guarantee.
    Includible Non-Cash Gains means those non-cash gains (as reported on 
SBA Form 468 or other USDA-approved form(s)) that are realized in the 
form of Publicly Traded and Marketable securities or investment grade 
debt instruments. For purposes of this definition, investment grade debt 
instruments means those instruments that are rated ``BBB'' or ``Baa'', 
or better, by Standard & Poor's Corporation or Moody's Investors 
Service, respectively. Non-rated debt may be considered to be investment 
grade if a RBIC obtains a written opinion from an investment banking 
firm acceptable to the Agency stating that the non-rated debt instrument 
is equivalent in risk to the issuer's investment grade debt.
    Institutional Investor means Entity Institutional Investor or 
Individual Institutional Investor, each defined as follows:
    (1) Entity Institutional Investors. Any of the following entities if 
the entity has a net worth (exclusive of unfunded commitments from 
investors) of at least $1 million, or such higher amount as is specified 
in this paragraph (1). (See also Sec. 4290.230(c)(4) for limitations on 
the amount of an Entity Institutional Investor's commitment that may be 
included in Private Capital.)
    (i) A State or National bank, Farm Credit System Institution, trust 
company, savings bank, or savings and loan association, including an 
investment pool created entirely by such bank or savings association, 
the deposits of which are insured under the Federal Deposit Insurance 
Act.
    (ii) An insurance company.
    (iii) A 1940 Act Investment Company or Business Development Company 
(each as defined in the Investment Company Act of 1940, as amended (15 
U.S.C. 80a-1 et seq.).
    (iv) A holding company of any entity described in paragraph (l)(i), 
(ii) or (iii) of this definition.
    (v) An employee benefit or pension plan established for the benefit 
of employees of the Federal government, any State or political 
subdivision of a

[[Page 975]]

State, or any agency or instrumentality of such government unit.
    (vi) An employee benefit or pension plan (as defined in the Employee 
Retirement Income Security Act of 1974, as amended (Public Law 93-406, 
88 Stat. 829), excluding plans established under Sec. 401(k) of the 
Internal Revenue Code of 1986 (26 U.S.C. 401(k)), as amended).
    (vii) A trust, foundation or endowment exempt from Federal income 
taxation under the Internal Revenue Code of 1986, 26 U.S.C. 1, as 
amended.
    (viii) A corporation, partnership or other entity with a net worth 
(exclusive of unfunded commitments from investors) of more than $10 
million.
    (ix) A State, a political subdivision of a State, or an agency or 
instrumentality of a State or its political subdivision.
    (x) An entity whose primary purpose is to manage and invest non-
Federal funds on behalf of at least three Institutional Investors 
described in paragraphs (l)(i) through (ix) of this definition, each of 
whom must have at least a 10 percent ownership interest in the entity.
    (xi) Any other entity that the Agency determines to be an 
Institutional Investor.
    (2) Individual Institutional Investor. (i) Any of the following 
individuals if he/she is also a permanent resident of the United States:
    (A) An individual who is an Accredited Investor (as defined in the 
Securities Act of 1933, as amended (15 U.S.C. 77a-77aa)) and whose 
commitment to the RBIC is backed by a letter of credit from a State or 
National bank acceptable to the Agency.
    (B) An individual whose personal net worth is at least $2 million 
and at least ten times the amount of its commitment to the RBIC. The 
individual's personal net worth must not include the value of any equity 
in its most valuable residence.
    (C) An individual whose personal net worth, not including the value 
of any equity in its most valuable residence, is at least $10 million.
    (ii) Any individual who is not a permanent resident of the United 
States but who otherwise satisfies paragraph (2)(i) of this definition 
provided such individual has irrevocably appointed an agent within the 
United States for the service of process.
    Investment Adviser/Manager means any Person who furnishes advice or 
assistance with respect to operations of a RBIC under a written contract 
executed in accordance with the provisions of Sec. 4290.510.
    Lending Institution means a concern that is operating under 
regulations of a state or Federal licensing, supervising, or examining 
body, or whose shares are publicly traded and listed on a recognized 
stock exchange or is listed in the Automated Quotation System of the 
National Association of Securities Dealers (NASDAQ) and which has assets 
in excess of $500 million; and which, in either case, holds itself out 
to the public as engaged in the making of commercial and industrial 
loans and whose lending operations are not for the purpose of financing 
its own or an Associate's sales or business operations.
    Leverage means financial assistance provided to a RBIC by the Agency 
either through the purchase or guaranty of a RBIC's Debentures and any 
other SBA financial assistance evidenced by a security of the RBIC.
    Leverageable Capital means Regulatory Capital, excluding unfunded 
commitments.
    Leveraged RBIC means a RBIC that received financial assistance under 
this part.
    LLC RBIC has the meaning set forth in the definition of RBIC in this 
section.
    Loan means a transaction evidenced by a debt instrument with no 
provision for you to acquire Equity Securities.
    Loans and Investments means Portfolio securities, assets acquired in 
liquidation of Portfolio securities, operating Enterprises acquired, and 
notes and other securities received, as set forth in the Statement of 
Financial Position on SBA Form 468 or other USDA-approved form(s).
    Management Expenses has the meaning set forth in Sec. 4290.520.
    NAICS Manual means the latest issue of the North American Industrial 
Classification System (NAICS) Manual, prepared by the Office of 
Management and Budget, and available from the

[[Page 976]]

U.S. Government Printing Office, Superintendent of Documents, P.O. Box 
371954, Pittsburgh, PA, 15250-7954.
    1940 Act Company means a RBIC which is registered under the 
Investment Company Act of 1940.
    1980 Act Company means a RBIC which is registered under the Small 
Business Investment Incentive Act of 1980.
    Non-leveraged RBIC means a RBIC that has not received financial 
assistance under this part.
    Operational Assistance means management, marketing, and other 
technical assistance that assists a Smaller Enterprise with its business 
development.
    Original Issue Price means the price paid by the purchaser for 
securities at the time of issuance.
    Participation Agreement means an agreement between the Agency and an 
Applicant licensed as a RBIC pursuant to Sec. 4290.390 of this part, 
that details the RBIC's operating plan and investment criteria and 
requires the RBIC to operate pursuant to the Act and this part.
    Partnership RBIC has the meaning set forth in the definition of RBIC 
in this section.
    Person means a natural person or legal entity.
    Pool means an aggregation of guaranteed Debentures approved by the 
Agency.
    Portfolio means the securities representing a RBIC's total 
outstanding Financings of Enterprises. It does not include idle funds or 
assets acquired in liquidation of Portfolio securities.
    Portfolio Concern means any Enterprise Assisted by a RBIC.
    Private Capital has the meaning set forth in Sec. 4290.230.
    Publicly Traded and Marketable means securities that are salable 
without restriction or that are salable within 12 months pursuant to 
Rule 144 (17 CFR 230.144) of the Securities Act of 1933, as amended, by 
the holder thereof, and are of a class which is traded on a regulated 
stock exchange, or is listed in NASDAQ, or has, at a minimum, at least 
two market makers as defined in the relevant sections of the Securities 
Exchange Act of 1934, as amended (15 U.S.C. 77b et seq.), and in all 
cases the quantity of which can be sold over a reasonable period of time 
without having an adverse impact upon the price of the stock.
    Qualified Non-private Funds means:
    (1) Funds directly or indirectly invested in any RBIC or Applicant 
on or after May 13, 2002 by any Federal agency other than USDA under a 
provision of law explicitly mandating the inclusion of those funds in 
the definition of ``Private Capital;'' and
    (2) The aggregate amount of funds invested in any Applicant or RBIC 
by one or more States, or any political subdivisions, agencies or 
instrumentalities thereof, including any guarantee extended by such 
entities.
    Regulatory Capital means Private Capital, excluding non-cash assets 
contributed to a RBIC or an Applicant unless such assets have been 
converted to cash or have been approved by the Agency for inclusion in 
Regulatory Capital. For purposes of this definition, sales of 
contributed non-cash assets with recourse or borrowings against such 
assets shall not constitute a conversion to cash.
    Relevant Capital Finance means Equity Capital in Rural Business 
Concerns or benefiting Rural Areas.
    Retained Earnings Available for Distribution means Undistributed Net 
Realized Earnings less any Unrealized Depreciation on Loans and 
Investments (as reported on SBA Form 468 or other USDA-approved 
form(s)), and represents the amount that a RBIC may distribute to 
investors as a profit Distribution, or transfer to Private Capital.
    Rural area means any area of a State not in a city or town that has 
a population of more than 50,000 inhabitants according to the most 
recent decennial Census of the United States (decennial Census), not in 
the urbanized area contiguous and adjacent to a city or town that has a 
population of more than 50,000 inhabitants, and which excludes certain 
populations pursuant to 7 U.S.C. 1991(a)(13)(H) and (I), as well as any 
area that has been determined to be ``rural in character'' by the Under 
Secretary for Rural Development, or as otherwise identified in this 
definition.
    (1) An area that is attached to the urbanized area of a city or town 
with

[[Page 977]]

more than 50,000 inhabitants by a contiguous area of urbanized census 
blocks that is not more than 2 census blocks wide. Applicants from such 
an area should work with their Rural Development State Office to request 
a determination of whether their project is located in a rural area 
under this provision.
    (2) For the purposes of this definition, cities and towns are 
incorporated population centers with definite boundaries, local self 
government, and legal powers set forth in a charter granted by the 
State.
    (3) For the Commonwealth of Puerto Rico, the island is considered 
rural and eligible for Business Programs assistance, except for the San 
Juan Census Designated Place (CDP) and any other CDP with greater than 
50,000 inhabitants. CDPs with greater than 50,000 inhabitants, other 
than the San Juan CDP, may be determined to be eligible if they are 
``not urban in character.''
    (4) For the State of Hawaii, all areas within the State are 
considered rural and eligible for Business Programs assistance, except 
for the Honolulu CDP within the County of Honolulu.
    (5) For the purpose of defining a rural area in the Republic of 
Palau, the Federated States of Micronesia, and the Republic of the 
Marshall Islands, the USDA shall determine what constitutes rural and 
rural area based on available population data.
    (6) The determination that an area is ``rural in character'' will be 
made by the Under Agency of Rural Development. The process to request a 
determination under this provision is outlined in paragraph (6)(ii) of 
this definition.
    (i) The determination that an area is ``rural in character'' under 
this definition will apply to areas that are within:
    (A) An urbanized area that has two points on its boundary that are 
at least 40 miles apart, which is not contiguous or adjacent to a city 
or town that has a population of greater than 150,000 inhabitants or the 
urbanized area of such a city or town; or
    (B) An urbanized area contiguous and adjacent to a city or town of 
greater than 50,000 inhabitants that is within one-quarter mile of a 
rural area.
    (ii) Units of local government may petition the Under Agency of 
Rural Development for a ``rural in character'' designation by submitting 
a petition to both the appropriate Rural Development State Director and 
the Rural Business-Cooperative Service Administrator of USDA on behalf 
of the Under Agency. The petition shall document how the area meets the 
requirements of paragraph (6)(i)(A) or (B) of this definition and 
discuss why the petitioner believes the area is ``rural in character,'' 
including, but not limited to, the area's population density, 
demographics, and topography and how the local economy is tied to a 
rural economic base. Upon receiving a petition, the Under Agency will 
consult with the applicable Governor or leader in a similar position and 
request comments to be submitted within 5 business days, unless such 
comments were submitted with the petition. The Under Agency will release 
to the public a notice of a petition filed by a unit of local government 
not later than 30 days after receipt of the petition by way of 
publication in a local newspaper and posting on the Agency's Web site, 
and the Under Agency will make a determination not less than 15 days, 
but no more than 60 days, after the release of the notice. Upon a 
negative determination, the Under Agency will provide to the petitioner 
an opportunity to appeal a determination to the Under Agency, and the 
petitioner will have 10 business days to appeal the determination and 
provide further information for consideration.
    Rural Business Concern means an Enterprise that primarily operates 
in a Rural Area.
    Rural Business Concern Investment means a Financing in a Rural 
Business Concern at the time of the initial Financing or if the initial 
Financing is to facilitate a relocation from a Non-rural Area to a Rural 
Area after that initial Financing.
    Rural Business Investment Company or RBIC means a corporation 
organized as required by Sec. 4290.100 (Corporate RBIC), a limited 
partnership organized as required by Sec. Sec. 4290.100 and 4290.160 
(Partnership RBIC), or a limited liability company organized as required 
by Sec. Sec. 4290.100 and 4290.160 (LLC RBIC), that

[[Page 978]]

has been licensed as a RBIC pursuant to Sec. 4290.390.
    SBA means the U.S. Small Business Administration, an agency of the 
Federal Government headquartered at 409 Third Street, SW, Washington, DC 
20416.
    Secondary Relative of an individual means:
    (1) A grandparent, grandchild, or any other ancestor or lineal 
descendent who is not a Close Relative;
    (2) An uncle, aunt, nephew, niece, or first cousin; or
    (3) A spouse of any person described in paragraph (1) or (2) of this 
definition.
    Small Business Investment Company or SBIC means a Licensee, as that 
term is defined in 13 CFR 107.50.
    Smaller Enterprise means any Rural Business Concern that, together 
with its Affiliates and by itself--
    (1) Meets the size standard established by SBA in 13 CFR 121.201, 
corresponding to each type of economic activity or industry described in 
the NAICS Manual for the industry in which it is primarily engaged on 
the date on which the Financing is made (the term ``primarily engaged'' 
for purposes of this definition is defined in 13 CFR 121.107); or
    (2) Has--
    (i) A net financial worth of not more than $6,000,000 as of the date 
on which the Financing is made; and
    (ii) An average net income for the two year period preceding the 
date on which the Financing is made of not more than $2,000,000, after 
Federal income taxes (excluding any carryover losses), except that, for 
purposes of this clause, if the Rural Business Concern is not required 
by law to pay Federal income taxes at the enterprise level, but is 
required to pass income through to the shareholders, partners, 
beneficiaries, or other equitable owners of the Rural Business Concern, 
its net income is determined by allowing a deduction in an amount equal 
to the total of--
    (A) If it is not required by law to pay State (and local, if any) 
income taxes at the enterprise level, the net income (determined without 
regard to this paragraph (2)(ii)(A)) multiplied by the marginal State 
income tax rate (or by the combined State and local income tax rates, as 
applicable) that would have applied if the Rural Business Concern were a 
corporation; and
    (B) The net income (so determined) less any deduction for State (and 
local) income taxes calculated under paragraph (2)(ii)(A) of this 
definition multiplied by the marginal Federal income tax rate that would 
have applied if the Rural Business Concern were a corporation.
    Smaller Enterprise Investment means a Financing in the form of 
Equity Capital in an Enterprise that qualified as a Smaller Enterprise 
at the time of the initial Financing.
    State means each of the 50 states of the United States, the District 
of Columbia, the Commonwealth of Puerto Rico, Guam, the U.S. Virgin 
Islands, American Samoa, the Commonwealth of the Northern Mariana 
Islands, the Trust Territory of the Pacific Islands, and the Federated 
States of Micronesia.
    Subordinated Debt means a debt of a debtor, common to more than one 
creditor, that is the subject of an agreement between two groups of 
creditors (whose claims would otherwise be in parity) setting forth the 
circumstances under which the claims of one group (senior creditors) 
shall be satisfied out of the resources of the common debtor that would 
otherwise be available for the payment of the claims of the other group 
(junior creditors).
    Subordinated Debt With Equity Features means a Subordinated Debt 
obligation that gives to the junior creditor such additional 
compensation as warrants, conversion rights, any other interest in the 
debtor's equity, profits, increased future revenue, or a royalty 
interest.
    Trust means a legal entity created for the purpose of holding 
guaranteed Debentures and the guaranty agreement related thereto, 
receiving, holding and making any related payments, and accounting for 
such payments.
    Trust Certificate Rate means a fixed rate determined at the time 
Debentures are pooled.
    Trust Certificates (TCs) means certificates issued by the Agency, 
the Agency's agent or Trustee and representing

[[Page 979]]

ownership of all or a fractional part of a Trust or Pool of Debentures.
    Trustee means the trustee or trustees of a Trust.
    Undistributed Net Realized Earnings means Undistributed Realized 
Earnings less Non-cash Gains/Income, each as reported on SBA Form 468 or 
other USDA-approved form(s).
    Unrealized Appreciation means the amount by which a RBIC's valuation 
of each of its Loans and Investments, as determined by its board of 
directors, general partner(s), or managing member(s) in accordance with 
the RBIC's valuation policies, exceeds the cost basis thereof.
    Unrealized Depreciation means the amount by which a RBIC's valuation 
of each of its Loans and Investments, as determined by its board of 
directors, general partner(s), or managing member(s) in accordance with 
the RBIC's valuation policies, is below the cost basis thereof.
    Unrealized Gain (Loss) on Securities Held means the sum of the 
Unrealized Appreciation and Unrealized Depreciation on all of a RBIC's 
Loans and Investments, less estimated future income tax expense or 
estimated realizable future income tax benefit, as appropriate.
    Urban Area means an area containing a city (or its equivalent), or 
any equivalent geographic area determined by the Census Bureau and 
adopted by the Agency for purposes of this definition (about which the 
Agency will publish a document in the Federal Register from time to 
time), which had a population of over 150,000 in the most recent 
decennial Census and the urbanized areas containing or adjacent to that 
city, both as determined by the Bureau of the Census for the most recent 
decennial Census.
    Urban Area Investment means a Financing in an Enterprise that 
primarily operates in an Urban Area at the time of the initial 
Financing.
    USDA means the U.S. Department of Agriculture, a department of the 
Federal government headquartered at 1400 Independence Avenue, SW., 
Washington, DC 20250.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80221, Dec. 23, 2011; 79 
FR 76018, Dec. 19, 2014; 80 FR 9914, Feb. 24, 2015; 85 FR 16522, Mar. 
24, 2020; 87 FR 38645, June 29, 2022]



              Subpart C_Qualifications for the RBIC Program

                            Organizing a RBIC



Sec. 4290.100  Business form.

    (a) Newly-formed for-profit. An Applicant for a RBIC license must be 
a newly formed for-profit entity or, subject to Sec. 4290.150, a newly 
formed for-profit subsidiary of an existing entity. It must be organized 
under the law of a State. An Applicant may be organized as a corporation 
(``Corporate RBIC''), a limited partnership (``Partnership RBIC''), or a 
limited liability company (``LLC RBIC'').
    (b) Purpose. An Applicant must be organized solely for the purpose 
of performing the functions and conducting the activities contemplated 
under the Act: making Developmental Capital investments and providing 
Operational Assistance to eligible Smaller Enterprises.
    (c) Articles. The RBIC's Articles--
    (1) Must specify in general terms:
    (i) The purposes for which the RBIC is formed;
    (ii) The name of the RBIC;
    (iii) The Rural Area or Areas in which it will operate;
    (iv) The place where the RBIC's headquarters will be located; and
    (v) The amount and classes of the RBIC's ownership interests.
    (2) May contain any other provisions consistent with the Act that 
the RBIC may determine is appropriate to adopt to regulate its business 
and the conduct of its affairs.
    (3) Are subject to the Agency's approval.
    (d) Duration--(1) Partnership RBICs. If you are a Partnership RBIC:
    (i) You must have a minimum duration of 10 years, or two years 
following the maturity of your last-maturing Leverage security, 
whichever is longer. After 10 years, if all Leverage has been repaid or 
redeemed and all amounts due the Agency, its agent, or Trustee

[[Page 980]]

have been paid, the Partnership RBIC may be terminated by a vote of your 
partners;
    (ii) None of your general partner(s) may be removed or replaced by 
your limited partners without prior written approval of the Agency;
    (iii) Any transferee of, or successor in interest to, your general 
partner shall have only the rights and liabilities of a limited partner 
prior to the Agency's written approval of such transfer or succession; 
and
    (iv) You must incorporate all the provisions in this paragraph (d) 
in your limited partnership agreement.
    (2) LLC RBICs. If you are a LLC RBIC, you must have a minimum 
duration of 10 years, or two years following the maturity of your last-
maturing Leverage security, whichever is longer. After 10 years, if all 
Leverage has been repaid or redeemed and all amounts due the Agency, its 
agent, or Trustee have been paid, the LLC RBIC may be terminated by a 
vote of your members.
    (3) Corporate RBICs. If you are a Corporate RBIC, you must have a 
duration of not less than 30 years unless earlier dissolved by the 
shareholders, except that the Corporate RBIC must not dissolve until at 
least two years following the maturity of your last-maturing Leverage 
security.



Sec. 4290.110  Qualified management.

    An Applicant must show, to the satisfaction of the Agency, that its 
current or proposed management team is qualified and has the knowledge, 
experience, and capability in Community Development Finance or Relevant 
Capital Finance, necessary for investing in the types of Enterprises 
contemplated by the Act, regulations in this part, and its business 
plan. In determining whether an Applicant's current or proposed 
management team has sufficient qualifications, the Agency will consider 
information provided by the Applicant and third parties concerning the 
background, capability, education, training and reputation (and any 
other managerial aspect identified by the USDA in a Federal Register 
notice) of its general partners, managers, officers, key personnel, and 
investment committee and governing board members. The Applicant must 
designate at least one individual as the official responsible for 
contact with the Agency.

[76 FR 80222, Dec. 23, 2011]



Sec. 4290.120  Plan to invest in Rural Areas.

    An Applicant must agree that if licensed as a RBIC, it will make 
Developmental Capital investments in Enterprises that will create wealth 
and job opportunities in Rural Areas and among individuals living in 
those areas.



Sec. 4290.130  Identified Rural Areas.

    A RBIC must identify the specific Rural Area or Areas in which it 
intends to make Developmental Capital investments and provide 
Operational Assistance under the RBIC program. The scope of the 
identified areas must be consistent with Applicant's business plan, 
especially as the plan relates to the Applicant's ability to operate 
actively, soundly, and profitably in such areas.



Sec. 4290.140  Approval of initial Management Expenses.

    A RBIC must have its Management Expenses approved by the Agency at 
the time it is licensed. (See Sec. 4290.520 for the definition of 
Management Expenses.)



Sec. 4290.150  Management and ownership diversity requirement.

    (a) Diversity requirement. You must have diversity between 
management and ownership in order to be licensed as a RBIC and to 
maintain your license. To establish diversity, you must meet the 
requirements in paragraphs (b) and (c) of this section.
    (b) Percentage ownership requirement. No Person or group of Persons 
who are Affiliates of one another may own or control, directly or 
indirectly, more than 70 percent of your Regulatory Capital or your 
Leverageable Capital.
    (c) Non-affiliation requirement. At least 30 percent of your 
Regulatory Capital and Leverageable Capital must be owned and controlled 
by Persons unaffiliated with your management and unaffiliated with each 
other, and whose investments are significant in dollar and percentage 
terms as determined by the Agency. Such Persons must not be

[[Page 981]]

your Associates (except for their status as your shareholders, limited 
partners or members) and must not Control, be Controlled by, or be under 
Common Control with any of your Associates. A single ``acceptable'' 
Institutional Investor may be substituted for two or three of the three 
investors who are otherwise required. The following Institutional 
Investors are ``acceptable'' for this purpose:
    (1) Entities whose overall activities are regulated and periodically 
examined by State, Federal or other governmental authorities 
satisfactory to the Agency;
    (2) Entities listed on the New York Stock Exchange;
    (3) Entities that are publicly-traded and that meet both the minimum 
numerical listing standards and the corporate governance listing 
standards of the New York Stock Exchange;
    (4) Public or private employee pension funds;
    (5) Trusts, foundations, or endowments, but only if exempt from 
Federal income taxation; and
    (6) Other Institutional Investors satisfactory to the Agency.
    (d) Voting requirement. The investors relied upon to satisfy the 
diversity requirement may not delegate their voting rights to any Person 
who is your Associate, or who Controls, is Controlled by, or is under 
Common Control with any of your Associates, without prior approval by 
the Agency.
    (e) Requirement to maintain diversity. You must maintain management-
ownership diversity while you are a RBIC. If, at any time, you no longer 
have the required management-ownership diversity, you must:
    (1) Notify the Agency within 10 days; and
    (2) Re-establish diversity within six months after loss of 
diversity.



Sec. 4290.160  Special rules for Partnership RBICs and LLC RBICs.

    (a) Entity General Partner or Entity Managing Member. (1) A general 
partner of a Partnership RBIC which is a corporation, limited liability 
company or partnership (an ``Entity General Partner''), or a managing 
member of an LLC RBIC which is a corporation, limited liability company, 
or partnership (an ``Entity Managing Member'') shall be organized under 
State law solely for the purpose of serving as the general partner or 
managing member of one or more RBICs, and shall be organized for profit.
    (2) The Agency must approve any person who will serve as an officer, 
director, manager, or general partner of the Entity General Partner or 
Entity Managing Member and of an entity that Controls the Entity General 
Partner or Entity Managing Member. This provision must be stated in an 
Entity General Partner's or Entity Managing Member's articles of 
incorporation or charter and bylaws if a corporation, operating 
agreement if a limited liability company, or partnership agreement if a 
partnership.
    (3) An Entity General Partner or Entity Managing Member is subject 
to the same examination and reporting requirements as a RBIC under 
sections 384K and 384L of the Act. The restrictions and obligations 
imposed upon a RBIC by Sec. Sec. 4290.1810, 4290.30, 4290.410 through 
4290.450, 4290.470, 4290.500, 4290.510, 4290.585, 4290.600, 4290.680, 
4290.690 through 4290.692, and 4290.1910 apply also to an Entity General 
Partner or Entity Managing Member of a RBIC.
    (4) The general partner(s) of your Entity General Partner(s) or 
Entity Managing Member(s) will be considered your general partner.
    (5) If your Entity General Partner or Entity Managing Member is a 
limited partnership, its limited partners may be considered your Control 
Person(s) if they meet the definition for Control Person in Sec. 
4290.50.
    (b) Liability of general partner of Partnership RBIC. Subject to 
section 384O(b) of the Act, your general partner(s) is not liable solely 
by reason of its status as a general partner for repayment of any 
Leverage or debts you owe to the Agency unless the Agency, in the 
exercise of reasonable investment prudence, and with regard to your 
financial soundness, determines otherwise prior to the purchase or 
guaranty of your Leverage. The conditions specified in Sec. 4290.1810 
and Sec. 4290.1910 apply to all general partners.

[[Page 982]]

    (c) Special Leverage requirement for Partnership RBICs and LLC 
RBICs. Before your first issuance of Leverage, you must furnish the 
Agency with evidence that you qualify as a partnership for tax purposes, 
either by a ruling from the Internal Revenue Service or by an opinion of 
counsel.



Sec. 4290.165  Obligations of Control Persons.

    All Control Persons are bound by the provisions of sections 384O and 
384P of the Act and by the conflict-of-interest rules under Sec. 
4290.730. The term RBIC, as used in Sec. Sec. 4290.30, 4290.460, and 
4290.680, includes all of the RBIC's Control Persons.

                           Capitalizing a RBIC



Sec. 4290.200  Adequate capital for RBICs.

    You must meet the requirements of Sec. Sec. 4290.210 through 
4290.230 in order to qualify as a RBIC.

[76 FR 80222, Dec. 23, 2011]



Sec. 4290.210  Minimum capital requirements for RBICs.

    (a) General Rule. Unless otherwise specified in a Federal Register 
notice, you must have Regulatory Capital of at least $10,000,000, or 
such lesser amount (but not less than $5,000,000) and Leverageable 
Capital of at least $500,000, to become a RBIC.
    (b) Exception. (1) The Agency in its sole discretion and based on a 
showing of special circumstances and good cause may license an Applicant 
with Regulatory Capital of at least $2,500,000, but only if the 
Applicant:
    (i) Has satisfied all eligibility criteria for licensing as a RBIC 
as described in Sec. 4290.390(a) of this part, except the capital 
requirement specified in paragraph (a)(1) of that section, as determined 
solely by the Agency;
    (ii) Has a viable business plan reasonably projecting profitable 
operations; and
    (iii) Has a reasonable timetable for achieving Regulatory Capital of 
at least $10,000,000.
    (2) A RBIC licensed under this exception is not eligible to receive 
Leverage until it has complied with paragraph (a) of this section.
    (c) Time frame. Each RBIC shall have a period of 2 years to meet the 
capital requirements set forth in this section.
    (d) Closing. Each RBIC may conduct more than one closing to raise 
the specific amount of Regulatory Capital that the Applicant had 
projected in its application that it would raise (see Sec. 
4290.310(b)). One or more closings may take place subsequent to 
licensing as an RBIC to raise the difference between the required 
Regulatory Capital as provided under paragraphs (a) and (b) of this 
section and the specific amount of Regulatory Capital that the Applicant 
had projected to raise in its application.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80222, Dec. 23, 2011; 85 
FR 16522, Mar. 24, 2020]



Sec. 4290.230  Private Capital for RBICs.

    (a) General. Private Capital means the contributed capital of a 
RBIC, plus unfunded binding commitments by Institutional Investors 
(including commitments evidenced by a promissory note) to contribute 
capital to a RBIC.
    (b) Contributed capital. For purposes of this section, contributed 
capital means the paid-in capital and paid-in surplus of a Corporate 
RBIC, the members' contributed capital of a LLC RBIC, or the partners' 
contributed capital of a Partnership RBIC, in each case subject to the 
limitations in paragraph (c) of this section.
    (c) Exclusions from Private Capital. Private Capital does not 
include:
    (1) Funds borrowed by an Applicant or a RBIC from any source.
    (2) Funds obtained through the issuance of Leverage.
    (3) Funds obtained directly or indirectly from the Federal 
government or any State (including by a political subdivision, agency or 
instrumentality of the Federal government or a State), except that the 
following categories of such funds are not excluded from Private 
Capital--
    (i) Funds obtained directly or indirectly from the business revenues 
(excluding any governmental appropriation) of any federally-chartered or 
government-sponsored enterprise established prior to May 13, 2002;

[[Page 983]]

    (ii) Funds invested by an employee welfare benefit plan or pension 
plan; and
    (iii) Qualified Non-private Funds in an amount not to exceed 33 
percent of the total Private Capital of any Applicant or RBIC, provided, 
however, that in no event may any investor or investors of Qualified 
Non-private Funds have the power to Control, directly or indirectly, the 
management, board of directors, general partners, or members of the 
RBIC.
    (4) Any portion of an unfunded commitment from an Institutional 
Investor with a net worth of less than $10 million that exceeds 10 
percent of such Institutional Investor's net worth.
    (5) An unfunded commitment from an investor if the Agency determines 
that the collectability of the commitment is questionable.
    (d) Non-cash capital contributions. Capital contributions in a form 
other than cash are subject to the limitations in Sec. 4290.240 of this 
part.
    (e) Contributions with borrowed funds. You may not accept any 
capital contribution made with funds borrowed by a Person seeking to own 
an equity interest (whether direct or indirect, beneficial or of record) 
of at least 10 percent of your Private Capital. This exclusion does not 
apply if:
    (1) Such Person's net worth is at least twice the amount borrowed; 
or
    (2) The Agency gives its prior written approval of the capital 
contribution.

[69 FR 32204, June 8, 2004, as amended at 85 FR 16523, Mar. 24, 2020]



Sec. 4290.240  Limitations on non-cash capital contributions in Private Capital.

    Non-cash capital contributions to a RBIC or Applicant are included 
in Private Capital only if they are approved by the Agency and they fall 
into one of the following categories:
    (a) Direct obligations of, or obligations guaranteed as to principal 
and interest by, the United States having a term of no more than one 
year.
    (b) Services rendered or to be rendered to you, priced at no more 
than their fair market value.
    (c) Other non-cash assets approved by the Agency.



      Subpart D_Application and Approval Process for RBIC Licensing



Sec. 4290.300  When and how to apply for a RBIC License.

    (a) Notice of Funds Availability (``NOFA''). The Agency will publish 
a NOFA in the Federal Register advising potential applicants of the 
availability of funds for the RBIC program and inviting the submission 
of applications. The NOFA may specify limitations, special rules, 
procedures, and restrictions for a particular funding round. When 
submitting its application, an Applicant must comply with both this part 
4290 and any requirements specified in the NOFA, including the opening 
and closing dates for submission of an application.
    (b) Application form. An Applicant must apply for a RBIC license 
using an appropriate application packet provided by the Agency. Upon 
receipt of a completed application packet, the Agency may request 
clarifying or technical information on the materials submitted as part 
of the application.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80222, Dec. 23, 2011]



Sec. 4290.310  Contents of application.

    Each Applicant must submit a complete application, including the 
following:
    (a) Management team experience. The Applicant must provide 
information generally as to the background, capability, education, 
reputation and training of its management team, including general 
partners, managers, officers, key personnel, and investment committee 
and governing board members. The Applicant also must provide information 
specifically on these individuals' qualifications and reputation in the 
areas of Community Development Finance and/or Relevant Capital Finance, 
including the impact of these individuals' activities in these areas.
    (b) Amount of Regulatory Capital. The Applicant must indicate the 
amount of Regulatory Capital it has raised or proposes to raise, which 
amount must satisfy the requirements of Sec. 4290.210(a) of this part, 
unless the Applicant indicates that it has raised or proposes to

[[Page 984]]

raise at least $2,500,000 and is applying for an exception pursuant to 
Sec. 4290.210(b) of this part and includes in its application--
    (1) A showing of special circumstances and good cause for the 
exception:
    (2) Will satisfy all eligibility criteria for licensing as a RBIC as 
set forth in Sec. 4290.390(a) of this part, except the capital 
requirement specified in paragraph (a)(1) of that section, as determined 
solely by the Agency;
    (3) Has a viable business plan reasonably projecting profitable 
operations; and
    (4) Has a reasonable timetable for achieving Regulatory Capital in 
an amount that satisfies the requirements of Sec. 4290.210(a) of this 
part.
    (c) Comprehensive business plan. The Applicant must submit a 
comprehensive business plan covering at least a five-year period, 
addressing the specific items described in Sec. 4290.320, and which 
demonstrates that the Applicant has the capacity to operate successfully 
as a RBIC.



Sec. 4290.320  Contents of comprehensive business plan.

    (a) Plan for Developmental Capital investing. The Applicant must 
describe its plans and strategies for how it proposes to make successful 
Developmental Capital investments in identified Rural Areas.
    (b) Working with Rural Area community-based organizations. The 
Applicant must describe how it intends to work with community-based 
organizations and local entities (including local economic development 
companies, local lenders, and local investors) in order to facilitate 
its Developmental Capital investments.
    (c) Market analysis. The Applicant must provide an analysis of the 
Rural Areas in which it intends to focus its Developmental Capital 
investments and Operational Assistance to Smaller Enterprises, 
demonstrating that the Applicant understands the market and the unmet 
Equity Capital needs in such areas and how its activities will meet 
these unmet needs and will have a positive economic impact on those 
areas. The Applicant also must analyze the extent of the demand in such 
areas for Developmental Capital investments and any factors or trends 
that may affect the Applicant's ability to make effective Developmental 
Capital investments.
    (d) Operational capacity and investment strategies. The Applicant 
must submit information concerning its policies and procedures for 
underwriting and approving its Developmental Capital investments, 
monitoring its portfolio, and maintaining internal controls and 
operations.
    (e) Plan to raise Regulatory Capital. The Applicant must include a 
detailed description of how it plans to raise its Regulatory Capital if 
it has not yet done so at the time of application. The Applicant must 
discuss its potential sources of Regulatory Capital, the estimated 
timing for raising such funds, and the extent of the expressions of 
interest to commit such funds to the Applicant.
    (f) Plan for providing Operational Assistance. The Applicant must 
describe how it plans to use its grant funds to provide Operational 
Assistance to Smaller Enterprises in which it makes or expects to make 
Developmental Capital investments. Its plan must address the types of 
Operational Assistance it proposes to provide, and how it plans to 
provide the Operational Assistance through the use of licensed 
professionals, when necessary, either from its own staff or from outside 
entities.
    (g) Projected amount of investment in Rural Areas. The Applicant 
must describe how it proposes to meet the requirements set forth in 
Sec. 4290.700. An Applicant must project the amount of its total 
Regulatory Capital and Leverage that it proposes to invest in Smaller 
Enterprises and in Rural Business Concerns that are not Smaller 
Enterprises. The Applicant also must describe the amount of its total 
Regulatory Capital and Leverage that it proposes to invest in Urban Area 
Investments.
    (h) Projected impact. The Applicant must describe the criteria and 
economic measurements to be used to evaluate whether and to what extent 
it has met the objectives of the RBIC program. It must include:

[[Page 985]]

    (1) A description of the extent to which it will concentrate its 
Developmental Capital investments and Operational Assistance activities 
in identified Rural Areas;
    (2) An estimate of the economic development benefits to be created 
within identified Rural Areas over the next five years or more as a 
result of its activities;
    (3) A description of the criteria to be used to measure the benefits 
created as a result of its activities;
    (4) A discussion about the amount of such benefits created that it 
will consider to constitute successfully meeting the objectives of the 
RBIC program.
    (i) Affiliates and business relationships. The Applicant must submit 
information describing the management and financial strength of any 
parent or holding entity, affiliated firm or entity, or any other firm 
or entity essential to the success of the Applicant's business plan.



Sec. 4290.330  Guarantee fee.

    In cases of Leveraged Applications, the Applicant must pay to the 
Agency an issuance fee for each grant or debenture guarantee. The Agency 
may charge such fees as the Agency considers appropriate, so long as 
those fees are proportionally equal for each rural business investment 
company, with respect to any guarantee or grant issued under this 
subchapter.

[85 FR 16523, Mar. 24, 2020]



               Subpart E_Evaluation and Selection of RBICs



Sec. 4290.340  Evaluation and selection--general.

    The Administrator of RBS and the Administrator on behalf of SBA, in 
their sole discretion, will evaluate and select an Applicant to 
participate in the RBIC program based on a review of the Applicant's 
application materials, interviews or site visits with the Applicant (if 
any), and background investigations conducted by the Agency and other 
Federal agencies. The Agency's evaluation and selection process is 
intended to--
    (a) Ensure that Applicants are evaluated on a competitive basis and 
in a fair and consistent manner;
    (b) Take into consideration the unique proposals presented by 
Applicants;
    (c) Ensure that each Applicant licensed as a RBIC can fulfill 
successfully the goals of its comprehensive business plan; and
    (d) Ensure that the Agency selects Applicants in such a way as to 
promote nationwide geographic distribution of Developmental Capital 
investments.

[69 FR 32204, June 8, 2004, as amended at 85 FR 16523, Mar. 24, 2020]



Sec. 4290.350  Eligibility and completeness.

    The Agency will not consider any application that is not complete or 
that is submitted by an Applicant that does not meet the eligibility 
criteria described in subpart C of this part. The Agency at its sole 
discretion, may request from an Applicant additional information 
concerning eligibility criteria or easily completed portions of the 
application in order to facilitate consideration of its application.



Sec. 4290.360  Initial review of Applicant's management team's qualifications.

    The Agency will review the information submitted by the Applicant 
concerning the qualifications of the Applicant's management team to 
determine in its sole discretion whether the team meets the minimum 
requirements deemed by the Agency to be critical to successful capital 
investing. In making this determination, the Agency will consider, among 
other things, the general business reputation of the owners and managers 
of the Applicant. Only those Applicants considered to have a management 
team qualified for venture capital investing will be further considered 
for selection as a RBIC.



Sec. 4290.370  Evaluation criteria.

    Of those Applicants whose management team is considered qualified 
for venture capital investing and who have submitted an eligible and 
complete application, the Administrator of RBS and the Administrator on 
behalf of SBA, in their sole discretion, will evaluate and select an 
Applicant for

[[Page 986]]

participation in the RBIC program by considering the following criteria:
    (a) Whether the Applicant's management team has the knowledge, 
experience, and capability necessary to manage a sound, economically 
viable RBIC and to comply with the Act;
    (b) The quality of the Applicant's comprehensive business plan in 
terms of meeting the objectives of the RBIC program;
    (c) The likelihood that the Applicant will achieve the goals 
described in its comprehensive business plan;
    (d) The strength and likelihood for success of the Applicant's 
operations and investment strategies, including whether the Applicant 
has projected adequate profitability and financial soundness;
    (e) Whether the Applicant will be able to operate soundly and 
profitably over the long term;
    (f) Whether the Applicant will be able to operate actively in its 
identified Rural Areas in accordance with its business plan;
    (g) The need for Developmental Capital investments in the Rural 
Areas in which the Applicant intends to invest;
    (h) The extent to which the Applicant will concentrate its 
activities on serving Smaller Enterprises located in the Rural Area in 
which it intends to invest, including the ratio of resources that it 
proposes to invest in such Enterprises as compared to other Enterprises;
    (i) The Applicant's demonstrated understanding of the markets in the 
Rural Areas in which it intends to focus its activities;
    (j) The likelihood that and the time frame within which the 
Applicant will be able to raise the Regulatory Capital it proposes to 
raise for its investments;
    (k) The strength of the Applicant's proposal to provide Operational 
Assistance to Smaller Enterprises in which it plans to invest;
    (l) The extent to which the activities proposed by the Applicant 
will promote economic development and the creation of wealth and job 
opportunities in the Rural Areas in which it intends to invest and among 
individuals living in such Areas; and
    (m) The strength of the Applicant's application compared to 
applications submitted by other Applicants intending to invest in the 
same or proximate Rural Areas.

[69 FR 32204, June 8, 2004, as amended at 85 FR 16523, Mar. 24, 2020]



Sec. 4290.380  Selection.

    From among the Applicants that have submitted eligible and complete 
applications, the Administrator of RBS and the Administrator on behalf 
of SBA, in their sole discretion, will select some, all, or none of such 
Applicants to participate in the RBIC program. Selection will entitle 
the Applicant to proceed with obtaining a license as a RBIC but only if 
the Applicant also meets the conditions set forth in Sec. 4290.390.

[69 FR 32204, June 8, 2004, as amended at 85 FR 16523, Mar. 24, 2020]



Sec. 4290.390  Licensing as a RBIC.

    (a) Eligibility criteria for licensing as a RBIC. Each selected 
Applicant must meet the following conditions before it is eligible to be 
licensed as a RBIC:
    (1) Raise the specific amount of Regulatory Capital that the 
Applicant had projected in its application that it would raise (see 
Sec. 4290.210 for additional information).
    (2) Raise $500,000 in Leverageable Capital as required by Sec. 
4290.210;
    (3) Complete and submit to the Agency all legal and other 
documentation concerning the RBIC, including but not limited to its 
Articles and updated financial information concerning the RBIC in order 
to qualify for a Leverage commitment; and
    (4) Enter into a Participation Agreement with the Agency.
    (b) Licensing as a RBIC. If the selected Applicant has 
satisfactorily met all the conditions specified in paragraph (a) of this 
section, as determined within the sole discretion of the Agency, then 
the Administrator of RBS and the Administrator on behalf of SBA will 
license the Applicant as a RBIC.
    (c) Failure to meet eligibility criteria for licensing. Each 
selected Applicant that does not meet the eligibility criteria for 
licensing described in paragraph (a) of this section, within a time 
period specified by the Agency, will not be licensed as a RBIC. Failure 
to meet any

[[Page 987]]

of those conditions, including but not limited to failure to raise the 
projected Regulatory Capital within the required time period, will cause 
the Applicant's selection to lapse. The Agency will not restore the 
selection of such an Applicant after the expiration of that time period. 
After the expiration of that time period, an Applicant that is not 
licensed as a RBIC must cease to represent itself as a participant or 
potential participant in the RBIC program.
    (d) Effect of a RBIC license. The Participation Agreement executed 
by the Agency with each Applicant licensed as a RBIC will include the 
following:
    (1) Approval to operate as a RBIC under the Act;
    (2) A commitment of Leverage; and
    (3) An Operational Assistance grant award.

[69 FR 32204, June 8, 2004, as amended at 77 FR 4885, Feb. 1, 2012; 85 
FR 16523, Mar. 24, 2020]



          Subpart F_Changes in Ownership, Structure, or Control

                 Changes in Control or Ownership of RBIC



Sec. 4290.400  Changes in ownership of 10 percent or more of RBIC but no change of Control.

    You must obtain the Agency's prior written approval for any proposed 
transfer or issuance of ownership interests that results in the 
ownership (beneficial or of record) by any Person, or group of Persons 
acting in concert, of at least 10 percent of any class of your stock, 
partnership capital or membership interests.



Sec. 4290.410  Changes in Control of RBIC (through change in ownership or otherwise).

    You must obtain the Agency's prior written approval for any proposed 
transaction or event that results in Control by any Person(s) not 
previously approved by the Agency.



Sec. 4290.420  Prohibition on exercise of ownership or Control rights in RBIC before approval.

    Without the Agency's prior written approval, no change of ownership 
or Control may take effect and no officer, director, employee or other 
Person acting on your behalf shall:
    (a) Register on your books any transfer of ownership interest to the 
proposed new owner(s);
    (b) Permit the proposed new owner(s) to exercise voting rights with 
respect to such ownership interest (including directly or indirectly 
procuring or voting any proxy, consent or authorization as to such 
voting rights at any meeting of shareholders, partners or members);
    (c) Permit the proposed new owner(s) to participate in any manner in 
the conduct of your affairs (including exercising control over your 
books, records, funds or other assets; participating directly or 
indirectly in any disposition thereof; or serving as an officer, 
director, partner, manager, employee or agent); or
    (d) Allow ownership or Control to pass to another Person.



Sec. 4290.430  Notification of transactions that may change ownership or Control.

    You must promptly notify the Agency as soon as you have knowledge of 
transactions or events that may result in a transfer of Control or 
ownership of at least 10 percent of your Regulatory Capital. If the 
effect of a particular transaction or event is unclear, you must report 
all pertinent facts to the Agency.



Sec. 4290.440  Standards governing prior approval for a proposed transfer of Control.

    The Agency's approval of a proposed transfer of Control is 
contingent upon full disclosure of the real parties in interest, the 
source of funds for the new owners' interest, and other data requested 
by the Agency. As a condition of approving a proposed transfer of 
control, the Agency may:
    (a) Require an increase in your Regulatory Capital;
    (b) Require the new owners or the transferee's Control Person(s) to 
assume, in writing, personal liability for your Leverage, effective only 
in the event of their direct or indirect participation in any transfer 
of Control not approved by the Agency; or

[[Page 988]]

    (c) Require compliance with any other conditions set by the Agency, 
including compliance with the requirements for minimum capital and 
management-ownership diversity in effect at such time for new RBICs.



Sec. 4290.450  Notification of pledge of RBIC's shares.

    (a) You must notify the Agency in writing, within 30 calendar days, 
of the terms of any transaction in which:
    (1) Any Person, or group of Persons acting in concert, pledges 
shares of your stock (or equivalent ownership interests) as collateral 
for indebtedness; and
    (2) The shares pledged constitute at least 10 percent of your 
Regulatory Capital.
    (b) If the transaction creates a change of ownership or Control, you 
must comply with Sec. 4290.400 or Sec. 4290.410, as appropriate.

    Restrictions on Common Control or Ownership of Two or More RBICs



Sec. 4290.460  Restrictions on Common Control or ownership of two (or more) RBICs.

    Without the Agency's prior written approval, you must not have an 
officer, director, manager, Control Person, or owner (with a direct or 
indirect ownership interest of at least 10 percent) who is also:
    (a) An officer, director, manager, Control Person, or owner (with a 
direct or indirect ownership interest of at least 10 percent) of another 
RBIC; or
    (b) An officer or director of any Person that directly or indirectly 
controls, or is controlled by, or is under Common Control with, another 
RBIC.

                       Change in Structure of RBIC



Sec. 4290.470  Prior approval of merger, consolidation, or reorganization of RBIC.

    You may not merge, consolidate, change form of organization 
(corporation, limited liability company, or limited partnership) or 
reorganize without the Agency's prior written approval. Any such merger, 
consolidation, or change of form is subject to Sec. 4290.440.



Sec. 4290.480  Prior approval of changes to RBIC's business plan.

    Without the Agency's prior written approval, no change in your 
business plan, upon which you were selected and licensed as a RBIC, may 
take effect.



               Subpart G_Managing the Operations of a RBIC

                          General Requirements



Sec. 4290.500  Lawful operations under the Act.

    You must engage only in the activities permitted by the Act and in 
no other activities.



Sec. 4290.502  Representations to the public.

    You may not represent or imply to anyone that the Agency, the U.S. 
Government, or any of its agencies or officers has approved any 
ownership interests you have issued, obligations you have incurred, or 
Financings you have made. You must include a statement to this effect in 
any solicitation provided to investors. Example: You may not represent 
or imply that ``USDA stands behind the RBIC'' or that ``Your capital is 
safe because the Agency's experts review proposed investments to make 
sure they are safe for the RBIC.''



Sec. 4290.503  RBIC's adoption of an approved valuation policy.

    (a) Valuation guidelines. You must prepare, document and report the 
valuations of your Loans and Investments in accordance with the 
Valuation Guidelines for SBICs issued by SBA. These guidelines may be 
obtained from SBA's Investment Division or at http://www.sba.gov/ sites/ 
default/ files/files/ inv_valuation.pdf.
    (b) The Agency's approval of valuation policy. You must have a 
written valuation policy approved by the Agency for use in determining 
the value of your Loans and Investments. You must either:
    (1) Adopt without change the model valuation policy set forth in 
section III of the Valuation Guidelines for SBICs; or
    (2) Obtain the Agency's prior written approval of an alternative 
valuation policy.

[[Page 989]]

    (c) Responsibility for valuations. Your board of directors, managing 
member(s), or general partner(s) will be solely responsible for adopting 
your valuation policy and for using it to prepare valuations of your 
Loans and Investments for submission to the Agency. If the Agency 
reasonably believes that your valuations, individually or in the 
aggregate, are materially misstated, it reserves the right to require 
you to engage, at your expense, an independent third party acceptable to 
the Agency to substantiate the valuations.
    (d) Frequency of valuations. (1) You must value your Loans and 
Investments at the end of the second quarter of your fiscal year, and 
again at the end of your fiscal year.
    (2) On a case-by-case basis, the Agency may require you to perform 
valuations more frequently.
    (3) You must report material adverse changes in valuations at least 
quarterly, within 30 days following the close of the quarter.
    (e) Review of valuations by independent public accountant. (1) For 
valuations performed as of the end of your fiscal year, your independent 
public accountant must review your valuation procedures and the 
implementation of such procedures, including adequacy of documentation.
    (2) The independent public accountant's report on your audited 
annual financial statements (SBA Form 468 or other USDA-approved 
form(s)) must include a statement that your valuations were prepared in 
accordance with your approved valuation policy.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80222, Dec. 23, 2011]



Sec. 4290.504  Equipment of USDA or SBA officials.

    (a) Computer capability. You must have a personal computer with 
access to the Internet and be able to use this equipment to prepare 
reports and transmit such reports to the Agency. In addition, you must 
have the capability to send and receive electronic mail.
    (b) Facsimile capability. You must be able to receive facsimile 
messages 24 hours per day at your primary office.
    (c) Accessible office. You must maintain an office that is 
convenient to the public and is open for business during normal working 
hours.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80222, Dec. 23, 2011]



Sec. 4290.506  Safeguarding the RBIC's assets/Internal controls.

    You must adopt a plan to safeguard your assets and monitor the 
reliability of your financial data, personnel, Portfolio, funds and 
equipment. You must provide your bank and custodian with a certified 
copy of your resolution or other formal document describing your control 
procedures.



Sec. 4290.507  Violations based on false filings and nonperformance of agreements with the Agency or SBA.

    The following shall constitute a violation of this part:
    (a) Nonperformance. Failure to perform any of the requirements of 
any Debenture or of any written agreement with the Agency or SBA.
    (b) False statement. In any document submitted to the Agency or SBA:
    (1) Any false statement knowingly made; or
    (2) Any misrepresentation of a material fact; or
    (3) Any failure to state a material fact.
    (4) A material fact is any fact that is necessary to make a 
statement not misleading in light of the circumstances under which the 
statement was made.



Sec. 4290.508  Compliance with non-discrimination laws and regulations applicable to federally-assisted programs.

    In conducting your operations and providing Assistance to your 
Portfolio Concerns, you must comply with Title VI of the Civil Rights 
Act of 1964 (42 U.S.C. 2000d-1 et seq.), the Age Discrimination Act of 
1975 (Pub. L. 94-135, Title III), and Title V of the Equal Credit 
Opportunity Act (15 U.S.C. 1691 et seq.) and the following regulations 
promulgated by USDA to implement and enforce such laws: 7 CFR part 15.

[[Page 990]]



Sec. 4290.509  Employment of USDA or SBA officials.

    (a) Without the Agency's prior written approval, for a period of two 
years after the date of your most recent issuance of Leverage or after 
the receipt of any assistance as defined in paragraph (b) of this 
section, whichever is later, you are not permitted to employ, offer 
employment to, or retain for professional services, any person who:
    (1) Served as an officer, attorney, agent, or employee of SBA or 
USDA within one year before such date; and
    (2) In that capacity, occupied a position or engaged in activities 
which, in SBA's or the Agency's determination, involved discretion with 
respect to the issuing of Leverage or the granting of such assistance.
    (b) For purposes of this section, ``assistance'' means financial, 
contractual, grant, managerial, or other aid, including licensing, 
certifications, and other eligibility determinations made by USDA or 
SBA, and any express decision to compromise or defer possible litigation 
or other adverse action.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80222, Dec. 23, 2011]

                       Management and Compensation



Sec. 4290.510  Approval of RBIC's Investment Adviser/Manager.

    (a) General. You may employ an Investment Adviser/Manager who will 
be subject to the supervision of your board of directors, managing 
member(s), or general partner(s). If you have Leverage or plan to seek 
Leverage, you must obtain the Agency's prior written approval of the 
management contract. Approval of an Investment Adviser/Manager for one 
RBIC does not indicate approval of that manager for any other RBIC.
    (b) Management contract. The contract must:
    (1) Specify the services the Investment Adviser/Manager will render 
to you and to your Portfolio Concerns; and
    (2) Indicate the basis for computing Management Expenses.
    (c) Material change to approved management contract. Any proposed 
material change must be approved by both you and the Agency in advance. 
If you are uncertain whether the change is material, submit the proposed 
revision to the Agency.



Sec. 4290.520  Management Expenses of a RBIC.

    The Agency must approve your initial Management Expenses and any 
increases in your Management Expenses.
    (a) Definition of Management Expenses. Management Expenses include:
    (1) Salaries;
    (2) Office expenses;
    (3) Travel;
    (4) Business development, including finders' fees;
    (5) Office and equipment rental;
    (6) Bookkeeping; and
    (7) Expenses related to developing, investigating and monitoring 
investments.
    (b) Management Expenses do not include services provided by 
specialized outside consultants, outside lawyers and independent public 
accountants, if they perform services not generally performed by a 
capital company.

                        Cash Management by a RBIC



Sec. 4290.530  Restrictions on investments of idle funds by RBICs.

    (a) Permitted investments of idle funds. Funds not invested in 
Portfolio Concerns must be maintained in:
    (1) Direct obligations of, or obligations guaranteed as to principal 
and interest by, the United States, which mature within 15 months from 
the date of the investment; or
    (2) Repurchase agreements with federally insured institutions, with 
a maturity of seven days or less. The securities underlying the 
repurchase agreements must be direct obligations of, or obligations 
guaranteed as to principal and interest by, the United States. The 
securities must be maintained in a custodial account at a federally 
insured institution; or
    (3) Certificates of deposit with a maturity of one year or less, 
issued by a federally insured institution; or
    (4) A deposit account in a federally insured institution, subject to 
a withdrawal restriction of one year or less; or
    (5) A checking account in a federally insured institution; or
    (6) A reasonable petty cash fund.

[[Page 991]]

    (b) Deposit of funds in excess of the insured amount--(1) General 
rule. You are permitted to deposit in a federally insured institution 
funds in excess of the institution's insured amount, but only if the 
institution is ``well capitalized'' in accordance with the definition 
set forth in regulations of the Federal Deposit Insurance Corporation 
(12 CFR 325.103).
    (2) Exception. You may make a temporary deposit (not to exceed 30 
days) in excess of the insured amount, in a transfer account established 
to facilitate the receipt and disbursement of funds or to hold funds 
necessary to honor Commitments issued.
    (c) Deposit of funds in Associate institution. A deposit in, or a 
repurchase agreement with, a federally insured institution that is your 
Associate is not considered a Financing of such Associate under Sec. 
4290.730, provided the terms of such deposit or repurchase agreement are 
no less favorable than those available to the general public.

                       Secured Borrowing by RBICs



Sec. 4290.550  Prior approval of secured third-party debt of RBICs.

    (a) Definition. For the purposes of this section, ``secured third-
party debt'' means any debt that is secured by any of your assets and 
not guaranteed by the Agency, including secured guarantees and other 
contingent obligations that you voluntarily assume and secured lines of 
credit.
    (b) General rule. You must get the Agency's written approval before 
you incur any secured third-party debt or refinance any debt with 
secured third-party debt, including any renewal of a secured line of 
credit, increase in the maximum amount available under a secured line of 
credit, or expansion of the scope of a security interest or lien. For 
purposes of this paragraph (b), ``expansion of the scope of a security 
interest or lien'' does not include the substitution of one asset or 
group of assets for another, provided the asset values (as reported on 
your most recent annual SBA Form 468 or other USDA-approved form(s)) are 
comparable.
    (c) Conditions for approval. As a condition of granting its approval 
under this section, the Agency may impose such restrictions or 
limitations as it deems appropriate, taking into account your historical 
performance, current financial position, proposed terms of the secured 
debt and amount of aggregate debt you will have outstanding (including 
Leverage). The Agency will not favorably consider any requests for 
approval which include a blanket lien on all your assets, or a security 
interest in your investor commitments in excess of 125 percent of the 
proposed borrowing.
    (d) Thirty-day approval. Unless the Agency notifies you otherwise 
within 30 days after it receives your request, you may consider your 
request automatically approved if:
    (1) You are in regulatory compliance;
    (2) The security interest in your assets is limited to either those 
assets being acquired with the borrowed funds or an asset coverage ratio 
of no more than 2:1; and
    (3) Your request is for approval of a secured line of credit that 
would not cause your total outstanding borrowings (not including 
Leverage) to exceed 50 percent of your Leverageable Capital.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80223, Dec. 23, 2011]

                Voluntary Decrease in Regulatory Capital



Sec. 4290.585  Voluntary decrease in RBIC's Regulatory Capital.

    You must obtain the Agency's prior written approval to reduce your 
Regulatory Capital by more than two percent in any fiscal year. At all 
times, you must retain sufficient Regulatory Capital to meet the minimum 
capital requirements in the Act and Sec. 4290.210, and sufficient 
Leverageable Capital to avoid having excess Leverage in violation of 
section 384E(d) of the Act.

[[Page 992]]



  Subpart H_Recordkeeping, Reporting, and Examination Requirements for 
                                  RBICs

                  Recordkeeping Requirements for RBICs



Sec. 4290.600  General requirement for RBIC to maintain and preserve records.

    (a) Maintaining your accounting records. You must establish and 
maintain your accounting records using SBA's standard chart of accounts 
for SBICs, unless the Agency approves otherwise. You may obtain this 
chart of accounts from SBA or at http://www.sba.gov/ sites/default/ 
files/files/ inv_charts_ of_accounts.pdf.
    (b) Location of records. You must keep the following records at your 
principal place of business or, in the case of paragraph (b)(3) of this 
section, at the branch office that is primarily responsible for the 
transaction:
    (1) All your accounting and other financial records;
    (2) All minutes of meetings of directors, stockholders, executive 
committees, partners, members, or other officials; and
    (3) All documents and supporting materials related to your business 
transactions, except for any items held by a custodian under a written 
agreement between you and a Portfolio Concern or lender, or any 
securities held in a safe deposit box, or by a licensed securities 
broker in an amount not exceeding the broker's per-account insurance 
coverage.
    (c) Preservation of records. You must retain all the records that 
are the basis for your financial reports. Such records must be preserved 
for the periods specified in this paragraph (c) and must remain readily 
accessible for the first two years of the preservation period.
    (1) You must preserve for at least 15 years or, in the case of a 
Partnership RBIC or LLC RBIC, at least two years beyond the date of 
liquidation:
    (i) All your accounting ledgers and journals, and any other records 
of assets, asset valuations, liabilities, equity, income, and expenses;
    (ii) Your Articles, bylaws, minute books, and RBIC application; and
    (iii) All documents evidencing ownership of the RBIC including 
ownership ledgers and ownership transfer registers.
    (2) You must preserve for at least six years all supporting 
documentation (such as vouchers, bank statements, or canceled checks) 
for the records listed in paragraph (b)(l) of this section.
    (3) After final disposition of any item in your Portfolio, you must 
preserve for at least six years:
    (i) Financing applications and Financing instruments;
    (ii) All loan, participation, and escrow agreements;
    (iii) All certifications listed in Sec. 4290.610 of this part;
    (iv) Any capital stock certificates and warrants of the Portfolio 
Concern that you did not surrender or exercise; and
    (v) All other documents and supporting material relating to the 
Portfolio Concern, including correspondence.
    (4) You may substitute a microfilm or computer-scanned or generated 
copy for the original of any record covered by this paragraph (c).
    (d) Additional requirement. You must comply with the recordkeeping 
and record retention requirements set forth in 2 CFR part 200, as 
adopted by USDA in 2 CFR part 400.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80223, Dec. 23, 2011; 79 
FR 76018, Dec. 19, 2014]



Sec. 4290.610  Required certifications for Loans and Investments.

    For each of your Loans and Investments, you must have the documents 
listed in this section. You must keep these documents in your files and 
make them available to the Agency upon request.
    (a) For each Financing made to a Rural Business Concern or Smaller 
Enterprise, a certification by the Portfolio Concern stating the basis 
for its qualification as a Rural Business Concern or Smaller Enterprise.
    (b) A certification by the Portfolio Concern that it will not 
discriminate in violation of Title VI of the Civil Rights Act of 1964, 
the Age Discrimination Act of 1975, and Title V of the Equal Credit 
Opportunity Act.

[[Page 993]]

    (c) A certification by the Portfolio Concern of the intended use of 
the proceeds. For securities purchased from an underwriter in a public 
offering, you may substitute a prospectus indicating the intended use of 
proceeds.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80223, Dec. 23, 2011; 85 
FR 16523, Mar. 24, 2020]



Sec. 4290.620  Requirements to obtain information from Portfolio Concerns.

    All the information required by this section is subject to the 
requirements of Sec. 4290.600 and must be in English.
    (a) Information for initial Financing decision. Before extending any 
Financing, you must require the Enterprise to submit such financial 
statements, plans of operation (including intended use of financing 
proceeds), cash flow analyses, projections, and such economic 
development information about the Enterprise, as are necessary to 
support your investment decision. The information submitted must be 
consistent with the size and type of the Enterprise and the amount of 
the proposed Financing.
    (b) Updated financial and economic development information. (1) The 
terms of each Financing must require the Portfolio Concern to provide, 
at least annually, sufficient financial and economic development 
information to enable you to perform the following required procedures:
    (i) Evaluate the financial condition of the Portfolio Concern for 
the purpose of valuing your investment;
    (ii) Determine the continued eligibility of the Portfolio Concern;
    (iii) Verify the use of Financing proceeds;
    (iv) Evaluate the economic development impact of the Financing; and
    (v) In the case of any Portfolio Concern that is not a Rural 
Business Concern, the number and percentage of its employees residing in 
Rural Areas.
    (2) The president, chief executive officer, treasurer, chief 
financial officer, general partner, or proprietor of the Portfolio 
Concern must certify the information submitted to you.
    (3) For financial and valuation purposes, you may accept a complete 
copy of the Federal income tax return filed by the Portfolio Concern (or 
its proprietor) in lieu of financial statements, but only if appropriate 
for the size and type of the Enterprise involved.
    (4) The requirements in this paragraph (b) do not apply when you 
acquire securities from an underwriter in a public offering (see Sec. 
4290.825). In that case, you must keep copies of all reports furnished 
by the Portfolio Concern to the holders of its securities.
    (c) Information required for examination purposes. You must obtain 
any information requested by the Agency's examiners for the purpose of 
verifying the certifications made by a Portfolio Concern under Sec. 
4290.610. In this regard, your Financing documents must contain 
provisions requiring the Portfolio Concern to give you and/or the 
Agency's examiners access to its books and records for such purpose.

                    Reporting Requirements for RBICs



Sec. 4290.630  Requirement for RBICs to file financial statements and supplementary information with the Agency.

    (a) Annual filing. For each fiscal year, you must submit financial 
statements and supplementary information prepared on SBA Form 468 or 
other USDA-approved form(s). You must file SBA Form 468 (or other USDA-
approved form(s)) on or before the last day of the third month following 
the end of your fiscal year, except for the information required under 
paragraphs (e) and (f) of this section, which must be filed on or before 
the last day of the fifth month following the end of your fiscal year.
    (1) Audit of annual filing form. An independent public accountant 
acceptable to the Agency must audit the annual form submitted under 
paragraph (a) of this section.
    (2) Insurance requirement for public accountant. Unless the Agency 
approves otherwise, your independent public accountant must carry at 
least $1,000,000 of Errors and Omissions insurance, or be self-insured 
and have a net worth of at least $1,000,000.
    (b) Interim filings. When requested by the Agency, you must file 
interim reports on SBA Form 468 or other USDA-approved form(s). The 
Agency may require you to file the entire form or only certain 
statements and schedules. You must file such reports on or before

[[Page 994]]

the last day of the month following the end of the reporting period. 
When you submit a request for a draw under a Leverage commitment, you 
must also comply with any applicable filing requirements set forth in 
Sec. 4290.1220.
    (c) Standards for preparation. You must prepare SBA Form 468 or 
other USDA-approved form(s) in accordance with SBA's Accounting 
Standards and Financial Reporting Requirements for SBICs, which you may 
obtain from SBA or at http://www.sba.gov/content/ accounting-standards-
sbics.
    (d) Where to file. Unless otherwise identified in a notice published 
in the Federal Register, submit all filings of forms under this section 
to the Investment Division of SBA.
    (e) Reporting of economic development impact information for each 
Financing. Your annual filing of SBA Form 468 or other USDA-approved 
form(s) must include an assessment of the economic development impact of 
each Financing. This assessment must specify the fulltime equivalent 
jobs created, the impact of the Financing on the revenues and profits of 
the business and on taxes paid by the business and its employees, and a 
listing of the number and percentage of employees who reside in Rural 
Areas.
    (f) Reporting of economic development information for certain 
Financings. For each Rural Business Concern Investment and each Smaller 
Enterprise Investment, your SBA Form 468 or other USDA-approved form(s) 
must include an assessment of each such Financing with respect to:
    (1) The economic development benefits achieved as a result of the 
Financing;
    (2) How and to what extent such benefits fulfilled the goals of your 
comprehensive business plan and Participation Agreement; and
    (3) Whether you consider the Financing or the results of the 
Financing to have fulfilled the objectives of the RBIC program.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80223, Dec. 23, 2011]



Sec. 4290.640  Requirement to file portfolio financing reports with the Agency.

