[Federal Register Volume 59, Number 105 (Thursday, June 2, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13218]


  Federal Register / Vol. 59, No. 105 / Thursday, June 2, 1994 /
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[[Page Unknown]]

[Federal Register: June 2, 1994]


                                                   VOL. 59, NO. 105

                                             Thursday, June 2, 1994

DEPARTMENT OF AGRICULTURE

Farmers Home Administration

7 CFR Part 1980

RIN 0575-AB69

 

Business and Industrial Loan Program

AGENCY: Farmers Home Administration, USDA.

ACTION: Interim final rule.

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SUMMARY: The Farmers Home Administration (FmHA) amends its Business and 
Industry guaranteed loan program regulations, which are utilized by the 
Rural Development Administration (RDA), to provide procedures for 
interest rate buydown. This action is needed to implement provisions of 
the Supplemental Appropriations Act of 1993. The intended effect is to 
provide for payment by the Government of one percentage point of 
interest on certain guaranteed loans in areas affected by Hurricanes 
Andrew and Iniki and Typhoon Omar, thereby reducing the effective rate 
of interest to be paid by the borrower.

DATES: Interim rule effective on June 2, 1994. Written comments must be 
received on or before August 1, 1994.

ADDRESSES: Submit written comments in duplicate to the Chief, 
Regulations, Analysis, and Control Branch, Farmers Home Administration, 
U.S. Department of Agriculture, Ag-Box 0743, 14th Street and 
Independence Avenue SW., Washington, DC 20250-0743. All written 
comments will be available for public inspection during regular work 
hours at the above address.

FOR FURTHER INFORMATION CONTACT: M. Wayne Stansbery, Business and 
Industry Loan Specialist, Rural Development Administration, USDA, Ag-
Box 3221, 14th Street and Independence Avenue SW., Washington, DC 
20250-3221, Telephone (202) 720-6819.

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been determined to be not significant for purposes of 
Executive Order 12866 and therefore has not been reviewed by OMB.

Programs Affected

    The Catalog of Federal Domestic Assistance program impacted by this 
action is: 10.768, Business and Industrial Loans.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 
3507), the revised information collection and/or recordkeeping 
requirements included in this interim rule will not become effective 
until approved by the Office of Management and Budget (OMB). Please 
send written comments to the Office of Information and Regulatory 
Affairs, OMB, Attention: Desk Officer for USDA, Washington, DC 20503. 
Please send a copy of your comments to Jack Holston, Agency Clearance 
Officer, USDA, FmHA, Ag-Box 0743, Washington, DC 20250.

Intergovernmental Review

    As set forth in the final rule and related Notice to 7 CFR part 
3015, subpart V, 48 FR 29112, June 24, 1983, Business and Industrial 
Loans are subject to the provisions of Executive Order 12372 which 
requires intergovernmental consultation with State and local officials. 
FmHA and RDA conduct intergovernmental consultation in the manner 
delineated in FmHA Instruction 1940-J, ``Intergovernmental Review of 
Farmers Home Administration Programs and Activities.''

Civil Justice Reform

    This document has been reviewed in accordance with Executive Order 
12778. It is the determination of RDA and FmHA that this action does 
not unduly burden the Federal Court System in that it meets all 
applicable standards provided in section 2 of the Executive Order.

Environmental Impact Statement

    The action has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' FmHA and RDA have determined that 
this action does not constitute a major Federal action significantly 
affecting the quality of the human environment, and in accordance with 
the National Environmental Policy Act of 1969, Public Law 91-190, an 
Environmental Impact Statement is not required.

Discussion of the Rule

    The Supplemental Appropriations Act of 1993, Public Law 103-50, 
authorized the Secretary of Agriculture to transfer certain funds 
previously authorized by Public Law 102-368 to a program designed to 
reduce the interest rate on certain Business and Industry Guaranteed 
loans. The funds will remain available through fiscal year 1994. 
Borrowers must be located in areas affected by Hurricanes Andrew and 
Iniki and Typhoon Omar and unable to make the full payments on the 
proposed loan. The interest rate charged by the lender must not exceed 
the prime rate by more than 100 basis points. The lender will receive 
payments from the Government to reduce the effective interest rate paid 
by the borrower by one percentage point.

