[Federal Register Volume 60, Number 11 (Wednesday, January 18, 1995)]
[Proposed Rules]
[Pages 3566-3579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1193]



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DEPARTMENT OF AGRICULTURE
Rural Housing and Community Development Service
Rural Business and Cooperative Development Service
Rural Utilities Service
Consolidated Farm Service Agency

7 CFR Parts 1948 and 1951

RIN 0575-AB83


Intermediary Relending Program

AGENCIES: Rural Housing and Community Development Service, Rural 
Business and Cooperative Development Service, Rural Utilities Service, 
and Consolidated Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Business and Cooperative Development Service is 
proposing to amend regulations for the Intermediary Relending Program 
(IRP). This action is needed to clarify and revise procedures and 
requirements regarding a variety of issues. The amendments are expected 
to clarify the roles of the Government and intermediaries, make the 
program more responsive to the needs of intermediaries and ultimate 
recipients, and facilitate continuing expansion of the program.

DATES: Comments must be received on or before March 20, 1995.

ADDRESSES: Submit written comments in duplicate to the Chief, 
Regulations Analysis and Control Branch, Rural Economic and Community 
Development Service, USDA, Ag. Box 0743, Washington, DC 20250-0743. All 
written comments made pursuant to this notice will be available for 
public inspection during regular working hours at the above office, 
located in room 6348, South Agriculture Building, 14th and Independence 
Avenue SW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: M. Wayne Stansbery, Business and 
Industry Loan Specialist, Rural Business and Cooperative Development 
Service, USDA, Ag. Box 3221, Washington, DC 20250, Telephone (202) 720-
6819.

SUPPLEMENTARY INFORMATION:

Classification

    We are issuing this proposed rule in conformance with Executive 
Order 12866, and have determined that it is a ``significant regulatory 
action.''

Programs Affected

    The Catalog of Federal Domestic Assistance program impacted by this 
[[Page 3567]] action is: 10.767, Intermediary Relending Program.

Program Administration

    Due to reorganization actions within the Department of Agriculture, 
the Intermediary Relending Program is currently administered by the 
Rural Business and Cooperative Development Service (RBCDS). The RBCDS 
is a successor to the Rural Development Administration, which was a 
successor to the Farmers Home Administration.

Paperwork Reduction Act

    The information collection requirements contained in 7 CFR part 
1951 subpart R have been approved by the Office of Management and 
Budget (OMB) and assigned OMB control number 9575-0131, in accordance 
with the Paperwork Reduction Act of 1980. The revised information 
collection requirements contained in 7 CFR part 1948 subpart C will be 
submitted to OMB for review under Section 3504(h) of the Paperwork 
Reduction Act. Public reporting burden for this collection of 
information is estimated to vary from 30 minutes to 56 hours per 
response with an average of 3.27 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. 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, RECD, 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, 1993, Intermediary Relending 
Loans are subject to the provisions of Executive Order 12372 which 
requires intergovernmental consultation with State and local officials. 
RBCDS conducts 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 RBCDS 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

    This document has been reviewed in accordance with FmHA Instruction 
1940-G, ``Environmental Program.'' RBCDS has determined that this 
proposed 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.

Background

    This regulatory package is an initiative to enhance the program 
through revisions based on experience with operation of the program. 
The primary changes include the following: -
    1. The regulation is completely reorganized for improved clarity.
    2. Definitions are provided for ``Agency IRP loan funds,'' ``IRP 
revolving fund,'' ``revolved funds,'' and ``technical assistance.'' 
Throughout the document, clarifications are provided as to which 
requirements apply only to Agency IRP loan funds, which apply to 
revolved funds, and which apply to everything in the IRP revolving 
fund.
    3. Agency State Offices are authorized to accept and process all 
applications except those from applicants located within Washington, 
D.C., which will be processed by the National Office.
    4. Eligibility requirements for intermediaries are revised to 
clarify that a proposed intermediary that does not have lending 
experience may still qualify for a loan if it will arrange for services 
of people with lending experience.
    5. Eligibility requirements are revised to provide that proposed 
intermediaries that have an outstanding Federal judgement are not 
eligible.
    6. Eligibility requirements are provided for Ultimate recipients.
    7. Eligible purposes for loans to ultimate recipients are revised 
to be more consistent with the Business and Industry loan program, 
authorize loans for refinancing and recreation facilities (except golf 
courses, gambling and race tracks).
    8. Security requirements are clarified.
    9. General guidelines are provided for interest rates and terms of 
loans to ultimate recipients, along with clarification that such rates 
must be within limits established in the intermediary's work plan.
    10. Loan ceilings are revised to provide that, subject to certain 
conditions, intermediaries may receive a series of subsequent loans of 
up to $1 million each to a combined total of up to $15 million. The 
ceiling on loans to an ultimate recipient is raised to $250,000.
    11. The intermediary's responsibilities for maintaining the 
intermediary revolving fund are clarified and a provision is added for 
establishment of a reserve for bad debts of 15 percent of the 
intermediary's portfolio.
    12. Loan disbursement procedures are revised to allow 
intermediaries to draw up to 25 percent of their loan at loan closing. 
The funds may be placed in an interest bearing account if they are not 
immediately needed for loans to ultimate recipients.
    13. The requirement for intermediaries to operate in accordance 
with an approved work plan is clarified and guidelines are provided for 
RBCDS approval of work plan revisions.
    14. The contents of a complete application and work plan are 
revised to eliminate some unnecessary items, provide more detail on 
what should be covered regarding relending plans, add certifications 
regarding debarment, Federal debt collection policies, and lobbying, 
and provide for streamlined applications for subsequent loans.
    15. The priority point scoring system is revised to adjust the 
percentages required to qualify for points based on service area income 
compared to the poverty line, provide for points based on service area 
income compared to Statewide non-metropolitan income, provide for 
points based on loans to underrepresented groups, and provide more 
guidelines for the assigning of points by the Administrator.
    16. The requirement for a certification by the intermediary 
regarding equity is removed.
    17. Guidelines are provided for information to be submitted to 
RBCDS regarding proposed loans to ultimate recipients and for RBCDS 
review and response to the information.
    In addition, a number of issues were explored and alternatives were 
considered in preparing this Proposed Rule. An internal taskforce of 
State Directors and other State Office personnel has recommended 
alternatives to some of the material in this proposed rule and 
additional changes that have not been incorporated into this proposed 
rule. We invite and encourage comments and suggestions in these areas 
or in others germane to the mission and purpose of the program. To the 
extent that comments received raise new issues or cause revision of the 
proposed regulation which are outside the scope of the subject matter 
area now contemplated by this proposal, the Agency will publish a new 
proposal. We [[Page 3568]] are particularly interested in comments in 
the following areas:
    1. The specific mission of the IRP program in the context of the 
USDA rural development missions.
    The taskforce has recommended the following mission statement be 
substituted in Sec. 1948.101(b) of the proposed rule: ``The purpose of 
the program is to alleviate poverty and increase economic activity and 
employment in rural communities, especially disadvantaged and remote 
communities, through gap financing administered by community-based 
organizations, targeted primarily towards smaller and emerging 
businesses, 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 by the 
Agency to intermediaries that establish programs for the purpose of 
providing loans to ultimate recipients for business activities and 
community development(s) in a rural area.'' Would it be helpful to have 
this more detailed and descriptive mission statement in the regulation?
    2. The type of credit needs for which IRP funding is most 
appropriate.
    What scale of business, type of asset financed, and range of risk 
should be targeted? For example, should revolving or seasonal lines of 
credit be eligible loan purposes? The taskforce believes there is a 
crucial need for revolving credit lines for small businesses. The 
Agency has been hesitant to allow IRP funds to be used for revolving 
lines of credit because of the increased risks and special lender 
expertise needed. Is this a service intermediaries should be providing?
    3. Loan size limits for ultimate recipients.
    The proposed rule would allow intermediaries to make some loans of 
up to $250,000 (Sec. 1948.114(b)). This proposal was based primarily on 
reports from some intermediaries of a need for commercial credit in the 
$150,000 to $250,000 range. The taskforce is concerned that the 
proposed higher loan limit to ultimate recipients might diminish the 
effectiveness of the program in providing financing for micro-
enterprise revolving loan funds which are a target area for rural 
development policy. Might it be appropriate to retain the existing loan 
limit of $150,000? How great is the need for loans exceeding $150,000? 
If the $150,000 limit is retained should exception authority be 
provided to the Administrator for higher amounts? If so, what should 
the criteria be for approving an exception.
    4. Outcome and performance measures.
    There is a significant need for information which documents the 
rural community and economic development outcome achieved as a result 
of IRP activity. What are appropriate outcome and performance measures 
and reporting requirements for the intermediary loan funds financed by 
the program, and for the funded activities of the ultimate recipients 
of the loans?
    5. Experience requirements.
    To enable more socially oriented community-based organizations to 
use the program, the taskforce has suggested further revising the 
eligibility requirements for intermediaries. They have proposed 
allowing loans to intermediaries that have experience in assisting 
rural business or community development, but not necessarily lending 
experience. The proposed rule, as well as current policy, would allow 
this, but only if the Intermediary will bring individuals with loan 
making and servicing experience and expertise into the operation 
(Sec. 1948.103(b)(2)). Would relaxing the requirement for individuals 
with lending experience achieve the goal of bringing more socially 
oriented intermediaries into the program?
    6. Citizenship requirements.
    The taskforce recommended further revising the eligibility 
requirements for ultimate recipients to allow intermediaries to make 
loans to businesses owned by non-U.S. citizens if the project funded 
creates or retains jobs for U.S. residents. Such loans would be 
restricted to fixed assets located in the U.S. and the business would 
have to have managers that are U.S. citizens or legally admitted to the 
U.S. for permanent residence. Would this provision significantly help 
to provide jobs?
    7. Management consultant fees.
    The taskforce has suggested further revising the eligible loan 
purposes for loans to ultimate recipients to include management 
consultant fees. Could this enhance the likelihood of success for 
ultimate recipients?
    8. Technical assistance.
    The taskforce has suggested further revising the eligible loan 
purposes to allow intermediaries to use IRP funds to provide direct 
technical assistance to ultimate recipients or prospective recipients. 
Would this change be valuable? Is technical assistance an appropriate 
use for IRP funds?
    9. Security requirements.
    When the IRP was initiated in 1988, the security required for most 
loans to intermediaries was a blanket pledge of the IRP revolving fund. 
In 1991, the regulation was revised to require assignments on all 
promissory notes and security documents (Sec. 1948.113(a)(2)). 
Intermediaries have complained from time to time about being required 
to provide the assignments and the taskforce has suggested that the 
requirement be removed. Is the providing of assignments an inordinate 
burden on the intermediary?
    10. Review and concurrence for loans to ultimate recipients.
    Current regulations require intermediaries to obtain the 
Government's review and concurrence in the IRP loans it proposes to 
make to ultimate recipients. This proposed rule clarifies the limited 
scope of review required for concurrence (Sec. 1948.128) and also 
clarifies that the requirement for review and concurrence applies only 
to Federal loan funds and does not apply to loans made from the 
revolving fund from collections on previous loans. The taskforce, in 
addition, suggests exempting intermediaries that have demonstrated a 
successful track record of lending IRP funds and servicing loans from 
the requirement. Most of the impact of this change would be on 
subsequent loans to intermediaries. Another alternative would be to 
simply not require Government review and concurrence on loans to 
ultimate recipients made from subsequent loans to intermediaries. 
Should it be necessary for intermediaries to obtain Government 
concurrence on every proposed loan from Federal funds?
    11. Multiple IRP revolving funds.
    Intermediaries are required to establish separate bookkeeping 
accounts and bank accounts for the IRP revolving fund. Intermediaries 
that receive more than one IRP loan are required to establish a 
separate revolving fund with separate accounts for each loan. The 
proposed rule would allow the funds to be combined with Government 
consent and under certain conditions (Sec. 1948.115(b)(5)). The 
taskforce recommended alternate language that would allow the funds to 
be combined without Government consent unless the purposes of the loans 
were significantly different. Should intermediaries with more than one 
IRP loan be required to obtain Government consent to avoid setting up 
entirely separate funds for each?
    12. Environmental assessments.
    Are the intergovernmental and environmental review requirements 
referenced in the proposed rule excessive for loan funds of this type? 
How could they be streamlined?
    13. Loan agreements.
    [[Page 3569]]
    