    For each Financing you make (excluding guarantees), you must submit 
a Portfolio Financing Report on SBA Form 1031 or other USDA-approved 
form(s) within 30 days of the closing date.

[76 FR 80223, Dec. 23, 2011]



Sec. 4290.650  Requirement to report portfolio valuations to the Agency

    You must determine the value of your Loans and Investments in 
accordance with Sec. 4290.503. You must report such valuations to the 
Agency within 90 days of the end of the fiscal year in the case of 
annual valuations, and within 30 days following the close of other 
reporting periods. You must report material adverse changes in 
valuations at least quarterly, within 30 days following the close of the 
quarter.



Sec. 4290.660  Other items required to be filed by RBIC with the Agency.

    (a) Reports to owners. You must give the Agency a copy of any report 
you furnish to your investors, including any prospectus, letter, or 
other publication concerning your financial operations or those of any 
Portfolio Concern.
    (b) Documents filed with SEC. You must give the Agency a copy of any 
report, application or document you file with the Securities and 
Exchange Commission.
    (c) Litigation reports. When you become a party to litigation or 
other proceedings, you must give the Agency a report within 30 days that 
describes the proceedings and identifies the other parties involved and 
your relationship to them.
    (1) The proceedings covered by this paragraph (c) include any action 
by you, or by your security holder(s) in a personal or derivative 
capacity, against an officer, director, Investment Adviser/Manager or 
other Associate of yours for alleged breach of official duty.
    (2) The Agency may require you to submit copies of the pleadings and 
other documents it may specify.

[[Page 995]]

    (3) Where proceedings have been terminated by settlement or final 
judgment, you must promptly advise the Agency of the terms.
    (4) This paragraph (c) does not apply to collection actions or 
proceedings to enforce your ordinary creditors' rights.
    (d) Notification of criminal charges. If any officer, director, 
general partner, or managing member of the RBIC, or any other person who 
was required by the Agency to complete a personal history statement, is 
charged with or convicted of any criminal offense other than a 
misdemeanor involving a minor motor vehicle violation, you must report 
the incident to the Agency within 5 calendar days. Such report must 
fully describe the facts that pertain to the incident.
    (e) Reports concerning Operational Assistance grant funds. You must 
comply with all reporting requirements set forth in 2 CFR part 200, 
subpart D, as codified in 2 CFR 400.1 and any grant award document 
executed between you and the Agency.
    (f) Other reports. You must file any other reports the Agency may 
require in writing.

[69 FR 32204, June 8, 2004, as amended at 79 FR 76019, Dec. 19, 2014]



Sec. 4290.680  Reporting changes in RBIC not subject to prior approval.

    (a) Changes to be reported for post-approval. This section applies 
to any changes in your Articles, ownership, capitalization, management, 
operating area, or investment policies that do not require the Agency's 
prior approval. You must report such changes to the Agency within 30 
days after the change, for post approval.
    (b) Approval by the Agency. You may consider any change submitted 
under this Sec. 4290.680 to be approved unless the Agency notifies you 
to the contrary within 90 days after receiving it. Approval is 
contingent upon your full disclosure of all relevant facts and is 
subject to any conditions the Agency may prescribe.

      Examinations of RBICs by the Agency for Regulatory Compliance



Sec. 4290.690  Examinations.

    All RBICs must submit to annual examinations by or at the direction 
of the Agency for the purpose of evaluating regulatory compliance.



Sec. 4290.691  Responsibilities of RBIC during examination.

    You must make all books, records and other pertinent documents and 
materials available for the examination, including any information 
required by the examiner under Sec. 4290.620(c). In addition, the 
agreement between you and the independent public accountant performing 
your audit must provide that any information in the accountant's working 
papers be made available to the examiners upon request.



Sec. 4290.692  Examination fees.

    (a) General. The Agency will assess fees for examinations in 
accordance with this Sec. 4290.692. Unless the Agency determines 
otherwise on a case by case basis, it will not assess fees for special 
examinations to obtain specific information.
    (b) Base fee. A base fee of $9,200 + 0.015 percent of your assets 
will be assessed, subject to adjustment in accordance with paragraph (c) 
of this section.
    (c) Adjustments to base fee. The base fee will be decreased based on 
the following criteria:
    (1) If you have no outstanding regulatory violations at the time of 
the commencement of the examination or the Agency did not identify any 
violations as a result of the most recent prior examination, you will 
receive a 15% discount on your base fee; and
    (2) If you were fully responsive to the letter of notification of 
examination (that is, you provided all requested documents and 
information within the time period stipulated in the notification letter 
in a complete and accurate manner, and you prepared and had available 
all information requested by the examiner for on-site review), you will 
receive a 10% discount on your base fee.
    (d) Examination delay fee. If, in the sole discretion of the Agency, 
the time required to complete your examination

[[Page 996]]

is delayed due to your lack of cooperation or the condition of your 
records, the Agency may assess an additional examination fee of up to 
$500 per day.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011]



               Subpart I_Financing of Enterprises by RBICs

       Determining Eligibility of an Enterprise for RBIC Financing



Sec. 4290.700  Requirements concerning types of enterprises to receive financing.

    (a) Financing requirements. Beginning after the third fiscal year 
after the issuance of your RBIC license and at the close of each of your 
fiscal years thereafter, you must be in compliance with the Financing 
percentages specified in this paragraph (a).
    (1) Rural Business Concerns. At least 75 percent of your Financings 
(in total dollars) to your Portfolio Concerns must have been to Rural 
Business Concerns.
    (2) Smaller Enterprises. More than 50 percent of your Financings (in 
total dollars) to your Portfolio Concerns must have been to Smaller 
Enterprises that, at the time of the initial Financing to such 
Enterprise, meet either the net worth/net income test or the size 
standard set forth in the ``Smaller Enterprise'' definition in Sec. 
4290.50.
    (3) Urban Areas. No more than 10 percent of your Financings (in 
total dollars) to your Portfolio Concerns must have been made to 
Portfolio Concerns located in an Urban Area.
    (b) Non-compliance. If you are not in compliance with any of the 
Financing percentages specified in paragraph (a) of this section at the 
end of the third fiscal year after the issuance of your RBIC license or 
any fiscal year thereafter, you must come into compliance by the end of 
the following fiscal year. For as long as you remain out of compliance, 
you are not eligible for additional Leverage (see Sec. 4290.1120).

[85 FR 16523, Mar. 24, 2020]



Sec. 4290.720  Enterprises that may be ineligible for Financing.

    (a) Re-lenders or re-investors. You are not permitted to finance any 
Enterprise that is a re-lender or re-investor. The primary business 
activity of re-lenders or re-investors involves, directly or indirectly, 
providing funds to others, purchasing debt obligations, factoring, or 
long-term leasing of equipment with no provision for maintenance or 
repair.
    (b) Passive Enterprises. You are not permitted to finance a passive 
Enterprise.
    (1) Definition. An Enterprise is passive if:
    (i) It is not engaged in a regular and continuous business operation 
(for purposes of this paragraph (b), the mere receipt of payments such 
as dividends, rents, lease payments, or royalties is not considered a 
regular and continuous business operation); or
    (ii) Its employees are not carrying on the majority of day to day 
operations, and the Enterprise does not provide effective control and 
supervision, on a day to day basis, over persons employed under 
contract; or
    (iii) It passes through substantially all of the proceeds of the 
Financing to another entity.
    (2) Exception for pass-through of proceeds to subsidiary. With the 
prior written approval of the Agency, you may finance a passive 
Enterprise if it passes substantially all of the proceeds through to one 
or more subsidiary companies, each of which is an eligible Enterprise 
that is not passive. For the purpose of this paragraph (b)(2), 
``subsidiary company'' means a company in which at least 50 percent of 
the outstanding voting securities are owned by the Financed passive 
Enterprise.
    (3) Exception for certain Partnership RBICs or LLC RBICs. With the 
prior written approval of the Agency, if you are a Partnership RBIC or 
LLC RBIC, you may form one or more wholly owned corporations in 
accordance with this paragraph (b)(3). The sole purpose of such 
corporation(s) must be to provide Financing to one or more eligible, 
unincorporated Enterprise. You may form such corporation(s) only if a 
direct Financing to such Enterprise would cause any of your investors to

[[Page 997]]

incur unrelated business taxable income under section 511 of the 
Internal Revenue Code of 1986, as amended (26 U.S.C. 511). Your 
investment of funds in such corporation(s) will not constitute a 
violation of Sec. 4290.730(a).
    (c) Real Estate Enterprises. (1) You are not permitted to finance:
    (i) Any Enterprise classified under sector 233 (Building, 
Developing, and General Contracting) of the NAICS Manual, or
    (ii) Any Enterprise listed under sector 531 (Real Estate) unless at 
least 80 percent of its revenue is derived from non-Affiliate sources.
    (2) You are not permitted to finance an Enterprise, regardless of 
NAICS classification, if the Financing is to be used to acquire or 
refinance real property, unless the Enterprise:
    (i) Is acquiring an existing property and will use at least 51 
percent of the usable square footage for an eligible business or 
commercial purpose; or
    (ii) Is constructing or renovating a building and will use at least 
67 percent of the usable square footage for an eligible business or 
commercial purpose; or
    (iii) Occupies the subject property and uses at least 67 percent of 
the usable square footage for an eligible business or commercial 
purpose.
    (d) Project Financing. You are not permitted to finance an 
Enterprise if:
    (1) The assets of the Enterprise are to be reduced or consumed, 
generally without replacement, as the life of the Enterprise progresses, 
and the nature of the Enterprise requires that a stream of cash payments 
be made to the Enterprise's financing sources, on a basis associated 
with the continuing sale of assets. Examples include real estate 
development projects and oil and gas wells; or
    (2) The primary purpose of the Financing is to fund production of a 
single item or defined limited number of items, generally over a defined 
production period, and such production will constitute the majority of 
the activities of the Enterprise. Examples include motion pictures.
    (e) Farm land purchases. You are not permitted to finance the 
acquisition of farmland. Farmland means land which is or is intended to 
be used for agricultural or forestry purposes such as the production of 
food, fiber, or wood, or is so taxed or zoned.
    (f) Public interest. You are not permitted to finance any business 
if the proceeds are to be used for purposes contrary to the public 
interest, including but not limited to or activities which are in 
violation of law, or inconsistent with free competitive enterprise.
    (g) Foreign investment--(1) General rule. You are not permitted to 
finance an Enterprise if:
    (i) The funds will be used substantially for a foreign operation; or
    (ii) At the time of the Financing or within one year thereafter, 
more than 49 percent of the employees or tangible assets of the 
Enterprise are located outside the United States (unless you can show, 
to the Agency's satisfaction, that the Financing was used for a specific 
domestic purpose).
    (2) Exception. This paragraph (g) does not prohibit either:
    (i) A Financing used to acquire foreign materials and equipment or 
foreign property rights for use or sale in the United States; or
    (ii) A Financing in a subsidiary based in the United States of 
foreign-owned entities with at least 51 percent U.S. ownership.
    (h) Financing RBICs, SBICs, or New Markets Capital Companies (NMVC 
Companies). (1) You are not permitted to provide funds, directly or 
indirectly, that will be used:
    (i) To purchase stock in or otherwise provide capital to a RBIC, 
SBIC or NMVC Company; or
    (ii) To repay an indebtedness incurred for the purpose of investing 
in a RBIC, SBIC, or NMVC Company.
    (2) ``NMVC Company'' is defined in 13 CFR 108.50.
    (i) Entities ineligible for Farm Credit System Assistance. If one or 
more Farm Credit System Institutions or their Affiliates owns more than 
50 percent of the ownership interests of a Rural Business Investment 
Company, either alone or in conjunction with other Farm Credit System 
Institutions (or affiliates), the Rural Business Investment Company may 
not provide Financing to any entity that is not otherwise eligible to 
receive Financing

[[Page 998]]

from a Farm Credit System Institution under the Farm Credit Act of 1971 
(12 U.S.C. 2001 et seq.).
    (j) Gaming establishments. You are not permitted to Finance an 
Enterprise that derives, or is expected to derive, more than one-third 
of its gross annual revenue from legal gaming activities.
    (k) Change in control of an Enterprise. You are not permitted to 
Finance a change of more than 50 percent control of an Enterprise unless 
otherwise approved by the Agency.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011; 85 
FR 16523, Mar. 24, 2020]



Sec. 4290.730  Financings which constitute conflicts of interest.

    (a) General rule. You must not self-deal to the prejudice of an 
Enterprise, the RBIC, its shareholders, partners or, members, or the 
Agency. Unless you obtain a prior written exemption from the Agency for 
special instances in which a Financing may further the purposes of the 
Act despite presenting a conflict of interest, you must not directly or 
indirectly:
    (1) Provide Financing to any of your Associates, except for an 
Enterprise that satisfies all of the following conditions:
    (i) Your Associate relationship with the Enterprise is described by 
paragraph (8) or (9) of the definition of Associate in Sec. 4290.50,
    (ii) No Person triggering the Associate relationship identified in 
paragraph (a)(1)(i) of the definition of Associate in Sec. 4290.50 is a 
Close Relative or Secondary Relative of any Person described in 
paragraphs (1), (2), (4), or (5) of the definition of Associate in Sec. 
4290.50, and
    (iii) No single Associate of yours has either a voting interest or 
an economic interest in the Enterprise exceeding 20 percent, and no two 
or more of your Associates have either a voting interest or an economic 
interest exceeding 33 percent. Economic interests shall be computed on a 
fully diluted basis, and both voting and economic interests shall 
exclude any interest owned through the RBIC.
    (2) Provide Financing to an Associate of another RBIC if one of your 
Associates has received or will receive any direct or indirect Financing 
or a Commitment from that RBIC or any other RBIC (including Financing or 
Commitments received under any understanding, agreement, or cross 
dealing, reciprocal or circular arrangement).
    (3) Borrow money from:
    (i) An Enterprise Financed by you;
    (ii) An officer, director, or owner of at least a 10 percent equity 
interest in such Enterprise; or
    (iii) A Close Relative of any such officer, director, or equity 
owner.
    (4) Provide Financing to an Enterprise to discharge an obligation to 
your Associate or free other funds to pay such obligation. This 
paragraph (a)(4) does not apply if the obligation is to an Associate 
Lending Institution and is a line of credit or other obligation incurred 
in the normal course of business.
    (b) Rules applicable to Associates. Without the Agency's prior 
written approval, your Associates must not, directly or indirectly:
    (1) Borrow money from any Person described in paragraph (a)(3) of 
this section.
    (2) Receive from an Enterprise any compensation or anything of value 
in connection with Assistance you provide (except as permitted under 
Sec. 4290.825(c)), or anything of value for procuring, attempting to 
procure, or influencing your action with respect to such Assistance.
    (c) Applicability of other laws. You are also bound by Federal or 
State laws applicable to you that govern conflicts of interest and 
fiduciary obligations.
    (d) Financings with Associates--(1) Financings with Associates 
requiring prior approval. Without the Agency's prior written approval, 
you may not Finance any Enterprise in which your Associate has either a 
voting equity interest or total equity interests (including potential 
interests) of at least five percent, or effective control, except as 
otherwise permitted under paragraph (a)(1) of this section.
    (2) Other Financings with Associates. If you and an Associate 
provide Financing to the same Enterprise, either at the same time or at 
different times, you must be able to demonstrate to the Agency's 
satisfaction that the terms and conditions are (or were) fair and

[[Page 999]]

equitable to you, taking into account any differences in the timing of 
each party's financing transactions.
    (3) Exceptions to paragraphs (d)(1) and (d)(2) of this section. A 
Financing that falls into one of the following categories is exempt from 
the prior approval requirement in paragraph (d)(1) of this section or is 
presumed to be fair and equitable to you for the purposes of paragraph 
(d)(2) of this section, as appropriate:
    (i) Your Associate is a Lending Institution that is providing 
financing under a credit facility in order to meet the operational needs 
of the Enterprise and the terms of such financing are usual and 
customary.
    (ii) Your Associate invests in the Enterprise on the same terms and 
conditions and at the same time as you.
    (iii) Both you and your Associate are RBICs.
    (e) Use of Associates to manage Portfolio Concerns. To protect your 
investment, you may designate an Associate to serve as an officer, 
director, or other participant in the management of a Portfolio Concern. 
You must identify any such Associate in your records available for the 
Agency's review under Sec. 4290.600. Without the Agency's prior written 
approval, such Associate must not:
    (1) Have any other direct or indirect financial interest in the 
Portfolio Concern that exceeds, or has the potential to exceed, the 
percentages of the Portfolio Concern's equity set forth in paragraph 
(a)(1) of this section.
    (2) Receive any income or anything of value from the Portfolio 
Concern unless it is for your benefit, with the exception of director's 
fees, expenses, and distributions based upon the Associate's ownership 
interest in the Concern.
    (f) 1940 and 1980 Act Companies: SEC exemptions. If you are a 1940 
or 1980 Act Company and you receive an exemption from the Securities and 
Exchange Commission for a transaction described in this Sec. 4290.730, 
you need not obtain the Agency's approval of the transaction. However, 
you must promptly notify the Agency of the transaction.
    (g) Restriction on options obtained by RBIC's management and 
employees. Your employees, officers, directors, managing members or 
general partners, or the general partners or managing members of the 
Investment Adviser/Manager that is providing services to you or to your 
general partner or managing member, may obtain options in a Portfolio 
Concern only if:
    (1) They participate in the Financing on a pari passu basis with 
you; or
    (2) The Agency gives prior written approval; or
    (3) The options received are compensation for service as a member of 
the board of directors of the Portfolio Concern, and such compensation 
does not exceed that paid to other outside directors. In the absence of 
such directors, fees must be reasonable when compared with amounts paid 
to outside directors of similar companies.



Sec. 4290.740  Portfolio diversification (``overline'' limitation).

    (a) Without the Agency's prior written approval, you may provide 
Financing or a Commitment to an Enterprise only if the resulting amount 
of your aggregate outstanding Financings and Commitments to that 
Enterprise and its Affiliates does not exceed 10 percent of the sum of:
    (1) Your Regulatory Capital as of the date of the Financing or 
Commitment; plus
    (2) Any permitted Distribution(s) you made during the five years 
preceding the date of the Financing or Commitment which reduced your 
Regulatory Capital; plus
    (3) The total amount of Leverage provided to the Rural Business 
Investment Company by the Agency since it was licensed under Sec. 
4290.390.
    (b) For the purposes of paragraph (a) of this section, you must 
measure each outstanding Financing at its original cost plus any amount 
of the Financing that was previously written off.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011]



Sec. 4290.760  How a change in size or activity of a Portfolio Concern affects the RBIC and the Portfolio Concern.

    (a) Effect on RBIC of a change in size of a Portfolio Concern. If a 
Portfolio Concern was a Smaller Enterprise at the time of the initial 
Financing but

[[Page 1000]]

no longer qualifies as such under the size standard applicable to such 
entity, you may keep your investment in the Portfolio Concern and:
    (1) Subject to the overline limitations of Sec. 4290.740, you may 
provide additional Financing to the Portfolio Concern up to the time it 
makes a public offering of its securities.
    (2) Even after the Portfolio Concern makes a public offering, you 
may exercise any stock options, warrants, or other rights to purchase 
Equity Securities which you acquired before the public offering, or fund 
Commitments you made before the public offering.
    (b) Effect of a change in business activity occurring within one 
year of RBIC's initial Financing--(1) Retention of Financing. Unless you 
receive the Agency's written approval, you may not keep your Financing 
in a Portfolio Concern which becomes ineligible for financing by a RBIC 
by reason of a change in its business or commercial activity or for any 
other reason within one year of your initial Financing in the Portfolio 
Concern.
    (2) Request for approval to retain Financing. If you request that 
the Agency approve the retention of your investment, your request must 
include sufficient evidence to demonstrate that the change in business 
or commercial activity was caused by an unforeseen change in 
circumstances and was not contemplated at the time the Financing was 
made.
    (3) Additional Financing. If the Agency approves your request to 
retain a Financing under paragraph (b)(2) of this section, you may 
provide additional Financing to the Portfolio Concern to the extent 
necessary to protect against the loss of the amount of your original 
investment, subject to the overline limitations of Sec. 4290.740.
    (c) Effect of a change in business activity occurring more than one 
year after the initial Financing. If a Portfolio Concern becomes 
ineligible because of a change in business activity more than one year 
after your initial Financing you may:
    (1) Retain your investment; and
    (2) Provide additional Financing to the Portfolio Concern to the 
extent necessary to protect against the loss of the amount of your 
original investment, subject to the overline limitations of Sec. 
4290.740.

[69 FR 32204, June 8, 2004, as amended at 85 FR 16523, Mar. 24, 2020]

 Structuring RBIC Financing of Eligible Enterprises--Types of Financings



Sec. 4290.800  Financings in the form of Equity Securities.

    You may purchase the Equity Securities of an Enterprise. You may 
not, inadvertently or otherwise:
    (a) Become a general partner in any unincorporated business; or
    (b) Become jointly or severally liable for any obligations of an 
unincorporated business.



Sec. 4290.810  Financings in the form of Loans.

    You are permitted to make Loans to an Enterprise only if:
    (a) The maturity or term of the Loan is five years or less; and
    (b) You determine that making the Loan is necessary to preserve an 
existing Financing (other than a Loan) in that same Enterprise.



Sec. 4290.815  Financings in the form of Debt Securities.

    (a) General rule. You may purchase Debt Securities from an 
Enterprise.
    (b) Restriction of options obtained by RBIC's management and 
employees. Your employees, officers, directors, general partners, or 
managing members, or the general partners or managing members of your 
Investment Advisor/Manager, may obtain options in a Portfolio Concern 
only if:
    (1) They participate in the Financing on a pari passu basis with 
you; or
    (2) The Agency gives its prior written approval; or
    (3) The options received are compensation for services as a member 
of the board of directors of the Enterprise, and such compensation does 
not exceed that paid to other outside directors. In the absence of such 
directors, fees must be reasonable when compared with amounts paid to 
outside directors of similar Enterprises.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011]

[[Page 1001]]



Sec. 4290.820  Financings in the form of guarantees.

    (a) General rule. At the request of an Enterprise or where necessary 
to protect your existing Financing in a Portfolio Concern, you may 
guarantee the monetary obligation of an Enterprise to any non-Associate 
creditor.
    (b) Exception. You may not issue a guaranty if:
    (1) You would become subject to State regulation as an insurance, 
guaranty or surety business; or
    (2) The amount of the guaranty plus any direct Financings to the 
Enterprise exceed the overline limitations of Sec. 4290.740, except 
that a pledge of the Equity Securities of the issuer or a subordination 
of your lien or creditor position does not count toward your overline.
    (c) Pledge of RBIC's assets as guaranty. For purposes of this 
section, a guaranty with recourse only to specific asset(s) you have 
pledged is equal to the fair market value of such asset(s) or the amount 
of the debt guaranteed, whichever is less.



Sec. 4290.825  Purchasing securities from an underwriter or other third party.

    (a) Securities purchased through or from an underwriter. You may 
purchase the securities of an Enterprise through or from an underwriter 
if:
    (1) You purchase such securities within 90 days of the date the 
public offering is first made;
    (2) Your purchase price is no more than the original public offering 
price; and
    (3) The amount paid by you for the securities (less ordinary and 
reasonable underwriting charges and commissions) has been, or will be, 
paid to the issuer, and the underwriter certifies in writing that this 
requirement has been met.
    (b) Recordkeeping requirements. You must keep records available for 
the Agency's inspection which show the relevant details of the 
transaction, including but not limited to, date, price, commissions, and 
the underwriter's certifications required under paragraphs (a)(3) and 
(c) of this section.
    (c) Underwriter's requirements. The underwriter must certify whether 
it is your Associate. You may pay reasonable and customary commissions 
and expenses to an Associate underwriter for the portion of an offering 
that you purchase.
    (d) Securities purchased from another RBIC. You may purchase from, 
or exchange with, another RBIC, Portfolio securities (or any interest 
therein). Such purchase or exchange may only be made on a non-recourse 
basis. You may not have more than one-third of your total assets (valued 
at cost) invested in such securities. If you have previously sold 
Portfolio securities (or any interest therein) on a recourse basis, you 
must include the amount for which you may be contingently liable in your 
overline computation.
    (e) Purchases of securities from other non-issuers. You may purchase 
securities of an Enterprise from a non-issuer not previously described 
in this Sec. 4290.825 if such acquisition is a reasonably necessary 
part of the overall sound Financing of the Enterprise.



Sec. 4290.830  Minimum term of Financing.

    (a) General rule. The minimum term of each of your Financings is one 
year.
    (b) Restrictions on mandatory redemption of Equity Securities. If 
you have acquired Equity Securities, options, or warrants on terms that 
include redemption by the Portfolio Concern, you must not require 
redemption by the Portfolio Concern within the first year of your 
acquisition except as permitted in Sec. 4290.850.
    (c) Special rules for Loans and Debt Securities--(1) Term. The 
minimum term for Loans and Debt Securities starts with the first 
disbursement of the Financing.
    (2) Prepayment. You must permit voluntary prepayment of Loans and 
Debt Securities by the Portfolio Concern. You must obtain the Agency's 
prior written approval of any restrictions on the ability of the 
Portfolio Concern to prepay other than the imposition of a reasonable 
prepayment penalty under paragraph (c)(3) of this section.
    (3) Prepayment penalties. You may charge a reasonable prepayment 
penalty which must be agreed upon at the time of the Financing. If the 
Agency determines that a prepayment is unreasonable, you must refund the 
entire

[[Page 1002]]

penalty to the Portfolio Concern. A prepayment penalty equal to five 
percent of the outstanding balance during the first year of any 
Financing, declining by one percentage point per year through the fifth 
year, is considered the maximum reasonable amount.



Sec. 4290.835  Exceptions to minimum term of Financing.

    You may make a Financing with a term of less than one year but only 
if such Financing is in contemplation of another Financing, with a term 
of one year or more, to the same Enterprise.



Sec. 4290.840  Maximum term of Financing.

    The maximum term of any Debt Security must be no longer than 20 
years.



Sec. 4290.845  Maximum rate of amortization on Loans and Debt Securities.

    The principal of any Loan, or the loan portion of any Debt Security, 
with a term of one year or less, cannot be amortized faster than 
straight line. If the term is greater than one year, the principal 
cannot be amortized faster than straight line for the first year.



Sec. 4290.850  Restrictions on redemption of Equity Securities.

    (a) Restriction on redemption. A Portfolio Concern cannot be 
required to redeem Equity Securities earlier than one year from the date 
of the first closing unless:
    (1) The Portfolio Concern makes a public offering, or has a change 
of management or control, or files for protection under the provisions 
of the Bankruptcy Code, or materially breaches your Financing agreement; 
or
    (2) You make a follow-on Financing, in which case the new securities 
may be redeemed in less than one year, but no earlier than the 
redemption date associated with your earliest Financing of the Portfolio 
Concern.
    (b) Redemption price. The redemption price must be either:
    (1) A fixed amount that is no higher than the price you paid for the 
securities; or
    (2) An amount that cannot be fixed or determined before the time of 
the redemption. In this case, the redemption price must be based on:
    (i) A reasonable formula that reflects the performance of the 
Portfolio Concern (such as one based on earnings or book value); or
    (ii) The fair market value of the Portfolio Concern at the time of 
redemption, as determined by a professional appraisal performed under an 
agreement acceptable to both parties.
    (c) Method. Any method for determining the redemption price must be 
agreed upon no later than the date of the first (or only) closing of the 
Financing.



Sec. 4290.860  Financing fees and expense reimbursements a RBIC may receive from an Enterprise.

    (a) General rule. You may collect Financing fees and receive expense 
reimbursements from an Enterprise only as permitted under this Sec. 
4290.860.
    (b) Application fee. You may collect a nonrefundable application fee 
from an Enterprise to review its Financing application. The application 
fee may be collected at the same time as the closing fee under paragraph 
(d) or (e) of this section, or earlier. The fee must be:
    (1) No more than one percent of the amount of Financing requested 
(or, if two or more RBICs participate in the Financing, their combined 
application fees are no more than one percent of the total Financing 
requested); and
    (2) Agreed to in writing by the Financing applicant.
    (c) The Agency's review of application fees. For any fiscal year, if 
the number of application fees you collect is more than twice the number 
of Financings closed, the Agency in its sole discretion may determine 
that you are engaged in activities not contemplated by the Act, in 
violation of Sec. 4290.500.
    (d) Closing fee--Loans. You may charge a closing fee on a Loan if:
    (1) The fee is no more than two percent of the Financing amount (or, 
if two or more RBICs participate in the Financing, their combined 
closing fees are no more than two percent of the total Financing 
amount); and
    (2) You charge the fee no earlier than the date of the first 
disbursement.
    (e) Closing fee--Debt or Equity Financings. You may charge a Closing

[[Page 1003]]

Fee on a Debt Security or Equity Security Financing if:
    (1) The fee is no more than four percent of the Financing amount 
(or, if two or more RBICs participate in the Financing, their combined 
closing fees are no more than four percent of the total Financing 
amount); and
    (2) You charge the fee no earlier than the date of the first 
disbursement.
    (f) Limitation on dual fees. If another RBIC or an Associate of 
yours collects a transaction fee under Sec. 4290.900(e) in connection 
with your Financing of an Enterprise, the sum of the transaction fee and 
your application and closing fees cannot exceed the maximum application 
and closing fees permitted under this Sec. 4290.860.
    (g) Expense reimbursements. You may charge an Enterprise for the 
reasonable out-of-pocket expenses, other than Management Expenses, that 
you incur to process its Financing application. If the Agency determines 
that any of your reimbursed expenses are unreasonable or are Management 
Expenses, the Agency will require you to refund them to the Enterprise.
    (h) Breakup fee. If an Enterprise accepts your Commitment and then 
fails to close the Financing because it has accepted funds from another 
source, you may charge a ``breakup fee'' equal to the closing fee that 
you would have been permitted to charge under paragraph (d) or (e) of 
this section.



Sec. 4290.880  Assets acquired in liquidation of Portfolio securities.

    (a) General rule. You may acquire assets in full or partial 
liquidation of a Portfolio Concern's obligation to you under the 
conditions permitted by this Sec. 4290.880. The assets may be acquired 
from the Portfolio Concern, a guarantor of its obligation, or another 
party.
    (b) Timely disposition of assets. You must dispose of assets 
acquired in liquidation of a Portfolio security within a reasonable 
period of time.
    (c) Permitted expenditures to preserve assets. (1) You may incur 
reasonably necessary expenditures to maintain and preserve assets 
acquired.
    (2) You may incur reasonably necessary expenditures for improvements 
to render such assets saleable.
    (3) You may make payments of mortgage principal and interest 
(including amounts in arrears when you acquired the asset), pay taxes 
when due, and pay for necessary insurance coverage.
    (d) The Agency approval of expenditures. This paragraph (d) applies 
if you have outstanding Leverage or are applying for Leverage. Any 
application for the Agency's approval under this paragraph must specify 
all expenses estimated to be necessary pending disposal of the assets. 
Without the Agency's prior written approval:
    (1) Your total expenditures under paragraphs (c)(1) and (c)(2) of 
this section plus your total Financing(s) to the Portfolio Concern must 
not exceed your overline limit under Sec. 4290.740; and
    (2) Your total expenditures under paragraph (b) of this section plus 
your total Financing(s) to the Portfolio Concern must not exceed 35 
percent of your Regulatory Capital.

                  Limitations on Disposition of Assets



Sec. 4290.885  Disposition of assets to RBIC's Associates or to competitors of Portfolio Concerns.

    Except with the Agency's prior written approval, you are not 
permitted to dispose of assets (including assets acquired in 
liquidation) to any Associate or to competitors of Portfolio Concerns if 
you have outstanding Leverage. As a prerequisite to such approval, you 
must demonstrate that the proposed terms of disposal are at least as 
favorable to you as the terms obtainable elsewhere.



Sec. 4290.900  Management fees for services provided to an Enterprise by RBIC or its Associate.

    (a) General. This Sec. 4290.900 applies to management services that 
you or your Associate provide to a Portfolio Concern during the term of 
a Financing or prior to Financing. It does not apply to management 
services that you or your Associate provide to an Enterprise that you do 
not finance.
    (b) The Agency's approval. You must obtain the Agency's prior 
written approval of any management services fees and other fees 
described in this section that you or your Associate charge.

[[Page 1004]]

    (c) Permitted management fees. You or your Associate may provide 
management services to a Portfolio Concern financed by you if:
    (1) You or your Associate have entered into a written contract with 
the Portfolio Concern;
    (2) The fees charged are for services actually performed;
    (3) Services are provided on an hourly fee, project fee, or other 
reasonable basis;
    (4) You can demonstrate to the Agency, upon request, that the rate 
does not exceed the prevailing rate charged for comparable services by 
other organizations in the geographic area of the Portfolio Concern; and
    (5) All of the management services fees paid to your Associate by a 
Portfolio Concern for management services provided by the Associate are 
allocated back to you for your benefit.
    (d) Fees for service as a board member. You or your Associate may 
receive fees in the form of cash, warrants, or other payments, for 
services provided as members of the board of directors of a Portfolio 
Concern Financed by you. The fees must not exceed those paid to other 
outside board members. In the absence of such board members, fees must 
be reasonable when compared with amounts paid to outside directors of 
similar companies. At least 50 percent of any board member services fees 
paid to your Associate by a Portfolio Concern for board member services 
provided by the Associate must be allocated back to you for your 
benefit.
    (e) Approval required. You must obtain the Agency's prior written 
approval of any management contract that does not satisfy paragraphs (c) 
or (d) of this section.
    (f) Transaction fees. (1) You or your Associate may charge 
reasonable transaction fees for work performed preparing an Enterprise 
for a public offering, private offering, or sale of all or part of the 
business, and for assisting with the transaction. Compensation may be in 
the form of cash, notes, stock, and/or options. All of the transaction 
services fees paid to your Associate by a Portfolio Concern for 
transaction services provided by the Associate must be allocated back to 
you for your benefit.
    (2) Your Associate may charge market rate investment banking fees to 
a Portfolio Concern on that portion of a Financing that you do not 
provide.
    (g) Recordkeeping Requirements. You must keep a record of hours 
spent and amounts charged to the Portfolio Concern, including expenses 
charged.



           Subpart J_Financial Assistance for RBICs (Leverage)

              General Information About Obtaining Leverage



Sec. 4290.1100  Type of Leverage and application procedures.

    (a) Type of Leverage available. You may apply for Leverage from the 
Agency in the form of a guarantee of your Debentures.
    (b) Applying for Leverage. The Leverage application process has two 
parts. You must first apply for the Agency's conditional commitment to 
reserve a specific amount of Leverage for your future use. You may then 
apply to draw down Leverage against the commitment. See Sec. Sec. 
4290.1200 through 4290.1240.
    (c) Where to send your application. Send all Leverage draw-down 
applications to Funding Control Officer, Investment Division, U.S. Small 
Business Administration, 409 Third Street, SW., Suite 6300, Mail Code 
7050, Washington, DC 20416.



Sec. 4290.1120  General eligibility requirements for Leverage.

    To be eligible for Leverage, you must be in compliance with the Act, 
the regulations in this part, and your Participation Agreement.



Sec. 4290.1130  Leverage fees payable by RBIC.

    (a) Leverage fee. You must pay the Agency a non-refundable leverage 
fee for each issuance of a Debenture. The fee is 3 percent of the face 
amount of the Debenture issued, and will be deducted from the proceeds 
remitted to you.
    (b) Additional charge. You must pay the Agency an additional annual 
charge of 1 percent of the outstanding amount of your Debenture.

[[Page 1005]]

    (c) Other Leverage fees. The Agency may establish a fee structure 
for services performed by the Central Registration Agent (CRA). The 
Agency will not collect any fee for its guarantee of TCs.



Sec. 4290.1140  RBIC's acceptance of remedies under Sec. 4290.1810.

    If you issue Leverage, you automatically agree to the terms and 
conditions in Sec. 4290.1810 as it exists at the time of issuance. The 
effect of these terms and conditions is the same as if they were fully 
incorporated in the terms of your Leverage.

         Maximum Amount of Leverage for Which a RBIC Is Eligible



Sec. 4290.1150  Maximum amount of Leverage for a RBIC.

    The face amount of a RBIC's outstanding Debentures may not exceed 
the lesser of 200 percent of its Leverageable Capital or $105,000,000.

         Conditional Commitments To Reserve Leverage for a RBIC



Sec. 4290.1200  Leverage commitment to a RBIC--application procedure, amount, and term.

    (a) General. Under the provisions in Sec. Sec. 4290.1200 through 
4290.1240, you may apply for the Agency's conditional commitment to 
reserve a specific amount of Leverage and type of Debenture (standard or 
discounted) for your future use. You may then apply to draw down 
Leverage against the commitment.
    (b) Applying for a Leverage commitment. The Agency will notify you 
when requests for Leverage commitments are being accepted, and upon 
receipt of your request, will send you a complete application package.
    (c) Limitations on the amount of a Leverage commitment. The amount 
of a Leverage commitment must be a multiple of $5,000. The Agency in its 
discretion may determine a minimum dollar amount for Leverage 
commitments. Any such minimum amounts will be published in Notices in 
the Federal Register from time to time.
    (d) Term of Leverage commitment. Your Leverage commitment will 
automatically lapse on the expiration date stated in the commitment 
letter issued to you by the Agency. The Agency's Leverage commitment 
will be included in the Participation Agreement at the time of your 
licensing as a RBIC, under Sec. 4290.390.



Sec. 4290.1220  Requirement for RBIC to file financial statements at the time of request for a draw.

    (a) If you submit a request for a draw against your Leverage 
commitment more than 90 days following your submission of an annual SBA 
Form 468 or a SBA Form 468 (Short Form) or other USDA-approved form(s), 
you must:
    (1) Give the Agency a financial statement on Form 468 (Short Form) 
or other USDA-approved form(s), and
    (2) File a statement of no material adverse change in your financial 
condition since your last filing of SBA Form 468 or other USDA-approved 
form(s).
    (b) You will not be eligible for a draw if you are not in compliance 
with this Sec. 4290.1220.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011]



Sec. 4290.1230  Draw-downs by RBIC under Leverage commitment.

    (a) RBIC's authorization of the Agency to guarantee securities. By 
submitting a request for a draw against the Leverage commitment, you 
authorize the Agency, or the Agency's designated agent or trustee, to 
guarantee your Debenture and to sell it with the Agency's guarantee.
    (b) Limitations on amount of draw. The amount of a draw must be a 
multiple of $5,000. The Agency, in its discretion, may determine a 
minimum dollar amount for draws against Leverage commitments. Any such 
minimum amounts will be published in Notices in the Federal Register 
from time to time.
    (c) Effect of regulatory violations on RBIC's eligibility for 
draws--(1) General rule. You are eligible to make a draw against your 
Leverage commitment only if you are in compliance with all applicable 
provisions of the Act and this part (i.e., no unresolved statutory or 
regulatory violations) and your Participation Agreement.
    (2) Exception to general rule. If you are not in compliance, you may 
still be eligible for draws if:

[[Page 1006]]

    (i) The Agency determines that your outstanding violations are of 
non-substantive provisions of the Act or this part or your Participation 
Agreement and that you have not repeatedly violated any non-substantive 
provisions; or
    (ii) You have agreed with the Agency in writing on a course of 
action to resolve your violations and such agreement does not prevent 
you from issuing Leverage.
    (d) Procedures for funding draws. You may request a draw at any time 
during the term of the commitment. With each request, submit the 
following documentation:
    (1) A statement certifying that there has been no material adverse 
change in your financial condition since your last filing of SBA Form 
468 or other USDA-approved form(s) (see also Sec. 4290.1220 for filing 
requirements).
    (2) If your request is submitted more than 30 days following the end 
of your fiscal year, but before you have submitted your annual filing of 
SBA Form 468 or other USDA-approved form(s) in accordance with Sec. 
4290.630(a), a preliminary unaudited annual financial statement on SBA 
Form 468 (Short Form) or other USDA-approved form(s).
    (3) A statement certifying that to the best of your knowledge and 
belief, you are in compliance with all provisions of the Act and this 
part (i.e., no unresolved regulatory or statutory violations) and your 
Participation Agreement, or a statement listing any specific violations 
you are aware of. Either statement must be executed by one of the 
following:
    (i) An officer of the RBIC;
    (ii) An officer of a corporate general partner or managing member of 
the RBIC;
    (iii) An individual who is authorized to act as or for a general 
partner of the RBIC; or
    (iv) An individual who is authorized to act as or for a managing 
member of the RBIC.
    (4) A statement that the proceeds are needed to fund one or more 
particular Enterprises or to provide liquidity for your operations. If 
required by the Agency, the statement must include the name and address 
of each Enterprise, and the amount and anticipated closing date of each 
proposed Financing.
    (e) Reporting requirements after drawing funds. (1) Within 30 
calendar days after the actual closing date of each Financing funded 
with the proceeds of your draw, you must file an SBA Form 1031 or other 
USDA-approved form(s) confirming the closing of the transaction.
    (2) If the Agency required you to provide information concerning a 
specific planned Financing under paragraph (d)(4) of this section, and 
such Financing has not closed within 60 calendar days after the 
anticipated closing date, you must provide a written explanation of the 
failure to close.
    (3) If you do not comply with this paragraph (e), you will not be 
eligible for additional draws. The Agency may also determine that you 
are not in compliance with the terms of your Leverage under Sec. 
4290.1810.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011]



Sec. 4290.1240  Funding of RBIC's draw request through sale to third-party.

    (a) RBIC's authorization of the Agency to arrange sale of Debentures 
to third-party. By submitting a request for a draw of Debenture 
Leverage, you authorize the Agency, or any agent or trustee the Agency 
designates, to enter into any agreements (and to bind you to such 
agreements) necessary to accomplish:
    (1) The sale of your Debenture to a third-party at a price approved 
by the Agency; and
    (2) The purchase of your Debenture from the third-party and the 
pooling of your Debenture with other Debentures with the same maturity 
date.
    (b) Sale of Debentures to a third-party. If the Agency arranges for 
the sale of your Debenture to a third-party, the sale price may be an 
amount discounted from the face amount of the Debenture.

[[Page 1007]]

            Distributions by RBICs With Outstanding Leverage



Sec. 4290.1500  Restrictions on distributions to RBIC investors while RBIC has outstanding Leverage.

    (a) Restriction on distribution. If you have outstanding Leverage, 
whenever you make a distribution to your investors you must make, at the 
same time, a prepayment to or for the benefit of the third-party holder 
of the Debenture sold pursuant to Sec. 4290.1240 of this part, accrued 
unpaid interest and the principal, in whole or in part, of one or more 
of your Debentures outstanding as of the date of the distribution 
(subject to the terms of such Debentures).
    (b) Amount of prepayment. You must calculate the amount due the 
third-party holder by multiplying the total amount you intend to 
distribute by a fraction whose numerator is the outstanding principal of 
your Debenture(s) immediately preceding your distribution, and whose 
denominator is the sum of your Leverageable Capital as of that time plus 
the outstanding principal amount of your Debentures. For purposes of the 
preceding sentence ``principal'' means both the net proceeds and 
interest accrued to date of a discounted Debenture. The amount of any 
payment received under this section will be credited first against 
unpaid interest accrued to the date of distribution and then to the 
principal in whole or in part of the first Debenture you select to 
prepay and then to the interest and principal in whole or in part of 
such other Debenture(s) as you select to prepay. You may elect to prepay 
in whole any discounted Debenture under this section only within five 
years of its maturity date. Payments under this section must be made on 
the next occurring March 1 or September 1.
    (c) Effect of prepayment. Subject to the terms of the Debenture(s), 
you may voluntarily prepay additional principal, but neither mandatory 
nor voluntary prepayment will increase your future Leverage eligibility.

   Funding Leverage by Use of Guaranteed Trust Certificates (``TCs'')



Sec. 4290.1600  Agency's authority to issue and guarantee Trust Certificates.

    (a) Authorization. Section 384F of the Act authorizes the Agency to 
issue TCs and to guarantee the timely payment of the principal and 
interest thereon. Any such guarantee of such TC is limited to the 
principal and interest due on the Debentures in any Trust or Pool 
backing such TC. The full faith and credit of the United States is 
pledged to the payment of all amounts due under the guarantee of any TC.
    (b) Authority to arrange public or private fundings of Leverage. The 
Agency in its discretion may arrange for public or private financing 
under its guarantee authority. Such financing may be accomplished by the 
sale of individual Debentures, aggregations of Debentures, or Pools or 
Trusts of Debentures.
    (c) Pass-through provisions. TCs shall provide for a pass-through to 
their holders of all amounts of principal and interest paid on the 
Debentures in the Pool or Trust against which they are issued.
    (d) Formation of a Pool or Trust holding Leverage Securities. The 
Agency shall approve the formation of each Pool or Trust. The Agency 
may, in its discretion, establish the size of the Pools and their 
composition, the interest rate on the TCs issued against Trusts or 
Pools, discounts, premiums and other charges made in connection with the 
Pools, Trusts, and TCs, and any other characteristics of a Pool or Trust 
it deems appropriate. Notwithstanding Sec. 4290.1130(c), any agent of 
the Agency may collect a fee for the functions described in 7 U.S.C. 
2009cc-5(e)(2) that does not exceed $500.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011]



Sec. 4290.1610  Effect of prepayment or early redemption of Leverage on a Trust Certificate.

    (a) The rights, if any, of a RBIC to prepay any Debenture is 
established by the terms of such security, and no such right is created 
or denied by the regulations in this part.

[[Page 1008]]

    (b) The Agency's rights to purchase or prepay any Debenture without 
premium are established by the terms of the Guaranty Agreement relating 
to the Debenture.
    (c) Any prepayment of a Debenture pursuant to the terms of the 
Guaranty Agreement relating to such security shall reduce the Agency's 
guarantee of timely payment of principal and interest on a TC in 
proportion to the amount of principal that such prepaid Debenture 
represents in the Trust or Pool backing such TC.
    (d) The Agency shall be discharged from its guarantee obligation to 
the holder or holders of any TC, or any successor or transferee of such 
holder, to the extent of any such prepayment, whether or not such 
successor or transferee shall have notice of any such prepayment.
    (e) Interest on prepaid Debentures shall accrue only through the 
date of prepayment.
    (f) In the event that all Debentures constituting a Trust or Pool 
are prepaid, the TCs backed by such Trust or Pool shall be redeemed by 
payment of the unpaid principal and interest on the TCs; provided, 
however, that in the case of the prepayment of a Debenture pursuant to 
the provisions of the Guaranty Agreement relating to the Debenture, the 
Central Registration Agent (CRA) shall pass through pro rata to the 
holders of the TCs any such prepayments including any prepayment penalty 
paid by the obligor RBIC pursuant to the terms of the Debenture.



Sec. 4290.1620  Functions of agents, including Central Registration Agent, Selling Agent and Fiscal Agent.

    (a) Agents. The Agency may appoint or cause to be appointed agent(s) 
to perform functions necessary to market and service Debentures or TCs 
pursuant to this part.
    (1) Selling Agent. As a condition of guaranteeing a Debenture, the 
Agency may cause each RBIC to appoint a Selling Agent to perform 
functions that include, but are not limited to:
    (i) Selecting qualified entities to become pool or Trust assemblers 
(``Poolers'').
    (ii) Receiving guaranteed Debentures as well as negotiating the 
terms and conditions of sales or periodic offerings of Debentures and/or 
TCs on behalf of RBICs.
    (iii) Directing and coordinating periodic sales of Debentures and/or 
TCs.
    (iv) Arranging for the production of Offering Circulars, 
certificates, and such other documents as may be required from time to 
time.
    (2) Fiscal Agent. The Agency shall appoint a Fiscal Agent to:
    (i) Establish performance criteria for Poolers.
    (ii) Monitor and evaluate the financial markets to determine those 
factors that will minimize or reduce the cost of funding Debentures.
    (iii) Monitor the performance of the Selling Agent, Poolers, CRA, 
and the Trustee.
    (iv) Perform such other functions as the Agency, from time to time, 
may prescribe.
    (3) Central Registration Agent. Pursuant to a contract entered into 
with the Agency, the CRA, as the Agency's agent, will do the following 
with respect to the Pools or Trust Certificates for the Debentures:
    (i) Form an approved Pool or Trust;
    (ii) Issue the TCs in the prescribed form;
    (iii) Transfer the TCs upon the sale of original issue TCs in any 
secondary market transaction;
    (iv) Receive payments from RBICs;
    (v) Make periodic payments as scheduled or required by the terms of 
the TCs, and pay all amounts required to be paid upon prepayment of 
Debentures;
    (vi) Hold, safeguard, and release all Debentures constituting Trusts 
or Pools upon instructions from the Agency;
    (vii) Remain custodian of such other documentation as the Agency 
shall direct by written instructions;
    (viii) Provide for the registration of all pooled Debentures, all 
Pools and Trusts, and all TCs; and
    (ix) Perform such other functions as the Agency may deem necessary 
to implement the provisions of this section.
    (b) Functions. Either the Agency or an agent appointed by the Agency 
may perform the function of locating purchasers, and negotiating and 
closing

[[Page 1009]]

the sale of Debentures and TCs. Nothing in the regulations in this part 
shall be interpreted to prevent the CRA from acting as the Agency's 
agent for this purpose.



Sec. 4290.1630  Regulation of Brokers and Dealers and disclosure to purchasers of Leverage or Trust Certificates.

    (a) Brokers and Dealers. Each broker, dealer, and Pool or Trust 
assembler approved by the Agency pursuant to these regulations shall 
either be regulated by a Federal financial regulatory agency, or be a 
member of the National Association of Securities Dealers (NASD), and 
shall be in good standing in respect to compliance with the financial, 
ethical, and reporting requirements of such body. It also shall be in 
good standing with the Agency as determined by the SBA official with 
delegated authority to made this determination (see paragraph (c) of 
this section) and shall provide a fidelity bond or insurance in such 
amount as the Agency may require.
    (b) Suspension and/or termination of Broker or Dealer. The Agency 
shall exclude from the sale and all other dealings in Debentures or TCs 
any broker or dealer:
    (1) If such broker's or dealer's authority to engage in the 
securities business has been revoked or suspended by a supervisory 
agency. When such authority has been suspended, the Agency will suspend 
such broker or dealer for the duration of such suspension by the 
supervisory agency.
    (2) If such broker or dealer has been indicted or otherwise formally 
charged with a misdemeanor or felony bearing on its fitness, such broker 
or dealer may be suspended while the charge is pending. Upon conviction, 
participation may be terminated.
    (3) If such broker or dealer has suffered an adverse final civil 
judgment holding that such broker or dealer has committed a breach of 
trust or violation of law or regulation protecting the integrity of 
business transactions or relationships, participation in the market for 
Debentures or TCs may be terminated.
    (c) Termination/suspension proceedings. A broker's or dealer's 
participation in the market for Debentures or TCs will be conducted in 
accordance with 7 CFR part 11. The Agency may, for any of the reasons 
stated in paragraphs (b)(1) through (3) of this section, suspend the 
privilege of any broker or dealer to participate in this market. The 
Agency shall give written notice at least ten business days prior to the 
effective date of such suspension. Such notice shall inform the broker 
or dealer of the opportunity for a hearing pursuant to 7 CFR part 11.



Sec. 4290.1640  Agency's access to records of the CRA, Brokers, Dealers and Pool or Trust assemblers.

    The CRA and any broker, dealer and Pool or Trust assembler operating 
under the regulations in this part shall make all books, records and 
related materials associated with Debentures and TCs available to the 
Agency for review and copying purposes. Such access shall be at such 
party's primary place of business during normal business hours.

                              Miscellaneous



Sec. 4290.1700  Agency's transfer of interest in a RBIC's Leverage security.

    Upon such conditions and for such consideration as it deems 
reasonable, the Agency may sell, assign, transfer, or otherwise dispose 
of any Debenture held by or on behalf of the Agency. Upon notice by the 
Agency, a RBIC will make all payments of principal and interest as shall 
be directed by the Agency. A RBIC will be liable for all damage or loss 
which the Agency may sustain by reason of the RBIC's failure to follow 
such payment instructions, up to the amount of the RBIC's liability 
under such security, plus court costs and reasonable attorney's fees 
incurred by the Agency.



Sec. 4290.1710  Agency's authority to collect or compromise claims.

    The Agency may, upon such conditions and for such consideration as 
it deems reasonable, collect or compromise all claims relating to 
obligations it holds or has guaranteed, and all legal or equitable 
rights accruing to it.

[[Page 1010]]



Sec. 4290.1720  Characteristics of Agency's guarantee.

    If the Agency agrees to guarantee a RBIC's Debentures, such 
guarantee will be unconditional, irrespective of the validity, 
regularity or enforceability of the Debentures or any other 
circumstances that might constitute a legal or equitable discharge or 
defense of a guarantor. Pursuant to its guarantee, the Agency will make 
timely payments of principal and interest on the Debentures.



          Subpart K_RBIC's Noncompliance With Terms of Leverage



Sec. 4290.1810  Events of default and the Agency's remedies for RBIC's noncompliance with terms of Debentures.

    (a) Applicability of this section. Upon acceptance of a license to 
operate as an RBIC, you automatically agree to the terms, conditions and 
remedies in this section, as in effect at the time of issuance of the 
license and as fully set forth in all documents relating to the license, 
including, without limitation, the Participation Agreement and 
Debentures.
    (b) Automatic events of default. The occurrence of one or more of 
the events in this paragraph (b) causes the remedies in paragraph (c) of 
this section to take effect immediately.
    (1) Insolvency. You become equitably or legally insolvent.
    (2) Voluntary assignment. You make a voluntary assignment for the 
benefit of creditors without the Agency's prior written approval.
    (3) Bankruptcy. You file a petition to begin any bankruptcy or 
reorganization proceeding, receivership, dissolution or other similar 
creditors' rights proceeding, or such action is initiated against you 
and is not dismissed within 60 days.
    (c) Remedies for automatic events of default. Upon the occurrence of 
one or more of the events in paragraph (b) of this section:
    (1) Without notice, presentation or demand, the entire indebtedness 
evidenced by your Debentures, including accrued interest, and any other 
amounts owed with respect to your Debentures, is immediately due and 
payable; and
    (2) You automatically consent to the appointment of the Agency or 
its designee, as your receiver under section 384M of the Act.
    (d) Events of default with notice. For any occurrence (as determined 
by the Agency) of one or more of the events in this paragraph (d), the 
Agency may avail itself of one or more of the remedies in paragraph (e) 
of this section.
    (1) Fraud. You commit a fraudulent act that causes detriment to the 
Agency's position as a creditor or guarantor.
    (2) Fraudulent transfers. You make any transfer or incur any 
obligation that is fraudulent under the terms of 11 U.S.C. 548.
    (3) Willful conflicts of interest. You willfully violate Sec. 
4290.730.
    (4) Willful non-compliance. You willfully violate one or more of the 
substantive provisions of the Act or any substantive regulation 
promulgated under the Act or any substantive provision of your 
Participation Agreement.
    (5) Repeated Events of Default. At any time after being notified of 
the occurrence of an event of default under paragraph (f) of this 
section, you engage in similar behavior that results in another 
occurrence of the same event of default.
    (6) Transfer of Control. You willfully violate Sec. 4290.410, and 
as a result of such violation you undergo a transfer of Control.
    (7) Non-cooperation under Sec. 4290.1810(h). You fail to take 
appropriate steps, satisfactory to the Agency, to accomplish any action 
the Agency may have required under paragraph (h) of this section.
    (8) Non-notification of Events of Default. You fail to notify the 
Agency as soon as you know or reasonably should have known that any 
event of default exists under this section.
    (9) Non-notification of defaults to others. You fail to notify the 
Agency in writing within ten days from the date of a declaration of an 
event of default or nonperformance under any note, debenture or 
indebtedness of yours, issued to or held by anyone other than the 
Agency.

[[Page 1011]]

    (e) Remedies for events of default with notice. Upon written notice 
to you of the occurrence (as determined by the Agency) of one or more of 
the events in paragraph (d) of this section:
    (1) The Agency may declare the entire indebtedness evidenced by your 
Debentures, including accrued interest and/or any other amounts owed the 
Agency with respect to your Debentures, immediately due and payable: and
    (2) The Agency may avail itself of any remedy available under the 
Act, specifically including institution of proceedings for its, or its 
designee's appointment as your receiver under section 384M(c) of the 
Act.
    (f) Events of default with opportunity to cure. For any occurrence 
(as determined by the Agency) of one or more of the events in this 
paragraph (f), the Agency may avail itself of one or more of the 
remedies in paragraph (g) of this section.
    (1) Excessive Management Expenses. Without the Agency's prior 
written consent, you incur Management Expenses in excess of those 
permitted under Sec. Sec. 4290.510 and 4290.520.
    (2) Improper Distributions. You make any Distribution to your 
shareholders or partners, except with the Agency's prior written 
consent, other than:
    (i) Distributions permitted under Sec. 4290.585; and
    (ii) Payments from Retained Earnings Available for Distribution 
based on either the shareholders' or members' pro-rata interests or the 
provisions for profit distributions in your partnership agreement, as 
appropriate.
    (3) Failure to make payment. Unless otherwise approved by the 
Agency, you fail to make timely payment of any amount due under any 
security or obligation of yours that is issued to, held or guaranteed by 
the Agency.
    (4) Failure to maintain Regulatory Capital. You fail to maintain the 
minimum Regulatory Capital required under these regulations or, without 
the Agency's prior written consent, you reduce your Regulatory Capital 
except as permitted by Sec. 4290.585.
    (5) Capital Impairment. You have a condition of Capital Impairment 
as determined under Sec. 4290.1830.
    (6) Cross-default. An obligation of yours that is greater than 
$100,000 becomes due or payable (with or without notice) before its 
stated maturity date, for any reason including your failure to pay any 
amount when due. This provision does not apply if you pay the amount due 
within any applicable grace period or contest the payment of the 
obligation in good faith by appropriate proceedings.
    (7) Nonperformance. You violate or fail to perform one or more of 
the terms and conditions of any security or obligation of yours that is 
issued to, held or guaranteed by the Agency, or of any agreement 
(including your Participation Agreement) with or conditions imposed by 
the Agency in the administration of the Act and the regulations 
promulgated under the Act.
    (8) Noncompliance. Except as otherwise provided in paragraph (d)(5) 
of this section, the Agency determines that you have violated one or 
more of the substantive provisions of the Act or any substantive 
regulation promulgated under the Act.
    (9) Failure to maintain diversity. You fail to maintain diversity 
between management and ownership as required by Sec. 4290.150.
    (g) Remedies for events of default with opportunity to cure. (1) 
Upon written notice to you of the occurrence (as determined by the 
Agency) of one or more of the events of default in paragraph (f) of this 
section, and subject to the conditions in paragraph (g)(2) of this 
section:
    (i) The Agency may declare the entire indebtedness evidenced by your 
Debentures, including accrued interest, and/or any other amounts owed 
the Agency with respect to your Debentures, immediately due and payable; 
and
    (ii) The Agency may avail itself of any remedy available under the 
Act, specifically including institution of proceedings for the 
appointment of the Agency or a designee as your receiver under Sec. 
348M of the Act.
    (2) The Agency may invoke the remedies in paragraph (g)(1) of this 
section only if:
    (i) You have been given at least 15 days to cure the default(s); and

[[Page 1012]]

    (ii) You fail to cure the default(s) to the Agency's satisfaction 
within the allotted time.
    (h) Repeated non-substantive violations. If you repeatedly fail to 
comply with one or more of the non-substantive provisions of the Act or 
any non-substantive regulation promulgated under the Act, the Agency, 
after written notification to you and until you cure such condition to 
the Agency's satisfaction, may deny you additional Leverage and/or 
require you to take such actions as the Agency may determine to be 
appropriate under the circumstances.
    (i) Consent to removal of officers, directors, or general partners 
and/or appointment of receiver. The Articles of each RBIC must include 
the following provisions as a condition to the purchase or guarantee of 
Leverage. Upon the occurrence of any of the events specified in 
paragraphs (d)(1) through (d)(6) or (f)(l) through (f)(3) of this 
section as determined by the Agency, the Agency shall have the right, 
and you consent to the Agency's exercise of such right:
    (1) With respect to a Corporate RBIC, upon written notice, to 
require you to replace, with individuals approved by the Agency, one or 
more of your officers and/or such number of directors of your board of 
directors as is sufficient to constitute a majority of such board; or
    (2) With respect to a Partnership RBIC or an LLC RBIC, upon written 
notice, to require you to remove the person(s) responsible for such 
occurrence and/or to remove the general partner or manager of the RBIC, 
which general partner or manager shall then be replaced in accordance 
with the RBIC's Articles by a new general partner or manager approved by 
the Agency; and/or
    (3) With respect to a Corporate RBIC, Partnership RBIC, or LLC RBIC, 
to obtain the appointment of the Agency or its designee as your receiver 
under section 384M of the Act for the purpose of continuing your 
operations. The appointment of a receiver to liquidate an RBIC is not 
within such consent, but is governed instead by the relevant provisions 
of the Act.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011]

                Computation of RBIC'S Capital Impairment



Sec. 4290.1830  RBIC's Capital Impairment definition and general requirements.

    (a) Significance of Capital Impairment condition. If you have a 
condition of Capital Impairment, you are not in compliance with the 
terms of your Leverage. As a result, the Agency has the right to impose 
the applicable remedies for noncompliance in Sec. 4290.1810(g).
    (b) Definition of Capital Impairment condition. You have a condition 
of Capital Impairment if your Capital Impairment Percentage, as computed 
pursuant to the procedures set forth in Sec. 4290.1840, exceeds 70 
percent.
    (c) Quarterly computation requirement and procedure. You must 
determine whether you have a condition of Capital Impairment as of the 
end of each fiscal quarter. You must notify the Agency promptly if you 
are Capitally Impaired.
    (d) The Agency's right to determine RBIC's Capital Impairment 
condition. The Agency may make its own determination of your Capital 
Impairment condition at any time.



Sec. 4290.1840  Computation of RBIC's Capital Impairment Percentage.

    (a) General. This section contains the procedures you must use to 
determine your Capital Impairment Percentage. You must compare your 
Capital Impairment Percentage to the maximum permitted under Sec. 
4290.1830(b) to determine whether you have a condition of Capital 
Impairment.
    (b) Preliminary impairment test. If you satisfy the preliminary 
impairment test, your Capital Impairment Percentage is zero and you do 
not have to perform any more procedures in this Sec. 4290.1840. 
Otherwise, you must continue with paragraph (c) of this section. You 
satisfy the test if each of the following amounts is zero or greater:
    (1) The sum of Undistributed Net Realized Earnings, as reported on 
SBA Form 468 or other USDA-approved form(s) and Includible Non-Cash 
Gains.
    (2) Unrealized Gain (Loss) on Securities Held.
    (c) How to compute your Capital Impairment Percentage. (1) If you 
have an

[[Page 1013]]

Unrealized Gain on Securities Held, compute your Adjusted Unrealized 
Gain using paragraph (d) of this section. If you have an Unrealized Loss 
on Securities Held, continue with paragraph (c)(2) of this section.
    (2) Add together your Undistributed Net Realized Earnings, your 
Includible Non-cash Gains, and either your Unrealized Loss on Securities 
Held or your Adjusted Unrealized Gain.
    (3) If the sum in paragraph (c)(2) of this section is zero or 
greater, your Capital Impairment Percentage is zero.
    (4) If the sum in paragraph (c)(2) of this section is less than 
zero, drop the negative sign, divide by your Regulatory Capital 
(excluding Treasury Stock), and multiply by 100. The result is your 
Capital Impairment Percentage.
    (d) How to compute your Adjusted Unrealized Gain. (1) Subtract 
Unrealized Depreciation from Unrealized Appreciation. This is your ``Net 
Appreciation''.
    (2) Determine your Unrealized Appreciation on Publicly Traded and 
Marketable securities. This is your ''Class I Appreciation''.
    (3) Determine your Unrealized Appreciation on securities that are 
not Publicly Traded and Marketable and meet the following criteria, 
which must be substantiated to the Agency's satisfaction (this is your 
``Class 2 Appreciation''):
    (i) The Portfolio Concern that issued the security received a 
significant subsequent equity financing by an investor whose objectives 
were not primarily strategic and at a price that conclusively supports 
the Unrealized Appreciation;
    (ii) Such financing represents a substantial investment in the form 
of an arm's-length transaction by a sophisticated new investor in the 
issuer's securities; and
    (iii) Such financing occurred within 24 months of the date of the 
Capital Impairment computation, or the Portfolio Concern's pre-tax cash 
flow from operations for its most recent fiscal year was at least 10 
percent of its average contributed capital for such fiscal year.
    (4) Perform the appropriate computation from the table in 13 CFR 
107.1840(d)(4).
    (5) Reduce the gain computed in paragraph (d)(4) of this section by 
your estimate of related future income tax expense. Subject to any 
adjustment required by paragraph (d)(6) of this section, the result is 
your Adjusted Unrealized Gain for use in paragraph (c)(2) of this 
section.
    (6) If any securities that are the source of either Class 1 or Class 
2 Appreciation are pledged or encumbered in any way, you must reduce the 
Adjusted Unrealized Gain computed in paragraph (d)(5) of this section by 
the amount of the related borrowing or other obligation, up to the 
amount of the Unrealized Appreciation on the securities.

[69 FR 32204, June 8, 2004, as amended at 76 FR 80225, Dec. 23, 2011]



                  Subpart L_Ending Operations as a RBIC



Sec. 4290.1900  Termination of participation as a RBIC.

    You may not terminate your participation as a RBIC without the 
Agency's prior written approval. Your request for approval must be 
accompanied by an offer of immediate repayment of all of your 
outstanding Leverage (including any prepayment penalties thereon), or by 
a plan satisfactory to the Agency for the orderly liquidation of the 
RBIC.



                         Subpart M_Miscellaneous



Sec. 4290.1910  Non-waiver of rights or terms of Leverage security.

    The Agency's failure to exercise or delay in exercising any right or 
remedy under the Act or the regulations in this part does not constitute 
a waiver of such right or remedy. The Agency's failure to require you to 
perform any term or provision of your Leverage does not affect the 
Agency's right to enforce such term or provision. Similarly, the 
Agency's waiver of, or failure to enforce, any term or provision of your 
Leverage or of any event or condition set forth in Sec. 4290.1810 does 
not constitute a waiver of any succeeding

[[Page 1014]]

breach of such term or provision or condition.



