[Federal Register Volume 61, Number 247 (Monday, December 23, 1996)]
[Rules and Regulations]
[Pages 67624-67654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32170]
[[Page 67623]]
_______________________________________________________________________
Part III
Department of Agriculture
_______________________________________________________________________
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
_______________________________________________________________________
7 CFR Part 1980, et al.
Business and Industrial Loan Program; Final Rule
Federal Register / Vol. 61, No. 247 / Monday, December 23, 1996 /
Rules and Regulations
[[Page 67624]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
7 CFR Parts 1980, 4279 and 4287
RIN 0570-AA09
Business and Industrial Loan Program
AGENCIES: Rural Housing Service (RHS), Rural Business-Cooperative
Service (RBS), Rural Utilities Service (RUS), and Farm Service Agency
(FSA), USDA.
ACTION: Final rule.
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SUMMARY: The Rural Business-Cooperative Service (RBS) is the successor
to the Rural Business and Cooperative Development Service, which was
the successor to the Rural Development Administration (RDA), which was
the successor to the Farmers Home Administration (FmHA).
RBS is issuing new Business and Industry (B&I) Guaranteed Loan
Program regulations to replace the FmHA regulations for the program.
This action is needed to streamline and update the program. The
intended effect is to shorten, simplify, and clarify the regulation;
shift some responsibility for loan documentation and analysis from the
Agency to the lenders; make the program more responsive to the needs of
lenders and businesses; and provide for smoother and faster processing
of applications.
EFFECTIVE DATE: December 23, 1996.
FOR FURTHER INFORMATION CONTACT: Dwight A. Carmon, Business Programs
Processing Division Director, RBS, U.S. Department of Agriculture, Stop
3221, 1400 Independence Avenue, SW., Washington, DC 20250-3221,
Telephone (202) 690-4100.
SUPPLEMENTARY INFORMATION:
Classification
This final rule has been determined to be a ``significant
regulatory action'' and was reviewed by OMB under Executive Order
12866.
Programs Affected
The Catalog of Federal Domestic Assistance program impacted by
this action is: 10.768, Business and Industrial Loans.
Intergovernmental Review
As set forth in the final rule related Notice to 7 CFR, part 3015,
subpart V, 48 FR 29112, June 24, 1983, Business and Industry
(previously ``Industrial'') Loans are subject to the provisions of
Executive Order 12372 which requires intergovernmental consultation
with state and local officials. RBS has conducted intergovernmental
consultation in the manner delineated in FmHA Instruction 1940-J,
``Intergovernmental Review of Farmers Home Administration Programs and
Activities.''
Civil Justice Reform
The final rule has been reviewed under Executive Order 12778, Civil
Justice Reform. In accordance with this rule: (1) All state and local
laws and regulations that are in conflict with this rule will be
preempted; (2) no retroactive effect will be given to this rule; and
(3) administrative proceedings in accordance with the regulations of
the Agency at 7 CFR, part 11 must be exhausted before bringing suit in
court challenging action taken under this rule.
Environmental Impact Statement
The action has been reviewed in accordance with 7 CFR, part 1940,
subpart G, ``Environmental Program.'' RBS has 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.
Unfunded Mandate Reform Act of 1995
Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under section 202 of the UMRA, RBS
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``Federal mandates'' that
may result in expenditures to State, local or tribal governments, in
the aggregate, or to the private sector, of $100 million or more in any
1 year. When such a statement is needed for a rule, section 205 of the
UMRA generally requires RBS to identify and consider a reasonable
number of regulatory alternatives and adopt the least costly, more
cost-effective, or least burdensome alternative that achieves the
objectives or the rule.
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local and tribal
governments or the private sector. Thus today's rule is not subject to
the requirements of sections 202 and 205 of the UMRA.
Background
This action replaces the Business and Industrial (B&I) loan program
regulations at 7 CFR, part 1980, with regulations published at 7 CFR,
parts 4279 and 4287, and significantly departs from the previous
program of loan guarantees for businesses in rural areas. The new
Business and Industrial Guaranteed Loan Program will be more flexible
and will place more reliance on lenders. There are fewer specific
requirements for lenders and businesses. Eligible loan purposes are
broader. The lender has added responsibility for analyzing credit
quality; for making, securing, and servicing the loan; and monitoring
construction. The priority system will give increased priority to
underserved communities. Application processing procedures will be more
efficient, less burdensome for borrowers, lenders, and RBS staff and
will provide for more rapid decisions in making, servicing, and
liquidating loans.
The B&I loan program is authorized by the Rural Development Act of
1972. The loans are made by private lenders to rural businesses for the
purpose of creating new businesses, expanding existing businesses, and
for other purposes that create employment opportunities in rural areas.
Eligibility for this program includes businesses located in cities of
up to 50,000 population, but priority is given to areas outside cities
of 25,000 or fewer population.
Loans can be made for a variety of purposes including business
acquisition, expansion, or improvement; purchase of land, easements, or
buildings; purchase of equipment, machinery, or supplies; repair and
modernization; pollution control; transportation services; start up and
working capital; and feasibility studies. The rate and term of the loan
is negotiated between the business and the lender.
The Agency is promulgating these regulations to make the program
more usable by lenders and borrowers. More importantly, the Agency
recognizes the changes are necessary to make the program more effective
in creating jobs and stimulating economic activity, particularly in
chronically low income rural areas. Under these B&I regulations, the
material that must be submitted to and reviewed by the Agency before
approval of the guarantee is reduced and responsibilities for credit
analysis and application processing tasks will be shifted from the
Agency's National Office to field offices and from the Agency to the
lender where feasible.
[[Page 67625]]
Following is a discussion of some of the most significant policy
revisions included in the new regulations.
Automatic eligibility to be a lender under the program is limited
to certain types of organizations. This regulation allows the Agency to
approve additional lenders when they are determined by the Agency to
have sufficient legal authority, lending expertise, and financial
strength. Currently, most lenders participating in the B&I program are
commercial banks.
The Agency is reducing the loan guarantee fee if it is determined
that the business seeking the guarantee provides high impact business
development and is located in a community experiencing long term
population decline and job deterioration, a community that has remained
persistently poor over the past 60 years, or a community experiencing
economic trauma due to natural disaster or fundamental economic
structural change. The intent of this provision is to encourage
businesses to locate in areas with persistent economic problems.
During the preparation of this rule, it was proposed that loans
could be guaranteed to businesses with a majority ownership by a
foreign entity. During the comment period, no one responded to the
proposed rule concerning this issue. Because of uncertainty of how this
provision may relate to the provisions of the Welfare Reform Act, the
Agency has determined to remove this provision so as to provide an
opportunity to further examine this relationship. This will avoid a
delay in implementation of this rule that could be caused by conducting
a potentially lengthy investigation.
Presently, agricultural-production loans are not eligible for B&I
guarantees. This new regulation will allow guarantees for agricultural
production, but limit eligibility to integrated businesses involved in
both production and processing.
Previous regulations would not allow a lender to bring loans it had
previously made under a guarantee through refinancing unless the
percentage of guarantee was adjusted to maintain the previous
unguaranteed exposure. The new regulations will allow the previous
exposure to be guaranteed, provided the refinancing is a secondary part
of the loan and the rates and terms will be restructured to improve
cash flow.
Eligible loan purposes are expanded to include hotels, motels, and
other tourism and recreational facilities which have been ineligible
for the past several years. Loans for such facilities will be evaluated
on the merits and financial feasibility of each proposal, except for
racetracks, golf courses, and gambling facilities which will remain
ineligible.
Previous regulations limited the size of loans considered for
guarantee to $10 million. The new regulations will give the
Administrator the authority to approve exceptions to the $10 million
ceiling for high-priority projects of up to $25 million. The
regulations limit the guarantee percentage to 80 percent for loans of
$5 million or less, 70 percent for loans between $5 million and $10
million, and 60 percent for loans exceeding $10 million. Authority is
provided for the Administrator to approve exceptions so that up to 90-
percent of loans of $10 million may be guaranteed when the higher
percentage is necessary to approve a high-priority project as specified
in the regulation. The State Director has the authority to approve
exceptions so that up to a 90 percent guarantee may be approved for
loans of up to $2 million (within the State Director's loan approval
authority) when the higher percentage is necessary to approve a high-
priority project.
In conjunction with implementation of the new regulations, the
Agency intends to provide a new application form that will serve the
function of 10 forms now in use. The application form will be
supplemented by additional information provided by the lender.
The regulations provide for certain experienced lenders to apply
for status as certified lenders. Certified lenders will submit
significantly less information for Agency review as regular lenders.
Agency staff will be authorized to rely on an acceptable written
credit analysis prepared by the lender rather than the Agency
completing its own complete credit analysis.
Usually, the lender will determine the frequency of financial
statements to be required from the business after the loan is closed
and whether or not the statements must be audited.
The lender and its legal counsel will be responsible for loan
closing without a required review by the Office of the General Counsel.
Loan servicing is simplified. Loans will be classified by the
lender. Lenders will be able to release collateral with a cumulative
value of up to 20 percent of the original loan amount, over the life of
the loan, if the proceeds will be used to reduce the loan amount due or
buy replacement collateral. Lenders may make protective advances of up
to $5,000 without prior Agency approval. If unsecured personal or
corporate guarantees cannot be settled promptly, a final loss report
may be filed and paid and the guarantees treated as future recovery.
RBS believes the streamlining of the regulations for this program
will enhance the use of the program's effect by improving the
prosperity of rural residents through guarantees of targeted
investments that enhance rural competitiveness, facilitate industrial
conversion, and enable rural residents to profit from private sector
activity. The revisions are consistent with the Administration's
efforts to streamline Government functions, improve efficiency and the
effectiveness of Government activities, and be more customer friendly.
The changes will enable the Agency to deliver a larger program with
less staff resources and simultaneously meet the objectives of the
National Performance Review concerning the Regulatory Reinvention
Initiative dated March 4, 1995, as related to the President's
initiative to improve customer service, provide for less regulations,
and streamline Agency operations.
Incorporation of the changes will provide more flexibility for both
lenders and Agency staff. Many errors will be reduced because the
guidelines and requirements are clearer and items are more easily found
in a reduced and better organized volume of regulations. Lenders will
be more interested in using the program because the procedures are
simpler and more direct. The ultimate benefit of these changes will be
increased lending activity resulting in the expansion of business
opportunities and the creation of more jobs in rural areas,
particularly in those areas that have historically experienced economic
distress.
Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995, no persons are required
to respond to a collection of information unless it displays a valid
OMB control number. The valid OMB control number assigned to the
collection of information in these final regulations is displayed at
the end of the affected section of the regulations. The information
collection requirements contained in this regulation have been approved
by the Office of Management and Budget (OMB) under the provisions of 44
U.S.C. chapter 35 and have been assigned OMB control numbers 0575-0168,
0575-0170, 0575-0171, 0575-0029, and 0575-0024 and in accordance with
the Paperwork Reduction Act of 1995. This final rule does not impose
any new information collection requirements from those approved by OMB.
1996 Farm Bill Initiatives
The Federal Agriculture Improvement and Reform Act of 1996 (Pub. L.
104-
[[Page 67626]]
127) requires the Agency to include language in the B&I regulations
that will expand eligible loan purposes to allow the purchase of
startup capital stock in a cooperative to allow family-sized farmers be
eligible if selling their products to the cooperative. The definition
of a family-sized farmer will be the same as used by the Farm Service
Agency (FSA).
In addition, the Agency will include language to allow B&I loan
guarantees to assist agriculture-related industries adjusting to the
terminated Federal agricultural programs or increased competition from
foreign competitors.
Discussion of Revision and Comments
The proposed rule was published in the Federal Register on February
2, 1996 (61 FR 3853), and provided for a comment period ending April 2,
1996.
In response to the proposed rule, 86 respondents provided comments
to the Agency. Of the 86 comments, 18 comments were considered late
because they were received after April 2, 1996. However, the Agency
reviewed and addressed all issues raised by all of the comments.
Of the 86 commenters that responded to various sections of the
proposed rule, 34 were lenders, mortgagors or related to the lending
industry, 15 were Agency employees, 7 were various Government
officials, 5 were housing authorities, chambers of commerce or planning
commissions, 1 was a railroad association, 2 or more businesses, 2
cooperatives, and the remaining were a combination of council members
and others.
Of the 86 respondents, 24 respondents provided general comments
supporting the regulation. Several respondents provided editorial
changes that indicated a personal preference which were not adopted.
These changes included changes in sentence structure, wording, etc.,
that do not improve the regulation.
The Agency requested comments from the public concerning the
paperwork burden of the streamlined regulations and the loan priority
system. Several respondents responded favorably to the changes,
supporting the reduction in the paperwork, the streamlining of the
regulations, moving more of the credit decisions to the lender, and
increasing the enterprises that would be eligible under these
streamlined regulations. Five comments suggested the proposed loan
priority system is too complicated, time consuming, and difficult to
explain to potential customers. The commenters further suggested that
the criteria are too subjective, vague, difficult as a tool of
measurement, and should be revised. The priority system has been
modified to be more user friendly, however, the integrity of the system
still meets the goal of reaching high-impact areas.