    In connection with implementation of the proposed rule the 
Government plans to begin using a printed form as a loan agreement 
rather than preparing a loan agreement for each loan based on an 
exhibit to the regulation. The taskforce recommended an additional step 
of having one loan agreement serve for multiple loans to the same 
intermediary. The pertinent language suggested was: ``For subsequent 
loans with no substantial changes to the intermediary's work plan, an 
amendment to the existing loan agreement shall be executed at loan 
closing for each subsequent loan.'' Should subsequent IRP loans to the 
same intermediary be handled by amendments to the original loan 
agreement rather than with entirely new loan agreements?
    14. Applications.
    Should there be more specific requirements for the intermediary's 
workplan to address issues such as mission, goals, targeting criteria 
for recipients, and accompanying technical assistance to recipients to 
ensure that the IRP program achieves tangible outcomes for rural 
community and economic development and functions in keeping with the 
Government Performance and Results Act? The taskforce recommended 
application requirements be further revised, in 
Sec. 1948.122(a)(2)(iii) of the proposed rule, to provide that the 
demonstration of need could be met through targeting criteria and 
supporting evidence that such prospective ultimate recipients exist in 
sufficient numbers to justify funding the intermediary's request. Would 
this approach be appropriate? The taskforce recommended further 
revising the application requirements by requiring the proposed 
intermediary to provide a set of goals, strategies, and anticipated 
outcomes for its program and a mechanism for evaluating the outcome of 
its IRP loan program. The taskforce also recommended requiring each 
proposed intermediary to provide specific information on how it will 
ensure that technical assistance will be made available to ultimate 
recipients. Are these reasonable and worthwhile requirements?
    15. Community representation.
    Should the 10 county service area limitation (for priority points, 
Sec. 1948.123(c)(5)) be changed to 14 as recommended by the taskforce?
    16. Targeting priorities.
    Should the proposed scoring criteria be further modified to place 
greater emphasis on such factors as community and beneficiary 
targeting, conformance with regional or community development plans, 
and encouragement of smaller-size loans, with proportionately less 
emphasis on the intermediary's own resources and its ability to 
leverage funds? Specifically, the taskforce recommended the following: 
Reduce the available points for other funds (Sec. 1948.123(c)(1)(i)) 
from 10, 20, or 30 to 5, 10, or 15; Reduce the available points for 
other intermediary funds (Sec. 1948.123(c)(1)(ii)) from 10, 20, or 30 
to 5, 10, or 15; Reduce the available points for intermediary 
contribution (Sec. 1948.123(c)(3)) from 15, 30, or 50 to 5, 10, or 15; 
Add a new provision to award points based on the average size of loans 
expected to be made to ultimate recipients, with 5 points for loans 
over $125,000, 10 points for loans of $75,000 to $125,000, 15 points 
for loans of $25,000 to $75,000, and 30 points for loans less than 
$25,000; Add, to the guidelines for justifying administrator points 
(Sec. 1948.123 (c)(6)), reference to a workplan in accord with a 
strategic plan, particularly a plan prepared as part of a request for 
an Empowerment Zone/Enterprise Community designation. Comments are 
welcomed on each of these potential changes in the priority system.
    17. Bad debt reserve.
    Is 15 percent of the IRP portfolio an appropriate amount of bad 
debt reserve for most intermediaries (1948.115(b)(2))? If not, what 
level of reserve should be suggested or required?
    18. Hotels and motels.
    The proposed rule removes a general prohibition on loans for 
recreation and tourism facilities, but retains a prohibition on loans 
for hotels, motels, bed and breakfast establishments, and convention 
centers. This prohibition was based on perceptions that loans on such 
facilities were high risk and the jobs created were low paying. Are 
these perceptions valid? Should these facilities be made eligible and 
considered on the merits of each case?

Lists of Subjects

7 CFR Part 1948

    Business and industry, Credit, Economic Development, Rural areas.

7 CFR Part 1951

    Loan programs--Agriculture, Rural areas.

    Accordingly, Title 7, Chapter XVIII, of the Code of Federal 
Regulations is proposed to be amended as follows:

PART 1948--RURAL DEVELOPMENT

    1. The authority citation for Part 1948 continues to read as 
follows:

    Authority: 7 U.S.C. 1932 note; 5 U.S.C. 301; 7 CFR 2.23; 7 CFR 
2.70.