Sec. 4290.1920  RBIC's application for exemption from a regulation in this part 4290.

    (a) General. You may file an application in writing with the Agency 
to have a proposed action exempted from any procedural or substantive 
requirement, restriction, or prohibition to which it is subject under 
this part, unless the provision is mandated by the Act. The Agency may 
grant an exemption for such applicant, conditionally or unconditionally, 
provided the exemption would not be contrary to the purposes of the Act.
    (b) Contents of application. Your application must be accompanied by 
supporting evidence that demonstrates to the Agency's satisfaction that:
    (1) The proposed action is fair and equitable; and
    (2) The exemption requested is reasonably calculated to advance the 
best interests of the RBIC program in a manner consistent with the 
policy objectives of the Act and the regulations in this part.



Sec. 4290.1930  Effect of changes in this part 4290 on transactions previously consummated.

    The legality of a transaction covered by the regulations in this 
part is governed by the regulations in this part in effect at the time 
the transaction was consummated, regardless of later changes. Nothing in 
this part bars enforcement action with respect to any transaction 
consummated in violation of provisions applicable at the time, but no 
longer in effect.



Sec. 4290.1940  Integration of this part with other regulations applicable to USDA's programs.

    (a) Intergovernmental review. To the extent applicable to this part, 
the Agency will comply with 2 CFR part 415, subpart C, 
``Intergovernmental Review of Department of Agriculture Programs and 
Activities.'' The Agency has not delegated this responsibility to SBA 
pursuant to Sec. 4290.45.
    (b) National flood insurance. To the extent applicable to this part, 
the Agency will comply with subpart B of 7 CFR part 1806. The Agency has 
not delegated this responsibility to SBA pursuant to Sec. 4290.45 of 
this part.
    (c) Clean Air Act and Water Pollution Control Act requirements. To 
the extent applicable to this part, the Agency will comply with the 
requirements of the Clean Air Act, section 306; the Clean Water Act, 
section 508; Executive Order 11738; and 40 CFR part 32. The Agency has 
not delegated this responsibility to SBA pursuant to Sec. 4290.45 of 
this part.
    (d) Historic preservation requirements. To the extent applicable to 
this part, the Agency will comply with subpart F of 7 CFR part 1901. The 
Agency has not delegated this responsibility to SBA pursuant to Sec. 
4290.45 of this part.
    (e) Lead-based paint requirements. To the extent applicable to this 
part, the Agency will comply with subpart A of 7 CFR part 1924. The 
Agency has not delegated this responsibility to SBA pursuant to Sec. 
4290.45 of this part.
    (f) Conflict of interest. To the extent applicable to this part, the 
Agency will comply with 2 CFR 400.2, subpart D of 7 CFR part 1900, and 
RD Instruction 2045-BB. The Agency has not delegated this responsibility 
to SBA pursuant to Sec. 4290.45.
    (g) Civil rights impact analysis. To the extent applicable to this 
part, the Agency will comply with RD Instruction 2006-P, ``Civil Rights 
Impact Analysis.'' The Agency has not delegated this responsibility to 
SBA pursuant to Sec. 4290.45 of this part.
    (h) Environmental requirements. To the extent applicable to this 
part, the Agency will comply with 7 CFR part 1970. The Agency has not 
delegated this responsibility to SBA pursuant to Sec. 4290.45.
    (i) Appeals to the National Appeals Division for review of adverse 
decisions. Applicants and RBICs have the right to request review by the 
National Appeals Division within the USDA of adverse decisions, as 
defined in 7 CFR 11.1, pursuant to 7 CFR part 11.

[69 FR 32204, June 8, 2004, as amended at 79 FR 76019, Dec. 19, 2014; 81 
FR 11053, Mar. 2, 2016]

[[Page 1015]]



    Subpart N_Requirements for Operational Assistance Grants to RBICs



Sec. 4290.2000  Operational Assistance Grants to RBICs.

    (a) Regulations governing. Regulations governing Operational 
Assistance grants to RBICs may be found in subparts D and E of this part 
4290 and in this Sec. 4290.2000.
    (b) Restrictions on use. A RBIC must use Operational Assistance 
grant funds only to provide Operational Assistance to Smaller 
Enterprises to which it either has made, or expects to make, a 
Financing.
    (c) Amount of grant. Each RBIC will receive an Operational 
Assistance grant award equal to the lesser of 10 percent of the 
Regulatory Capital raised by the RBIC at the time of licensing or 
$1,000,000.
    (d) Term. Operational Assistance grants made under this part will be 
made for a multiyear period (not to exceed 10 years) under such terms as 
the Agency may require.
    (e) Reporting and recordkeeping requirements. Policies governing 
reporting, record retention, and recordkeeping requirements applicable 
to RBICs may be found in subpart H of this part 4290.



   Subpart O_Additional Requirements for Non-Leveraged Licensees and 
                        Exceptions to Regulations

    Source: 76 FR 80225, Dec. 23, 2011, unless otherwise noted.



Sec. 4290.3000  Non-leveraged RBICs--General.

    This subpart identifies provisions specific to RBICs seeking a non-
leveraged license, including exceptions and additions to provisions 
associated with subparts A through N of this part.



Sec. Sec. 4290.3001-4290.3002  [Reserved]



Sec. 4290.3003  Responsibilities for implementing Non-leveraged RBICs.

    Section 4290.45 does not apply to Non-leveraged RBICs. Instead, for 
the purposes of this part as it applies to Non-leveraged RBICs, all 
authorities and responsibilities assigned to the Agency under this part 
shall be carried out by the Agency. Thus, when applying subparts A 
through N of this part to Non-leveraged RBICs, all references to the 
Small Business Administration (SBA) or Administrator on behalf of USDA 
shall be read as the Agency. All forms shall be submitted to USDA or its 
designee.

[77 FR 4885, Feb. 1, 2012]



Sec. 4290.3004  [Reserved]



Sec. 4290.3005  Qualifications for the Non-leveraged RBIC Program.

    (a) Business form. In addition to complying with the applicable 
provisions of Sec. 4290.100 not otherwise modified by this section, 
paragraphs (a)(1) through (a)(4) of this section apply.
    (1) For RBICs applying for non-leveraged status, the types of 
investors eligible to invest in a RBIC must have been approved by the 
Agency. Investors seeking approval must submit a request to the Agency 
with sufficient documentation to support their request. The USDA will 
announce such approved categories and types of investors in a public 
notice published in the Federal Register from time to time. Subsequent 
notices that modify the types of investors eligible to invest in a RBIC 
will not be applied retroactively.
    (2) In lieu of complying with Sec. 4290.100(d)(1)(i), you must have 
a minimum duration of 10 years. After 10 years, the Partnership RBIC may 
be terminated by a vote of your partners.
    (3) In lieu of complying with Sec. 4290.100(d)(2), if you are a LLC 
RBIC, you must have a minimum duration of 10 years. After 10 years, the 
LLC RBIC may be terminated by a vote of your members.
    (4) In lieu of complying with Sec. 4290.100(d)(3), if you are a 
Corporate RBIC, you must have a duration of not less than 30 years 
unless earlier dissolved by the shareholders.
    (b) Approval of initial Management Expenses. Section 4290.140 does 
not apply to Non-leveraged RBICs. However, the

[[Page 1016]]

Agency will provide a cap on these expenses in each Federal Register 
notice soliciting applications for Non-leveraged RBICs.
    (c) Management and ownership diversity requirements. A Non-leveraged 
RBIC is subject to the provisions of Sec. 4290.150 unless it is 
exempted from these provisions by the Agency. Exemptions will only be 
granted when the applicant establishes, to the satisfaction of the 
Agency, that granting the exemption will not unduly impair the integrity 
and soundness of the Non-leveraged RBIC.
    (d) Special rules for Partnership RBICs and LLC RBICs. Paragraph (c) 
of Sec. 4290.160 does not apply to Non-leveraged RBICs.



Sec. Sec. 4290.3006-4290.3009  [Reserved]



Sec. 4290.3010  Application and Approval Process for RBIC licensing without Leverage.

    (a) The provisions of Sec. 4290.300 notwithstanding, the Agency 
will accept, at any time, applications for consideration as a Non-
leveraged RBIC. The number of applications that the Agency will receive 
each year, and any fees and conditions, will be announced annually in a 
Federal Register notice.
    (b) The provision for evaluating applicants on a competitive basis, 
as specified in Sec. 4290.340(a), does not apply to this subpart.
    (c) The provisions specified in Sec. 4290.370(m) do not apply to 
this subpart.

[76 FR 80225, Dec. 23, 2011, as amended at 77 FR 4885, Feb. 1, 2012]



Sec. Sec. 4290.3011-4290.3014  [Reserved]



Sec. 4290.3015  Evaluation and selection of Non-leveraged RBICs.

    (a) General. Notwithstanding any other provision in this part, when 
selecting applications for non-leveraged status, the Agency may select 
one or more applications, or none, for further consideration based on 
the evaluation criteria of this part.
    (b) Eligibility and completeness. In addition to the requirements 
specified in Sec. 4290.350, an Applicant under this subpart must 
complete a written application that includes information not otherwise 
exempted by the Agency, in its sole discretion. The Agency may, on its 
own initiative, exempt material from a Non-leveraged RBIC application 
where the Agency determines it impedes an expedited process without a 
commensurate benefit to the program. To the extent that the Agency's 
exemption applies to the entire program, an announcement of the 
exemption will be published in the Federal Register. The Agency shall 
make a decision as to licensing an Applicant after the receipt of a 
complete application and will enter into a Participation Agreement with 
the RBIC if approved.
    (c) Effect of a RBIC license. Paragraphs (d)(2) and (d)(3) of Sec. 
4290.390 do not apply to Non-leveraged RBICs.



Sec. Sec. 4290.3016-4290.3019  [Reserved]



Sec. 4290.3020  Changes in Ownership, Structure, or Control.

    Paragraph (b) in Sec. 4290.440 does not apply to Non-leveraged 
RBICs.



Sec. Sec. 4290.3021-4290.3024  [Reserved]



Sec. 4290.3025  Managing the Operations of a RBIC.

    (a) Nonperformance. In addition to the provisions specified in Sec. 
4290.507, failure of an approved Non-leveraged RBIC to maintain sound 
investment practice, as determined by the Agency, may result in loss of 
approval for participating in this program.
    (b) Employment of USDA or SBA officials. Paragraph (a)(2) of Sec. 
4290.509 does not apply to Non-leveraged RBICs.
    (c) Approval of RBIC's Investment Adviser/Manager. In addition to 
complying with Sec. 4290.510, a Non-leveraged RBIC must notify the 
Agency of the Management Expenses to be incurred under such contract, or 
of any subsequent material changes in such Management Expenses, within 
30 days of execution.
    (d) Management Expenses of a RBIC. When complying with Sec. 
4290.520, Non-leveraged RBICs do not need prior approval of initial 
Management Expenses and any increases in those expenses.
    (e) Restrictions on investments of idle funds by RBICs. The 
provisions of Sec. 4290.530 apply to Non-leveraged RBICs only when the 
Non-leveraged RBIC engages in activities not contemplated by the Act.

[[Page 1017]]

    (f) Prior approval of secured third-party debt of RBICs. The 
provisions of Sec. 4290.550 do not apply to Non-leveraged RBICs.
    (g) Voluntary decrease in Regulatory Capital. When complying with 
Sec. 4290.585, Non-leveraged RBICs do not need to obtain prior approval 
for decreases in Regulatory Capital of more than 2 percent (but not 
below the minimum required under this Act or these regulations). 
However, Non-leveraged RBICs must report the reduction to the Agency 
within 30 days.



Sec. Sec. 4290.3026-4290.3029  [Reserved]



Sec. 4290.3030  Financing of Enterprises by RBICs.

    (a) Non-compliance with this section. The last sentence of Sec. 
4290.700(e) does not apply to Non-leveraged RBICs.
    (b) Enterprises that may be ineligible for Financing. The provisions 
associated with real estate enterprises found in Sec. 4290.720(c) apply 
to Non-leveraged RBICs unless the Non-leveraged RBIC requests, and has 
received, an irrevocable exemption from the Agency in accordance with 
Sec. 4290.1920.
    (c) Farmland purchases. The provisions associated with farmland 
purchases found in Sec. 4290.720(e) apply to Non-leveraged RBICs unless 
the Non-leveraged RBIC requests, and has received, an irrevocable 
exemption from the Agency in accordance with Sec. 4290.1920.
    (d) Purchasing securities from an underwriter or other third party. 
Non-leveraged RBICs are exempt from the recordkeeping requirements and 
fee limitations in Sec. 4290.825(b) and (c), respectively, for 
securities purchased through or from an underwriter.
    (e) Assets acquired in liquidation of Portfolio securities. The 
provisions of Sec. 4290.880 do not apply to Non-leveraged RBICs.



Sec. Sec. 4290.3031-4290.3034  [Reserved]



Sec. 4290.3035  Recordkeeping, Reporting, and Examination Requirements for RBICs.

    Except for Sec. 4290.600(d), Subpart H, Recordkeeping, Reporting, 
and Examination Requirements for RBICs, of this part applies to Non-
leveraged RBICs.



Sec. Sec. 4290.3036-4290.3039  [Reserved]



Sec. 4290.3040  Financial Assistance for RBICs.

    Subpart J, Financial Assistance for RBICs (Leveraged), of this part 
does not apply to Non-leveraged RBICs.



Sec. 4290.3041  Events of default and the Agency's remedies for RBIC's noncompliance with terms of licensure.

    In addition to complying with the provisions of Sec. 4290.1810, a 
RBIC's failure to comply with the terms of this part may result in the 
Agency revoking the Non-leveraged RBIC's license issued under this part.

[76 FR 80225, Dec. 23, 2011, as amended at 77 FR 4885, Feb. 1, 2012]



Sec. Sec. 4290.3042-4290.3044  [Reserved]



Sec. 4290.3045  Computation of RBIC's Capital Impairment.

    The provisions specified in Sec. Sec. 4290.1830 and 4290.1840 do 
not apply to Non-leveraged RBICs.



Sec. Sec. 4290.3046-4290.3049  [Reserved]



Sec. 4290.3050  Operational Assistance Grants for RBICs.

    Subpart N, Requirements for Operational Assistance Grant to RBICs, 
of this part does not apply to Non-leveraged RBICs. All other references 
to Operational Assistance in this part do not apply to Non-leveraged 
RBICs.



Sec. Sec. 4290.3051-4290.3099  [Reserved]

                       PARTS 4291	4299 [RESERVED]

[[Page 1019]]



 CHAPTER L--RURAL BUSINESS-COOPERATIVE SERVICE, RURAL HOUSING SERVICE, 
         AND RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
5001            Guaranteed loans............................        1021
5002-5099

 [Reserved]

[[Page 1021]]



PART 5001_GUARANTEED LOANS--Table of Contents



                      Subpart A_General Provisions

Sec.
5001.1 General.
5001.2 Structure.
5001.3 Definitions.
5001.4 Exception authority.
5001.5 Appeal and review rights.
5001.6 General Lender responsibilities.
5001.7 Agency's special initiatives.
5001.8 Approvals, regulations, and forms.
5001.9 Standards for financial information.
5001.10 Federal Register notices and amendments.
5001.11-5001.99 [Reserved]
5001.100 OMB control number.

                    Subpart B_Eligibility Provisions

5001.101 Introduction.
5001.102 Project eligibility--general.
5001.103 Eligible CF projects and requirements.
5001.104 Eligible WWD projects and requirements.
5001.105 Eligible B&I projects and requirements.
5001.106 Eligible REAP--Renewable Energy System (RES) projects and 
          requirements.
5001.107 Eligible REAP--Energy Efficiency Improvement (EEI) projects and 
          requirements.
5001.108 Eligible REAP--Energy Efficient Equipment and Systems (EEE) 
          projects and requirements.
5001.109-5001.114 [Reserved]
5001.115 Ineligible projects--general.
5001.116 Ineligible CF projects.
5001.117 Ineligible WWD projects.
5001.118 Ineligible B&I projects.
5001.119 Ineligible REAP projects.
5001.120 [Reserved]
5001.121 Eligible uses of loan funds.
5001.122 Ineligible uses of loan funds.
5001.123-5001.125 [Reserved]
5001.126 Borrower eligibility.
5001.127 Borrower ineligibility conditions.
5001.128-5001.129 [Reserved]
5001.130 Lender eligibility requirements.
5001.131 Lender's agreement.
5001.132 Maintenance of approved lender status.
5001.133-5001.139 [Reserved]
5001.140 Cooperative stock/cooperative equity.
5001.141 New Markets Tax Credit.
5001.142-5001.200 [Reserved]

                    Subpart C_Origination Provisions

5001.201 General origination requirements.
5001.202 Lender's credit evaluation.
5001.203 Appraisals.
5001.204 Personal, partnership, and corporate guarantees.
5001.205 General project monitoring requirements.
5001.206 Compliance with USDA Departmental Regulations, Policies, and 
          other Federal laws.
5001.207 Environmental responsibilities.
5001.208 Conflicts of interest.
5001.209-5001.300 [Reserved]

               Subpart D_Guarantee Application Provisions

5001.301 Beginning the application process.
5001.302 Preliminary eligibility review.
5001.303 Applications for loan guarantee.
5001.304 Specific application requirements for CF projects.
5001.305 Specific application requirements for WWD projects.
5001.306 Specific application requirements for B&I projects.
5001.307 Specific application requirements for REAP projects.
5001.308-5001.314 [Reserved]
5001.315 Application evaluation and award provisions.
5001.316 CF project priority point system and reservation of funds.
5001.317 WWD project priority points system.
5001.318 B&I project priority points system.
5001.319 REAP project priority points system.
5001.320-5001.400 [Reserved]

Appendix A to Subpart D of Part 5001--Feasibility Study Components
Appendix B to Subpart D of Part 5001- Financial Feasibility Reports
Appendix C to Subpart D of Part 5001--Technical Reports for Energy 
          Efficiency Improvement (EEI) Projects with Total Project Costs 
          of more than $80,000
Appendix D to Subpart D of Part 5001--Technical Reports for Renewable 
          Energy System (RES) Projects with Total Project Costs of Less 
          Than $200,000 but More Than $80,000
Appendix E to Subpart D of Part 5001--Technical Reports for Renewable 
          Energy System (RES) Projects with Total Project Costs of 
          $200,000 and Greater

                 Subpart E_Loan and Guarantee Provisions

                             Loan Provisions

5001.401 Interest rate provisions.
5001.402 Term length, loan schedule, repayment.
5001.403 Lender fees.
5001.404-5001.405 [Reserved]
5001.406 Guaranteed loan amounts.
5001.407 Percentage of loan guarantee.
5001.408 Participation or assignment of guaranteed loan.

[[Page 1022]]

5001.409-5001.449 [Reserved]

                          Guarantee Provisions

5001.450 General.
5001.451 Conditional commitment.
5001.452 Loan closing and conditions precedent to issuance of loan note 
          guarantee.
5001.453 Issuance of the loan note guarantee.
5001.454 Guarantee fee.
5001.455 Periodic guarantee retention fee.
5001.456 Other fees.
5001.457 Changes prior to loan closing.
5001.458 Other Federal, State, and local requirements.
5001.459 Replacement of loan note guarantee and assignment guarantee 
          agreement.
5001.460-5001.500 [Reserved]

                     Subpart F_Servicing Provisions

5001.501 General.
5001.502 Oversight and monitoring.
5001.503 REAP RES or EEI project completion requirements.
5001.504 Financial reports.
5001.505 Collateral inspection and release.
5001.506 Loan transfers and assumptions.
5001.507 Lender Transfer.
5001.508 Mergers.
5001.509 Servicing fees.
5001.510 Subordination of lien position.
5001.511 Repurchases from holders.
5001.512 Additional expenditures and loans.
5001.513 Interest rate changes.
5001.514 Lender failure.
5001.515 Default by borrower.
5001.516 Protective advances.
5001.517 Liquidation.
5001.518 [Reserved]
5001.519 Bankruptcy.
5001.520 Litigation.
5001.521 Loss calculations and payment.
5001.522 Future recovery.
5001.523 Property acquired by the lender.
5001.524 Termination of loan note guarantee.
5001.525-5001.600 [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1926(a); 7 U.S.C. 1932(a); and 7 
U.S.C. 8107.

    Source: 85 FR 42518, July 14, 2020, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 5001.1  General.

    (a) This part contains the regulations for Community Facilities, 
Water and Waste Disposal, Business and Industry, and Rural Energy for 
America Program loans guaranteed by the Agency and applies to lenders, 
holders, borrowers, and other parties involved in making, guaranteeing, 
holding, servicing, and liquidating such loans. The loan guarantee 
programs covered by this regulation are more fully described as:
    (1) Community Programs Guaranteed Loans (5 U.S.C. 301 and 7 U.S.C. 
1989) as authorized by Section 306(a)(1) of the Consolidated Farm and 
Rural Development Act, 7 U.S.C. 1926(a)(1), as administered by the Rural 
Housing Service (RHS), herein after referred to as CF.
    (2) Water and Waste Disposal Program Guaranteed Loans (5 U.S.C. 301, 
7 U.S.C. 1989, and 16 U.S.C. 1005) as authorized by Section 306(a)(1) of 
the Consolidated Farm and Rural Development Act, 7 U.S.C. 1926(a)(1), as 
administered by the Rural Utilities Service (RUS), herein after referred 
to as WWD.
    (3) Business and Industry Guaranteed Loans (7 U.S.C. 1932) as 
authorized by Section 310B, Business and Industry Direct and Guaranteed 
Loans, of the Consolidated Farm and Rural Development Act, 7 U.S.C. 
1932, as administered by the Rural Business-Cooperative Service (RBCS), 
herein after referred to as B&I.
    (4) Rural Energy for America Program Guaranteed Loans (5 U.S.C. 301, 
and 7 U.S.C. 8107) as authorized by Section 9007, Title IX of the Food, 
Conservation, and Energy Act of 2008, as administered by the Rural 
Business-Cooperative Service (RBCS), herein after referred to as REAP.
    (b) The applicability of the provision of this part for processing 
and approving applications and for servicing guaranteed loans depend on 
when a complete application is received. The Agency will process and 
approve applications, and service guaranteed loans according to the 
provisions of this part for all complete guaranteed loan applications 
that it receives on or after October 1, 2020, including guaranteed loan 
applications submitted under any of the programs whose authorization is 
identified in this section. All complete Applications received before 
October 1, 2020 will be processed and awarded and guaranteed loans 
serviced in accordance with the existing regulatory provisions in effect 
at the complete application date for the program under which the 
Application was submitted.



Sec. 5001.2  Structure.

    This part is divided into six subparts as described in paragraphs 
(a) through

[[Page 1023]]

(f) of this section. The provisions are applicable to each guaranteed 
loan made under this part, except as may be otherwise indicated. This 
part also contains several appendices as identified in paragraph (g) of 
this section.
    (a) Subpart A. Subpart A contains provisions that are applicable to 
each guaranteed loan made under this part, except as may be otherwise 
indicated. Topics covered include definitions; exception authority; 
appeal and review rights; general lender responsibilities; special 
initiatives; approvals, regulations, and forms; and standards for 
financial information.
    (b) Subpart B. This subpart contains provisions for determining 
project, borrower, and lender eligibility that are applicable to each 
guaranteed loan made under this part. It also contains a list of 
eligible and ineligible uses of loan funds, ineligible Projects and 
conditions that would make an otherwise eligible borrower ineligible. 
The lender's agreement is addressed as well as maintenance of approved 
lender status.
    (c) Subpart C. This subpart contains provisions for general 
origination requirements, credit evaluation, appraisals, various types 
of guarantees, monitoring requirements, compliance with other laws, 
environmental responsibilities, and conflicts of interest that are 
applicable to each guaranteed loan made under this part.
    (d) Subpart D. This subpart contains provisions relating to 
applications for a Loan Guarantee under this part, including preliminary 
eligibility reviews, the application process, Application evaluation, 
and the application award processes that are applicable to each 
Guaranteed Loan made under this part.
    (e) Subpart E. This subpart contains loan and guarantee provisions 
that are applicable to each guaranteed loan made under this part. Loan 
provisions cover interest rates, term length, loan schedule, repayment, 
lender fees, loan amounts, percentage of guarantee, and assignment of a 
guaranteed loan. Guarantee provisions cover the conditional commitment, 
conditions precedent to issuing the loan note guarantee, the issuance of 
the loan note guarantee, guarantee and other fees, replacement of 
documents, borrower reorganizations, and other legal requirements.
    (f) Subpart F. This subpart applies to provisions for servicing the 
loans guaranteed under this part, including oversight, monitoring and 
reporting requirements and project completion requirements that are 
applicable to each guaranteed loan made under this part, except as may 
be otherwise indicated. Servicing topics covered include audits and 
financial reports; collateral; loan transfers and assumptions; lender 
transfers; mergers; servicing fees; subordinations of lien position; 
repurchases; additional expenditures and loans; interest rate changes; 
lender failures; borrower defaults; protective advances; liquidation; 
bankruptcy; litigation; loss calculations and payments; future recovery; 
property acquired by the lender; and termination of the loan note 
guarantee.
    (g) Appendices. These appendices provide specific information on 
various reports associated with applying for a loan guarantee under this 
part.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62196, Oct. 2, 2020]



Sec. 5001.3  Definitions.

    The following definitions are applicable to the capitalized terms 
used in this part.
    Administrator means the Administrator of the Rural Housing Service, 
the Rural Utilities Service, or the Rural Business-Cooperative Service 
(or the applicable Service's successor), as applicable, within the Rural 
Development mission area of the U.S. Department of Agriculture (USDA).
    Affiliate means a person where one of the following circumstances 
exists:
    (1) The person controls or has the power to control another person, 
or a third party or parties' controls or has the power to control both. 
Factors such as ownership, management, current and previous 
relationships with or ties to another person, and contractual 
relationships, shall be considered in determining whether affiliation 
exists. It does not matter whether control is actually exercised, so 
long as the power to control exists. Entities owned and controlled by 
Indian Tribes, Alaskan Native Corporations (ANCs), Native Hawaiian 
Organizations (NHOs), Community Development Corporations

[[Page 1024]]

(CDCs), or wholly-owned entities of Indian Tribes, ANCs, NHOs, or CDCs, 
are not considered to be affiliated with other entities owned by these 
entities solely because of their common ownership or common management.
    (2) There is a family relationship and identical or substantially 
identical business or economic interests amongst persons (such as where 
the immediate family operate entities in the same or similar industry in 
the same geographic area); however, a person may rebut such 
determination with evidence showing that the business or economic 
interests are not identical or substantially identical.
    Agency means USDA Rural Development, which includes the Rural 
Housing Service; the Rural Utilities Service; and the Rural Business-
Cooperative Service or their successors.
    Agricultural producer means a person, including non-profits, 
directly engaged in the production of agricultural products through 
labor management and operations, including the cultivating, growing, and 
harvesting plants and crops (including farming); breeding, raising, 
feeding, or housing of livestock (including ranching); forestry 
products; hydroponics; nursery stock; or aquaculture, whereby 50 percent 
or greater of their gross income is derived from the operations. The 
percentage is calculated as the average of gross agricultural operations 
income of the concern divided by the gross non-farm income of the 
concern for the five most recent years. If the concern has been 
operation for less than 60 months but for at least 12 months, use 
average gross agricultural operations income and gross non-farm income 
for as long as the concern has been in operation.
    Agricultural production means the cultivation, growing, or 
harvesting of plants and crops (including farming) breeding, raising, 
feeding, or housing of livestock (including ranching); forestry 
products, hydroponics, or nursery stock; or aquaculture.
    Anaerobic digester means a renewable energy system that uses animal 
waste or other renewable biomass and may include other organic 
substrates to produce biogas that is sold in a gaseous or compressed 
liquid state or used to produce thermal or electrical energy.
    Applicant lender debt means an existing debt owed by a borrower to 
the same lender that is applying for or has received the Agency 
guarantee.
    Appraisal surplus means the excess between the market value of an 
asset and its cost or depreciated book value when the market value is 
higher.
    Architectural report means a report, prepared by a professional, 
licensed architect, or other qualified party that describes the existing 
situation, analyzes alternatives and proposes a specific course of 
action from an architectural perspective.
    Arm's length transaction means a transaction in which the buyer and 
seller act independently and have no relationship to each other. The 
concept of an arm's length transaction allows the market to ensure that 
both parties in the deal are acting in their own self-interest and are 
not subject to any pressure or duress from the other party.
    Assignment guarantee agreement means a signed, Agency-approved 
agreement between the Agency, the lender, and the holder setting forth 
the terms and conditions of an assignment of a guaranteed portion of a 
loan.
    Biofuel means a fuel derived from renewable biomass.
    Biogas means a gaseous fuel (including landfill and sewage waste 
treatment gas) derived from the degradation and decomposition of 
renewable biomass.
    Bond means a form of debt security in which the authorized issuer 
(borrower) owes the bond holder (lender) a debt and is obligated to 
repay the principal and interest (coupon) at a later date(s) (maturity). 
An explanation of the type of bond and other bond stipulations must be 
attached to the bond issuance.
    Borrower means the person that borrows, or seeks to borrow, money 
from the lender (including any party or parties liable for the 
guaranteed loan except guarantors) through a loan guaranteed under this 
part.
    Business plan means a comprehensive document that clearly describes 
the borrower's ownership structure and management experience including, 
if applicable, discussion of a parent company, any subsidiaries and 
affiliates of

[[Page 1025]]

the borrower and discussion of how the borrower will operate the 
proposed project. If a business or industry is in decline or financial 
distress, the business plan must describe in detail how the project 
differs from the current industry trends or improves the borrower's 
financial position.
    Byproduct means an incidental or secondary product, regardless of 
whether it has a readily identifiable commercial use or value, generated 
under normal operations of the proposed Project that can be reasonably 
measured and monitored.
    Certificate of incumbency means an Agency-approved form used to 
validate authenticity of Agency representatives' signature and title.
    Collateral means the asset(s) pledged by the borrower to the lender 
as security for the guaranteed loan.
    Commercially available means a system that meets the requirements of 
either paragraph (1) or (2) of this definition.
    (1) A domestic or foreign system that:
    (i) Has both a proven and reliable operating history and proven 
performance data for at least one year specific to the use and operation 
to the proposed application;
    (ii) Is based on established design and installation procedures and 
practices and is replicable;
    (iii) Has professional service providers, trades, large construction 
equipment providers, and labor who are familiar with installation 
procedures and practices;
    (iv) Has proprietary and balance of system equipment and spare parts 
that are readily available;
    (v) Has service that is readily available to properly maintain and 
operate the system; and
    (vi) Has an existing established warranty that is valid in the 
United States for major parts and labor; or
    (2) A domestic or foreign system that has been certified by a 
recognized industry organization whose certification standards are 
acceptable to the Agency.
    Complete application means an application that contains all parts 
necessary for the Agency to determine borrower and project eligibility, 
the financial feasibility and technical merit of the project, and 
contains sufficient information to determine a priority score for the 
application, if applicable.
    Conditional commitment means an Agency-approved form in which the 
Agency agrees that, in accordance with applicable provisions of the 
program regulations contained in this part and related forms, it will 
execute the loan note guarantee, subject to the conditions and 
requirements specified in applicable provisions of the program 
regulations contained in this part and in the conditional commitment 
itself.
    Conflict of interest means a situation in which a person has 
personal, professional, or financial interests that prevent, or appears 
to prevent the person from acting impartially. For purposes of this 
part, conflict of interest also includes, but is not limited to:
    (1) A person acting as a compensated agent of the borrower and the 
lender on the same guaranteed loan,
    (2) Distribution or payment of guaranteed loan funds to an 
individual owner, partner, stockholder, or member of the borrower, or to 
a beneficiary or immediate family member of the borrower;
    (3) Refinancing debt that is owned by a loan packager, broker, or 
referral agent or its affiliates.
    Cooperative means an entity that is legally chartered by the State 
in which it operates as a cooperatively-operated business, or an entity 
that is not legally chartered as a cooperative but is owned and operated 
for the benefit of its members, with returns of residual earnings paid 
to such members on the basis of patronage.
    Credit evaluation means the analysis and evaluation by the lender of 
the credit factors associated with each application to ensure loan 
repayment through the use of credit documentation procedures and an 
underwriting process that is consistent with industry standards and the 
lender's written policy and procedures.
    Debt Collection Improvement Act means the Debt Collection 
Improvement Act of 1996, 31 U.S.C. 3701 et seq.
    Debt service coverage ratio means the ratio obtained when taking 
earnings before interest, taxes, depreciation,

[[Page 1026]]

and amortization less reasonably expected replacement capital 
expenditures divided by the annual debt service (principal and interest 
payments) of the borrower.
    Default means the condition that exists when a borrower is in non-
compliance under the terms of any of the promissory notes, the loan 
agreements, security documents, program regulations, or other documents 
evidencing or collateralizing the loan. Default can be a monetary or 
non-monetary default.
    Deficiency judgment means a monetary judgment rendered by a court of 
competent jurisdiction after foreclosure and liquidation of all 
collateral securing the loan.
    Delinquency means a situation that exists when a scheduled loan 
payment on a guaranteed loan made under this part is more than 30 
calendar days past due and cannot be cured within the next 30 calendar 
days.
    Departmental regulations means the regulations of the Agency's 
Office of Chief Financial Officer (or successor office) as codified in 2 
CFR chapter IV.
    Eligible project costs means those expenses approved by the Agency 
for the project as eligible uses of funds.
    Energy assessment means an Agency-approved report assessing energy 
use, cost, and efficiency by analyzing energy bills and surveying the 
target building and/or equipment sufficiently to provide an Agency-
approved energy assessment.
    Energy assessor means a qualified consultant who has at least 3 
years of experience and completed at least five energy assessments or 
energy audits on similar type projects and who adheres to generally 
recognized engineering principles and practices.
    Energy audit means a comprehensive report that meets an Agency-
approved standard prepared by an energy auditor or an individual 
supervised by an energy auditor that documents current energy usage; 
recommended potential improvements (typically called energy conservation 
measures) and their costs; energy savings from these improvements; 
dollars saved per year; and simple payback. The methodology of the 
energy audit must meet professional and industry standards. The final 
energy audit must be validated and signed off by the energy auditor who 
conducted the audit or by the supervising energy auditor of the 
individual who conducted the audit, as applicable.
    Energy auditor means a qualified consultant that meets one of the 
following criteria:
    (1) A certified energy auditor certified by the Association of 
Energy Engineers;
    (2) A certified energy manager certified by the Association of 
Energy Engineers;
    (3) A licensed professional engineer in the State in which the audit 
is conducted with at least 1 year of experience and who has completed at 
least two similar type energy audits; or
    (4) An individual with a 4-year engineering or architectural degree 
with at least three years of experience and who has completed at least 
five similar type energy audits.
    Energy efficiency improvement (EEI) means improvements to or 
replacement of an existing building or systems, or equipment owned by 
the borrower, that reduces measurable energy consumption on an annual 
basis.
    Energy efficient equipment and systems (EEE) means equipment or 
systems for agricultural production or processing that exceed any of the 
following standards:
    (1) Energy efficiency building codes, if available;
    (2) Federal or State energy efficiency standards, if available;
    (3) Energy efficiency standards determined appropriate by the 
Secretary. If no codes or standards described in paragraphs (1) through 
(3) of this definition apply to the EEE proposed, then the Secretary 
shall require such equipment or system to meet the same efficiency 
measurement as the most efficient available equipment or system in the 
market and the Secretary shall not provide such a loan guarantee for the 
purchase and installation of any energy efficient equipment or system 
unless more than one type of such equipment or system is available in 
the market.
    Engineering documentation means a document, normally prepared by the 
borrower's consulting engineer or other

[[Page 1027]]

qualified party, that describes the existing system, analyzes 
alternatives, and proposes a specific course of action from an 
engineering perspective.
    Essential community facility means a public improvement, operated on 
a non-profit basis, needed for the orderly development of a rural 
community where the rural community is a city or town, or its equivalent 
county or multi-county area. The term ``facility'' refers to both the 
physical structure financed, and the resulting service provided to rural 
residents or rural businesses. Facilities may include, but are not be 
limited to, courthouses, community centers, libraries, firehouses, 
health care, education, transportation, and industrial parks. An 
industrial park consists of land and the necessary access ways and 
utilities to the site, but not improvements erected on such site.
    Existing business means a business that has been in operation for at 
least one full year and has achieved full operational capacity or stable 
operations as determined by the Administrator. The following will be 
treated as existing businesses provided there is not a significant 
change in operations of the existing business: Mergers by an existing 
business with a new or existing businesses, a change in the business 
name, or a new business and an existing business applying as co-
borrowers,
    Farmer or rancher cooperative means an entity that is owned and 
controlled by agricultural producers and that is incorporated, or 
otherwise recognized by the State in which it operates as a 
cooperatively-operated business or an entity that is not legally 
chartered as a cooperative but is owned and operated for the benefit of 
its members, with returns of residual earnings paid to such members on 
the basis of patronage.
    Feasibility study means a report including an opinion or finding 
conducted by an independent qualified consultant(s) evaluating the 
economic, market, technical, financial, and management feasibility of 
the proposed project or operation in terms of its expectation for 
success as outlined in appendix A to subpart D of this part.
    Federal debt means debt owed to the Federal Government that is 
subject to collection under the Debt Collection Improvement Act.
    Federal fiscal year means the 12-month period beginning October 1 of 
each year and ends on September 30 of the following year; it is 
designated by the calendar year in which it ends.
    Final loss claim means the Agency's payment of a final settlement 
amount with the lender after the collateral is liquidated or after 
settlement and compromise actions have been completed and as further set 
forth in Sec. 5001.521(e).
    Financial feasibility means the ability of a project to achieve 
sufficient income, credit, and cash flow to financially sustain the 
project over the long term and meet all debt obligations.
    Future recovery means funds to be collected by the lender after a 
final loss claim is processed as set forth in Sec. 5001.522.
    Geothermal direct generation means a system that uses thermal energy 
directly from a geothermal source.
    Geothermal electric generation means a system that uses thermal 
energy from a geothermal source to produce electricity.
    Guaranteed loan means a loan made and serviced by a lender for which 
the Agency and lender have entered into a lender's agreement and for 
which the Agency has issued a loan note guarantee. Unless otherwise 
specified, guaranteed loan refers to a loan that the Agency has 
guaranteed under this Part.
    Guarantor means a person giving assurance to the Agency under an 
Agency-approved written agreement that the borrower's obligations will 
be fulfilled and promising repayment of a guaranteed loan if the 
borrower should default.
    Holder means a person, other than the lender, who owns all or part 
of the guaranteed portion of the guaranteed loan with no servicing 
responsibilities.
    Hospital. (1) For the purpose of refinancing rural hospital debt in 
accordance with Sec. 5001.102(d)(5), hospital means the following types 
of facilities defined in the Social Security Act, Section 1861 (42 
U.S.C. 1395x):
    (i) Hospital (section 1861(e)).
    (ii) Psychiatric hospital (section 1861(f)).

[[Page 1028]]

    (iii) Long-term care hospital (section 1861(ccc)); and shall also 
include the following other provider types defined in the Social 
Security Act, Section 1861 (42 U.S.C. 1395x):
    (A) Critical access hospital (section 1861(mm)(1)).
    (B) Religious nonmedical health care institution (section 
1861(ss)(1)).
    (2) The Agency will use the applicant provider's CMS Certification 
Number (CCN) to verify the applicant provider is listed as a 
``Hospital'' for the ``Provider or Supplier Type'' category on the 
Centers for Medicare and Medicaid Services' Quality Certification and 
Oversight Reports (QCOR) website https://qcor.cms.gov/index_new.jsp.
    Hybrid means a combination of two or more renewable energy 
technologies that are incorporated into a unified system to support a 
single project.
    Hydroelectric source means a renewable energy system producing 
electricity using various types of moving water including, but not 
limited to, diverted run-of-river water, in-stream run-of-river water, 
and in-conduit water.
    Hydrogen project means a system that produces hydrogen derived from 
renewable biomass or water using wind, solar, ocean (including tidal, 
wave, current, and thermal), geothermal, or hydroelectric sources; or 
that uses hydrogen derived from renewable biomass or water using wind, 
solar, ocean (including tidal, wave, current, and thermal), geothermal 
or hydroelectric sources as an energy transport medium in the production 
of mechanical or electric power or thermal energy.
    Immediate family(ies) means individuals who live in the same 
household or who are closely related by blood, marriage, or adoption, 
such as a spouse, domestic partner, parent, child, sibling, aunt, uncle, 
grandparent, grandchild, niece, nephew, or first cousin.
    Indian tribe means the term as defined in 25 U.S.C. 5304(e).
    In-house expenses means expenses associated with activities that are 
routinely the responsibility of a lender's internal staff, including in-
house lawyers, or its agents and that are normally incurred for 
administration of the loan. In-house expenses include, but are not 
limited to, employees' salaries, staff lawyers, travel, and overhead.
    Inspector means a qualified consultant who has at least 3 years of 
experience and has completed at least five inspections on similar type 
projects.
    Insurance means a means of protection from financial loss by which a 
company provides a guarantee of compensation for a specified loss, 
damage, illness, or death in return for payment of a premium.
    Intangible assets means an asset that lacks physical substance. This 
includes, but is not limited to, copyrights, patents, capitalized 
franchise fees, goodwill, customer lists, software, organizational 
expenses, loan closing expenses, social media assets, and bond fees.
    Interconnection agreement means a contract containing the terms and 
conditions governing the interconnection and parallel operation of the 
borrower's electric generation equipment and the utility's electric 
power system or a borrower's biogas production system and a gas 
pipeline.
    Interest means an amount paid by a borrower to a lender as a form of 
compensation for the use of money. When money is borrowed, interest is 
typically paid over a certain period of time (typically months or years) 
to the lender as percentage of the principal amount owed. The term 
interest does not include default charges, penalty interest, or late 
payment fees.
    Interest termination date means the date on which no further 
interest will be payable by the Agency under the loan note guarantee.
    Interim financing means a temporary or short-term loan made with the 
clear intent when the loan is made that it will be repaid through 
another loan that provides permanent financing. Interim financing is 
frequently used to pay construction and other costs associated with the 
proposed project, with permanent financing to be obtained after project 
completion.
    Lender means a lending entity that the Agency has approved to 
originate, service, and collect payments on loans guaranteed under this 
part.
    Lender's agreement means the Agency-approved form of contract 
between the Agency and the lender setting forth the

[[Page 1029]]

lender's guaranteed loan responsibilities.
    Liquidation expenses means costs directly associated with the 
liquidation of collateral, including, without limitation, costs 
associated with preparing collateral for sale (e.g., repairs and 
transport), the sale (e.g., advertising, public notices, auctioneer 
expenses, and foreclosure fees), and conducting appraisals. Legal fees 
are considered liquidation expenses provided that the fees are 
reasonable as determined by the Agency and cover legal issues pertaining 
to the liquidation that could not be properly handled by the lender and 
its in-house legal staff. Liquidation expenses do not include in-house 
expenses.
    Loan agreement means the agreement between the borrower and lender 
containing the specified terms and conditions of the guaranteed loan and 
the responsibilities of the borrower and lender.
    Loan classification means the process by which loans are examined 
and categorized by the probability of default and degree of potential 
loss in the event of default.
    Loan documents mean the loan agreement, promissory note, mortgage/
deed of trust, and other security documents entered into by the borrower 
and the lender in connection with the guaranteed loan.
    Loan note guarantee means the Agency-approved form containing the 
terms and conditions of the guarantee of an identified guaranteed loan.
    Loan packager means a person, including a loan referral agent, 
broker, or an agent other than the borrower or lender that prepares a 
guaranteed loan application on behalf of the borrower or lender.
    Local government means a county, municipality, town, township, 
village, or other unit of general government below the State level. The 
term also includes Tribal governments when tribal lands are within the 
service area.
    Local owner means an individual who owns any portion of an entity 
that is the eligible borrower and whose primary residence is located 
within the normal commuting area of the guaranteed loan project.
    Locally or regionally produced agricultural food product means any 
agricultural food product that is raised, produced, and distributed in 
the locality or region in which the final product is marketed, so that 
the distance the product is transported is less than 400 miles from the 
origin of the product, or within the State in which the product is 
produced. Food products could be raw, cooked, or a processed edible 
substance, beverage, or ingredient used or intended for use or for sale 
in whole or in part for human consumption.
    Market value means the most probable price that an asset should 
bring in a competitive and open market under all conditions requisite to 
a fair sale, the buyer and seller, each acting prudently, knowledgeably, 
and assuming the price is not affected by undue stimulus. Implicit in 
this definition is the consummation of a sale as of a specified date and 
the passing of title from seller to buyer under conditions whereby--
    (1) Buyer and seller are typically motivated;
    (2) Both parties are well informed or well advised, and each acting 
in what he or she considers his or her own best interest;
    (3) A reasonable time is allowed for exposure in the open market;
    (4) Payment is made in terms of cash in U.S. dollars or in terms of 
financial arrangements comparable thereto; and
    (5) The price represents the normal consideration for the property 
sold unaffected by special or creative financing or sales concessions 
granted by anyone associated with the sale.
    Matching funds means those project funds required by 7 U.S.C. 8107 
to be eligible to receive the guaranteed loan. Funds provided by the 
borrower in excess of matching funds are not matching funds.
    Material adverse change means any change in circumstances associated 
with a guaranteed loan, including, without limitation, any change in the 
purpose of the loan, the borrower's financial condition or collateral 
that, individually or in the aggregate, have jeopardized, or could be 
reasonably expected to jeopardize, the borrower's repayment of the 
guaranteed loan.

[[Page 1030]]

    Monetary default means a failure to make a scheduled or required 
payment on a guaranteed loan.
    Multi-note system means an option for the lender to provide one 
promissory note for the unguaranteed portion and a separate promissory 
note(s) for the guaranteed portion of the loan. All promissory notes 
must reflect the same payment terms.
    National Appeals Division (NAD) means the division of the United 
States Department of Agriculture pursuant to 7 CFR part 11.
    Natural resource value-added product means a product derived from 
any naturally occurring resource, including agricultural resources, that 
is further processed to add value or used to generate energy or 
renewable energy.
    Negligent loan origination means the failure of a lender to perform 
those services or actions that a reasonably prudent lender would perform 
in originating its own portfolio of loans that are not guaranteed. The 
term includes the concepts of failure to act, not acting in a timely 
manner, and acting in a manner contrary to the manner in which a 
reasonably prudent lender would act.
    Negligent loan servicing means the failure of a lender to perform 
those services that a reasonably prudent lender would perform in 
servicing (including liquidation of) its own portfolio of loans that are 
not guaranteed. The term includes the concepts of failure to act, not 
acting in a timely manner, and acting in a manner contrary to the manner 
in which a reasonably prudent lender would act.
    New business means a business that has been in operation for less 
than one full year and a business that has been in operation for at 
least one full year and has not achieved full operational capacity or 
stable operations as determined by the Administrator, including a new 
enterprise or new affiliate of an existing business moving or expanding 
into a new location involving new market or labor areas.
    Non-monetary default means a situation where a borrower is not in 
compliance with the covenants or requirements of the loan documents, 
program requirements or loan.
    Non-regulated lending entity means a lending entity that is not 
subject to supervision and examination by an agency of the United States 
or a State.
    Ocean energy means energy created by use of various types of moving 
water in the ocean and other large bodies of water (e.g., Great Lakes) 
including, but not limited to, tidal, wave, current, and thermal 
changes.
    Off-take agreement means the terms and conditions governing the sale 
and transportation of products produced by the borrower and sold to 
another party.
    Otherwise improve means, but is not limited to, the following:
    (1) The purchase of necessary equipment that will itself provide an 
essential service to the rural community, such as vehicles, emergency 
and medical equipment, telecommunication equipment, computers, water 
meters and pumps;
    (2) The purchase of equipment necessary to maintain, protect, 
operate, or use the eligible facility or service;
    (3) The purchase of existing eligible facilities, when necessary, to 
either improve or prevent a loss of service provided the price paid for 
the facility is fair and reasonable and not directly related to the 
dollar amount of any debt to be retired by the seller; and
    (4) Payment of tap fees and other utility connection charges as 
provided in utility purchase contracts.
    Parity means a lien position whereby two or more separate lending 
entities or separate loans share a security interest of equal priority 
in collateral.
    Participation means the sale of an interest in a loan by the lead 
lender to one or more participating lenders wherein the lead lender 
retains the note, collateral securing the note, and all responsibility 
for managing and servicing the loan. Participants have credit risk and 
are dependent upon the lead lender for protection of their interests in 
the loan. The relationship is typically formalized by a participation 
agreement between the lenders. The participant lender(s) and the 
borrower have no rights or obligations to one another.
    Passive investor means an equity investor who does not actively 
participate in management and operation decisions of the borrower or any 
affiliate

[[Page 1031]]

of the borrower as evidenced by a contractual agreement.
    Person means an individual or entity organized under the laws of a 
State or a Tribe.
    Power purchase agreement means the terms and conditions governing 
the sale and transportation of power produced by the borrower to another 
party.
    Professional service means services used by the borrower for 
planning and developing a project, including, but not limited to, 
appraisals, architectural services, surveys, environmental impact 
analyses, implementing mitigation measures, and establishing or 
acquiring property rights. Such services are generally rendered by 
persons licensed or certified by States or accreditation associations, 
such as architects, engineers, accountants, attorneys, or appraisers, 
and those rendered by loan packagers, but not including loan finders.
    Project means the activity identified by a lender in its application 
for a loan guarantee for which the guaranteed loan funds will be used.
    Promissory note means the legal instrument evidencing debt executed 
by the borrower to a lender with stipulated repayment terms. The term 
promissory note includes bonds and other related debt instruments issued 
by the lender to a borrower.
    Protective advance means an advance made by the lender for the 
purpose of preserving and protecting the collateral where the borrower 
has failed to, and will not or cannot, meet its obligations to protect 
or preserve collateral. Protective advances include, but are not limited 
to, advances for property taxes, rent, hazard and flood insurance 
premiums, emergency repairs and annual assessments that protect the 
collateral. Legal and accounting fees are not a protective advance.
    Public body means a state, county, city, township, incorporated town 
or village, borough, authority, district, or other political subdivision 
of a State, or Indian tribe.
    Qualified consultant(s) means an independent third-party person 
possessing the knowledge, expertise, and experience to perform the 
specific task required.
    Rated power means the maximum amount of energy that can be created 
at any given time.
    Refurbished means a piece of equipment or renewable energy system 
that has been brought into a commercial facility, thoroughly inspected, 
and worn parts replaced and has a warranty that is approved by the 
Agency or its designee.
    Regulated lending entity means a lending entity that is subject to 
supervision and examination by an agency of the United States or a 
State; or a lending entity created specifically by State statute and 
operating under the direct supervision of a State government authority.
    Renewable biomass means--
    (1) Materials, pre-commercial thinning, or invasive species from 
National Forest System land or public lands (as defined in Section 103 
of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702)) 
that--
    (i) Are by-products of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health;
    (ii) Would not otherwise be used for higher-value products; and
    (iii) Are harvested in accordance with applicable law and land 
management plans and the requirements for old-growth maintenance, 
restoration, and management direction of paragraphs (2), (3), and (4) of 
subsection (e) of section 102 of the Healthy Forests Restoration Act of 
2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of 
section 102; or
    (2) Any organic matter that is available on a renewable or recurring 
basis from non-Federal land or land belonging to an Indian or Indian 
tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including 
the following items:
    (i) Renewable plant material (including feed grains, other 
agricultural commodities, other plants and trees, and algae); and
    (ii) Waste material (including crop residue, other vegetative waste 
material (including wood waste and wood residues), animal waste and 
byproducts

[[Page 1032]]

(including fats, oils, greases, and manure), and food and yard waste).
    Renewable energy means energy derived from--
    (1) A wind, solar, renewable biomass, ocean (including tidal, wave, 
current, and thermal), geothermal or hydroelectric source; or
    (2) Hydrogen derived from renewable biomass or water using an energy 
source described in paragraph (1) of this definition.
    Renewable energy site assessment means a report providing 
information regarding and recommendations for the use of commercially 
available renewable energy technologies in the borrower's operation. The 
report must be prepared by a qualified consultant for the specific 
energy system and project proposed.
    Renewable energy system (RES) means a system that produces usable 
energy from a Renewable Energy source and may include:
    (1) Distribution components necessary to move energy produced by 
such system to the initial point of sale; and
    (2) Other components and ancillary infrastructure of such system, 
such as a storage system; however, such system may not include a 
mechanism for dispensing energy at retail.
    Report of loss means an Agency-approved form used by lenders when 
reporting a financial loss under a guaranteed loan.
    Retrofitting means a modification to an existing building or 
installed equipment that incorporates a function or feature(s) not 
included in the original design when built or for the replacement of 
existing components with components that improve the original design and 
does not affect original warranty if the warranty is still in existence.
    Rural and rural area means any area of a State not in a city or town 
that has a population of more than 50,000 inhabitants, not in the 
urbanized area contiguous and adjacent to a city or town that has a 
population of more than 50,000 inhabitants, and which excludes certain 
populations pursuant to 7 U.S.C. 1991(a)(13)(H) and (I). In making this 
determination, the Agency will use the latest decennial census of the 
United States. The following exclusions apply:
    (1) Any area in the urbanized area contiguous and adjacent to a city 
or town that has a population of more than 50,000 inhabitants that has 
been determined to be ``rural in character'' as follows:
    (i) The determination that an area is ``rural in character'' will be 
made by the Under Secretary of Rural Development. The process to request 
a determination under this provision is outlined in paragraph (1)(ii) of 
this definition. The determination that an area is ``rural in 
character'' under this definition will apply to areas that are within:
    (A) An urbanized area that has two points on its boundary that are 
at least 40 miles apart, which is not contiguous or adjacent to a city 
or town that has a population of greater than 150,000 inhabitants or the 
urbanized area of such a city or town; or
    (B) An urbanized area contiguous and adjacent to a city or town of 
greater than 50,000 inhabitants that is within \1/4\ mile of a rural 
area.
    (ii) Units of local government may petition the Under Secretary of 
Rural Development for a ``rural in character'' designation by submitting 
a petition to the appropriate Rural Development State Director for 
recommendation to the Administrator on behalf of the Under Secretary. 
The petition shall document how the area meets the requirements of 
paragraph (1)(i)(A) or (B) of this definition and discuss why the 
petitioner believes the area is ``rural in character,'' including, but 
not limited to, the area's population density, demographics, and 
topography and how the local economy is tied to a rural economic base. 
Upon receiving a petition, the Under Secretary will consult with the 
applicable governor or leader in a similar position and request comments 
to be submitted within 5 business days, unless such comments were 
submitted with the petition. The Under Secretary will release to the 
public a notice of a petition filed by a unit of local government not 
later than 30 days after receipt of the petition by way of publication 
in a local newspaper and posting on the Agency's website at https://
www.rd.usda.gov/ onerdguarantee,

[[Page 1033]]

and the Under Secretary will make a determination not less than 15 days, 
but no more than 60 days, after the release of the notice. Upon a 
negative determination, the Under Secretary will provide to the 
petitioner an opportunity to appeal a determination to the Under 
Secretary, and the petitioner will have 10 business days to appeal the 
determination and provide further information for consideration. The 
Under Secretary will make a determination of the appeal in not less than 
15 days, but no more than 30 days.
    (iii) Rural Development State Directors may also initiate a request 
to the Under Secretary to determine if an area is ``rural in 
character.'' A written recommendation should be sent to the 
Administrator, on behalf of the Under Secretary, that documents how the 
area meets the statutory requirements of paragraph (1)(i)(B) of this 
definition and discusses why the State Director believes the area is 
``rural in character,'' including, but not limited to, the area's 
population density, demographics, topography, and how the local economy 
is tied to a rural economic base. Upon receipt of such a request, the 
Administrator will review the request for compliance with the ``rural in 
character'' provisions and make a recommendation to the Under Secretary. 
Provided a favorable determination is made, the Under Secretary will 
consult with the applicable Governor and request comments within 10 
business days, unless gubernatorial comments were submitted with the 
request. A public notice will be published by the State Office in 
accordance with paragraph (1)(ii) of this definition. There is no appeal 
process for requests made on the initiative of the State Director.
    (2) An area that is attached to the urbanized area of a city or town 
with more than 50,000 inhabitants by a contiguous area of urbanized 
census blocks that is not more than two census blocks wide. Applicants 
from such an area should work with their Rural Development State Office 
to request a determination of whether their project is located in a 
rural area under this provision.
    (3) For the Commonwealth of Puerto Rico, the island is considered 
Rural and eligible except for the San Juan Census Designated Place (CDP) 
and any other CDP with greater than 50,000 inhabitants. Areas within 
CDPs with greater than 50,000 inhabitants, other than the San Juan CDP, 
may be determined to be Rural if they are ``not urban in character.''
    (4) For the State of Hawaii, all areas within the State are 
considered rural and eligible except for the Honolulu CDP within the 
County of Honolulu and any other CDP with greater than 50,000 
inhabitants. Areas within CDPs with greater than 50,000 inhabitants, 
other than the Honolulu CDP, may be determined to be Rural if they are 
``not urban in character.''
    (5) For the purpose of defining a rural area in the Republic of 
Palau, the Federated States of Micronesia, and the Republic of the 
Marshall Islands, the Agency shall determine what constitutes rural and 
rural Area based on available population data.
    Rural small business means a small business that is located in a 
rural area or that can demonstrate the proposed project for which 
assistance is being applied for under this part is located in a rural 
area.
    Service area means the area identified to be served.
    Significant ties means, as determined by the agency, a facility 
under private control will carry out a public purpose and continue to 
primarily serve rural areas for CF projects (not applicable to public 
bodies and Federally Recognized Tribes) as evidenced by the following: 
Association with or control by a public body or bodies; or Broadly based 
membership and controlled primarily by members residing in the project 
service area. Membership must be open without regard to race, color, 
religion, national origin, sex, age, disability, sexual orientation, or 
marital or familial status.
    Simple payback means the estimated simple payback of a project 
funded under this part as calculated using paragraph (1), (2), or (3), 
as applicable, of this definition.
    (1) Energy efficiency improvement projects simple payback = (Total 
Project Costs) / (Dollar value of energy saved).

[[Page 1034]]

    (i) Energy saved will be determined by subtracting the projected 
energy (determined by the method in paragraph (1)(i)(B) of this 
definition) to be consumed from the historical energy consumed 
(determined by the method in paragraph (1)(i)(A) of this definition), 
and converting the result to a monetary value using a constant value or 
price of energy (determined by the method in paragraph (1)(i)(C) of this 
definition).
    (A) Actual energy used in the original building and/or equipment, as 
applicable, prior to the EEI project, must be based on the actual 
average annual total energy used in British thermal units (BTU) over the 
most recent 12, 24, 36, 48, or 60 consecutive months of operation.
    (B) Projected energy use if the proposed EEI project had been in 
place for the original building and/or equipment, as applicable, for the 
same time period used to determine that actual energy use under 
paragraph (1)(i)(A) of this definition.
    (C) Value or price of energy must be the actual average price paid 
over the same time period used to calculate the actual energy used under 
paragraph (1)(i)(A) of this definition.
    (ii) Energy efficiency improvement projects simple payback does not 
allow EEI to monetize benefits other than the dollar amount of the 
energy savings the agricultural producer or rural small business 
realizes as a result of the improvement.
    (2) Renewable energy systems projects simple payback = (total 
project costs) / (dollar value of energy units replaced, credited, sold, 
or used and fair market value of byproducts as applicable in a typical 
year).
    (i) Value of energy replaced will be calculated based on the 
borrower entity's historical energy consumption with actual average 
price paid for the energy replaced, following the methodology outlined 
in paragraph (1)(i) of this definition.
    (ii) Value of energy credited or sold will be calculated based on 
the amount of energy units to be sold at the proposed rate per unit, as 
documented in utility net metering or crediting policies and/or a 
purchase agreement.
    (iii) If proposed energy will be used in a new facility, value of 
energy used will be calculated based on the amount of energy units to be 
used at the documented price per unit of conventional fuel alternative.
    (iv) Value of byproducts produced by and used in the project or 
related enterprises should be documented at the fair market value to be 
received for the byproducts in a typical year.
    (v) Renewable energy systems projects simple payback does not 
include any one-time benefits such as but not limited to construction 
and investment-related benefits, nor credits which do not provide annual 
income to the project, such as tax credits.
    (3) Energy efficiency equipment and systems projects simple payback 
= (total project costs) / (dollar value of efficiency savings). 
Efficiency savings will be determined by subtracting the annual value of 
energy to be consumed by the proposed energy efficient equipment from 
the annual value of energy that a conventional equipment alternative 
would have consumed. Adequate documentation must be provided for all 
consumption estimates and values utilized in the calculation.
    Small business means:
    (1) An entity or utility, as applicable, as further defined in 
paragraphs (1)(i) through (iv) and meeting the requirements in paragraph 
(2) of this definition. With the exception of the entities identified in 
this paragraph, all other non-profit entities are not small businesses 
for the purposes of REAP program eligibility:
    (i) A private for-profit entity, including a sole proprietorship, 
partnership, or corporation;
    (ii) A cooperative (including a cooperative qualified under section 
501(c)(12) of the Internal Revenue Code);
    (iii) An electric utility (including a Tribal or governmental 
electric utility) that provides service to rural consumers and operates 
independent of direct government control; or
    (iv) A Tribal corporation or other Tribal business entities that are 
chartered under Section 17 of the Indian Reorganization Act (25 U.S.C. 
477) or have similar structures and relationships with their Tribal 
governments

[[Page 1035]]

and are acceptable to the Agency. The Agency will determine the small 
business status of such Tribal entity without regard to the resources of 
the Tribal government; and
    (2) An entity that meets Small Business Administration (SBA) size 
standards in accordance with 13 CFR part 121 and criteria of 13 CFR 
121.301 as applicable to financial assistance programs, including 
paragraph (2)(i) or (ii) of this section. The size of the concern alone 
and the size of the concern combined with other entity(ies) it controls 
or entity(ies) it is controlled by, must not exceed the size standard 
thresholds designated for the industry in which the concern alone or the 
concern and its controlling entity(ies), whichever is higher, is 
primarily engaged.
    (i) The concern's tangible net worth is not in excess of $15 million 
and average net income (excluding carry-over losses) for the preceding 
two completed fiscal years is not in excess of $5.0 million; or
    (ii) The size of the concern does not exceed the SBA size standard 
thresholds designated for the industry in which it is primarily engaged, 
as measured by number of employees or annual receipts. Industry size 
standard designations to be utilized are listed in the SBA's table of 
size standards found in 13 CFR 121.201. Number of employees and annuals 
receipts are calculated as follows:
    (A) Number of employees is calculated as the average number of all 
individuals employed by a concern on a full-time, part-time, or other 
basis, based upon numbers of employees for each of the pay periods for 
the preceding completed 12 calendar months. If a concern has not been in 
business for 12 months, the average number of employees is used for each 
of the pay periods during which it has been in business.
    (B) Annual receipts are calculated as average total income plus cost 
of goods sold for the five most recent years. If a concern has been in 
operation for less than 60 months, average annual receipts for as long 
as the concern has been in operation are used.
    State means any of the 50 States of the United States, the 
Commonwealth of Puerto Rico, the District of Columbia, the U.S. Virgin 
Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana 
Islands, the Republic of Palau, the Federated States of Micronesia, and 
the Republic of the Marshall Islands.
    State bond banks and State bond pools mean an entity authorized by 
the State to issue State debt instruments and use the funds received to 
finance eligible projects under this part.
    Steady state operating level means that there is an adequate and 
consistent supply of the applicable renewable energy resource(s) for the 
project, both on a short-term (current) and long-term basis, and the 
renewable energy system and process(es) are operating at projected 
capacity, consistently yielding an adequate quantity and quality of 
renewable energy.
    Subordination means the reduction of the lender's lien priority on 
certain assets pledged by the borrower to secure payment of the 
guaranteed loan to a position junior to, or on parity with, the lien 
position of another loan.
    Total eligible project costs means the sum of all eligible project 
costs.
    Total project costs means the sum of all costs associated with a 
completed project.
    Transfer and assumption means the Agency-approved conveyance by a 
borrower to an assuming borrower of the assets, collateral, and 
liabilities of the borrower in return for the assuming borrower's 
binding promise to pay the outstanding debt.
    Underserved communities mean communities (including urban or rural 
communities and Indian tribal communities) that have limited access to 
affordable, healthy foods, including fresh fruits and vegetables, in 
grocery retail stores or farmer-to-consumer direct markets and that have 
either a high rate of hunger or food insecurity or a high poverty rate 
as reflected in the most recent decennial census or other Agency-
approved census.
    Uniform Standards of Professional Appraisal Practice (USPAP) means 
the appraisal standards promulgated by the Appraisal Standards Board of 
the Appraisal Foundation.
    Used equipment means any equipment that has been used and is 
provided in an ``as is'' condition.

[[Page 1036]]

    Useful life means estimated durations of utility placed on a variety 
of assets, including buildings, machinery, equipment, vehicles, 
electronics, and furniture. Useful life estimations terminate at the 
point when assets are expected to become obsolete, require major 
repairs, or cease to deliver economical results.
    Veteran means a person who served in the active military, naval, or 
air service and was discharged or released therefrom under conditions 
other than dishonorable as defined in 38 U.S.C. 101(2).
    Waste disposal means sanitary sewer (treatment and collection), 
solid waste, or storm drainage facilities.
    Working Capital means current assets available to support a 
business' operations and growth. Working capital is calculated as 
current assets less current liabilities.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62196, Oct. 2, 2020; 86 
FR 70354, Dec. 10, 2021; 87 FR 38645, June 29, 2022]



Sec. 5001.4  Exception authority.

    The Administrator may, on a case-by-case basis, grant an exception 
to any requirement or provision of this subpart provided that such an 
exception is in the best financial interests of the Federal Government. 
Exercise of this authority cannot be in conflict with applicable law.



Sec. 5001.5  Appeal and review rights.