Of the 86 respondents, 45 respondents provided comments on
Sec. 4279.113, ``Eligible loan purposes,'' and Sec. 4279.114,
``Ineligible loan purposes.'' Of the 45 respondents, 20 respondents
were in favor of recreation and tourism and agricultural production as
eligible loan purposes. There were no adverse comments concerning
recreation and tourism. One of the respondents in favor of recreation
and tourism suggested that the Agency require a minimum of 25-35
percent tangible balance sheet equity because of the risk involved with
these types of businesses. This comment was not adopted. The Agency
feels that the regulations (Sec. 4279.131(d)) sufficiently address this
concern.
Another respondent felt that agricultural production as defined
under Sec. 4279.113(h)(2) should be expanded to allow the agricultural-
production portion of any loan up to 50 percent of the total loan and
that the Agency should not restrict it to integrated processing. This
suggestion was not adopted. The Agency feels that to adopt such a broad
change in the coverage of agricultural production without processing
would result in the Agency competing with other farm lender
organizations.
One respondent felt that the guaranteed mortgage should be exempt
from taxes like the FSA programs. Congress and the Internal Revenue
Service control tax questions. The Agency has no authority to implement
this proposal.
One respondent is in favor of racetracks and gambling being
included as eligible loan purposes. Under Sec. 4279.114(h), the Agency
does not allow any business that derives more than 10 percent of annual
gross revenue from gambling activities to be included as an eligible
purpose. The Agency will not adopt the proposed change. Gambling is not
a high priority loan purpose. Racetracks will continue to be an
ineligible loan purpose as noted under Sec. 4279.114(g) because
professional racetracks are not a high priority loan purpose. However,
slicktracks and related amusement park entertainment, in which a
participant is not receiving a cash award exceeding $500 for
performance, will be considered eligible under the guaranteed loan
program covered in Sec. 4279.113(u).
Several respondents recommended that golf courses be an eligible
loan purpose. This program is intended to provide long-term economic
development to all segments of rural area populations. It has not been
demonstrated that golf courses would provide the benefits intended.
Therefore, the Agency will not adopt the recommendation to allow golf
courses to be an eligible loan purpose.
Several respondents recommended that Sec. 4279.114(n) be revised to
allow multiple-family housing and residential housing. The Agency
agrees and has adopted this change to allow all housing to be an
eligible loan purpose, except guaranteed funds being used for owner-
occupied housing or any types of projects that would be eligible for
the Rural Rental Housing and Rural Cooperative Housing loans under
Sections 515, 521 and 538 of the Housing Act of 1949, as amended.
Mobile home parks are considered eligible under this section.
One respondent recommended that the Agency revise the definition of
a rural area under Sec. 4279.108(c) to allow guaranteed funds to be
utilized in urban areas which are not presently allowed under the
current definition. The statutory authority prohibits a broader
definition.
Several respondents suggested that Sec. 4279.113(q), debt
refinancing, be revised to eliminate the requirement in the proposed
rule that the existing lender debt being refinanced only be a secondary
part of the overall loan. It was also suggested that the Agency include
language that would allow guaranteed funds to be offered on long-term
rates to customers just as freely as other bank customers. One
respondent recommended that the ``secondary part'' be defined as less
than 50 percent of the debt being refinanced. The Agency will provide
more clarification concerning ``secondary part'' adopting the 50
percent requirement. However, the other comment concerning long-term
rates being freely offered will not be adopted because the Agency wants
flexibility to match interest rates or loan term adjustments to the
individual loan.
One respondent suggested that Sec. 4279.113(r), Interim Financing,
be revised to allow the guaranteed lender to provide the appropriate
documentation by a credit memorandum that the intent of the lender was
that interim financing be considered as a take-out loan, and not to
making this request a part of the preapplication or application request
thereby reducing paperwork burden. This comment was not adopted because
the request is not considered to be an excessive paperwork burden. It
is a reasonable request for a credit review. The Agency feels that
proper documentation should be included as
[[Page 67627]]
part of the preapplication and application to support the justification
for using loan funds for this purpose.
One respondent asked for a clarification of Sec. 4279.113(u),
education and training, as an eligible loan purpose as compared to
Sec. 4279.114(d), prohibition of funding for charitable institutions,
churches, or church-controlled or fraternal organizations. Guarantees
for education and training would not be available to any charitable
institutions, churches, or church-controlled or fraternal organization,
either directly or indirectly, even without any religious affiliation.
The Agency has adopted the position that guaranteed funds will not be
utilized for the above organizations because they are not cash
generating business institutions.
One respondent stated facilities constructed for lease to
Government agencies, including USDA Rural Development, should be
eligible. This comment will not be adopted because such a guarantee
could lead to a perception of a conflict of interest.
One comment asked ``what determines not being eligible for Farm
Credit Programs'' under Sec. 4279.113(h). The Agency relies upon the
referenced regulations as published by the FSA concerning what
constitutes a customer not being eligible for farm credit programs.
One comment suggested that the Agency limit guaranteed funds for
housing-related loans due to the excessive demand that may be placed on
our funds in future years. This comment will not be adopted. The Agency
feels that the priority scoring system set up in the regulations will
limit funding for housing-related loans to a manageable level.
One respondent suggested that the definition under Sec. 4279.114(o)
be clarified to note that guaranteed funds are eligible for taxable
bond issues. The Agency will not adopt this comment because the
regulation is clear as currently written.
One respondent recommended that a ``line of credit'' be determined
as an eligible loan purpose under Sec. 4279.113. This change will not
be considered until further research can be concluded to determine the
actual need for a line of credit guarantee.
Twenty respondents provided comments on Sec. 4279.43, Certified
Lender Program (CLP). Four comments requested clarification whether the
CLP approval determination is made at the State or National level. The
intent of the regulation is that the State Office will be point of
approval.
Two comments suggested establishing a turnaround time for
application processing ranging from 3 to 20 working days. At this point
in time, no turnaround time is established but the comments will be
considered in our customer service activities.
A comment suggested the CLP designation be made available only to
active lenders, recognized in the area instead of in the State as a
commercial lender, who has made at least two B&I loans in the last 24
months. The lender who is recognized as a commercial lender in the area
will also meet the requirement of being recognized in the State as a
commercial lender. The intent of the regulation is to expand lender
participation; therefore, the suggestion of only issuing a CLP
designation to an active recognized lender is not adopted.
Two comments suggested the requirements to become a CLP lender be
waived for a lender already designated as a Small Business
Administration (SBA) Certified or FSA Approved or Certified lender. The
Agency will not adopt the proposed change because the requirements with
which the lender must comply for this program are, to some extent,
unique to this program.
Two comments were received concerning Agency funding reserves. One
was concerned that the CLP designation and the associated ability to
reserve funds for 30 days will defeat the priority scoring system since
a CLP lender with a low-priority project could reserve funds over a
non-CLP lender with a high-priority project. This is a valid concern.
Therefore, the rule has been changed to provide that there will be no
reservation of funds during the last 60 days of the fiscal year in an
effort to ensure full utilization of program funding authority. While
this solution may not entirely eliminate the comments' concern, it
should reduce the problem perceived, at least at the end of the year.
The other comment wanted to establish a mechanism to create and
operate a sufficiently funded National Reserve account to ensure
adequate funds are available when requested, especially in smaller
States. This concern will be addressed by a National Office reserve in
an amount of not less than 10 percent of the total yearly allocation.
A comment was made that the CLP feature should be eliminated
altogether because of the excessive paperwork, complexity of the
requirements, revocation of CLP status could appear to be onerous and
punitive in nature, and because use of the CLP designation would be
minimal due to lack of repeat lenders. This comment was not adopted
because the Agency believes that with sufficient safeguards, the
concept is workable.
A comment suggested that CLP lenders be required to repurchase
loans for servicing rather than having the ``option'' as is now the
case. The Agency does not wish to place such a requirement on CLP
lenders because the objective of the program is to improve customer
service and encourage use of the program.
A comment suggested Form 4279-2 be completed by the borrower not
the lender. The Agency is relying on the lender to process most aspects
of a loan. Therefore it is appropriate for the lender to complete and
submit the form.
A comment suggested basing the CLP designation on lender ratings
available from examiner reports instead of published guidelines. The
Agency did not adopt this suggestion because it believes the published
guidelines are sufficient to allow the Agency to decide which lenders
have requisite expertise to fulfill CLP responsibilities.
A comment asked (1) if lenders could utilize their forms instead of
Rural Development forms; and (2) whether approval authority is held by
the lender or the Agency. The Agency agrees. The lenders can utilize
their own forms as long as the form includes all of the information of
the approved Agency forms, is approved by the Regional OGC and State
Offices, and will not add additional burden to the public.
Fourteen respondents submitted comments on Sec. 4279.137, Financial
Statements. Nine of the comments were favorable. Two comments suggested
eliminating loan size as the overriding factor while two other comments
suggested different levels of CPA-developed statements based on loan
size. One comment suggested having the principals (and their financial
strength) provide a personal guarantee as the determining factor
regarding the loan threshold size audited statement requirement. The
Agency determines the application of this option on a case-by case-
basis due to individual circumstances. This section will remain the
same.
Nine respondents provided comments on Sec. 4279.155, Loan
priorities, that ranged from short statements of support to substantial
regulation rewrites. Five comments stated the proposed system is too
complicated, time consuming, and difficult to explain to potential
customers. The criteria are subjective, vague, difficult to determine,
complex, defy measurement or are overly exacting. The Agency considered
the concerns and the following sections were changed:
[[Page 67628]]
Section 4279.155(b)(1)(ii) was eliminated because, as suggested by
the comments, the language was unclear and the factors not measurable.
Sections 4279.155(b)(5)(i) (A) and (B) were eliminated because the
criteria requested was not measurable or not available. Sections
4279.155(b)(5)(i)(C) and (D) were changed to (A) and (B) because of the
elimination of the above items. These changes added clarity to this
section and will be more measureable in determining priority points.
The words ``potential to achieve'' were eliminated under the new (A),
and the points changed from 3 to 5 to place more weight on this
category. Under the new (B), the sentence was amended to end after the
word ``community'', deleting the balance of the sentence because the
information required was not measureable. The points in new (B) were
changed from 3 to 4 to place more weight on the category.
Section 4279.155(b)(5)(ii)(A) revises the sentence to end after the
word ``prices''. This change provided more clarity to the sentence, and
the points were reduced from 3 to 2 to place less weight on this
category because of the criteria measured.
Section 4279.155(b)(5)(ii)(B) is changed to eliminate the words
``has a significant potential to stimulate the development of a broader
complex of business activities that provide inputs to or serve as the
market for the initial business''. The words ``provides an additional
market for existing local business'' will be inserted. This change was
adopted to clarify this category.
As one commenter noted, proposed Sec. 4279.155(b)(5)(ii)(D)
eliminated the current language which favors the cooperative form of
organization. The comment suggested that the wording be changed to
refer to a business that produces a natural resource value-added
product which is more measureable. The Agency agrees and has changed
the language to read: ``Business that will produce a natural resource
value-added product.'' Points were changed from 3 to 2, to add less
weight to this category as compared to other categories.
Section 4279.155(b)(5)(iii)(A) is deleted as recommended by one
comment which suggested that this category was not measureable and
should be removed.
As a result of another comment, Sec. 4279.155(b)(5)(iii)(B) is
modified to read: ``average wage exceeding 125 percent of the Federal
minimum wage'', instead of ``150 percent of minimum wage'' to allow
more points to be scored at lower minimum wage categories, and more
weight will be placed on this category. With the deletion of (A) under
this section, this category becomes (A). The points increased from 4 to
5. The Agency adopted the recommended change.
One comment suggested Sec. 4279.155(b)(5)(iii)(C) be modified to
read: ``average wage exceeding 150 percent of the Federal minimum
wage'', instead of ``200 percent of the minimum wage'' to allow more
points to be scored at lower minimum wage categories. The Agency
adopted the change and placed more weight on the category. The points
increased from 4 to 10.
One comment suggested developing points for improving the
environmental climate in rural communities or eliminating this
objective from B&I program purposes. This comment was not adopted by
the Agency because ``improving the environmental climate'' is one
purpose of the program and no other program purposes are given priority
points. The Agency does not feel one program purpose is more valuable
than another.
One comment suggested that the phrase ``persistently poor'' in
Sec. 4279.155(b)(2)(ii), Community Priority, be defined. Instead, a
list of eligible communities will be made available through State
Offices.
One comment suggested increasing the points in Sec. 4279.155(b)(4),
Loan features, points to 20. The Agency feels that this category should
receive more emphasis and adopted the suggestion.