    2. Subpart C of part 1948 is revised to read as follows:

Subpart C--Intermediary Relending Program (IRP)

Sec.
1948.101  Introduction.
1948.102  Definitions and abbreviations.
1948.103  Eligibility requirements--intermediary.
1948.104  Eligibility requirements--Ultimate recipients.
1948.105-1948.108  [Reserved]
1948.109  Loan purposes.
1948.110  Ineligible loan purposes.
1948.111  Loan terms.
1948.112  Interest rates.
1948.113  Security.
1948.114  Loan limits.
1948.115  Post award requirements.
1948.116  [Reserved]
1948.117  Other regulatory requirements.
1948.118  Loan agreements between the Agency and the intermediary.
1948.119-1948.121  [Reserved]
1948.122  Application.
1948.123  Filing and processing applications for loans.
1948.124  [Reserved]
1948.125  Letter of conditions.
1948.126  Loan approval and obligating funds.
1948.127  Loan closing.
1948.128  Requests to make loans to ultimate recipients.
1948.129-1948.142  [Reserved]
1948.143  Appeals.
1948.144-1948.147  [Reserved]
1948.148  Exception authority.
1948.149  [Reserved]
1948.150  OMB control number.

Subpart C--Intermediary Relending Program (IRP)


Sec. 1948.101  Introduction.

    (a) This subpart contains regulations for loans made by the Agency 
to eligible intermediaries and applies to borrowers and other parties 
involved in making such loans. The provisions of this subpart supersede 
conflicting provisions of any other subpart. The servicing and 
liquidation of such loans will be in accordance with subpart R of part 
1951 of this chapter.
    (b) The purpose of the program is to finance business facilities 
and community development projects in rural areas. This purpose is 
achieved through loans made to intermediaries that establish programs 
for the purpose of providing loans to ultimate recipients for business 
facilities and community developments in a rural area.
    (c) Proposed intermediaries are required to identify any known 
relationship or association with an Agency employee. Such assistance is 
restricted by FmHA Instruction 2045-BB. Any processing or servicing 
activity conducted pursuant to this subpart involving authorized 
assistance to [[Page 3570]] Agency employees, members of their 
families, known close relatives, or business or close personal 
associates, is subject to the provisions of subpart D of part 1900 of 
this chapter.
    (d) Copies of all forms, regulations, and Instructions referenced 
in this subpart are available in the National Office or any State 
Office.


Sec. 1948.102  Definitions and abbreviations.

    (a) General definitions. The following definitions are applicable 
to the terms used in this subpart.
    Agency. The Federal agency within the United States Department of 
Agriculture (USDA) with responsibility assigned by the Secretary of 
Agriculture to administer the IRP.
    Agency IRP loan funds. Cash proceeds of a loan obtained from the 
Agency through the IRP, including the portion of an IRP revolving fund 
directly provided by the Agency IRP loan. Agency IRP loan funds are 
Federal funds.
    Intermediary. The entity requesting or receiving Agency IRP loan 
funds for establishing a revolving fund and relending to ultimate 
recipients.
    IRP revolving fund. A group of assets, obtained through or related 
to an Agency IRP loan and recorded by the intermediary in a bookkeeping 
account or set of accounts and accounted for, along with related 
liabilities, revenues, and expenses, as an entity or enterprise 
separate from the intermediary's other assets and financial activities. 
All Agency IRP loan funds received by an intermediary must be deposited 
into an IRP revolving fund. The intermediary may transfer additional 
assets into the IRP revolving fund. Loans to ultimate recipients are 
advanced from the IRP revolving fund. 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 fund are a part of the IRP 
revolving fund.
    Principals of intermediary. Members, officers, directors, and other 
individuals or entities directly involved in the operation and 
management of an intermediary.
    Processing office/officer. The processing office for an IRP 
application is the office within the Agency administrative organization 
with assigned authority and responsibility to process the application. 
The processing office is the primary contact for the proposed 
intermediary and maintains the official application case file. The 
processing officer for an application is the person in charge of the 
processing office. The processing officer is responsible for ensuring 
that all regulations and Instructions are complied with in regard to 
applications under her/his jurisdiction.
    Revolved funds. The cash portion of an IRP revolving fund that is 
not Agency loan funds, including funds that result from loaning out the 
Agency IRP loan funds and then collecting all or part of the loans, and 
including fees and interest collected on such loans. Revolved funds 
shall not be considered Federal funds.
    Rural area. All territory of a State that is not within the outer 
boundary of any city having a population of 25,000 or more, according 
to the latest decennial census.
    Servicing office/officer. The servicing office for an IRP loan is 
the office within the Agency administrative organization with assigned 
authority and responsibility to service the loan. The servicing office 
is the primary contact for the borrower and maintains the official case 
file after the loan is closed. The servicing officer for a loan is the 
person in charge of the servicing office. The servicing officer is 
responsible for ensuring that all regulations and Instructions are 
complied with in regard to loans under her/his jurisdiction.
    State. Any of the 50 States, the Commonwealth of Puerto Rico, the 
Virgin Islands of the United States, Guam, American Samoa, and the 
Commonwealth of the Northern Mariana Islands.
    Technical Assistance. A function performed for the benefit of an 
ultimate recipient or proposed ultimate recipient, which is a problem 
solving activity. 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 fund.
    (b) Abbreviations. The following are applicable to this subpart:
(1) B&I--Business and Industry
(2) FmHA--Farmers Home Administration
(3) IRP--Intermediary Relending Program
(4) OGC--Office of the General Counsel
(5) OIG--Office of the Inspector General
(6) OMB--Office of Management and Budget
(7) RDLF--Rural Development Loan Fund
(8) USDA--United States Department of Agriculture


Sec. 1948.103  Eligibility requirements--Intermediary.

    (a) The types of entities which may become intermediaries are:
    (1) Private nonprofit corporations.
    (2) Public agencies--Any State or local government, or any branch 
or agency of such government having authority to act on behalf of that 
government, borrow funds, and engage in activities eligible for funding 
under this subpart.
    (3) Indian groups--Indian tribes on a Federal or State reservation 
or other federally recognized tribal groups.
    (4) Cooperatives--Incorporated associations, at least 51 percent of 
whose members are rural residents, whose members have one vote each, 
and which conduct, for the mutual benefit of their members, such 
operations as producing, purchasing, marketing, processing or other 
activities aimed at improving the income of their members as producers 
or their purchasing power as consumers.
    (b) The intermediary must:
    (1) Have the legal authority necessary for carrying out the 
proposed loan purposes and for obtaining, giving security for, and 
repaying the proposed loan.
    (2) Have a proven record of successfully assisting rural business 
and industry, or, for intermediaries that propose to finance community 
development, a proven record of successfully assisting rural community 
development projects of the type planned.
    (i) Except as provided in paragraph (b)(2)(ii) of this section, 
such record will include recent experience in loan making and servicing 
with loans that are similar in nature to those proposed for the IRP and 
a delinquency and loss rate acceptable to the Agency.
    (ii) The Agency may approve an exception to the requirement for 
loan making and servicing experience provided:
    (A) The proposed intermediary has a proven record of successfully 
assisting rural business and industry or rural community development 
projects of the type planned but the assistance is other than lending; 
and
    (B) The proposed intermediary will, before the loan is closed, 
bring individuals with loan making and servicing experience and 
expertise into the operation of the IRP revolving fund.
    (3) Have the services of a staff with loan making and servicing 
expertise acceptable to the Agency.
    (4) Have capitalization acceptable to the Agency.
    (c) 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 proposed 
intermediary. [[Page 3571]] 
    (2) The loan is not otherwise available on reasonable (i.e., usual 
and customary) rates and terms from private sources or other Federal, 
State, or local programs.
    (3) The amount of the loan, together with other funds available, is 
adequate to assure completion of the project or achieve the purposes 
for which the loan is made.
    (d) At least 51 percent of the outstanding interest or membership 
in any nonpublic body intermediary must be citizens of the United 
States or reside in the United States after being legally admitted for 
permanent residence.
    (e) An outstanding judgment against the proposed intermediary 
obtained by the United States in a Federal court (other than in the 
United States Tax Court), which has been recorded, shall cause the 
proposed intermediary to be ineligible to receive any loan until the 
judgment is paid in full or otherwise satisfied. Agency loan funds may 
not be used to satisfy the judgment.


Sec. 1948.104   Eligibility requirements--Ultimate recipients.