    Borrowers, lenders, and holders may have appeal or review rights for 
Agency decisions made under this part. Agency decisions that are adverse 
to the individual participant are appealable, while matters of general 
applicability are not subject to appeal; however, such decisions are 
reviewable for appealability by the National Appeals Division (NAD). All 
appeals will be conducted by NAD and will be handled in accordance with 
7 CFR part 11.
    (a) The borrower, lender, and holder can appeal any Agency decision 
that directly and adversely affects them.
    (1) For an adverse decision that affects the borrower, the lender 
and borrower must jointly execute a written request for appeal of an 
adverse decision made by the Agency.
    (2) An adverse decision that affects only the lender can be appealed 
by the lender only.
    (3) An adverse decision that affects only the holder can be appealed 
by the holder only.
    (b) In cases where the Agency has denied or reduced the amount of 
final loss payment to the lender, the adverse decision can be appealed 
only by the lender.
    (c) A decision by a lender adverse to the interest of the borrower 
is not a decision by the Agency, even if it was concurred in by the 
Agency, and therefore cannot be reviewed for appealability or appealed 
to NAD.



Sec. 5001.6  General lender responsibilities.

    (a) Lenders are responsible for originating and servicing loans 
guaranteed by the Agency under this part in accordance with the 
provisions of this part and, for those guaranteed loans issued under one 
of the guaranteed loan programs identified in Sec. 5001.1(a)(1) through 
(4), with the provisions of the applicable guaranteed loan program. Any 
action or inaction on the part of the Agency does not relieve the lender 
of its responsibilities.
    (b) Lenders can contract for services, but such contracting does not 
relieve a Lender from its responsibilities as identified in this part 
or, where applicable, in the applicable guaranteed loan program 
identified in Sec. 5001.1.
    (c) If a lender fails to comply with the requirements of this part, 
the Agency may reduce any loss payment in accordance with the lender's 
agreement and loan note guarantee.



Sec. 5001.7  Agency's special initiatives.

    Applicants submitting applications that support the implementation 
of strategic or special initiatives are encouraged to review the 
Agency's annual notice to determine if their projects are eligible for 
receiving priority for projects. These projects may also support the 
implementation of strategic economic development and community 
development plans on a multi-jurisdictional and multi-sectoral basis in 
accordance with section 6401 of the Agricultural Improvement Act of 2018 
(Pub. L. 115-334).

[[Page 1037]]



Sec. 5001.8  Approvals, regulations, and forms.

    (a) When Agency approval or concurrence is required, it must be in 
writing and must be obtained prior to any action taken for which 
approval or concurrence is required. Written communication from an 
authorized Agency official, including any written communication 
approving, concurring, or otherwise communicating an Agency decision on 
a matter when such decision is required, may be transmitted via an 
electronic Agency system in accordance with Electronic Signatures in 
Global and National Commerce Act (ESIGN) of 2000 (114 Stat. 464) (E-Sign 
Act).
    (b) All references to statutes and regulations include any and all 
successor statutes and regulations.
    (c) All references to forms include any and all predecessor and 
successor forms as specified by the Agency.
    (d) Copies of all regulations and forms referenced in this part can 
be obtained through the Agency and from the Agency's website at https://
www.rd.usda.gov/ onerdguaranteed.
    (e) 7 CFR part 5001 does not prohibit or consent to electronic 
signatures. Rural Development will accept electronic signatures from 
Lenders for origination, loan closing, and servicing documents in 
accordance with the E-Sign Act unless otherwise prohibited by law or 
program. Lenders may use electronic signatures for electronic promissory 
notes (eNotes), deeds of trust and other documents relevant to the loan 
transaction, providing that the lender perfects and maintains a first 
lien position, an enforceable promissory note, and meets all other 
agency requirements including the following:
    (1) Lenders may submit forms to Rural Development electronically 
using USDA's Service Center Agencies Online Services website. 
Registration is limited to individuals and each individual authorized by 
the Lender must register and upon registration may electronically sign 
and submit certain forms on behalf of the Lender.
    (2) Lenders who choose to accept electronic signatures from 
borrowers must ensure that such signatures meet the standards and 
requirements set forth in the E-Sign Act, as well as all other 
applicable federal and state regulations and guidelines. Lenders are 
charged with the same responsibility of due diligence with 
electronically signed documents as they are with paper documents. If any 
electronically signed document is deemed unenforceable and is connected 
to any fraud, misrepresentation or negligent servicing, the lender bears 
the risk that any loss claim submitted in relation to the unenforceable 
document will be denied or reduced in accordance with applicable 
regulations. Any loss attributed to a lender's failure to collect on the 
promissory note or enforce the security instrument because of its 
electronic signature will be treated as negligent servicing under 7 CFR 
5001 servicing regulations. Failure to comply with any Federal statute 
or regulation could result in the denial of a loan guarantee or claim, 
withdrawal of lending authority and/or debarment from Federal programs.

[85 FR 42518, July 14, 2020, as amended at 86 FR 70355, Dec. 10, 2021]



Sec. 5001.9  Standards for financial information.

    (a) All financial information (e.g., financial statements, balance 
sheets, financial projections, and income statements) must be prepared 
and submitted in accordance with accounting practices acceptable to the 
Agency. Such practices can include, but are not limited to, Generally 
Accepted Accounting Principles (GAAP) and the industry's standard 
accounting practice.
    (b) For sole proprietorships and other situations where business 
assets are held personally, financial statements must be prepared using 
only the assets and liabilities directly attributable to the applicant's 
project. Assets, plus any improvements, must be valued at the lower of 
cost or market value.



Sec. 5001.10  Federal Register notices and amendments.

    Rural Development will issue annual Federal Register notices each 
year specifying the amount of funds available under this part for OneRD 
guarantees. Notices may also include the following information 
applicable to projects specifically funded under a

[[Page 1038]]

particular notice: Maximum loan amounts, fees, and priority scoring for 
discretionary points.



Sec. Sec. 5001.11-5001.99  [Reserved]



Sec. 5001.100  OMB control number.

    The report and recordkeeping requirements contained in this part 
have been approved by the Office of Management and Budget and have been 
assigned OMB control number 0572-0155.



                    Subpart B_Eligibility Provisions



Sec. 5001.101  Introduction

    This subpart addresses the eligibility provisions for projects, 
borrowers, and lenders. This subpart also includes provisions for 
projects involving the purchase of cooperative stock or cooperative 
equity, the conversion of businesses to cooperatives or Employee Stock 
Ownership Plans (ESOP), and New Markets Tax Credits (NMTC).
    (a) Project eligibility. Sections 5001.102 through 5001.108 identify 
requirements for projects to be eligible to receive a loan guarantee 
under this part. Section 5001.115 identifies types of projects that are 
not eligible for a loan guarantee under this part. The Agency will not 
issue a loan guarantee under this part for any project that does not 
meet the applicable eligibility criteria as specified.
    (b) Borrower eligibility. Section 5001.126 identifies the types of 
borrowers that are eligible to receive a loan guarantee for their 
projects under this part. The types of borrowers eligible to receive 
loan guarantees for their Projects vary based on the guaranteed loan 
program they are applying under and that guaranteed loan program's 
authorizing statute as set forth in Sec. 5001.1. Section 5001.127 
identifies conditions that would make an otherwise eligible borrower 
ineligible for receiving a loan guarantee for its project under this 
part.
    (c) Lender eligibility. Section 5001.130 identifies the requirements 
for a lending entity to be an eligible lender under this part. Section 
5001.131 addresses the lender's agreement, which each approved lender 
must execute with the Agency in order to originate and service 
guaranteed loans under this part. Section 5001.132 addresses provisions 
necessary for a lender to maintain its approved lender status.
    (d) Cooperative stock/cooperative equity/conversions. Section 
5001.140 identifies requirements associated with issuing loan guarantees 
in connection with the purchase of cooperative stock, transferable stock 
shares, and cooperative equity and for the conversions of businesses to 
either cooperatives or Employee Stock Ownership Plans (ESOP).
    (e) New Markets Tax Credits. Section 5001.141 identifies the 
requirements specific to guaranteed loans involving projects that 
include NMTC available under the NMTC program authorized by the U.S. 
Department of the Treasury.



Sec. 5001.102  Project eligibility--general.

    To be eligible for a loan guarantee under this part, a project must 
meet the requirements specified in this section and those in the 
applicable section in Sec. Sec. 5001.103 through 5001.108.
    (a) Service area. For projects with a defined service area, the 
boundaries for the proposed service area must be chosen in such a way 
that no user or area will be excluded because of race, color, religion, 
sex, marital status, age, disability, or national origin. This does not 
preclude financing or constructing:
    (1) Projects in phases (each phase must be financially sustainable 
without consideration of future phases) when it is not practical to 
finance or construct the entire project at one time; and
    (2) Projects where it is not economically feasible to serve the 
entire service area, provided the economic feasibility is determined on 
the basis of the entire system or facility and not by considering the 
cost of separate extensions to, or parts thereof.
    (b) Location. A project must be located in a State and meet the 
rural or rural area requirements of the applicable section in Sec. Sec. 
5001.103 through 5001.108.
    (c) Tax-exempt financing. The agency is prohibited from guaranteeing 
a project funded with tax-exempt financing. In cases where a project 
involves both tax-exempt and taxable financing, the portion of the 
project that involves taxable financing is eligible to receive

[[Page 1039]]

a loan guarantee if that portion of the project is separate and distinct 
from the part that is financed by the tax-exempt obligation, and the 
guaranteed loan is not essential to issuance of the tax-exempt 
obligation.
    (d) Debt refinancing. The Agency can guarantee loans for debt 
refinancing, as described in paragraphs (d)(1) through (5) of this 
section. Longer-term financing to pay off a lender's interim 
construction loan after project completion will not be treated as debt 
refinancing. An eligible debt refinancing project is:
    (1) Refinancing of debt on one or more loans owed to another 
creditor;
    (2) Refinancing of debt owed to the applicant lender or any part 
thereof provided that the applicant lender debt being refinanced does 
not exceed 50 percent of the total use of funds in the new aggregated 
federally-guaranteed debt, the applicant lender debt being refinanced is 
in a current status for the past six months and the new guaranteed loan 
is providing better rates or repayment terms. The current status cannot 
be achieved by the lender forgiving the borrower's debt or by servicing 
actions that impact the borrower's repayment schedule; or
    (3) Refinancing of debt owed directly to the Federal Government or 
that is federally-guaranteed, including any guaranteed debt owed to the 
applicant lender, when a refinance of this debt is consistent with 
sections 333 and 306(a)(24)(C) of the Consolidated Farm and Rural 
Development Act (as amended by the Agricultural Act of 2018, Pub. L. 
115-334). Such guaranteed debt shall not be included in the amount of 
applicant lender debt when calculating the maximum percentage of the 
total use of funds in the new guaranteed loan as stated in paragraph 
(d)(2) of this section; and,
    (4) When the refinancing is in accordance with paragraphs (d)(1) 
through (3) of this section, the following requirements must be met:
    (i) The Agency has determined that the project is viable and debt 
refinancing is necessary to improve cash flow;
    (ii) The debt is reflected on the borrower's balance sheet and the 
original loan funds were used for project-eligible purposes. Refinancing 
of existing of lines of credit is considered an eligible purpose for 
debt refinancing in the B&I program;
    (iii) For loans where debt refinancing is a majority purpose of the 
guaranteed loan, the borrower must demonstrate historical actual cash 
available to provide a total debt service coverage ratio of not less 
than 1.1 times its new debt service requirements or that the borrower's 
current financial performance demonstrates it has corrected or recovered 
from impacts or issues adversely effecting its past financial 
performance.
    (5) Refinancing of debt incurred by a rural hospital to preserve 
access to a health service when the refinancing will meaningfully 
improve the financial position of the hospital. The debt can be existing 
Agency direct loan debt, Agency guaranteed debt, or another lender's 
debt. Loan requests to refinance rural hospital debt must demonstrate 
that the new amount of annual debt repayment on the debt being 
refinanced will be less than the existing amount of annual debt 
repayment and provide a total debt service coverage ratio of 1.1 to 1.0 
based on historical cash flow. To calculate the ratio, the new debt 
service amount will include annual capital expense reserve and annual 
debt repayment reserve requirements.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62196, Oct. 2, 2020]



Sec. 5001.103  Eligible CF projects and requirements.

    For a CF projects to be eligible for a loan guarantee under this 
part, it must meet the criteria specified in Sec. 5001.102 and this 
section and be for a borrower eligible to submit an application for the 
project in accordance with Sec. 5001.126.
    (a) Type of project. The project must be for the construction, 
enlargement, extension, or to otherwise improve an essential community 
facility. Essential community facilities include, but are not limited 
to:
    (1) Health care facilities and services, including but not limited 
to hospitals;
    (2) Fire, rescue, and public safety facilities and services;

[[Page 1040]]

    (3) Community, public, social, educational, or cultural facilities 
or services;
    (4) Transportation facilities such as streets, bridges, roads, 
ports, and airports;
    (5) Utility projects such as hydroelectric generating facilities and 
related connecting systems and appurtenances; supplemental and 
supporting structures for other rural electrification or telephone 
systems including facilities such as headquarters, office buildings, 
storage facilities, and maintenance shops when not eligible for RUS 
financing; natural gas distribution systems; and recycling or transfer 
centers or stations.
    (6) Telecommunications end-user equipment as it relates to public 
safety, medical, or educational telecommunications links when not 
eligible for RUS financing;
    (7) Water infrastructure facilities such as levees, dams, 
reservoirs, inland waterways, canals, and irrigation systems;
    (8) The purchase and installation of renewable energy systems for 
use by an essential community facility when:
    (i) The renewable energy system will help defray the cost of 
facility operation over the life of the system;
    (ii) The renewable energy system will improve the borrower's ability 
to provide the underlying essential community service, such as providing 
backup facilities or extending fuel supplies of backup facilities;
    (iii) The borrower does not, and will not, have any contract to sell 
power generated by the renewable energy system; however, receiving 
credit for excess production is permitted;
    (iv) The borrower does not anticipate, and has no plan for, 
generation of more energy than it will use in a consecutive 12-month 
period. The borrower may receive credits from a utility for energy 
production that happens to exceed facility usage during a particular 
month;
    (v) The renewable energy system is commercially available with 
proven operating history specific to the proposed application; and
    (vi) The borrower provides a technical report as part of the 
financial feasibility study in accordance with Sec. 5001.307(e) (1) and 
(2), as applicable of subpart D.
    (9) Land acquisition and necessary site preparation including access 
ways and utility extensions to and throughout an industrial park site; 
and
    (10) Community parks, community activity centers, and similar types 
of facilities that are an integral part of the orderly development of a 
community (meaning a development that is addressing a need in the 
community). Recreational components including, but not limited to, 
playground equipment of an otherwise non-recreational eligible community 
facility such as childcare, educational, or health care facilities are 
also eligible.
    (b) Public use. All facilities financed under the provisions of this 
section will be for public use.
    (1) To demonstrate availability for public use, the borrower may not 
restrict use of or membership to its facility or service based on race, 
color, religion, sex, national origin, age, disability, sexual 
orientation, or marital or familial status.
    (i) However, 7 CFR 15a.215(b) provides that the membership practices 
of the Young Men's Christian Association (YMCA), the Young Women's 
Christian Association (YWCA), the Girl Scouts, the Boy Scouts, and Camp 
Fire Girls are exempt from open membership practices on the basis of 
sex.
    (ii) If membership or admission is customarily required to access 
and use the facility or service, any individual who applies for 
membership or admission must be given membership, admitted, or be placed 
on a waiting list to join as space becomes available on a first-come, 
first-served basis. This does not preclude an essential community 
facility from having a threshold admission requirement, such as a 
college or university requiring their applicants to have a certain grade 
point average before they are considered for admission. The standard 
must be applied consistently to all applicants and be common to the 
industry.
    (c) Project location. The project must be located in a rural area as 
defined in Sec. 5001.3 of this part, except that utility projects 
serving both rural and non-rural areas are eligible for a loan guarantee 
regardless of project location.

[[Page 1041]]

For such utility projects, the Agency will guarantee the rural area 
portion of the project and only the portion of the project necessary to 
provide the essential services to rural areas. The part of the facility 
located in a non-rural area must be necessary to provide the essential 
services to rural areas. The availability of funds for CF projects is 
contingent on its rural area population and the reservation of funds 
outlined in Sec. 5001.316(e).



Sec. 5001.104  Eligible WWD projects and requirements.

    For a WWD project to be eligible for a loan guarantee under this 
part, it must meet the criteria specified in Sec. 5001.102 and this 
section and be for a borrower eligible to submit an application for the 
project in accordance with Sec. 5001.120.
    (a) Type of project. The project must be for one or more of the 
following:
    (1) To construct, enlarge, extend, or otherwise improve the 
following types of facilities:
    (i) Drinking water facilities;
    (ii) Sanitary sewage facilities;
    (iii) Solid waste disposal facilities; or
    (iv) Storm wastewater disposal facilities.
    (2) Purchase of equipment to operate, maintain, or protect 
facilities.
    (b) Public use. The project must be for a public purpose.
    (c) Project location. The project must be located in a rural area as 
defined in Sec. 5001.3 of this part, except that utility projects 
serving both rural and non-rural areas are eligible for a loan guarantee 
regardless of project location. For utility service projects serving 
both rural and non-rural areas, the Agency will guarantee only the 
portion of the project necessary to provide the essential services to 
rural areas. The part of the facility located in a non-rural area must 
be necessary to provide the essential services to rural areas.
    (d) Service area. (1) The project must be installed to serve any 
user within the Service Area who desires service and can be feasibly and 
legally served.
    (2) The lender must determine that, when feasible and legally 
possible, inequities within the project's service area for the same type 
service proposed will be remedied by the borrower on, or before, 
completion of the project. Inequities are defined as unjustified 
variations in availability, adequacy, or quality of service. User rate 
schedules for portions of existing systems or facilities that were 
developed under different financing, rates, terms, or conditions do not 
necessarily constitute inequities.

[85 FR 42518, July 14, 2020, as amended at 86 FR 70355, Dec. 10, 2021]



Sec. 5001.105  Eligible B&I projects and requirements.

    For a B&I project to be eligible for a loan guarantee under this 
part, it must meet the criteria specified in Sec. 5001.102, be for a 
borrower eligible to submit an application for the project in accordance 
with Sec. 5001.126, and the uses of loan funds include, but are not 
limited to, the following:
    (a) Purpose. The purpose of the project must be to improve, develop, 
or finance business, industry, and employment and improve the economic 
and environmental climate in rural communities; the conservation, 
development, and use of water for aquaculture purposes; and reducing 
reliance on nonrenewable energy resources through development and 
construction of solar energy and other renewable energy systems.
    (b) Type of project. The project must be for one or more of the uses 
described in paragraphs (b)(1) through (22) of this section.
    (1) Purchase and development of land, buildings, or infrastructure 
for public or private commercial enterprises or industrial properties, 
including expansion or modernization.
    (2) Business acquisitions, start-ups, and expansions if jobs will be 
created or saved. A business acquisition is considered the acquisition 
of an entire business, not a partial stock acquisition in a business. 
However, acquisition or change of ownership between existing owners is 
an eligible project when the remaining owner(s) held their ownership and 
actively participated in the business operation for at least the past 24 
months and the selling owner will not retain any ownership interest in 
the business directly or indirectly including through other entities or 
trusts or property rights.

[[Page 1042]]

    (3) Purchase and installation of machinery and equipment.
    (4) Startup costs, working capital, inventory, and supplies in the 
form of a permanent working capital term loan.
    (5) Pollution control and abatement.
    (6) Purchase of membership, stocks, bonds, or debentures necessary 
to obtain a loan from a member owned lending institution provided the 
purchase is required for all their borrowers and is the minimum amount 
required.
    (7) Agricultural production, when not eligible for Farm Service 
Agency (FSA) farm loan programs assistance and when it is part of an 
integrated business also involved in the processing of agricultural 
products. Any agricultural production considered for guaranteed loan 
financing must be owned, operated, and maintained by the business 
receiving the guaranteed loan.
    (i) The agricultural production portion of any loan must not exceed 
50 percent of the total loan or $5 million, whichever is less.
    (ii) This paragraph does not preclude financing the following types 
of businesses:
    (A) Commercial nurseries engaged in the production of ornamental 
plants, trees, and other nursery products, such as bulbs, flowers, 
shrubbery, flower and vegetable seeds, sod, and the growing of plants 
from seed to the transplant stage;
    (B) Forestry, which includes businesses primarily engaged in the 
operation of timber tracts, tree farms, forest nurseries, harvesting of 
forest products, and related activities, such as reforestation;
    (C) The growing or harvesting of mushrooms;
    (D) The growing of hydroponics;
    (E) The boarding and/or training of animals;
    (F) Commercial fishing; and
    (G) Production of algae and aquaculture, including conservation, 
development, and utilization of water for aquaculture.
    (8) Tourist and recreation facilities, including hotels, motels, bed 
and breakfast establishments, and resort trailer parks and campgrounds 
operated as a public or private commercial enterprise. Owner-occupied 
housing, such as bed and breakfasts, hotels and motels are only allowed 
when the pro rata value of a direct owner's living quarters, based on 
square footage, is deducted from the use of loan proceeds.
    (9) Educational or training facilities including other CF projects 
when not eligible for financing through Rural Housing Service or 
Community Facilities programs.
    (10) Development and construction of broadband and telecommunication 
systems, including modification of existing systems, that are not 
otherwise eligible for funding in the RUS program or if funding is 
unavailable in the RUS program, subject to the Public Notice Filing 
requirements of 7 CFR 1738.106(a) and the additional reporting 
requirements of 7 CFR 1738.107.
    (11) Industries undergoing adjustment from terminated Federal 
agricultural price and income support programs or increased competition 
from foreign trade.
    (12) Constructing or equipping facilities for lease to private 
businesses engaged in commercial or industrial operations.
    (13) Financing for mixed-use properties involving both commercial 
business and residential space is authorized, provided that not less 
than 50 percent of the business's projected revenue will be generated 
from business use.
    (14) Leasehold improvements when the lease contains no reverter 
clauses or restrictive clauses that would impair the use or value of the 
property as security for the loan. The term of the lease must be equal 
to or greater than the term of the loan, unless otherwise mitigated by 
the lender and approved by the Agency.
    (15) Projects that process, distribute, aggregate, store, and/or 
market locally or regionally produced agricultural food products to 
support community development and farm and ranch income.
    (i) Subject to each of the following, projects may be located in 
non-rural areas as well as in rural areas if the project:
    (A) Expands or preserves the availability of staple food in 
underserved areas with moderate and low-income populations by 
maintaining or increasing the number of retail or institutional outlets 
that offer an assortment

[[Page 1043]]

of healthy perishable foods and staple food items;
    (B) The project will create or retain quality jobs for low-income 
residents of the community;
    (C) A significant amount of the food is locally or regionally 
produced and sold; and
    (D) Includes an appropriate agreement with retail and institutional 
clients to inform consumers that they are purchasing or consuming 
locally or regionally produced agricultural food products.
    (ii) The Agency will give funding priority to projects that provide 
a benefit to underserved communities in accordance with Sec. 
5001.318(d)(5) of this part.
    (16) The purchase of cooperative stock by individual farmers or 
ranchers in a farmer or rancher cooperative or the purchase of 
transferable cooperative stock in accordance with Sec. 5001.140(a) and 
(b); or the purchase of stock in a business by employees forming an ESOP 
or worker cooperative in accordance with Sec. 5001.140(d).
    (17) The purchase of preferred stock or similar equity issued by a 
cooperative or a loan to a fund that invests primarily in cooperatives 
in accordance with Sec. 5001.140(c).
    (18) Loans to cooperatives:
    (i) Guaranteed loans to eligible cooperative may be made in 
principal amounts up to $40 million if the project is located in a rural 
area, the cooperative facility being financed provides for the value-
added processing of agricultural commodities, and the total amount of 
guaranteed loans exceeding $25 million does not exceed 10 percent of the 
funds available for the fiscal year. Guaranteed loans in excess of $25 
million in accordance with this provision may only be approved by the 
Secretary, whose authority may not be redelegated.
    (ii) Guaranteed loans to eligible cooperative may also be made in 
non-rural Areas provided:
    (A) The primary purpose of the guaranteed loan is for a facility to 
provide value-added processing for agricultural producers that are 
located within 80 miles of the facility;
    (B) The borrower satisfactorily demonstrates that the primary 
benefit of the guaranteed loan will be to provide employment for rural 
residents;
    (C) The principal amount of the guaranteed loan does not exceed $25 
million; and
    (D) The total amount of guaranteed loans guaranteed under this 
paragraph does not exceed 10 percent of the funds available for the 
fiscal year.
    (iii) An eligible cooperative may refinance an existing B&I 
guaranteed loan if the existing loan is current and performing, the 
existing loan is not and has not been in monetary default or the 
collateral has not been converted, and there is adequate security and 
collateral for the new guaranteed loan.
    (19) Taxable corporate bonds when the bonds are fully amortizing and 
comply with all provisions of this part, bond proceeds were used for an 
eligible purpose in this part, and the lender as bond holder retains the 
percent of the bond in accordance with Sec. 5001.408(3)(i) of this 
part. The bonds must be fully secured with collateral in accordance with 
Sec. 5001.202(b)(4) of this part. The bonds must only provide for a 
trustee when the trustee is totally under the control of the lender. The 
bonds must provide no rights to bond holders other than the right to 
receive the payments due under the bond. For instance, the bonds must 
not provide for bond holders replacing the trustee or directing the 
trustee to take servicing actions, such as accelerating the bonds. In 
accordance with Sec. 5001.127(f), convertible bonds are not eligible 
under this paragraph due to the potential conflict of interest of a 
lender having an ownership interest in the borrower. An explanation of 
the type of bond and other bond stipulations must be attached to the 
bond.
    (i) The bond issuer must obtain the services and opinion of an 
experienced bond counsel, who must present a legal opinion stating that 
the bonds are legal, valid, and binding obligations of the issuer and 
that the issuer has adhered to all applicable laws.
    (ii) The bond holder (lender) must purchase all the bonds issued 
pursuant to the guaranteed and comply with all Agency regulations. There 
must be a bond purchase agreement between the issuer and the bond 
holder. The bond

[[Page 1044]]

purchase agreement must contain similar language to that required in a 
loan agreement and must not conflict with this part. The bond holder is 
responsible for all servicing of the guaranteed loan evidenced by the 
bond, although the bond holder may contract for servicing assistance, 
including contracting with a trustee who remains under the lender's 
total control.
    (20) Nursing homes and assisted living facilities where constant 
medical care is provided and available onsite to the residents. 
Independent living facilities are not eligible in accordance with Sec. 
5001.118(a).
    (21) Development and construction of RES, including modification of 
existing systems that are commercially available and that are not 
otherwise eligible under REAP, or if funding is not available in the 
REAP program.
    (22) Integrated processing equipment and systems, such as 
biorefineries, renewable energy systems, and chemical manufacturing 
facilities, must utilize commercially available technology, equipment, 
and systems and demonstrate technical merit. The Agency will evaluate 
the following areas in making the technical merit determination:
    (i) Qualifications of the project team;
    (ii) Agreements and permits;
    (iii) Resource assessment;
    (iv) Design and engineering;
    (v) Project development;
    (vi) Equipment procurement and installation; and
    (vii) Operations and maintenance.
    (c) Facility location. The project must be located in a rural area, 
except for loans to cooperative in accordance with paragraph (b)(18)(ii) 
of this section and for loans to local foods projects in accordance with 
paragraph (b)(15)(i) of this section where such projects may also be 
located in non-rural areas. For an eligible project that located in both 
rural and non-rural areas, the Agency will guarantee only the amount 
necessary to finance that portion of the project located in the eligible 
rural area.
    (d) Capital and equity. Borrowers are required to have sufficient 
capital or equity to mitigate the ongoing financial and operational 
risks of the business. Balance sheet equity will be determined based 
upon current and projected borrower financial statements. The following 
capital and equity requirements must be met at the time of lender's 
closing of the guaranteed loan.
    (1) Existing businesses must meet one of the following requirements:
    (i) A minimum of 10 percent balance sheet equity (including 
subordinated debt when subject to a standstill agreement for the life of 
the loan), or a maximum debt-to-balance sheet equity ratio of 9 to 1, at 
loan closing;
    (ii) A 10 percent or more of total eligible project costs, borrower 
investment of equity or other funds into the project including grants or 
subordinated debt when subject to a standstill agreement for the life of 
the loan;
    (iii) Balance sheet equity includes owner-contributed capital of ten 
percent or more of total fixed assets (net total fixed assets plus 
depreciation.)
    (2) New businesses with sales contract(s) with proceeds in an amount 
adequate to meet debt service and the term of the sales contract(s) are 
at least equal to the term of the guaranteed loan, and subject to Agency 
acceptance of the credit worthiness of the counterparty, the borrower 
must meet one of the following requirements:
    (i) A minimum of 10 percent balance sheet equity (including 
subordinated debt when subject to a standstill agreement for the life of 
the loan), or a maximum debt-to-balance sheet equity ratio of 9 to 1 at 
loan closing; or
    (ii) Borrower investment of equity or other funds (including 
subordinated debt when subject to a standstill agreement for the life of 
the loan and grants) into the project in an amount of 10 percent or more 
of total eligible project cost;
    (3) New businesses with a project involving construction and when 
the lender will request the loan note guarantee prior to completion of 
construction must meet one of the following requirements:
    (i) A minimum of 25 percent balance sheet equity (including 
subordinated debt when subject to a standstill agreement for the life of 
the loan), or a maximum debt-to-equity ratio of 3 to 1, at guaranteed 
loan closing; or
    (ii) Borrower investment of equity or other funds (including 
subordinated

[[Page 1045]]

debt when subject to a standstill agreement for the life of the loan and 
grants) into the project in an amount of 25 percent or more of total 
eligible project cost;
    (4) All other borrowers that are new businesses must meet one of the 
following requirements:
    (i) A minimum of 20 percent balance sheet equity (including 
subordinated debt when subject to a standstill agreement for the life of 
the loan), or a maximum debt-to-equity ratio of 4 to 1, at guaranteed 
loan closing, or;
    (ii) Borrower investment of equity or other funds (including 
subordinated debt when subject to a standstill agreement for the life of 
the loan and grants) into the project in an amount of 25 percent or more 
of total eligible project cost;
    (5) Variances in capital and equity requirements:
    (i) Increases. The Agency may increase the capital or equity 
requirement specified under paragraphs (d)(1) through (4) of this 
section for guaranteed loans the Agency determines carry a higher risk. 
In determining whether a project or guaranteed loan carries a higher 
risk, the Agency will consider the current status of the industry, 
concentration of the industry in the Agency's portfolio, collateral 
coverage, value of personal or corporate guarantees, cash flow, and 
contractual relationships with suppliers and buyers; credit rating of 
the borrower; and the strength of the feasibility study and experience 
of management. The Agency may also increase the capital or equity 
requirement for new businesses using integrated processing equipment and 
systems such as biorefineries, renewable energy systems, chemical 
manufacturing facilities, and businesses producing new products to sell 
into new and emerging markets.
    (ii) Reductions. The Agency may reduce the minimum equity 
requirement for an existing business when personal or corporate 
guarantees are obtained in accordance with Sec. 5001.204 of this part; 
and all pro forma statements indicate the business to be financed meets 
or exceeds the median quartile (as identified in the Risk Management 
Association's Annual Statement Studies or similar publication) for the 
current ratio, quick ratio, debt-to-worth ratio, and debt service 
coverage ratio.
    (6) Certification: The lender must certify that, as of the date the 
guaranteed Loan was closed, its credit analysis indicated that the 
borrower had sufficient capital or equity to mitigate the financial and 
operational risks of the business, and that the borrower met the minimum 
equity required by the Agency in its conditional commitment, or that the 
minimum borrower capital contribution toward project costs, as 
applicable and required by the Agency, was met. A copy of the borrower's 
loan closing balance sheet must be included with the lender's 
certification.

                       Table 1 to Sec. 5001.105(d)--Capital Equity Requirements Summary
----------------------------------------------------------------------------------------------------------------
                                                   Borrower must meet one of the following at the time of the
                                                                 closing of the guaranteed loan:
                                               -----------------------------------------------------------------
                                                                                            Balance sheet equity
                   Borrower                                            Borrower investment     includes owner
                                                   Percent balance     as percent of total   contributed capital
                                                    sheet equity:       eligible project      as percentage of
                                                                              cost:          total fixed assets:
 
----------------------------------------------------------------------------------------------------------------
Existing Business.............................        =10        =10        =10
Borrowers that are new businesses with sales          =10        =10                   N/A
 contract(s) adequate to meet debt service and
 the term of the sales contract(s) are at
 least equal to the term of the guaranteed
 loan.........................................
Borrowers that are new businesses for a               =25        =25                   N/A
 project involving construction and the lender
 will request the loan note guarantee prior to
 completion of construction...................
All other borrowers that are new businesses...        =20        =25                   N/A
----------------------------------------------------------------------------------------------------------------


[[Page 1046]]


[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 
FR 70355, Dec. 10, 2021]



Sec. 5001.106  Eligible REAP--Renewable Energy System (RES) projects and requirements.

    For a REAP RES Project to be eligible for a loan guarantee under 
this part, it must meet the criteria specified in Sec. 5001.102(a) 
through (c) and in paragraphs (a) through (e) of this section and be for 
a borrower eligible to submit an application for the project in 
accordance with Sec. 5001.126. If taxable bonds are utilized as debt 
instruments the provisions of Sec. 5001.105(b)(19) must be met.
    (a) The project must be for--
    (1) The purchase of a new or existing RES;
    (2) The purchase of a refurbished RES; or
    (3) The retrofitting of an existing RES.
    (4) For the purposes of this section, only those hydroelectric 
sources with a rated power of 30 megawatts or less are an eligible RES.
    (b) The RES project must use commercially available technology.
    (c) The RES project must be located in a rural area unless the 
borrower is an agricultural producer and the application supports the 
production, processing, vertical integration, or marketing of 
agricultural products. If the agricultural producer's operation is in a 
non-rural area, then the application can only be for RES components that 
are:
    (1) Directly related to, and their use and purpose is limited to the 
agricultural production operation, such as vertically integrated 
operations; and
    (2) Part of and co-located with the agricultural production 
operation.
    (d) Where a residence is closely associated with an agricultural 
operation or rural small business to be served by the RES project, 50 
percent or more of the energy to be generated by the RES project must be 
used by the agricultural operation or rural small business. This 
provision must be documented with the application and can be 
demonstrated using either of the methods identified in paragraphs (d)(1) 
and (2) of this section.
    (1) Provide a renewable energy site assessment or other 
documentation and calculations that demonstrate based on historical 
energy use that 50 percent or more of the energy to be produced by the 
RES project will be used in the agricultural operation or rural small 
business. This includes documentation on historical residential energy 
use. The Agency may request additional data to determine residential 
versus business or agricultural operation usage. The actual percentage 
of energy determined to benefit the rural small business or agricultural 
operation will be the basis to determine eligible project costs.
    (2) The borrower may install or elect to conditionalize funding upon 
the installation of a device (such as a second meter) that results in 
100 percent of the energy generated by the RES Project to be used only 
by the agricultural operation or rural small business.
    (e) The RES project must have technical merit. The Agency will use 
the information provided in the technical report submitted with the 
application (see Sec. 5001.307(e) of this part) to determine if the 
project has technical merit. In making this determination, the Agency 
may engage the services of other Government agencies or other recognized 
industry experts in the applicable technology field, at its discretion, 
to evaluate the technical report.
    (1) Technical report areas. When making its technical merit 
determination, the Agency will evaluate the technical report using the 
areas specified in paragraphs (e)(1)(i) through (iii) of this section as 
applicable.
    (i) RES projects with total project costs of $80,000 or less. For 
these projects, the Agency will evaluate the following areas in making 
the technical merit determination:
    (A) Project description;
    (B) Resource assessment;
    (C) Project economic assessment; and
    (D) Qualifications of key service providers.
    (ii) RES projects with total project costs of less than $200,000, 
but more than $80,000. For these projects, the Agency will evaluate the 
following areas in making the technical merit determination:
    (A) Project description;

[[Page 1047]]

    (B) Resource assessment;
    (C) Project economic assessment;
    (D) Project construction and equipment; and
    (E) Qualifications of key service providers.
    (iii) RES projects with total project costs of $200,000 and greater. 
For these projects, the Agency will evaluate the following areas in 
making the technical merit determination:
    (A) Qualifications of the project team;
    (B) Agreements and permits;
    (C) Resource assessment;
    (D) Design and engineering;
    (E) Project development;
    (F) Equipment procurement and installation; and
    (G) Operations and maintenance.
    (2) Pass/pass with conditions/fail assignments. The Agency will 
assign each area of the technical report, as specified in paragraph 
(e)(1) of this section, a ``pass,'' ``pass with conditions,'' or 
``fail.'' An area will receive a ``pass'' if the information provided 
for the area has no weaknesses and meets or exceeds any requirements 
specified for the area. An area will receive a ``pass with conditions'' 
if the information provided for the area has minor weaknesses which 
could be conditioned and reasonably resolved by the borrower. Otherwise, 
if the information provided for the area is conclusively deemed to be a 
major weakness, the area will receive a fail.
    (3) Determination. The Agency will compile the results for each area 
of the technical report to determine if the Project has technical merit.
    (i) A project whose technical report receives a ``pass'' in each of 
the applicable areas will be considered to have ``technical merit.''
    (ii) A project whose technical report receives a ``pass with 
conditions'' in one or more the applicable areas will be considered to 
have ``conditional technical merit.''
    (iii) A project whose technical report receives a ``fail'' in any 
one area will be considered to be ``without technical merit.''
    (4) Further processing of applications. A project that is determined 
to have ``technical merit'' or ``conditional technical merit'' is 
eligible for further consideration for funding. Projects with 
``conditional technical merit'' would be subject to funding conditions 
that would need to be met to ensure full technical merit prior to 
completion of the project. A project that is determined to be ``without 
technical merit'' is not eligible to compete for funding.



Sec. 5001.107  REAP--Energy Efficiency Improvement (EEI) projects and requirements.

    For a REAP EEI project to be eligible for a loan guarantee under 
this part, it must meet the criteria specified in Sec. 5001.102(a) 
through (c) and also specified in paragraphs (a) through (d) of this 
section and be for a borrower eligible to submit an application for the 
project in accordance with Sec. 5001.126. If taxable bonds are utilized 
as debt instruments the provisions of Sec. 5001.105(b)(19) must be met.
    (a) The EEI project must use less energy on an annual basis than the 
original building and/or equipment that it will improve or replace as 
demonstrated in an energy Assessment or energy Audit as applicable.
    (1) If the project's total project cost is greater than $80,000, the 
energy assessment must be conducted by an energy auditor, an energy 
assessor, or an individual supervised by either an energy assessor or 
energy auditor. The final energy assessment must be validated and signed 
by the energy assessor, the energy auditor who conducted the energy 
assessment, or by the supervising energy assessor or energy auditor of 
the individual who conducted the assessment, as applicable.
    (2) If the project's total project cost is $80,000 or less, the 
energy assessment may be conducted in accordance with paragraph (a)(1) 
of this section or by a person that has at least 3 years of experience 
and completed at least five energy assessments or energy audits on 
similar type projects. Eligible EEI include, but are not limited to:
    (1) Efficiency improvements to existing RES; and
    (2) Construction of a new building only when the new building is 
used for the same purpose as the existing building and if, based on an 
energy assessment or energy audit, as applicable, it

[[Page 1048]]

is more cost effective to construct a new building that will use less 
energy on annual basis than to improve the energy efficiency of the 
existing building.
    (b) The EEI project must be for a commercially available technology.
    (c) The EEI project must be located in a rural area unless the 
borrower is an agricultural producer and the Application supports the 
production, processing, vertical integration, or marketing of 
agricultural products. If the agricultural producer's operation is in a 
non-rural area, then the application can be for only EEI components that 
are:
    (1) Directly related to and have a use and purpose limited to an 
agricultural production operation such as vertically integrated 
operations; and
    (2) Part of and co-located within the agricultural production 
operation.
    (d) The EEI project must have technical merit. The Agency will use 
the information provided in the technical report submitted with the 
application (see Sec. 5001.307(e)) to determine whether the project has 
technical merit. In making this determination, the Agency may, at its 
discretion, engage the services of other Government agencies or other 
recognized industry experts in the applicable technology field to 
evaluate and rate the technical report.
    (1) Technical report areas. When making its technical merit 
determination, the Agency will evaluate the technical report using the 
areas specified in paragraphs (d)(1)(i) and (ii) of this section as 
applicable.
    (i) EEI project with total project costs of $80,000 or less. For 
these projects, the Agency will evaluate the following areas to 
determine the technical merit:
    (A) Project description;
    (B) Qualifications of EEI provider(s); and
    (C) Energy assessment (or energy audit if applicable).
    (ii) EEI projects with total project costs of greater than $80,000. 
For these projects, the Agency will evaluate the following areas to 
determine the technical merit:
    (A) Project information;
    (B) Energy assessment (or energy audit as applicable); and
    (C) Qualifications of the contractor or installers.
    (2) Pass/pass with conditions/fail assignments. The Agency will 
assign each area of the technical report, as specified in paragraph 
(d)(1) of this section, a ``pass,'' ``pass with conditions,'' or 
``fail'' according to provisions of Sec. 5001.106(e)(2).
    (3) Determination. The Agency will compile the results for each area 
of the technical report to determine if the project has technical merit 
in accordance with provisions of Sec. 5001.106(e)(3).
    (4) Further processing of applications. Projects will be further 
processed in accordance with provisions of Sec. 5001.106(e)(4).



Sec. 5001.108  Eligible REAP--Energy Efficient Equipment and
Systems (EEE) projects and requirements.

    For a REAP EEE project to be eligible for a loan guarantee under 
this part, it must meet the criteria specified in Sec. 5001.102(a) 
through (c) and in paragraphs (a) through (d) of this section and be for 
a borrower that is an agricultural producer eligible to submit an 
application for the project in accordance with Sec. 5001.126. If the 
borrower plans to use taxable bonds as debt instruments the provision 
Sec. 5001.105(b)(19) must be met.
    (a) The project must be for the purchase and installation of energy 
efficient equipment or systems for agricultural production or processing 
that exceed the following standards:
    (1) Energy efficiency building codes, if available;
    (2) Federal or State energy efficiency standards, if available; and
    (3) Other energy efficiency standards determined appropriate by the 
Secretary.
    (i) If no codes or standards described in such subparagraph apply to 
the energy efficient equipment or system to be purchased or installed 
pursuant to such subparagraph, the Secretary shall require, to the 
maximum extent practicable, such equipment or systems to meet the same 
efficiency measurements as the most efficient available equipment or 
system in the market; and
    (ii) The Secretary shall not provide such a loan guarantee for the 
purchase

[[Page 1049]]

or installation of any energy efficient equipment or system unless more 
than one type of such equipment or system is available in the market.
    (b) The EEE project must be for commercially available technology.
    (c) The EEE project must have technical merit as certified by the 
vendor/installer. An application that does not include said 
certification will be deemed incomplete and therefore is not eligible to 
compete for funding.



Sec. Sec. 5001.109-5001.114  [Reserved]



Sec. 5001.115  Ineligible projects--general.

    The Agency will not issue a loan guarantee under this part for any 
of the projects identified in this section, unless otherwise noted. The 
following are ineligible projects for the CF, WWD, B&I and REAP 
programs:
    (a) Any investment or arbitrage, or any speculative real estate 
investment other than cooperative stock, transferable stock, cooperative 
equity in accordance with Sec. 5001.140 and NMTC projects in accordance 
with Sec. 5001.141.
    (b) Golf courses and golf course infrastructure, including par-3 and 
executive golf courses; racetracks or facilities for the conduct of 
races by animals, professional or amateur drivers or jockeys; for-profit 
zoos or safaris; and publicly-owned or non-profit amusement parks, water 
parks, and similar recreational type facilities inherently commercial in 
nature and primarily used for recreational purposes.
    (c) Motion pictures and theatrical productions.
    (d) Funding of political or lobbying activities.
    (e) Guaranteeing loans made by other Federal agencies, lines of 
credit, or lease payments.
    (f) Projects that the Agency determines create, directly or 
indirectly, a conflict of interest.
    (g) Properties to be used for primarily commercial rental when the 
borrower has no control over tenants and services offered, except for 
industrial-site infrastructure development.
    (h) Projects that utilize technology, equipment, or systems that are 
not commercially available.
    (i) Projects that will violate the requirements of 7 CFR part 1970, 
or any statutes or Executive Orders regarding environmental 
requirements.
    (j) Projects used primarily for the purpose of housing Federal, 
State, or quasi-Federal agencies, unless it is typical of the area for 
communities to provide this space.
    (k) Community antenna television and radio services or facilities.
    (l) Telephone systems.
    (m) New combined sanitary and storm water sewer facilities.
    (n) Except as provided in Sec. 5001.105(b)(8), owner-occupied 
housing.
    (o) Loans on which the interest is excludable from income under 
current or a successor statute of the Internal Revenue Code. Funds 
generated through the issuance of tax-exempt obligations cannot be used 
to purchase the guaranteed portion of any Agency guaranteed loan and an 
Agency guaranteed loan cannot serve as collateral for a tax-exempt 
issue.
    (p) Residential EEI projects.
    (q) Except as provided in Sec. 5001.106(d), residential RES 
projects.
    (r) Loans supporting inherently religious activities, such as 
worship, religious instruction, proselytization, or to pay costs 
associated with acquisition, construction, or rehabilitation of 
structures for inherently religious activities, including the financing 
of multi-purpose facilities where religious activities will be among the 
activities conducted. However, religious organizations may participate 
in projects eligible for funding under section 306(a)(24) of the 
Consolidated Farm and Rural Development Act, 7 U.S.C. 1926(a)(24), 
provided they do not use Agency assistance for inherently religious 
activities in accordance with 7 CFR part 16, ``Equal Opportunity for 
Religious Organizations.''

[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 
FR 70356, Dec. 10, 2021]



Sec. 5001.116  Ineligible CF projects.

    The following are ineligible projects for the CF program only:
    (a) For industrial park sites, the financing of on-site utility 
systems or business and industrial buildings.
    (b) Inherently commercial enterprises: This type of project is 
typically operated by a private enterprise with

[[Page 1050]]

an essential characteristic to produce profits. This term does not 
include projects operated by private enterprises on a not-for-profit 
basis that provide education, childcare, geriatric care, or health care 
to rural communities. Inherently commercial enterprises include but are 
not limited to grocery stores; television and radio services or 
facilities; that portion of a water and/or waste disposal facility 
normally provided by a business or industrial user; and 
telecommunication facilities or services, including broadband or fiber 
network services that do not meet the requirements of Sec. 
5001.103(a)(6);
    (c) Projects where construction is completed prior to filing an 
application with the Agency. This restriction applies to construction 
completed by or for the borrower and does not preclude the purchase or 
acquisition of a building constructed by an independent third party or 
refinancing of debt in accordance with Sec. 5001.102(d).
    (d) Projects where the borrower acts to circumvent the regulations 
provided in this subpart, causing the borrower or project being eligible 
when, previously, the borrower or project was ineligible.
    (e) Projects involving the purchase of existing facilities in which 
the transaction's purpose is to primarily retire the debt of the seller 
in order for the seller to continue to use the facility at a lower cost.



Sec. 5001.117  Ineligible WWD projects

    The following are ineligible projects for the WWD programs only:
    (a) That portion of a project normally provided by a business or 
industrial user, such as wastewater pretreatment.
    (b) Provided the existing borrower has the capacity to provide 
adequate service to their service territory, guaranteed loan funds may 
not be used to take away customers or service areas of existing USDA WWD 
Program direct or guaranteed loan borrowers. The requirements and 
limitations of 7 U.S.C. 1926(b) only apply to this section.
    (c) Projects where the borrower acts to circumvent the regulations 
provided in this subpart, causing the borrower or project being eligible 
when, previously, the borrower or project was ineligible.
    (d) Projects involving the purchase of existing facilities in which 
the transaction's purpose is to primarily retire the debt of the seller 
in order for the seller to continue to use the facility at a lower cost.



Sec. 5001.118  Ineligible B&I projects

    The following are ineligible projects for the B&I program only:
    (a) The financing of timeshares, residential trailer parks, 
apartments, duplexes, or other residential housing where the primary 
purpose is independent housing except as authorized in Sec. 
5001.105(b)(8), or housing development sites except as authorized in 
Sec. 5001.105(b)(1).
    (b) Projects eligible for funding under B&I that are in excess of $1 
million that would either:
    (1) Likely result in the transfer of jobs from one area to another 
and increase direct employment by more than 50 employees. However, this 
limitation is not to be construed to prohibit assistance for the 
expansion of an existing business entity through the establishment of a 
new branch, affiliate, or subsidiary of such entity if the establishment 
of such branch, affiliate, or subsidiary will not result in an increase 
in unemployment in the area of original location or in any other area 
where such entity conducts business operations. An exception is when 
there is reason to believe that such branch, affiliate, or subsidiary is 
being established with the intention of closing down the operations of 
the existing business entity in the area or its original location or in 
any other area where it conducts such operations; or
    (2) Increase direct employment by more than 50 employees, which is 
calculated to or likely to result in an increase in the production of 
goods, materials, commodities, or the availability of services or 
facilities in the area when there is not sufficient demand for such 
goods, materials, commodities, services, or facilities to employ the 
efficient capacity of existing competitive commercial or industrial 
enterprises, unless such financial or

[[Page 1051]]

other assistance will not have an adverse effect upon existing 
competitive enterprises in the area.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020]



Sec. 5001.119  Ineligible REAP projects.

    Owner occupied bed and breakfasts are ineligible projects in the 
REAP program.



Sec. 5001.120  [Reserved]



Sec. 5001.121  Eligible uses of loan funds.

    Guaranteed loan funds can only be used for the items specified in 
this section. In addition, RD may allow a recipient of a loan guarantee 
under this Part to use up to 10 percent of project funds to construct, 
improve, or acquire broadband infrastructure related to the project 
financed, subject to the requirements of 7 CFR part 1980, subpart M.
    (a) CF projects. Guaranteed loan funds for an essential CF project 
receiving a loan guarantee under Sec. 5001.1 may be used to pay the 
expenses identified in paragraphs (a)(1) through (3) of this section.
    (1) When necessary to ensure the successful operation or protection 
of the project authorized in Sec. 5001.103, subpart B:
    (i) Costs for the construction or relocation of public buildings, 
roads, bridges, fences, utilities, or to make other public improvements; 
and
    (ii) Costs for the relocation of private buildings, roads, bridges, 
fences, or utilities, and other private improvements.
    (2) To pay the cost of conduit, such as pipe, tube, or tile for 
protecting electric wires or cables, and its installation in conjunction 
with financing facilities authorized in Sec. 5001.103, subpart B, when 
the cost of the conduit is less than 25 percent of the total project 
cost. The Borrower must be the owner of the conduit. The conduit must be 
installed at the time of project construction and must be for public 
use.
    (3) When necessary as part of a guaranteed loan to finance a 
project:
    (i) Guarantee fees, as determined under Sec. 5001.454;
    (ii) Lender fees, as provided in Sec. 5001.403;
    (iii) Professional service fees and charges provided the Agency 
agrees that the amounts are reasonable and customary in the area;
    (iv) Interest on guaranteed loans until the facility is self-
supporting, but not for more than three years; interest on guaranteed 
loans secured by general obligation bonds until tax revenues are 
available for payment, but not for more than two years; and interest on 
interim financing;
    (v) Costs of acquiring interests in land, rights (e.g., water 
rights, leases, and permits), rights-of-way, and other evidence of land 
or water control necessary for development of the project;
    (vi) Costs of purchasing or renting equipment necessary to install, 
maintain, extend, protect, operate, or utilize facilities;
    (vii) Obligations for construction worked performed prior to filing 
an Application with the Agency. Construction work must not be started 
(and obligations for such work or materials must not be incurred) before 
the conditional commitment is issued. If there are compelling reasons 
for proceeding with construction before the conditional commitment is 
issued, lenders may request Agency approval to pay such obligations and 
not jeopardize receipt of a loan guarantee from the Agency. Such request 
must comply with the following conditions:
    (A) Provide conclusive evidence that the contract was entered into 
without intent to circumvent the Agency regulations, including but not 
limited to 7 CFR part 1970;
    (B) Modify the outstanding contract to conform to the provisions of 
this part. When this is not possible, modifications will be made to the 
extent practicable and, at a minimum, the contract must comply with all 
State and local laws and regulations as well as statutory requirements 
and Executive Orders related to the Agency guarantee.
    (C) When construction is complete and it is impracticable to modify 
the contract, the borrower and lender must provide a certification by an 
engineer or architect that any construction performed complies fully 
with the plans and specifications; and

[[Page 1052]]

    (D) The borrower and the contractor must have complied with all 
statutory and Executive Order requirements related to the Agency 
guarantee for construction already performed even though the 
requirements may not have been included in the contract documents.
    (4) Refinancing in accordance with Sec. 5001.102(d).
    (b) WWD projects. Guaranteed loan funds for a WWD project receiving 
a loan guarantee may be used to pay the expenses identified in 
paragraphs (b)(1) through (10) of this section when they are a necessary 
part of the WWD project.
    (1) Guarantee fees, as determined under Sec. 5001.454.
    (2) Lender fees, as provided in Sec. 5001.403.
    (3) Professional service fees and charges provided the Agency 
approves the amounts as reasonable and customary in the area.
    (4) Costs of acquiring interests in land, rights (e.g., water 
rights, leases, permits, rights-of-way), and other evidence of land or 
water control or protection necessary for development of the project.
    (5) Purchasing or renting equipment necessary to install, maintain, 
extend, protect, or operate the project.
    (6) Cost of additional borrower labor and other expenses necessary 
to install and extend service.
    (7) Interest incurred during construction in conjunction with 
interim financing.
    (8) Initial operating expenses, including interest, for a period 
ordinarily not exceeding one year when the borrower is unable to pay 
such expenses.
    (9) The purchase of existing facilities when it is necessary either 
to improve service or prevent the loss of service.
    (10) Purchase of equipment to operate, maintain, or protect 
facilities.
    (11) Refinancing in accordance with Sec. 5001.102(d),
    (c) B&I projects. Guaranteed loan funds for a project receiving a 
loan guarantee under Sec. 5001.1 may be used to pay the expenses 
identified in paragraphs (c)(1) through (12) of this section.
    (1) Purchase and development of land, buildings, and associated 
infrastructure for commercial or industrial properties, including 
expansion or modernization.
    (2) Business acquisitions provided that jobs will be created or 
saved. A business acquisition is considered the acquisition of an entire 
business, not a partial stock acquisition in a business. However, 
acquisition or change of ownership between existing owners is an 
eligible use of loan funds when the remaining owner(s) held their 
ownership and actively participated in the business operation for at 
least the past 24 months and the selling owner will not retain any 
ownership interest in the business directly or indirectly including 
through other entities or trusts or property rights.
    (3) Purchase of machinery and equipment.
    (4) Startup costs, working capital, inventory, and supplies in the 
form of a permanent working capital term loan.
    (5) Pollution control and abatement.
    (6) Takeout of interim financing: Guaranteeing a loan that provides 
for permanent, long-term financing after project completion to pay off a 
lender's interim loan will not be treated as debt refinancing provided 
that the lender submits a complete request for preliminary eligibility 
review or complete application that proposes such interim financing 
prior to closing the interim loan. The borrower must take no action 
until the conclusion of the environmental review process prior to any 
action that would have an adverse effect on the environment or limit the 
choices of any reasonable alternatives to be considered by the Agency.
    (7) Guarantee fees, as determined under Sec. 5001.454.
    (8) Lender fees, as determined under Sec. 5001.403.
    (9) Professional service fees and charges, provided the Agency 
approves the amounts as reasonable and customary in the area and fees 
for construction permits and licenses.
    (10) Feasibility studies and business plans.
    (11) Interest (including interest on interim financing) during the 
period before the first principal payment becomes due or when the 
facility becomes income producing, whichever is earlier.

[[Page 1053]]

    (12) Refinancing in accordance with Sec. 5001.102(d).
    (d) REAP projects. Guaranteed loan funds for a Project receiving a 
loan guarantee under REAP may be used to pay the expenses associated 
with the items identified in paragraphs (d)(1) through (14) of this 
section, provided such items are directly related to and their use and 
purpose are limited to the RES, EEI, or EEE project. The expenses 
associated with the items specified in paragraphs (d)(8) through (11) of 
this section cannot exceed more than ten percent of the loan amount.
    (1) Purchase and installation of new or refurbished RES.
    (2) Purchase and installation of energy efficient equipment and 
systems by eligible agricultural producers.
    (3) Construction, retrofitting, replacement, and improvements.
    (4) Energy efficiency improvements (EEI) identified by vendor/
installer certification or in the applicable energy assessment or energy 
audit.
    (5) Fees for construction permits and licenses, including fees 
required by an interconnection agreement.
    (6) Guarantee fees, as determined under Sec. 5001.454.
    (7) Professional service fees and charges related to the project, 
which may include non-deferred developer fees, provided the Agency 
approves the amounts as reasonable and customary in the area.
    (8) Lender fees, as provided in Sec. 5001.403.
    (9) Working capital, which may include interest on interim 
financing, debt reserves, rent payments, insurance, and packaging and 
origination fees.
    (10) Land acquisition.
    (11) Energy assessments, energy audits, technical reports, business 
plans, and feasibility studies completed and acceptable to the Agency, 
provided no portion was financed by any other Federal or State grant or 
payment assistance, including, but not limited to, a REAP energy audit 
or renewable energy development assistance grant.
    (12) For an eligible RES project in which a residence is closely 
associated with the rural small business or agricultural operation, the 
installation of a second meter to separate the residence from the 
portion of the project that benefits the rural small business or 
agricultural operation, as applicable.
    (13) Land, building, and equipment for an existing RES.
    (14) Refinancing outstanding debt when--
    (i) The original purpose of the debt being refinanced meets the 
eligible project requirements of Sec. 5001.106, Sec. 5001.107 or Sec. 
5001.108, as applicable, of this part;
    (ii) Debt being refinanced does not exceed 50 percent of the total 
use of funds in the new REAP guaranteed loan;
    (iii) Refinancing is necessary to improve cash flow and viability of 
the project;
    (iv) At the time of application, the loan being refinanced has been 
current for at least the past 6 months (unless such status is achieved 
by the lender forgiving the borrower's debt); and
    (v) The lender is providing better rates or terms for the loan being 
refinanced.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 
FR 70356, Dec. 10, 2021]



Sec. 5001.122  Ineligible uses of loan funds.

    Projects that receive a loan guarantee under this part cannot use 
the guaranteed loan funds for those expenses or purposes identified in 
paragraphs (a) through (m) of this section and for any other item the 
Agency identifies in accordance with Sec. 5001.10.
    (a) Payment in excess of actual costs (e.g., profit, overhead, 
indirect costs, and wages to owners) incurred by the contractor or other 
service provider on a contract or agreement that has been entered into 
at less than an arm's length transaction or has a potential for a 
conflict of interest. In situations where there is common ownership or 
an otherwise closely-related company is being paid to do construction or 
installation work for a borrower, only documented costs associated with 
the construction or installation can be paid with guaranteed loan funds 
and cannot include any profit or wages to such related Person.
    (b) Notwithstanding Sec. 5001.102(d), payment on any other Federal 
loan or debt.

[[Page 1054]]

    (c) Payment of a Federal judgment, State or Federal tax lien, or 
other debt owed to the United States.
    (d) Loan finder or broker fees.
    (e) Refinancing debt that is owned by a loan packager or broker or 
their respective affiliates.
    (f) For loans as specified under CF and WWD, costs normally provided 
by a business or industrial user (e.g., wastewater pretreatment).
    (g) For loans as specified under CF and WWD, any portion of the cost 
of a project that does not serve a rural area.
    (h) Rental for the use of equipment or machinery owned by the 
borrower.
    (i) For purposes not directly related to operating and maintaining 
the project.
    (j) Any EEI not identified in the applicable energy assessment or 
energy audit.
    (k) Agricultural tillage equipment, used equipment, and vehicles are 
ineligible for loans as specified under REAP.
    (l) Guaranteed loan funds cannot be used for the distribution or 
payment to a member of the immediate family of an owner, partner, 
stockholder, or member of the borrower except for a change in ownership 
of the business where the selling person does not retain an ownership 
interest and the Agency determines in writing the price paid to be 
reasonable based upon an independent appraisal. This prohibition does 
not apply to transfers of ownership for ESOPs or worker cooperatives, to 
cooperatives where the cooperative pays the member for product or 
services, or where member stock is transferred among members of the 
cooperative in accordance with Sec. 5001.140 of this part.
    (m) For loans as specified under CF, initial operating expenses, 
short-term, working capital or operating loans; or annual recurring 
costs, including purchases or rentals that are generally considered to 
be operating and maintenance expenses.



Sec. Sec. 5001.123-5001.125  [Reserved]



Sec. 5001.126  Borrower eligibility.

    To be eligible for a loan guarantee under this part, a Borrower must 
meet the requirements specified in this section at the time of each 
guaranteed loan's approval and through issuance of the loan note 
guarantee. A borrower must meet the eligibility requirements specified 
in paragraph (a) of this section and in paragraphs (b) through (e), as 
applicable, of this section.
    (a) Legal authority and responsibility. The borrower must have, or 
obtain before issuance of the loan note guarantee, the legal authority 
necessary to construct, operate, and maintain the proposed Project and 
services and to obtain, give security for, and repay the proposed loan.
    (1) Operating, maintaining, and managing the facility. The borrower 
is responsible for operating, maintaining, and managing the facility and 
providing for its continued availability and use. The borrower will 
retain this responsibility even though the facility may be operated, 
maintained, or managed by a third party under contract, management 
agreement, or written lease. Leases may be used for certain projects 
when they are the only feasible way to provide the service or facility, 
are the customary practice to provide such service or facility within 
the industry or in the State, and provide for the borrower's management 
control of the Project. Contracts, management agreements, or written 
leases must not contain options or other provisions for transfer of 
ownership unless approved by the Agency.
    (2) Co-borrowers. Except for CF guaranteed loans in situations where 
any business or affiliate is dependent upon another's operations and are 
effectively one business or rely upon one another for loan repayment, 
they must be co-borrowers, unless waived by the Agency in writing when 
the Agency determines that adequate justification exists to not require 
the entities to be co-borrowers. Both co-borrowers must meet all 
requirements in this part. If the operating entity is truly independent 
and not reliant on another operation to remain viable or repay the debt, 
the Agency will allow one entity to be the sole borrower.
    (b) CF loan guarantees. To be eligible for a loan guarantee under 
CF, a borrower must meet the requirements

[[Page 1055]]

identified in paragraphs (b)(1) through (4) of this section.
    (1) Borrower type. Be a public body, including Indian tribes on 
Federal and State reservations and other federally recognized Indian 
tribes, or non-profit organization.
    (i) Borrowers organized under the applicable State or Tribal for-
profit corporation laws may be eligible if they will be operated on a 
not-for-profit basis for the duration of the guaranteed loan;
    (ii) Single member not-for-profit corporations or not-for-profit 
corporations owned or substantially controlled by other corporations or 
associations are eligible if the member organization has significant 
ties with the project service area and provides a payment guarantee.
    (2) Significant ties. Have significant ties with the project service 
area (not applicable to public bodies and federally recognized Tribes) 
as evidenced by the following:
    (i) Association with or control by a public body or bodies; or
    (ii) Broadly based membership and controlled primarily by members 
residing in the project service area. Membership must be open without 
regard to race, color, religion, national origin, sex, age, disability, 
sexual orientation, or marital or familial status.
    (3) Credit elsewhere. In accordance with 7 U.S.C. 1983, certify in 
writing, subject to Agency verification, that the borrower is unable to 
finance the proposed project from their own resources or through 
commercial credit without a guarantee, at reasonable rates and terms. A 
loan guarantee will not be provided to borrowers who are able to obtain 
sufficient credit elsewhere to finance project costs at reasonable rates 
and terms, taking into consideration prevailing private and cooperative 
rates and terms in the community in or near where the borrower resides, 
for loans for similar purposes and periods of time, or to borrowers who 
are able to finance project costs from their own resources.
    (4) Evidence of significant community support. In accordance with 7 
U.S.C. 2009h, the evidence shall be in the form of a certification of 
support for the project from each affected local government. The 
certification of support should include sufficient information to 
determine that the essential community facility will provide needed 
services to the community or communities and will have no adverse impact 
on other community facilities providing similar services.
    (c) WWD loan guarantees. To be eligible for a loan guarantee under 
WWD, a borrower must meet the requirements identified in paragraphs 
(c)(1) through (3) of this section.
    (1) Borrower type. Be a public body, including Indian tribes on 
Federal and State reservations and other Federally recognized Indian 
tribes, or non-profit organization.
    (2) Credit elsewhere. In accordance with 7 U.S.C. 1983, certify in 
writing, subject to Agency verification, that the borrower is unable to 
finance the proposed project from their own resources or through 
commercial credit without a guarantee, at reasonable rates and terms. A 
loan guarantee will not be provided to borrowers who are able to obtain 
sufficient credit elsewhere to finance project costs at reasonable rates 
and terms, taking into consideration prevailing private and cooperative 
rates and terms in the community in or near where the borrower resides, 
for loans for similar purposes and periods of time, or to borrowers who 
are able to finance project costs from their own resources.
    (3) Evidence of significant community support. In accordance with 7 
U.S.C. 2009h, the evidence shall be in the form of a certification of 
support for the project from each affected local government.
    (d) B&I loan guarantees. To be eligible for a loan guarantee under 
B&I, a borrower must meet the requirements specified in paragraphs 
(d)(1) through (4), as applicable, of this section.
    (1) The borrower must be:
    (i) A cooperative, corporation, partnership, or other legal entity 
organized and operated on a profit or nonprofit basis;
    (ii) An Indian Tribe
    (iii) A Public Body; or
    (iv) An individual.
    (2) The borrower must be engaged in or proposing to engage in a 
business. A business may include manufacturing,

[[Page 1056]]

wholesaling, retailing, providing services, or other activities that 
will provide employment or improve the economic or environmental climate 
in rural communities.
    (3) A borrower who is an individual must:
    (i) Be a citizen of the United States;
    (ii) Reside in the United States after being legally admitted for 
permanent residence and must provide a permanent green card as evidence 
of eligibility; or
    (iii) Be a citizen or resident of the Republic of Palau, the 
Federated States of Micronesia, American Samoa, Guam, the Commonwealth 
of the Northern Mariana Islands, and the Republic of the Marshall 
Islands.
    (4) A borrower must demonstrate, to the Agency's satisfaction, that 
guaranteed loan funds will remain in the United States and the Project 
being financed will primarily create new or save existing jobs for rural 
U.S. residents.
    (e) REAP loan guarantees. To be eligible for a loan guarantee under 
REAP, a borrower must meet the requirements specified in paragraphs 
(e)(1) through (5) of this section.
    (1) Type of borrower. The borrower must be either an agricultural 
producer or a rural small business.
    (2) Ownership. The borrower must:
    (i) Own the project; and
    (ii) Own or control the site for the project at the time of 
application and for the term of the guaranteed loan.
    (3) End users. If the controlling interest in the applicant entity 
is otherwise eligible as an applicant and a legal transaction between 
two parties for the sale of energy in an open market is being proposed, 
the Agency will not consider the energy end-users as part of the 
analysis of the eligibility of the applicant. However, if the proposed 
end-user would be an ineligible applicant, such as an entity which is 
residential in nature or a non-profit entity, and the REAP applicant 
entity is a newly formed special-purpose entity with substantially the 
same ownership as the proposed end-user, then the REAP applicant entity 
is not eligible.
    (4) Revenues and expenses. The borrower must have available or be 
able to demonstrate, at the time of application, satisfactory sources of 
revenue in an amount sufficient to provide for the operation, 
management, maintenance, and any debt service of the project for the 
term of the loan. In addition, the borrower must control the revenues 
and expenses of the project, including its operation and maintenance. 
The borrower may employ a qualified consultant under contract to manage 
revenues and expenses of the project and its operation and/or 
maintenance.
    (5) Matching funds. The borrower must demonstrate evidence of 
injection of matching funds in the project of not less than 25 percent 
of total eligible project costs. Passive third-party contributions are 
acceptable as matching funds for RES projects, including those raised 
from the sale of Federal tax credits.