Two comments requested a clarification for the secondary market
rate in Secs. 4279.155(b)(4) (i) and (ii). It was also noted that there
is no point difference between these two criteria. The words
``secondary market'' are changed to ``Wall Street Journal published
Prime Rate''. This change provides a reference that is readily
available for comparison with the rate proposed by the lender. While
there is no difference in points between the two criteria, if an
interest rate is low enough, it can qualify for the points awarded in
each subsection.
Two comments pointed out that there is no priority point
differentiation between Secs. 4279.155(b)(5)(iii) (A) and (B) regarding
the wages of jobs created with assistance. These criteria are
cumulative which means a project that creates higher wage jobs can
obtain points for both. No change is made.
Two comments suggesting the elimination of Secs. 4279.155(b)(3) (i)
and (ii) will not be adopted since the initiatives were included to
provide emphasis on the location of businesses in EZ/EC communities
where job creation is important.
One respondent suggested that the priority system be amended to
include points for transportation improvement and infrastructure
safety. The Agency did not adopt this recommendation. The Agency has
determined that specific emphasis should be directed to the areas
already included. While these areas are important, we do not believe
they promote program purposes to the extent as the included areas.
Transportation improvement and infrastructure safety remain eligible
purposes and desirable goals.
One comment suggested eliminating Sec. 4279.155(b)(1)(i) regarding
the 25,000 population limit while another comment suggested giving
10,000 population communities priority. The section retains the 25,000
population guideline because previous Congressional guidance has
indicated 25,000 population is a reasonable application of the priority
rule.
One respondent provided a comment on Sec. 4279.165(b), Evaluation
of application, suggesting the words, ``the Agency's'' prior to the
last two words in the sentence, ``environmental requirements''. This
section was rewritten to provide clarity concerning the evaluation
process.
Thirteen respondents provided comments on Sec. 4279.161, ``Filing
preapplications and applications,'' and of the 13 respondents, eight
comments were favorable. One comment suggested eliminating the
requirement for the lender to submit any item beyond those mentioned in
Secs. 4279.161(a)(1) (i)-(iv). This comment was not adopted because the
Agency needs this information to evaluate the proposal and to determine
if the proposal is feasible and reasonable.
One comment suggested eliminating written subjective information
and data that are intended for the lender's internal reference and
guidance and always requiring instead that the lender include only
ratios and comparisons with industrial standards. The Agency needs the
lender's complete written analysis and requested associated material in
order to determine whether the lender is exercising due diligence and
meeting the intent of this regulation which places more reliance on
lenders for analyzing credit quality.
Two comments suggested changes in proposed forms which were not a
part of this regulation. They will be considered in the form
development process.
One comment suggested the need to specify that the business plan
include economic, market, technical, financial and management
information to ensure uniformity. This suggestion is not
[[Page 67629]]
adopted. The Agency feels that the requirements in Secs. 4279.150 and
4279.161(b)(12) are sufficient for the intended purposes.
One comment suggested changing the word ``must'' to ``should'' in
Sec. 4279.161(b)(11) regarding items to be addressed in the Loan
Agreement. These are minimal requirements. The Agency will not adopt
this change because the items are mandatory.
One comment suggested eliminating the intergovernmental
consultation requirement to expedite loan processing and protect the
applicant's privacy. Executive Order 12372 requires this action on all
projects. The suggestion is not implemented.
One comment proposed the adoption of another agency's application.
The instant program focuses entirely on rural development. This comment
was not adopted because this application is better suited to this
program's missions and objectives.
One respondent provided a comment on Sec. 4279.126, Loan terms,
suggesting that the term of the loan for refinancing purposes be
determined based on the weighted average of the underlying collateral's
life. The regulation already provides for this.
Five respondents provided comments on Sec. 4279.131, Credit
quality. Four comments identified a need for the Agency to establish
objective, minimum standards for tangible balance sheet equity to avoid
abuse of the program and vulnerability in the appeals process.
Suggested minimum standards ranged from 10 percent to 20 percent
tangible balance sheet equity at time of issuance of the Loan Note
Guarantee based on a variety of subjective criteria. The Agency adopts
these suggestions changing the regulation to indicate that the minimum
tangible balance sheet equity required at the time of issuance of the
Loan Note Guarantee will be 10 percent for existing and 20 percent for
new businesses. An exception to this requirement may be granted by the
Administrator or designee based upon the objective standard delineated
in the section.
One comment supported establishing written discounting standards
for collateral to ensure consistency but also recommended that an
exception authority provision be developed. The regulation requires
lenders to discount collateral consistent with sound loan-to-value
policy. The Agency believes that this requirement is sufficient to
protect the Agency and yet provide needed flexibility. Therefore, the
suggestion is not adopted.
Sixteen respondents provided comments on Sec. 4279.108, Eligible
borrowers, and of the sixteen comments, four were favorable. Nine
comments requested the Freely Associated States be determined eligible
for program assistance. Under Sec. 4279.2, Definitions, ``State''
encompasses this area making it eligible. The Agency added language
under Sec. 4279.108, Eligible borrowers, to amend the citizenship and
residence requirements in Sec. 4279.108(b)(3). Under this section,
citizens and residents of the United States include citizens and
residents of the Republic of Palau, the Federated States of Micronesia,
and the Republic of the Marshall Islands.
Two comments suggested that the college student population not be
included in determining population limits because student populations
are seasonal and truly do not add to the industrial and tax base of a
community. The Agency will not adopt this change since it cannot
determine U.S. decennial census methodology upon which a statutory
provision requires the determination to be made.
One comment questioned whether communities under 25,000 population,
Sec. 4279.155(b)(1)(i), population priority, is consistent with the
preamble to the proposed rule. The Agency was unable to locate any such
inconsistency and no change was made.
Seven respondents provided comments on Sec. 4279.150, Feasibility
studies. Three comments suggested establishing a dollar threshold for
determining when to require a study. This suggestion was not adopted
because, in the Agency's view, the business, not loan size, should be
the determining factor in deciding whether to require a feasibility
study.
Two comments suggested adding the five elements of a feasibility
study as outlined in the current program regulation, FmHA Instruction
1980-E. It was suggested that the term ``significantly affect'' is
vague and should be defined to limit appeal situations. The five
elements of a feasibility study will be added; however, ``significantly
affect'' was purposefully not defined to allow for determination on a
case-by-case basis.
One comment suggested feasibility studies are important only in
start-up businesses. The Agency disagrees with this suggestion. There
may be occasions when a significant impact on an existing business
needs to be discussed via a feasibility study.
Two respondents provided comments on Sec. 4279.75, Sale or
assignment of guaranteed loan. One respondent was concerned that
allowing lenders to sell the guaranteed portion for premium prices will
allow the lender to cover its risk and encourage aggressive, high risk
lending practices. The Agency does not dictate lender asset management
practices. A prudent lender will work with the secondary market to
achieve maximum benefits for its customer. Furthermore, the guarantee
by its terms does not cover any premium an investor may pay.
One comment suggested a provision be added which, at the lender's
request, would require the Agency to purchase the loan at default. The
Agency will not adopt this suggestion. It neither has the staff nor the
resources to conduct liquidations of defaulted loans. The program
requires the lender to make and service the loan. The Agency is to
ensure a fair and equitable loss management is made to the lender.
Four respondents provided comments on Sec. 4279.181, Conditions
precedent to issuance of Loan Note Guarantee. Two comments proposed the
creation of a single, standard form like FSA is developing containing
all of the required lender certifications. The Agency does not agree
because we guarantee different loans than FSA does. This mission of
this Agency is to enhance the ability of rural citizens to create,
build, and sustain non-farming ventures and communities.
One comment suggested modifying the certification language to allow
lenders to make determinations based on third party representations.
This suggestion is not adopted because the lender is the one the Agency
relies upon to ascertain the representations it makes in the
certifications are true. Both the regulations and the Lender's
Agreement make it clear that the lender must act as a reasonable and
prudent lender.
Two comments supported the elimination of lender's legal counsel
certifying to the sufficiency of loan and security instruments and the
efficacy of liens. Section 4279.181 requires certain lender
certifications including this. The Agency has limited its internal
legal review and feels the lender's legal counsel is needed. No change
is made.
One comment proposed changing Sec. 4279.181(1) from ``the
Conditional Commitment Form 4279-1'' to ``Form 4279-1 as amended by the
Conditional Commitment''. The regulation is correct as written, Form
4279-1 is the Conditional Commitment.
Two comments proposed expanding Sec. 4279.173, Loan approval and
obligating funds, to explain that when the guarantee is approved and
funding authority is available, the guarantee will be obligated and the
Conditional Commitment issued on the obligation date. No change can be
made since FmHA Instruction 2015-C (available in any RBS field office)
provides for a
[[Page 67630]]
reservation period that is not covered by this Instruction. The 6 day
reservation period gives political leaders an opportunity to announce
projects which have a positive impact on the program. The
recommendation is not adopted.
Two respondents provided comments on Sec. 4279.161(b)(11), Filing
preapplications and applications, suggesting either eliminating certain
subsections or the Agency allowing lender discretion to modify the
requirements. The sections that the respondents suggested be eliminated
for preapplication submissions include the amount of borrower's equity
and description of collateral; for existing businesses, a current
balance sheet and a profit and loss statement; and for start-up
businesses, a preliminary business plan. The respondents felt that this
is excessive paperwork for a preapplication submission and suggested
that only the application, environmental information, and a personal
credit report be submitted. In addition, one respondent suggested that
the lender has the ability to modify financial ratios for businesses
and other requirements for an application submission and should not
have to share internal bank information concerning the credits with the
Agency. The suggestions will not be adopted by the Agency because these
items requested from the lender under Sec. 4279.161 for a
preapplication or application are items required to meet the standards
of good prudent lending practices (see Sec. 4279.161).
One respondent provided a comment on Sec. 4279.126, Loan terms,
which supported Sec. 4279.131, Credit quality, paragraph (b)(2), which
allows less than normal loan-to-value coverage for predominately cash
flow oriented businesses. It proposed that the ``useful life or 15 year
loan limit, whichever is less'' standard in Sec. 4279.126 not apply on
certain equipment which has clear useful life beyond 15 years. The
Agency disagrees because the established criteria outlined in this
section are standard prudent lending criteria used by financial
institutions to determine the term of the loan. The suggestion is not
adopted.
A comment on Sec. 4279.144, Appraisals, recommended that language
be added discharging lenders from responsibility for assuring that
appraisal values adequately reflect the actual value of all collateral
if appraisals meet the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA), the Uniform Standards of Professional
Appraisal Practices (USPAP), and generally accepted methods of
determining value. The suggestion is not adopted because a reasonable,
prudent lender will ensure that appraisal values reflect actual values.
Four respondents provided comments on Sec. 4279.125, Interest
rates. Two comments support the regulation which allows different
interest rates on the unguaranteed and guaranteed portion of the loan;
however, they want the restriction that the rate on the guaranteed
portion cannot exceed the rate on the unguaranteed portion eliminated.
This suggestion will not be adopted because the lender is already
receiving the benefit of a guarantee on the guaranteed portion and
allowing a higher rate on that portion causes the Agency to exceed its
stated percentage.
One comment recommended allowing daily changes in variable interest
rate loans. The Agency will not adopt this suggestion because the
quarterly adjustment limitation provides borrowers with a financial
planning tool in that they have at least some assurance of these costs
for the quarter.
One comment suggested combining fixed and variable rates on the
same loan to allow a fixed rate for the guaranteed portion and a
variable rate for the unguaranteed portion. The regulation allows this
as long as the guaranteed portion rate is not higher.
Seven respondents provided generally supportive comments for the
entire regulation. Several individual items raised included the hope
that RBS staff will maintain involvement regarding due diligence. The
Farm Credit System requested any reference on farm credit programs
anywhere in the rule be in lower case to prevent misinterpretation by
the reader. The Agency complied with that request. The Agency will
continue to maintain the oversight needed to protect the taxpayer.
Four respondents provided comments about Sec. 4279.113(r), Eligible
loan purpose, regarding construction and interim loans. Comments
suggested consideration be given to developing a mechanism for partial
interim advances, making construction loans an eligible purpose, and
issuing the guarantee at closing instead of at project completion.
Additionally, two other comments suggested such a change so that in
those instances the guaranteee could be sold sooner in the secondary
market. The time period in which material adverse changes could occur
would be reduced. The Agency agrees and has adopted the comments to
allow the Loan Note Guarantee to be issued at closing on the interim
financing based on certain conditions as set forth in the final
regulations instead of when the project is substantially complete.
Four respondents provided comments on Sec. 4279.186, Issuance of
the guarantee. One comment suggested adding ``unless a valid lender's
agreement already exists per Sec. 4279.72'' after Executed Lender's
Agreement in Sec. 4279.186(a)(2). This comment is adopted because a
valid Lender's Agreement may already be in existence.