    (a) Ultimate recipients may be individuals, public or private 
organizations, or other legal entities, with authority to incur the 
debt and carry out the purpose of the loan.
    (b) To be eligible to receive loans from the IRP revolving loan 
fund:
    (1) At least 51 percent of the outstanding membership or ownership 
of the ultimate recipient must be either citizens of the United States 
or residents of the United States after being legally admitted for 
permanent residence.
    (2) Must be located in a rural area.
    (3) Must be unable to finance the proposed project from its own 
resources or through commercial credit or other Federal, State, or 
local programs at reasonable rates and terms.
    (c) An outstanding judgment against the proposed ultimate recipient 
obtained by the United States in a Federal court (other than in the 
United States Tax Court), which has been recorded, shall cause the 
proposed ultimate recipient to be ineligible to receive a loan from 
Agency IRP loan funds until the judgment is paid in full or otherwise 
satisfied. Agency IRP loan funds may not be used to satisfy the 
judgment.


Secs. 1948.105-1948.108   [Reserved]


Sec. 1948.109   Loan purposes.

    (a) Intermediaries. Agency IRP loan funds must be placed in the 
intermediary's IRP revolving fund and used by the intermediary to 
provide direct loans to eligible ultimate recipients.
    (b) Ultimate recipients. Loans from the intermediary to the 
ultimate recipient using the IRP revolving fund must be for community 
development projects, the establishment of new businesses, expansion of 
existing businesses, creation of employment opportunities, and/or 
saving existing jobs. Such loans may include, but are not limited to:
    (1) Business and industrial acquisitions when the loan will keep 
the business from closing, prevent the loss of employment 
opportunities, or provide expanded job opportunities.
    (2) Business construction, conversion, enlargement, repair, 
modernization, or development.
    (3) Purchase and development of land, easements, rights-of-way, 
buildings, facilities, leases, or materials.
    (4) Purchase of equipment, leasehold improvements, machinery, or 
supplies.
    (5) Pollution control and abatement.
    (6) Transportation services.
    (7) Start-up operating costs and working capital.
    (8) Interest (including interest on interim financing) during the 
period before the facility becomes income producing, but not to exceed 
3 years.
    (9) Feasibility studies.
    (10) Debt refinancing.
    (i) A complete review will be made by the intermediary to determine 
whether the loan will restructure debts on a schedule that will allow 
the ultimate recipient to operate successfully rather than merely take 
over an unsound loan. The intermediary will obtain the proposed 
ultimate recipient's complete debt schedule which should agree with the 
proposed ultimate recipient's latest balance sheet; and
    (ii) 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; and
    (iii) On any request for refinancing of existing secured loan(s), 
the intermediary is required, as a minimum, to obtain the previously 
held collateral as security for the loan(s) and must not pay off a 
creditor in excess of the value of the collateral. Additional 
collateral will be required when refinancing of unsecured loans is 
unavoidable to accomplish the necessary strengthening of the ultimate 
recipient's position.
    (11) Reasonable fees and charges only as specifically listed in 
this paragraph. Authorized fees include loan packaging fees, 
environmental data collection fees, and other fees for services 
rendered by professionals. Professionals are generally persons licensed 
by States or accreditation associations, such as Engineers, Architects, 
Lawyers, Accountants, and Appraisers. The maximum amount of fee will be 
what is reasonable and customary in the community or region where the 
project is located. Any such fees are to be fully documented and 
justified.
    (12) Aquaculture including conservation, development, and 
utilization of water for aquaculture. Aquaculture is defined as the 
culture or husbandry of aquatic animals or plants by private industry 
for commercial purposes including the culture and growing of fish by 
private industry for the purpose of granting or augmenting publicly-
owned or regulated stocks of fish.
    (13) Tourist and recreational facilities except as prohibited by 
Sec. 1948.110 of this subpart.


Sec. 1948.110   Ineligible loan purposes.

    Agency IRP loan funds may not be used for payment of the 
intermediary's own administrative costs or expenses. The IRP revolving 
fund may not be used for:
    (a) Assistance in excess of what is needed to accomplish the 
purpose of the ultimate recipient's project.
    (b) Distribution or payment 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 in the 
ultimate recipient.
    (c) Charitable and educational institutions, churches, 
organizations affiliated with or sponsored by churches, and fraternal 
organizations.
    (d) Assistance to government employees, military personnel or 
principals or employees of the intermediary or organizations for which 
such persons are directors or officers or have major ownership (20 
percent or more).
    (e) A loan to an ultimate recipient which has an application 
pending with or a loan outstanding from another intermediary involving 
an IRP revolving fund.
    (f) Any line of credit.
    (g) Agricultural production, which means the cultivation, 
production (growing), 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, and the raising, housing, feeding, breeding, 
hatching, control, and/or management of farm and domestic animals). 
Exceptions to this definition are:
    (1) Aquaculture as identified under Sec. 1948.109(b) of this 
subpart. [[Page 3572]] 
    (2) 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, 
or the growing of vegetables from seed to the transplant stage.
    (3) Forestry, which includes establishments primarily engaged in 
the operation of timber tracts, tree farms, forest nurseries, and 
related activities such as reforestation.
    (4) The growing of mushrooms or hydroponics.
    (h) The transfer of ownership unless the loan will keep the 
business from closing, or prevent the loss of employment opportunities 
in the area, or provide expanded job opportunities.
    (i) Community antenna television services or facilities.
    (j) Any illegal activity.
    (k) 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.
    (l) Hotels, motels, tourist homes, bed and breakfast 
establishments, or convention centers.
    (m) Lending and investment institutions and insurance companies.
    (n) Golf courses, race tracks, or gambling facilities.


Sec. 1948.111   Loan terms.

    (a) No loans to intermediaries shall be extended for a period 
exceeding 30 years. Interest and principal payments will be scheduled 
at least annually. The initial principal payment may be deferred 
(during the period before the facility becomes income producing) by the 
Agency, but not more than 3 years.
    (b) Loans made by an intermediary to an ultimate recipient from the 
IRP revolving fund will be scheduled for repayment over a term 
negotiated by the intermediary and ultimate recipient. The 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.


Sec. 1948.112   Interest rates.

    (a) Loans made by the Agency pursuant to this subpart shall bear 
interest at a fixed rate of 1 percent per annum over the term of the 
loan.
    (b) Interest rates charged by intermediaries to ultimate recipients 
on loans from the IRP revolving fund shall be negotiated by the 
intermediary and ultimate recipient. The rate must be within limits 
established by the intermediary's work plan approved by the Agency. The 
rate should normally be the lowest rate sufficient to cover the loan's 
proportional share of the IRP revolving fund's debt service costs, 
reserve for bad debts, and administrative costs.


Sec. 1948.113  Security.

    (a) Intermediaries. Security for all loans to intermediaries must 
be such that the repayment of the loan is reasonably assured, when 
considered along with the intermediary's financial condition, work 
plan, and management ability. It is the responsibility of the 
intermediary to make loans to ultimate recipients in such a manner that 
will fully protect the interests of the intermediary and the 
Government.
    (1) Security for such loans may include, but is not limited to:
    (i) Any realty, personalty, or intangibles capable of being 
mortgaged, pledged, or otherwise encumbered by the intermediary in 
favor of the Agency; and
    (ii) Any realty, personalty, or intangibles capable of being 
mortgaged, pledged, or otherwise encumbered by an ultimate recipient in 
favor of the Agency.
    (2) Security will normally consist of a lien on the IRP revolving 
fund. The Agency will obtain assignments of security pledged by 
ultimate recipients including an assignment of the promissory notes 
given by the ultimate recipients and take possession of the promissory 
notes.
    (i) The assignment documents will not be filed or recorded in the 
public records unless the intermediary is in default on its IRP loan. 
They will be held by the Agency and may be filed at the sole discretion 
of the Agency, after an event of default, if the Agency determines the 
filing is necessary to protect the Government's interest.
    (ii) The perfection of assignments when intermediaries close loans 
is not required. Assignment documents will be obtained and held to 
facilitate the perfection of assignments at a later date if the 
intermediary fails to meet its obligations.
    (3) The Agency may require additional security or additional 
documents needed to perfect liens at any time during the term of a loan 
to an intermediary if, after review and monitoring, an assessment 
indicates the need for such security or documentation to protect the 
Government's interest.
    (b) Ultimate recipients. Security for a loan from an intermediary's 
IRP revolving fund to an ultimate recipient will be negotiated by the 
intermediary and ultimate recipient, within the general security 
policies established by the intermediary and approved by the Agency.


Sec. 1948.114  Loan limits.