[85 FR 42518, July 14, 2020, as amended at 86 FR 70356, Dec. 10, 2021; 
87 FR 42297, July 15, 2022]



Sec. 5001.127  Borrower ineligibility conditions.

    A potential borrower is ineligible for a guaranteed loan under this 
part as identified in paragraphs (a) through (g) of this section. The 
borrower remains ineligible until the condition causing ineligibility is 
resolved.
    (a) An entity is ineligible if any of the conditions identified in 
paragraphs (a)(1) through (4) of this section applies to the borrower, 
any owner with more than 20 percent ownership interest in the borrower, 
or any owner with control of the borrower.
    (1) There is an outstanding judgment obtained by the U.S. in a 
Federal Court (other than U.S. Tax Court).
    (2) Delinquency on the payment of Federal income taxes.
    (3) Delinquency on a Federal Debt.
    (4) Debarment or suspension from receiving Federal assistance.
    (b) An entity is ineligible if it derives more than 15 percent of 
its annual gross revenue (including any lease income from space or 
machines) from gambling activity, excluding State-authorized lottery 
proceeds or Tribal-authorized gaming proceeds, as approved by the 
Agency, conducted for the purpose of raising funds for the approved 
project.

[[Page 1057]]

    (c) An entity is ineligible if it derives income from activities of 
a prurient sexual nature.
    (d) An entity is ineligible if it derives income from illegal drugs, 
drug paraphernalia, or any other illegal product or activity as defined 
under Federal statute.
    (e) An entity is ineligible under B&I projects if it is a charitable 
or fraternal organization. For purposes of this section, an organization 
that derives more than 10 percent of its annual gross revenue from tax 
deductible charitable donations, based on historical financial 
statements, is considered a charitable organization. Fees for services 
rendered or that are otherwise ineligible for deduction under the 
Internal Revenue Code are not considered tax deductible charitable 
donations.
    (f) An entity is ineligible if its lender or any of the lender's 
officers has an ownership interest in the borrower or is an officer or 
director of the borrower with management control or where the borrower 
or any of its officers, directors, stockholders, or other owners have 
more than a five percent ownership Interest in the lender. Any of the 
lender's directors, stockholders, or other owners that are officers, 
directors, stockholders, or other owners of the borrower must be recused 
from any decision-making process associated with the guaranteed loan.
    (g) A borrower is ineligible if it is a lending institution, 
investment institution, or insurance company with exception of REAP or 
projects for a fund that invests primarily in cooperatives in accordance 
with Sec. 5001.140, and NMTC projects in accordance with Sec. 
5001.141.



Sec. Sec. 5001.128-5001.129  [Reserved]



Sec. 5001.130  Lender eligibility requirements.

    To become a lender under this part, the lending entity must meet the 
requirements specified in paragraphs (a) through (d) of this section, as 
applicable, and become an approved participant in the Agency's 
electronic system. Paragraph (e) of this section contains provisions 
associated with lenders that have already been approved by the Agency 
under one of the guaranteed loan programs identified in Sec. 5001.1of 
this part. If not yet an Agency-approved lender, the lending entity must 
include with the application a request for lender approval in accordance 
with this section.
    (a) General. The lending entity must:
    (1) Be domiciled in a State;
    (2) Not be debarred or suspended by the Federal Government or be an 
affiliated person of such entity that was suspended or debarred;
    (3) Inform the Agency if it is under a consent order, or similar 
constraint, from a Federal or State agency. The Agency will evaluate the 
lending entity's eligibility on a case-by-case basis, and assess the 
risk of loss posed by the consent order or similar constraint, as 
applicable;
    (4) Maintain written standards of conduct covering conflicts of 
interest; and
    (5) Maintain internal audit and management control systems to 
evaluate and monitor the overall quality of its loan origination and 
servicing activities.
    (6) Be registered in and maintain an account in the System for Award 
Management (SAM) in accordance with 2 CFR 25.200.
    (b) Regulated lending entities. Regulated lending entities 
identified in paragraphs (b)(1) through (10) of this section are 
eligible to receive a loan guarantee under this part without 
documentation to the Agency provided they are subject to supervision and 
credit examination by the applicable agency of the United States or a 
state, or were created specifically by state statute and operate under 
the direct supervision of a state government authority.
    (1) Federal and State chartered banks.
    (2) Farm Credit Bank of the Federal Land Bank and other Farm Credit 
System institutions with direct lending authority to make loans of the 
type guaranteed under this part.
    (3) Bank for Cooperatives.
    (4) Savings and Loan Associations.
    (5) Savings banks.
    (6) Mortgage companies that are part of a bank-holding company.
    (7) The National Rural Utilities Cooperative Finance Corporation.

[[Page 1058]]

    (8) Credit unions.
    (9) State Bond Banks or State Bond Pools.
    (10) Other lending entities not specified in paragraphs (b)(1) 
through (9) of this section that meet the requirements as specified in 
this paragraph (b).
    (c) Non-regulated lending entities. The Agency may approve a lending 
entity that does not meet the criteria of paragraph (b) of this section 
to become a lender for a period up to five years. Non-regulated lending 
entity eligibility will expire on January 31 of the fifth year after the 
date of Agency approval.
    (1) Conditions. When the lending entity is a multi-tiered entity, 
the Agency will consider the lending entity in its entirety. In order to 
be approved as a lender, a non-regulated lending entity must:
    (i) Have the legal authority to operate a lending program;
    (ii) Be a financially sound institution that has a record of 
successfully originating at least five commercial loans annually 
totaling at least $1 million for each of the last three years, with the 
lending entity's commercial loan portfolio in last five years not 
exceeding:
    (A) Six percent average delinquency of all commercial loans, and
    (B) Three percent in commercial loan losses (based on the original 
principal loan amount);
    (iii) Have and agree to maintain balance sheet equity in accordance 
with Section 5001.105(d) of this part of at least 10 percent of assets 
and sufficient funds available to disburse the guaranteed loans it 
proposes to approve within the first six months of being approved as a 
Lender;
    (iv) Have and agree to maintain a line of credit issued by a 
regulated lending entity that is acceptable to the Agency;
    (v) Agree to establish and maintain an Agency-approved loan loss 
reserve equal to one percent reserve of the unguaranteed portion of all 
guaranteed loans plus an amount equal to the identified anticipated 
losses.
    (vi) Have written policies and procedures to ensure that internal 
credit controls provide adequate loan making and servicing guidance that 
adheres to Federal and State fair lending practices;
    (vii) Document and assure to the Agency that the lending entity has 
the capacity to fulfill the lender functions and responsibilities 
identified in this part, including, but not limited to Sec. Sec. 
5001.201, 5001.202, 5001.207, and 5001.501.
    (2) Written request. A non-regulated lending entity that seeks to 
become a lender must submit a written request to the Agency including 
the following information:
    (i) The request must clearly define the multiple-entity 
organizational and control structure with a listing of each entity under 
its control, including any Community Development Entity (CDE) that may 
request guaranteed loans under Sec. 5001.141. In addition, the non-
regulated lending entity must include each such sub-entity in their 
audited financial statements, commercial loan portfolio, and commercial 
loan performance statistics;
    (ii) Bylaws;
    (iii) Audited financial statements for the most recent fiscal year 
that evidences the required balance sheet equity and that the lending 
entity has available resources to successfully meet its 
responsibilities;
    (iv) Auditor's most recent management letter and management's 
response;
    (v) An interim financial statement dated within 90 days of the 
written request, if applicable;
    (vi) A copy of any license, charter, State statute, or other third-
party evidence of authority to engage in the proposed guaranteed loan 
making and servicing activities. If licensing by the State is not 
required, an attorney's opinion stating that licensing is not required 
and that the lending entity has the legal authority to engage in the 
proposed guaranteed loan making and servicing activities must be 
submitted;
    (vii) The lender's loan classification scale including their loan 
classification criteria;
    (viii) Information on lending experience, including--
    (A) Length of time in the lending business;
    (B) Range and volume of lending and servicing activities for the 
last five

[[Page 1059]]

years, including a list of the industries for which it has provided 
financing;
    (C) Status of its loan portfolio, including a summary of loans in 
the portfolio by current loan classification code, a list of any loans 
restructured or charged off in the previous five years, and the 
calculated delinquency and loss rates as outlined in paragraph 
(c)(1)(ii) of this section;
    (D) Lending experience of management and loan officers, including 
staff organizational chart, including names and titles for senior staff;
    (E) Largest sources of funds for the last five years and source of 
funds for the proposed guaranteed loans;
    (F) Office location(s) and proposed lending area(s);
    (G) An estimate of the number, size, and type of applications the 
lending entity will develop over the next six months; and
    (H) Proposed Interest rate structure and loan fees, including any 
loan origination, loan preparation, and servicing fees.
    (ix) Description of programs, financial, and non-financial products 
and services.
    (x) Its lending policies including underwriting standards, credit 
analysis policies and procedures, and its problem credit management 
policies and procedures.
    (xi) A third-party external loan origination, lending portfolio, and 
management review acceptable to the Agency conducted in the previous two 
years, or a copy of a credit examination less than two years old 
conducted under an approved credit examination criterion such as CAMELS.
    (3) Approval or disapproval. The Agency will notify the non-
regulated lending entity whether its request to become a lender is 
approved or rejected. If the Agency rejects the request, the Agency will 
include in the notification the reason(s) for the rejection.
    (4) Renewals. To maintain its status as an approved lender, the non-
regulated lending entity must submit a request to the Agency for renewal 
of its approved lender status at least 60 calendar days prior to the 
expiration of the existing lender's agreement to be assured of a timely 
renewal. The lender must provide in this written request the information 
specified in paragraphs (c)(2)(i) and (iii) through (v) of this section; 
and
    (i) A written update of any change in the persons designated to 
process and service Agency guaranteed loans or change in the operating 
methods used in the processing and servicing of loans since the original 
or last renewal date of lender status.
    (ii) A description of how the lender is complying with each of the 
required criteria described in (c)(1) of this section and Sec. 
5001.501.
    (iii) A new executed lender's agreement.
    (iv) The Agency may require lenders with limited guaranteed loan 
activity over the previous five years, or a lender that has originated 
guaranteed loans with servicing issues or a loss to the Agency, to 
resubmit all the information required by paragraph (c)(2) of this 
section.
    (d) Non-regulated lending entities serving tribal trust lands. The 
Agency may approve a lending entity serving tribal trust lands that does 
not meet the criteria of paragraph (b) or (c) of this section to become 
a lender for a five-year period. A non-regulated lending entity approved 
to originate and service guaranteed loans for projects located only on 
tribal trust lands is restricted to such areas. To make and service 
guaranteed loans not on tribal trust lands, the lending entity must meet 
the criteria of paragraph (b) or (c) of this section. When the lending 
entity is a multi-tiered entity, the Agency will consider the lending 
entity in its entirety for approval.
    (1) Conditions. To be approved as a lender, a non-regulated lending 
entity serving only tribal trust lands must--
    (i) Have the legal authority necessary to operate a lending program 
to borrowers located on tribal trust lands.
    (ii) Meet the requirements of paragraph (c)(1) of this section, and 
prove to be a financially sound institution, as determined by the 
Agency, on a case by case basis, based on the Agency's risk assessment 
of the lending entity's capital, adequate liquidity, management 
capabilities, repayment ability, credit underwriting, balance sheet 
equity and other financial factors as determined appropriate. On a case-
by-case basis,

[[Page 1060]]

the Agency may reduce the loan origination requirements of paragraph 
(c)(1)(ii) of this section for lenders serving only projects located on 
tribal trust lands.
    (2) Written request. A non-regulated lending entity serving tribal 
trust lands must submit a written request to the Agency that includes 
the following information:
    (i) Documentation required by paragraph (c)(2) of this section;
    (ii) Written certification that the lender intends to only originate 
guaranteed loans under the regulation for projects located in certain 
(or specified) tribal lands held in trust for tribes and for tribal 
members not in such tribal lands but are in their service area;
    (iii) Bylaws; and
    (iv) Lending experience of management and loan officers, including 
staff organizational chart, including names and titles for senior staff.
    (3) Approval or disapproval. The Agency will notify the non-
regulated lending entity servicing tribal trust land whether its request 
to become a lender is approved or rejected. If the Agency rejects the 
request, the Agency will include in the notification the reason(s) for 
the rejection.
    (4) Renewals. To maintain its status as an approved lender, the non-
regulated lending entity serving tribal trust land must submit a request 
to the Agency for renewal of its approved lender status at least 60 
calendar days prior to the expiration of the existing lender's agreement 
to be assured of a timely renewal. The lender must provide in this 
written request the information specified in paragraphs (c)(2)(i) and 
(iii) through (v) of this section; and
    (i) A written update of any change in the persons designated to 
process and service Agency guaranteed loans or change in the operating 
methods used in the processing and servicing of loans since the original 
or last renewal date of lender status.
    (ii) A description of how the lender is complying with each of the 
required criteria described in (c)(1) of this section and Sec. 
5001.501.
    (iii) A new executed lender's agreement.
    (iv) The Agency may require lenders with limited guaranteed loan 
activity over the previous five years, or a lender that has originated 
guaranteed loans with servicing issues or a loss to the Agency, to 
resubmit all information required by paragraph (c)(2) of this section.
    (e) Previously approved lenders. Lenders that have been previously 
approved by the Agency under one of the guaranteed loan programs 
identified in Sec. 5001.1(b)(1) through (4) of this part cannot 
originate new guaranteed loans after the effective date of this rule 
unless the lender is approved under the applicable conditions of 
paragraphs (a) through (d), as applicable, of this section.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 
FR 70356, Dec. 10, 2021]



Sec. 5001.131  Lender's agreement.

    When approved to participate as a lender under this part, the Lender 
must execute a lender's agreement before the Agency will issue a loan 
note guarantee. A new lender's agreement must be executed with any 
existing lender making new loans on or after October 1, 2020.



Sec. 5001.132  Maintenance of approved lender status.

    Continuation of approved lender status under this part is not 
automatic. Lenders may lose their approved lender status as described in 
paragraph (a) of this section. The Agency may also revoke a lender's 
status as an approved lender or debar the approved lender, as described 
in paragraph (b) of this section.
    (a) Loss of approved lender status. A lender will lose its approved 
status if it--
    (1) Fails to conform with the provisions of this part or the 
applicable guaranteed loan program identified in Sec. 5001.1 of this 
part;
    (2) Has no outstanding guaranteed loans with the Agency for five 
consecutive years;
    (3) A regulated lending entity fails to remain in good standing with 
its regulator;
    (4) A non-regulated lending entity fails to renew its approval 
status 5

[[Page 1061]]

years from the date the Agency executes the lender's agreement.
    (b) Revocation of approved status and debarment of lender. The 
Agency can revoke a lender's status as an approved lender at any time 
for cause as specified in the lender's agreement. A decision to revoke a 
lender's approved status will be made by the Agency and the lender will 
be notified in writing. Cause for revoking lender status includes, but 
is not necessarily limited to, the circumstances identified in 
paragraphs (b)(1) through (14) of this section.
    (1) Guaranteed loans originated by the lender cause substantial 
financial loss to the Agency.
    (2) Failure to maintain status as an approved lender under the 
applicable regulations in effect when the lender obtained approved 
lender status. For lenders approved under this part, this means 
maintaining compliance with the requirements set forth in Sec. 
5001.130.
    (3) Conviction of the lender or any of its officers for criminal 
acts in connection with any loan transaction, whether or not the loan 
was guaranteed by the Agency.
    (4) Violation of usury laws in connection with any loan transaction 
whether or not the loan was guaranteed by the Agency.
    (5) Negligent loan origination.
    (6) Knowingly submitting false information when requesting a loan 
guarantee or basing a loan guarantee request on information known to be 
false or which the lender should have known to be false.
    (7) Failure to correct any Agency-cited deficiency in loan documents 
in a timely manner.
    (8) Failure to provide for adequate construction planning and 
monitoring in connection with any guaranteed loan to ensure that the 
project will be completed with the available funds.
    (9) Negligent loan servicing.
    (10) Failure to obtain and maintain the required collateral for any 
guaranteed loan.
    (11) Using guaranteed loan funds for purposes other than those 
specifically approved by the Agency in the conditional commitment or 
amendment thereof.
    (12) Violation of any term of the lender's agreement.
    (13) Failure to submit reports required by the Agency in a timely 
manner.
    (14) Violation of applicable nondiscrimination laws, including, but 
not limited to, statutes, regulations, USDA Departmental Regulations, 
the USDA Non-Discrimination Statement, and the Equal Credit Opportunity 
Act. USDA's Non-Discrimination Statement is located on the Agency's 
website, see https://www.usda.gov/ non-discrimination -statement. In 
addition to revoking the Lender's status, the Agency may debar a Lender 
in compliance with 2 CFR part 180.
    (c) Servicing of outstanding loans. Any lender who loses its status 
as an approved Lender under any of the conditions identified in 
paragraph (a) or (b) of this section must reapply under the provisions 
of Sec. 5001.130 to be reinstated as an approved lender. A lender who 
loses its approved lender status must continue to service any 
outstanding guaranteed loans in conformance with the lender's agreement 
last in effect and the applicable regulation under which the lender 
became an approved lender. In addition, such lenders cannot submit 
requests for new loan guarantees.



Sec. Sec. 5001.133-5001.139  [Reserved]



Sec. 5001.140  Cooperative stock/cooperative equity.

    Loan guarantees described in paragraphs (a) through (d) of this 
section are only available under B&I guaranteed loans.
    (a) Cooperative stock purchase program. The Agency may guarantee 
loans for the purchase of cooperative stock by individual farmers or 
ranchers in a farmer or rancher cooperative established for the purpose 
of processing an agricultural commodity. The cooperative may contract 
for services to process agricultural commodities or otherwise process 
value-added agricultural products during the five-year period beginning 
on the operation startup date of the cooperative in order to provide 
adequate time for the planning and construction of the processing 
facility of the cooperative.

[[Page 1062]]

    (1) The proceeds from the stock sale may be used to recapitalize, to 
develop a new processing facility or product line, or to expand an 
existing production facility. Guaranteed loan funds must remain in the 
cooperative from which stock was purchased, and the cooperative must not 
reinvest those funds into another entity.
    (2) The maximum guaranteed loan amount is $600,000 and all 
applications will be processed in accordance with Sec. Sec. 5001.301 
through 5001.303, 5001.306, 5001.315, and 5001.318 of this part, as 
applicable.
    (3) The maximum term of the guaranteed loan is seven years when the 
proceeds from the stock sale are used by the cooperative to recapitalize 
or are used for working capital. The maximum term allowable for final 
guaranteed loan maturity is limited to the justified useful life of the 
assets the cooperative purchases with the proceeds of the stock sale not 
to exceed 40 years or applicable State statutory limitations, whichever 
is less.
    (4) The lender will, at a minimum, obtain a valid lien on the stock, 
an assignment of any patronage refund, and the ability to transfer the 
stock to another party, or any other right or ability necessary to 
liquidate and dispose of the collateral in the event of a default by the 
borrower.
    (5) The lender must complete a written credit evaluation of each 
stock purchase loan and a complete credit evaluation of the cooperative 
prior to making its first stock purchase loan.
    (6) The borrower may provide financial information in the manner 
that is generally required by commercial agricultural lenders.
    (7) A feasibility study of the cooperative is required for startup 
cooperatives and may be required by the Agency for existing cooperatives 
when the cooperative's operations will be significantly affected by the 
proceeds that were generated from the stock sale.
    (8) The Agency will conduct an appropriate environmental review on 
the processing facility and will not process individual applications for 
the purchase of stock until the environmental review on the cooperative 
processing facility is completed.
    (b) Purchase of transferable stock shares. The Agency may also 
guarantee loans for the purchase of transferable stock shares of any 
type of existing cooperative, which would primarily involve new or 
incoming members. Such stock may provide delivery or some form of 
participation rights and may only be traded among cooperative members.
    (1) The maximum loan amount is $600,000 and all applications will be 
processed in accordance with Sec. Sec. 5001.301 through 5001.303, 
5001.306, 5001.315, and 5001.318 of this part, as applicable.
    (2) The maximum term of the loan is seven years.
    (3) The lender will, at a minimum, obtain a valid lien on the stock, 
an assignment of any patronage refund, and the ability to transfer the 
stock to another party, or any other right or ability necessary to 
liquidate and dispose of the collateral in the event of a default by the 
borrower.
    (4) The lender must complete a written credit evaluation of each 
stock purchase loan and a complete credit evaluation of the cooperative 
prior to making its first stock purchase loan.
    (c) Cooperative equity security guarantees. The Agency may guarantee 
loans for the purchase of preferred stock or similar equity issued by a 
cooperative or may guarantee loans to a fund that invests primarily in 
cooperatives. In either case, the project must significantly benefit one 
or more entities eligible for assistance under B&I guaranteed loans.
    (1) ``Similar equity'' is any special class of equity stock that is 
available for purchase by non-members and/or members and lacks voting 
and other governance rights.
    (2) A fund that invests ``primarily'' in cooperatives is determined 
by its percentage share of investments in and loans to cooperatives. A 
fund portfolio must have at least 50 percent of its loans and 
investments in cooperatives to be considered eligible for loan 
guarantees for the purchase of preferred stock or similar equity.
    (3) The principal amount of the guaranteed loan cannot exceed $10 
million.

[[Page 1063]]

    (4) The maximum term of the guaranteed loan is seven years when the 
proceeds are used by the cooperative for working capital and;
    (i) In all other cases the maximum term of the guaranteed loan is 
equal to the lesser of the following but not exceeding 40 years:
    (ii) The justified useful life of the funded project assets,
    (iii) The maximum term under any applicable State statute; or
    (iv) The specified holding period for redemption as stated by the 
stock offering.
    (5) All borrowers purchasing preferred stock or similar equity must 
provide documentation of the terms of the offering that includes 
compliance with State and Federal securities laws and financial 
information about the issuer of the preferred stock to both the lender 
and the Agency.
    (6) Issuer(s) of preferred stock must be a cooperative organization 
and must be able to issue preferred stock to the public that, if 
required, complies with State and Federal securities laws.
    (7) The lender will, at a minimum, obtain a valid lien on the 
preferred stock, an assignment of any patronage refund, and the ability 
to transfer the stock to another party, or otherwise liquidate and 
dispose of the collateral in the event of a default by a borrower. For 
the purpose of recovering losses from guaranteed loan defaults, lenders 
may take ownership of all equities purchased with such loans, including 
additional shares derived from reinvestment of dividends.
    (8) Shares of preferred stock that are purchased with guaranteed 
loan funds cannot be converted to common or voting stock.
    (9) In the absence of adequate provisions for investors' rights to 
early redemption of preferred stock or similar equity, a borrower must 
request from a cooperative or fund issuing such equities a contingent 
waiver of the holding or redemption period in advance of share 
purchases. This contingent waiver provides that in the event a default 
by a borrower on a B&I guaranteed loan, the borrower waives any 
ownership rights in the stock, and the lender and Agency will then have 
the right to redeem the stock.
    (10) Guaranteed loans for the purchase of preferred stock must be 
prepaid in the event a cooperative that issued the stock exercises an 
early redemption. If the cooperative enters into bankruptcy, to the 
extent the cooperative can redeem the preferred stock, the Borrower is 
required to repay the guaranteed loan from the redemption of the stock.
    (d) Employee ownership succession. The Agency may guarantee loans 
for conversions of businesses to either cooperatives or ESOP within five 
years from the date of initial transfer of stock.
    (1) The maximum loan amount is $600,000 and all applications will be 
processed in accordance with Sec. Sec. 5001.301 through 5001.303, 
5001.306, 5001.315, and 5001.318 of this part, as applicable.
    (2) The maximum term is 10 years.
    (3) The lender must, at a minimum, obtain a valid lien on the stock, 
an assignment of any patronage refund, and the ability to transfer the 
stock to another party, or otherwise liquidate and dispose of the 
collateral in the event of a default by a borrower.
    (4) The lender must complete a written credit evaluation of each 
stock purchase loan and a complete credit evaluation of the cooperative 
or ESOP prior to making its first stock purchase loan.
    (5) If a cooperative is organized, each selling owner becomes a 
member with special control rights to protect their stake in the 
business while a succession plan is implemented. At the completion of 
the stock transfer, selling owners may retain their membership in the 
cooperative provided that their control rights are the same as all other 
members. Any special covenants that selling owners may have held must be 
extinguished upon completion of the transfer.
    (6) If an ESOP is organized for transferring ownership to employees, 
selling owner(s) may not retain ownership in the business after five 
years from the date of the initial transfer of stock.



Sec. 5001.141  New markets tax credits.

    The New Markets Tax Credit (NMTC) program is administered by the 
U.S.

[[Page 1064]]

Department of the Treasury's (Treasury) Community Development Financial 
Institutions (CDFI) Fund with NMTC credits allocated to Treasury-
certified Community Development Entities (CDEs) across the United States 
to make Qualified Equity Investments (QEIs) in low-income communities. 
NMTC related definitions and terms in this section are governed by 
section 45(D) of the Internal Revenue Code (26 U.S.C. 45D), and 
applicable Treasury regulations (26 CFR 1.45D-1). A CDE will generally 
establish a new subsidiary of a CDE (sub-CDE) for individual NMTC 
projects. Lenders and their borrowers with guaranteed loan Projects that 
include NMTC investments must comply with the provisions in this 
section. To be a lender for a guaranteed loan project that involves 
financing under the NMTC provisions, the lending entity must meet the 
applicable eligibility criteria in Sec. 5001.130. The Agency will not 
waive its servicing rights to a guaranteed loan or be a party to any 
forbearance agreement in conjunction with a NMTC project.
    (a) Guaranteed Loans Directly to Qualified Active Low-Income 
Community Businesses (QALICB). (1) A lender that is CDE or sub-CDE under 
the direct control of a regulated lender or an approved non-regulated 
lender does not need to separately meet the requirements of Sec. 
5001.130 to make a guaranteed loan directly to a qualified active low-
income community business (QALICB).
    (2) The provisions of Sec. 5001.127(f) notwithstanding, a lender 
that is a CDE or sub-CDE may have an ownership interest in the borrower 
provided that each condition specified in paragraphs (a)(2)(i) through 
(iii) of this section is met.
    (i) The lender does not have an ownership interest in the borrower 
prior to the application.
    (ii) The lender does not take a controlling interest in the 
borrower.
    (iii) The lender does not provide equity or take an ownership 
interest in a borrower at a level that would result in the lender owning 
20 percent or more interest in the borrower.
    (3) Notwithstanding Sec. 5001.115(f), a lender that is a CDE or 
sub-CDE taking an ownership interest in the borrower does not constitute 
a conflict of interest. The Agency will mitigate the potential for a 
conflict of interest by requiring appropriate loan covenants 
establishing, at a minimum, limitations on dividends and distributions 
of earnings in the loan agreement between the lender and borrower. The 
Agency will also ensure that the lender limits any waivers of loan 
covenants and future modifications of loan documents in compliance with 
this part.
    (4) Guaranteed loans made by a lender directly to a QALICB must meet 
all other program and project eligibility requirements as specified in 
this part.
    (5) For purposes of calculating borrower equity in compliance with 
Sec. 5001.105(d)(1), the CDE (or sub-CDE's) amount of the principal 
balance of the loan from NMTC investor funds that is subordinated to the 
guaranteed loan may be considered as equity.
    (b) Guaranteed loans to a NMTC leveraged equity structure. Tax 
benefits to a NMTC investor are based on the total amount of funds 
utilized in the project. The tax benefit calculation includes the sum of 
the investor's cash investment plus loan proceeds from a leveraged 
lender into a NMTC investor fund entity. The investor fund entity is 
generally a new entity established to make a qualified equity investment 
(QEI) into one or more CDEs or sub-CDEs to support a qualified low-
income community investment (QLICI) to a QALICB. The investor fund 
entity, through its investment, has ownership rights in the sub-CDE that 
will be making secured QLICI loans to the QALICB. The provisions of 
Sec. 5001.127(g) notwithstanding, either a leveraged lender entity 
lending to an investor fund entity, or an investor fund entity such as 
an investor partnership or investor limited liability corporation, may 
be an eligible borrower for a specific NMTC project as specified in 
paragraph (b)(1) of this section. For purposes of this section only, the 
stated term ``borrower'' in paragraphs (b)(1) through (13) of this 
section applies to both a leveraged lender entity or an investor fund 
entity as the guaranteed loan borrower in the NMTC project. Paragraphs 
(b)(2) through (13) of this section identify modifications to this

[[Page 1065]]

part that apply when the eligible borrower is a leveraged lender entity 
or investor fund entity in a NMTC project.
    (1) To be an eligible borrower using the leveraged equity structure 
of a NMTC project each condition identified in paragraphs (b)(1)(i) 
through (v) of this section must be met.
    (i) The investor fund entity must be established for a single 
specific NMTC investment.
    (ii) The lender is not an affiliate of the borrower.
    (iii) When the borrower is a leveraged lender entity it must relend 
one hundred percent of the guaranteed loan funds to an investor fund 
entity. In all cases one hundred percent of the guaranteed loan funds 
are or will be invested by the investment fund entity in one or more 
sub-CDEs that will then be loaned directly to a QALICB through a direct 
tracing method, and such guaranteed loan funds are, or will be, used by 
the QALICB in accordance with the eligibility requirements in subpart B 
of this part. The QALICB's project must be the ultimate use of one 
hundred percent of the guaranteed loan funds.
    (iv) The QALICB must meet the requirements of an eligible borrower 
as found in Sec. 5001.126.
    (v) The sub-CDE operating agreement with the QALICB must include a 
provision that the guaranteed lender has approval rights with respect to 
any substantial loan servicing actions that may be taken by the sub-CDE 
regarding the collateral or repayment terms of their QLICI loans to the 
QALICB.
    (2) The guaranteed loan amount and percentage of guarantee 
provisions found in Sec. Sec. 5001.406 and 5001.407 of this part, 
respectively, apply to the QALICB and not to the investor fund entity or 
leveraged lender entity, who would actually be the borrower as defined 
under this part.
    (3) For purposes of calculating borrower equity in compliance with 
Sec. 5001.105(d)(1), the leveraged lender entity's note from the 
investor fund may be considered a tangible asset and when the lien 
associated with the sub-CDE's loan is subordinated, the principal 
balance of the sub-CDE's loan made to the QALICB from NMTC investor 
funds may be considered as equity.
    (4) The loan terms found in Sec. 5001.402 of this part apply to 
both the borrower and the QALICB. The maturity and related payment 
schedule of the lender's guaranteed loan to the borrower must be no 
longer than the maturity and related payment schedule of the sub-CDE's 
loan to the QALICB. An Agency approved unequal or escalating schedule of 
principal and interest payments can be used for a NMTC loan. The lender 
may require additional principal repayment by a co-borrower, such as an 
owner or principal participant of the QALICB. The provisions of Sec. 
5001.402(b)(3) notwithstanding, the Agency may consider interest-only 
payments by a borrower pursuant to an interest-only term not to exceed 
seven years on a loan made under an NMTC structure if the lender 
requires:
    (i) A debt repayment reserve fund or sinking fund in an amount at 
least equal to the guaranteed loan's principal amortization that would 
have otherwise applied to the loan if equally amortized payments were 
collected during the seven year term; and
    (ii) Such reserve funds or sinking funds are applied to the 
guaranteed loan as an additional payment of principal at the end of such 
interest-only term.
    (5) Except for the collateral provisions, Sec. 5001.202(b)(4), 
Sec. 5001.202(b) of this part applies to both the lender's guaranteed 
loan to the borrower and the sub-CDE's loan to the QALICB. The 
collateral provisions found in Sec. 5001.202(b)(4) of this part apply 
only to the sub-CDE's loan to the QALICB.
    (6) The personal, partnership and corporate guarantee provisions of 
Sec. 5001.204 of this part apply when the guaranteed loan borrower is a 
leveraged lender entity in a NMTC project. Guaranteed loans made 
directly to an investor fund entity as the borrower do not require a 
personal, partnership, or corporate guarantee from the investor fund 
entity's owner, who is the NMTC tax credit investor and considered a 
passive investor. The Agency shall obtain the personal, partnership or 
corporate guarantee from the QALICB ownership for a guaranteed loan to 
an investor fund entity in compliance with

[[Page 1066]]

Sec. 5001.204, subject to the eligibility requirements of the NMTC 
program. The Agency may require additional personal, partnership or 
corporate guarantees if warranted by an Agency evaluation of potential 
financial risk.
    (7) The insurance provisions of Sec. 5001.205(d) of this part apply 
only to the QALICB and the sub-CDE's secured loan to the QALICB.
    (8) The financial report provisions of Section 5001.504 of this part 
apply to both the borrower and the QALICB.
    (9) The application requirements found in subpart D to this part, as 
applicable, apply to both the borrower and the QALICB, including the 
application analysis and evaluation components of Sec. 5001.303. The 
Agency also requires submission of the loan terms and documents between 
the sub-CDE and QALICB. As part of the application completed by the 
lender, the documentation must include comparable industry information 
and a summary of the NMTC project's funding path and an explanation of 
the relationships between all parties in the NMTC transaction (an 
accompanying schematic is encouraged for complicated transactions).
    (10) The environmental responsibilities specified in Sec. 5001.207 
of this part apply to the NMTC project.
    (11) For any application that the Agency assigns a priority score, 
when assigning the priority score to a NMTC loan application, the Agency 
will score the project based on the entire NMTC structure and the 
QALICB's project as the ultimate use of guaranteed loan funds.
    (12) The lender is responsible for ensuring that the NMTC project 
complies with the planning, performing, development and project 
monitoring provisions in Sec. 5001.205 of this part and the lender is 
also responsible for ensuring the NMTC project complies with all 
applicable Treasury NMTC requirements.
    (13) Sections 5001.401 through 5001.408 of this part apply to both 
the borrower and the QALICB in a NMTC transaction.

[85 FR 42518, July 14, 2020, as amended at 86 FR 70356, Dec. 10, 2021; 
87 FR 7367, Feb. 9, 2022]



Sec. Sec. 5001.142-5001.200  [Reserved]



                     Subpart C_Orgination Provisions



Sec. 5001.201  General origination requirements.

    The lender is responsible for originating a guaranteed loan in 
accordance with the requirements of this part and in accordance with its 
internal origination policies and procedures to the extent they do not 
conflict with the requirements of this part. For each application, the 
lender must prepare a credit evaluation that is consistent with Agency 
standards found in this part. The Agency reserves the right to review 
the lender's credit evaluation and request additional information. 
Lender approval does not constitute Agency approval.



Sec. 5001.202  Lender's credit evaluation

    For each application, the lender must prepare a credit evaluation 
that is consistent with Agency standards found in this part.
    (a) Lender's evaluation guidelines. The lender must conduct a credit 
evaluation using credit documentation procedures and underwriting 
processes that are consistent with generally accepted prudent lending 
practices for commercial, public and project financing and also 
consistent with the lender's own policies, procedures, and lending 
practices. The underwriting process must include a review of each loan 
for which a loan guarantee is being sought under this part. Applications 
involving affiliated entities must include a global credit evaluation 
and if applicable a global historical and projected debt service 
coverage analysis. Applications involving guarantor(s) must also include 
a global debt service coverage analysis of the guarantor(s) including 
the cash flow of the guarantor(s). In addition, the lender must review 
all applicable contracts, management agreements, and leases to determine 
they will not adversely affect either the borrower's repayment ability 
or the value of the collateral securing the guaranteed loan. The 
lender's evaluation must address any financial or other credit 
weaknesses of the borrower and project and discuss risk mitigation 
requirements imposed by the lender.

[[Page 1067]]

    (b) Credit factors. In performing its credit evaluation, the lender 
must analyze all credit factors associated with each proposed guaranteed 
loan and apply its professional judgment to determine that the credit 
factors and guaranteed loan terms and conditions, considered in 
combination, ensure guaranteed loan repayment. Credit factors to be 
analyzed include, but are not necessarily limited to, those areas 
identified and defined in paragraphs (b)(1) through (5) of this section.
    (1) Character. Those qualities that generally impel the borrower to 
meet its obligations as demonstrated by its credit history, including 
project and borrower debt structure and debt repayment ability. When 
applicable, an evaluation may include the character of persons with 
management control or a 20 percent or more ownership interest in the 
borrower. When the borrower's credit history or character is negative, 
the lender will provide satisfactory explanations to indicate that any 
problems are unlikely to recur. The ownership or membership structure of 
the project and borrower (including membership, sponsors, other equity 
investors), and the historical performance and experience of ownership 
and management specific to the project and industry. The historical 
performance and experience of any entities providing management or 
administrative services pursuant to contract should also be evaluated. 
For CF projects the commitment of the rural community or rural area to 
be served by the project should be evaluated. Borrower's management, and 
its for-profit, non-profit or governing board, as applicable, will be 
evaluated to ensure key management personnel are adequately trained and 
experienced.
    (2) Capacity. A borrower's ability to produce sufficient cash to 
repay the guaranteed loan as agreed, including the feasibility and 
likelihood of the project and borrower to produce sufficient revenues to 
service the project's debt obligations over the life of the guaranteed 
loan and, when applicable, result in sufficient returns to investors to 
ensure successful repayment of the guaranteed loan. The lender shall 
address any economic safeguards of the project, including capital 
expenditure budgeting or reserve funds and other contingency reserve 
funds such as maintenance reserve funds or debt service reserve funds, 
intended to protect and safeguard the Agency and lender in the event of 
default. The lender must make all efforts to:
    (i) Ensure that the borrower has adequate working capital, operating 
capital and reserves for capital expenditures, debt service, and 
maintenance as applicable; and
    (ii) Structure or restructure debt so the borrower has adequate debt 
coverage, documenting as applicable the necessity of any debt 
refinancing. The evaluation will be supported by a cash flow analysis.
    (3) Capital. The borrower must have the resources to adequately 
capitalize the project and demonstrate the ability to generate and 
maintain sufficient cash flow for its operations. The extent to which 
project costs are funded by the borrower in relation to project costs 
funded by the guaranteed loan or other Federal and non-Federal 
governmental assistance such as grants, tax credits, or other loans must 
be analyzed.
    (4) Collateral. This criterion refers to the security pledged for 
the guaranteed loan. The lender is responsible for obtaining and 
maintaining proper and adequate collateral for the guaranteed loan. All 
collateral must secure the entire guaranteed loan. The lender is 
prohibited from taking separate collateral for the guaranteed and 
unguaranteed portions of the guaranteed loan or requiring compensating 
balances or certificates of deposit as a means of eliminating the 
lender's exposure on the unguaranteed portion of the guaranteed loan. 
Collateral can include, but is not limited to: General obligation bonds; 
revenue bonds; pledges of taxes or assessments; assignments of facility 
revenue and byproduct revenue, as well as other assets such as land, 
easements, rights-of-way, water rights, buildings, machinery, equipment, 
inventory; accounts receivable, other accounts, contracts, cash, 
assignments of leases and leasehold interests. Intangible assets may 
serve as collateral, provided they do not serve as primary collateral. 
For purposes of determining compliance with this requirement,

[[Page 1068]]

leasehold improvements such as buildings and other structures on leased 
property are considered tangible assets and can serve as primary 
collateral. It is the lender's responsibility to obtain, document, file, 
record and take all actions necessary to properly perfect and maintain 
adequate collateral to protect the interests of the lender and the 
Agency.
    (i) The lender must determine the market value of collateral as 
established by an appraisal in accordance with Sec. 5001.203.
    (ii) The lender should discount collateral consistent with sound 
loan-to-discounted value practices which must be adequate to secure the 
guaranteed loan in accordance with this section. To assess collateral 
adequacy and appropriate levels of discounting, the lender should give 
consideration to the type, quality, location, marketability, and 
alternative uses of the collateral and the basis for the valuation of 
the collateral, e.g. collateral valued on a cost or replacement 
valuation or market or comparable sales valuation may require variance 
of discount factors. The lender must provide satisfactory justification 
of the discounts being used.
    (5) Conditions. This paragraph (b)(5) refers to the general business 
environment, including the regulatory environment affecting the business 
or industry, and status of the Borrower's industry. Consideration will 
be given to items listed in paragraphs (b)(5)(i) through (ix) of this 
section and when applicable the lender should submit supporting 
documentation (e.g., feasibility study, market study, preliminary 
architectural or engineering reports, etc.) in accordance with 
Sec. Sec. 5001.304 through 5001.307:
    (i) Availability and depth of resource/feedstock market, strength 
and duration of purchase agreements and availability of substitutes;
    (ii) Analysis of current and future market potential and off-take 
agreements, competition, type of project (service, product, or commodity 
based);
    (iii) Energy infrastructure, availability and dependability, 
transportation and other infrastructure, and environmental 
considerations;
    (iv) Technical feasibility including demonstrated performance of the 
technology and integrated processing equipment and systems, developer 
system performance guarantees, or technology insurance;
    (v) Complexity of construction and completion, terms of construction 
contracts, experience and financial strength of the construction 
contractor or engineering, procurement, and construction (EPC) 
contractor;
    (vi) Contracts and intellectual property rights, licenses, permits, 
and state and local regulations;
    (vii) Creditworthiness of any counterparties, as applicable;
    (viii) Industry-related public policy issues; and
    (ix) Other criteria that the lender or Agency deems relevant to the 
project.
    (6) Content. The credit evaluation must be sufficiently detailed to 
describe the proposed loan, business and project scenario and document 
that the proposed loan is sound. The credit evaluation must include:
    (i) A written evaluation of each credit factor listed in paragraphs 
(b)(1) through (5) of this section and any additional factors as 
appropriate; and
    (ii) A written evaluation of the feasibility study, business plan, 
technical report, and engineering and architectural reports, as 
applicable; and
    (iii) Spreadsheets and analysis of the financial statements provided 
in accordance with Sec. 5001.303, with appropriate ratios and 
comparisons with industry standards (such as Dun & Bradstreet or the 
Risk Management Association). The spreadsheets should enable a reviewer 
to easily scan the data, spot trends, and make comparisons.
    (iv) Financial projections deviating from historical financial 
performance must be substantiated and documented.
    (v) Projected operational cash flow analysis on a quarterly basis 
for borrowers with seasonal cyclical cash flow.
    (vi) Operational cash flow analysis on a quarterly basis from the 
current financial statements through start-up or occupancy for projects 
involving construction when lenders are requesting

[[Page 1069]]

the loan note guarantee prior to completion of construction.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 
FR 70356, Dec. 10, 2021; 87 FR 7367, Feb. 9, 2022]



Sec. 5001.203  Appraisals.

    Appraisals of collateral are required as set forth in this section. 
The lender is responsible for ensuring that appraisal values adequately 
reflect the actual value of the collateral based on an arm's length 
transaction. Completed appraisals should be submitted when the 
application is filed. If the appraisal has not been completed when the 
application is filed, the lender must submit an estimated appraised 
value. Prior to the issuance of the loan note guarantee, the estimated 
value must be supported with an appraisal acceptable to the agency.
    (a) Newly-acquired chattel. A bill of sale may be submitted to 
support the value of newly-acquired chattel.
    (b) Existing chattel. The lender must obtain appraisal(s) for 
existing chattel collateral when its value exceeds $250,000.
    (c) Real estate. The lender must obtain appraisals for real estate 
collateral when the value of the collateral exceeds $500,000 or the 
current limitation established under the Financial Institutions Reform, 
Recovery, and Enforcement Act (FIRREA) Public Law 101-73, 103 Stat. 183 
(1989). Real estate and chattels with a value below these thresholds 
must be evaluated in accordance with the lender's primary regulator's 
policies relating to appraisals and evaluations or, if the lender is not 
regulated, in accordance with normal banking practices and generally 
accepted methods of determining value.
    (1) For construction projects, the lender must:
    (i) Obtain the ``As Is'' market value and the ``prospective'' market 
value as of the date of construction completion to determine the value 
of the real estate property, or
    (ii) Obtain an income-based appraisal as of the date of completion 
to determine the value of revenues to be generated by the real estate.
    (d) Appraisal standards. (1) Each real estate appraisal must be 
conducted by an independent qualified appraiser in accordance with the 
USPAP or successor standards. All real estate appraisals must meet the 
requirements contained in the FIRREA, and the appropriate guidelines 
contained in Standards 1 and 2 of the USPAP and be performed by a State 
Certified General Appraiser licensed in the state in which the real 
estate is located.
    (2) Chattel appraisals must be conducted by an independent qualified 
appraiser and must be based on industry recognized standards and reflect 
the age, condition, and remaining useful life of the equipment.
    (e) Interagency appraisal and evaluations guidelines. 
Notwithstanding any exemption that may exist for transactions guaranteed 
by a Federal Government agency, all appraisals obtained by the lender 
under this part must conform to the interagency appraisal and 
evaluations guidelines established by the lender's primary Federal or 
State regulator, if applicable.
    (f) Environmental considerations. When the Agency will take a lien 
on real property, the real estate appraisals must include consideration 
of the potential effects from a release of hazardous substances or 
petroleum products or other environmental hazards on the market value of 
the collateral, as determined in accordance with the appropriate ASTM 
International Real Estate Assessment and Management environmental 
standards.
    (g) Appraisal review report. The lender must submit its complete 
technical review of the appraisal in an appraisal review report prepared 
in compliance with USPAP Standards 3 and 4 to the Agency before 
guaranteed loan closing.
    (1) Appraisals must not be more than one year old. However, the 
Agency may request a more recent appraisal in order to reflect more 
current market conditions.
    (2) The lender must provide documentation that, in addition to the 
other requirements of this section pertaining to appraisers, the 
appraiser has the necessary experience and competency to appraise 
collateral.
    (h) Appraisal fees. Unless otherwise stated in this part, appraisal 
fees or any other associated costs will not be paid by the Agency.

[[Page 1070]]



Sec. 5001.204  Personal, partnership, and corporate guarantees.

    The provisions of this section do not apply to passive investors.
    (a) Except as provided in paragraph (c) of this section, Agency-
approved, unsecured personal, partnership, and corporate guarantees for 
the full term of the guaranteed loan and at least equal to the 
guarantor's percent interest or membership in the borrower times the 
guaranteed loan amount are required from any person or entity owning a 
20-percent or greater interest or membership in the borrower. In the 
event a portion of the borrower's ownership interest stock is sold or 
transferred, the Agency reserves the right to require personal or 
corporate guarantees from the new owners of a 20-percent or more 
interest in the borrower.
    (b) When warranted by an Agency assessment of potential financial 
risk, the Agency may require the following:
    (1) Guarantees to be secured;
    (2) Guarantees from any person or entity owning less than a 20-
percent Interest or membership in the borrower; and
    (3) Guarantees from persons whose ownership Interest in the borrower 
is held indirectly through intermediate or affiliated entities.
    (c) Exceptions to the requirement for personal, partnership or 
corporate guarantees may be requested by the lender. The lender must 
document, to the Agency's satisfaction, that collateral, equity, cash 
flow, and profitability indicate an above-average ability of the 
borrower to repay the loan. The Agency will evaluate these requests on a 
case-by-case basis.
    (d) Each guarantor must execute an Agency-approved guarantee form in 
addition to any guarantee form required by the lender.
    (e) Any amounts paid by the Agency pursuant to a claim by a 
guaranteed program lender will constitute a Federal debt owed to the 
Agency by a guarantor of the loan, to the extent of the amount of the 
guarantor's guarantee.

[85 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021; 
87 FR 7368, Feb. 9, 2022]



Sec. 5001.205  General project monitoring requirements.

    In complying with the requirements of this section, the lender may 
rely on written materials and other reports provided by an independent 
engineer and other qualified consultants.
    (a) Design requirements. The lender must ensure that all facilities 
constructed with guaranteed loan funds are:
    (1) Designed using accepted architectural, engineering, and design 
practices, taking into consideration any Agency comments when the 
facility is being designed;
    (2) Designed in conformance to applicable Federal, Tribal, State, 
and local codes and requirements; and
    (3) Constructed to support operations at the level and quality 
contemplated by the borrower using accepted architectural and 
engineering practices.
    (b) Rights-of-ways, easements, and property rights. The lender is 
responsible for ensuring that the borrower has:
    (1) Obtained valid, continuous, and adequate rights-of-way and 
easements needed for the construction, operation, and maintenance of a 
project; and
    (2) Obtained and recorded such releases, consents, or subordinations 
to such property rights from holders of outstanding liens or other 
instruments as may be necessary for the construction, operation, and 
maintenance of the project and to provide the required security.
    (c) Permits, agreements, and licenses. It is the lender's 
responsibility to ensure the borrower obtains all permits, agreements, 
and licenses that are applicable to the project.
    (d) Insurance. It is the lender's responsibility to ensure the 
borrower obtains and maintains borrower and project insurance in 
substance and amount similar to that ordinarily required by lenders in 
the industry.
    (e) Construction monitoring requirements. The lender, or its 
designated agent, will monitor the progress of construction of the 
project and undertake the reviews and inspections necessary to ensure 
that construction conforms to applicable Federal, Tribal, State, and 
local code requirements and that construction proceeds in accordance

[[Page 1071]]

with the plans, specifications, and contract documents.
    (1) Construction inspections. The lender must notify the Agency of 
any scheduled field inspections during construction. The Agency may 
attend any field inspections the lender may conduct. Any Agency 
inspection, including those with the lender, are for the benefit of the 
Agency only (and not for the benefit of other parties in interest) and 
do not relieve any parties of interest of their responsibilities to 
conduct necessary inspections.
    (i) On a case-by-case basis in the event that the Agency determines 
that there is additional risk to the government, the Agency may require 
the use of a qualified, independent inspector to inspect construction to 
ensure the project is being adequately built to meet the borrower's 
requirements of the borrower's approved project and comply with all 
applicable codes and legal requirements.
    (2) Issuance of loan note guarantee prior to completion of the 
project's construction. Except for projects utilizing non-proven 
technologies, the lender may request that the loan note guarantee be 
issued prior to completion of a project's construction. The lender's 
request will be considered by the Agency, who may require credit risk 
mitigation. An additional fee for issuance of the loan note guarantee 
prior to completion of the project's construction will be assessed in 
accordance with Sec. 5001.454(c) in subpart E. The lender must verify 
and include evidence of the following in its request:
    (i) The promissory note specifying the full term of the note and 
containing the terms and conditions of each draw period;
    (ii) The borrower and lender have entered into a contract with an 
independent disbursement and monitoring firm with a construction 
monitoring plan acceptable to and approved by the Agency or, the lender 
documents that they have the capacity and experience to disburse funds 
and provides a monitoring plan acceptable to the Agency;
    (iii) The borrower and lender have agreed to a detailed timetable 
for the project with a corresponding budget of costs setting forth the 
parties responsible for payment. The timetable and budget will be 
confirmed as adequate for the planned development by a qualified 
independent consultant (e.g., the project architect or engineer) with 
demonstrated experience relating to the project's industry.
    (iv) The borrower has entered into a firm, fixed-price construction 
contract with an independent general contractor with costs outlined in 
detail and terms specifying change order approvals, the agreed retainage 
percentage, and the disbursement schedule;
    (v) Evidence the lender has properly vetted the financial 
feasibility and past performance of the contractor to show they are able 
to complete the project or that the lender has mitigated risk in the 
event the project is never completed, such as requiring a 100-percent 
performance/payment bond on the borrower's contractor to be maintained 
until the contractor is released from its obligation. The bonding agent 
must be listed on Treasury Circular 570;
    (vi) Evidence, which the Agency at its sole discretion determines is 
satisfactory, that the lender has completed the due diligence necessary 
to confirm that the contractor is able to complete the project based on 
information including but not limited to the financial statements and 
past performance of the contractor;
    (vii) When applicable, the borrower has entered into a contract with 
an independent technology development firm guaranteeing the following: 
Completion of the project with the necessary technology to successfully 
run the project and system performance for projects that utilize 
integrated processing equipment and systems, such as biorefineries, 
renewable energy systems, and chemical manufacturing plants. The credit 
underwriting of the independent technology development firm must be 
satisfactory to and approved by the Agency; and;
    (viii) Evidence, in form and substance satisfactory to the Agency, 
that there is sufficient contingency funding in place to handle 
unforeseen cost overruns without seeking additional guaranteed 
assistance.
    (f) Reporting during construction. Regardless of when the loan note 
guarantee is issued, all lenders must report

[[Page 1072]]

any problems in project development to the Agency within 15 calendar 
days of identifying the problem. If the loan note guarantee has been 
issued prior to construction or completion of the project, the lender 
must provide monthly construction reports that contain:
    (1) Certifications for each draw request as follows:
    (i) Certification by the independent engineer or qualified 
consultant to the Lender that the work referred to in the draw has been 
successfully completed; and
    (ii) Certification by the borrower and independent engineer or 
qualified consultant that the guaranteed loan funds of the prior draw 
have been applied to eligible project costs in accordance with the draw 
request and that the contractors have delivered mechanics lien waivers 
in connection with such draw;
    (2) List of invoices;
    (3) Details regarding the borrower's equity, other funds, and 
guaranteed loan funds disbursed to date;
    (4) Status of construction; and
    (5) Inspection reports; and
    (6) Concerns, potential problems, cost overruns, etc.
    (g) Use of guaranteed loan funds. The lender must ensure that:
    (1) All borrower funds are utilized prior to guaranteed loan funds;
    (2) Guaranteed loan funds are only used for eligible project costs 
in accordance with the purposes approved by the Agency in the 
conditional commitment and in accordance with the plans, specifications, 
and contract documents; and
    (3) The project will be completed within the approved budget.
    (h) Project completion. Once construction of the project is 
completed, the lender must obtain and have on file all mechanics lien 
waivers or releases from all contractors and materialmen. The lender 
will provide to the Agency:
    (1) A copy of the notice of completion or similar document issued by 
the relevant jurisdiction;
    (2) Certification that all funds were used for authorized purposes; 
and
    (3) A written certification that the project will be used for its 
intended purpose and will meet the borrower's needs and guaranteed loan 
purposes in accordance with the application approved by the Agency.
    (4) RES or EEI projects and projects that utilize integrated 
processing systems and equipment, such as biorefineries, renewable 
energy systems, and chemical manufacturing facilities, unless utilizing 
the provisions of paragraph (e)(2) of this section, must be constructed, 
installed, and operated as described in the technical report or on the 
vendor certification prior to disbursement of guaranteed loan funds. For 
RES, the system must be operating at the steady state operating level 
described in the technical report or on the vendor certification for a 
period of not less than 30 calendar days, unless this requirement is 
modified by the Agency, prior to disbursement of funds.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 
FR 70357, Dec. 10, 2021]



Sec. 5001.206  Compliance with USDA Departmental Regulations, 
Policies, and other Federal laws.

    (a) Departmental regulations. All projects receiving a loan 
guarantee under this part are subject to the provisions of USDA's 
Departmental Regulations, as applicable.
    (b) Other Federal laws. Lenders and borrowers must comply with other 
applicable Federal laws including, but not limited to, Equal Employment 
Opportunities, Americans with Disabilities Act, Equal Credit Opportunity 
Act, and the Fair Housing Act.



Sec. 5001.207  Environmental responsibilities.

    Actions taken under this part must comply with 7 CFR part 1970. The 
Agency is responsible for ensuring that the requirements of the National 
Environmental Policy Act of 1969 (under 40 CFR part 1500) and related 
compliance actions, such as Section 106 of the National Historic 
Preservation Act (under 36 CFR part 800) and section 7 of the Endangered 
Species Act, are met. The Agency will complete the appropriate level of 
environmental review in accordance with 7 CFR part 1970, ``Environmental 
Policies and Procedures.''
    (a) Borrower and lender responsibilities. Both the borrower and 
lender must

[[Page 1073]]

take into consideration the potential environmental impacts of the 
project at the earliest planning stages. The Agency recommends that the 
lender contact the Agency to determine environmental requirements as 
soon as practicable after deciding to apply for a guarantee under this 
part.
    (1) Lender. The lender is responsible for becoming familiar and 
ensuring compliance with Federal environmental requirements. The lender 
must alert the Agency to any environmental issues related to a project 
or items that may require extensive environmental review. Proposals that 
minimize the potential of any project to adversely impact the 
environment must be developed and provided upon request by the Agency.
    (2) The lender must ensure that the borrower has--
    (i) Provided the necessary environmental information to enable the 
Agency to undertake its environmental review process in accordance with 
7 CFR part 1970, including the provision of all required Federal, State, 
and local permits;
    (ii) Not taken any actions or incurred any obligations with respect 
to the project that would either limit the range of alternatives to be 
considered during the Agency's environmental review process or which 
would have an adverse impact on the environment, such as the initiation 
of construction. Taking any such actions or incurring any such 
obligations could result in project ineligibility; and
    (iii) Complied with any environmental mitigation measures required 
by the Agency.
    (b) Environmental reviews. The Agency must complete all required 
environmental reviews, identifying and addressing, as appropriate, 
disproportionately high and adverse human health or environmental 
effects on minority populations and low-income populations, in 
accordance with 7 CFR part 1970.
    (1) The Agency may schedule a site visit if the Agency determines 
one is necessary in order to determine the scope of the environmental 
review.
    (2) The Lender must assist in the collection of additional data when 
the Agency needs such data to complete its environmental review of the 
project and mitigation of environmental issues.



Sec. 5001.208  Conflicts of interest.

    The lender must report all conflicts of interests, in writing, to 
the Agency.



Sec. Sec. 5001.209-5001.300  [Reserved]



               Subpart D_Guarantee Application Provisions



Sec. 5001.301  Beginning the application process.

    (a) The lender must file applications and related documents through 
the Agency online application system located at https://www.rd.usda.gov/ 
onerdguaranteed.
    (b) The lender may complete either a request for preliminary 
eligibility review in accordance with Sec. 5001.302 or a full 
application in accordance with Sec. Sec. 5001.303 through 5001.307, as 
applicable, to begin the process for obtaining a guaranteed loan. The 
Agency encourages, but does not require, lenders to file requests for 
preliminary eligibility reviews in order to obtain Agency comments 
before submitting a full Application.



Sec. 5001.302  Preliminary eligibility review.

    (a) Contents. Except as otherwise indicated, each request for a 
preliminary eligibility review must contain the material identified in 
paragraphs (a)(1) through (3) of this section. This information may be 
submitted in a narrative format or utilizing the lender's preliminary 
lender's analysis or preliminary credit memo.
    (1) Regardless of format, the lenders must provide the following 
information:
    (i) Name of the proposed borrower and co-borrower(s) as applicable, 
organization type, address, contact person, email address, and telephone 
number;
    (ii) Name of the proposed lender, address, telephone number, contact 
person, email address;
    (iii) Amount of the guaranteed loan request; and if known, the 
percentage of guarantee requested; the proposed rates and terms of the 
guaranteed loan; and the source(s) of other funding;

[[Page 1074]]

    (iv) If known, a description of collateral to be offered with 
estimated value(s), identity of guarantors, and the amount and source of 
equity, other capital, and matching funds to be contributed to the 
project; and
    (v) A brief description of the project, its location, products or 
services provided, service area, and, as applicable, availability of raw 
materials and supplies.
    (2) Sufficient information and documentation to enable the Agency to 
assess borrower, lender, and project eligibility, including summaries or 
spreadsheets of financial statements or audits, relationships and 
identity of any affiliates; and copies of organizational documents, 
organizational charts, and existing debt instruments.
    (3) For REAP projects:
    (i) Borrower information as outlined in Sec. 5001.307(a) and (b), 
and project information as outlined in Sec. 5001.307(c).
    (ii) For REAP RES projects where a residence is located at or is 
closely associated with and shares an energy metering devise with a 
rural small business or agricultural operation, demonstration that 50 
percent or greater of the energy to be generated by the RES will benefit 
the rural small business or agricultural operation.
    (b) Assessment. Based on the information submitted for the 
preliminary eligibility review, the Agency will make an informal 
assessment of the types of guarantee funding applicable to the request, 
and the eligibility of the borrower, project, and lender. The Agency 
will provide written informal comments. The assessment may change based 
on subsequently submitted information, is solely advisory in nature, 
does not obligate the Agency to approve a guarantee request, and is not 
considered a favorable or adverse decision by the Agency.



Sec. 5001.303  Applications for loan guarantee.

    The Agency will accept applications on a continuous basis. For each 
loan guarantee request, the lender must submit to the Agency a complete 
application that is in conformance with this section, and Sec. Sec. 
5001.304 through 5001.307, as applicable.
    (a) Complete applications. Lenders must submit complete applications 
in order to be considered for loan guarantees. Lenders are encouraged to 
submit a complete application in a single package; however, the Agency 
may accept the environmental information required by the Agency and 
initiate and complete its environmental reviews in advance of receiving 
a complete application. If an application is incomplete, the Agency will 
notify the lender in writing of the items necessary to address the 
incomplete application. Upon receipt of a complete application, the 
Agency will complete its evaluation.
    (b) Content. Lenders must provide an analysis of the scope of the 
project in relation to the borrower's overall operations. The 
application and lender's analysis should be supported by adequate 
documentation as applicable to the project and as listed in paragraph 
(c) of this section. The Agency reserves the right to request additional 
documentation to support the funding request. All complete applications 
must contain at a minimum:
    (1) Agency-approved application form or system that includes all 
items noted in this section;
    (2) Credit evaluation (conforming to Sec. 5001.202).
    (3) Environmental information required by the Agency to conduct its 
environmental reviews (as specified in Sec. 5001.207(a)(2)(i)).
    (4) Required financial statements including:
    (i) Current Agency-acceptable balance sheet and year-to-date income 
statements of the borrower, and any guarantor(s) dated within 90 days of 
submission of the complete application;
    (ii) Agency-acceptable historical balance sheet, income statements, 
and cash flow statements of the borrower for the lesser of the last 
three fiscal years or all years of operation; and
    (iii) Projected balance sheets, income statements, and cash flow 
statements or a financial model starting from the current financial 
statements through a minimum of two years of the project performing at 
full operational capacity or stable operations. Based on the type of 
project or at the discretion of the

[[Page 1075]]

Agency, financial projections or models may be required from current 
financial statements up to the end of the term of the guaranteed loan. 
Financial projections must be supported by a list of assumptions showing 
the basis for the projections. Projected financial statements must 
include a pro forma balance sheet projected for guaranteed loan closing.
    (iv) The Agency may request additional financial statements, 
financial models, cash flow information, updated financial statements, 
and other related financial information to determine the financial 
feasibility of a project and evaluate the credit underwriting of 
borrower, its affiliates, and any guarantors.
    (5) Identify whether or not the borrower has a known relationship or 
association with an Agency employee. If there is a known relationship, 
identify each Agency employee with whom the borrower has a known 
relationship.
    (6) At the time of the loan application, the lender must submit its 
loan classification and credit risk rating classification scale.
    (c) Provisional content. The following items may also be required 
based on the type of project being financed or if deficiencies exist in 
the credit evaluation and more information is needed to adequately 
determine risk:
    (1) For all applications of $600,000 or greater, a draft loan 
agreement for the guaranteed loan.
    (2) Appraisals in accordance with Sec. 5001.203.
    (3) Current credit reports or the equivalent on the borrower, any 
payment guarantors and any person or entity owning greater than a 20 
percent or more interest in the borrower or controls the borrower, 
except for passive investors and those corporations listed on a major 
stock exchange. A credit report or its equivalent are not required for 
elected and appointed officials when the borrower is a public body, or 
Indian Tribe, or for members of a non-profit organization. Credit 
reports must be submitted to the Agency for all applications for 
guaranteed loans in the amount of $200,000 or more. For lenders that are 
submitting smaller requests, the lender must keep the credit report on 
file with the lender's application.
    (4) Feasibility study: If the Agency is unable to determine a basis 
for successful repayment of a guaranteed loan based on the documentation 
and analysis of the five feasibility study components provided in the 
lender's analysis, borrower's business plan, or other project 
information, or if the proposed project will have significant impacts on 
existing operations, the Agency may require an independent feasibility 
study. The elements of an acceptable feasibility study may vary by 
project scope and should be prepared by a qualified, independent third 
party using applicable elements of the project, including but not 
limited to those outlined in appendix A to subpart D of this part.
    (5) Intergovernmental consultation comments in accordance with 2 CFR 
part 415, subpart C, or successor regulation, unless exemptions have 
been granted by the State's single point of contact.
    (6) Engineering documentation.
    (7) Architectural reports.
    (8) Energy audits or energy assessments in accordance with Sec. 
5001.107.
    (9) Energy efficient equipment and systems data in accordance with 
Sec. 5001.108.
    (10) Business plan: Unless the information is contained in the 
feasibility study or in the credit evaluation, a business plan should be 
submitted to show how the project will operate and remain viable. This 
requirement may be omitted when guaranteed loan funds are used 
exclusively for debt refinancing.
    (11) If the application is for five or more residential units, 
including nursing homes and assisted-living centers, an Affirmative Fair 
Housing Marketing Plan that is in conformance with 7 CFR 1901.203(c)(3).
    (12) If the application is for financing of health care facilities, 
a certificate of need, if required by Federal or State law.
    (13) Department of Labor form as noted in Sec. 5001.306(a)(1).
    (14) Pro-forma balance sheet for closing as noted in Sec. 
5001.306(a)(2).
    (15) SEC Form 10-K as noted in Sec. 5001.306(a)(4).