One respondent provided a comment on Sec. 4279.78(c), Purchase for
servicing, disagreeing with not allowing the repurchase from the holder
for arbitrage or other purposes to further its own financial gain. The
secondary market option provides a risk management tool for the lender;
however, it is also necessary to consider financial stability for the
business. The language will not be changed.
One respondent provided a comment on Sec. 4279.101, Introduction,
recommending ``field office'' replace ``district, regional or area
office''. This change is adopted.
Five respondents provided comments on Sec. 4279.107, Guarantee fee,
supporting the 1 percent option. Two of those comments requested
clarification of the term ``high impact''. Section 4279.155, Loan
priorities, paragraph (b)(5), was changed to provide clarification.
One respondent felt Sec. 4279.107(a)(4) allowing a reduction in the
guarantee fee in certain circumstances was too general. The Agency
feels the language provides flexibility to respond to unique and
unusual situations. This comment is not adopted.
Seven respondents provided comments suggesting other guarantee fee
structures. Four comments supported the determination of lower fees
being made at the State Office level. This regulation provides that the
Agency will have the authority to reduce the guarantee fee if the
business meets the criteria in Sec. 4279.107. In writing this
provision, budget considerations and OMB limitations must be considered
since the program loan level is affected adversely if the guarantee fee
is reduced. The National Office must monitor the loan level to ensure
funds are available to provide the greatest benefit to rural customers
that utilize this program. However, the State Director does have the
authority to reduce guarantee fees if it is determined that the
business meets the criteria in Sec. 4279.107.
A commenter was concerned that the reduced fee option provided the
Agency an unfair marketing advantage over another agency. It is not the
intent to compete with any other agency for loans. The focus is on
rural development and the intent of the lower
[[Page 67631]]
fee option is to help lenders assist business development in the areas
that need it the most.
One comment recommended elimination of a lower guarantee fee
because the amount does not matter to the lender or business. The
Agency will not adopt this change because the lower guarantee fee will
benefit businesses located in high-priority areas.
One comment suggested changing the Sec. 4270.107(a)(3) requirement
that a community be persistently poor for 60 years or more to a
requirement of 60 years and eliminate the words ``or more''. The Agency
agrees nothing is added by the use of the phrase ``or more.'' The
phrase has been deleted.
One comment suggested an editorial change to Sec. 4279.113(r)
regarding removing the hyphen between the words ``take-out''. The
regulation will be conformed to the Government Style Manual which says
the term used as a noun is ``takeout'' but if it were used as an
adjective, for example ``take-out financing'', it would be two words
with a hyphen.
One comment recommends packager fees be limited in amount but still
be considered eligible. The regulation already allows packager fees as
an eligible purpose, provided it is an amount that is reasonable and
customary in the local area. See Sec. 4279.120(b), fees and charges.
One respondent provided comments on Sec. 4279.115, Prohibition
under Agency programs, recommending this entire section be eliminated.
This is a statutory requirement and cannot be eliminated.
Twenty-three respondents provided comments on Sec. 4279.119, Loan
guarantee limits.
Two comments recommended the percentage of guarantee determined by
the Agency not be subject to the appeal process. The comment was not
adopted because the Agency does not determine the appealability of any
decision.
Six comments suggested alternative options for issuing guarantee
percentages. No change is made because the Agency is satisfied that as
written it provides sufficient flexibility in providing program
benefits.
One comment suggested determining the percentage of guarantee based
on the size of the lender. The comment was not adopted because such a
requirement is already inherent in the regulation. Variations in loan
sizes, lender capitalization, and lender loan size limits established
by lender regulators limit the sizes of lenders and the loans they can
make.
One comment suggested that increasing the guarantee percentage is
more important than reducing the guarantee fee. The Agency prefers to
retain the latitude to allow both options.
Five respondents recommended the State Director be able to grant an
exception to allow 90 percent guarantees. The respondents; suggestion
is already in effect because the regulation has been changed to give
the State Director limited authority to approve projects with a
decreased guarantee fee for high-priority projects not exceeding $2
million when it is within the State Director's approval authority to do
so. If not within the State Director's approval authority, the loan
request will be submitted to the National Office for review.
One comment suggested the guarantee percentage be stairstepped
versus a single rate to provide more increased coverage for loan
requests that exceed the $5 million and $10 million thresholds. This
was not adopted for a variety of loan servicing considerations
involving variations in lender payment applications and effective
maximum percentage of loss payments which would not make application of
program regulations consistent.
One comment wants the Agency to determine whether a loan is
eligible for a 90 percent guarantee without submitting an application.
The Agency can make this determination from a preapplication.
Three comments did not support loans over $10 million being
eligible because of possible funding concerns and credit quality
issues. The commenters' concerns were considered. The Agency believes
the revised regulations will provide measures through the priority
scoring system, by reducing the guarantee percentage to 60 percent or
less, and oversight of the Under Secretary's office for loans exceeding
$10 million to control credit quality and aggressive use of funding.
One comment suggested the State Director's loan approval authority
be increased to $5 million based on staff expertise. This is internal
management and is not a regulatory requirement.
One comment suggested an exception authority be established for 7
CFR, subpart B of parts 4279 and 4287. This comment has been adopted to
include the exception authority language in subpart B of parts 4279 and
4287.
One comment expressed a concern for development of a standardized
application software package for lenders. Such a package is being
developed but it will not be part of this regulation.
Nine respondents provided comments on Sec. 4279.29, Eligible
lenders. Of the nine comments, three comments were from existing non-
lenders that desire consideration be given to eligibility under
Sec. 4279.29. The Agency will not make any changes to the regulation
since the current language will allow any lender the right to request
an eligibility determination under the regulations.
One comment suggested that ``adequately'' be removed from
Sec. 4279.29(c). The Agency agrees and the word will be removed.
Four comments support expanding eligible lender determination;
however, two of the comments contained qualifying criteria. Of the four
comments, two contained qualifying criteria such as audits by State or
Federal Government auditing bodies at least every 12 months and non-
bank lenders be limited by their past experience in other Government
guaranteed programs. The Agency feels that a change is not necessary
because the proposed regulations provide the flexibility to make a
determination of eligibility.
Two comments objected to nonbanks being considered possible
eligible lenders. The Agency does not agree. The program offers a
variety of lenders an opportunity to participate and provide credit in
rural areas so as to provide a greater availability of credit to rural
residents.
Two respondents provided editorial change comments on Sec. 4279.2,
Definitions. The Agency adopted the comment that for the definition of
``Deficiency balance,'' the words ``including the personal guarantee''
be eliminated.
One respondent suggested reducing the State allocation of guarantee
authority only by the guaranteed portion of the loan. Federal budget
procedures require scoring the entire amount of a loan against the
allocation regardless of the percentage of guarantee.
Two comments recommended Sec. 4279.84, Replacement of document, be
changed to indicate that the notarized certificate of loss should
include limited information since the Agency has copies of the noted
documents. This proposal is not adopted because the information
requested is necessary to ensure the legal sufficiency of the
replacement documents.
One comment requested Sec. 4279.113, Eligible loan purposes, be
changed to allow the growing of seed crops. Production of agriculture
alone is not an eligible purpose. Section 4279.113(b)(h) addresses
eligible agricultural production in a manner to ensure that no one area
of business receives a disproportionate amount of funding.
One comment recommended the adverse change period be changed to
[[Page 67632]]
cover from the date the application is submitted to the Agency to the
date of the issuance of the Loan Note Guarantee. The Agency will not
adopt this change since the final conditions are established at the
time the Agency issues the Conditional Commitment.
Two respondents provided comments on Sec. 4279.149, Personal and
corporate guarantees. One supported the section, the other comment
raised a concern that the language would appear to require a guarantee
from significant customers. This concern is valid and the section
language was revised to clarify intercompany relationships.
Twelve respondents provided comments on 7 CFR, part 4287, subpart
B--Servicing Business and Industry Guaranteed Loans.
One comment on Sec. 4287.106, Routine servicing, suggested that the
Agency establish internal monitoring of account servicing requirements.
These are the lender's loans and as such the lender is accountable for
its actions. The Agency is to pay the appropriate loss to those lenders
which have exercised due diligence.
One comment on Sec. 4287.106(d), Financial reports, proposed
relaxing the requirement that lenders must obtain and provide the
borrower's financial statements to the Agency within 120 days of the
borrower's fiscal yearend.
The lenders requested specific actions they are to use when they
are unable to comply with these regulations due to uncooperative
borrowers. Current regulations are appropriate and conform with
industry standards so no change was made.
One comment questioned Sec. 4287.106(e), Additional expenditures,
asking why the Agency requires concurrence for additional expenditures
if the loans security position is not altered. Additional expenditures
may deplete operating capital which could cause default. The Agency has
an interest to see that a loan is repaid by the borrower rather than
the Agency having to provide funds pursuant to its guarantee.
Five respondents provided comments on Sec. 4287.113(a), Release of
collateral, stating they did not support the requirement that all
releases of collateral must be supported by a current appraisal on the
remaining collateral. They proposed several alternatives including
prorating values established at loanmaking and documenting by means
other than appraisal. The Agency agrees, and the language in this
section has been revised.
One respondent provided a comment about Secs. 4287.113 (a)(4), (b),
and (c) regarding whether the 20-percent figure is for each instance or
cumulative over the life of the loan. Lenders may, over the life of the
loan, release collateral (other than personal and corporate guarantees)
with a cumulative value of up to 20 percent of the original loan amount
without Agency concurrence. The regulation has been changed to make
this clear.
One respondent provided a comment about Sec. 4287.156(a),
Protective advances, pointing out that it does not reference a dollar
amount. A ceiling will not be established because each case is unique
and flexibility is desired.
Two respondents made comments on Sec. 4287.157, Liquidation,
suggesting the authority to approve liquidation plans be at the State
Office and not the National Office level. This comment is adopted and
the authority to approve liquidation plans will be at the State Office
based on the State's delegated loan servicing authority without
National Office concurrence.
Two comments stated paragraphs (b)(2) and (c) of Sec. 4287.158,
Determination of loss and payment, are in direct conflict. It appears
that the writer may have felt there was a conflict concerning interest
accrual. Under certain circumstances, interest accrual may continue.
The language will not change as noted in the proposed rule.
One comment suggested retaining the existing option which allows
the Agency to permit the lender to calculate the final loss settlement
using net proceeds received from the collateral at the time of ultimate
disposition rather than at liquidation. Lenders feel it is unfair to
settle when they acquired the collateral as it reflects what is
actually received for the collateral. The Agency feels settlement at
ultimate disposition is preferable because it reflects what is actually
received for the collateral.
One respondent provided a comment on Sec. 4287.170, Bankruptcy,
expressing displeasure with the Agency's position that Chapter 11
reorganization legal expenses are not considered liquidation costs.
Reorganization legal expenses are not incurred in contemplation of
liquidation. Therefore, they should not be treated as a liquidation
expense which by definition is only deductible during a liquidation
when there are adequate proceeds from collateral liquidation to cover
the expense. This provision was not changed.
One respondent provided editorial changes for the entire section.
The editorial changes were not substantive and reflected a preference
of the respondent. To ensure no confusion concerning the meaning of the
regulation and to ensure consistency of language, the editorial changes
were not adopted with the exception of the following items:
In Sec. 4287.157, Liquidation, paragraph (c), Submission of
liquidation plan, the third sentence which reads, ``State Directors
have no authority to exercise the option to liquidate by the Agency
without National Office approval'' is changed to state under what
authority liquidation is carried out by the Agency, not the lender. The
Agency clarified the language to indicate that in cases where the
Agency carries out liquidation of the loan, the State Director must
request approval from the National Office; and
In Sec. 4287.157, Liquidation, paragraph (j), Abandonment of
collateral, the words, ``National Office'' are replaced by ``Agency''.
Those sections of the regulation that are administrative in nature
and apply only to procedures within the Agency have been removed from
the document. These procedures are available from any Agency office
upon request.
List of Subjects
7 CFR Part 1980
Loan programs--Agriculture, Loan programs--Business and industry--
Rural development assistance, Loan programs--Housing and community
development, Loan programs--Community programs--Rural development
assistance, Rural areas.
7 CFR Part 4279
Loan programs--Business and Industry--Rural development assistance,
Rural areas.
7 CFR Part 4287
Loan programs--Business and Industry--Rural development assistance,
Rural areas.
Accordingly, chapters XVIII and XLII, title 7 of the Code of
Federal Regulations are amended as follows:
CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT
OF AGRICULTURE.