    (a) Intermediary.
    (1) No loan to an intermediary will exceed the maximum amount the 
intermediary can reasonably be expected to relend to eligible ultimate 
recipients, in an effective and sound manner, within 1 year after loan 
closing.
    (2) The first IRP loan to an intermediary will not exceed $2 
million.
    (3) Intermediaries that have received one or more IRP loans may 
apply for and be considered for subsequent IRP loans provided:
    (i) At least 80 percent of the Agency IRP loan funds the 
intermediary was approved for have been disbursed to eligible ultimate 
recipients.
    (ii) The intermediary is promptly relending all collections from 
loans made from its IRP revolving fund in excess of what is needed for 
required debt service, reasonable administrative costs approved by the 
Agency, and a reasonable reserve for debt service and uncollectible 
accounts.
    (iii) The outstanding loans of the intermediary's IRP revolving 
fund are generally sound.
    (iv) The intermediary is in compliance with all applicable 
regulations and its loan agreement(s) with the Agency.
    (4) Subsequent loans will not exceed $1 million each and not more 
than one loan will be approved for an intermediary in any one fiscal 
year.
    (5) Total outstanding IRP indebtedness of an intermediary to Agency 
will not exceed $15 million at any time.
    (b) Ultimate recipients. Loans from intermediaries to ultimate 
recipients using the IRP revolving fund will not exceed the lessor of:
    (1) $250,000; or
    (2) 75% of the total cost of the ultimate recipient's project for 
which the loan is being made.
    (c) Portfolio. No more than 25 percent of an IRP loan approved for 
an intermediary may be used for loans to ultimate recipients that 
exceed $150,000. This limit does not apply to revolved funds.


Sec. 1948.115  Post award requirements.

    (a) Applicability. Intermediaries receiving loans under this 
program shall be governed by these regulations, the loan agreement, the 
approved work plan, security interests, and any other conditions which 
the Agency may [[Page 3573]] impose in awarding a loan. Whenever this 
subpart imposes a requirement on loans made from the ``IRP revolving 
fund,'' such requirement shall apply to all loans made by an 
intermediary to an ultimate recipient from the intermediary's IRP 
revolving fund, as defined in Sec. 1948.102(a) of this subpart, so long 
as any portion of the intermediary's IRP loan from the Agency remains 
unpaid. Whenever this subpart imposes a requirement on loans made by 
intermediaries from ``Agency IRP loan funds,'' without specific 
reference to the IRP revolving fund, such requirement shall apply only 
to loans made by an intermediary using Agency IRP loan funds, as 
defined in Sec. 1948.102(a) of this subpart, and will not apply to 
loans made from revolved funds.
    (b) Maintenance of IRP revolving fund. So long as any part of an 
IRP loan to an intermediary remains unpaid, the intermediary must 
maintain the IRP revolving fund in accordance with the definition of 
IRP revolving fund found in Sec. 1948.102(a) of this subpart. The 
portion of the IRP revolving loan fund that is Agency IRP loan funds 
may only be used for making loans in accordance with Sec. 1948.109 of 
this subpart. The portion that is revolved funds as defined in 
Sec. 1948.102(a) of this subpart may be used for debt service, 
reasonable administrative costs, or reserves in accordance with this 
section, or for making additional loans.
    (1) The intermediary must submit an annual budget of proposed 
administrative costs for Agency approval. The amount removed from the 
IRP revolving fund for administrative costs in any year must be 
reasonable, must not exceed the actual cost of operating the IRP 
revolving fund, including loan servicing and providing technical 
assistance, and must not exceed the amount approved by the Agency in 
the budget.
    (2) A reasonable amount of revolved funds should be used to create 
a reserve for bad debts. Reserves should be accumulated over a period 
of years. The total amount should not exceed maximum expected losses, 
considering the quality of the intermediary's portfolio of loans. 
Unless the intermediary provides loss and delinquency records that, in 
the opinion of the Agency, justifies different amounts, a reserve for 
bad debts of 15 percent of outstanding loans should be accumulated over 
5 years and then maintained.
    (3) Any cash in the IRP revolving fund from any source that is not 
needed for debt service, approved administrative costs, or reasonable 
reserves must be available for additional loans to ultimate recipients.
    (4) All reserves and other cash in the IRP revolving loan fund not 
immediately needed for loans to ultimate recipients or other authorized 
uses should be deposited in an interest bearing account in a bank or 
other financial institution covered by a form of Federal deposit 
insurance. Such accounts and any interest earned thereon remain a part 
of the IRP revolving fund.
    (5) If an intermediary receives more than one IRP loan, a separate 
IRP revolving fund must be established and maintained for each loan 
unless the Agency gives written permission for the IRP revolving funds 
to be combined. The Agency may give such permission only if there are 
no significant differences in the loan agreements and other 
requirements imposed by Agency for the loans or if the intermediary 
agrees in writing to operate the combined revolving funds in accordance 
with the most stringent loan agreements and requirements.


Sec. 1948.116  [Reserved]


Sec. 1948.117  Other regulatory requirements.

    (a) Intergovernmental consultation. The IRP is subject to the 
provisions of Executive Order 12372 which requires intergovernmental 
consultation with State and local officials. The approval of a loan to 
an intermediary will be the subject of intergovernmental consultation. 
For each ultimate recipient to be assisted with a loan from Agency IRP 
loan funds and for which the State in which the ultimate recipient is 
to be located has elected to review the program under their 
intergovernmental review process, the State Single Point of Contact 
must be notified. Notification, in the form of a project description, 
can be initiated by the intermediary or the ultimate recipient. Any 
comments from the State must be included with the intermediary's 
request to use the Agency loan funds for the ultimate recipient. Prior 
to the Agency's decision on the request, compliance with the 
requirements of intergovernmental consultation must be demonstrated for 
each ultimate recipient. These requirements should be carried out in 
accordance with FmHA Instruction 1940-J.
    (b) Environmental requirements.
    (1) Unless specifically modified by this section, the requirements 
of subpart G of part 1940 of this chapter 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 to minimize the potential to adversely impact the 
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.
    (2) For each application for a loan to an intermediary, the Agency 
will review the application, supporting materials, and any required 
Forms FmHA 1940-20, ``Request for Environmental Information,'' and 
complete a Class II environmental assessment. This assessment will 
focus on the potential cumulative impacts of the projects as well as 
any environmental concerns or problems that are associated with 
individual projects that can be identified at this time.
    Neither the completion of the environmental assessment nor the 
approval of the application is an Agency commitment to the use of loan 
funds for a specific project; therefore, no public notification 
requirements for a Class II assessment will apply to the application. 
The affected public has not been sufficiently identified at this stage 
of the Agency review.
    (3) For each proposed loan from an intermediary to an ultimate 
recipient using Agency IRP loan funds, the Agency will complete the 
environmental review required by subpart G of part 1940 of this chapter 
including public notification requirements. The results of this review 
will be used by the Agency in making its decision on concurrence in the 
proposed loan. The Agency will prepare an Environmental Impact 
Statement for any application for a loan from Agency IRP loan funds 
determined to have a significant effect on the quality of the human 
environment.
    (c) Equal opportunity and nondiscrimination requirements.
    (1) In accordance with Title V of Pub. L. 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 proposed intermediary or 
proposed ultimate recipient on the basis of sex, marital status, race, 
color, religion, natural origin, age, physical or mental handicap 
(provided the proposed intermediary or proposed ultimate recipient has 
the capacity to contract), because all or part of the proposed 
intermediary's or proposed ultimate recipient's income is derived from 
public assistance of any kind, or because the proposed intermediary or 
proposed ultimate recipient has in good faith exercised any 
[[Page 3574]] right under the Consumer Credit Protection Act, with 
respect to any aspect of a credit transaction anytime Agency loan funds 
are involved.
    (2) The regulations contained in subpart E of part 1901 of this 
chapter apply to this program.
    (3) The Administrator will assure that equal opportunity and 
nondiscrimination requirements are met in accordance with Title VI of 
the Civil Rights Act of 1964, ``Nondiscrimination in Federally Assisted 
Programs,'' 42 U.S.C. 2000d-4, Section 504 of the Rehabilitation Act 
for Federally Conducted Programs and Activities, and the Age 
Discrimination Act of 1975, as amended.


Sec. 1948.118  Loan agreements between the Agency and the intermediary.