[[Page 1076]]

    (16) Technical reports in accordance with Sec. 5001.307(e).
    (17) Certification regarding credit elsewhere in accordance with 
Sec. 5001.126(b)(3) and (c)(2).
    (18) Certification of significant community support in accordance 
with Sec. 5001.126(b)(4) and (c)(3).
    (19) Copies of organizational documents if not already provided with 
a preliminary eligibility review in accordance with Sec. 5001.302.
    (d) Application modification. Once a complete application is 
accepted by the Agency and prior to Agency award of a loan note 
guarantee, any modification to the application will be treated as a new 
Application and the Agency will process the information accordingly. The 
submission date of record for a modified application is the date the 
Agency receives the modified application information.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 
FR 70357, Dec. 10, 2021]



Sec. 5001.304  Specific application requirements for CF projects.

    In addition to the requirements specified in Sec. 5001.303 as 
applicable, a lender seeking a loan guarantee for a CF project must 
submit a financial feasibility report prepared by a qualified firm or 
individual acceptable to the Agency. All projects financed under this 
section must meet the financial feasibility requirements of this section 
and must be based on projected taxes, assessments, revenues, fees, or 
other sources of revenues in an amount sufficient to provide for project 
operation and maintenance, debt payments, and compliance with lender 
reserve requirements, when applicable. Other sources of revenue or 
existence of payment guarantors are particularly important in 
considering the feasibility of eligible recreation projects. The 
financial feasibility report must take into consideration any interest 
rate adjustment that may be instituted under the terms of the promissory 
note. Financial projections for projects that are assisted living 
facilities, skilled nursing facilities, or similar types of eligible 
residential facilities must be based on no more than 90 percent 
occupancy. Utility projects dependent on user fees for debt repayment 
shall base their income and expense forecast on user estimates supported 
by either a state statute or local ordinance requiring mandatory hookup 
or signed and enforceable user agreements. If the primary use of the 
essential community facility is by a business and the success or failure 
of the facility is dependent on that business, then the economic 
viability of that business must also be assessed. For projects that 
include the purchase and installation of RES that meet the eligibility 
requirements of Sec. 5001.103(a)(8), a technical report on the RES as 
outlined in Sec. 5001.307(e)(1) and (2), as applicable, will be 
included with the applicable financial feasibility report. The type of 
financial feasibility report required will depend upon the size of the 
guaranteed loan, the collateral o securing the guaranteed loan, and the 
financial history of the borrower. The two types of financial 
feasibility report and when they are required are described in 
paragraphs (a) and (b) of this section.
    (a) Financial feasibility analysis. The financial feasibility 
analysis will be prepared by a qualified firm or individual who may be 
the lender. Financial feasibility analysis requirements are outlined in 
appendix B to subpart D of this part. The lender's credit evaluation may 
serve as the financial feasibility analysis provided it includes the 
items outlined in appendix B to subpart D of this part. A financial 
feasibility analysis will be required if any of the following 
circumstances exist:
    (1) Guaranteed loans of $25 million or less to existing community 
facilities;
    (2) Guaranteed loans secured by a general obligation bond, or other 
tax supported income sufficient to pay the debt service for the life of 
the loan; or
    (3) Borrowers with audited financial statements, if the last three 
years indicate the ability to pay all existing and new debt service.
    (4) The Agency may require a Feasibility Study when the lender's 
analysis, borrower's business plan, or project information is not 
sufficient to determine the technical feasibility, market feasibility, 
or economic viability of the project.

[[Page 1077]]

    (i) For guaranteed loans greater than $1,000,000.00 to a new entity 
or an entity conducting a new activity, a feasibility study prepared by 
an independent qualified consultant acceptable to the Agency is 
required. The scope of the feasibility study will be determined by the 
Agency and is dependent on the complexity of the project and the 
borrower.
    (ii) For loans of $1,000,000.00 or less to new and existing 
entities, the Agency may require a feasibility study when the lender's 
analysis or other borrower information is not sufficient to determine 
the technical feasibility or economic viability of the project, or if 
the project will significantly affect the operations of a borrower who 
is an existing entity and its historic cash flow.
    (b) Financial feasibility study with examination opinion. The report 
must be prepared in accordance with the standards of attestation of the 
American Institute of Certified Public Accountants, and the preparer 
must have the requisite professional liability insurance in place. A 
financial feasibility study with examination opinion will be required 
for all guaranteed loans that do not meet the requirements for a 
financial feasibility analysis outlined in paragraph (a) of this 
section. The financial feasibility study with examination opinion will 
typically include the items outlined in appendix B to subpart D of this 
part.

[85 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021]



Sec. 5001.305  Specific application requirements for WWD projects.

    In addition to the requirements specified in Sec. 5001.303, a 
lender seeking a loan guarantee for a WWD project must submit the 
documents specified in paragraphs (a) through (c) of this section.
    (a) Engineering documentation. (1) Engineering documentation must 
meet the level of detail the lender would typically require for a 
standard commercial loan, and include, at a minimum, a description of 
the proposed project, a cost estimate, the number of residential and 
non-residential connections, and the population served. The lender may 
request assistance to clarify the Agency's requirements and regulations; 
however, the Agency does not provide technical oversight or 
recommendations as to the technical feasibility of the project.
    (2) The lender must ensure that the project is designed utilizing 
accepted architectural and engineering practices and conforms to 
applicable Federal requirements (e.g. the seismic requirements of 
Executive Order 12699 (55 FR 835, 3 CFR, 1990 Comp., p. 269), the 
debarment requirements of 2 CFR part 417, American Iron and Steel 
(Section 746 of Title VII of the Consolidated Appropriations Act of 
2017), and the Copeland Anti-Kickback Act (18 U.S.C. 874)); State, local 
and Tribal codes and requirements; and facility plans or plans and 
specifications reviewed and approved by the applicable State, local and/
or Tribal regulatory agency. The lender must also ensure that the 
planned project will be completed within the available funds and, once 
completed, will be suitable for the borrower's needs. Upon completion of 
the project, the lender must certify that all applicable Federal 
requirements were met.
    (b) Feasibility considerations. All projects financed under this 
part must be based on projected taxes, assessments, revenues, fees, or 
other sources of revenues in an amount sufficient to provide for project 
operation and maintenance, any reserves required by the lender, and debt 
payment. The lender's financial credit analysis must take into 
consideration any interest rate adjustment that may be instituted under 
the terms of the loan note guarantee.
    (c) Credit analysis requirements. In addition to the requirements of 
Sec. 5001.202, if the majority user of the system is a business and the 
financial success of the system is dependent on that business, then the 
economic viability of that business must be assessed.



Sec. 5001.306  Specific application requirements for B&I projects.

    In addition to the requirements specified in Sec. 5001.303, as 
applicable, a lender requesting a B&I loan guarantee must submit the 
information specified in paragraph (a) of this section if the guaranteed 
loan amount is more than $600,000, or in (b) of this section if the

[[Page 1078]]

guaranteed loan amount is $600,000 or less.
    (a) Applications requesting a guaranteed loan in an amount greater 
than $600,000. (1) The Agency is required to submit project information 
to the United States Department of Labor for their concurrence if the 
proposed guaranteed loan is in excess of $1,000,000.00 and will increase 
direct employment by more than 50 employees. The lender must provide 
sufficient project and demographic information to the Agency for 
completion of a Department of Labor review.
    (2) A pro forma balance sheet projected for loan closing.
    (3) The Agency may require a Feasibility Study when the lender's 
analysis, borrower's business plan, or project information is not 
sufficient to determine the technical feasibility, market feasibility, 
or economic viability of the project.
    (i) For guaranteed loans greater than $1,000,000.00 to a new 
business, a feasibility study prepared by an independent qualified 
consultant acceptable to the Agency is required. The scope of the 
feasibility study will be determined by the Agency and is dependent on 
the complexity of the project and the borrower.
    (ii) For loans of $1,000,000.00 or less to new and existing 
businesses, the Agency may require a feasibility study when the lender's 
analysis or other borrower information is not sufficient to determine 
the technical feasibility or economic viability of the project, or if 
the project will significantly affect the operations of a borrower who 
is an existing business and its historic cash flow.
    (iii) A technical report is required for RES identified in Sec. 
5001.307(e) and for projects utilizing other integrated processing 
equipment and systems. The contents of the technical report must be 
consistent with the requirements of Sec. 5001.307(e)(1) and must 
provide sufficient detail to enable the Agency to determine technical 
merit. The report can be provided in the technical feasibility section 
of a feasibility study or in a separate technical report.
    (4) For companies listed on a major stock exchange or subject to the 
Securities and Exchange Commission (SEC) regulations, a copy of their 
most recent SEC Form 10-K, ``Annual Report Pursuant to section 13 or 
15(d) of the Securities Exchange Act of 1934.''
    (5) Current financial statements of affiliates.
    (b) Applications requesting a guaranteed loan in an amount of 
$600,000 or less. Guaranteed loan applications may be processed under 
this paragraph (b) if the amount of the guaranteed loan does not exceed 
$600,000, provided the Agency determines that the lender's analysis, 
borrower's business plan, or other project or borrower information 
submitted by the lender is sufficient to determine the technical 
feasibility, market feasibility, and economic viability of the project. 
If any of the items in paragraphs (a)(1) through (4) of this section 
apply, the lender must collect the information and maintain it in their 
file. A Lender may need to resubmit or modify an application if the 
application does not contain sufficient information for the Agency to 
make an informed loan approval decision.
    (1) Lenders submitting applications under this paragraph (b) must 
include the following information:
    (i) Narrative description of the project including the history of 
the borrower and adequacy of cash flow and borrower equity;
    (ii) Required financial statements including a current Agency-
acceptable balance sheet and year-to-date income statements;
    (iii) Security available for the guaranteed loan including 
collateral and payment guarantees;
    (iv) Strengths and weaknesses of the guaranteed loan and the 
Lender's need for the loan guarantee to mitigate specific risks.
    (2) The lender may elect to not submit the following application 
documentation to the Agency, but must have the information available in 
its file for review:
    (i) Narrative description of management capabilities and corporate 
structure of the borrower;
    (ii) Environmental information for the project and any environmental 
reviews;
    (iii) Agency-acceptable historical balance sheets and income 
statements of the borrower and its affiliates;

[[Page 1079]]

    (iv) Financial statements of any personal, partnership, or corporate 
guarantors.



Sec. 5001.307  Specific application requirements for REAP projects.

    In addition to the requirements specified in Sec. 5001.303, a 
lender seeking a loan guarantee for a REAP project must submit the 
information identified below based on total project costs.
    (a) Borrower eligibility information. (1) Eligible borrowers must 
meet the definition of agricultural producer or rural small business as 
defined in Sec. 5001.3. Agricultural producers seeking funding for a 
RES or EEI project may apply as either a rural small business or as an 
agricultural producer, provided they meet the applicable eligibility 
requirements. Agricultural producers seeking funding for an EEE project 
must be eligible and apply as an Agricultural Producer.
    (2) The Borrower must provide the primary NAICS code applicable to 
the borrower's business concern and certify on the Agency approved 
application form or system that it meets the definition of agricultural 
producer or rural small business. The Agency reserves the right to 
request supporting documentation to verify borrower eligibility.
    (b) Borrower description. Describe the ownership of the Borrower, 
including the information specified in paragraphs (b)(1) through (3) of 
this section, as applicable. Include a description of the Borrower's 
existing farm, ranch, or business operation, including how long the 
borrower has been in operation.
    (1) Describe how the borrower meets the ownership and control 
requirements as identified in Sec. 5001.126(e)(2).
    (2) For each entity(ies) the borrower controls or entity(ies) it is 
controlled by, provide a list of the individual owners with their 
contact information. Describe the relationship between the borrower and 
the other entity(ies), including percentage of ownership and control, 
management, passive investor ownership, and any products exchanged. 
Organizational charts to demonstrate the structure of the borrower 
should be submitted when available.
    (3) Identify the ethnicity, race, and gender of the borrower. 
Identify if the borrower is a veteran. This information is optional and 
is not required for a complete application but may be used by the Agency 
to award priority points.
    (c) Project information. Provide information concerning the project 
as a whole and its relationship to the borrower's operations, including:
    (1) Identification as to whether the project is an RES, EEI, or EEE 
project. Include a description and the location of the project;
    (2) Description of how the project will have a positive effect on 
resource conservation, public health, and the environment;
    (3) Identification of the amount of funds and the source(s) of funds 
the borrower is proposing to use for the project. Provide written 
commitments for funds at the time the application is submitted to 
receive points under this scoring criterion.
    (i) For project funding provided by the borrower, documentation may 
include bank statements that demonstrates availability of funds.
    (ii) For project funding that comes from a third party, a commitment 
letter signed by an authorized official of the third party. The letter 
must be specific to the project and must identify the dollar amount of 
any loan or other funding and any applicable rates and terms. If the 
third-party commitment is for a loan, the commitment must be firm; a 
letter-of-intent or pre-qualification letter subject to underwriting 
requirements or contingencies is not acceptable.
    (d) Feasibility study. For RES projects only, when deemed necessary 
by the lender or Agency, an analysis conducted in conformance with the 
definition of feasibility study found in Sec. 5001.3 and with 
applicable content in appendix A to subpart D of this part.
    (e) Technical report. All eligible projects must have technical 
merit and provide information as identified in Sec. 5001.106(e), Sec. 
5001.107(d), or Sec. 5001.108(d) and (e)(1) through (3) of this 
section.
    (1) Level of detail. Information provided must be in sufficient 
detail to enable the Agency to determine the technical merit of the 
project. Design drawings and process flowcharts are encouraged as 
exhibits. The technical report

[[Page 1080]]

requirements can be provided in the technical feasibility section of a 
feasibility study, instead of completing a separate technical report.
    (i) Sufficient information to enable the calculation of simple 
payback as defined in Sec. 5001.3;
    (ii) For RES Projects, sufficient information to enable the 
calculation of the percentage of historical use of energy compared to 
the amount of renewable energy that will be generated once the project 
is operating at its steady state operating level. If the project is 
closely associated with a residence, satisfactory demonstration must be 
made that 50 percent or more of the projected renewable energy will 
benefit the agricultural operation or rural small business; and
    (iii) Demonstrate that the RES, EEI, or EEE project will operate or 
perform over the project's useful life in a reliable, safe, and a cost-
effective manner, which may include but is not limited to addressing 
project design, installation, operation, maintenance, and warranties.
    (iv) In addition, the following technologies, must provide a 
technical report in accordance with paragraphs (e)(1)(v) through (viii) 
of this section, as applicable:
    (A) Hydrogen;
    (B) Ocean energy;
    (C) Geothermal electric generation;
    (D) Anaerobic digesters and biogas;
    (E) Biomass;
    (F) Hybrid applications;
    (G) Renewable energy systems with storage components; and
    (H) Energy efficiency improvements
    (v) For total project costs in the amount of $80,000 or less, a 
technical report, as identified in Sec. 5001.303(c)(15), prepared in 
accordance with the following paragraphs, as applicable:
    (A) EEI technical reports. Each EEI technical report submitted under 
this section must provide:
    (1) A description of the proposed EEI, including its intended 
purpose;
    (2) Vendor/Installer certification that the EEI project uses 
commercially available technology;
    (3) Vendor/Installer certified projections on the quantity of energy 
to be saved;
    (4) Certification by vendor/installer that they are qualified to 
complete the project as intended;
    (5) Vendor/installer certification that the EEI system will operate 
and perform over the project's useful life in a reliable and cost-
effective manner; and
    (6) An estimate of simple payback, including all calculations, 
documentation, and any assumptions.
    (B) RES technical reports. Each RES technical report submitted under 
this section must provide:
    (1) A description of the proposed RES project, including its 
intended purpose;
    (2) Vendor/installer certified projections on energy to be replaced 
and/or generated, including the quality and availability of the 
renewable resource to the project; if there is a residence closely 
associated with the RES project, the historical amount of energy used by 
the residence and the historical amount of energy used by the 
agricultural operation or rural small business, as applicable, to 
satisfactorily demonstrate 50 percent or more of proposed generation 
will benefit the agricultural operation or rural small business;
    (3) Vendor/installer certification that the RES project uses 
commercially available technology;
    (4) Certification that the vendor/installer is qualified to complete 
the project as intended;
    (5) Certification that the project will perform over its useful life 
in a reliable and cost-effective manner; and
    (6) The projected financial performance of the project. The 
description must address total project costs, revenues accrued from the 
sale or crediting of energy, quantity and value of energy offset, and 
revenue from byproducts. Include applicable investment and other 
production incentives and indicate if they are one time or reoccurring 
incentives. Provide an estimate of simple payback, including all 
calculations, documentation, and any assumptions.
    (C) EEE technical reports. Each EEE technical report submitted under 
this section, regardless of total project costs, must provide:
    (1) A description of the proposed EEE and its intended purpose, 
including baseline data, specifications, and efficiency data;

[[Page 1081]]

    (2) Vendor/Installer certification that the EEE project uses 
commercially available technology;
    (3) Vendor/Installer certification of the proposed energy 
consumption quantity and price per unit of the energy efficiency 
equipment to be installed;
    (4) Certification by vendor/installer that they are qualified to 
complete the project as intended;
    (5) Vendor/installer certification that the EEE system will operate 
and perform over the project's useful life in a reliable and cost-
effective manner; and
    (6) An estimate of simple payback, including all calculations, 
documentation, and any assumptions.
    (vi) For EEI guaranteed loan projects with total project costs 
greater than $80,000, the technical report identified in paragraph 
(e)(1)(v)(A) of this section applies, except that appendix C to subpart 
D of this part is to be followed to prepare the report.
    (vii) For RES guaranteed loan projects with total project costs 
greater than $80,000 and up to but not including $200,000, the technical 
report identified in paragraph (e)(1)(v)(B) of this section applies, 
except that appendix D to subpart D of this part is to be followed to 
prepare the report.
    (viii) For RES guaranteed loan projects with estimated total project 
costs of $200,000 or greater, the technical report identified in 
paragraph (e)(1)(v)(B) of this section applies, except that appendix E 
to subpart D of this part is to be followed to prepare the report.
    (2) Modifications. If the technical report is prepared prior to the 
borrower's selection of a final design, equipment vendor, or contractor, 
or other significant decision, the borrower may modify the report and 
resubmit it to the Agency, provided that the overall scope of the 
project is not materially changed as determined by the Agency. Changes 
in the technical report may require additional environmental 
documentation in accordance with 7 CFR part 1970.
    (3) Hybrid projects. If the application is for a hybrid project, 
technical reports must be prepared for each technology that comprises 
the hybrid project.



Sec. Sec. 5001.308-5001.314  [Reserved]



Sec. 5001.315  Application evaluation and award provisions.

    (a) General. The Agency will evaluate all Applications according to 
the provisions of this part and may require the lender to obtain 
additional assistance in those areas where the lender does not have the 
necessary expertise to originate or service the guaranteed loan. For the 
purposes of this paragraph (a), ``those areas'' mean:
    (1) The type and complexity of the financing (e.g., asset-based 
financing, cash flow financing, and bond financing); and
    (2) Loans to borrowers engaged in industries where the lender has 
little or no origination and/or servicing experience.
    (b) Evaluation and eligibility determinations. The Agency will 
review each application to make a formal determination as to: The 
eligibility of the borrower, lender, project, and guaranteed loan 
purpose and proposed use of funds; if there is a reasonable assurance of 
repayment ability; if sufficient collateral and equity exists; if the 
proposed guaranteed loan complies with all applicable statutes and 
regulations; and if the environmental review is complete.
    (1) If the Agency's evaluation and determination in accordance with 
this paragraph (b) is favorable, the Agency will proceed in accordance 
with paragraph (c) of this section.
    (2) If the Agency's evaluation and determination in accordance with 
this paragraph (b) is unfavorable, the Agency will notify the lender, in 
writing, as applicable, identifying the reason(s) for determining 
ineligibility and any applicable appeal or review rights. No further 
processing of the application will occur.
    (c) Priority score. The Agency will score each eligible application 
based on the point system for the respective program identified in 
Sec. Sec. 5001.316 through 5001.319.
    (1) Lenders must provide necessary information related to 
determining the score, if requested by the Agency. To the extent 
possible, lenders should consider the established priorities of the 
Agency when submitting projects for a

[[Page 1082]]

loan guarantee. Higher scoring applications will receive first 
consideration for funding.
    (2) The Agency may establish a minimum priority score for each 
guarantee program. The Agency will, if established, publish the minimum 
score in a document in the Federal Register. Applications that do not 
meet the applicable minimum score will compete with all other guaranteed 
loan applications for each specific program in a competition on the 
first business day of September of the Federal fiscal year in which the 
application is ready for funding.
    (d) Funding selected applications. Each program identified in Sec. 
5001.1 will consider applications for funding in the order they are 
received by the Agency. If the Agency approves the application and 
guaranteed funds are available, the Agency will issue a conditional 
commitment to the lender in accordance with Sec. 5001.451 of subpart E. 
In the event total loan requests exceed the amount of funding available 
the applications will be ranked for priority by each program. As 
applications are funded, the remaining guaranteed loan funding authority 
may be insufficient to fund the next highest scoring application or 
applications (where two or more applications receive the same priority 
score). The Agency will use the procedures described in paragraphs 
(d)(1) and (2) of this section as often as necessary to consider all 
applications as appropriate.
    (1) If the remaining funds are insufficient to fund the next highest 
scoring application completely, the Agency will notify the lender and 
offer the lender the opportunity to accept the remaining funds. If the 
lender does not accept the offer, the Agency will process the next 
highest scoring application.
    (2) If the remaining funds are insufficient to fund each application 
that receives the same priority score, the Agency will notify each 
lender and offer the lenders the opportunity to accept a prorated share 
of the remaining funds.
    (3) Any lender offered less than the full amount requested under 
either paragraph (d)(1) or (2) of this section can either accept the 
funds available or request to compete in the next funding cycle. There 
is no assurance that the application(s) will be funded in a subsequent 
funding cycle.
    (4) If a lender agrees to the lower loan guarantee amount offered by 
the Agency under either paragraph (d)(1) or (2) of this section, the 
lender must certify that the purpose(s) of the project can still be met 
at the lower funding level and must provide documentation that the 
borrower has obtained the remaining funds needed to complete the Project 
as originally proposed.
    (e) Handling of ranked applications not funded. The Agency will 
withdraw from consideration ranked applications that have not received 
funding as follows:
    (1) If an unfunded application has a priority score equal to or 
greater than any applicable minimum score, the Agency will retain the 
application for consideration in subsequent funding cycles. If the 
unfunded application is not selected for funding after 12 months, 
including the first month in which the application was considered, the 
Agency will withdraw the application from further funding consideration.
    (2) If an unfunded application has a priority score less than any 
applicable minimum score, and remains unfunded after the competition 
held on the first business day of September of the fiscal year in which 
the application is ready for funding, the Agency will withdraw the 
application from further funding consideration.
    (f) Commencement of the project. The borrower assumes all risks if 
the borrower purchases real property or equipment or starts construction 
of the project to be financed by a guaranteed loan after the complete 
application has been received by the Agency, but prior to the Agency's 
issuance of the conditional commitment and the lender and borrower's 
acceptance of the conditional commitment.
    (g) Application withdrawal. During the period between the submission 
of an application and prior to issuance of the conditional commitment, 
the lender must notify the Agency, in writing, if the project is no 
longer viable or the borrower no longer is requesting financial 
assistance for the project. When the lender notifies the Agency, the

[[Page 1083]]

Agency will rescind the selection and withdraw the application, as 
applicable.



Sec. 5001.316  CF project priority point system and reservation of funds.

    This section applies to CF projects seeking a loan guarantee. 
Paragraphs (a) through (d) of this section outline the criteria and 
amount of priority points that may be awarded to an application. The 
highest possible priority score is 55. Paragraph (e) of this section 
outlines the reservation of funds for projects located in rural areas of 
20,000 population or less.
    (a) Population priority. If the project will be located in a rural 
community having a population of less than 20,000--15 points.
    (b) Project priority. If the project will construct, enlarge, extend 
or otherwise improve a public safety, health clinic, early education, 
primary or secondary education facility--10 points.
    (c) Leveraging priority. If the applicant commits other funds to the 
project in the following percentages:

(1) 50 percent or more-15 points
(2) 20% up to 49%-10 points
(3) 5% up to 19%-5 points
    (d) Administrator priority. When guaranteed loan funds are requested 
from a National Office reserve, the Administrator may assign up to 15 
points to address:
    (1) Geographic distribution of funds;
    (2) Emergency conditions caused by economic problems or natural 
disasters; or
    (3) Initiatives that support the Agency's strategic plan.
    (e)(1) Of the funds available each Federal fiscal year, as published 
on the Agency's website, the following amounts shall be reserved for 
projects in rural areas with a population of not more than 20,000 
inhabitants:
    (i) 100 percent of the first $200,000,000 so made available;
    (ii) 50 percent of the next $200,000,000 so made available; and
    (iii) 25 percent of all amounts exceeding $400,000,000 so made 
available.
    (2) On July 1 of each year, the Agency will evaluate the dollar 
amount of complete applications on hand for projects in rural areas with 
a population of not more than 20,000 inhabitants. The dollar amount of 
the complete applications will be subtracted from the reserved 
allocation identified in this paragraph (e) and the remaining amount 
will be made available through the end of the Federal Fiscal Year for 
projects in rural areas with a population of not more than 50,000 
inhabitants.



Sec. 5001.317  WWD project priority points system.

    This section applies to WWD projects seeking a loan guarantee. The 
highest possible priority point score is 150.
    (a) Population priority. If the project will primarily serve a rural 
area having a population under 10,000, 20 points will be awarded.
    (b) Health priorities. If the proposed project is:
    (1) Needed to alleviate an emergency situation, correct 
unanticipated diminution or deterioration of a water supply, or to meet 
Safe Drinking Water Act requirements which pertain to a water system, 25 
points will be awarded;
    (2) Required to correct inadequacies of a wastewater disposal 
system, or to meet health standards which pertain to a wastewater 
disposal system, 25 points will be awarded; or
    (3) Required to meet administrative orders issued to correct local, 
State, or Federal solid waste violations, 15 points will be awarded.
    (c) Service area priorities. An application is eligible to receive 
points under each of the categories identified in paragraphs (c)(1) 
through (3) of this section if the service area includes:
    (1) An eligible area of long-term population decline according to 
the last three decennial censuses, 5 points will awarded.
    (2) A rural county that has had 20 percent or more of its population 
living in poverty, as defined by the United States Census Bureau, for 
the last 30 years, 5 points will be awarded.
    (3) For a city or county with a current unemployment rate, as 
determined by the Department of Labor, that is 125 percent of the State-
wide

[[Page 1084]]

rate or greater, 5 points will be awarded. For projects located in 
certain territories that may not have unemployment rates by localities, 
if the applicant's proposed service area has an unemployment rate 
exceeding 125 percent of the national unemployment rate, 5 points will 
be awarded.
    (d) Other priorities. Applications are eligible for points under 
each of the following priorities:
    (1) If the proposed project will merge ownership, management, and 
operation of smaller facilities providing for more efficient management 
and economical service, 10 points will be awarded.
    (2) If the proposed project will enlarge, extend, or otherwise 
modify existing facilities to provide service to additional rural areas, 
10 points will be awarded.
    (3) If the applicant is a public body or Indian tribe, 5 points will 
be awarded;
    (4) If the amount funds committed to the project from sources other 
than Rural Development is:
    (i) 50 percent or more, 15 points will be awarded;
    (ii) 20 percent to 49 percent, 10 points will be awarded;
    (iii) 5 percent to 19 percent, 5 points will be awarded;
    (5) If the project will serve Agency identified target areas, 5 
points will be awarded;
    (6) If the project primarily recycles solid waste products thereby 
limiting the need for solid waste disposal, 5 points will be awarded; 
and
    (7) If the project will serve an area that has an unreliable quality 
or supply of drinking water, 10 points will be awarded.
    (e) In certain cases, the approval official may award up to 15 
points to a project. The points may be awarded to projects in order to 
improve compatibility and coordination between WWD and other agencies' 
selection systems, to ensure effective RUS fund utilization, and to 
assist those projects that are the most cost effective. A written 
justification must be prepared and placed in the project file each time 
these points are assigned.
    (f) National office priorities. The Administrator may assign up to 
15 additional points to account for items such as geographic 
distribution of funds, the highest priority projects within a state, and 
emergency conditions caused by economic problems or natural disasters. 
The Administrator may delegate the authority to assign the 15 points to 
appropriate National Office staff.



Sec. 5001.318  B&I project priority point system.

    This section applies to B&I projects seeking a loan guarantee. When 
applications on hand have the same priority score, the Agency will give 
preference to applications involving guaranteed loans from veterans. To 
receive veteran points, a veteran or veterans must own 20 percent or 
more interest in the borrower and the borrower must sign a certification 
in its application to indicate that the borrower has veteran status. A 
maximum of 100 points can be awarded.
    (a) Population priority. If the project is located in an 
unincorporated area or in a city with a population under 25,000, 5 
points will be awarded.
    (b) Location priority. An application is eligible to receive points 
under each of the categories identified in paragraphs (b)(1) through (3) 
of this section if the Project is located within:
    (1) A distressed community in accordance with the Economic 
Innovation Group distressed community index. The list can be found on 
the Agency's website at: https://www.rd.usda.gov/ onerdguarantee, 5 
points will be awarded.
    (2) A rural county that has had 20 percent or more of its population 
living in poverty, as defined by the United States Census Bureau, for 
the last 30 years, 5 points will be awarded.
    (3) For a city or county with a current unemployment rate, as 
determined by the Department of Labor, 125 percent of the State-wide 
rate or greater, 5 points will be awarded. For projects located in 
certain territories that may not have unemployment rates by localities, 
if the applicant's proposed service area has an unemployment rate 
exceeding 125 percent of the national unemployment rate, 5 points will 
be awarded.
    (4) The boundaries of a federally recognized Indian Tribe's 
reservation, within Tribal trust lands, or within

[[Page 1085]]

land owned by an Alaska Native Regional or Village Corporation as 
defined by the Alaska Native Claims Settlement Act, 5 points will be 
awarded.
    (c) Guaranteed loan features. An application is eligible to receive 
points under each of the categories identified in paragraphs (c)(1) 
through (3) of this section as follows:
    (1) If the lender will price the guaranteed loan at an interest rate 
equal to or less than the equivalent of the Wall Street Journal 
published Prime Rate plus 1.5 percent, 5 points will be awarded.
    (2) If the guaranteed loan is less than 60 percent of the total 
project cost, 5 points will be awarded.
    (3) If the business is owned by a qualified veteran, 5 points will 
be awarded.
    (d) High impact business development investment priorities. An 
application is eligible to receive points under each of the categories 
identified in paragraphs (d)(1) through (7) of this section below:
    (1) If the industry is not already present in the local community, 5 
points will be awarded.
    (2) If the business has 20 percent or more of its sales in 
international markets, 5 points will be awarded.
    (3) If the business is locally owned and managed, 5 points will be 
awarded.
    (4) If the business will produce a natural resource value-added 
product, 5 points will be awarded.
    (5) If the business processes, distributes, aggregates, stores, and/
or markets locally or regionally produced agricultural food products to 
underserved communities in accordance with Sec. 5001.105(b)(15)(ii), 5 
points will be awarded.
    (6) If the business creates or saves a minimum of five jobs with an 
average wage exceeding 150 percent of the Federal minimum wage, 5 points 
will be awarded.
    (7) If the business offers a healthcare benefits package to all 
employees and pays at least 50 percent of the healthcare premium, 5 
points will be awarded.
    (e) Administrative points. An application is eligible to receive 
points under paragraphs (e)(1) through (3) of this section.
    (1) For projects awarded under State allocations the State Director 
may assign up to 10 additional points to an application to account for 
state-wide distribution of funds for natural disasters, local economic 
emergency conditions, community economic development strategies, State 
strategic plans, fundamental structural changes in a community's 
economic base, or projects that will fulfill an Agency special 
initiative.
    (2) For projects requesting funds from the national reserve account, 
the State Director may request up to 10 administrative points from the 
Administrator.
    (3) If an application is for a loan in excess of 10 million dollars, 
the Administrator may assign up to an additional 10 points to account 
for the nationwide geographic distribution of funds, or projects that 
will fulfill an Agency special initiative.

[85 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021]



Sec. 5001.319  REAP project priority point system.

    This section applies to REAP projects seeking a loan guarantee. On a 
periodic basis, the Agency will compete each complete and eligible RES, 
EEI, and EEE application that is ready to be funded and whose priority 
score, as determined in this section, meets or exceeds the minimum 
priority score. Applications that do not meet the applicable minimum 
score will be considered as provided in Sec. 5001.315(c)(2). A maximum 
score of 90 points is possible.
    (a) Environmental benefits. The Agency will award up to 5 points 
under this criterion based on documentation in the application that the 
project will have a positive effect on resource conservation, public 
health, and the environment. If the project will have a positive impact 
on:
    (1) All three impact areas, 5 points will be awarded;
    (2) Any two of the three impact areas, 3 points will be awarded; or
    (3) Any one of the three impact areas, 1 point will be awarded.
    (b) Energy generated, replaced, saved, or percent efficiency. The 
Agency will award up to 25 points under this criterion. Each application 
is eligible for

[[Page 1086]]

points under both paragraphs (b)(1) and (2) of this section.
    (1) Quantity of energy generated or saved per RES/EEI loan amount 
requested, or percent efficiency of EEE project. The Agency will award 
up to 10 points under this sub-criterion. Points will be awarded for 
either the amount of renewable energy generation per dollar of loan 
amount requested, which includes those projects that are replacing 
energy usage with a renewable source; or the actual annual average 
energy savings over the most recent 12, 24, 36, 48, or 60 consecutive 
months of operation per dollar of guaranteed loan amount requested; or 
the percent efficiency of the EEE project. The Agency will not award 
points for more than one category.
    (i) Renewable energy systems. The quantity of energy generated or 
replaced per guaranteed loan dollar requested will be determined by 
dividing the projected total annual energy generated or replaced by the 
RES or RES retrofit (minus energy for residential use), which will be 
converted to BTUs, by the guaranteed loan dollars requested. Points will 
be awarded under this sub-criterion based on the annual amount of energy 
generated or replaced (minus energy for residential use) per dollar of 
guaranteed loan amount requested for the RES project. The Agency will 
award up to 10 points as determined under paragraph (b)(1)(i)(A) and (B) 
of this section below. If the annual amount of energy generated per 
dollar of guaranteed loan amount requested calculated under paragraph 
(b)(1)(ii) of this section is:
    (A) 50,000 BTUs or higher average annual energy generated or 
replaced per dollar of guaranteed loan amount requested or higher, 10 
points will be awarded; or
    (B) Less than 50,000 BTUs annual energy generated or replaced per 
dollar of guaranteed loan amount requested, points will be awarded 
according to the result of taking the energy generated or replaced per 
guaranteed loan dollar requested / 50,000 x 10 points. The points 
awarded are rounded to the nearest hundredth of a point.
    (ii) Energy efficiency improvements. The Agency will award up to 10 
points under this sub-criterion based on the average annual energy saved 
per dollar of guaranteed loan amount requested for the EEI project. The 
Agency will award up to 10 points as determined under paragraph 
(b)(1)(ii)(A) and (B) of this section.
    (A) 50,000 BTUs or higher average annual energy saved per dollar of 
guaranteed loan amount requested, 10 points will be awarded; or
    (B) Less than 50,000 BTUs average annual energy saved per dollar of 
guaranteed loan amount requested, points will be awarded according to 
the result of taking the energy generated per loan dollar requested / 
50,000 x 10 points. The points awarded are rounded to the nearest 
hundredth of a point.
    (iii) Energy efficient equipment and systems. If the increased 
energy efficiency of the proposed equipment and systems is--
    (A) 75 percent or greater, award 10 points;
    (B) Less than 75 percent but equal to or greater than 50 percent, 
award 5 points;
    (C) Less than 50 percent but equal to or greater than 25 percent, 
award 2.5 points; or
    (D) Less than 25 percent, award 0 points.
    (2) Quantity of energy replaced, generated, or saved, or percentage 
of energy efficiency. The Agency will award up to 15 points under this 
sub-criterion. Points will be awarded based on whether the project is 
for energy replacement, energy generation, or energy savings, or 
percentage of energy efficiency; points will not be awarded for more 
than one category.
    (i) Energy replacement. The Agency will award points under this sub-
criterion for an RES project based on the amount of energy replaced by 
the project compared to the amount of energy used by the applicable 
process(es) over a 12-month period. If the estimated energy produced is 
more than 150 percent of the energy used by the applicable process(es), 
the project will be scored as an energy generation project under 
paragraph (b)(2)(ii) of this section.
    (A) Documentation for energy replacement. For a RES project to 
qualify as energy replacement, the borrower must

[[Page 1087]]

provide documentation in its application on prior energy use incurred by 
the borrower. Proposed energy use, such as that attributed to an 
expansion, is not considered in the replacement calculation. For a RES 
project involving new construction and being installed to serve the new 
facility, the project can be classified as energy replacement only if 
the borrower can document prior energy use from a facility that is 
within plus or minus 10 percent of the size of the facility it is 
replacing. The estimated quantities of energy must be converted to 
either BTUs, watts, or similar energy equivalents to facilitate scoring.
    (B) Calculation. Energy replacement is determined by dividing the 
quantity of renewable energy that the RES project is estimated would 
have been generated if it were in place over the most recent 12-month 
period by the quantity of energy actually consumed over the same period 
by the applicable energy process(es) that is(are) consuming energy.
    (C) Awarding of points. Using the results from paragraph 
(b)(2)(ii)(B) of this section, if the percentage of energy replacement 
is--
    (1) Greater than 50 percent, 15 points will be awarded;
    (2) Greater than 25 percent, but equal to or less than 50 percent, 
10 points will be awarded; or
    (3) Equal to or less than 25 percent, 5 points will be awarded.
    (ii) Energy generation. If the RES project is intended for 
production of energy or is a proposed retrofitting of an existing RES 
which increases the amount of energy generated, the Agency will award 10 
points.
    (iii) Energy saved. The Agency will award up to 15 points under this 
sub-criterion for an EEI project based on the percentage of estimated 
energy saved by the installation of the project as determined by the 
projections in the applicable energy assessment or energy audit. If the 
estimated energy expected to be saved over the same period used in the 
energy assessment or energy audit, as applicable, will be--
    (A) 50 percent or greater, 15 points will be awarded;
    (B) 35 percent up to, but not including 50 percent, 10 points will 
be awarded;
    (C) 20 percent up to, but not including 35 percent, 5 points will be 
awarded; or
    (D) Less than 20 percent, no points will be awarded.
    (iv) Energy efficiency. If the percentage of energy efficiency is--
    (A) Greater than 50 percent, 15 points will be awarded;
    (B) Greater than 25 percent, but equal to or less than 50 percent, 
10 points will be awarded; or
    (C) Equal to or less than 25 percent, 5 points will be awarded.
    (c) Commitment of funds. The Agency will award up to 15 points under 
this criterion based on the percentage of acceptable written commitment 
a borrower has from its other funding sources that are documented with a 
complete application.
    (1) Calculation. The percentage of written commitment is calculated 
as follows: Percentage of written commitment = total amount of funds for 
which written commitments have been submitted with the application / 
Total amount of matching funds and other funds required.
    (2) Awarding of points. Using the result from paragraph (c)(1) of 
this section, the Agency will award points as shown in paragraphs 
(c)(2)(i) through (iii) of this section.
    (i) If the percentage of written commitments is 100 percent of the 
matching funds, 15 points will be awarded.
    (ii) If the percentage of written commitments is less than 100 
percent, but more than 50 percent, points will be awarded as follows: 
((Percentage of written commitments - 50 percent) / (50 percent)) x 15 
points, where points awarded are rounded to the nearest hundredth of a 
point.
    (iii) If the percentage of written commitments is 50 percent or 
less, no points will be awarded.
    (d) Previous grantees or borrowers. The Agency will award up to 15 
points under this criterion based on whether the borrower has received 
and accepted a REAP grant award under 7 CFR part 4280 or a guaranteed 
loan commitment under either this part or 7 CFR part 4280.

[[Page 1088]]

    (1) If the borrower has never received and accepted a grant award 
under 7 CFR part 4280 or a guaranteed loan commitment under either this 
part or 7 CFR part 4280, 15 points will be awarded.
    (2) If the borrower has not received and accepted a grant award 
under 7 CFR part 4280 or a guaranteed loan commitment under either this 
part or 7 CFR part 4280 within the previous two Federal fiscal years, 10 
points will be awarded.
    (3) If the borrower has received and accepted a grant award under 7 
CFR part 4280 or a guaranteed loan commitment under either this part or 
7 CFR part 4280 within the previous two Federal fiscal years, no points 
will be awarded.
    (e) Existing businesses. A maximum of 5 points will be awarded for 
an existing agricultural producer business or rural small business that 
meets the definition of existing business in Sec. 5001.3.
    (f) Simple payback. A maximum of 15 points will be awarded for this 
criterion based on the simple payback of the project as defined in Sec. 
5001.3. Points will be awarded for either RES, EEI, or EEE; points will 
not be awarded for more than one category.
    (1) Renewable energy systems. If the simple payback of the project 
is--
    (i) Less than 10 years, 15 points will be awarded;
    (ii) 10 years up to but not including 15 years, 10 points will be 
awarded;
    (iii) 15 years up to and including 25 years, 5 points will be 
awarded; or
    (iv) Longer than 25 years, no points will be awarded.
    (2) Energy efficiency improvements. If the simple payback of the 
project is:
    (i) Less than 4 years, 15 points will be awarded;
    (ii) 4 years up to but not including 8 years, 10 points will be 
awarded;
    (iii) 8 years up to and including 12 years, 5 points will be 
awarded; or
    (iv) Longer than 12 years, no points will be awarded.
    (3) Energy efficient equipment and systems. If the simple payback of 
the project is--
    (i) Less than 4 years, 15 points will be awarded;
    (ii) 4 years up to but not including 8 years, 10 points will be 
awarded;
    (iii) 8 years up to and including 12 years, 5 points will be 
awarded; or
    (iv) Longer than 12 years, no points will be awarded.
    (g) Administrator priority points. Under this criterion, the 
Administrator may award up to 10 points to an application based on the 
conditions specified in paragraphs (g)(1) through (5) of this section. 
Under no circumstances will an application receive more than 10 points 
under this criterion.
    (1) The application is for an under-represented technology.
    (2) Selecting the application helps achieve geographic diversity.
    (3) The borrower is a member of an unserved or under-served 
population.
    (i) The borrower is a veteran or veterans own 20 percent or more in 
interest in the borrower. In order to receive points, the borrower must 
sign a certification in its application to indicate that the borrower 
has veteran status; or
    (ii) The borrower is a member of a socially disadvantaged group or 
members of socially disadvantaged group(s) own 20 percent or more in 
interest in the borrower socially disadvantaged groups are groups whose 
members have been subjected to racial, ethnic, or gender prejudice 
because of their identity as members of a group without regard to their 
individual qualities. In order to receive points, the application must 
include a statement to indicate that borrower is a member of a socially 
disadvantaged group.
    (4) Selecting the application helps further a Presidential 
initiative or a Secretary of Agriculture priority.
    (5) The proposed project is located in a federally declared disaster 
area. Declarations must be within the last 3 calendar years.
    (6) The project is located in an area where 20 percent or more of 
its population is living in poverty, as defined by the United States 
Census Bureau; an underserved community; or an area which has 
experienced long-term population decline, or loss of employment.
    (h) Unused funding. After each periodic competition, the Agency will 
roll any remaining guaranteed loan funding authority into the next 
competition. At the end of each Federal fiscal year, the Agency may 
elect at its discretion

[[Page 1089]]

to allow any remaining multi-year funds to be carried over to the next 
Federal fiscal year rather than selecting a lower scoring application.



Sec. Sec. 5001.320-5001.400  [Reserved]



 Sec. Appendix A to Subpart D of Part 5001--Feasibility Study Components
[GRAPHIC] [TIFF OMITTED] TR14JY20.008


[[Page 1090]]


[GRAPHIC] [TIFF OMITTED] TR14JY20.009



   Sec. Appendix B to Subpart D of Part 5001-- Financial Feasibility 
                                 Reports

[[Page 1091]]

[GRAPHIC] [TIFF OMITTED] TR14JY20.010


[[Page 1092]]


[GRAPHIC] [TIFF OMITTED] TR14JY20.011



Sec. Appendix C to Subpart D of Part 5001--Technical Reports for Energy 
 Efficiency Improvement (EEI) Projects With Total Project Costs of More 
                              Than $80,000

Technical Reports for Energy Efficiency Improvement (EEI) Projects With 
                Total Project Costs of More Than $80,000

    For all EEI projects with Total Project Costs of more than $80,000, 
provide the information specified in Sections A and D and in Section B 
or Section C, as applicable. If the application is for an EEI project 
with Total Project Costs of $80,000 or less, please see Sec. 5001.307 
(e) for the technical report information to be submitted with your 
application.
    If the application is for an EEI project with Total Project Costs of 
$200,000 and greater, you must conduct an Energy Audit (EA). However, if 
the application is for an EEI project with a Total Project Costs of less 
than $200,000, you may conduct either an Energy Assessment or an Energy 
Audit. Energy Audits that meet the American Society of Heating, 
Refrigeration and Air-Conditioning Engineers (ASHREA) Level II Energy 
Survey; Analysis and American National Standards Institute (ANSI); or 
American Society of Agricultural and Biological Engineers (ASABE)_S162 
Standard for performing on farm Energy Audits will be considered by the 
Agency to be acceptable audits.

                     Section A. Project Information

    Describe how all the improvements to or replacement of an existing 
building and/or equipment meet the requirements of being Commercially 
Available. Describe how the design, engineering, testing, and monitoring 
are sufficient to demonstrate that the proposed project will meet its 
intended purpose, ensure public safety, and comply with applicable laws, 
regulations, agreements, permits, codes, and standards. Describe how all 
equipment required for the EEI(s) is available and able to be procured 
and delivered within the proposed project development schedule. In 
addition, present information regarding component warranties and the 
availability of spare parts.

                         Section B. Energy Audit

    If conducting an EA, provide the following information.
    (1) Situation Report. Provide a narrative description of the 
existing building and/or equipment, its energy system(s) and usage, and 
activity profile. Also include average price per unit of energy 
(electricity, natural gas, propane, fuel oil, renewable energy, etc.) 
paid by the customer for the most recent 12 months, or an average of 2, 
3, 4, or 5 years, for the building and equipment being audited. Any 
energy conversion should be based on use rather than source.
    (2) Potential Improvement Description. Provide a narrative summary 
of the potential improvement and its ability to reduce energy 
consumption or improve energy efficiency, including a discussion of 
reliability and durability of the improvements.
    (i) Provide preliminary specifications for critical components.
    (ii) Provide preliminary drawings of project layout, including any 
related structural changes.
    (iii) Identify significant changes in future related operations and 
maintenance costs.
    (iv) Describe explicitly how outcomes will be measured.
    (3) Technical Analysis. Give consideration to the interactions among 
the potential improvements and the current energy system(s).

[[Page 1093]]

    (i) For the most recent 12 months, or an average of 2, 3, 4, or 5 
years, prior to the date the application is submitted, provide both the 
total amount and the total cost of energy used for the original building 
and/or equipment, as applicable, for each improvement identified in the 
potential project. In addition, provide for each improvement identified 
in the potential project an estimate of the total amount of energy that 
would have been used and the total cost that would have been incurred if 
the proposed project were in operation for this same time period.
    (ii) Calculate all direct and attendant indirect costs of each 
improvement;
    (iii) Rank potential improvements measures by cost-effectiveness; 
and
    (iv) Provide an estimate of Simple Payback, including all 
calculations, documentation, and any assumptions.
    (4) Qualifications of the Auditor. Provide the qualifications of the 
individual or entity which completed the Energy Audit.

                      Section C. Energy Assessment

    If conducting an Energy Assessment, provide the following 
information.
    (1) Situation Report. Provide a narrative description of the 
existing building and/or equipment, its energy system(s) and usage, and 
activity profile. Also include average price per unit of energy 
(electricity, natural gas, propane, fuel oil, renewable energy, etc.) 
paid by the customer for the most recent 12 months, or an average of 2, 
3, 4, or 5 years, for the building and equipment being evaluated. Any 
energy conversion shall be based on use rather than source.
    (2) Potential Improvement Description. Provide a narrative summary 
of the potential improvement and its ability to reduce energy 
consumption or improve energy efficiency.
    (3) Technical Analysis. Giving consideration to the interactions 
among the potential improvements and the current energy system(s), 
provide the information specified in paragraphs (3)(i) through (iii) of 
this appendix.
    (i) For the most recent 12 months, or an average of 2, 3, 4, or 5 
years, prior to the date the application is submitted, provide both the 
total amount and the total cost of energy used for the original building 
and/or equipment, as applicable, for each improvement identified in the 
potential project. In addition, provide for each improvement identified 
in the potential project an estimate of the total amount of energy that 
would have been used and the total cost that would have been incurred if 
the proposed project were in operation for this same time period.
    (ii) Document baseline data compared to projected consumption, 
together with any explanatory notes on source of the projected 
consumption data. When appropriate, show before-and-after data in terms 
of consumption per unit of production, time, or area.
    (iii) Provide an estimate of Simple Payback, including all 
calculations, documentation, and any assumptions.
    (4) Qualifications of the Assessor. Provide the qualifications of 
the individual or entity that completed the assessment. If the Energy 
Assessment for a project with Total Project Costs of $80,000 or less is 
not conducted by Energy Auditor or Energy Assessor, then the individual 
or entity must have at least 3 years of experience and completed at 
least five Energy Assessments or Energy Audits on similar type projects.

                        Section D. Qualifications

    Provide a resume or other evidence of the contractor or installer's 
qualifications and experience with the proposed EEI technology. Any 
contractor or installer with less than 2 years of experience may be 
required to provide additional information in order for the Agency to 
determine if they are qualified installer/contractor.



    Sec. Appendix D to Subpart D of Part 5001--Technical Reports for 
Renewable Energy System (RES) Projects With Total Project Costs of Less 
                   Than $200,000 but More Than $80,000

Technical Reports for Renewable Energy System (RES) Projects With Total 
        Project Costs of Less Than $200,000 but More Than $80,000

    Provide the information specified in Sections A through D for each 
technical report prepared under this appendix. A Renewable Energy Site 
Assessment may be used in lieu of Sections A through C if the Renewable 
Energy Site Assessment contains the information requested in Sections A 
through C. In such instances, the technical report would consist of 
Section D and the Renewable Energy Site Assessment.
    Note: If the Total Project Cost for the RES project is $80,000 or 
less, this appendix does not apply. Instead, for such projects, please 
provide the information specified in Sec. 5001.307(e).

                     Section A. Project Description

    Provide a description of the project, including its intended purpose 
and a summary of how the project will be constructed and installed. 
Describe how the system meets the definition of Commercially Available. 
Identify the project's location and describe the project site.

                     Section B. Resource Assessment

    Describe the quality and availability of the renewable resource to 
the project. Identify

[[Page 1094]]

the amount of Renewable Energy generated that will be generated once the 
proposed project is operating at its steady state operating level. If 
applicable, also identify the percentage of energy being replaced by the 
system.
    If the application is for a Bioenergy Project, provide documentation 
that demonstrates that any and all woody biomass feedstock from National 
Forest System land or public lands cannot be used as a higher value 
wood-based product.

                 Section C. Project Economic Assessment

    Describe the projected financial performance of the proposed 
project. The description must address Total Project Costs, energy 
savings, and revenues, including applicable investment and other 
production incentives accruing from Government entities. Revenues to be 
considered shall accrue from the sale of energy, offset or savings in 
energy costs, byproducts, and green tags. Provide an estimate of Simple 
Payback, including all calculations, documentation, and any assumptions.

        Section D. Project Construction and Equipment Information

    Describe how the design, engineering, testing, and monitoring are 
sufficient to demonstrate that the proposed project will meet its 
intended purpose, ensure public safety, and comply with applicable laws, 
regulations, agreements, permits, codes, and standards. Describe how all 
equipment required for the RES is available and able to be procured and 
delivered within the proposed project development schedule. In addition, 
present information regarding component warranties and the availability 
of spare parts.

           Section E. Qualifications of Key Service Providers

    Describe the key service providers, including the number of similar 
systems installed and/or manufactured, professional credentials, 
licenses, and relevant experience. When specific numbers are not 
available for similar systems, estimations will be acceptable.



    Sec. Appendix E to Subpart D of Part 5001--Technical Reports for 
   Renewable Energy System (RES) Projects With Total Project Costs of 
                          $200,000 and Greater

Technical Reports for Renewable Energy System (RES) Projects With Total 
                  Project Costs of $200,000 and Greater

    Provide the information specified in Sections A through G for each 
technical report prepared under this appendix. Provide the resource 
assessment under Section C that is applicable to the project. For hybrid 
projects, technical reports must be prepared for each technology that 
comprises the hybrid project.

              Section A. Qualifications of the Project Team

    Describe the project team, their professional credentials, and 
relevant experience. The description shall support that the project team 
key service providers have the necessary professional credentials, 
licenses, certifications, and relevant experience to develop the 
proposed project.

                    Section B. Agreements and Permits

    Describe the necessary agreements and permits (including any for 
local zoning requirements) required for the project and the anticipated 
schedule for securing those agreements and permits. For example, 
Interconnection Agreements and Power Purchase Agreements are necessary 
for all Renewable Energy projects electrically interconnected to the 
utility grid.

                     Section C. Resource Assessment

    Describe the quality and availability of the renewable resource and 
the amount of Renewable Energy generated through the deployment of the 
proposed system. For all Bioenergy Projects, except Anaerobic Digesters 
Projects, complete Section C.3 of this appendix. For Anaerobic Digester 
Projects, complete Section C.6 of this appendix.
    (1) Wind. Provide adequate and appropriate data to demonstrate the 
amount of renewable resource available. Indicate the source of the wind 
data and the conditions of the wind monitoring when collected at the 
site or assumptions made when applying nearby wind data to the site.
    (2) Solar. Provide adequate and appropriate data to demonstrate the 
amount of renewable resource available. Indicate the source of the solar 
data and assumptions.
    (3) Bioenergy/Biomass Project. Provide adequate and appropriate data 
to demonstrate the amount of renewable resource available. Indicate the 
type, quantity, quality, and seasonality of the Renewable Biomass 
resource, including harvest and storage, where applicable. Where 
applicable, also indicate shipping or receiving method and required 
infrastructure for shipping. For proposed projects with an established 
resource, provide a summary of the resource. Document that any and all 
woody biomass feedstock from National Forest System land or public lands 
cannot be used as a higher value wood-based product.
    (4) Geothermal Electric Generation. Provide adequate and appropriate 
data to demonstrate the amount of renewable resource available. Indicate 
the quality of the geothermal resource, including temperature,

[[Page 1095]]

flow, and sustainability and what conversion system is to be installed. 
Describe any special handling of cooled geothermal waters that may be 
necessary. Describe the process for determining the geothermal resource, 
including measurement setup for the collection of the geothermal 
resource data. For proposed projects with an established resource, 
provide a summary of the resource and the specifications of the 
measurement setup.
    (5) Geothermal Direct Generation. Provide adequate and appropriate 
data to demonstrate the amount of renewable resource available. Indicate 
the quality of the geothermal resource, including temperature, flow, and 
sustainability and what direct use system is to be installed. Describe 
any special handling of cooled geothermal waters that may be necessary. 
Describe the process for determining the geothermal resource, including 
measurement setup for the collection of the geothermal resource data. 
For proposed projects with an established resource, provide a summary of 
the resource and the specifications of the measurement setup.
    (6) Anaerobic Digester Project/Biogas. Provide adequate and 
appropriate data to demonstrate the amount of renewable resource 
available. Indicate the substrates used as digester inputs, including 
animal wastes or other Renewable Biomass in terms of type, quantity, 
seasonality, and frequency of collection. Describe any special handling 
of feedstock that may be necessary. Describe the process for determining 
the feedstock resource. Provide either tabular values or laboratory 
analysis of representative samples that include biodegradability studies 
to produce gas production estimates for the project on daily, monthly, 
and seasonal basis. If an anerobic digester project, identify the type 
of operation (e.g., dairy, swine, layer, etc.), along with breed, herd 
population size and demographics, and the type of waste collection 
method and frequency information available. For the biogas produced, 
identify the type of digester (e.g., mixed, plug-flow, attached film, 
covered lagoon, etc.), if applicable, or the method of capture 
(landfill, sewage waste treatment, etc.) and treatment. Identify the 
system designer and determine the digester design assumptions such as 
the number and type of animals, the bedding type and estimated annual 
quantity used, the manure and wastewater volumes, and the treatment of 
digester effluent (e.g., none, solids separation by screening, etc. with 
details including use or method of disposal).
    (7) Hydrogen Project. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
type, quantity, quality, and seasonality of the Renewable Biomass 
resource. For solar, wind, or geothermal sources of energy used to 
generate hydrogen, indicate the renewable resource where the hydrogen 
system is to be installed. Local resource maps may be used as an 
acceptable preliminary source of renewable resource data. For proposed 
projects with an established renewable resource, provide a summary of 
the resource.
    (8) Hydroelectric/Ocean Energy Projects. Provide adequate and 
appropriate data to demonstrate the amount of renewable resource 
available. Indicate the quality of the resource, including temperature 
(if applicable), flow, and sustainability of the resource, including a 
summary of the resource evaluation process and the specifications of the 
measurement setup and the date and duration of the evaluation process 
and proximity to the proposed site. If less than 1 year of data is used, 
a Qualified Consultant must provide a detailed analysis of the 
correlation between the site data and a nearby, long-term measurement 
site.
    (9) Renewable Energy Systems with Storage Components. Provide 
adequate and appropriate data to demonstrate the amount of renewable 
resource available. Indicate the type, quantity, quality, and 
seasonality of the Renewable Energy resource, where applicable. Indicate 
the storage system specifications and the integrity of the system in 
conjunction with the renewable energy system it is integrated with, 
including application, size, lifetime, response time, capital and 
maintenance costs associated with the operation as well as the 
distribution of the stored resource(s).

                    Section D. Design and Engineering

    Describe the intended purpose of the project and the design, 
engineering, testing, and monitoring needed for the proposed project. 
The description shall support that the system will be designed, 
engineered, tested, and monitored so as to meet its intended purpose, 
ensure public safety, and comply with applicable laws, regulations, 
agreements, permits, codes, and standards. In addition, identify that 
all major equipment is Commercially Available, including proprietary 
equipment, and justify how this unique equipment is needed to meet the 
requirements of the proposed design. In addition, information regarding 
component warranties and the availability of spare parts must be 
presented.

                     Section E. Project Development

    Describe the overall project development method, including the key 
project development activities and the proposed schedule, including 
proposed dates for each activity. The description shall identify each 
significant historical and projected activity, its beginning and end, 
and its relationship to the time needed to initiate and carry the 
activity through to successful project completion.

[[Page 1096]]

The description shall address Applicant project development cash flow 
requirements. Details for equipment procurement and installation shall 
be addressed in Section F of this Appendix. Applications should include 
a concise development schedule with timelines for activities.

            Section F. Equipment Procurement and Installation

    Describe the availability of the equipment required by the system. 
The description shall support that the required equipment is available 
and can be procured and delivered within the proposed project 
development schedule. Describe the plan for site development and system 
installation, including any special equipment requirements. In all 
cases, the system or improvement shall be installed in conformance with 
manufacturer's specifications and design requirements, and comply with 
applicable laws, regulations, agreements, permits, codes, and standards.

                  Section G. Operations and Maintenance

    Describe the operations and maintenance requirements of the system, 
including major rebuilds and component replacements necessary for the 
system to operate as designed over its useful life. The warranty must 
cover and provide protection against both breakdown and a degradation of 
performance. The performance of the RES or EEI shall be monitored and 
recorded as appropriate to the specific technology.



                 Subpart E_Loan and Guarantee Provisions

                             Loan Provisions



Sec. 5001.401  Interest rate provisions.

    Interest rates, interest rate caps, and incremental interest rate 
adjustment limitations on a guaranteed loan are negotiated between the 
Lender and the borrower. The interest rate for a guaranteed loan can be 
either fixed or variable, or a combination thereof, as long as it is a 
legal rate. Interest rates cannot be more than those rates the lender 
customarily charges its borrowers for non-guaranteed loans in similar 
circumstances in the ordinary course of business. The Agency encourages 
each lender to use the secondary market and pass interest-rate savings 
on to the borrower.
    (a) Different rates on guaranteed and unguaranteed portion of the 
guaranteed loan. It is permissible to have different interest rates on 
the guaranteed and unguaranteed portions of the loan.
    (b) Variable interest rates. A variable interest rate must be an 
interest rate that is tied to a published base rate, as published in a 
national or regional financial publication, and is agreed to by the 
Agency.
    (1) The variable interest base rate must be specified in the 
promissory note along with any interest factors (e.g., National Prime 
plus 1.0 percent).
    (2) The lender may adjust the variable interest rate at different 
intervals during the term of the loan, but not more often than 
quarterly.
    (3) The lender must incorporate, within the variable rate promissory 
note, a provision for adjustment of payment installments to fully 
amortize the loan by its maturity date.
    (c) Multi-rates. When multi-rates are used, the lender must provide 
the Agency with the overall effective Interest rate for the entire loan.
    (d) Interest rate changes. Any change in the base rate or fixed 
interest rate between issuance of the conditional commitment and loan 
closing must be approved by the Agency. Approval of such a change must 
be shown as an amendment to the conditional commitment and must be 
reflected on the guaranteed loan closing report form.

[85 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021]



Sec. 5001.402  Term length, loan schedule, and repayment.

    (a) Term length. The lender, with Agency concurrence, will establish 
and justify the guaranteed loan term based on the use of guaranteed loan 
funds, the useful economic life of the assets being financed and those 
used as collateral, and the borrower's repayment ability. The maximum 
term allowable for final guaranteed loan maturity is limited to the 
justified useful life of the project or assets used as collateral but 
may not exceed 40 years or limitations in the applicable State statute, 
whichever is less.
    (b) Guaranteed loan schedule and repayment. The lender must 
structure repayment in consideration of the borrower's cash flow and in 
accordance with the provisions of this section and

[[Page 1097]]

the loan agreement. Scheduled guaranteed loan payments shall be made no 
less frequently than annually. In addition:
    (1) Both the guaranteed and unguaranteed portions of the loan must 
be amortized over the same term.
    (2) Guaranteed loans must require a periodic payment schedule that 
will retire the debt over the term of the loan without a balloon 
payment.
    (3) If the promissory note provides for an interest-only period, 
interest must be paid at least annually starting on a date that is no 
more than one year from the date of the promissory note. Scheduling of 
the first payment of principal and interest will be subject to 
consideration of whether the facility is operational and generates 
adequate income. However, the scheduling of the first full principal and 
interest payment must commence not more than 3 years from the date of 
the promissory note and be paid at least annually thereafter.
    (4) There must be no ``due-on-demand'' clauses without cause. 
Regardless of any ``due-on-demand'' with cause provision in a lender's 
promissory note, the Agency must concur in any acceleration of the 
guaranteed loan unless the basis for acceleration is monetary default.

[86 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021]



Sec. 5001.403  Lender fees.

    (a) The lender may charge the borrower reasonable, routine, and 
customary charges and fees for the guaranteed loan provided they are 
similar to those charges the lender assesses other borrowers for the 
same type of loan not subject to a loan guarantee. The lender must 
document such fees in the application. The lender may also charge 
routine and customary prepayment penalties and late payment fees for the 
guaranteed loan, which must be stated in the guaranteed loan documents.
    (b) Default charges, penalty interest, late payment fees, and 
additional interest expenses are not covered by the loan note guarantee 
and cannot be added to the principal or Interest due under any loan note 
guarantee in the event of a loss claim as prescribed in Sec. 5001.521or 
a repurchase as prescribed in Sec. 5001.511.



Sec. Sec. 5001.404-5001.405  [Reserved]



Sec. 5001.406  Guaranteed loan amounts.

    Applicable guaranteed loan amounts depend on the type of project and 
the source of its funding.
    (a) CF projects. The maximum amount of a CF guaranteed loan that may 
be made to a borrower, including the guaranteed and unguaranteed 
portions of any CF guaranteed loans, the outstanding principal and 
interest balance of any existing CF guaranteed loans, and any new CF 
guaranteed loan that is the subject of an application must not exceed 
$100 million.
    (b) WWD projects. The maximum amount of a WWD guaranteed loan that 
may be made to a borrower, including the guaranteed and unguaranteed 
portions of any WWD guaranteed loans, the outstanding principal and 
interest balance of any existing WWD guaranteed loans, and any new WWD 
guaranteed loan that is the subject of an application must not exceed 
$50 million.
    (c) B&I projects. The maximum total amount of B&I guaranteed loans 
(including the guaranteed and unguaranteed portions of any B&I 
guaranteed loans, the outstanding principal and interest balance of any 
existing B&I guaranteed loans, and any new B&I guaranteed loan that is 
the subject of an application) that may be made to a borrower is limited 
to a maximum amount of $25 million. The Secretary, whose authority may 
not be redelegated, may approve, at the Secretary's discretion, 
guaranteed loans in excess of $25 million and up to $40 million for 
rural cooperatives that process value-added agricultural commodities in 
accordance with Sec. 5001.105(b)(18)(i).
    (d) REAP projects. The amount of a guaranteed loan that will be made 
available to an eligible project and borrower under this part will be at 
least $5,000 not to exceed 75 percent of eligible project costs.
    (1) The maximum total amount of REAP guaranteed loans made to a 
borrower, including the guaranteed and unguaranteed portions of all REAP 
guaranteed loans, the outstanding

[[Page 1098]]

principal and interest balance of any existing REAP guaranteed loans and 
the new REAP guaranteed loan that is the subject of an application, must 
not exceed $25 million.
    (2) The total amount of funds available to agricultural producers 
for energy efficient equipment and systems will not exceed 15 percent of 
annual funds available to the program.



Sec. 5001.407  Percentage of loan guarantee.

    The percent of loan guaranteed may vary from program to program. The 
maximum guarantee is 90 percent of eligible guaranteed loan loss The 
Agency will set annually a guarantee percentage by program that will 
apply to loans guaranteed within each program. The annual guarantee 
percentage will take current Federal credit policy into consideration 
and may be set at or below the maximum allowed authorized by statute. 
The Agency will announce annual guarantee percentages each fiscal year 
by publishing a document in the Federal Register in accordance with 
Sec. 5001.10.



Sec. 5001.408  Participation or assignment of guaranteed loan.