PART 1980--GENERAL
1. The authority citation for part 1980 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C 1480.
Subpart A--General
2. Section 1980.6(a) is amended by removing the definitions for
``Borrower,'' ``Disaster Assistance for Rural Business Enterprises,''
and ``Drought and Disaster Guaranteed
[[Page 67633]]
loans;'' in the heading for the definition of ``Assignment Guarantee
Agreement,'' removing ``, 1980-70 or 1980-73;'' in the third sentence
of the definition of ``Holder,'' removing the parenthetical phrase
``(or 1980-70 or 1980-73);'' in the heading for the definition of
``Lender's Agreement,'' removing the comma and adding the word ``or''
in its place immediately following ``449-35''; removing ``, 1980-68, or
1980-71'' immediately following ``1980-38;'' in the heading for the
definition of ``Loan Note Guarantee,'' removing the parenthetical
phrase ``, (or 1980-69, 1980-72)''; and revising the definition of
``Guaranteed loan'' to read as follows:
Sec. 1980.6 Definitions and abbreviations.
(a) * * *
Guaranteed loan. A loan made and serviced by a lender for which
FmHA or its successor agency has entered into a Form FmHA 449-35 or
Form FmHA 1980-38, ``Lender's Agreement,'' and for which FmHA or its
successor agency has issued a Form FmHA 449-34, ``Loan Note
Guarantee.''
* * * * *
Sec. 1980.6 [Amended]
3. Section 1980.6(b) is amended by removing the entries for
``B&I,'' ``DARBE,'' and ``D&D'' from the list of abbreviations.
Sec. 1980.13 [Amended]
4. Section 1980.13 is amended in the introductory text of paragraph
(a) in the second sentence by revising the reference ``paragraphs (a)
(1), (2) and (3)'' to read ``paragraphs (a) (1) and (2);'' in paragraph
(a)(2) by removing ``; or'' and adding a period at the end of the
paragraph; by removing paragraph (a)(3); and in paragraph (c) by
removing the parenthetical phrase ``(See subpart E of this part.)''.
Sec. 1980.20 [Amended]
5. Section 1980.20 is amended in the introductory text of paragraph
(a) by removing the third and fourth sentences; in the fifth sentence,
by removing the words ``for all other loans covered by this section;''
and in the sixth sentence by removing the words ``in regards to D&D and
DARBE guaranteed loans (see Subpart E of this part) or''.
Sec. 1980.41 [Amended]
6. Section 1980.41 is amended in the first sentence of paragraph
(b)(3)(iii)(A) by removing the parenthetical phrase ``(State Director
for B&I)''.
Sec. 1980.46 [Amended]
7. Section 1980.46 is amended in paragraph (a)(2) by removing the
parenthetical phrase ``(State Director for B&I)'' at the end of the
paragraph.
Sec. 1980.47 [Amended]
8. Section 1980.47 is amended in the first sentence of paragraph
(d) by removing the words ``and Business''.
9. Section 1980.60 is amended by revising paragraph (a)(2) to read
as follows:
Sec. 1980.60 Conditions precedent to issuance of the Loan Note
Guarantee or Contract of Guarantee.
(a) * * *
(2) All planned property acquisition has been completed and all
development has been substantially completed in accordance with plans
and specifications. All costs have not exceeded the amounts approved by
the lender and the Agency.
* * * * *
Sec. 1980.61 [Amended]
10. Section 1980.61 is amended in the first sentence of paragraph
(b)(3) by revising the words ``Forms FmHA or its successor agency under
Public Law 103-354 449-35'' to read ``Form FmHA 449-35'' and removing
the words ``FmHA or its successor agency under Public Law 103-354 1980-
68, and FmHA or its successor agency under Public Law 103-354 1980-
71;'' in paragraph (b)(4) by revising the word ``request'' to read
``requests,'' revising ``Forms FmHA or its successor agency under
Public Law 103-354 449-35'' to read ``Form FmHA 449-35'' removing,
``FmHA or its successor agency under Public Law 103-354 1980-68, and
FmHA or its successor agency under Public Law 103-354 1980-71;'' and
removing the parenthetical phrase ``(State Director for B&I);'' and in
paragraph (h) by removing the words ``, except for B&I where the State
Director and State B&I or C&BP Chief will execute these forms.''
Sec. 1980.63 [Amended]
11. Section 1980.63 is amended in paragraph (b) by removing the
parenthetical phrase ``(State Director for B&I)'' from the second and
fourth sentences and removing the parenthetical phrase ``(except for
B&I)'' from the third sentence.
Sec. 1980.67 [Amended]
12. Section 1980.67 is amended in the first sentence of paragraph
(a) by removing the reference ``E,''.
Sec. 1980.68 [Amended]
13. Section 1980.68 is amended by revising the reference
``paragraph 5'' to read ``paragraph 6'' in the second sentence and
removing the parenthetical phrase ``(State Director for B&I)'' from the
third and fourth sentences.
Subpart E--Business and Industrial Loan Program
14. Section 1980.401 is amended by revising paragraph (a) to read
as follows:
Sec. 1980.401 Introduction.
(a) Direct Business and Industry (B&I) loans are disbursed by the
Agency under this subpart. B&I loan guarantees are to be processed and
serviced under the provisions of subparts A and B of part 4279 and
subpart B of part 4287 of this title. Any processing or servicing
activity conducted pursuant to this subpart involving authorized
assistance to relatives, or business or close personal associates, is
subject to the provisions of part 1900 subpart D of this chapter.
Applicants for this assistance are required to identify any known
relationship or association with any Agency employee.
* * * * *
15. A new part 4279, consisting of 4279.1 through 4279.200, is
added to chapter XLII to read as follows:
PART 4279--GUARANTEED LOANMAKING
Subpart A--General
Sec.
4279.1 Purpose.
4279.2 Definitions and abbreviations.
4279.3-4279.14 [Reserved]
4279.15 Exception authority.
4279.16 Appeals.
4279.17-4279.28 [Reserved]
4279.29 Eligible lenders.
4279.30 Lenders' functions and responsibilities.
4279.31-4279.42 [Reserved]
4279.43 Certified Lender Program.
4279.44 Access to records.
4279.45-4279.57 [Reserved]
4279.58 Equal Credit Opportunity Act.
4279.59 [Reserved]
4279.60 Civil Rights Impact Analysis
4279.61-4279.70 [Reserved]
4279.71 Public bodies and nonprofit corporations.
4279.72 Conditions of guarantee.
4279.73-4279.74 [Reserved]
4279.75 Sale or assignment of guaranteed loan.
4279.76 Participation.
4279.77 Minimum retention.
4279.78 Repurchase from holder.
4279.79-4279.83 [Reserved]
4279.84 Replacement of document.
4279.85-4279.99 [Reserved]
4279.100 OMB control number.
Subpart B--Business and Industry Loans
4279.101 Introduction.
4279.102 Definitions.
4279.103 Exception Authority.
4279.104 Appeals.
4279.105-4279.106 [Reserved]
[[Page 67634]]
4279.107 Guarantee fee.
4279.108 Eligible borrowers.
4279.109-4279.112 [Reserved]
4279.113 Eligible loan purposes.
4279.114 Ineligible purposes.
4279.115 Prohibition under Agency programs.
4279.116-4279.118 [Reserved]
4279.119 Loan guarantee limits.
4279.120 Fees and charges.
4279.121-4279.124 [Reserved]
4279.125 Interest rates.
4279.126 Loan terms.
4279.127-4279.130 [Reserved]
4279.131 Credit quality.
4279.132-4279.136 [Reserved]
4279.137 Financial statements.
4279.138-4279.142 [Reserved]
4279.143 Insurance.
4279.144 Appraisals.
4279.145-4279.148 [Reserved]
4279.149 Personal and corporate guarantees.
4279.150 Feasibility studies.
4279.151-4279.154 [Reserved]
4279.155 Loan priorities.
4279.156 Planning and performing development.
4279.157-4279.160 [Reserved]
4279.161 Filing preapplications and applications.
4279.162-4279.164 [Reserved]
4279.165 Evaluation of application.
4279.166-4279.172 [Reserved]
4279.173 Loan approval and obligating funds.
4279.174 Transfer of lenders.
4279.175-4279.179 [Reserved]
4279.180 Changes in borrower.
4279.181 Conditions precedent to issuance of Loan Note Guarantee.
4279.182-4279.185 [Reserved]
4279.186 Issuance of the guarantee.
4279.187 Refusal to execute Loan Note Guarantee.
4279.188-4279.199 [Reserved]
4279.200 OMB control number.
Authority: 5 U.S.C. 301; 7 U.S.C. 1989.
Subpart A--General
Sec. 4279.1 Purpose.
(a) This subpart contains general regulations for making and
servicing Business and Industry (B&I) loans guaranteed by the Agency
and applies to lenders, holders, borrowers and other parties involved
in making, guaranteeing, holding, servicing, or liquidating such loans.
(b) It is the responsibility of the lender to ascertain that all
requirements for making, securing, servicing, and collecting the loan
are complied with.
(c) Copies of all forms, regulations, and Instructions referenced
in this subpart are available in any Agency office. Whenever a form is
designated in this subpart, that designation includes predecessor and
successor forms, if applicable, as specified by the field or National
Office.
Sec. 4279.2 Definitions and abbreviations.
(a) Definitions.
Agency. The Rural Business-Cooperative Service or successor Agency
assigned by the Secretary of Agriculture to administer the B&I program.
References to the National Office, Finance Office, State Office or
other Agency offices or officials should be read as prefaced by Agency
or ``Rural Development'' as applicable.
Arm's-length transaction. The sale, release, or disposition of
assets in which the title to the property passes to a ready, willing,
and able disinterested third party that is not affiliated with or
related to and has no security, monetary or stockholder interest in the
borrower or transferor at the time of the transaction.
Assignment Guarantee Agreement (Business and Industry). Form 4279-
6, the signed agreement among the Agency, the lender, and the holder
containing the terms and conditions of an assignment of a guaranteed
portion of a loan, using the single note system.
Borrower. All parties liable for the loan except for guarantors.
Conditional Commitment (Business and Industry). Form 4279-3, the
Agency's notice to the lender that the loan guarantee it has requested
is approved subject to the completion of all conditions and
requirements set forth by the Agency.
Deficiency balance. The balance remaining on a loan after all
collateral has been liquidated.
Deficiency judgment. A monetary judgment rendered by a court of
competent jurisdiction after foreclosure and liquidation of all
collateral securing the loan.
Existing lender debt. A debt not guaranteed by the Agency, but owed
by a borrower to the same lender that is applying for or has received
the Agency guarantee.
Fair market value. The price that could reasonably be expected for
an asset in an arm's-length transaction between a willing buyer and a
willing seller under ordinary economic and business conditions.
Farmers Home Administration (FmHA). The former agency of USDA that
previously administered the programs of this Agency. Many Instructions
and forms of FmHA are still applicable to Agency programs.
Finance office. The office which maintains the Agency financial
accounting records located in St. Louis, Missouri.
High-impact business. A business that offers specialized products
and services that permit high prices for the products produced, may
have a strong presence in international market sales, may provide a
market for existing local business products and services, and which is
locally owned and managed.
Holder. A person or entity, other than the lender, who owns all or
part of the guaranteed portion of the loan with no servicing
responsibilities. When the single note option is used and the lender
assigns a part of the guaranteed note to an assignee, the assignee
becomes a holder only when the Agency receives notice and the
transaction is completed through use of Form 4279-6 or predecessor
form.
Interim Financing. A temporary or short-term loan made with the
clear intent that it will be repaid through another loan. Interim
financing is frequently used to pay construction and other costs
associated with a planned project, with permanent financing to be
obtained after project completion.
Lender. The organization making, servicing, and collecting the loan
which is guaranteed under the provisions of the appropriate subpart.
Lender's Agreement (Business and Industry). Form 4279-4 or
predecessor form between the Agency and the lender setting forth the
lender's loan responsibilities when the Loan Note Guarantee is issued.
Loan Agreement. The agreement between the borrower and lender
containing the terms and conditions of the loan and the
responsibilities of the borrower and lender.
Loan Note Guarantee (Business and Industry). Form 4279-5 or
predecessor form issued and executed by the Agency containing the terms
and conditions of the guarantee.
Loan-to-value. The ratio of the dollar amount of a loan to the
dollar value of the collateral pledged as security for the loan.
Natural resource value-added product. Any naturally occurring
product that is processed to add value to the product. For example,
straw is processed into particle board.
Negligent Servicing. The failure to perform those services which a
reasonably prudent lender would perform in servicing (including
liquidation of) its own portfolio of loans that are not guaranteed. The
term includes not only the concept of a failure to act, but also not
acting in a timely manner, or acting in a manner contrary to the manner
in which a reasonably prudent lender would act.
Parity. A lien position whereby two or more lenders share a
security interest of equal priority in collateral. In the event of
default, each lender will be affected on a pro rata basis.
[[Page 67635]]
Participation. Sale of an interest in a loan by the lender wherein
the lender retains the note, collateral securing the note, and all
responsibility for loan servicing and liquidation.