    A loan agreement must be executed by the intermediary and the 
Agency at loan closing for each loan. The loan agreement will be 
prepared by the Agency using Form FmHA 1948-4, ``Intermediary Relending 
Program Loan Agreement,'' and reviewed by OGC and the intermediary 
prior to loan closing. The loan agreement, as a minimum, must contain 
the following provisions:
    (a) The loan agreement will 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 shall pay a 
late charge of 4 percent of the payment due of principal and/or 
interest if payment for either of these is not received within 15 
calendar days following the due date. The late charge shall be 
considered unpaid if not received within 30 calendar days of the missed 
due date for which it was imposed. Any unpaid late charge shall be 
added to principal and 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.
    (5) Disbursement procedure. Disbursement of loan funds by the 
Agency to the intermediary shall take place after the loan agreement 
and promissory note are executed, and any other conditions precedent to 
disbursement of funds are fully satisfied. The date of each draw down 
shall constitute the date the funds are advanced under the loan 
agreement for purposes of computing interest.
    (i) The intermediary may initially draw up to 25 percent of the 
loan funds. If the intermediary does not have loans to ultimate 
recipients ready to close sufficient to use the initial draw, the funds 
should be deposited in an interest bearing account in accordance with 
Sec. 1948.115 (b)(4) of this subpart until needed for such loans. The 
initial draw must be used for loans to ultimate recipients before any 
additional Agency IRP loan funds may be drawn by the intermediary. Any 
funds from the initial draw that have not been used for loans to 
ultimate recipients within 1 year from the date of the draw must be 
returned to the Agency as an extra payment on the loan. Agency IRP loan 
funds must not be used for administrative expenses of the intermediary.
    (ii) After the initial draw of funds, an intermediary may draw down 
only such funds as are necessary to cover a 30-day period in 
implementing its approved work plan. Advances will be requested by the 
intermediary in writing. The intermediary may use Form FmHA 440-11, 
``Estimate of Funds Needed for 30-day Period Commencing __________,'' 
to request the funds.
    (6) Provisions regarding default. On the occurrence of any event of 
default, 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 law and 
regulations. Any of the following may be regarded as an ``event of 
default'' in the sole discretion of the Agency:
    (i) Failure of the intermediary to carry out or comply with the 
specific activities in its loan application as approved by the Agency, 
or loan terms and conditions, or any terms or conditions of the loan 
agreement, or any applicable Federal or State laws, or with such USDA 
or Agency regulations as may become generally applicable at any time.
    (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.
    (iii) The occurrence of:
    (A) The intermediary's 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, or of a substantial part of its assets, 
being authorized or instituted by or against it.
    (iv) Submission or making of any report, statement, warranty, or 
representation by the intermediary or agent on its behalf to USDA or 
the Agency in connection with the financial assistance awarded 
hereunder which is false, incomplete, or incorrect in any material 
respect.
    (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 or policymaking 
body) arising since the date of the Agency's award of assistance 
hereunder, which condition was an inducement to 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 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 
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.
    (ii) Ordinarily, life insurance, which may be decreasing term 
insurance, is required for the principals and key employees of the 
ultimate recipient funded from the IRP revolving fund and will be 
assigned or pledged to the intermediary and subsequently to the Agency. 
A schedule of life insurance available for the benefit of the loan will 
be included as part of the application.
    (iii) Workmen's compensation insurance on ultimate recipients is 
required in accordance with the State law.
    (iv) The intermediary is responsible for determining if an ultimate 
recipient funded from the IRP revolving fund is located in a special 
flood or mudslide hazard area anytime. If the ultimate recipient is in 
a flood or mudslide area, then flood or mudslide insurance must be 
provided in accordance with subpart B of part 1806 of this chapter 
(FmHA Instruction 426.2).
    (v) Intermediaries will provide fidelity bond coverage 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/or 
officials. The Agency may also require the intermediary to carry other 
appropriate insurance, such as public liability, workers compensation, 
and/or property damage.
    (A) The amount of fidelity bond coverage required by the Agency 
will normally approximate the total annual [[Page 3575]] debt service 
requirements for the Agency loans.
    (B) Form FmHA 440-24, ``Position Fidelity Schedule Bond 
Declarations,'' may be used. Similar forms may be used if determined 
acceptable to the Agency. Other types of coverage may be considered 
acceptable if it is determined by the Agency that they fulfill 
essentially the same purpose as a fidelity bond.
    (C) Intermediaries must provide evidence of adequate fidelity bond 
and other appropriate insurance coverage by loan closing. Adequate 
coverage in accordance with this section must then be maintained for 
the life of the loan. It is the responsibility of the intermediary and 
not that of the Agency to assure and provide evidence that adequate 
coverage is maintained. This may consist of a listing of policies and 
coverage amounts in annual reports required by paragraph (b)(4) of this 
section or other documentation.
    (8) Authority to operate. The loan agreement will provide that the 
intermediary has permission and authority to collect on all notes given 
to it, service all loans it makes, and manage the relending program as 
if the Agency had not taken assignments on security pledged by ultimate 
recipients. It is the responsibility of the intermediary to make and 
service loans to ultimate recipients in such a manner that will fully 
protect the interests of the intermediary and the Government. After an 
event of default by the intermediary, the Agency may terminate this 
permission and authority by providing the intermediary with written 
notice.
    (9) That if any part of the loan has not been used in accordance 
with the intermediary's work plan by a date 3 years from the date of 
the loan agreement, the Agency may cancel the approval of any funds not 
yet delivered to the intermediary and demand the return, as an extra 
payment on the loan, any funds delivered to the intermediary that have 
not been used by the intermediary in accordance with the work plan. The 
Agency, at its sole discretion, may allow the intermediary additional 
time to use the loan funds by delaying cancellation of the funds by not 
more than 3 additional years. If any loan funds have not been used by 6 
years from the date of the loan agreement, the approval will be 
cancelled of any funds that have not been delivered to the intermediary 
and the intermediary will return, as an extra payment on the loan, any 
funds it has received and not used in accordance with the work plan. In 
accordance with Form FmHA 1948-3, ``Intermediary Relending Program 
Promissory Note,'' regular loan payments will be based on the amount of 
funds actually drawn by the intermediary.
    (b) The intermediary will agree:
    (1) Not to make any changes in the intermediary's articles of 
incorporation, charter, or by-laws without the concurrence of the 
Agency.
    (2) Not to 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) To maintain a separate ledger and segregated account for the 
IRP revolving fund.
    (4) To Agency reporting requirements by providing:
    (i) An annual audit.
    (A) Dates of audit report period need not necessarily coincide with 
other reports on the IRP. Audits shall be due 90 days following the 
audit period. Audits must cover all of the intermediary's activities. 
Audits will be performed by an independent certified public accountant 
or by an independent public accountant licensed and certified on or 
before December 31, 1970, by a regulatory authority of a State or other 
political subdivision of the United States. An acceptable audit will be 
performed in accordance with generally accepted Government auditing 
standards 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. The Agency does not require an 
unqualified audit opinion as a result of the audit. 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, the audit 
work should be done in connection with these audits. Intermediaries 
covered by OMB Circular A-128 or A-133 should submit audits made in 
accordance with those circulars.
    (ii) Quarterly reports (due 30 days after the end of the period).
    (A) The Agency at its option may change this requirement to 
semiannual reports. These reports shall contain information only on the 
IRP revolving loan fund, or if other funds are included, the IRP loan 
program portion shall be segregated from the others; and in the case 
where the intermediary has more than one IRP loan from the Agency a 
separate report shall be made for each of these IRP loans unless the 
Agency has given permission for the IRP revolving funds to be combined.
    (B) The reports will include Form FmHA 1951-4, ``Report of IRP/RDLF 
Lending Activity.'' This report will include information on the 
intermediary's lending activity, income and expenses, and financial 
condition and a summary of names and characteristics of the ultimate 
recipients the intermediary has financed.
    (iii) Annual proposed budget for the following year.
    (iv) Other reports as the Agency may require from time to time.
    (5) Before the first relending of Agency funds to an ultimate 
recipient, to obtain written Agency approval of:
    (i) All forms to be used for relending purposes, including 
application forms, loan agreements, promissory notes, and security 
instruments.
    (ii) Intermediary's policy with regard to the amount and form of 
security to be required.
    (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, 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 
workplan approved by the Agency so long as any portion of the 
intermediary's IRP loan is outstanding.
    (7) To secure the indebtedness by pledging its portfolio of 
investments derived from the proceeds of the loan award, including 
providing assignments to the Agency of security pledged by ultimate 
recipients including the promissory notes of ultimate recipients and 
transferring possession to the Agency of promissory notes given by 
ultimate recipients, and/or pledging its real and personal property, 
and other rights and interests as the Agency may require.
    (8) To provide additional security and execute any additional lien 
instruments as the Agency may require at any time during the term of 
the loan if, after review and monitoring, an assessment indicates the 
need for such security to protect the Government's interest.