    (a) General. The lender may obtain participation in the loan or 
assign all or part of the guaranteed portion of the guaranteed loan on 
the secondary market subject to the conditions specified in paragraphs 
(a)(1) through (5) of this section or retain the entire guaranteed loan.
    (1) Participation. The lender may obtain participation in the loan 
under its normal operating procedures; however, the lender must retain 
title to and possession of the promissory note(s) and retain the 
lender's interest in the collateral.
    (2) Assignment. Any assignment by the lender of the guaranteed 
portion of the loan must be accomplished in accordance with the 
conditions in the lender's agreement and the provisions of this section. 
The holders and the borrower have no rights or obligations to one 
another. The holders and the borrower have no rights or obligations to 
one another.
    (3) Minimum retention by the lender. Minimum retention at all times 
must be from the unguaranteed portion of the loan and cannot be 
participated to another person.
    (i) The lender must hold a minimum of 7.5 percent of the total loan 
amount.
    (ii) The lender must retain its security interest in the collateral 
and retain the servicing responsibilities for the guaranteed loan.
    (iii) The Agency can approve a reduction of the minimum retention 
requirement below the applicable percentage on a case-by-case basis when 
the lender establishes to the Agency's satisfaction that reduction of 
the minimum retention percentage is necessary to meet compliance with 
the lender's regulatory authority.
    (4) Prohibition. The lender must not assign or participate any 
amount of the guaranteed or non-guaranteed portion of the loan to the 
borrower, borrower's officers, directors, stockholders, other owners, or 
to members of their immediate families, or to a parent company, an 
affiliate, or a subsidiary of the borrower.
    (5) Secondary market. The lender must properly close their loan and 
fully disburse loan funds of a promissory note for the purposes intended 
prior to assignment of the guaranteed portion of the promissory note(s) 
on the secondary market. The lender can assign all or part of the 
guaranteed portion of the loan only if the loan is not in default.
    (b) Lender's servicing fee to holder. The assignment guarantee 
agreement must clearly state the guarantee portion of loan as a 
percentage and corresponding dollar amount of the guaranteed portion of 
the guaranteed loan it represents and the lender's servicing fee. The 
lender cannot charge the Agency a servicing fee and servicing fees are 
not eligible expenses for loss claim.
    (c) Distribution of proceeds. The lender must apply all loan 
payments and collateral proceeds received, after payment of liquidation 
expenses, to the guaranteed and unguaranteed portions of the loan on a 
pro rata basis.
    (d) Promissory note(s). A loan note guarantee is issued to the 
lender for a specific promissory note(s) executed between the lender and 
the borrower. The lender must retain title to and

[[Page 1099]]

possession of the guaranteed promissory note(s), retain the lender's 
interest in the collateral, and retain the servicing responsibilities 
for the guaranteed loan. The lender is prohibited from issuing any 
additional promissory notes at a later date for the same guaranteed 
loan.
    (1) The lender may assign all or part of the guaranteed portion of 
the loan, including interest strips, to one or more holders by using an 
assignment guarantee agreement for each holder. The lender must complete 
and execute the assignment guarantee agreement and return it to the 
Agency for execution prior to holder execution.
    (2) The lender or holder may request a certificate of incumbency and 
signature from the Agency.
    (3) A holder, upon written notice to the lender and the Agency, may 
reassign the unpaid guaranteed portion of the loan, in full, assigned 
under the assignment guarantee agreement. Holders can only reassign the 
complete block they have received and cannot subdivide or further split 
their interest in the guaranteed portion of a loan or retain an interest 
strip.
    (4) Upon notification and completion of the assignment through the 
use of the assignment guarantee agreement, the assignee succeeds to all 
rights and obligations of the holder thereunder. Subsequent assignments 
require notice to the lender and Agency using any format, including that 
used by the Securities Industry and Financial Markets Association 
(formerly known as the Bond Market Association), together with the 
transfer of the original assignment guarantee agreement.
    (5) The Agency will not execute a new assignment guarantee agreement 
to affect a subsequent reassignment.
    (6) The Agency will not reissue a duplicate assignment guarantee 
agreement unless:
    (i) The original was lost, stolen, destroyed, mutilated, or defaced; 
and
    (ii) The reissue is made in accordance with Sec. 5001.459.
    (e) Rights and liabilities. When a guaranteed portion of a loan is 
assigned to a holder using an assignment guarantee agreement, the holder 
succeeds to all rights of the lender under the loan note guarantee to 
the extent of the portion purchased. The full, legal interest in the 
promissory note must remain with the lender, and the lender remains 
bound to all obligations under the loan note guarantee, lender's 
agreement, and Agency regulations applicable to the guarantee.
    (1) A guarantee and right to require purchase in accordance with 
Sec. 5001.511 will be directly enforceable by a Holder notwithstanding 
any fraud or misrepresentation by the lender or any unenforceability of 
the loan guarantee by the lender, except for fraud or misrepresentation 
of which the holder had actual knowledge at the time it became the 
holder or in which the holder participates or condones.
    (2) The lender must not represent a conditional commitment of 
guarantee as a loan guarantee.
    (3) The lender must reimburse the Agency for any payments the Agency 
makes to a holder on the lender's behalf under the loan note guarantee, 
given the lender would not be entitled to the payments had they retained 
the entire interest in the loan.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 
FR 70358, Dec. 10, 2021]



Sec. Sec. 5001.409-5001.449  [Reserved]

                          Guarantee Provisions



Sec. 5001.450  General.

    (a) Full faith and credit. A loan note guarantee issued under this 
part constitutes an obligation supported by the full faith and credit of 
the United States and is incontestable except for fraud or 
misrepresentation of which a lender or holder has actual knowledge at 
the time it becomes such lender or holder, or which a lender or holder 
participates in or condones.
    (b) Conditions of guarantee. A guaranteed loan under this part will 
be evidenced by a loan note guarantee issued by the Agency.
    (1) The entire loan must be secured by the same collateral with 
equal lien priority for the guaranteed and unguaranteed portions of the 
loan. The unguaranteed portion of the guaranteed loan will neither be 
paid first nor given any preference or priority over the guaranteed 
portion. A parity or

[[Page 1100]]

junior lien position in the guaranteed loan collateral may be considered 
on a case-by-case basis and must be approved by the Agency.
    (2) The lender must remain mortgagee and secured party of record 
notwithstanding the fact that another party may hold a portion of the 
guaranteed loan.
    (3) The lender will receive all payments of principal and interest 
on account of the entire guaranteed loan and must promptly remit to each 
holder and participant, if any, its pro rata share of any payment within 
30 days of the lender's receipt thereof from the borrower. Holder or 
participant payments are determined according to their respective 
interest in the guaranteed loan, less only the lender's servicing fee.
    (4) Any claim against a loan note guarantee or assignment guarantee 
agreement that is attached to, or relating to, a promissory note that 
provides for payment of interest-on-interest, default charges, penalty 
interest, or late payment fees will be reduced to remove such interest, 
fees and charges.
    (5) The loan note guarantee is unenforceable by the lender to the 
extent that any loss is occasioned by:
    (i) The violation of usury laws;
    (ii) Use of guaranteed loan funds for unauthorized loan purposes in 
accordance with Sec. 5001.122 or to the extent that those funds are 
used for purposes other than those specifically approved by the Agency 
in its conditional commitment or amendment thereof;
    (iii) Failure to obtain, perfect, document, and or maintain the 
required collateral or security position regardless of the time at which 
the Agency acquires knowledge thereof; and
    (iv) Negligent loan origination or negligent loan servicing as 
determined and documented by the Agency.
    (6) The Agency will guarantee payment as follows:
    (i) To any holder, 100 percent of any loss sustained by the holder 
on the guaranteed portion of the guaranteed loan it owns and on interest 
due (as determined under paragraph (g) of this section) on such portion 
less any outstanding servicing fee.
    (ii) To the lender: Any loss sustained by the lender on the 
guaranteed portion of the guaranteed loan, including principal and 
interest (as determined under paragraph (c) of this section) evidenced 
by the promissory note(s) or assumption agreements entered into in 
connection with an Agency approved transfer and assumption, and secured 
advances for protection and preservation of collateral made with the 
Agency's authorization if applicable.
    (c) Accrued interest payments. If a loan has been guaranteed by the 
Agency prior to October 1, 2020, the Agency will guarantee the lender 
and any holders accrued interest in accordance with the applicable 
regulations in effect for the respective program at the time the loan 
was guaranteed. For all guaranteed loans closed on or after October 1, 
2020, the Agency will guarantee accrued interest in accordance with 
paragraph (c)(1) or (2), as applicable, of this section.
    (1) If the lender owns all or a portion of the guaranteed portion of 
the guaranteed loan or makes a protective advance, the Agency, in its 
sole discretion, may cover interest on the guaranteed portion for the 90 
days from the most recent delinquency effective date, and up to a total 
of 180 days, only if:
    (i) The lender, and not the Agency, has repurchased all holder 
interests in the guaranteed loan in accordance with Sec. 5001.511;
    (ii) The lender is actively engaged in a credit resolution with the 
borrower to bring the account current or fully liquidate the collateral 
under the terms of a liquidation plan approved by the Agency; and
    (iii) Concurrence for inclusion of the extended period of interest 
to the lender is received from the Agency.
    (2) If the guaranteed loan has one or more holders, the lender will 
issue an interest termination letter to each holder establishing the 
termination date for interest accrual. The loan note guarantee will not 
cover interest to any holder accruing after 90 days from the date of the 
interest termination letter. The Agency at its sole discretion may 
notify each holder of the interest termination provisions if it is 
determined that lender correspondence to holders is in-adequate.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020]

[[Page 1101]]



Sec. 5001.451  Conditional commitment.

    (a) Issuance. Upon selection of an application in accordance with 
Sec. 5001.315 in subpart D, the Agency will issue a conditional 
commitment to the lender, to be accepted by the lender and the borrower, 
containing conditions under which the Agency will issue a loan note 
guarantee.
    (1) Upon acceptance of the conditional commitment, the lender agrees 
not to modify the scope of the project, overall facility concept, 
project purpose, use of guaranteed loan funds, or other terms and 
conditions without Agency written concurrence in accordance with 
paragraph (c) of this section.
    (2) If the lender decides at any time after receiving a conditional 
commitment that it no longer wants a loan guarantee, the lender must 
immediately advise the Agency of the cancellation in writing. Upon 
written notification from the lender, the Agency will de-obligate the 
funds associated with the conditional commitment.
    (b) Content. The conditional commitment will address information 
required for issuing a loan note guarantee, including but not limited 
to:
    (1) Approved use of guaranteed loan funds (source and use of funds);
    (2) Rates and terms of the loan;
    (3) Loan agreement requirements to include:
    (i) Repayment terms and amortization provisions of the guaranteed 
loan;
    (ii) Description of real property collateral, list of other 
collateral and identification of the lender's lien priority in the 
collateral;
    (iii) A list of persons and entities guaranteeing payment of the 
guaranteed loan and their percentage of guarantee;
    (iv) Requirement as to the type and frequency of the financial 
statements to be required for the duration of the guaranteed loan 
(guarantor statements must be updated at least annually);
    (v) Prohibition against borrower assuming liabilities or obligations 
of others;
    (vi) Limitations on borrower dividend payments and compensation of 
officers, owners and members of borrower;
    (vii) Limitations on the purchase and sale of equipment other fixed 
assets and real estate;
    (viii) Restrictions on mergers, consolidations, or sales of the 
business, project, or guarantee loan collateral without the concurrence 
of the lender;
    (ix) Limitations on significant management changes without the 
concurrence of the lender;
    (x) Maximum debt-to-net worth ratio, when required by the lender or 
by this part;
    (xi) Minimum debt service coverage ratio, when required by the 
lender or by this part;
    (xii) Requirements imposed by the Agency in its conditional 
commitment;
    (xiii) Agency environmental requirements; and
    (xiv) Requirement for the lender and the Agency to have reasonable 
access to the project and financial records including access for 
periodic inspections of the project and financial records by a 
representative of the lender or the Agency; and
    (xv) Requirement for the borrower to provide the lender and the 
Agency performance information during the term of the guaranteed loan.
    (4) Loan closing requirements;
    (5) Lender and borrower certifications;
    (6) Collateral and lien position requirements; and
    (7) Other requirements necessary to protect the Agency.
    (c) Change requests. The lender can request, in writing, changes to 
the conditional commitment with justification. The Agency can deny, 
solely at its discretion, changes to the conditional commitment even if 
the changes are otherwise in compliance with this part. All changes to 
the conditional commitment must be documented by written amendment to 
the conditional commitment executed by all parties.
    (d) Acceptance or withdrawal of conditional commitment. The lender 
and borrower must complete and sign the conditional commitment and 
return a copy to the Agency within 60 days. If the conditional 
commitment is not accepted by both the lender and borrower within 60 
days, the conditional commitment becomes null and void and the Agency 
will withdraw the conditional commitment and de-obligate the associated 
funds.

[[Page 1102]]

    (e) Modification, and expiration of conditional commitment. The 
conditional commitment issued by the Agency will be effective for a 
period of one year or sufficient time to complete the guaranteed loan 
project prior to loan closing. The lender must submit a written request 
to the Agency to extend the conditional commitment at least 30 days 
prior to its expiration date and obtain Agency approval for the 
extension. The Agency will consider this request only if no material 
adverse changes in the borrower or the borrower's financial condition 
have occurred since issuance of the conditional commitment. If a 
conditional commitment expires, the Agency will notify the lender in 
writing and may de-obligate the funds. Any additions or modifications to 
conditions stated in the original conditional commitment must be agreed 
upon between the lender, the borrower, and the Agency.

[85 FR 42518, July 14,2020, as amended at 86 FR 70358, Dec. 10, 2021; 87 
FR 7368, Feb. 9, 2022]



Sec. 5001.452  Loan closing and conditions precedent to issuance of loan note guarantee.

    (a) The lender must not close the guaranteed loan until all 
conditions of the conditional commitment are met.
    (b) Simultaneously with or immediately after the guaranteed loan 
closing, the lender must provide to the Agency the guarantee fee, and 
the following forms and documents:
    (1) An Agency-approved, ``Guaranteed Loan Closing Report'';
    (2) A copy of each executed promissory note and collateral security 
documents;
    (3) A copy of the executed final loan agreement, which must include 
any additional requirements imposed by the Agency in the conditional 
commitment;
    (4) The original, executed Agency-approved guarantee form(s) for any 
required personal, partnership or corporate guarantees;
    (5) The borrower's loan closing balance sheet, if required;
    (6) For loans to public bodies, an opinion from recognized bond 
counsel regarding the adequacy of the preparation, issuance, and 
enforceability of the debt instruments;
    (7) Any other documents required to comply with applicable law or 
required by this part, the conditional commitment or the Agency; and
    (8) When requesting issuance of a loan note guarantee, the lender 
must certify to each condition identified in paragraphs (b)(8)(iii)(A) 
through (V) of this section, as applicable.
    (i) In making its certification, the lender can rely on certain 
written materials (e.g., certifications, evaluations, appraisals, 
financial statements, and other reports) provided by the borrower or 
other qualified third parties (e.g., independent engineers, appraisers, 
accountants, attorneys, consultants, or other experts).
    (ii) If the lender is unable to provide any of the certifications 
required under this section, the lender must provide an explanation 
satisfactory to the Agency.
    (iii) The lender may request the loan note guarantee prior to 
construction in accordance with this part; however, the lender must 
still certify to all applicable conditions of this paragraph 
(b)(8)(iii).
    (A) All requirements of the conditional commitment have been met.
    (B) The financial criteria specified in Sec. 5001.303(b)(4) of this 
part and any financial criteria contained in the conditional commitment 
were:
    (1) Determined in accordance with any applicable requirements in 
Sec. 5001.9 of this part, and
    (2) Have been maintained through the issuance of the loan note 
guarantee. Failure to maintain or attain the minimum financial criteria 
will result in the Agency not issuing a loan note guarantee.
    (C) No major changes have been made in the applicant, project or 
lender's loan conditions and requirements since the issuance of the 
conditional commitment, unless such changes have been approved by the 
Agency.
    (D) There has been neither any material adverse change in the 
borrower's financial condition nor any other material adverse change in 
the borrower during the period of time from the Agency's issuance of the 
conditional commitment to issuance of the loan

[[Page 1103]]

note guarantee regardless of the cause or causes of the change and 
whether or not the change or causes of the change were within the 
lender's or borrower's control.
    (1) The borrower is a legal entity in good standing with its 
regulator (as applicable) and operating in accordance with the laws of 
the State(s) or Tribe where the borrower was organized or has a place of 
business.
    (2) The borrower meets the eligibility requirements as outlined in 
Sec. 5001.126(a) and (b) through (e), as applicable.
    (E) There is a reasonable prospect that the guaranteed loan and 
other project debt will be repaid on time and in full (including 
interest) from project cash flow according to the terms proposed in the 
application.
    (F) The guaranteed loan has been properly closed, and the required 
security instruments have been properly executed and all security 
interests obtained by the lender have been or will be properly perfected 
in accordance with applicable law.
    (G) All planned property acquisition has been or will be completed; 
all development has been or will be substantially completed in 
accordance with plans and specifications and conforms to applicable 
Federal, State, and local codes; all equipment required for the project 
is available, can be procured and delivered within the project 
development schedule, and will be installed in conformance with 
manufacturer's specifications and design requirements; and costs have 
not exceeded the amount approved by the lender and the Agency.
    (H) The proposed project complies with all current Federal, State, 
and local laws and regulatory rules that affect the project, the 
borrower, and lender activities, including, but not limited to, equal 
opportunity and Fair Housing Act requirements and design and 
construction requirements.
    (I) Lender-required insurances are in effect.
    (J) All truth-in-lending and equal credit opportunity requirements 
have been met.
    (K) The borrower has marketable title to the collateral then owned 
by the borrower, subject to the rights of the guaranteed loan and to any 
other exceptions approved in writing by the Agency.
    (L) Where required, necessary or prudent, the borrower has 
obtained--
    (1) A legal opinion relative to the title and accessibility to any 
rights-of-way and easements; and
    (2) A title opinion or title insurance showing the borrower has good 
and marketable title to the real property and other collateral and fully 
addressing all existing mortgages or other lien defects, restrictions or 
encumbrances. In those cases where there is adequate gap coverage, a 
title commitment may be acceptable.
    (M) All project funds have been or will be disbursed for purposes 
and in amounts consistent with the conditional commitment (or Agency-
approved amendment thereof) and the application submitted to the Agency. 
Appropriate lender controls were used to ensure that all funds were 
properly disbursed, including funds for working capital. A copy of a 
settlement statement by the lender detailing the use of loan and 
matching/equity funds must be attached to support this certification.
    (N) When applicable, the entire amount of the loan for working 
capital or initial operating expenses have been disbursed to the 
borrower, except in cases where the Agency has approved disbursement 
over an extended period of time and funds are escrowed so that the 
settlement statement reflects the full amount to be disbursed.
    (O) When required, personal and/or corporate guarantees have been 
obtained in accordance with Sec. 5001.204 of this part.
    (P) Lien priorities are consistent with the requirements of the 
conditional commitment. No claims or liens of laborers, subcontractors, 
suppliers of machinery and equipment, materialmen, or other parties have 
been filed against the collateral and no suits are pending or threatened 
that would adversely affect the collateral.
    (Q) Neither the lender nor any of the lender's officers has an 
ownership interest in the borrower or is an officer or director of the 
borrower, and neither the borrower nor its officers, directors, 
stockholders, or other owners have

[[Page 1104]]

more than a 5 percent ownership interest in the lender.
    (R) The loan agreement includes all borrower compliance measures 
identified in the Agency's environmental review for avoiding or reducing 
adverse environmental impacts of the project's construction or 
operation.
    (S) The lender will comply with the requirements of the Debt 
Collection Improvement Act.
    (T) The lender has executed and delivered the lender's agreement, 
completed registration in the Agency's electronic reporting system, and 
electronically submitted the closing report for the guaranteed loan 
along with the appropriate guarantee fee.
    (U) For all RES and EEI projects, the lender must provide 
certification that the project has been performing at a steady state 
operating level in accordance with the technical requirements, plans, 
and specifications. Any modification to the 30-day steady state 
operating level requirement will be based on the Agency's review of the 
technical report or vendor certification and will be incorporated into 
the conditional commitment.
    (V) For CF and WWD projects, the lender must also certify that the 
lender would not make the loan without an Agency loan guarantee.
    (c) For RES projects where applicable, the lender must provide to 
the Agency a copy of the executed power purchase agreement.
    (d)(1) For all CF projects before the Agency will issue a loan note 
guarantee on a guaranteed loan to a borrower other than a public body, 
the articles of incorporation or other organizing documents of the 
borrower or the loan agreement must include a condition similar to the 
following:
    (2) If the corporation dissolves or ceases to perform the community 
facility objectives and functions, the board of directors shall 
distribute all business property and assets to one or more nonprofit 
corporations or public bodies. This distribution must be approved by 75 
percent of the users or members and must serve the public welfare of the 
community. The assets may not be distributed to any members, directors, 
stockholders, or others having a financial or managerial interest in the 
corporation. Nothing herein shall prohibit the corporation from paying 
its debts.
    (e) For all B&I projects a borrower whose project involves locally 
or regionally produced agricultural food products and is not located in 
a rural area must include in an appropriate agreement with retail and 
institutional facilities to which the borrower sells locally or 
regionally produced agricultural food products a requirement to inform 
consumers of the retail or institutional facilities that the consumers 
are purchasing or consuming locally or regionally produced agricultural 
food products.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62198, Oct. 2, 2020; 86 
FR 70358, Dec. 10, 2021]



Sec. 5001.453  Issuance of the loan note guarantee.

    The Agency, at its sole discretion, will determine if the conditions 
specified in the conditional commitment have been met and whether to 
issue the loan note guarantee.
    (a) Issuance. When the Agency is satisfied that all of the 
conditions specified in the conditional commitment have been met and it 
receives all the required fees plus the executed lender's agreement from 
the lender, the Agency will issue the documents identified in paragraphs 
(a)(1) through (3) of this section, as appropriate.
    (1) Loan note guarantee. The Agency will provide the lender the 
original loan note guarantee document which the lender must attach to 
the promissory note. If the lender elected to use the multi-note system, 
the Agency will issue one loan note guarantee for the set of promissory 
notes.
    (2) Assignment guarantee agreement. If the lender assigns any 
guaranteed portion of a guaranteed loan to a holder, the lender, holder, 
and the Agency will execute an assignment guarantee agreement for each 
assignment.
    (3) Certificate of incumbency and signature. The Agency will provide 
the holder an executed certificate of incumbency form to verify the 
signature and title of the Agency official who signed the assignment 
guarantee agreement.
    (b) Agency review of closing. The Agency will review the closing 
documents

[[Page 1105]]

submitted by the lender for completeness and if all conditions have been 
met and all documents have been provided, the Agency will issue the loan 
note guarantee. If the Agency determines that it cannot issue the loan 
note guarantee, the Agency will notify the lender, in writing, of the 
reasons and give the lender a reasonable period within which to satisfy 
the objections. If the lender satisfies the objections within the time 
allowed, the Agency will issue the loan note guarantee.
    (c) Cancellation of obligation. A lender can submit a written 
request to the Agency for a partial cancellation. The lender must 
include in this request the reason for the partial cancellation, the 
effective date, and the portion to be canceled. If the Agency conditions 
for issuance of the loan note guarantee are rejected, cannot be met or 
funds are, in whole or in part, no longer needed, the Agency will cancel 
the obligation.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62198, Oct. 2, 2020]



Sec. 5001.454  Guarantee fee.

    The guarantee fee is a one-time, non-refundable fee paid by the 
lender to the Agency at or before loan closing and is required to be 
paid before the Agency will issue the loan note guarantee. The lender 
may pass the guarantee fee on to the borrower.
    (a) Guarantee fee calculation. The one-time guarantee fee is 
calculated by multiplying the total loan amount by the percentage of 
guarantee by the guarantee fee rate, which may vary by program.
    (b) Guarantee fee rates. The guarantee fee rate is established by 
the Agency in an annual document published in the Federal Register. 
While the fee rate may vary annually, they will not exceed the limits in 
table 1:

              Table 1 to Sec. 5001.454(b)--Guarantee Fee
------------------------------------------------------------------------
                                                              Maximum
                                                           guarantee fee
                                                             (percent)
------------------------------------------------------------------------
Community Facilities....................................               4
Water and Waste Disposal................................               3
Business and Industry...................................               5
Rural Energy for America Program........................               3
------------------------------------------------------------------------

    (c) Loan note guarantee prior to completion. If the loan note 
guarantee is issued prior to completion of the project's construction 
under Sec. 5001.205(e)(2), an additional guarantee fee of 0.50 percent 
will be added.
    (d) Reduced fee. Subject to annual limits set by the Agency and 
published in an annual Federal Register document, the Agency may charge 
a reduced guarantee fee if requested by the lender when the borrower's 
project meets any one of the following criteria:
    (1) Is located in a rural community that--
    (i) Is a distressed community in accordance with the Economic 
Innovation Group distressed community index. The list can be found on 
the Agency's website at: https://www.rd.usda.gov/ onerdguarantee;
    (ii) Is experiencing long-term population decline according to the 
last three decennial censuses;
    (iii) Is in a persistent poverty county. A persistent poverty county 
is any county that has had 20 percent or more of its population living 
in poverty over the past 30 years, as measured by the 1990 and 2000 
decennial census and 2007-2011 American Community Survey 5-year average, 
or any territory or possession of the United States;
    (iv) Is in a presidentially declared disaster area, declared within 
the 24 months preceding the date of the application, and is experiencing 
trauma as a result of natural disaster;
    (v) Is located in a city, county, or state with an unemployment 
rate, as determined by the Department of Labor, 125 percent or greater 
of the current national rate; or
    (vi) Is located within the boundaries of a federally recognized 
Indian tribe's reservation or within Tribal trust lands or within land 
owned by an Alaska Native Regional or Village Corporation as defined by 
the Alaska Native Claims Settlement Act.
    (2) Processes, distributes, aggregates, stores, and/or markets 
locally or regionally produced agricultural food products and promotes 
access to healthy foods;
    (3) Is locally owned and managed, and either
    (i) Supports value-added agriculture and provides a market for 
locally or regionally produced agricultural food product; or

[[Page 1106]]

    (ii) Produces a natural resource value-added product/manufactures a 
product from a natural resource.
    (4) Is part of a strategic economic development and community 
development plan on a multi-jurisdictional and multi-sectoral basis in 
accordance with Section 6401 of the Agricultural Improvement Act of 2018 
(Pub. L. 115-334); or
    (5) Provides an additional market for existing local businesses by 
purchasing substantial amounts of products or services from, selling 
product to, or providing services to existing local and regional 
businesses.

[85 FR 42518, July 14, 2020, as amended at 86 FR 70358, Dec. 10, 2021]



Sec. 5001.455  Periodic guarantee retention fee.

    The Agency will collect a periodic guarantee retention fee from the 
lender for as long as the loan note guarantee is outstanding in 
accordance with the annual notice published in the Federal Register in 
accordance with Sec. 5001.10. Payment of the periodic guarantee 
retention fee is required to maintain the validity of the loan note 
guarantee. The lender may pass the fee on to the borrower but may not 
delay payment of the fee to the Agency while collecting the payment from 
the borrower. The fee rates may differ by program as published annually 
in a document in the Federal Register in accordance with Sec. 5001.10. 
The annual Federal Register notification will include the frequency of 
payment for the fees.
    (a) Calculation. The guarantee retention fee is calculated by 
multiplying the full outstanding principal guaranteed loan balance as of 
a date(s) as published in the annual Federal Register notification, by 
the percentage of guarantee, by the fee rate as noted in the guaranteed 
loan conditional commitment.
    (b) Effective fee rate. The effective guarantee retention fee rate 
that is published in a Federal Register document in accordance with 
Sec. 5001.10 at the time the guaranteed loan is obligated will be noted 
in the guarantee loan conditional commitment and the fee will remain in 
effect for the life of the loan note guarantee.
    (c) Payments. The guarantee retention fee payment frequency and 
related due date provisions will be published in the annual Federal 
Register notification.
    (1) Guarantee retention fee payments not received within 60 days 
after their due date are considered delinquent and, at the Agency's 
discretion, may result in cancellation of the loan note guarantee to the 
lender. The Agency will provide the lender 30 calendar days' written 
notice that the fee is delinquent before canceling the loan note 
guarantee. Holders' rights will continue in effect as specified in the 
loan note guarantee and assignment guarantee agreement, unless the 
holder took possession of an interest in the loan note guarantee knowing 
guarantee retention fees had not been paid.
    (2) Until the loan note guarantee is canceled by the Agency, any 
delinquent periodic guarantee retention fee will bear interest at the 
promissory note rate.
    (3) When the Agency repurchases 100 percent of the guaranteed 
portion of the guaranteed loan as prescribed in Sec. 5001.511(c), the 
Agency will discontinue collection of the periodic guarantee retention 
fee.
    (d) Secondary market prohibition. Lenders are prohibited from 
selling any portion of the guaranteed loan on the secondary market if 
there are unpaid periodic guarantee retention fees.



Sec. 5001.456  Other fees.

    The Agency has the authority and may at its discretion charge 
additional fees in order to maintain adequate levels of program funding. 
Prior to the Agency charging any additional fees, the Agency will 
publish a notice of those fees in the Federal Register in accordance 
with Sec. 5001.10. All fees will be disclosed in the conditional 
commitment specific to the project as issued to the lender at the time 
approval.
    (a) Until the loan note guarantee is canceled by the Agency, any 
delinquent fees will bear interest at the promissory note rate.
    (b) Lenders are prohibited from selling any portion of the 
guaranteed loan on the secondary market if there are unpaid fees.

[[Page 1107]]



Sec. 5001.457  Changes prior to loan closing.

    (a) Change in borrower prior to closing. Any change in borrower 
ownership or organization prior to the issuance of the loan note 
guarantee must meet the applicable guaranteed program's eligibility 
requirements and must be approved by the Agency.
    (b) Transfer to new lender prior to issuance of the loan note 
guarantee. Prior to issuance of the loan note guarantee, a lender can 
request a transfer of an outstanding conditional commitment to a new 
lender by providing the Agency with a letter from the lender, the 
borrower, and the proposed new lender. The request must include the 
reason(s) the current lender no longer desires to be the lender for the 
project.
    (1) The Agency may approve the transfer from the current lender to 
the proposed new lender provided the new proposed lender is an eligible 
lender (see paragraph (b)(2) of this section) and no material adverse 
changes have occurred in the:
    (i) Ownership, control or legal structure of the borrower; and
    (ii) Borrower's written plan, scope of work, or the purpose or 
intent of the Project.
    (2) The Agency will determine if the proposed new lender is eligible 
in accordance with Sec. 5001.130 of this part prior to approving the 
transfer of lender. The new lender must execute a new application form 
and a lender's agreement (unless the new lender already has a valid 
lender's agreement with the Agency) and must complete a new credit 
evaluation in accordance with Sec. 5001.202 of this part. The Agency 
may require the new lender to provide other updated application items as 
specified by the Agency.
    (3) If the Agency approves the transfer to the new lender, the 
Agency will issue a letter of amendment to the original conditional 
commitment reflecting the new lender who must acknowledge acceptance of 
the amended conditional commitment in writing.



Sec. 5001.458  Other Federal, State, and local requirements.

    Beginning on the date of issuance of the loan note guarantee, 
lenders and borrowers must--
    (a) Coordinate with all appropriate Federal, State, local and Tribal 
agencies that may have jurisdiction or involvement in each project; and
    (b) Comply with all current Federal, State, local, and Tribal laws 
and rules, as well as applicable regulatory commission rules, that 
affect the project, the borrower, or lender. Compliance activities 
include, but are not limited to--
    (1) Organization and borrower's authority to design, construct, 
develop, operate, and maintain the proposed facilities;
    (2) Borrowing money, giving security, and raising revenues for 
repayment;
    (3) Land use zoning;
    (4) Health, safety, and sanitation standards as well as design and 
installation standards; and
    (5) Protection of the environment and consumer affairs.



Sec. 5001.459  Replacement of loan note guarantee and assignment guarantee agreement.

    If a loan note guarantee or assignment guarantee agreement has been 
lost, stolen, destroyed, mutilated, or defaced while in the custody of 
the lender or holder, the Agency may issue a replacement to the lender 
or holder, as applicable under the conditions described in paragraphs 
(a) through (b) of this section. The lender is prohibited from altering 
or modifying or approving any alterations to or modifications of any 
loan documents without the prior written approval of the Agency.
    (a) Replacement requirements. The lender must coordinate the 
activities of the party who seeks the replacement documents and must 
submit the required documents to the Agency for processing. The 
requirements for replacement are as follows:
    (1) A written statement of loss which includes:
    (i) Legal name and present address of either the lender or the 
holder who is requesting the replacement forms;
    (ii) Legal name and address of the lender of record;
    (iii) Capacity of person certifying;
    (iv) Full identification of the loan note guarantee or assignment 
guarantee agreement including the name of

[[Page 1108]]

the borrower, the Agency's case number, date of the loan note guarantee 
or assignment guarantee agreement, face amount of the promissory note in 
which an interest was purchased, date of the promissory note, present 
balance of the guaranteed loan, percentage of guarantee, and, if an 
assignment guarantee agreement, the original named holder and the 
percentage of the guaranteed portion of the guaranteed loan assigned to 
that holder. Any existing parts of the document to be replaced must be 
attached to the certificate;
    (v) A full statement of circumstances of the loss, theft, 
destruction, defacement, or mutilation of the loan note guarantee or 
assignment guarantee agreement; and
    (vi) For the holder, evidence demonstrating current ownership of the 
assignment guarantee agreement. If the present holder is not the same as 
the original holder, the lender must include a copy of the endorsement 
of each successive holder in the chain of transfer from the initial 
holder to present holder. If copies of the endorsement cannot be 
obtained, the lender must submit the best available records of transfer 
(e.g., order confirmation, canceled checks, etc.).
    (b) Indemnity bond. An indemnity bond acceptable to the Agency must 
accompany the request for replacement except when the holder is the 
United States, a Federal Reserve Bank, a Federal Government corporation, 
a State or territory, the District of Columbia or a federally recognized 
tribal entity. The indemnity bond must:
    (1) Be issued by a qualified surety company holding a certificate of 
authority from the Secretary of the Treasury and listed in Treasury 
Department Circular 570, except when the outstanding principal balance 
and accrued Interest due the present holder, in accordance with Sec. 
5001.450(c), is less than $1 million as verified by the lender via a 
written letter of certification of balance due;
    (2) Be issued and payable to the United States of America acting 
through the Agency;
    (3) Be in an amount not less than the unpaid principal and interest; 
and
    (4) Hold the Agency harmless against any claim or demand that might 
arise or against any damage, loss, costs, or expenses that might be 
sustained or incurred by reason of the loss or replacement of the 
instruments.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62198, Oct. 2, 2020]



Sec. Sec. 5001.460-5001.500  [Reserved]



                     Subpart F_Servicing Provisions



Sec. 5001.501  General.

    The lender is responsible for servicing the entire loan and taking 
all servicing actions that a reasonably prudent lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The lender 
must certify that it will service the guaranteed loan in accordance with 
this part, its loan servicing policies and procedures, and the lender's 
agreement. Where a lender's loan servicing policies and procedures 
address a corresponding requirement in this part or in the lender's 
agreement, the lender must comply the corresponding requirement in this 
part, unless otherwise approved by the Agency.
    (a) A lender's servicing responsibilities include, but are not 
limited to,
    (1) Periodic borrower visits;
    (2) Distribution of guaranteed loan funds;
    (3) Collecting payments on guaranteed loans;
    (4) Ensuring compliance with the covenants and provisions in the 
loan agreement, security instruments, and other supplemental agreements 
relating to the guaranteed loan;
    (5) Obtaining and analyzing financial statements;
    (6) Ensuring payment of taxes and insurance premiums;
    (7) Maintaining liens and lien priority on collateral;
    (8) Keeping an inventory of all collateral items, and reconciling 
the inventory of all collateral sold during guaranteed loan servicing, 
including liquidation;
    (9) Obtaining Agency approvals or concurrence as required; and
    (10) Cooperating fully with all oversight and monitoring efforts of 
the Agency or its representatives as specified in Sec. 5001.502.

[[Page 1109]]

    (b) The lender must remain mortgagee and secured party of record, 
notwithstanding the fact that another party may hold a portion of the 
loan.
    (c) The lender must ensure that the borrower has obtained and will 
maintain all necessary insurance coverage appropriate to the proposed 
project.
    (d) If the Agency determines that the lender is not in compliance 
with its servicing responsibilities, the Agency reserves the right to 
take any action the Agency determines necessary to protect the Agency's 
interests with respect to the guaranteed loan. If the Agency exercises 
this right, the lender must cooperate with the Agency to rectify the 
situation.



Sec. 5001.502  Oversight and monitoring.

    The Agency will employ various oversight and monitoring activities 
in order to ensure compliance with this part. All lenders involved in 
any manner with any loan note guarantee issued under this part or under 
a loan note guaranteed previously issued under a guaranteed loan program 
identified in Sec. 5001.1 of this part must cooperate fully with the 
Agency in its oversight and monitoring efforts, including, but not 
necessarily limited to, those identified in paragraphs (a) through (c) 
of this section.
    (a) Reports and notifications. Lenders must submit to the Agency 
reports and notifications as required by this part. To facilitate the 
Agency's oversight and monitoring including, but not necessarily limited 
to, those identified in paragraphs (a)(1) through (4), as applicable, of 
this section.
    (1) Status reports. No less than semi-annual status reports as of 
June 30 and December 31 each year (unless more frequent reports are 
needed as determined by the Agency to protect the financial interests of 
the government) regarding the condition of the lender's guaranteed loan 
portfolio (including borrower status and loan classification) and any 
material change in the general financial condition of any borrower since 
the last report was submitted. The lender must submit these reports 
within 30 calendar days after the reporting period, using the 
appropriate Agency online reporting system.
    (2) Default reports. Monthly default reports for each guaranteed 
loan in monetary default using the appropriate Agency online reporting 
system are due on the 15th working day of each month.
    (3) Notifications. The lender(s) must notify the Agency by written 
notification within 15 calendar days of any:
    (i) Loan agreement violation by any borrower, including when the 
borrower is 30 days past due or is otherwise in default of the covenants 
in the loan agreement;
    (ii) Permanent or temporary reduction in the interest rate;
    (iii) Downgrade in the lender's loan classification of any 
guaranteed loan; and
    (iv) Protective advances in accordance with Sec. 5001.516.
    (4) Collection activities report. If a lender is liquidating the 
assets of a borrower, the lender must also evaluate and provide a report 
of collection activities regarding the collectability of personal and 
corporate guarantees.
    (b) Records--(1) Lenders. Upon request by the Agency, the lender 
must permit representatives of the Agency (or other authorized persons) 
to inspect and make copies of any of the records of the lender 
pertaining to each guaranteed loan issued under this part or previously 
issued under one of the programs identified in Sec. 5001.1 of this 
part. Such inspection and copying may be made during regular office 
hours of the lender or at any other time the lender and the Agency agree 
upon.
    (2) Borrowers. Except as provided by law, upon request by the 
Agency, the borrower must permit representatives of the lender (or other 
authorized persons) to inspect and make copies of any of the records 
relating to the borrower's project. Such inspection and copying may be 
made during regular office hours of the borrower or at any other time 
agreed upon between the borrower and the lender.
    (c) Agency and lender conference. When requested by the Agency, the 
lender must consult with the Agency to ascertain how the guaranteed loan 
is being serviced and that the conditions and covenants of the loan 
agreement are being enforced.

[[Page 1110]]

    (d) Access to the project. Until the loan note guarantee is 
terminated, the borrower must allow the lender and therefore the Agency 
access to the project and its performance information and permit 
periodic inspections of the project by an authorized representative of 
the Lender or the Agency.



Sec. 5001.503  REAP RES or EEI project completion requirements.

    Once a REAP RES or EEI project has been completed, the lender or 
borrower is required to submit the applicable project performance report 
as identified in paragraphs (a) and (b) of this section by January 31 
each year.
    (a) Renewable energy systems. For RES projects, commencing the first 
full calendar year following the year in which project construction was 
completed and continuing for three full years, the borrower must provide 
an outcome project performance certification noting that either the 
system has or has not performed at the steady state operating level as 
described in the technical report filed with the REAP guaranteed loan 
application, and whether projected jobs created or saved have occurred. 
If it has not performed as intended, a report detailing the 
circumstances affecting performance must be provided to the Agency along 
with the actual energy production of the system (in BTUs, kilowatt-
hours, or similar energy equivalents) and the actual number of jobs 
created or saved as a direct result of the RES project for which 
guaranteed loan funds were used.
    (b) Energy efficiency improvements. For EEI projects, commencing the 
first full calendar year following the year in which project 
construction was completed and continuing for two full years, the 
borrower must provide an outcome project performance certification 
noting that either the energy efficiency improvements have or have not 
been utilized at or above the projected operating levels as described in 
the technical report filed with the REAP guaranteed loan application, 
and whether projected jobs created or saved have occurred. If it has not 
performed as intended, a report detailing the circumstances affecting 
performance must be provided to the Agency along with the actual energy 
savings of the system and the actual number of jobs created or saved as 
a direct result of the EEI project for which guaranteed loan funds were 
used.



Sec. 5001.504  Financial reports.

    (a) The lender must obtain the borrower's and any guarantor's 
financial statements required by this part and the loan agreement. The 
Agency may require an annual audited financial statement based on a 
project's circumstances. States, local government, Indian tribes, 
institution of higher education, and nonprofit organization borrowers 
who meet the Federal awards expended threshold established in 2 CFR part 
200, subpart F, ``Audit Requirements,'' during their fiscal year must 
submit an audit conducted in accordance with 2 CFR part 200, subpart F.
    (b) The lender must submit financial statements obtained under this 
section to the Agency within 120 days of the end of the borrower's 
fiscal year. When the borrower's audit is conducted in accordance with 2 
CFR part 200, subpart F, audits must be submitted no later than nine 
months after the end of the borrower's fiscal year or 30 days after the 
borrower's receipt of the auditor's report, whichever is earlier. If a 
lender makes reasonable documented attempts to obtain financial 
statements but is unable to obtain the borrower's (or guarantor's) 
cooperation, the failure to obtain financial statements does not impair 
the validity of the loan note guarantee.
    (c) Annual financial statements must be in accordance with 
accounting practices acceptable to the Agency as prescribed in Sec. 
5001.9 for all borrowers with a guaranteed loan balance in excess of 
$600,000. The lender may determine the type and frequency of financial 
statements for borrowers with a total guaranteed loan balance below 
$600,000 upon notification and justification to the Agency. This section 
does not supersede the borrower financial statement requirements of 2 
CFR part 200, subpart F.
    (d) The lender must analyze the financial statements obtained under 
paragraph (a) of this section and provide the Agency with a financial 
analysis including a credit evaluation of

[[Page 1111]]

trends, strength and weaknesses, ratio analysis, and conclusions, plus 
any extraordinary transactions; borrower violations of loan covenants 
and covenant waivers proposed by the lender, any routine servicing 
actions performed; and other indications of the financial condition of 
the borrower.
    (e) Following the Agency's review of the lender's financial 
analysis, the Agency will notify the lender in writing of any concerns. 
The lender must address each concern identified in the Agency's findings 
by the due date stated in the correspondence.
    (f) The lender should routinely confirm the outstanding principal 
balance of a guarantee held by a holder to avoid any discrepancy and 
delay in reconciliation in the event of a lender or Agency repurchase of 
the guaranteed loan from a holder in accordance with Sec. 5001.511.



Sec. 5001.505  Collateral inspection and release.

    (a) Inspection of collateral. The lender must inspect the collateral 
as often as necessary to properly service the guaranteed Loan.
    (b) Release of collateral. The lender must provide written 
justification for the release and obtain Agency approval before 
releasing any collateral. The lender is not required to provide 
justification for the release of collateral when the loan is not in 
default or liquidation and the collateral being released is a working 
asset, such as accounts receivable, inventory, and work-in-progress, 
that are routinely depleted or sold and proceeds used for the normal 
course of business operations.
    (1) Exceptions to prior approval. Lenders are not required to obtain 
Agency approval prior to releasing collateral when the collateral sale 
proceeds are used to pay down debt in order of lien priority, pay down 
the guaranteed loan principal, or to acquire replacement collateral.
    (2) Appraisals. Current appraisals are required on all transactions 
pursuant to the requirements of Sec. 5001.203 of this part.
    (3) Sale or release transaction. The sale or release of collateral 
must be based on an arm's length transaction, unless otherwise approved 
by the Agency in writing. There must be adequate consideration at market 
value for the release of collateral. Such consideration may include, but 
is not limited to:
    (i) Application of the net proceeds from the sale of collateral to 
the borrower's debts in order of their lien priority against the sold 
collateral;
    (ii) Use of the net proceeds from the sale of collateral to purchase 
other collateral of equal or greater value which the lender will obtain 
as security for the benefit of the guaranteed loan with a lien position 
equal or superior to the position previously held;
    (iii) Application of the net proceeds from the sale of collateral to 
the borrower's guaranteed loan or to its business operation in such a 
manner that a significant improvement to the borrower's debt service 
ability will be clearly demonstrated. The Lender's written request must 
detail how the borrower's debt service ability will be improved; and
    (4) No adverse impact. Any release of collateral must not materially 
cause an adverse effect to the project's operation or financial 
condition and the remaining collateral must be sufficient to provide for 
adequate collateral coverage. Such assurance must be supported by 
written documentation from the lender and be acceptable to the Agency. 
If the Agency determines that the project may be adversely affected by a 
release of collateral, the Agency may, at its discretion, require an 
appraisal on the remaining collateral in accordance with Sec. 5001.203 
of this part.



Sec. 5001.506  Loan transfers and assumptions.

    (a) General. A lender must obtain prior written Agency approval in 
accordance with paragraph (c) of this section before the lender conducts 
a transfer and assumption of a guaranteed loan. The transferee will 
assume a loan amount at least equal to the outstanding loan balance or 
the present market value of the collateral, whichever is less. If the 
transferor is to receive a payment for their equity, the total debt must 
be assumed. The following conditions must be met:
    (1) All transfers and assumptions will have a fee as provided by 
Sec. 5001.509(b).

[[Page 1112]]

    (2) For each transfer and assumption, the lender must concur in 
plans for the disposition of funds, if any, in the transferor's debt 
service, operations and maintenance, or other reserve accounts.
    (3) The lender must confirm that the transfer and assumption can be 
completed in accordance with applicable laws.
    (4) The lender must confirm that the conveyance instruments will be 
filed, registered, and recorded as appropriate and legally permissible. 
The transfer and assumption must be made on the Lender's form of 
assumption agreement and contain the Agency case number of the 
transferor and transferee. The lender must provide the Agency with a 
copy of the assumption agreement.
    (5) The lender may request a transfer and assumption when the total 
indebtedness, or less than the total indebtedness, of the guaranteed 
loan is assumed by another borrower. If the assumption is for less than 
the total indebtedness, the transfer and assumption must be an arm's 
length transaction and the transfer must be of all loan collateral.
    (6) In the event of default of the guaranteed loan, a transfer and 
assumption of the borrower's operation and guaranteed loan can be 
accomplished before or after the loan goes into liquidation. However, if 
the collateral has been purchased through foreclosure or the borrower 
has conveyed title to the lender, no transfer and assumption is 
permitted.
    (7) No transfer and assumption is permitted when the Agency has 
repurchased any guaranteed portion of the guaranteed portion of the 
loan.
    (8) If the transfer is for less than the total indebtedness, the pro 
rata share of an eligible loss will be paid to the lender after 
execution of the transfer and assumption documents.
    (b) Documentation. The lender will provide to the Agency 
documentation to support the transferee's status as an eligible 
borrower, and such other documentation as the Agency may request to 
determine eligibility and credit evaluation.
    (1) The new borrower must sign an Agency-approved application form.
    (2) The Agency will require personal and/or corporate guarantee(s) 
in accordance with Sec. 5001.204 of this part, as applicable. Any 
required new personal, partnership or corporate guarantors of the 
transferred guaranteed loan must sign an Agency approved guarantee form.
    (c) Agency approval. The Agency will only approve a transfer and 
assumption if the transferee will continue the eligible purpose of the 
guaranteed loan and such transfer and assumption complies with the 
conditions specified in paragraphs (c)(1) through (3) of this section, 
as applicable.
    (1) Whenever the transferor and transferee are affiliates or related 
parties, the transfer and assumption must:
    (i) Be to an eligible borrower to continue the project for eligible 
purposes;
    (ii) Transfer all the loan collateral; and
    (iii) Be for the full amount of the guaranteed loan indebtedness.
    (2) A transfer and assumption may be approved when the present 
borrower is unable or unwilling to accomplish the objectives of the 
guaranteed loan, and the transfer will be in the best financial interest 
of the borrower and the Agency.
    (3) The Agency prefers to transfer to an eligible borrower subject 
to the policies and procedures governing the type of guaranteed loan 
being made, however the Agency will consider approving a transfer of a 
guaranteed loan to an ineligible borrower only if:
    (i) The sale price is greater than it would be if the transfer was 
to an eligible borrower;
    (ii) The transfer to an ineligible borrower is needed as a method 
for servicing a problem case; or
    (iii) When an eligible borrower is not available. All transfers to 
an ineligible borrower must meet the following requirements:
    (A) Transfer fees will be collected, and payments applied, in 
accordance with Sec. 5001.509(b);
    (B) The ineligible borrower agrees to pay the loan balance within 
the remaining term of the original guaranteed loan in periodic 
installments that will not result in a balloon payment at the loan's 
maturity;

[[Page 1113]]

    (C) Interest rates are at the rate specified in the promissory note 
of the transferor or at rates customarily charged borrowers in similar 
circumstances in the ordinary course of business. The rates can be 
either fixed or variable, and are subject to Agency review and approval;
    (D) The ineligible borrower must have the legal authority to enter 
into the contract and have the ability to repay the loan, as determined 
by the lender and the Agency. The ineligible borrower must submit a 
current balance sheet to the lender. The lender must obtain and analyze 
the credit history of the ineligible borrower.
    (d) Release of liability. The transferor, including any guarantor, 
can be released from liability only with prior Agency written approval 
when the transfer and assumption is for the full outstanding balance of 
the guaranteed loan. If the assumption is for less than the full amount 
of the loan and the Agency pays a loss to the lender, the transferor, 
including any guarantor, are specifically subject to the Debt Collection 
Improvement Act provisions unless other workout arrangements have been 
made.
    (e) Loan agreement. A new loan agreement or an assumption agreement, 
acceptable to the Agency must be executed to establish the terms and 
conditions of the loan being assumed
    (f) Changes in loan terms. When a transfer or assumption is made to 
an eligible borrower continuing the project for eligible purposes, the 
loan terms may remain the same or may be changed whether the transfer is 
for the total indebtedness or less than the total indebtedness. If the 
loan terms are to be changed, the lender must submit a request in 
accordance with this paragraph (f). The changed loan terms must be 
concurred to by the Agency, all holders, and the transferee (including 
guarantors). If there are changes in loan terms, the lender's request 
will require the following:
    (1) An explanation of the reasons for the proposed change in the 
loan terms, and
    (2) Certification that the lien position securing the guaranteed 
loan will be maintained or improved, and proper insurances will continue 
to be in effect.
    (g) Loan note guarantee. The lender is responsible for noting each 
transfer and assumption on all originals of the loan note guarantee.
    (h) Proceeds. Before the transfer and assumption is closed, the 
lender must credit any proceeds received from the sale of collateral to 
the transferor's guaranteed loan debt in order of lien priority.
    (i) Additional loans. Guaranteed loans may be used to provide 
additional funds in connection with a transfer and assumption. The 
Agency will consider approving a guaranteed loan to provide additional 
funds in connection with a transfer and assumption pursuant to the 
lender's submission of a complete application in accordance with 7 CFR 
part 5001, subpart D.
    (j) Credit quality. The lender must make a complete credit 
evaluation in accordance with Sec. 5001.202 of this part to determine 
viability of the project (subject to the Agency review and approval) 
including any requirement for deposits in an escrow account as security 
to meet the applicable equity requirements for the project.
    (k) Appraisals. If the proposed Transfer and Assumption is for less 
than the full amount of the guaranteed loan, an appraisal is required on 
all the collateral being transferred, and the amount of the assumption 
must not be less than this appraised value. The lender is responsible 
for obtaining the appraisal, which must conform to the requirements of 
Sec. 5001.203 of this part. However, if the original appraisal is more 
than one year old, but less than two years old, the lender may provide 
an appraisal with a new effective date of evaluation in lieu of a 
completely new appraisal.
    (l) Legal opinion. Prior to Agency approval, the lender must provide 
the Agency a preliminary written legal opinion that the guaranteed loan 
can be properly and legally transferred and assurance that the 
conveyance instruments will be appropriately filed, registered, and 
recorded. Upon execution of the transfer and assumption, the lender must 
provide the Agency with a final legal opinion that the assumption is 
completed, valid, and enforceable, and the assumption is consistent with 
the conditions outlined in the Agency's

[[Page 1114]]

conditions of approval for the transfer and complies with all Agency 
regulations.
    (m) Promissory notes. The lender must not issue any new promissory 
notes, release any mortgages and/or deeds of trust on the existing debt 
being transferred. An allonge may be attached to existing promissory 
notes as needed.
    (n) Loss/repurchase resulting from transfer and assumption. (1) Any 
resulting loss must be processed in accordance with Sec. 5001.521.
    (2) If a holder owns any of the guaranteed portion of the loan, such 
portion must be repurchased by the lender or the Agency in accordance 
with Sec. 5001.511.
    (o) Cash down payment. The lender may allow the transferee to make 
cash down payments directly to the transferor provided:
    (1) The transfer and assumption are made for the total indebtedness 
to an eligible borrower to continue the project for eligible purposes;
    (2) The lender recommends that the cash be released, and the Agency 
concurs prior to the assumption being completed. The lender can require 
that an amount be retained for a defined period of time as a reserve 
against future defaults. Interest on such account may be paid 
periodically to the transferor or transferee as agreed; and
    (3) The lender determines that the transferee has the repayment 
ability to meet the obligations of the assumed guaranteed loan as well 
as any other indebtedness.
    (p) Change in control of borrower. The Agency will deem that a 
transfer and assumption has occurred whenever there is a significant 
change in the control of the borrower.



Sec. 5001.507  Lender transfer.

    (a) After the issuance of a loan note guarantee, a lender may sell 
or transfer the entire loan to a new lender with prior written approval 
of the Agency. The Agency may approve the sale or transfer to a new 
lender if the following conditions are met. The new lender:
    (1) Is an eligible lender in accordance with Sec. 5001.130 of this 
part and is approved as such;
    (2) Is able to service the loan in accordance with the original loan 
documents;
    (3) Agrees in writing to acquire title to the unguaranteed portion 
of the loan held by the original Lender and assumes all original loan 
requirements, including liabilities and servicing responsibilities; and
    (4) The transfer to the new lender is requested in writing by the 
borrower, the proposed new lender, and the original lender of record, if 
still in existence.
    (b) Upon Agency approval, the original lender must transfer to the 
new lender the:
    (1) Original promissory note and loan security documents;
    (2) Original loan note guarantee;
    (3) Original personal and corporate guarantee(s);
    (4) Loan payment history; and
    (v) The new lender must agree to accept the current loan terms, 
including the interest rate, secondary market holder (if any), 
collateral, loan agreement terms, and guarantors. The new lender can 
modify the loan terms after acquisition only by submitting a written 
request to the Agency and receiving Agency approval.
    (vi) The new lender must certify to the Agency that the loan 
transfer has been completed in accordance with applicable laws and all 
provisions of the original loan remain in full force and effect.
    (c) The Agency will not pay any loss or share in any costs (e.g., 
legal fees, appraisal fees and environmental assessments) for a 
voluntary transfer of lender. This includes situations where a lender is 
merged with or acquired by another lender and situations where the 
lender has failed and been taken over by a Federal regulatory agency 
such as the Federal Deposit Insurance Corporation (FDIC) and the loan is 
subsequently sold to another lender. However, in situations where the 
lender has failed and been taken over by a Federal regulator and the 
loan is liquidated rather than being sold to another lender, the Agency 
will pay losses and share in costs as if the Federal regulatory agency 
were an approved new lender.

[[Page 1115]]

    (d) In cases when there is a transfer to a new lender or when a 
lender has been merged with or acquired by another Lender, the Agency 
and the new lender must execute a new lender's agreement, unless the new 
lender already has a valid lender's agreement with the Agency.
    (e) After Agency approval of a transfer of lender, all terms of the 
original loan note guarantee shall transfer to the benefit of the new 
lender.



Sec. 5001.508  Mergers.

    Agency approval. All borrower mergers or consolidations (herein 
referred to as ``mergers'') require approval by the Agency and the 
lender. The Agency may approve a merger when--
    (a) The resulting organization will be eligible for a guaranteed 
loan and assumes all the liabilities and acquires all the assets of the 
merged borrower;
    (b) The merger is in the best interest of the government and the 
merging organization;
    (c) The resulting organization can meet all required conditions as 
contained in specific loan agreements; and
    (d) All property can be legally transferred to the resulting 
organization.



Sec. 5001.509  Servicing fees.

    The lender may pass the servicing fees on to the borrower but may 
not delay payment of the fee to the Agency while collecting the payment 
from the borrower.
    (a) Guarantee retention fees. Where the lender is required to pay a 
periodic guarantee retention fee (see Sec. 5001.455), the fee is due 
for the entire payment period even if the loan note guarantee is 
terminated or transferred before the next retention fee payment is due.
    (b) Borrower transfer fee. The Agency will charge the following 
fees:
    (1) A one-time, $1,500 nonrefundable transfer fee at the time of 
transfer to an eligible borrower.
    (2) Payment of a one-time nonrefundable transfer fee of 1 percent of 
the guaranteed loan balance to ineligible borrowers.



Sec. 5001.510  Subordination of lien position.

    (a) Request for subordination. A lender seeking a subordination of 
its lien position in collateral must submit a written request to the 
Agency. The lender must include in the request a financial analysis of 
the servicing action. The financial analysis must be fully supported by 
current financial statements, less than 90 calendar days old, of the 
borrower and guarantors. The lender must receive written Agency approval 
prior to the subordination.
    (b) Agency approval. Agency approval of the subordination request 
requires that:
    (1) The subordination of the lender's lien position enhances the 
borrower's business and is in the best financial interest of the Agency;
    (2) The lien to which the guaranteed loan is subordinated is for a 
fixed dollar amount or fixed credit limit and for a fixed term, after 
which the guaranteed loan lien priority will be restored;
    (3) Remaining collateral is sufficient to provide for adequate 
collateral coverage of the guaranteed loan. The Agency may require a 
current independent appraisal in accordance with Sec. 5001.203 of this 
part. However, if the original appraisal is more than one year old, but 
less than two years old, the lender may provide an appraisal with a new 
effective date of evaluation in lieu of a completely new appraisal;
    (4) Lien priorities remain for the portion of the loan collateral 
that was not subordinated;
    (5) The subordination of collateral to a line of credit does not 
extend beyond the term of the line of credit and in no event exceeds 
more than three years.
    (6) Subordination to a tax-exempt obligation is strictly prohibited 
in compliance with OMB Circular A-129, ``Policies for Federal Credit 
Programs and Non-Tax Receivables.''



Sec. 5001.511  Repurchases from holders.

    (a) General. A holder can make written demand on either the lender 
or the Agency to repurchase the unpaid guarantee portion of the loan 
when the borrower is in monetary default or when the lender has failed 
to pay the holder its pro-rata share of any payment made by the borrower 
within 30 days of the lender's receipt thereof from the borrower. When 
making written demand

[[Page 1116]]

on the lender, the holder must concurrently send a copy of the demand 
letter to the Agency.
    (1) The lender is encouraged to repurchase the guarantee, upon 
written demand of a holder, to facilitate the accounting of funds, 
resolve any loan problem, and resolve the monetary default, where and 
when reasonable. The benefit to the lender is that it may re-assign the 
guaranteed portion of the loan and then continue collection of its 
servicing fee, if any, when the monetary default is cured.
    (2) When a lender receives a written demand for repurchase from a 
holder, the lender must notify any other holder and the Agency within 30 
calendar days of receipt of the written demand. The lender must inform 
all parties if the lender will repurchase the unpaid guaranteed portion 
of the loan from the requesting holder.
    (3) Upon repurchase the holder will re-assign the assignment 
guarantee agreement to the lender without recourse.
    (b) Repurchase by lender for loan servicing purposes. If the lender, 
borrower, and holder are unable to agree to restructuring of loan 
repayment, interest rate, or loan terms to resolve any loan problem or 
resolve any default, and repurchase of the guaranteed portion of the 
loan is necessary to adequately service the loan, the holder must 
reassign the guaranteed portion of the loan to the lender. The 
reassignment must be for an amount not less than the holder's unpaid 
principal and accrued Interest, in accordance with Sec. 5001.450(c) of 
this part, on such portion less the lender's servicing fee.
    (1) Upon repurchase the holder will re-assign the assignment 
guarantee agreement to the lender without recourse.
    (2) The lender must not repurchase from the holder for arbitrage or 
other purposes to further its own financial gain.
    (3) Any repurchase from a holder may only be made after the lender 
obtains the Agency's written approval.
    (c) Agency repurchase. If the lender does not repurchase the 
guaranteed portion from the holder, the Agency may, at its option, 
purchase such guaranteed portion of the loan for loan servicing 
purposes. A holder can submit a written demand to the Agency for 
repurchase only if the lender declines to repurchase. If a prior written 
demand was not made upon the lender, the Agency will notify the lender 
and allow up to seven calendar days for the lender to exercise their 
option to repurchase as provided in this section.
    (1) Lender does not repurchase. If the lender does not repurchase 
the unpaid guaranteed portion of a loan as provided in paragraph (a) of 
this section, the Agency will, within 30 calendar days after written 
demand to the Agency from the holder, purchase from the holder the 
unpaid principal balance of the guaranteed portion together with accrued 
interest to date of repurchase or the interest termination date, 
whichever is sooner, less the lender's servicing fee. The guarantee will 
pay accrued interest to the holder on the loan as determined under Sec. 
5001.450(c) of this part.
    (2) Written demand content. The holder must include in its written 
demand to the Agency:
    (i) A copy of the written demand made upon the lender;
    (ii) A copy of the lender's denial to repurchase the unpaid 
guaranteed portion of the guaranteed loan;
    (iii) Evidence of the right to require payment from the Agency as 
provided by the holder or duly authorized agent. Such evidence must 
consist of the original assignment guarantee agreement properly assigned 
to the Agency without recourse including all rights, title, and interest 
in the loan;
    (iv) The amount due including unpaid principal, unpaid interest to 
date of demand, and interest subsequently accruing from date of demand 
to proposed payment date; and
    (v) When the initial holder has assigned its interest, the original 
assignment guarantee agreement and an original of each Agency-approved 
reassignment document in the chain of ownership, with the latest 
reassignment being assigned to the Agency without recourse, including 
all rights, title, and interest in the guarantee.
    (3) Payment. Unless otherwise agreed upon, payment will not be later 
than 30 calendar days from the date of demand.

[[Page 1117]]

    (i) Upon request by the Agency, the lender must promptly furnish 
(within 30 calendar days of such request) a current statement, certified 
by an appropriate authorized officer of the lender, of the unpaid 
principal and interest then owed by the borrower on the loan and the 
amount then owed to any holder, along with the information necessary for 
the Agency to determine the appropriate amount due the holder.
    (ii) Any discrepancy between the amount claimed by the holder and 
the information submitted by the lender must be resolved between the 
lender and the holder before payment will be approved. The Agency will 
notify both parties and such conflict will suspend the running of the 
30-calendar-day payment requirement.
    (iii) If a repurchase of a guaranteed loan includes the 
capitalization of interest, interest accrued on the capitalized interest 
will not be paid to the holder.
    (4) Subrogation. When the Agency purchases a loan from a holder it 
assumes all rights that were previously held by the holder.
    (5) Servicing fee. When the Agency purchases the guaranteed portion 
of the loan from a holder, the lender's servicing fee will stop on the 
date that interest was last paid by the borrower. The lender can neither 
charge a servicing fee to the Agency nor collect such fee from the 
Agency.
    (6) Accrued interest. If the Agency repurchases 100 percent of the 
guaranteed portion of a loan and becomes the holder, interest accrual on 
the loan will cease until the lender resumes remittance of the pro rata 
payments to the Agency.
    (7) Establishing interest termination date. When a guaranteed loan 
has been delinquent more than 60 calendar days and no holder comes 
forward or when the lender has accelerated the account, and subject to 
the expiration of any forbearance or workout agreement, the lender, or 
the Agency at its sole discretion, must issue a letter to the holder(s) 
establishing the interest termination date in accordance with Sec. 
5001.450(c)(2).
    (8) Obligations and rights. Purchase by the Agency neither changes, 
alters, or modifies any of the lender's obligations to the Agency 
arising from the lender's agreement, guaranteed loan or loan note 
guarantee, nor does it waive any of the Agency's rights against the 
lender. The Agency will have the right to set-off against the lender all 
rights inuring to the Agency as the holder of the instrument against the 
Agency's obligation to the lender under the loan note guarantee.
    (9) Accelerated loan. When the lender has accelerated the loan and 
the lender holds all or a portion of the guaranteed loan, an estimated 
loss claim must be filed by the Lender with the Agency within 60 
calendar days from the date the loan was accelerated. Accrued interest 
paid to the lender in accordance with Sec. 5001.450(c)(1).
    (10) Interest termination during bankruptcy. When a borrower files a 
Chapter 7 liquidation plan, the lender shall immediately notify the 
Agency and submit a liquidation plan. The Agency will establish an 
interest termination date based on the date Interest was last paid to 
the lender. When a borrower files either a Chapter 9 or Chapter 11 
bankruptcy restructuring plan, the Agency and lender shall meet to 
discuss the bankruptcy procedure, the ability of the borrower to meet 
their restructuring plan, the lender's treatment of accruing interest, 
and potentially establish an interest termination date for the 
guaranteed loan. If the restructuring bankruptcy Chapter 9 or Chapter 11 
is converted to a liquidation bankruptcy Chapter 7 by court order, the 
interest termination date will be the date of such conversion.

[85 FR 62198, Oct. 2, 2020]



Sec. 5001.512  Additional expenditures and loans.