Interim Rule

    It is the policy of this Department that rules relating to public 
property, loans, grants, benefits or contracts shall be published for 
comment notwithstanding the exemption of 5 U.S.C. 553 with respect to 
such rules. However, we are making this action effective upon 
publication in the Federal Register without securing prior public 
comment. This action implements a program authorized by statute and 
intended to assist with economic recovery of areas affected by certain 
natural disasters. The program will only be available for new loans 
approved before the funding expires at the end of fiscal year 1994. It 
is necessary to implement the program as soon as possible to help 
stimulate the economy of the disaster area as soon as possible, to 
provide assistance to struggling businesses before they are forced to 
close, and to provide potential applicants the opportunity to develop 
applications and have them processed before the funding authority 
expires. Comments will be accepted for 60 days after publication and, 
if appropriate, adjustments will be made in the regulations based on 
the comments.

List of Subjects in 7 CFR Part 1980

    Administrative practice and procedure, Agriculture, Business and 
industry, Loan programs--Agriculture, Loan programs--Business, Rural 
areas.

    Accordingly, part 1980, chapter XVIII, title 7 of the Code of 
Federal Regulations is amended as follows:

PART 1980--GENERAL

    1. The authority citation for part 1980 is revised to read as 
follows:

    Authority: 7 U.S.C. 301 and 1989; 42 U.S.C. 1480; 7 CFR 2.23 and 
2.70.

Subpart E--Business and Industrial Loan Program

    2. Section 1980.490 is added to read as follows:


Sec. 1980.490  Business and industry buydown loans.