Poor. A community or area is considered poor if, based on the most
recent decennial census data, either the county, city, or census tract
where the community or area is located has a median household income at
or below the poverty line for a family of four; has a median household
income below the nonmetropolitan median household income for the State;
or has a population of which 25 percent or more have income at or below
the poverty line.
Promissory Note. Evidence of debt. ``Note'' or ``Promissory Note''
shall also be construed to include ``Bond'' or other evidence of debt
where appropriate.
Rural Development. The Under Secretary for Rural Development has
policy and operational oversight responsibilities for RHS, RBS, and
RUS.
Spreadsheet. A table containing data from a series of financial
statements of a business over a period of time. Financial statement
analysis normally contains spreadsheets for balance sheet items and
income statements and may include funds flow statement data and
commonly used ratios. The spreadsheets enable a reviewer to easily scan
the data, spot trends, and make comparisons.
State. Any of the 50 States, the Commonwealth of Puerto Rico, the
Virgin Islands of the United States, Guam, American Samoa, the
Commonwealth of the Northern Mariana Islands, the Republic of Palau,
the Federated States of Micronesia, and the Republic of the Marshall
Islands.
Subordination. An agreement between the lender and borrower whereby
lien priorities on certain assets pledged to secure payment of the
guaranteed loan will be reduced to a position junior to, or on parity
with, the lien position of another loan in order for the Agency
borrower to obtain additional financing, not guaranteed by the Agency,
from the lender or a third party.
Veteran. For the purposes of assigning priority points, a veteran
is a person who is a veteran of any war, as defined in section 101(12)
of title 38, United States Code.
(b) Abbreviations.
B&I--Business and Industry
CF--Community Facilities
CLP--Certified Lender Program
FSA--Farm Service Agency
FMI--Forms Manual Insert
NAD--National Appeals Division
OGC--Office of the General Counsel
RBS--Rural Business-Cooperative Service
RHS--Rural Housing Service
RUS--Rural Utilities Service
SBA--Small Business Administration
USDA--United States Department of Agriculture
Secs. 4279.3-4279.14 [Reserved]
Sec. 4279.15 Exception authority.
The Administrator may, in individual cases, grant an exception to
any requirement or provision of this subpart which is not inconsistent
with any applicable law provided, the Administrator determines that
application of the requirement or provision would adversely affect
USDA's interest.
Sec. 4279.16 Appeals.
Only the borrower, lender, or holder can appeal an Agency decision
made under this subpart. In cases where the Agency has denied or
reduced the amount of final loss payment to the lender, the adverse
decision may be appealed by the lender only. An adverse decision that
only impacts the holder may be appealed by the holder only. A decision
by a lender adverse to the interest of the borrower is not a decision
by the Agency, whether or not concurred in by the Agency. Appeals will
be handled in accordance with 7 CFR, part 11. Any party adversely
affected by an Agency decision under this subpart may request a
determination of appealability from the Director, National Appeals
Division, USDA, within 30 days of the adverse decision.
Secs. 4279.17-4279.28 [Reserved]
Sec. 4279.29 Eligible lenders.
(a) Traditional lenders. An eligible lender is any Federal or State
chartered bank, Farm Credit Bank, other Farm Credit System institution
with direct lending authority, Bank for Cooperatives, Savings and Loan
Association, or mortgage company that is part of a bank-holding
company. These entities must be subject to credit examination and
supervision by either an agency of the United States or a State.
Eligible lenders may also include credit unions provided, they are
subject to credit examination and supervision by either the National
Credit Union Administration or a State agency, and insurance companies
provided they are regulated by a State or National insurance regulatory
agency. Eligible lenders include the National Rural Utilities
Cooperative Finance Corporation.
(b) Other lenders. Rural Utilities Service borrowers and other
lenders not meeting the criteria of paragraph (a) of this section may
be considered by the Agency for eligibility to become a guaranteed
lender provided, the Agency determines that they have the legal
authority to operate a lending program and sufficient lending expertise
and financial strength to operate a successful lending program.
(1) Such a lender must:
(i) Have a record of successfully making at least three commercial
loans annually for at least the most recent 3 years, with delinquent
loans not exceeding 10 percent of loans outstanding and historic losses
not exceeding 10 percent of dollars loaned, or when the proposed lender
can demonstrate that it has personnel with equivalent previous
experience and where the commercial loan portfolio was of a similar
quantity and quality; and
(ii) Have tangible balance sheet equity of at least seven percent
of tangible assets and sufficient funds available to disburse the
guaranteed loans it proposes to approve within the first 6 months of
being approved as a guaranteed lender.
(2) A lender not eligible under paragraph (a) of this section that
wishes consideration to become a guaranteed lender must submit a
request in writing to the State Office for the State where the lender's
lending and servicing activity takes place. The National Office will
notify the prospective lender, through the State Director, whether the
lender's request for eligibility is approved or rejected. If rejected,
the reasons for the rejection will be indicated to the prospective
lender in writing. The lender's written request must include:
(i) Evidence showing that the lender has the necessary capital and
resources to successfully meet its responsibilities.
(ii) Copy of any license, charter, or other evidence of authority
to engage in the proposed loanmaking and servicing activities. If
licensing by the State is not required, an attorney's opinion to this
effect must be submitted.
(iii) Information on lending experience, including length of time
in the lending business; range and volume of lending and servicing
activity; status of loan portfolio including delinquency rate, loss
rate as a percentage of loan amounts, and other measures of success;
experience of management and loan officers; audited financial
statements not more than 1 year old; sources of funds for the proposed
loans; office location and proposed lending area; and proposed rates
and fees, including loan
[[Page 67636]]
origination, loan preparation, and servicing fees. Such fees must not
be greater than those charged by similarly located commercial lenders
in the ordinary course of business.
(iv) An estimate of the number and size of guaranteed loan
applications the lender will develop.
(c) Expertise. Loan guarantees will only be approved for lenders
with adequate experience and expertise to make, secure, service, and
collect B&I loans.
Sec. 4279.30 Lenders' functions and responsibilities.
(a) General. (1) Lenders have the primary responsibility for the
successful delivery of the B&I loan program. All lenders obtaining or
requesting a B&I loan guarantee are responsible for:
(i) Processing applications for guaranteed loans,
(ii) Developing and maintaining adequately documented loan files,
(iii) Recommending only loan proposals that are eligible and
financially feasible,
(iv) Obtaining valid evidence of debt and collateral in accordance
with sound lending practices,
(v) Supervising construction
(vi) Distribution of loan funds,
(vii) Servicing guaranteed loans in a prudent manner, including
liquidation if necessary,
(viii) Following Agency regulations, and
(ix) Obtaining Agency approvals or concurrence as required.
(2) This subpart, along with subpart B of this part and subpart B
of part 4287 of this chapter, contain the regulations for this program,
including the lenders' responsibilities.
(b) Credit evaluation. This is a key function of all lenders during
the loan processing phase. The lender must analyze all credit factors
associated with each proposed loan and apply its professional judgment
to determine that the credit factors, considered in combination, ensure
loan repayment. The lender must have an adequate underwriting process
to ensure that loans are reviewed by other than the originating
officer. There must be good credit documentation procedures.
(c) Environmental responsibilities. Lenders have a responsibility
to become familiar with Federal environmental requirements; to
consider, in consultation with the prospective borrower, the potential
environmental impacts of their proposals at the earliest planning
stages; and to develop proposals that minimize the potential to
adversely impact the environment. Lenders must alert the Agency to any
controversial environmental issues related to a proposed project or
items that may require extensive environmental review. Lenders must
help the borrower prepare Form FmHA 1940-20, ``Request for
Environmental Information'' (when required by subpart G of part 1940 of
this title); assist in the collection of additional data when the
Agency needs such data to complete its environmental review of the
proposal; and assist in the resolution of environmental problems.
(d) Loan closing. The lender will conduct loan closings.
Secs. 4279.31-4279.42 [Reserved]
Sec. 4279.43 Certified Lender Program.
(a) General. This section provides policies and procedures for the
Certified Lender Program (CLP) for loans guaranteed under this part.
The objectives are to expedite loan approval, making, and servicing.
(b) CLP eligibility criteria. The lender must meet established
eligibility criteria as follows:
(1) Be an ``eligible lender'' as defined in 4279.29 of this subpart
and authorized to do business in the State in which CLP status is
desired.
(2) Demonstrate to the Agency's satisfaction that it has a thorough
knowledge of commercial lending. The lender will demonstrate such
knowledge by providing a summary of its guaranteed and unguaranteed
business lending activity. At a minimum, the summary must include the
dollar amount and number of loans in the lender's portfolio,
unguaranteed and guaranteed by any Federal agency, with information on
delinquencies and losses and, if applicable, the performance of the
lender as a Small Business Administration (SBA) certified or preferred
lender. A certified lender must be recognized throughout the State as a
commercial lender and have a track record of successfully making at
least five commercial loans per year for at least the most recent 5
years, with delinquent commercial loans outstanding not exceeding 6
percent of commercial loans outstanding and historic losses not
exceeding 6 percent of dollars loaned, or it must demonstrate that it
has personnel with equivalent previous experience where the commercial
loan portfolio was of a similar quantity and quality. The lender will
provide a written certification to this effect along with a statistical
analysis of its commercial loan portfolio for the last 3 of its fiscal
years.
(3) The percentage of guarantee will not exceed 80 percent.
(4) If the lender is a bank or savings and loan, it must have a
financial strength rating in the upper half of possible ratings as
reported by a lender rating service selected by the Agency.
(5) Possess loan officers and other appropriate personnel who have
received training conducted by the Agency. Additional training may be
required if the lender's contact person changes or if the Agency
determines further instruction is needed.
(6) Have committed no action within the most recent 2 years prior
to requesting CLP status which would be considered cause for revoking
CLP status under paragraph (e) of this section.
(c) CLP approval. The Agency may grant CLP status for a period not
to exceed 5 years by executing Form 4279-8, ``Certified Lender,
Business and Industry Program,'' with the lender. CLP status will not
apply to branches or suboffices of the lender unless so specified in
the agreement. Such branches or suboffices may submit loans as regular
lenders or apply for their own CLP status. Any lender who desires CLP
status must prepare a written request to the State Director where it
desires CLP status. The request must address each of the required
criteria outlined in paragraph (b) of this section, except paragraph
(b)(3), and should be accompanied by any other information the lender
believes will be helpful. The request will also include Form 4279-8
completed and executed by the lender and an executed Lender's Agreement
if it does not already have a valid Lender's Agreement on file with the
Agency. Loans made by the lender and guaranteed by the Agency prior to
the lender receiving CLP status shall continue to be governed by the
forms and agreements executed between the lender and the Agency for
those loans.
(d) Renewal of CLP status. Renewal of CLP status is not automatic.
CLP status will lapse upon the expiration date of Form 4279-8 unless
the lender obtains a renewal. A lender whose CLP status has lapsed may
continue to submit loan guarantee requests as a regular lender. A new
Form 4279-8 completed and executed by the lender must be provided,
along with a written update of the eligibility criteria required by
this section for CLP approval. This information must be supplied at
least 60 days prior to the expiration of the existing agreement to be
assured of uninterrupted status. The information must address how the
lender is complying with each of the required criteria described in
paragraph (b) of this section. It must include any proposed changes in
the designated
[[Page 67637]]
persons for processing guaranteed loans or operating methods used in
processing and servicing Agency guaranteed loans.
(e) Revocation of CLP status. The lender's CLP status may be
revoked at any time for cause. The debarment of a lender is an
additional alternative the Agency may consider. A lender which has lost
its CLP status, but has not been debarred and still meets the
requirements of Sec. 4279.29 of this subpart may continue to submit
loan guarantee requests as a regular lender. Cause for revoking CLP
status includes:
(1) Failure to maintain status as an eligible lender as set forth
in Sec. 4279.29 of this subpart;
(2) Knowingly submitting false information when requesting a
guarantee or basing a guarantee request on information known to be
false or which the lender should have known to be false;
(3) Making a guaranteed loan with deficiencies which may cause
losses not to be covered by the Loan Note Guarantee;
(4) Conviction for acts in connection with any loan transaction
whether or not the loan was guaranteed by the Agency;
(5) Violation of usury laws in connection with any loan guaranteed
by the Agency;
(6) Failure to obtain the required security for any loan guaranteed
by the Agency;
(7) Using loan funds guaranteed by the Agency for purposes other
than those specifically approved by the Agency in the Conditional
Commitment;
(8) Violation of any term of the Lender's Agreement;
(9) Failure to correct any cited deficiency in loan documents in a
timely manner;
(10) Failure to submit reports required by the Agency in a timely
manner;
(11) Failure to process Agency guaranteed loans in a reasonably
prudent manner;
(12) Failure to provide for adequate construction planning and
monitoring in connection with any loan to ensure that the project will
be completed with the available funds and, once completed, will be
suitable for the borrower's needs;
(13) Repetitive recommendations for guaranteed loans with marginal
or substandard credit quality or that do not comply with Agency
requirements;
(14) Repetitive recommendations for servicing actions that do not
comply with Agency requirements;
(15) Negligent servicing; or
(16) Failure to conduct any approved liquidation of a loan
guaranteed by the Agency or its predecessors in a timely and effective
manner and in accordance with the approved liquidation plan.