    The lender shall not make additional expenditures on behalf of, or 
provide new loans to, the borrower without notification to the Agency 
even though such expenditures or loans will not be guaranteed. The 
lender shall not approve additional expenditures or new loans where the 
expenditure or loan will violate, or cause a violation of, any of the 
loan covenants in the borrower's loan agreement.

[[Page 1118]]



Sec. 5001.513  Interest rate changes.

    (a) Interest rate freezes. The guaranteed loan interest rate will 
freeze at the earliest uncured default date and will remain unchanged 
until the cancellation of the loan note guarantee in compliance with 
Sec. 5001.524.
    (b) Reductions. The borrower, lender, and holder (if any) may 
collectively initiate a permanent or temporary reduction in the interest 
rate of the guaranteed loan at any time during the life of the loan upon 
written agreement among these parties. After a permanent reduction, the 
loan note guarantee will only cover losses of interest at the reduced 
interest rate.
    (1) When the Agency is a holder, the lender must obtain Agency 
approval before implementing the reduction. The lender must provide a 
copy of the modification agreement to the Agency for approval. The 
Agency will approve the reduction only when it is demonstrated that the 
change is more viable than liquidation and that the government's 
financial interests are not adversely affected.
    (2) Factors that the Agency will consider in determining whether to 
approve the change are the Government's cost of borrowing money; the 
monetary recovery is greater than the liquidation recovery; and the 
project's continued viability as demonstrated by a financial feasibility 
analysis.
    (c) Increases. Unless a temporary interest rate reduction occurred, 
increases in fixed interest rates and increases in variable interest 
rate structure are prohibited.
    (d) Fixed rate to variable rate change. Fixed rates can be changed 
to variable rates to reduce the borrower's interest rate only when the 
variable rate has a ceiling that is less than or equal to the original 
fixed rate.
    (e) Variable rate to fixed rate change. Variable rates can be 
changed to a fixed rate at the request of the borrower, agreement of the 
holder, if any, and Agency concurrence.
    (f) After adjustments. The interest rates, after adjustments, must 
comply with the requirements for interest rates on new loans as 
established by paragraph Sec. 5001.401.
    (g) Documentation. The lender is responsible for the legal 
documentation of interest rate changes by an endorsement or any other 
legally effective amendment to the promissory note; however, no new 
promissory notes can be issued. The lender must provide copies of all 
such documents to the Agency within 10 calendar days of the change.
    (3) In a final loss settlement when qualifying interest rate changes 
are made in compliance with this part, the lender must calculate 
interest based on the periods the given rates were in effect. The lender 
must maintain records that adequately document the accrued interest 
claimed, which must be determined in accordance with Sec. 5001.450(c).

[85 FR 42518, July 14, 2020, as amended at 86 FR 70358, Dec. 10, 2021]



Sec. 5001.514  Lender failure.

    (a) General. In the event a lender fails or ceases to service a 
guaranteed loan, the Agency will make the successor lending entity aware 
of the statutory and regulatory requirements and will provide 
instruction to the successor lending entity on a case-by-case basis. 
Such instructions may include the Agency's determination that the Agency 
will service the entire loan or the guaranteed portion of the loan.
    (1) Any successor lender must take such action that a reasonable 
lender would take if it did not have a loan note guarantee to protect 
the lender and Agency's mutual interest.
    (2) A successor entity approved by the Agency as a lender will be 
afforded the benefits of the loan note guarantee in the sharing of any 
loss and eligible expenses subject to the limits that are set forth in 
the regulations governing the loan guarantee.
    (b) Non-regulated lender. If the successor lending entity is a non-
regulated lender, the lending entity is prohibited from making changes 
to the lender's agreement and related documents on the guaranteed loan. 
The successor lending entity must comply with the provisions of this 
part, including promptly applying to become a lender if not already an 
eligible lender. If the successor lending entity is not or fails to 
become a lender as set forth in Sec. 5001.130 of this part within 60 
calendar days, the loan note guarantee will not be enforceable.

[[Page 1119]]

    (c) Regulated lender. Where the failed lending entity is an FDIC 
regulated lender, the FDIC and the Agency will enter into an Inter-
Agency Agreement regarding the FDIC's role as the successor lending 
entity, and all parties are to abide by this agreement or successor 
document(s). This agreement sets forth the duties and responsibilities 
of each Agency when a lender fails. When the FDIC is not the successor 
to a failed regulated lender, the regulatory agency serving as the 
successor lending entity and the Agency will abide by terms of the 
lender's agreement as executed by the originating lender. The Agency 
reserves the right to request a meeting with the successor lending 
entity to further define the duties and responsibilities of each agency 
when a lender fails.
    (d) No successor entity. In the event no successor lending entity 
can be determined, the Agency reserves the right to enforce the 
provisions of the loan documents on behalf of the lender or to purchase 
the lender's interest in the loan.



Sec. 5001.515  Default by borrower.

    When there is a default by a borrower, the lender must act prudently 
and expeditiously in working with the borrower to bring the account 
current or cure the default through restructuring if a realistic plan 
can be developed, or to accelerate the account and conduct a liquidation 
in accordance with Sec. 5001.517 and in a manner that will minimize any 
potential loss.
    (a) Default notification and meetings. The lender must notify the 
Agency within the timeframe as provided in Sec. 5001.502(a)(3)(i).
    (1) The lender will provide this notification by submitting the 
guaranteed loan borrower default status report in the Agency's 
electronic reporting system. The lender must update the loan's status 
each month until such time as the loan is no longer in default.
    (2) If a monetary default exceeds 30 calendar days, the lender must 
meet with the borrower and, if necessary, the Agency within 45 calendar 
days of the date of the default to discuss the situation. The lender 
must provide the Agency with a written summary of the meeting, including 
any decisions and actions agreed upon within 10 calendar days of the 
meeting.
    (b) Curative options. In considering curative actions, providing a 
permanent cure without adversely affecting the risk to the Agency and 
the lender is the paramount objective. The lender may consider temporary 
curative actions (e.g., payment deferments or collateral subordination) 
provided they strengthen the loan and are in the best financial interest 
of the lender and the Agency.
    (1) Curative actions (subject to the rights of any holder and Agency 
concurrence) include, but are not limited to, the following options:
    (i) Deferment of principal and/or interest payments;
    (ii) An additional unguaranteed temporary loan by the lender to 
bring the account current;
    (iii) Re-amortization of or rescheduling the payments on the loan 
excluding capitalization of accrued interest;
    (iv) Transfer and assumption of the loan in accordance with Sec. 
5001.506;
    (v) Reorganization;
    (vi) Liquidation;
    (vii) Changes in interest rates in accordance with Sec. 5001.513. 
Any interest payments must be adjusted proportionately between the 
guaranteed and unguaranteed portion of the loan; and
    (viii) Troubled debt restructure.
    (2) The term of any deferment, rescheduling, re-amortization, or 
moratorium cannot exceed the lesser of the remaining useful life of the 
collateral or remaining term of the loan as set forth in Sec. 
5001.402(b) of this part.
    (i) During a period of deferment or moratorium on the guaranteed 
loan, the lender's non-guaranteed loan(s) and any stockholder or 
affiliate loans must also be under deferment or moratorium.
    (ii) Balloon payments are permitted as a loan servicing option as 
long as there is a reasonable prospect for successful repayment of the 
guaranteed loan and the remaining life of the collateral supports the 
action.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62199, Oct. 2, 2020]



Sec. 5001.516  Protective advances.

    Protective advances are allowed only when they are necessary to 
preserve

[[Page 1120]]

the value of the collateral. Therefore, a lender must exercise sound 
judgment in determining that the protective advance preserves collateral 
and recovery is actually enhanced by making the advance.
    (a) Protective advances must be reasonable with respect to the 
outstanding loan amount and the value of the collateral being preserved.
    (b) A lender cannot make protective advances in lieu of additional 
loans.
    (c) A lender must obtain written Agency approval for any protective 
advance that will cumulatively amount to more than $200,000, or 10 
percent of the aggregate outstanding balance of principal and interest, 
whichever is less, to the same borrower.
    (d) Protective advances constitute an indebtedness of the borrower 
to the lender and must be secured by collateral to the same extent as 
the original guaranteed loan.
    (e) Notwithstanding Sec. 5001.22(c) of this part, upon Agency 
approval, protective advances can be used to pay Federal tax liens or 
other Federal debt.
    (f) A Protective advance claim will be paid only at the time of the 
final payment as indicated in the report of loss. In the event of a 
final loss, protective advances may accrue interest at the promissory 
note rate from the date of such advance and will be guaranteed at the 
same percentage of loss as provided for in the loan note guarantee. The 
loan note guarantee will not cover interest on the protective advance 
accruing after the interest termination date.
    (g) The maximum loss to be paid by the Agency will never exceed the 
original loan amount plus accrued interest times the percentage of 
guarantee regardless of any protective advances made.
    (h) Holders do not have an interest in protective advances.



Sec. 5001.517  Liquidation.

    In the event of one or more incidents of default or third-party 
actions that the borrower cannot or will not cure or eliminate within a 
reasonable period of time, the lender, with Agency consent, must provide 
for liquidation in accordance with paragraphs (a) through (n) of this 
section. The lender is responsible for initiating actions immediately 
and as necessary to assure a prompt, orderly liquidation that will 
provide maximum recovery. The Agency reserves the right to unilaterally 
conclude that liquidation is necessary and require the lender to assign 
the collateral to the Agency and the Agency will then liquidate the loan 
per paragraph (o) of this section.
    (a) Decision to liquidate. A decision to liquidate a loan or proceed 
otherwise must be made when the lender determines that the default 
cannot be cured or when the Agency and the lender determine that it is 
in the best interest of the Agency and the lender to liquidate. The 
decision to liquidate or proceed otherwise with the borrower must be 
made as soon as possible when one or more of the following exist:
    (1) The loan is 90 calendar days behind on any scheduled payment and 
the lender and the borrower have not been able to cure the delinquency;
    (2) Delaying liquidation will jeopardize full or maximum recovery on 
the loan; or
    (3) The borrower or lender is uncooperative in resolving the problem 
or the Agency or lender has reason to believe the borrower is not acting 
in good faith, and immediate liquidation would minimize loss to the 
Agency.
    (b) Repurchase of loan. When the decision to liquidate a loan is 
made, if any portion of the loan has been sold or assigned under Sec. 
5001.408 of this part and has not already been repurchased, the lender 
must make provisions for repurchase in accordance with Sec. 5001.511.
    (c) Lender's liquidation plan. Within 30 calendar days after the 
lender decides to liquidate a loan, the lender must submit a written, 
proposed plan of liquidation to the Agency for approval. The liquidation 
plan must be detailed and include at least the following information:
    (1) Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan promissory note and related security 
instruments;
    (2) A copy of the payment ledger, if available, or other 
documentation that reflects the current outstanding loan balance, 
accrued interest to date, and the method of computing the accrued 
interest;

[[Page 1121]]

    (3) A full and complete list of all collateral and a listing of all 
liens held and status of such liens, plus any personal and corporate 
guarantees;
    (4) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including recommended action for acquiring and disposing of all 
collateral and collecting from guarantors;
    (5) Necessary steps for preservation of the collateral including any 
anticipated protective advances;
    (6) The market value and the potential liquidation value, or 
estimates thereof, of all the collateral securing the loan.
    (i) These values or estimates of the collateral must be obtained by 
the lender through an independent appraisal. If the outstanding balance 
of principal and interest is less than $250,000, the lender may, instead 
of an appraisal, obtain these values or estimates by using their primary 
regulator's policies relating to appraisals and evaluations or, if the 
lender is not regulated, normal banking practices and generally accepted 
methods of determining value.
    (ii) The procedure used to obtain these values or estimates of the 
collateral must include an evaluation of the impact of any release of 
hazardous substances, petroleum products, or other environmental 
hazards.
    (iii) Any independent appraiser's fee, including the cost of the 
environmental site assessment if necessary, will be shared equally by 
the Agency and the lender;
    (7) Proposed protective bid amounts on collateral to be sold at 
auction and a description to show how the amounts were determined.
    (i) A protective bid can be made by the lender, with prior Agency 
written approval, at a foreclosure sale to protect the lender's and the 
Agency's interest.
    (ii) The protective bid must not exceed the amount of the loan 
balance plus applicable foreclosure expenses and must be based on the 
liquidation value and estimated net recovery considering prior liens and 
outstanding taxes, expenses of foreclosure, and estimated expenses for 
holding and reselling the property. Foreclosure expenses include, but 
are not limited to, expenses for resale, interest accrual, length of 
time necessary for resale, maintenance, guard service, weatherization, 
and prior liens;
    (8) Copies of the borrower's latest available financial statements;
    (9) Copies of each guarantor's latest available financial 
statements;
    (10) An itemized list of estimated liquidation expenses expected to 
be incurred along with justification for each expense;
    (11) Estimated protective advance amounts with justification;
    (12) If a voluntary conveyance is considered, the proposed amount to 
be credited to the guaranteed debt;
    (13) Legal opinions, if needed by the lender's legal counsel; and
    (14) A schedule to periodically report to the Agency on the progress 
of liquidation, not to exceed every 60 days.
    (d) Partial liquidation plan. If actions are necessary to 
immediately preserve and protect the collateral, the lender may submit a 
partial liquidation plan and, when approved by the Agency, submit a 
complete liquidation plan prepared by the Lender in accordance with 
paragraph (c) of this section.
    (e) Approval of liquidation plan. The lender cannot implement its 
liquidation plan before obtaining written approval from the Agency. The 
Agency will approve or disapprove the plan within 30 calendar days of 
its receipt. In order to ensure prompt action, the lender may submit its 
liquidation plan with an estimate of collateral value, and the Agency 
may approve the liquidation plan subject to the results of the final 
liquidation appraisal.
    (1) If the Agency approves the lender's liquidation plan, the lender 
must:
    (i) Proceed expeditiously with liquidation;
    (ii) Take all legal action necessary to liquidate the loan in 
accordance with the approved liquidation plan; and
    (iii) Update or modify the liquidation plan when conditions warrant, 
including a change in value based on a liquidation appraisal.
    (iv) If changed circumstances after submission of the liquidation 
plan require a revision of liquidation costs, the lender must obtain the 
Agency's

[[Page 1122]]

written approval prior to proceeding with the proposed changes if the 
revised liquidation costs exceed 10 percent of the amount proposed in 
the liquidation plan approved by the Agency.
    (2) If the Agency does not approve the lender's liquidation plan, 
the Agency will meet with the lender to resolve the concern(s). Until 
the concerns are resolved, the lender must take such actions that a 
reasonable lender would take without a guarantee and keep the Agency 
informed, in writing, of those actions. Once the revised liquidation 
plan is approved by the Agency, the lender must proceed in accordance 
with paragraphs (e)(1)(i) through (iii) of this section.
    (f) Acceleration. The lender must proceed to accelerate the loan as 
expeditiously as possible when acceleration is necessary, including 
giving any notices and taking any other required legal actions. The 
guaranteed loan will be considered in liquidation once it has been 
accelerated and a demand for payment has been made upon the borrower.
    (1) If the sole basis for acceleration is a non-monetary default, 
the lender must obtain concurrence from the Agency prior to accelerating 
the loan. In the case of monetary default, the lender may accelerate the 
loan without prior approval by the Agency, although Agency concurrence 
must still be given no later than the time the Agency approves the 
liquidation plan.
    (2) The Lender must provide the Agency a copy of the acceleration 
notice or other acceleration document sent to the borrower.
    (g) Estimated loss claim and payment. If the lender is conducting 
the liquidation and owns any or all the guaranteed portion of the loan, 
the lender must file an estimated loss claim once a decision has been 
made to liquidate if the liquidation will exceed 90 calendar days. The 
Agency will process the estimated loss claim and will make final loss 
payments in accordance with Sec. 5001.521.
    (h) Liquidation expenses. (1) The guarantee will not cover 
liquidation expenses in excess of liquidation proceeds under any 
circumstances.
    (2) When a liquidation is performed by the lender, the Agency must 
approve, in advance and in writing, the lender's estimated liquidation 
expenses of collateral.
    (3) Liquidation expenses must be reasonable and customary and must 
provide a demonstrated economic benefit to the lender and the Agency. 
The lender and Agency will share liquidation expenses equally. To 
accomplish this, the lender must deduct 50 percent of the liquidation 
expenses from the collateral sale proceeds.
    (i) Accounting and reports. The lender must account for funds during 
the period of liquidation and must provide the Agency with reports on 
the progress of liquidation including disposition of collateral and 
resulting costs. If in the course of implementing the approved 
liquidation plan the lender determines additional procedures are 
necessary for the successful completion of the liquidation or otherwise 
makes any other changes to or deviations from the approved liquidation 
plan, the lender must identify in the report such procedures, changes, 
and deviations.
    (j) Transmitting payments and proceeds to the Agency. When the 
Agency is the holder of a portion of the guaranteed loan, the lender 
must transmit to the Agency within 14 calendar days the Agency's pro 
rata share of any payments received from the borrower, liquidation, or 
other proceeds using an Agency approved form.
    (k) Disposition of collateral. (1) Disposition of collateral 
acquired by the lender must be approved, in writing, by the Agency 
when--
    (i) The lender's cost to acquire the collateral of a borrower 
exceeds the potential recovery value of the security and the lender 
proposes abandoning the collateral in lieu of liquidation; or
    (ii) The acquired collateral is to be sold to the borrower, 
affiliates or members of the borrower or to borrower's stockholders or 
officers, or the lender or lender's stockholders or officers.
    (2) A recommendation by the lender for abandonment of collateral is 
considered a servicing action under 7 CFR 1970.8(e) and a separate NEPA 
review is not required.

[[Page 1123]]

    (l) Disposition of personal or corporate guarantees. The lender must 
take action to maximize recovery from all personal and corporate 
guarantees, including seeking deficiency judgments when there is a 
reasonable chance of future collection.
    (m) Compromise settlement. Compromise settlements must be approved 
by the lender and the Agency. The lender must provide complete current 
financial information on all parties obligated for the loan. At a 
minimum, the compromise settlement must be equivalent to the value and 
timeliness of that which would be received from attempting to collect on 
the guarantee. Any guarantor cannot be released from liability until the 
full amount of the compromise settlement has been received. In 
determining whether to approve a compromise settlement, the Agency will 
consider, among other things, whether the compromise is more financially 
advantageous than collecting on the guarantee.
    (n) Liquidation provisions selection. (1) If a lender has made a 
loan guaranteed under one of the programs identified in Sec. 5001.1 of 
this part, the lender has the option to liquidate the loan under the 
provisions of this part or under the entire provisions of applicable 
regulation at the time the loan was guaranteed by the Agency.
    (2) The lender must notify the Agency in writing within 10 calendar 
days after its decision to liquidate as to which regulatory provisions 
it chooses to use. If the lender does not notify the Agency in writing 
within these 10 calendar days, it must use the liquidation provisions in 
this part.
    (o) Agency liquidation. The Agency will liquidate a guaranteed loan 
at its option only when it is a holder and there is reason to believe 
the lender is not likely to undertake liquidation efforts that will 
result in maximum recovery. When it conducts a liquidation, the Agency 
will apply proceeds derived from the sale of the collateral first to 
reasonable liquidation expenses and second to the guaranteed portion of 
the loan.



Sec. 5001.518  [Reserved]



Sec. 5001.519  Bankruptcy.

    (a) Lender's responsibilities. The lender is responsible for 
protecting the guaranteed loan and the collateral securing it in 
bankruptcy and any related appellate proceedings. These responsibilities 
include, but are not limited to, the following:
    (1) Taking actions that result in greater recoveries and avoiding 
actions that are likely not to be cost-effective;
    (2) Monitoring confirmed bankruptcy plans to determine borrower 
compliance, and, if the borrower fails to comply, pursuing appropriate 
relief, including seeking a dismissal of the bankruptcy plan;
    (3) Requesting modifications of any proposed bankruptcy plan 
whenever it appears that the lender could obtain additional recoveries 
via plan modification;
    (4) Filing a proof of claim, when necessary, and all the necessary 
papers and pleadings concerning the case;
    (5) Attending and, when necessary, participating in meetings of the 
creditors and all court proceedings;
    (6) Immediately seeking adequate protection of the collateral if it 
is subject to being used by the trustee in bankruptcy or the debtor in 
possession;
    (7) When appropriate, seeking involuntary conversion of a pending 
chapter 11 case to a liquidation proceeding or seeking dismissal of the 
proceedings;
    (8) Submitting a default status report within 15 calendar days after 
the date when the borrower defaults and every 30 calendar days 
thereafter until the default is resolved or a final loss claim is paid 
by the Agency; and
    (9) Informing the Agency within 10 working days upon notification of 
the filing of a bankruptcy case and keeping the Agency adequately and 
regularly informed, in writing, of all aspects of the proceedings, at a 
minimum, on a bi-monthly basis.
    (b) Appraisals. In a Chapter 9 or Chapter 11 reorganization, the 
lender must obtain an independent appraisal of the collateral if the 
Agency has determined that an independent appraisal is necessary. With 
written Agency consent, the lender and Agency will equally share the 
cost of any independent

[[Page 1124]]

appraisal fee to protect the guaranteed loan in any bankruptcy 
proceedings.
    (c) Repurchase from the holder. The Agency or the lender, with the 
approval of the Agency, can initiate the repurchase of the unpaid 
guaranteed portion of the loan from the holder. If the lender is the 
holder, an estimated loss payment may be filed at the initiation of a 
Chapter 7 proceeding or after a Chapter 9 or Chapter 11 proceeding 
becomes a liquidation proceeding. Any loss payment on loans in 
bankruptcy must be approved by the Agency.
    (d) Reports of loss during bankruptcy. In bankruptcy proceedings, 
the lender must use the report of loss form for reporting all estimated 
and final loss determinations. Payment of loss claims will be made as 
provided in this section.
    (1) Estimated loss payments. (i) If a borrower has filed for 
bankruptcy and all or a portion of the debt has been discharged, the 
lender must request an estimated loss payment of the guaranteed portion 
of the accrued interest and principal discharged by the court. Only one 
estimated loss payment is allowed during the bankruptcy and any related 
appellate proceedings. The Agency will treat all subsequent claims of 
the lender during bankruptcy and any related appellate proceedings as 
revisions to the initial estimated loss. At its option, the Agency may 
process a revised estimated loss payment in accordance with any court-
approved changes in the bankruptcy plan. Once the bankruptcy plan has 
been satisfactorily completed, the lender is responsible for submitting 
the documentation necessary for the Agency to review and adjust the 
estimated loss claim to reflect any actual discharge of principal and 
interest and to reimburse the lender for any court-ordered interest rate 
reduction under the terms of the bankruptcy plan.
    (ii) The lender must use the report of loss to request an estimated 
loss payment and to revise any estimated loss payments during the 
bankruptcy plan. The estimated loss claim, as well as any revisions to 
this claim, must be accompanied by documentation to support the claim.
    (iii) Upon completion of a bankruptcy plan, the lender must--
    (A) Enter the data directly into the Agency's electronic system; and
    (B) Provide the Agency with the documentation necessary to determine 
whether the estimated loss paid equals the actual loss sustained. Where 
the actual loss sustained is different than the estimated loss paid, the 
difference will be handled in accordance with Sec. 5001.521(h).
    (2) Bankruptcy loss payments. (i) The lender must request a 
bankruptcy loss payment of the guaranteed portion of the accrued 
interest and principal discharged by the court for all bankruptcies when 
all or a portion of the debt has been discharged. Unless a final court 
decree approves a subsequent change to the bankruptcy plan that is 
adverse to the lender, only one bankruptcy loss payment is allowed 
during the bankruptcy. Once a final court decree has discharged all or 
part of the guaranteed loan and any appeal period has run, the lender 
must submit the documentation necessary for the Agency to review and 
adjust the bankruptcy loss claim to reflect any actual discharge of 
principal and Interest.
    (ii) The lender must use the report of loss to request a bankruptcy 
loss payment and to revise any bankruptcy loss payments during the 
course of the bankruptcy. The lender must include with the bankruptcy 
loss claim documentation to support the claim, as well as any revisions 
to this claim.
    (iii) Upon completion of a bankruptcy plan, restructure, or 
liquidation, the lender must enter the data directly into the Agency's 
electronic reporting system.
    (iv) If an estimated loss claim is paid during a bankruptcy and the 
borrower repays in full the remaining balance without an additional loss 
sustained by the lender, a final report of loss will be filed to 
terminate the loan.
    (3) Interest losses as a result of bankruptcy reorganization. 
Interest losses as a result of bankruptcy reorganization will be paid as 
described in paragraphs (e)(3)(i) and (ii) of this section, as 
applicable.
    (i) For guaranteed loans closed for which the Agency has not issued 
an interest termination letter--

[[Page 1125]]

    (A) The loss of interest income sustained during the period of the 
bankruptcy plan will be processed in accordance with paragraph (d)(1) of 
this section;
    (B) The loss of interest income sustained after the bankruptcy plan 
is confirmed will be processed annually when the lender sustains a loss 
as a result of a permanent interest rate reduction that extends beyond 
the period of the bankruptcy plan; and
    (C) If an estimated loss claim is paid during the operation of the 
bankruptcy plan and the borrower repays in full the remaining balance 
without an additional loss sustained by the lender, a final report of 
loss will be filed to terminate the loan.
    (ii) For guaranteed loans closed for which the Agency has issued an 
interest termination letter, the Agency will not compensate the lender 
for any difference in the interest rate specified in the loan note 
guarantee and the rate of interest specified in the bankruptcy plan.
    (4) Final bankruptcy loss payments. The Agency will process final 
bankruptcy loss payments when the loan is fully liquidated.
    (5) Application of loss claim payments. The lender must apply 
estimated loss payments first to the principal balance of the guaranteed 
portion of the debt and then to the interest of the guaranteed portion 
of the debt. In the event a court attempts to direct the payments to be 
applied in a different manner, the lender must immediately notify the 
Agency in writing.
    (6) Protective advances. If approved protective advances, as 
authorized by Sec. 5001.516, were incurred in connection with the 
initiation of liquidation action and were required to protect the 
collateral as result of delays in the case or failure of the borrower to 
maintain the security prior to the borrower having filed bankruptcy, the 
protective advances together with accrued interest, as determined under 
Sec. 5001.450(c) of this part, are payable under the guarantee in the 
final loss claim.
    (e) Liquidation expenses during bankruptcy proceedings. (1) The 
liquidation expenses will be in compliance with Sec. 5001.517(h).
    (2) Reasonable and customary liquidation expenses in bankruptcy may 
be deducted from liquidation proceeds of collateral. In the case of 
Chapter 11 reorganizations or Chapters 11 or 7 liquidation, only 
expenses authorized by the court can be deducted from the collateral 
proceeds, unless the liquidation is by the lender.
    (3) When a bankruptcy proceeding results in a liquidation of the 
borrower by a bankruptcy trustee appointed under 11 U.S.C. 701, 702, 
703, or 1104, expenses will be handled as directed by the court, and the 
lender cannot claim liquidation expenses for the sale of the assets.
    (4) If the property is abandoned by the bankruptcy trustee and any 
relief from the stay has been obtained, the lender will conduct the 
liquidation in accordance with Sec. 5001.517.
    (5) Proceeds received from partial sale of collateral during 
bankruptcy can be used by the lender to pay reasonable costs (e.g., 
freight, labor, and sales commissions) associated with the partial sale. 
Reasonable use of proceeds for this purpose must be documented with the 
final loss claim request.
    (6) Legal fees as a result of a bankruptcy are limited by the Agency 
to an amount not to exceed 3 percent of the current principal balance 
and are only recoverable from liquidation proceeds. Legal fees in excess 
of 3 percent of the current principal balance shall be borne by the 
lender and are not recoverable from liquidation proceeds or any loss 
claim by the lender.



Sec. 5001.520  Litigation.

    (a) In all litigation proceedings involving the borrower, the lender 
is responsible for protecting the rights of the lender and the Agency 
with respect to the loan and keeping the Agency adequately and regularly 
informed, in writing, of all aspects of the proceedings. If the Agency 
determines that the lender is not adequately protecting the rights of 
the lender or the Agency with respect to the loan, the Agency reserves 
the right to take any legal action the Agency determines necessary to 
protect the rights of the lender and Agency, on behalf of the

[[Page 1126]]

lender or the Agency. If the Agency exercises this right, the lender 
must cooperate with the Agency. The Agency will assess against the 
lender any cost the Agency incurs with such action.
    (b) Notwithstanding any other provision of this part, the Agency 
reserves the right to be represented by the U.S. Department of Justice 
in any litigation where the Agency is named as a party.



Sec. 5001.521  Loss calculations and payment.

    Unless the Agency anticipates a future recovery, the Agency will 
make a final settlement with the lender after the collateral is 
liquidated or after settlement and compromise of all parties has been 
completed. The Agency has the right to recover losses paid under the 
guarantee from any party that may be liable.
    (a) Report of loss form. The lender must use the report of loss form 
for all estimated and final loss claim requests.
    (b) Estimated loss claim. The lender must submit to the Agency a 
completed report of loss form for all estimated loss claims. In 
calculating the estimated loss, the lender must use the estimated or 
current appraised liquidation value of the collateral.
    (c) Estimated loss payment. The Agency will approve estimated loss 
payments only after it has approved the lender's liquidation plan. For a 
loan which has been approved by the Agency for a debt write-down (or 
debt restructure), the maximum amount of loss payment will not exceed 
the percent of guarantee multiplied by the difference between the 
outstanding principal and interest balance of the loan before the write-
down and the outstanding balance of the loan after the write-down.
    (1) The amount of an estimated loss payment must be credited first 
as a deduction from the principal balance of the loan with any remaining 
balance to accrued interest.
    (2) The estimated loss payment cannot be applied as a payment on the 
loan for purposes of reducing the unpaid balance owed by the borrower 
for status reporting or any debt collection actions against the borrower 
or any guarantors.
    (d) Reduction of loss claims payable. (1) Negligent loan origination 
and negligent loan servicing will result in a reduction of loss claims 
payable under the guarantee to the lender if any losses have occurred as 
the result of such negligence. The Agency will assess against the lender 
any cost to the Agency associated with actions taken by the Agency 
necessary to protect the Agency's interests with respect to the loan 
where a lender is not in compliance with its origination and servicing 
responsibilities. The extent of the reduction, which could be a total 
reduction of the loss claims payable, will depend on the extent of the 
losses incurred as a result of the negligent loan origination or 
servicing.
    (2) Non-compliance with the requirements of Sec. 5001.205(a) or 
Sec. 5001.305(a) will result in a reduction of loss claims payable. The 
Agency's review of the non-compliance could result in a total reduction 
of the loss claim payable.
    (3) Any delinquent fees, including any interest due thereon, will be 
deducted from any loss payment due the lender.
    (e) Final loss claim. Except for certain unsecured personal or 
corporate guarantees as provided for in this section, the lender must 
submit a final report of loss to the Agency within 30 calendar days 
after liquidation of all collateral is completed. The Agency will not 
guarantee interest beyond the interest termination date or this 30-day 
period, other than for the period of time it takes the Agency to process 
the loss claim. The lender must apply the total amount of the loss 
payment remitted by the Agency to the guaranteed portion of the loan 
debt. At the time of final loss settlement, the lender must notify the 
borrower that the loss payment has been so applied. Such application 
does not release the borrower from liability. Once the lender receives a 
final loss payment from the Agency, the Agency will collect any 
outstanding debts owed to the government in accordance with part 3 of 
this title.
    (1) Loss. In the event of a loss, the loan note guarantee will not 
cover--
    (i) Interest to the lender accruing after the interest termination 
date;

[[Page 1127]]

    (ii) Any interest accrued as the result of the borrower's default on 
the guaranteed loan over and above that which would have accrued at the 
Agency-approved promissory note rate on the guaranteed loan (e.g., 
default interest rate); or
    (iii) Any late fees, penalties, bond fees, interest rate swap 
charges, liquidation expenses, and other costs unless authorized under 
paragraph (e)(7) of this section.
    (2) Accounting of funds. Before the Agency will approve a final 
report of loss, the lender must account for all funds during the period 
of liquidation, disposition of the collateral, all costs incurred, and 
any other information necessary for the successful completion of 
liquidation. The lender must document and show that all the collateral 
has been accounted for and properly liquidated, and that liquidation 
proceeds have been properly accounted for and applied correctly on the 
loan.
    (3) Audit. Upon receipt of the final accounting and report of loss, 
the Agency may audit all applicable documentation to determine the final 
loss. The lender must make its records available to and otherwise assist 
the Agency in making any investigation or audit of the report of loss. 
The documentation accompanying the Report of loss must support the 
amounts reported. The Agency must be satisfied that the lender has 
maximized the collections in conducting the liquidation.
    (4) Guarantees. The lender must determine the collectability of 
unsecured personal and corporate guarantees required in accordance with 
Sec. 5001.204 of this part. The lender must promptly collect or 
otherwise dispose of such guarantees prior to completion of the final 
loss report. However, if collection from the guarantors appears unlikely 
or will require a prolonged period of time, the lender must file the 
report of loss when all other collateral has been liquidated. Unsecured 
personal or corporate guarantees outstanding at the time of the 
submission of the final report of loss will be treated as a Future 
Recovery with the net proceeds to be shared on a pro rata basis by the 
lender and the Agency.
    (5) Federal debt. Any amounts paid by the Agency on account of 
liabilities of a borrower constitute a Federal debt owed to the Agency 
by the borrower. In such case, the Agency can use all remedies available 
to it to collect the debt from the borrower, including offset in 
accordance with part 3 of this title.
    (i) Any amounts paid by the Agency pursuant to a claim by a lender 
constitute a Federal debt owed to the Agency by a third-party guarantor 
of the guaranteed loan, to the extent of the amount of the third-party 
guarantee. In such case, the Agency can use all remedies available to it 
to collect the debt from the third-party guarantor including offset in 
accordance with part 3 of this title.
    (ii) The Agency may consider a compromise settlement of a debt owed 
to the Agency after it has processed a final report of loss and issued a 
60-day due process letter. Any funds collected by the Agency will not be 
shared with the lender.
    (6) Protective advances. In those instances where the lender made 
authorized protective advances, the lender can claim recovery for the 
guaranteed portion of any loss of monies advanced as well as interest 
resulting from such protective advances. These claims must be included 
in the final report of loss. The lender must provide receipts and a 
breakdown of protective advances as to the payee, purpose of the 
expenditure, date paid, evidence that the amount expended was proper, 
and that the amount was actually paid.
    (7) Liquidation expenses. As provided in Sec. 5001.517(e), certain 
reasonable liquidation expenses are allowed during the liquidation 
process. The lender cannot claim any liquidation expenses in excess of 
liquidation proceeds.
    (i) Liquidation expenses are recoverable only from liquidation 
proceeds. The Agency will deduct liquidation expenses from the 
liquidation proceeds of the collateral unless the costs have been 
previously determined by the lender (with Agency concurrence) to be 
protective advances. The lender must provide receipts and a breakdown of 
liquidation expenses as to the payee, purpose of the expenditure, date 
paid, evidence that the amount expended was proper, and that the amount 
was actually paid.

[[Page 1128]]

    (ii) The Agency may approve legal fees as liquidation expenses 
provided that the fees are reasonable, require the assistance of 
attorneys, and cover legal issues pertaining to the liquidation that 
could not be properly handled by the lender, its employees or in-house 
counsel. Approved legal expenses are limited by the Agency to an amount 
not to exceed 3 percent of the current principal balance and will be 
shared by the lender and Agency equally. This includes those instances 
where the lender has incurred such expenses from a trustee conducting 
the liquidation of assets. Legal fees in excess of 3 percent of the 
current principal balance shall be borne by the lender and are not 
recoverable from liquidation proceeds or any loss claim by the lender.
    (iii) The lender cannot claim the guarantee fee or the other Agency 
fees as authorized liquidation expenses, and In-house expenses of the 
lender are not allowed.
    (8) Accrued interest. If the lender holds all or a portion of the 
guaranteed loan, the Agency will guarantee accrued interest in 
accordance with Sec. 5001.450(c) of this part.
    (i) Accrued interest eligible for payment under the guarantee on a 
defaulted loan will be discontinued when the estimated loss is paid. 
Interest will not be paid beyond the interest termination date.
    (ii) The lender must support accrued interest by documenting how the 
amount was accrued, including attaching a copy of both the promissory 
note and ledger. If the interest rate was a variable rate, the lender 
must include documentation of changes in both the selected base rate and 
the loan rate.
    (iii) If a restructuring of a guaranteed loan includes the 
capitalization of interest, the guarantee will not cover the interest 
accrued on the capitalized Interest.
    (9) Acquiring property titles. If a lender acquires title to 
property, any loss will be based on the collateral value at the time the 
lender obtains title. Alternatively, the lender can calculate the final 
loss settlement using the net proceeds received at the time of the 
ultimate disposition of the property if--
    (i) The lender has submitted to the Agency a written request to use 
this option within 15 calendar days of acquiring title; and
    (ii) The Agency approves the request prior to the lender submitting 
any request for estimated loss payment.
    (f) Loss limit. The amount payable by the Agency to the lender 
cannot exceed the limits contained in the loan note guarantee. If the 
lender conducts the liquidation, loss occasioned by accruing interest 
will be covered to the interest termination date, provided the lender 
proceeds expeditiously with the liquidation plan approved by the Agency. 
If the Agency conducts the liquidation, loss occasioned by accruing 
interest will be covered by the guarantee only to the date the Agency 
accepts this responsibility.
    (g) Rent. The lender must apply any net rental or other income that 
it receives from the collateral to the guaranteed loan debt.
    (h) Final loss payment. The Agency will make loss payments after it 
has reviewed the complete final report of loss, all collateral has been 
properly liquidated and accounted for, and the Agency has determined 
that liquidation expenses are reasonable and within approved limits.
    (1) Any estimated loss payments made to the lender will be credited 
against the final loss payment on the guaranteed loan.
    (2) Once the Agency approves the report of loss and supporting 
documents submitted by the lender--
    (i) If the actual loss is greater than any estimated loss payment, 
the Agency will pay the additional amount owed by the Agency to the 
lender.
    (ii) If the actual loss is less than the estimated loss payment, the 
lender must reimburse the Agency for the overpayment plus interest at 
the promissory note rate from the date of payment of the estimated loss.
    (iii) If the Agency conducted the liquidation, it will provide an 
accounting to the lender and will pay the lender in accordance with the 
loan note guarantee.



Sec. 5001.522  Future recovery.

    After a final loss claim has been paid, the lender must use 
reasonable efforts

[[Page 1129]]

to collect from any party still liable for future recovery unless the 
Agency notifies the lender otherwise. Any net proceeds from future 
recovery will be split pro rata between the lender and the Agency based 
on the percent of the loan guarantee even if the loan note guarantee has 
been terminated. Once the Agency determines a debt is Federal debt and 
provides notice to the lender, that Federal debt is excluded from future 
recovery. The lender must cease all collection efforts against the 
borrower and any individual or corporate guarantors upon referral of the 
debts by the Agency for collection in accordance with part 3 of this 
title. The Agency will not share with the lender any collection of 
Federal debt made by the Federal Government from any liable party to the 
guaranteed loan.



Sec. 5001.523  Property acquired by the lender.

    (a) Collateral preservation. When a lender acquires title to the 
collateral and the final loss claim is not paid until final disposition, 
the lender must proceed as quickly as possible to develop a plan to 
fully protect the collateral from deterioration (weather, vandalism, 
etc.). Hazard insurance in an amount necessary to cover the market value 
of the collateral must be maintained.
    (b) Collateral sale. (1) Upon acquiring the collateral, the lender 
must prepare and submit without delay to the Agency a plan on the best 
method for the sale of the collateral, keeping in mind any prospective 
purchasers. The Agency must approve the plan in writing. If an existing 
approved liquidation plan addresses the disposition of acquired 
property, no further review is required unless modification of the plan 
is needed.
    (2) Whenever the conversion of collateral to cash can reasonably be 
expected to result in a negative net recovery amount, the lender should 
consider abandonment of the collateral. If the lender seeks to abandon 
the collateral, the lender must obtain written Agency approval before 
abandoning the collateral.
    (c) Re-title collateral. Any collateral accepted by the lender must 
not be titled in the Agency's name in whole or in part.



Sec. 5001.524  Termination of loan note guarantee.

    Each loan note guarantee issued under this part or under one of the 
guaranteed loan programs identified in Sec. 5001.1 of this part will 
terminate automatically when one of the events described in paragraphs 
(a) through (c) of this section occur. The lender will maintain its 
guaranteed loan files for at least three years after termination of the 
loan note guarantee.
    (a) The guaranteed loan is paid in full;
    (b) Full payment by the Agency of any loss claim or compromised 
settlement except for future recovery provisions; or
    (c) Written request from the lender to the Agency to terminate the 
guarantee, which will be effective the date the Agency receives the 
request provided that the lender holds all the guaranteed portion of the 
loan.

[85 FR 42518, July 14, 2020, as amended at 85 FR 62199, Oct. 2, 2020]



Sec. Sec. 5001.525-5001.600  [Reserved]

                       PARTS 5002	5099 [RESERVED]

[[Page 1131]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.


  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 1133]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2023)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--599)
        VI  National Capital Planning Commission (Parts 600--699)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Department of Housing and Urban Development (Parts 
                2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 1134]]

     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)
        LX  Federal Communications Commission (Parts 6000--6099)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)

[[Page 1135]]

      XXVI  Department of Defense (Parts 3600--3699)
    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  U.S. International Development Finance Corporation 
                (Parts 4300--4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)

[[Page 1136]]

    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Parts 10000--10049)
        CI  National Mediation Board (Parts 10100--10199)
       CII  U.S. Office of Special Counsel (Parts 10200--10299)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Agricultural Marketing Service (Federal Grain 
                Inspection Service, Fair Trade Practices Program), 
                Department of Agriculture (Parts 800--899)

[[Page 1137]]

        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  [Reserved]
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  [Reserved]
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

[[Page 1138]]

         L  Rural Business-Cooperative Service, and Rural 
                Utilities Service, Department of Agriculture 
                (Parts 5000--5099)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Agricultural Marketing Service (Fair Trade Practices 
                Program), Department of Agriculture (Parts 200--
                299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  [Reserved]
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  (Parts 900--999) [Reserved]
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)

[[Page 1139]]

        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research, Department of the 
                Treasury (Parts 1600--1699)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--1199)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)

[[Page 1140]]

      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  National Technical Information Service, Department of 
                Commerce (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
        XV  Office of the Under-Secretary for Economic Affairs, 
                Department of Commerce (Parts 1500--1599)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399) [Reserved]

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599) [Reserved]

[[Page 1141]]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  United States Agency for Global Media (Parts 500--599)
       VII  U.S. International Development Finance Corporation 
                (Parts 700--799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

[[Page 1142]]

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799) 
                [Reserved]
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]

[[Page 1143]]

        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--899)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900--999)
        VI  Office of the Assistant Secretary, Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--799)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)

[[Page 1144]]

        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance

[[Page 1145]]

         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of Investment Security, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Department of Defense, Defense Logistics Agency (Parts 
                1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army, Department 
                of Defense (Parts 200--399)
        IV  Great Lakes St. Lawrence Seaway Development 
                Corporation, Department of Transportation (Parts 
                400--499)

[[Page 1146]]

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Career, Technical, and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  [Reserved]
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  U.S. Copyright Office, Library of Congress (Parts 
                200--299)

[[Page 1147]]

       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  National Institute of Standards and Technology, 
                Department of Commerce (Parts 400--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)
        IX  Federal Permitting Improvement Steering Council (Part 
                1900)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
  103--104  [Reserved]
       105  General Services Administration (Parts 105-1--105-999)

[[Page 1148]]

       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]
            Subtitle D--Federal Acquisition Supply Chain Security
       201  Federal Acquisition Security Council (Parts 201-1--
                201-99)
            Subtitle E [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
   II--III  [Reserved]
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--699)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1099)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

[[Page 1149]]

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
        IX  Denali Commission (Parts 900--999)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Administration for Children and Families, Department 
                of Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission of Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Parts 2300--2399)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

[[Page 1150]]

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)
         V  The First Responder Network Authority (Parts 500--599)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)

[[Page 1151]]

        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199) [Reserved]
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)

[[Page 1152]]

        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 1153]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2023)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, VIII, IX, X, XI; 9, 
                                                  II
Agricultural Research Service                     7, V
Agriculture, Department of                        2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, VIII, IX, X, XI; 9, 
                                                  II
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force, Department of                          32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
   Compliance Board
[[Page 1154]]

Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI; 38, II
Army, Department of                               32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase from People Who Are
  Federal Acquisition Regulation                  48, 19
Career, Technical, and Adult Education, Office    34, IV
     of
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazard Investigation Board    40, VI
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce, Department of                           2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Affairs, Office of the Under-          15, XV
       Secretary for
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II; 37, IV
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Technical Information Service          15, XI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Secretary of Commerce, Office of                15, Subtitle A
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense, Department of                            2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I

[[Page 1155]]

  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy, Department of                             32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Denali Commission                                 45, IX
Disability, National Council on                   5, C; 34, XII
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Office of the Under-Secretary   15, XV
     for
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical, and Adult Education, Office  34, IV
       of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Policy, National Commission for        1, IV
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 5, XXIII; 10, II, 
                                                  III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, II
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV

[[Page 1156]]

Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Acquisition Security Council              41, 201
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 2, LX; 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    5, LXXX; 12, XII
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Permitting Improvement Steering Council   40, IX
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission of                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102

[[Page 1157]]

  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Great Lakes St. Lawrence Seaway Development       33, IV
     Corporation
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V

[[Page 1158]]

Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior, Department of                           2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Environmental Enforcement, Bureau    30, II
       of
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Development Finance Corporation,    5, XXXIII; 22, VII
     U.S.
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice, Department of                            2, XXVIII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor, Department of                              2, XXIX; 5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50

[[Page 1159]]

  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I, VI
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Libraries and Information Science, National       45, XVII
     Commission on
Library of Congress                               36, VII
  Copyright Royalty Board                         37, III
  U.S. Copyright Office                           37, II
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV, VI
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II; 37, IV
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          5, CI; 29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI; 47, II
National Technical Information Service            15, XI
National Telecommunications and Information       15, XXIII; 47, III, IV, V
   Administration
[[Page 1160]]

National Transportation Safety Board              49, VIII
Natural Resource Revenue, Office of               30, XII
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy, Department of                               32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, IV, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Contracts, Department of Labor             41, 50
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII, L
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV, L
Rural Utilities Service                           7, XVII, XVIII, XLII, L
Safety and Environmental Enforcement, Bureau of   30, II
Science and Technology Policy, Office of          32, XXIV; 47, II
Secret Service                                    31, IV
Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State, Department of                              2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII

[[Page 1161]]

Tennessee Valley Authority                        5, LXIX; 18, XIII
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Great Lakes St. Lawrence Seaway Development     33, IV
       Corporation
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury, Department of the                       2, X; 5, XXI; 12, XV; 17, 
                                                  IV; 31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
Truman, Harry S. Scholarship Foundation           45, XVIII
United States Agency for Global Media             22, V
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
U.S. Copyright Office                             37, II
U.S. Office of Special Counsel                    5, CII
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs, Department of                   2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 1163]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2018 are enumerated in the following list. Entries indicate the 
nature of the changes effected. Page numbers refer to Federal Register 
pages. The user should consult the entries for chapters, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.govinfo.gov. For changes to this volume of the 
CFR prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 
1964-1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. 
The ``List of CFR Sections Affected 1986-2000'' is available at 
www.govinfo.gov.

                                  2018

7 CFR
                                                                   83 FR
                                                                    Page
Subtitle B
Chapter XXXII
3201.108 Added.....................................................31848
3201.109 Added.....................................................31848
3201.110 Added.....................................................31848
3201.111 Added.....................................................31848
3201.112 Added.....................................................31848
3201.113 Added.....................................................31848
3201.114 Added.....................................................31848
3201.115 Added.....................................................31848
3201.116 Added.....................................................31848
3201.117 Added.....................................................31848
3201.118 Added.....................................................31848
3201.119 Added.....................................................31848
Chapter XXXIV
3419 Authority citation and heading revised........................21849
3419.1 Amended.....................................................21849
3419.2 Heading, (a), and (b) revised; introductory text removed....21849
3419.3 Removed; new 3419.3 redesignated from 3419.4 and revised....21849
3419.4 Redesignated as 3419.3 and revised; new 3419.4 added........21849
3419.5 Amended.....................................................21850
3419.6 Revised.....................................................21850
3419.7 Redesignated as 3419.8 and revised; new 3419.7 added........21850
3419.8 Redesignated from 3419.7 and revised........................21850
3434 Appendix B revised............................................11870
Chapter XLII
4279.72 (a) introductory text amended..............................11634
4279.131 (b)(3) and (d)(2) amended.................................11634
4280.103 Amended...................................................30831
4280.110 (i) introductory text, (1), and (2) amended...............30831
4280.112 (b)(2) amended............................................30831
4280.113 (a)(4)(ii)(A) and (B) amended.............................30831
4280.122 (d) through (h) amended...................................30831
4280.123 Introductory text and (d) amended.........................30831
4280.125 Revised...................................................30831
4280.126 Revised...................................................30832
4280.129 (e)(3) revised............................................30832
4280.130 (b) revised...............................................30832
4280.131 Revised...................................................30832
4280.134 Revised...................................................30832
4280.137 (b)(2)(viii)(C) and (c)(1) revised; (c)(2) amended........30832
4280.142 Introductory text amended.................................30833
4280.196 Introductory text amended.................................30831

[[Page 1164]]

                                  2019

7 CFR
                                                                   84 FR
                                                                    Page
Subtitle B
Chapter XVIII
2003.1 Amended; eff. 1-6-20........................................59923
2003.22 (b) introductory text, (3) introductory text, and (iii) 
        revised; eff. 1-6-20.......................................59923
Chapter XX
Chapter XX (Parts 2200-2299) Removed; eff. 1-6-20..................59923
Chapter XXXII
3201.37 Heading, (a), and (c) revised..............................32020
3201.38 Revised....................................................32020
3201.40 (a)(2)(iii) and (b)(3) added; (c) revised..................32020
3201.99 Revised....................................................32021
3201.120 Added.....................................................32021
3201.121 Added.....................................................32021
3201.122 Added.....................................................32021
3201.123 Added.....................................................32021
3201.124 Added.....................................................32021
3201.125 Added.....................................................32021
3201.126 Added.....................................................32021
3201.127 Added.....................................................32021
3201.128 Added.....................................................32021
3201.129 Added.....................................................32021
3201.130 Added.....................................................32021
3201.131 Added.....................................................32021
3201.132 Added.....................................................32021
3201.133 Added.....................................................32021
3201.134 Added.....................................................32021
3201.135 Added.....................................................32021
3201.136 Added.....................................................32021
3201.137 Added.....................................................32021
3201.138 Added.....................................................32021
3201.139 Added.....................................................32021
3201.140 Added.....................................................32021
3201.141 Added.....................................................32021
3201.142 Added.....................................................32021
3201.143 Added.....................................................32021
3201.144 Added.....................................................32021
3201.145 Added.....................................................32021
3201.146 Added.....................................................32021
3201.147 Added.....................................................32021
3201.148 Added.....................................................32021
3201.149 Added.....................................................32021
Chapter XXXIV
3434 Appendix B revised............................................26545
Chapter XXXV
3550.10 Amended....................................................29038
3550.53 (f) revised................................................29038
3550.54 (d) introductory text amended; (d)(1) introductory text, 
        (i), (iv), (v), (vi), (2)(i), and (v) revised; (d)(1)(vii) 
        removed; (d)(2)(vi) through (x) added......................29038
3550.63 (a)(1) revised.............................................29038
3550.68 (b)(2) revised.............................................29038
3555.10 Amended.............................................29038, 35006
    Regulation at 84 FR 35006 eff. date delayed to 10-1-19.........42799
    Amended; eff. 4-24-20..........................................70886
3555.51 (b)(1) amended; eff. 4-24-20...............................70886
3555.104 (a)(2), (3), and (4) revised..............................35006
    Regulation at 84 FR 35006 eff. date delayed to 10-1-19.........42799
3555.105 (c)(1), (d)(2), (e)(1), (7), and (g) revised; (c)(2)(iv), 
        (d)(7), and (e)(8) added; (e)(6) amended...................35006
    Regulation at 84 FR 35006 eff. date delayed to 10-1-19.........42799
3555.301 (h) revised; eff. 4-24-20.................................70886
3555.302 (b) amended; eff. 4-24-20.................................70886
3555.303 (b)(3)(i), (ii), and (v) revised; eff. 4-24-20............70886
3555.304 (a)(2) removed; (a)(3) and (4) redesignated as new (a)(2) 
        and (3); new (a)(4) added; (c)(1), (2), (d)(1), and (2) 
        revised; eff. 4-24-20......................................70886
3555.305 Introductory text and (a)(1) revised; eff. 4-24-20........70886
3555.306 (f) revised; eff. 4-24-20.................................70886
3555.352 (c) and (e) revised; eff. 4-24-20.........................70886
3555.353 (a) introductory text and (b) revised; eff. 4-24-20.......70887
3555.354 Introductory text and (b) revised; eff. 4-24-20...........70887
3555.356 Removed; eff. 4-24-20.....................................70887
3565.3 Amended.....................................................55035
3565.4 Revised.....................................................55035
3565.5 (b) revised.................................................55036
3565.53 (c) revised................................................55036
3565.104 Amended...................................................55036
3565.210 Revised...................................................55036
3565.252 Revised...................................................55036
3565.302 (b) introductory text revised.............................55036
Chapter XLII
4288.102 Amended...................................................71301
4288.105 (a)(1) and (3) revised....................................71302
4288.106 Revised...................................................71302

[[Page 1165]]

4288.110 (c)(1) amended............................................71302
4288.111 Introductory text and (a)(3) revised; (b) redesignated as 
        (c); new (b) added.........................................71302
4288.120 (a) introductory text revised; (a)(4) removed; (a)(5) 
        redesignated as new (a)(4); new (a)(4) heading removed; 
        new (a)(4) amended.........................................71302
4288.130 (d) introductory text revised.............................71302
4288.131 Revised...................................................71302
4288.190 Undesiganted center heading and section removed...........71303

                                  2020

7 CFR
                                                                   85 FR
                                                                    Page
Subtitle B
Chapter XXV
2500.003 (d) through (j) revised...................................31938
Chapter XXIX
2903.21 Revised....................................................31939
Chapter XXXIV
3430.41 (b) amended................................................72913
Chapter XXXV
3565.53 Introductory text amended; (a) and (b) revised; eff. 1-4-
        21.........................................................77986
3570.62 (a)(2)(iii) added..........................................57084
3570.71 Revised....................................................59395
3575 Notification...........................................17721, 19655
    Removed........................................................42517
3575.24 (b)(5) added...............................................57084
3575.51 Revised....................................................59395
Chapter XLII
4274.314 (b)(16) added.............................................57084
4279 Authority citation revised.............................31040, 57084
4279.1--4279.100 (Subpart A) Removed...............................42517
4279.1--4279.100 (Subpart A) Correctly reinstated..................62196
4279.1 (a) revised.................................................31040
    (a) correctly revised..........................................62196
4279.101--4279.200 (Subpart B) Removed.............................42518
4279.101--4279.200 (Subpart B) Correctly reinstated................62196
4279.101 (a) revised...............................................31040
    (a) correctly revised..........................................62196
4279.113 (z) added.................................................57084
4279.162 Revised...................................................59395
4279.190 Added.....................................................31040
4279.202 Amended...................................................29595
4279.210 (d)(10) added.............................................57085
4279.265 (b)(2) revised............................................29596
4280.15 (i) added..................................................57085
4280.101 (c) added.................................................57085
4280.417 (e) added.................................................57085
4280.428 Revised...................................................59395
4287 Notification...........................................17721, 19655
4287.101--4287.200 (Subpart B) Removed.............................42518
4287.101--4287.200 (Subpart B) Correctly reinstated................62196
4287.101 (a) correctly revised.....................................62196
4288.136 Introductory text amended.................................31939
4290 Nomenclature change...........................................16522
4290.50 Amended....................................................16522
4290.210 (d) added.................................................16522
4290.230 (c)(5) amended............................................16523
4290.330 Revised...................................................16523
4290.340 Introductory text amended.................................16523
4290.370 Introductory text and (h) revised.........................16523
4290.380 Amended...................................................16523
4290.390 (b) revised...............................................16523
4290.610 (b) removed; (c) and (d) redesignated as new (b) and (c) 
                                                                   16523
4290.700 Revised...................................................16523
4290.720 (g)(2) revised; (i) and (k) amended.......................16523
4290.760 (a) amended...............................................16523
Chapter L
Chapter L Added....................................................42518
5001.2 (e) correctly amended.......................................62196
5001.3 Correction: amended.........................................62196
5001.102 (d) introductory text, (3) correctly amended..............62196
5001.105 (b)(21) correctly revised.................................62197
5001.115 (n) correctly revised; (s) added..........................62197
5001.118 (b)(3) correctly removed..................................62197
5001.121 (a)(4), (b)(11), and (c)(12) correctly added..............62197
5001.130 (b) introductory text correctly revised; (b)(10) added....62197
5001.202 (b)(4)(ii) correctly amended..............................62197
5001.205 (e)(2) introductory text correctly amended................62197
5001.303 (c)(16) correctly revised; (c)(17) and (18) added.........62197

[[Page 1166]]

5001.408 (a) introductory text, (4), (5), and (c) correctly 
        revised; (a)(2), (d)(3), and (e) introductory text 
        correctly amended..........................................62197
5001.450 (b)(1) correctly revised..................................62197
5001.452 (b) introductory text correctly revised...................62198
5001.453 (a)(1) and (3) correctly revised..........................62198
5001.459 introductory text correctly amended; (c) removed..........62198
5001.511 Correctly revised.........................................62198
5001.515 (c) removed...............................................62199
5001.524 (d) removed...............................................62199

                                  2021

7 CFR
                                                                   86 FR
                                                                    Page
Subtitle B
Chapter XLII
4274.301--4274.359 (Subpart D) Revised.............................72156
4280 Authority citation revised....................................26353
4280.101--4280.166 (Subpart B) Revised.............................22309
4280.301--4280.400 (Subpart D) Revised.............................26353
    Regulation at 86 FR 26353 confirmed............................54587
4284.1101--4284.1131 (Subpart L) Added.............................31589
    Regulation at 86 FR 31589 confirmed............................60753
Chapter L
5001.3 Amended.....................................................70354
5001.8 (a) revised; (e) added......................................70355
5001.104 (c) revised...............................................70355
5001.105 Introductory text, (b)(1), (8) through (10), (d)(1)(i), 
        (ii), (2)(i), (ii), (3)(i), (ii), (4)(i), (ii), and 
        (5)(ii) revised............................................70355
5001.115 (n) revised...............................................70356
    (s) removed....................................................70356
5001.121 Introductory text and (c)(6) revised......................70356
5001.126 (e)(3) and (4) redesignated as (e)(4) and (5); new (e)(3) 
        added......................................................70356
5001.130 (a)(6) added..............................................70356
5001.141 (a)(2) revised............................................70356
5001.202 (b)(5) revised............................................70356
5001.204 (b) revised...............................................70357
5001.205 (e)(2) introductory text, (ii), and (f)(4) revised........70357
5001.303 (c)(1) through (18) redesignated as (c)(2) through (19); 
        (b)(5) introductory text redesignated as new (c)(1); 
        (b)(5)(i) through (xiii) removed; (b)(6) and (7) 
        redesignated as (b)(5) and (6); (b)(4)(ii) and new (c)(1) 
        revised....................................................70357
5001.304 (a)(1) revised; (a)(4) added..............................70357
5001.318 Introductory text and (c) introductory text revised; 
        (c)(3) removed; (c)(4) redesignated as new (c)(3)..........70357
5001.401 (d) revised...............................................70357
5001.402 (b)(3) revised............................................70357
5001.408 (b) revised...............................................70358
5001.451 (b)(3) and (e) revised....................................70358
5001.452 (b) introductory text and (8)(iii)(L)(2) revised; 
        (b)(8)(iii)(L)(3) added....................................70358
5001.454 (c) revised...............................................70358
5001.513 (e) revised...............................................70358

                                  2022

7 CFR
                                                                   87 FR
                                                                    Page
Subtitle B
Chapter XXXIV
3434 Appendix B revised.....................................18605, 42949
Chapter XXXV
3550 Notification..................................................40709
3550 Policy statement..............................................66075
3550.10 Amended.....................................................6770
3550.11 (a) and (b) revised.........................................6770
3550.52 (a), (c), and (d)(6) revised................................6771
3550.53 (a), (c), (g), and (i) revised..............................6771
3550.55 (c) introductory text, (4), and (5) revised.................6771
3550.56 (b)(1) and (2) revised; (b)(3) removed......................6772
3550.57 (a) introductory text revised...............................6772
3550.59 (a)(2) revised..............................................6772
3550.67 (c) revised.................................................6772
3550.102 (e)(5) revised.............................................6772
3550.103 (e) revised................................................6772
3550.104 (c) revised................................................6772
3550.106 (a) revised................................................6772
3550.108 (b)(1) revised.............................................6772

[[Page 1167]]

3550.112 (a) introductory text, (1), and (c) revised................6773
3550.113 (b) revised................................................6773
3550.162 (b)(1) introductory text and (ii) revised..................6773
3550.201 Revised....................................................6773
3550.207 (b)(2) and (c) revised; (d) removed........................6773
3550.251 (c)(4), (5), and (d)(2) revised; (c)(6) and (d)(3) 
        removed; (d)(4) redesignated as (d)(3)......................6773
3555 Notification..................................................66075
3555.51 (a)(8), (9) introductory text, and (10) introductory text 
        revised; (a)(11), (b)(23), and (24) added..................53371
3555.105 (b)(4) and (5) removed; (b)(6) redesignated as new (b)(4)
                                                                   53372
3555.107 (b) introductory text, (1), (3), (6), (c), and (i)(4) 
        revised.....................................................6776
3555.151 (h)(2) introductory text revised...........................6776
    (i)(9) added...................................................53372
3560 Notification...........................................74502, 75457
3560.8 Amended.....................................................11279
3560.11 Amended....................................................11279
3560.65 (d) added..................................................11280
3560.72 (b) amended................................................11280
3560.102 (b), (i), and (j) revised; (g)(1)(ii) and (iii) amended; 
        (g)(1)(iv) added...........................................11280
3560.104 (b)(1) revised............................................11281
3560.105 (c)(4) and (f)(10) revised................................11281
3560.152 (c) heading, introductory text, (1) introductory text, 
        and (e)(2)(iv) revised.....................................11281
3560.154 (a)(9) introductory text and (j) revised..................11281
3560.156 (c)(1), (15), and (16) revised; (c)(6)(iii) and (iv) 
        amended; (c)(6)(v) added...................................11282
3560.158 (d)(3) introductory text revised..........................11282
3560.159 (c) revised...............................................11282
3560.205 (e) revised...............................................11282
3560.207 (b) revised...............................................11282
3560.252 (b)(2) through (4) redesignated as (b)(3) through (5); 
        new (b)(2) added; (c)(2) introductory text revised.........11283
3560.254 (c)(1), (2), (4), and (5) revised; (c)(6) added...........11283
3560.258 Revised...................................................11283
3560.259 (a)(3) and (4) revised; (d) added.........................11283
3560.302 (c)(3)(ii), (iii), (5)(i), (ii), and (iv) revised.........11283
3560.303 Revised...................................................11283
3560.306 (a), (b), (d), and (e)(2) revised; (g)(2) through (5) and 
        (j)(2) redesignated as (g)(3) through (6) and (j)(3); new 
        (g)(2) and new (j)(2) added................................11285
3560.402 (b) revised...............................................11286
3560.576 (e) amended...............................................11286
3560.656 (a) introductory text amended.............................11286
3570.53 Amended....................................................38644
Chapter XLII
4274.302 Amended...................................................38644
4274.333 (b)(4)(iii) correctly revised.............................18967
4279.108 (c)(1) revised............................................38644
4279.202 Amended...................................................38644
4280.3 Amended.....................................................38644
4280.101--4280.166 (Subpart B) Regulation at 86 FR 22309 confirmed
                                                                   10938
4280.103 Amended...................................................38644
4280.302 (a) amended...............................................38644
4284.3 Amended.....................................................38644
4287.107 (d) revised...............................................58021
4287.112 (b) revised...............................................58021
4287.113 (a) and (c) introductory text revised.....................58021
4288.2 Amended.....................................................38645
4290.50 Amended....................................................38645
Chapter L
5001 Policy statement..............................................24857
5001.3 Regulation at 86 FR 70354 eff. date confirmed...............24857
    Amended........................................................38645
5001.8 Regulation at 86 FR 70355 eff. date confirmed...............24857
5001.104 Regulation at 86 FR 70355 eff. date confirmed.............24857
5001.105 Regulation at 86 FR 70355 eff. date confirmed.............24857
5001.115 Regulation at 86 FR 70356 eff. date confirmed.............24857
5001.121 Regulation at 86 FR 70356 eff. date confirmed.............24857
5001.126 Regulation at 86 FR 70356 eff. date confirmed.............24857
    (e) introductory text correctly revised........................42297
5001.130 Regulation at 86 FR 70356 eff. date confirmed.............24857
5001.141 (a)(2) revised.............................................7367

[[Page 1168]]

    Regulation at 86 FR 70356 eff. date confirmed..................24857
5001.202 (b)(5) revised.............................................7367
    Regulation at 86 FR 70356 eff. date confirmed..................24857
5001.204 (b) revised................................................7368
    Regulation at 86 FR 70357 eff. date confirmed..................24857
5001.205 Regulation at 86 FR 70357 eff. date confirmed.............24857
5001.303 Regulation at 86 FR 70357 eff. date confirmed.............24857
5001.304 Regulation at 86 FR 70357 eff. date confirmed.............24857
5001.318 Regulation at 86 FR 70357 eff. date confirmed.............24857
5001.401 Regulation at 86 FR 70357 eff. date confirmed.............24857
5001.402 Regulation at 86 FR 70357 eff. date confirmed.............24857
5001.408 Regulation at 86 FR 70357 eff. date confirmed.............24857
5001.451 Second (b)(3)(xiii) and (xiv) redesignated as new 
        (b)(3)(xiv) and (xv)........................................7368
    Regulation at 86 FR 70358 eff. date confirmed..................24857
5001.452 (b)(i)(iii)(L)(3) correctly removed........................7367
    Regulation at 86 FR 70358 eff. date confirmed..................24857
5001.454 Regulation at 86 FR 70357 eff. date confirmed.............24857
5001.513 Regulation at 86 FR 70358 eff. date confirmed.............24857


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