    (a) Introduction. This section contains regulations for the 
Business and Industry Buydown (BIB) loan program. The purpose of this 
program is to provide loan guarantees with reduced interest rates to 
the borrowers, under the authority of Public Law 103-50 (107 Stat. 
241). All provisions of Subparts A and E of this part apply to BIB 
loans except as provided in this section. All forms used in connection 
with a BIB loan will be those used with other B&I loans, except as 
provided in this section.
    (b) Location of applicants. Businesses eligible for BIB loans shall 
be located within the area covered by the Presidential disaster 
declaration related to Hurricanes Andrew or Iniki or Typhoon Omar.
    (c) Interest rate. (1) If the interest rate charged by the lender 
(note rate) on a BIB loan is a variable rate in accordance with 
Sec. 1980.423 of this subpart, the base rate must be the prime rate as 
published in the Wall Street Journal and the note rate must not exceed 
the prime rate as published in the Wall Street Journal by more than 100 
basis points. If the note rate is fixed, it must not exceed by more 
than 100 basis points the prime rate as published in the Wall Street 
Journal on the day the Loan Note Guarantee is issued.
    (2) The note rate for a BIB loan must be the same for the entire 
loan, including both the guaranteed and unguaranteed portion.
    (d) Interest rate buydown. (1) To be eligible for a BIB loan, the 
business must provide evidence and the lender and FmHA must determine 
that, at least for the first year of the loan, the business will not 
have adequate cash flow to meet all of its financial obligations 
including the required payments on the proposed loan at the note rate, 
but that it can meet all obligations if the interest rate is reduced by 
100 basis points.
    (2) During the first year after a Loan Note Guarantee is issued for 
a BIB loan, FmHA will pay one percentage point of interest on the loan 
directly to the lender, thereby reducing the interest due from the 
borrower by this amount. This interest payment shall be applied to both 
the guaranteed and unguaranteed portion of the loan pro ratably 
according to FmHA regulations.
    (3) Interest payments by FmHA may continue in subsequent years if 
the borrower's cash flow is insufficient to pay all obligations 
including the required payments on the proposed loan at the note rate. 
On or about each yearly anniversary of the promissory note the lender 
may submit a request to FmHA for continued interest payments, along 
with current profit and loss and cash flow statements and cash flow 
projections to show that the continued payments are needed for another 
year. FmHA will promptly review the material submitted, determine 
whether the continued interest payments by FmHA are needed to provide 
for sufficient cash flow in the coming year, and notify the lender in 
writing of the determination. Once interest payments by FmHA are 
terminated because the borrower's cash flow is determined to be 
sufficient to pay the note rate, such payments will not be made in 
subsequent years even if the cash flow decreases.
    (4) This section does not authorize interest payments by FmHA on 
B&I loans other than those approved under this section. To be eligible 
for interest payments by FmHA, the loan must be designated as a BIB 
loan when approved and funded from funds authorized by Public Law 103-
50.
    (e) Duration of BIB loan program. No BIB loan will be obligated 
after September 30, 1994.
    (f) Administrative procedures. (1) A lender that wants a B&I 
application considered under BIB authorities should so indicate by 
notation on Form FmHA 449-1 or by letter submitted with the Form FmHA 
449-1.
    (2) FmHA will identify a loan as a BIB loan by notation in the top 
margin of Form FmHA 449-29 and by the ``type of assistance'' code 
listed on Form FmHA 1940-3, in accordance with the Forms Manual Insert.
    (3) FmHA will set out the interest buydown provisions in accordance 
with this section in the Conditional Commitment for Guarantee. When the 
Loan Note Guarantee is issued, the lender and FmHA will execute Form 
FmHA 1980-48, ``Business and Industry Interest Rate Buydown 
Agreement.''
    (4) The lender will request the interest payment from FmHA by 
submitting Form FmHA 1980-23, ``Request for Business and Industry 
Interest Buydown Payment,'' to the FmHA servicing office. Each request 
must cover exactly 1 year and be filed within 30 days after the 
anniversary date of the promissory note, except when interest buydown 
is terminated between anniversary dates. The FmHA servicing office will 
review each request for consistency with FmHA regulations and the Form 
FmHA 1980-48 and, if the claim is valid, will approve it and forward it 
to the Finance Office for issuance of the payment to the lender.
    (g) Termination of interest buydown. When FmHA purchases a portion 
of a loan, interest buydown will cease on the entire loan. Interest 
buydown will also cease upon termination of the Loan Note Guarantee or 
assumption/transfer of the loan. In the event of any action that causes 
the interest buydown to terminate, the lender will submit a claim on 
Form FmHA 1980-23 for interest buydown payments through the date of 
termination.