Secs. 1948.119-1948.121  [Reserved]


Sec. 1948.122  Application.

    (a) An application will consist of:
    (1) Form FmHA 1948-1, ``Application for Loan (Intermediary 
Relending Program).''
    (2) A written work plan and other evidence the Agency requires to 
[[Page 3576]] demonstrate the feasibility of the intermediary's program 
to meet the objectives of this program. The plan must, at a minimum:
    (i) Document the intermediary's ability to administer an IRP in 
accordance with the provisions of this subpart. In order to adequately 
demonstrate the ability to administer the program, the intermediary 
must provide a complete listing of all personnel responsible for 
administering this program along with a statement of their 
qualifications and experience. The personnel may be either members or 
employees of the intermediary's organization or contract personnel 
hired for this purpose. If the personnel are to be contracted for, the 
contract between the intermediary and the entity providing such service 
will be submitted for Agency review and the terms of the contract and 
its duration must be sufficient to adequately service the Agency loan 
through to its ultimate conclusion. If the Agency determines the 
personnel lack the necessary expertise to administer the program, the 
loan request will not be approved.
    (ii) Document the intermediary's ability to commit financial 
resources under the control of the intermediary to the establishment of 
an IRP. This should include a statement of the source(s) of non-Agency 
funds for administration of the the intermediary's operations and 
financial assistance for projects.
    (iii) Demonstrate a need for loan funds. As a minimum, the 
intermediary should identify a sufficient number of proposed and known 
ultimate recipients it has on hand to justify Agency funding of its 
loan request.
    (iv) Include a list of proposed fees and other charges it will 
assess the ultimate recipients it funds.
    (v) Demonstrate to Agency satisfaction that the intermediary has 
secured commitments of significant financial support from public 
agencies and private organizations.
    (vi) Provide evidence to Agency satisfaction that the intermediary 
has a proven record of obtaining private and/or philanthropic funds for 
the operation of similar programs to the one contained in this subpart.
    (vii) Include the intermediary's plan (specific loan purposes) for 
relending the loan funds. The plan must be of sufficient detail 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. The service area, eligibility 
criteria, loan purposes, fees, rates, terms, collateral requirements, 
limits, priorities, application process, method of disposition of the 
funds to the ultimate recipient, monitoring of the ultimate recipient's 
accomplishments, and reporting requirements by the ultimate recipient's 
management are some of the items that must be addressed by the 
intermediary's relending plan.
    (3) Form FmHA 1940-20 for all projects positively identified as 
proposed ultimate recipient loans that are Class I or Class II actions 
under subpart G of part 1940 of this chapter.
    (4) Comments from the State single point of contact, if the State 
has elected to review the program under Executive Order 12372.
    (5) A pro forma balance sheet at start-up and for at least 3 
additional projected years; financial statements for the last 3 years, 
or from inception of the operations of the intermediary if less than 3 
years; and projected cash flow and earnings statements for at least 3 
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 fund only 
and a separate set of projections that shows the proposed intermediary 
organization's total operations. Also, if principal repayment on the 
IRP loan will not be scheduled during the first 3 years, the 
projections for the IRP revolving fund must extend to include a year 
with a full annual installment on the IRP loan.
    (6) A written agreement will be signed by the intermediary to 
assure that there is not misunderstanding concerning Agency audit 
requirements.
    (7) Form FmHA 400-4, ``Assurance Agreement.''
    (8) Complete organizational documents, including evidence of 
authority to conduct the proposed activities.
    (9) Evidence that the loan is not available at reasonable rates and 
terms from private sources or other Federal, State, or local programs.
    (10) Latest audit report, if available.
    (11) Form FmHA 1910-11, ``Applicant Certification Federal 
Collection Policies for Consumer or Commercial Debts.''
    (12) Form AD-1047, ``Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transactions.''
    (13) Exhibit A-1 of FmHA Instruction 1940-Q.
    (b) Applications from intermediaries that already have an active 
IRP loan may be streamlined as follows:
    (1) The material required by paragraphs (a)(6), (a)(8), and (a)(10) 
of this section may be omitted.
    (2) A statement that the new loan would be operated in accordance 
with the work plan on file for the previous loan may be submitted in 
lieu of a new work plan.
    (3) The financial information required by paragraph (a)(5) of this 
section may be limited to projections for the proposed new IRP 
revolving loan fund.


Sec. 1948.123   Filing and processing applications for loans.

    (a) Intermediaries' contact. Intermediaries desiring the assistance 
in this subpart may file applications with the State Office for the 
State in which the intermediary's headquarters is located. 
Intermediaries headquartered in the District of Columbia may file the 
application with the National Office, B&I Division, Washington, DC 
20250-3221.
    (b) Filing applications. Intermediaries must file the complete 
application, in one package. Applications received by the Agency will 
be reviewed and ranked quarterly and funded in the order of priority 
ranking. The Agency will retain unsuccessful applications for 
consideration in subsequent reviews, through a total of four quarterly 
reviews.
    (c) Loan priorities. Priority consideration will be given to 
proposed intermediaries based on the following factors. 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. The points awarded will 
be as specified in paragraphs (c)(1) through (c)(6) of this section. If 
an application does not fit one of the categories listed, it receives 
no points for that paragraph or subparagraph.
    (1) Other funds. Points allowed under this paragraph should be 
based on documented successful history or written evidence that the 
funds are available.
    (i) The intermediary will obtain non-Federal loan or grant funds to 
pay part of the cost of the ultimate recipients' projects. The amount 
of funds from other sources will average:
    (A) At least 10% but less than 25% of the total project cost--10 
points.
    (B) At least 25% but less than 50% of the total project cost--20 
points.
    (C) 50% or more of the total project cost--30 points.
    (ii) The intermediary will provide loans to the ultimate recipient 
from its own funds (not loan or grant) to pay part of the costs of the 
ultimate recipients' [[Page 3577]] projects. The amount of non-Agency 
derived intermediary funds will average:
    (A) At least 10% but less than 25% of the total project costs--10 
points.
    (B) At least 25% but less than 50% of total project costs--20 
points.
    (C) 50% or more of total project costs--30 points.
    (2) Employment. For computations under this paragraph, income data 
should be from the latest decennial census of the United States, 
updated according to changes in consumer price index (CPIU). 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)). Unemployment 
data used will be that published by the Bureau of Labor Statistics, 
U.S. Department of Labor.
    (i) The median household income in the service area of the proposed 
intermediary equals the following percentage of the poverty line for a 
family of four:
    (A) At least 150% but not more than 175%--5 points.
    (B) At least 125% but less than 150%--10 points.
    (C) Below 125%--15 points.
    (ii) The intermediary certifies that the following percentage of 
the loans it makes from Agency IRP loan funds will be in counties with 
median household income below 80 percent of the statewide non-
metropolitan median household income. (To receive priority points under 
this category, the intermediary must provide a list of counties in the 
service area that have qualifying income.)
    (A) At least 50% but less than 75%--5 points.
    (B) At least 75% but less than 100%--10 points.
    (C) 100%--15 points.
    (iii) The unemployment rate in the intermediary's service area 
equals the following percentage of the national unemployment rate:
    (A) At least 100% but less than 125%--5 points.
    (B) At least 125% but less 150%--10 points.
    (C) 150% or more--15 points.
    (iv) The intermediary will require, as a condition of eligibility 
for a loan to an ultimate recipient from Agency IRP loan funds, that 
the ultimate recipient certify in writing that it will employ the 
following percentage of its workforce from members of families with 
income below the poverty line.
    (A) At least 10% but less than 20% of the workforce--5 points.
    (B) At least 20% but less than 30% of the workforce--10 points.
    (C) 30% of the workforce or more--15 points.
    (v) The intermediary has a demonstrated record of providing 
assistance to members of underrepresented groups, has a realistic plan 
for targeting loans to members of underrepresented groups, and, based 
on the intermediary's record and plans, it is expected that the 
following percentages of its loans made from Agency IRP loan funds will 
be made to entities owned by members of underrepresented groups.
    (A) At least 10% but less than 20%--5 points.
    (B) At least 20% but less than 30%--10 points.
    (C) 30% or more--15 points.
    (3) Intermediary contribution. All assets of the IRP revolving fund 
will serve as security for the IRP loan and the intermediary will 
contribute funds not derived from the Agency into the IRP revolving 
fund along with the proceeds of the IRP loan. The amount of non-Agency 
derived funds contributed to the IRP revolving fund will equal the 
following percentage of the Agency IRP loan:
    (i) At least 5% but less than 15%--15 points.
    (ii) At least 15% but less than 25%--30 points.
    (iii) 25% or more--50 points.
    (4) Experience. The intermediary has actual experience in making 
and servicing commercial loans, with a successful record, for the 
following number of full years:
    (i) At least 1 but less than 3 years--5 points.
    (ii) At least 3 but less than 5 years--10 points.
    (iii) At least 5 but less than 10 years--20 points.
    (iv) 10 or more years--30 points.
    (5) Community representation. The service area is not more than 10 
counties and the intermediary utilizes local opinions and experience by 
including community representatives on its board of directors or 
equivalent oversight board. For purposes of this section, community 
representatives are people, such as civic leaders, business 
representatives, or bankers, who reside in the service area and are not 
employees of the intermediary.
    (i) At least 10% but less than 40% of the board members are 
community representatives--5 points.
    (ii) At least 40% but less than 75% of the board members are 
community representatives--10 points.
    (iii) At least 75% of the board members are community 
representatives--15 points.
    (6) Administrative. The Administrator may assign up to 35 
additional points to an application to account for items not adequately 
covered by the other priority criteria set out in this section. Such 
items may include, but are not limited to, a particularly successful 
business development record, a service area with no other IRP coverage, 
a service area with severe economic problems, a service area with 
emergency conditions caused by a natural disaster or loss of a major 
industry, or excellent utilization of a previous IRP loan.