(f) General loan processing and servicing guidelines. All requests
for guaranteed loans will be processed and serviced under subparts A
and B of this part and subpart B of part 4287 of this chapter except as
modified by this section. When determining whether or not to request a
guarantee for a proposed loan, lenders must consider the priorities set
forth in Sec. 279.155 of subpart B of this part.
(1) Prior to processing an application, the CLP lender may give
written notice to the State Director of its intention to submit an
application. Upon receipt of such written notice, the Agency will
notify the CLP lender whether or not there is sufficient guarantee
authority for the loan. Such guarantee authority will be held for 30
days pending receipt of the application. If a complete application for
which guarantee authority is being held is not received within 30 days
of the notice of intent to file or is rejected, the guarantee authority
for this application will no longer be held in reserve. Notwithstanding
the preceding, no guarantee authority will be held in reserve the last
60 days of the Agency's fiscal year.
(2) Refinancing of existing lender debt in accordance with
Sec. 4279.113(q) of subpart B of this part will not be permitted
without prior Agency approval.
(3) CLP lenders will process all guaranteed loans as a ``complete
application'' by obtaining and completing all items required by
Sec. 4279.161(b) of subpart B of this part. The CLP lender must
maintain all information required by Sec. 4279.161(b) in its loan file
and determine that such material complies with all requirements.
(4) CLP lenders will make all material relating to any guarantee
application available to the Agency upon request.
(5) At the time of the Agency's issuance of the Loan Note
Guarantee, the CLP lender will provide the Agency with copies of the
following documents:
(i) Executed Loan Agreement;
(ii) Executed Promissory Notes; and
(iii) Executed security documents including personal and corporate
guarantees.
(g) Unique characteristics of the CLP. A proposed loan by a CLP
lender requires a review by the Agency of the information submitted by
the lender, plus satisfactory completion of the environmental review
process by the Agency. The Agency may rely on the lender's credit
analysis.
(1) The following will constitute a complete application submitted
by a CLP lender:
(i) Form 4279-1, ``Application for Loan Guarantee (Business and
Industry),'' (marked with the letters ``CLP'' at the top) completed in
its entirety and executed by the borrower and CLP lender;
(ii) Copy of the proposed Loan Agreement or a list of proposed
requirements;
(iii) Form FmHA 1940-20, completed and signed, with attachments;
(iv) The lender's complete written analysis of the proposal,
including spreadsheets of the balance sheets and income statements for
the 3 previous years (for existing businesses), pro forma balance sheet
at startup, and 2 years projected yearend balance sheets and income
statements, with appropriate ratios and comparisons with industry
standards (such as Dun & Bradstreet or Robert Morris Associates). All
data must be shown in total dollars and also in common size form,
obtained by expressing all balance sheet items as a percentage of
assets and all income and expense items as a percentage of sales. The
lender's credit analysis must include the borrower's management,
repayment ability including a cash flow analysis, history of debt
repayment, necessity of any debt refinancing, and the credit reports of
the borrower, its principals, and any parent, affiliate, or subsidiary;
(v) Intergovernmental consultation comments in accordance with 7
CFR part 3015, subpart V; and
(vi) If the loan will exceed $1 million and will increase direct
employment by more than 50 employees, Form 4279-2, ``Certification of
Non-Relocation and Market Capacity Information Report,'' must be
completed by the lender. For such loans, the Agency will submit Form
4279-2 to the Department of Labor and obtain clearance before a
Conditional Commitment may be issued.
(2) The Agency will make the final credit decision based primarily
on a review of the credit analysis submitted by the lender and approval
of the Agency's completed environmental analysis, if required, except
that refinancing of existing lender debt in accordance with
Sec. 4279.113(q) of subpart B of this part will not be approved without
a credit analysis by the Agency of the borrower's complete financial
statements; and completion by the Agency of the environmental analysis.
The Agency may request such additional information as it determines is
needed to make a decision.
[[Page 67638]]
(h) Lender loan servicing responsibilities. CLP lenders will be
fully responsible for all aspects of loan servicing and, if necessary,
liquidation as described in subpart B of part 4287 of this chapter.
Sec. 4279.44 Access to records.
The lender will permit representatives of the Agency (or other
agencies of the United States) to inspect and make copies of any
records of the lender pertaining to the Agency guaranteed loans during
regular office hours of the lender or at any other time upon agreement
between the lender and the Agency.
Secs. 4279.45-4279.57 [Reserved]
Sec. 4279.58 Equal Credit Opportunity Act.
In accordance with title V of Public Law 93-495, the Equal Credit
Opportunity Act, with respect to any aspect of a credit transaction,
neither the lender nor the Agency will discriminate against any
applicant on the basis of race, color, religion, national origin, sex,
marital status or age (providing the applicant has the capacity to
contract), or because all or part of the applicant's income derives
from a public assistance program, or because the applicant has, in good
faith, exercised any right under the Consumer Protection Act. The
lender will comply with the requirements of the Equal Credit
Opportunity Act as contained in the Federal Reserve Board's Regulation
implementing that Act (see 12 CFR part 202). Such compliance will be
accomplished prior to loan closing.
Sec. 4279.59 [Reserved]
Sec. 4279.60 Civil Rights Impact Analysis
The Agency is responsible for ensuring that all requirements of
FmHA Instruction 2006-P, ``Civil Rights Impact Analysis'' are met and
will complete the appropriate level of review in accordance with that
instruction.
Secs. 4279.61-4279.70 [Reserved]
Sec. 4279.71 Public bodies and nonprofit corporations.
Any public body or nonprofit corporation that receives a guaranteed
loan that meets the thresholds established by OMB Circulars A-128 or A-
133 or successor regulations or circulars must provide an audit in
accordance with the applicable circular or regulation for the fiscal
year (of the borrower) in which the Loan Note Guarantee is issued. If
the loan is for development or purchases made in a previous fiscal year
through interim financing, an audit will also be provided for the
fiscal year in which the development or purchases occurred. Any audit
provided by a public body or nonprofit corporation in compliance with
OMB Circulars A-128 or A-133 or their successors will be considered
adequate to meet the audit requirements of the B&I program for that
year.
Sec. 4279.72 Conditions of guarantee.
A loan guarantee under this part will be evidenced by a Loan Note
Guarantee issued by the Agency. Each lender will execute a Lender's
Agreement. If a valid Lender's Agreement already exists, it is not
necessary to execute a new Lender's Agreement with each loan guarantee.
The provisions of this part and part 4287 of this chapter will apply to
all outstanding guarantees. In the event of a conflict between the
guarantee documents and these regulations as they exist at the time the
documents are executed, the regulations will control.
(a) Full faith and credit. A guarantee under this part constitutes
an obligation supported by the full faith and credit of the United
States and is incontestable except for fraud or misrepresentation of
which a lender or holder has actual knowledge at the time it becomes
such lender or holder or which a lender or holder participates in or
condones. The guarantee will be unenforceable to the extent that any
loss is occasioned by a provision for interest on interest. In
addition, the guarantee will be unenforceable by the lender to the
extent any loss is occasioned by the violation of usury laws, negligent
servicing, or failure to obtain the required security regardless of the
time at which the Agency acquires knowledge thereof. Any losses
occasioned will be unenforceable to the extent that loan funds are used
for purposes other than those specifically approved by the Agency in
its Conditional Commitment. The Agency will guarantee payment as
follows:
(1) To any holder, 100 percent of any loss sustained by the holder
on the guaranteed portion of the loan and on interest due on such
portion.
(2) To the lender, the lesser of:
(i) Any loss sustained by the lender on the guaranteed portion,
including principal and interest evidenced by the notes or assumption
agreements and secured advances for protection and preservation of
collateral made with the Agency's authorization; or
(ii) The guaranteed principal advanced to or assumed by the
borrower and any interest due thereon.
(b) Rights and liabilities. When a guaranteed portion of a loan is
sold to a holder, the holder shall succeed to all rights of the lender
under the Loan Note Guarantee to the extent of the portion purchased.
The lender will remain bound to all obligations under the Loan Note
Guarantee, Lender's Agreement, and the Agency program regulations. A
guarantee and right to require purchase will be directly enforceable by
a holder notwithstanding any fraud or misrepresentation by the lender
or any unenforceability of the guarantee by the lender, except for
fraud or misrepresentation of which the holder had actual knowledge at
the time it became the holder or in which the holder participates or
condones. In the event of material fraud, negligence or
misrepresentation by the lender or the lender's participation in or
condoning of such material fraud, negligence or misrepresentation, the
lender will be liable for payments made by the Agency to any holder.
(c) Payments. A lender will receive all payments of principal and
interest on account of the entire loan and will promptly remit to the
holder its pro rata share thereof, determined according to its
respective interest in the loan, less only the lender's servicing fee.
Secs. 4279.73-4279.74 [Reserved]
Sec. 4279.75 Sale or assignment of guaranteed loan.
The lender may sell all or part of the guaranteed portion of the
loan on the secondary market or retain the entire loan. The lender
shall not sell or participate any amount of the guaranteed or
unguaranteed portion of the loan to the borrower or members of the
borrower's immediate families, officers, directors, stockholders, other
owners, or a parent, subsidiary or affiliate. If the lender desires to
market all or part of the guaranteed portion of the loan at or
subsequent to loan closing, such loan must not be in default. Loans
made with the proceeds of any obligation the interest on which is
excludable from income under 26 U.S.C. 103 (interest on State and local
banks) or any successor section will not be guaranteed.
(a) Single note system. The entire loan is evidenced by one note,
and one Loan Note Guarantee is issued. The lender may assign all or
part of the guaranteed portion of the loan to one or more holders by
using the Agency's Assignment Guarantee Agreement. The holder, upon
written notice to the lender and the Agency, may reassign the unpaid
guaranteed portion of the loan sold under the Assignment Guarantee
Agreement. Upon notification and completion of the assignment through
the use of Form 4279-6, the assignee shall succeed to all rights and
obligations of the holder thereunder. If
[[Page 67639]]
this option is selected, the lender may not at a later date cause any
additional notes to be issued.
(b) Multinote system. Under this option the lender may provide one
note for the unguaranteed portion of the loan and no more than 10 notes
for the guaranteed portion. When this option is selected by the lender,
the holder will receive one of the borrower's executed notes and a Loan
Note Guarantee. The Agency will issue a Loan Note Guarantee for each
note, including the unguaranteed note, to be attached to the note. An
Assignment Guarantee Agreement will not be used when the multinote
option is utilized.
(c) After loan closing. If a loan is closed using the multinote
option and at a later date additional notes are desired, the lender may
cause a series of new notes, so that the total number of notes issued
does not exceed the total number provided for in paragraph (b) of this
section, to be issued as replacement for previously issued guaranteed
notes, provided:
(1) Written approval of the Agency is obtained;
(2) The borrower agrees and executes the new notes;
(3) The interest rate does not exceed the interest rate in effect
when the loan was closed;
(4) The maturity date of the loan is not changed;
(5) The Agency will not bear or guarantee any expenses that may be
incurred in reference to such reissuances of notes;
(6) There is adequate collateral securing the notes;
(7) No intervening liens have arisen or have been perfected and the
secured lien priority is better or remains the same; and
(8) All holders agree.
(d) Termination of lender servicing fee. The lender's servicing fee
will stop when the Agency purchases the guaranteed portion of the loan
from the secondary market. No such servicing fee may be charged to the
Agency and all loan payments and collateral proceeds received will be
applied first to the guaranteed loan and, when applied to the
guaranteed loan, will be applied on a pro rata basis.
Sec. 4279.76 Participation.
The lender may obtain participation in the loan under its normal
operating procedures; however, the lender must retain title to the
notes if any of them are unguaranteed and retain the lender's interest
in the collateral.
Sec. 4279.77 Minimum retention.
The lender is required to hold in its own portfolio a minimum of 5
percent of the total loan amount. The amount required to be maintained
must be of the unguaranteed portion of the loan and cannot be
participated to another. The lender may sell the remaining amount of
the unguaranteed portion of the loan only through participation.
Sec. 4279.78 Repurchase from holder.
(a) Repurchase by lender. A lender has the option to repurchase the
unpaid guaranteed portion of the loan from a holder within 30 days of
written demand by the holder when the borrower is in default not less
than 60 days on principal or interest due on the loan; or the lender
has failed to remit to the holder its pro rata share of any payment
made by the borrower within 30 days of the lender's receipt thereof.