    (h) Loan purposes. (1) Refinancing. Section 1980.452 Administrative 
C.1. (d) of this subpart does not apply to BIB loans if refinancing is 
needed as a direct consequence of the disaster. In such cases, the 
lender may be allowed to bring previously unguaranteed exposure under 
the guarantee. No loan will be refinanced unless the current market 
value of the collateral is at least equal to the amount of the loan to 
be refinanced plus any new loan amount.
    (2) Agriculture. Section 1980.412 (e) of this subpart does not 
apply to BIB loans. BIB loans may be guaranteed for agriculture 
production, which means the cultivation, production (growing), and 
harvesting, either directly or through integrated operations, of 
agricultural products (crops, animals, birds, and marine life, either 
for fiber or food for human consumption), and disposal or marketing 
thereof, the raising, housing, feeding (including commercial custom 
feedlots), breeding, hatching, control and/or management of farm or 
domestic animals.
    (3) Other eligible businesses. Eligible types of businesses also 
include:
    (i) Commercial nurseries primarily engaged in the production of 
ornamental plants and trees and other nursery products such as bulbs, 
florists' greens, flowers, shrubbery, flower and vegetable seeds, sod, 
and the growing of vegetables from seed to the transplant stage.
    (ii) Forestry which includes establishments primarily engaged in 
the operation of timber tracts, tree farms, forest nurseries, and 
related activities such as reforestation.
    (iii) The growing of mushrooms or hydroponics.
    (4) Recreation and tourism. Loans may be guaranteed for tourist or 
recreation facilities except for hotels, motels, bed and breakfasts, 
race tracks, gambling, or golf courses.
    (5) Meat processing facilities. The provisions of Sec. 1980.411 
(a)(8) of this subpart will not apply to BIB loans. Loans, including 
working capital or debt refinancing, may be guaranteed for businesses 
engaged in meat or poultry processing.
    (i) Small Business Administration. Section 1980.451 (c) of this 
subpart will not apply to BIB loans. Applicants eligible for Small 
Business Administration assistance will be advised of the availability 
of that assistance.
    (j) Loan guarantee limits. Notwithstanding the provisions of 
Sec. 1980.420 of this subpart, the guarantee percentage on any BIB loan 
will not exceed 80 percent.
    (k) Credit quality analysis. In analyzing the credit quality of a 
proposed loan to a business that has lost assets to a natural disaster, 
primary emphasis will be placed on the operating history of the 
business, rather than its current financial condition. If the business 
has a sound, profitable and successful history prior to the disaster 
and there are reasonable projections to ensure it can operate 
successfully in the future, the proposed loan may be approved even if 
disaster losses have caused somewhat less equity and/or collateral than 
would normally be expected for a B&I loan guarantee. If the business 
appears to have had an unprofitable operation or inadequate cash flow 
prior to the disaster, the proposed loan guarantee will not be 
approved.
    (l) Equity requirements. The equity requirements of Sec. 1980.441 
of this subpart do not apply to BIB loans.
    (m) Collateral. Section 1980.443 Administrative A. 2., 3., and 4. 
of this subpart will not apply to BIB loans. Collateral may be 
considered at its current market value without discount. Work-in-
process inventory may be valued at the estimated market value of the 
finished product. All costs of producing the finished product must be 
included in the cash flow analysis.
    (n) Conditional approval. A Form FmHA 449-14 may be issued prior to 
receipt of specific items needed to complete an application package 
provided:
    (1) The lender and/or borrower demonstrates to the Government's 
satisfaction that it has a need for a prompt indication of the 
availability of the proposed loan guarantee and the conditions under 
which a guarantee are available;
    (2) The specific items missing from the application package will 
take considerable time to obtain;
    (3) The lender requests a commitment prior to providing the items;
    (4) The attachment to Form FmHA 449-14 clearly states that the 
commitment is conditioned on satisfactory completion of the missing 
item(s) and a guarantee will not be issued unless all conditions of 
these regulations are met; and
    (5) No Form FmHA 449-14 will be issued prior to the obligation date 
established with the Finance Office.
    (o) Financial statements. All requirements of Sec. 1980.451(i)(13) 
of this subpart will apply except that for BIB loans minimum annual 
financial statements will be required as follows:
    (1) For nonagricultural borrowers with a B&I indebtedness of 
$500,000 or less, an annual compilation by an independent certified 
public accountant or by an independent public accountant licensed and 
certified on or before December 31, 1970.
    (2) For nonagricultural borrowers with a B&I indebtedness of 
$500,001 through $1 million, an annual review by an independent 
certified public accountant or by an independent public accountant 
licensed and certified on or before December 31, 1970.