Sec. 1948.124  [Reserved]


Sec. 1948.125  Letter of conditions.

    If the Agency is able to provide the loan, it will provide the 
intermediary a letter of conditions listing all requirements for such 
loan. Immediately after reviewing the conditions and requirements in 
the letter of conditions, the intermediary should complete, sign and 
return the Form FmHA 1942-46, ``Letter of Intent To Meet Conditions,'' 
to the Agency. If certain conditions cannot be met, the borrower may 
propose alternate conditions to the Agency. The Agency loan approval 
official must concur with any changes made to the initially issued or 
proposed letter of conditions.


Sec. 1948.126  Loan approval and obligating funds.

    The loan will be considered approved on the date the signed copy of 
Form FmHA 1940-1 is mailed to the intermediary. The approving official 
may request an obligation of funds when available and according to the 
following:
    (a) Form FmHA 1940-1, authorizing funds to be reserved, may be 
executed by the loan approving official providing the intermediary has 
the legal authority to contract for a loan, and to enter into required 
agreements and has signed Form FmHA 1940-1.
    (b) An obligation of funds established for an intermediary may be 
transferred 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 purpose(s) for 
which Agency IRP loan funds will be used remain substantially 
unchanged.


Sec. 1948.127  Loan closing.

    (a) At loan closing, the intermediary must certify to the 
following:
    (1) No major changes have been made in the work plan except those 
approved in the interim by the Agency. [[Page 3578]] 
    (2) All requirements of the letter of conditions have been met.
    (3) There has been no material adverse change in the intermediary 
nor its financial condition since the issuance of the letter of 
conditions. If there have been adverse changes, they must be explained. 
The adverse changes may be waived, at the sole discretion of the 
Agency. Financial data must not be more than 60 days old at loan 
closing.
    (b) Agency personnel shall not sign any documents other than those 
specifically provided for in this subpart.
    (c) The processing officer will review any requests for changes to 
the letter of conditions. The processing officer will approve only 
minor changes which do not materially affect the project, its capacity, 
employment, original projections, or credit factors. Changes in legal 
entities or where tax consideration are the reason for change will not 
be approved.
    (d) At loan closing the intermediary will provide sufficient 
evidence to enable Agency to ascertain that no claim or liens of 
laborers, materialmen, contractors, subcontractors, suppliers of 
machinery and equipment, or other parties are 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.


Sec. 1948.128  Requests to make loans to ultimate recipients.

    (a) When an intermediary proposes to use Agency IRP loan funds to 
make a loan to an ultimate recipient, and prior to final approval of 
such loan, the intermediary must submit the following material to the 
Agency:
    (1) A request for Agency concurrence in approval of the proposed 
loan.
    (2) Certification by the intermediary that:
    (i) The proposed ultimate recipient is eligible for the loan.
    (ii) The proposed loan is for eligible purposes.
    (iii) The proposed loan complies with all applicable statutes and 
regulations.
    (iv) 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.
    (v) 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.
    (3) For projects that meet the criteria for a Class I or Class II 
environmental assessment or environmental impact statement as provided 
in subpart G of part 1940 of this chapter, a completed and executed 
Form FmHA 1940-20.
    (4) All comments obtained in accordance with Sec. 1948.117 (a) of 
this subpart, regarding intergovernmental consultation.
    (5) Copies of sufficient material from the ultimate recipient's 
application and the intermediary's related files, to allow the Agency 
to determine:
    (i) The name and address of the ultimate recipient.
    (ii) The loan purposes.
    (iii) The interest rate and term.
    (iv) The location, nature, and scope of the project being financed.
    (v) The other funding included in the project.
    (vi) The nature and lien priority of the collateral.
    (6) Such other information as the Agency may request on specific 
cases.
    (b) Upon receipt of a request for concurrence in a loan to an 
ultimate recipient from Agency IRP loan funds the Agency will:
    (1) Review the material required by paragraph (a) of this section 
for completeness and compliance with regulations.
    (2) Complete an environmental review in accordance with subpart G 
of part 1940 of this chapter, including public notice requirements and 
provisions for mitigation measures as appropriate. This review will be 
conducted by the Agency in the same manner it would be conducted if the 
Agency were considering a direct loan to the ultimate recipient. The 
results of the environmental review will be used by the Agency in 
making its decision on the request for loan concurrence.
    (3) Consider any comments received through the intergovernmental 
consultation process. Prior to the Agency's decision on loan 
concurrence, compliance with the requirements of intergovernmental 
consultation in accordance with FmHA Instruction 1940-J must be 
demonstrated.
    (4) When all requirements have been met, issue a letter concurring 
in the loan.
    (5) If the Agency determines it is unable to concur in the loan, 
the intermediary will be notified in writing, given the reasons for 
denial, and informed of its rights for review and appeal in accordance 
with subpart B of part 1900 of this chapter.


Secs. 1948.129-1948.142  [Reserved]


Sec. 1948.143  Appeals.

    Any appealable adverse decision made by the Agency which affects 
the intermediary may be appealed upon written request of the aggrieved 
party in accordance with subpart B of part 1900 of this chapter.


Secs. 1948.144-1948.147  [Reserved]


Sec. 1948.148  Exception authority.

    The Administrator may in individual cases grant an exception to any 
requirement or provision of this subpart which is not inconsistent with 
an applicable law or opinion of the Comptroller General, provided the 
Administrator determines that application of the requirement or 
provision would adversely affect the Government's interest. The basis 
for this exception will be fully documented. The documentation will: 
Demonstrate the adverse impact; identify the particular requirement 
involved; and show how the adverse impact will be eliminated.


Sec. 1948.149  [Reserved]


Sec. 1948.150  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 0575-0130. Public reporting 
burden for this collection of information is estimated to vary from 1 
to 120 hours per response, with an average of 12 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. 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# 0575-0130), Washington, DC 20503.

PART 1951--SERVICING AND COLLECTIONS

    3. The authority citation for part 1951 continues to read as 
follows:

    Authority: 7 U.S.C. 1989; 7 U.S.C. 1932 Note; 42 U.S.C. 1480; 5 
U.S.C. 301; 7 C.F.R. 2.23 and 2.70.

Subpart R--Rural Development Loan Servicing

    4. Section 1951.853 is amended by revising paragraph (b)(2)(ix) to 
read as follows: [[Page 3579]] 


Sec. 1951.853  Loan purposes for undisbursed RDLF loan funds from HHS.

* * * * *
    (b) * * *
    (2) * * *
    (ix) Reasonable fees and charges only as specifically listed in 
this subparagraph. Authorized fees include loan packaging fees, 
environmental data collection fees, and other professional fees 
rendered by professionals generally licensed by individual State or 
accreditation associations, such as Engineers, Architects, Lawyers, 
Accountants, and Appraisers. The amount of fee will be what is 
reasonable and customary in the community or region where the project 
is located. Any such fees are to be fully documented and justified.
* * * * *
    Dated: December 9, 1994.
Bob J. Nash,
Under Secretary, Rural Economic and Community Development.
[FR Doc. 95-1193 Filed 1-17-95; 8:45 am]
BILLING CODE 3410-32-U