    (3) For nonagricultural borrowers with a B&I indebtedness of more 
than $1 million, an annual audited financial statement by an 
independent certified public accountant or by an independent public 
accountant licensed and certified on or before December 31, 1970.
    (4) All agricultural loans will require annual financial statements 
per Sec. 1980.113 of subpart B of this part.
    (p) Agriculture loans. The following additional provisions apply to 
BIB loan guarantees for businesses engaged in agriculture production:
    (1) General policy. Paragraph (p) of this section contains the 
regulations for making BIB loans to farmers for agricultural purposes. 
BIB loans made for agricultural purposes are subject to the provisions 
in subparts A and E of this part except as specified. In addition, 
certain sections of subpart B of this part referenced in this section 
are applicable subject to the limitations outlined in this section. 
Several key loan processing and loan servicing requirements stipulated 
in subpart B of this part do not apply to loans made to borrowers under 
this section.
    (2) Type of guarantee. BIB loans will be processed under the Loan 
Note Guarantee option of Sec. 1980.101 (e)(1) of subpart B of this part 
Only. No loan will be processed for a Contract of Guarantee (Line of 
Credit) under Sec. 1980.101 (e)(2) of subpart B of this part.
    (3) Farm size. Loan guarantees may be made under the BIB program 
without regard to the size of the farming operation.
    (4) Filing and processing preapplications and applications. If the 
applicant has already developed material for an FmHA Farmer Programs 
loan or if the financial and production information required by 
Sec. 1980.113 of subpart B of this part is needed to document repayment 
ability or is required by the lender, Sec. 1980.113 of subpart B of 
this part may apply with the following exceptions:
    (i) Lines of credit will not be guaranteed.
    (ii) If the application is submitted solely for a farm as defined 
in Sec. 1980.106(b) of subpart B of this part, Form FmHA 1980-25, 
``Farmer Programs Application,'' or Form FmHA 449-1, will be used as an 
application for assistance.
    (5) Evaluation of applications. If the application is developed and 
processed in accordance with Sec. 1980.113 of subpart B of this part, 
the provisions outlined in Sec. 1980.114 of subpart B of this part 
apply with the following exceptions:
    (i) Timeframe requirements for the evaluation of applications and 
references to the Approved Lender Program are not applicable.
    (ii) County Committee reviews of applications processed under this 
section will not be required. If the loan approval official finds the 
applicant is not eligible, the applicant will be notified in writing of 
the reasons for disapproval and his/her rights through inclusion of the 
Equal Credit Opportunity Act (ECOA) statement. An opportunity will be 
given for an appeal as set out in subpart B of part 1900 of this 
chapter.
    (iii) When applied to BIB applications, references in Sec. 1980.114 
of this part to ``County Office'' shall normally be construed to mean 
``State Office.'' References to ``County Supervisor'' shall be 
construed to mean ``Business and Industry Chief or Community and 
Business Programs Chief, or other appropriate FmHA official as 
designated by the State Director.''
    (6) Terms of loan repayment. (i) Principal and interest on the loan 
will be due and payable to coincide with the cash flow operating cycle 
of the business. Installments will be scheduled for payment as agreed 
upon by the lender and borrower on terms that reasonably assure 
repayment of the loan. The first installment to include a repayment of 
principal may be scheduled for payment after the project is operational 
and has begun to generate income. However, such installment will be due 
and payable within 6 years from the date of the debt instrument and at 
least annually thereafter. Interest will not be deferred and will be 
due at least annually from the date of the debt instrument. In granting 
a deferral of principal payment, the loan approval official must 
document based on pro forma financial statements and the nature of the 
crop that the deferral of payments is necessary.
    (ii) The lender must ensure that loan repayment is scheduled to 
eliminate the possibility of a balloon payment at the end of the loan.
    (7) Agriculture BIB loan purposes. Loans may be made only for the 
following purposes:
    (i) Operating purposes as outlined in Sec. 1980.175 (c)(1) of 
Subpart B of this part except for those stipulated in 
Sec. 1980.175(c)(1)(iv) and (vii).
    (ii) Real estate purposes as outlined in Sec. 1980.180 (c) of 
Subpart B of this part except for those stipulated in Sec. 1980.180 
(c)(1) and (4).
    (iii) Refinancing in accordance with paragraph (h)(1) of this 
section and Secs. 1980.411 (a)(11), 1980.451 (i)(19), and 1980.452 
Administrative C. (except Sec. 1980.452 Administrative C. 1. (d) of 
this subpart.
    (8) Sodbuster and swampbuster requirements. The provisions of 
exhibit M of subpart G of part 1940 of this chapter will apply to loans 
made to enterprises engaged in agricultural production.

    Dated: May 3, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-13218 Filed 6-1-94; 8:45 am]
BILLING CODE 3210-32-U