The repurchase by the lender will be for an amount equal to the unpaid
guaranteed portion of principal and accrued interest less the lender's
servicing fee. The holder must concurrently send a copy of the demand
letter to the Agency. The guarantee will not cover the note interest to
the holder on the guaranteed loan accruing after 90 days from the date
of the demand letter to the lender requesting the repurchase. The
lender will accept an assignment without recourse from the holder upon
repurchase. The lender is encouraged to repurchase the loan to
facilitate the accounting of funds, resolve the problem, and prevent
default, where and when reasonable. The lender will notify the holder
and the Agency of its decision.
(b) Agency purchase. (1) If the lender does not repurchase the
unpaid guaranteed portion of the loan as provided in paragraph (a) of
this section, the Agency will purchase from the holder the unpaid
principal balance of the guaranteed portion together with accrued
interest to date of repurchase, less the lender's servicing fee, within
30 days after written demand to the Agency from the holder. (This is in
addition to the copy of the written demand on the lender.) The
guarantee will not cover the note interest to the holder on the
guaranteed loan accruing after 90 days from the date of the original
demand letter of the holder to the lender requesting the repurchase.
(2) The holder's demand to the Agency must include a copy of the
written demand made upon the lender. The holder must also include
evidence of its right to require payment from the Agency. Such evidence
will consist of either the original of the Loan Note Guarantee properly
endorsed to the Agency or the original of the Assignment Guarantee
Agreement properly assigned to the Agency without recourse including
all rights, title, and interest in the loan. The holder must include in
its demand the amount due including unpaid principal, unpaid interest
to date of demand, and interest subsequently accruing from date of
demand to proposed payment date. The Agency will be subrogated to all
rights of the holder.
(3) The Agency will notify the lender of its receipt of the
holder's demand for payment. The lender must promptly provide the
Agency with the information necessary for the Agency to determine the
appropriate amount due the holder. Upon request by the Agency, the
lender will furnish a current statement certified by an appropriate
authorized officer of the lender of the unpaid principal and interest
then owed by the borrower on the loan and the amount then owed to any
holder. Any discrepancy between the amount claimed by the holder and
the information submitted by the lender must be resolved between the
lender and the holder before payment will be approved. Such conflict
will suspend the running of the 30 day payment requirement.
(4) Purchase by the Agency neither changes, alters, nor modifies
any of the lender's obligations to the Agency arising from the loan or
guarantee nor does it waive any of Agency's rights against the lender.
The Agency will have the right to set-off against the lender all rights
inuring to the Agency as the holder of the instrument against the
Agency's obligation to the lender under the guarantee.
(c) Repurchase for servicing. If, in the opinion of the lender,
repurchase of the guaranteed portion of the loan is necessary to
adequately service the loan, the holder must sell the guaranteed
portion of the loan to the lender for an amount equal to the unpaid
principal and interest on such portion less the lender's servicing fee.
The guarantee will not cover the note interest to the holder on the
guaranteed loan accruing after 90 days from the date of the demand
letter of the lender or the Agency to the holder requesting the holder
to tender its guaranteed portion. The lender must not repurchase from
the holder for arbitrage or other purposes to further its own financial
gain. Any repurchase must only be made after the lender obtains the
Agency's written approval. If the lender does not repurchase the
portion from the holder, the Agency may, at its option, purchase such
guaranteed portion for servicing purposes.
[[Page 67640]]
Secs. 4279.79-4279.83 [Reserved]
Sec. 4279.84 Replacement of document.
(a) The Agency may issue a replacement Loan Note Guarantee or
Assignment Guarantee Agreement which was lost, stolen, destroyed,
mutilated, or defaced to the lender or holder upon receipt of an
acceptable certificate of loss and an indemnity bond.
(b) When a Loan Note Guarantee or Assignment Guarantee Agreement is
lost, stolen, destroyed, mutilated, or defaced while in the custody of
the lender or holder, the lender will coordinate the activities of the
party who seeks the replacement documents and will submit the required
documents to the Agency for processing. The requirements for
replacement are as follows:
(1) A certificate of loss, notarized and containing a jurat, which
includes:
(i) Name and address of owner;
(ii) Name and address of the lender of record;
(iii) Capacity of person certifying;
(iv) Full identification of the Loan Note Guarantee or Assignment
Guarantee Agreement including the name of the borrower, the Agency's
case number, date of the Loan Note Guarantee or Assignment Guarantee
Agreement, face amount of the evidence of debt purchased, date of
evidence of debt, present balance of the loan, percentage of guarantee,
and, if an Assignment Guarantee Agreement, the original named holder
and the percentage of the guaranteed portion of the loan assigned to
that holder. Any existing parts of the document to be replaced must be
attached to the certificate;
(v) A full statement of circumstances of the loss, theft, or
destruction of the Loan Note Guarantee or Assignment Guarantee
Agreement; and
(vi) For the holder, evidence demonstrating current ownership of
the Loan Note Guarantee and Note or the Assignment Guarantee Agreement.
If the present holder is not the same as the original holder, a copy of
the endorsement of each successive holder in the chain of transfer from
the initial holder to present holder must be included if in existence.
If copies of the endorsement cannot be obtained, best available records
of transfer must be submitted to the Agency (e.g., order confirmation,
canceled checks, etc.).
(2) An indemnity bond acceptable to the Agency shall accompany the
request for replacement except when the holder is the United States, a
Federal Reserve Bank, a Federal corporation, a State or territory, or
the District of Columbia. The bond shall be with surety except when the
outstanding principal balance and accrued interest due the present
holder is less than $1 million verified by the lender in writing in a
letter of certification of balance due. The surety shall be a qualified
surety company holding a certificate of authority from the Secretary of
the Treasury and listed in Treasury Department Circular 580.
(3) All indemnity bonds must be issued and payable to the United
States of America acting through the USDA. The bond shall be in an
amount not less than the unpaid principal and interest. The bond shall
hold USDA harmless against any claim or demand which might arise or
against any damage, loss, costs, or expenses which might be sustained
or incurred by reasons of the loss or replacement of the instruments.
(4) In those cases where the guaranteed loan was closed under the
provision of the multinote system, the Agency will not attempt to
obtain, or participate in the obtaining of, replacement notes from the
borrower. It will be the responsibility of the holder to bear costs of
note replacement if the borrower agrees to issue a replacement
instrument. Should such note be replaced, the terms of the note cannot
be changed. If the evidence of debt has been lost, stolen, destroyed,
mutilated or defaced, such evidence of debt must be replaced before the
Agency will replace any instruments.
Secs. 4279.85-4279.99 [Reserved]
Sec. 4279.100 OMB control number.
The information collection requirements contained in this
regulation have been approved by OMB and have been assigned OMB control
number 0575-0171. Public reporting burden for this collection of
information is estimated to vary from 1 hour to 8 hours per response,
with an average of 4 hours per response, including time for 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 the Department of
Agriculture, Clearance Officer, OIRM, Stop 7630, Washington, D.C.
20250. You are not required to respond to this collection of
information unless it displays a currently valid OMB control number.
Subpart B--Business and Industry Loans
Sec. 4279.101 Introduction.
(a) Content. This subpart contains loan processing regulations for
the Business and Industry (B&I) Guaranteed Loan Program. It is
supplemented by subpart A of this part, which contains general
guaranteed loan regulations, and subpart B of part 4287 of this
chapter, which contains loan servicing regulations.
(b) Purpose. The purpose of the B&I Guaranteed Loan Program is to
improve, develop, or finance business, industry, and employment and
improve the economic and environmental climate in rural communities.
This purpose is achieved by bolstering the existing private credit
structure through the guarantee of quality loans which will provide
lasting community benefits. It is not intended that the guarantee
authority will be used for marginal or substandard loans or for relief
of lenders having such loans.
(c) Documents. Copies of all forms, regulations, and Instructions
referenced in this subpart are available in any Agency office.
Sec. 4279.102 Definitions.
The definitions and abbreviations in Sec. 4279.2 of subpart A of
this part are applicable to this subpart.
Secs. 4279.103 Exception Authority.
Section 4279.15 of subpart A of this part applies to this subpart.
Sec. 4279.104 Appeals.
Section 4279.16 of subpart A of this part applies to this subpart.
Sec. 4279.105-4279.106 [Reserved]
Sec. 4279.107 Guarantee fee.
The guarantee fee will be paid to the Agency by the lender and is
nonrefundable. The fee may be passed on to the borrower. Except as
provided in this section, the guarantee fee will be 2 percent
multiplied by the principal loan amount multiplied by the percent of
guarantee and will be paid one time only at the time the Loan Note
Guarantee is issued.
(a) The guarantee fee may be reduced to 1 percent if the Agency
determines that the business meets the following criteria:
(1) High impact business development investment (It is the goal of
this program to encourage high impact business investment in rural
areas. The weight given to business investments will be in accordance
with Sec. 4279.155(b)(5) of this subpart); and
(2) The business is located in a community that is experiencing
long term population decline and job deterioration; or
(3) The business is located in a rural community that has remained
persistently poor over the last 60 years; or
[[Page 67641]]
(4) The business is located in a rural community that is
experiencing trauma as a result of natural disaster or that is
experiencing fundamental structural changes in its economic base.
(b) Each fiscal year, the Agency shall establish a limit on the
maximum portion of guarantee authority available for that fiscal year
that may be used to guarantee loans with a guarantee fee of 1 percent.
The limit will be announced by publishing a notice in the Federal
Register. Once the limit has been reached, the guarantee fee for all
additional loans obligated during the remainder of that fiscal year
will be 2 percent.
Sec. 4279.108 Eligible borrowers.
(a) Type of entity. A borrower may be a cooperative, corporation,
partnership, or other legal entity organized and operated on a profit
or nonprofit basis; an Indian tribe on a Federal or State reservation
or other Federally recognized tribal group; a public body; or an
individual. A borrower must be engaged in or proposing to engage in a
business. Business may include manufacturing, wholesaling, retailing,
providing services, or other activities that will:
(1) Provide employment;
(2) Improve the economic or environmental climate;
(3) Promote the conservation, development, and use of water for
aquaculture; or
(4) Reduce reliance on nonrenewable energy resources by encouraging
the development and construction of solar energy systems.
(b) Citizenship. Individual borrowers must be citizens of the
United States (U.S.) or reside in the U.S. after being legally admitted
for permanent residence. Citizens and residents of the Republic of
Palau, the Federated States of Micronesia, and the Republic of the
Marshall Islands shall be considered U.S. citizens. Corporations or
other nonpublic body organization-type borrowers must be at least 51
percent owned by persons who are either citizens of the U.S. or reside
in the U.S. after being legally admitted for permanent residence.
(c) Rural area. The business financed with a B&I Guaranteed Loan
must be located in a rural area. Loans to borrowers with facilities
located in both urban and rural areas will be limited to the amount
necessary to finance the facility located in the eligible rural area.
(1) Rural areas include all territory of a State that is:
(i) Not within the outer boundary of any city having a population
of 50,000 or more; and
(ii) Not within an area that is urbanized or urbanizing as defined
in this section.
(2) All density determinations will be made on the basis of minor
civil divisions or census county divisions as used by the Bureau of the
Census in the latest decennial census of the U.S. In making the density
calculations, large nonresidential tracts devoted to urban land uses
such as railroad yards, airports, industrial sites, parks, golf
courses, cemeteries, office parks, shopping malls, or land set aside
for such purposes will be excluded.
(3) An urbanized area is an area immediately adjacent to a city
with a population of 50,000 or more, that for general social and
economic purposes forms a single community with such a city. An
urbanizing area is an area immediately adjacent to a city with a
population of 50,000 or more with a population density of more than 100
persons per square mile or is an area with a population density of less
than 100 persons per square mile which appears likely, based on
development and population trends, to become urbanized in the
foreseeable future. The corporate status of an urbanized or urbanizing
area is not material. An area located in recognizable open country or
separated from any city of 50,000 or more population by recognizable
open country or by a river, will be assumed to be not urbanized or
urbanizing.
(d) Other credit. All applications for assistance will be accepted
and processed without regard to the availability of credit from any
other source.
Secs. 4279.109-4279.112 [Reserved]
Sec. 4279.113 Eligible loan purposes.
Loan purposes must be consistent with the general purpose contained
in Sec. 4279.101 of this subpart. They include but are not limited to
the following:
(a) Business and industrial acquisitions when the loan will keep
the business from closing, prevent the loss of employment
opportunities, or provide expanded job opportunities.
(b) Business conversion, enlargement, repair, modernization, or
development.
(c) Purchase and development of land, easements, rights-of-way,
buildings, or facilities.
(d) Purchase of equipment, leasehold improvements, machinery,
supplies, or inventory.
(e) Pollution control and abatement.
(f) Transportation services incidental to industrial development.
(g) Startup costs and working capital.
(h) Agricultural production, when not eligible for Farm Service
Agency (FSA) farmer program assistance and when it is part of an
integrated business also involved in the processing of agricultural
products.
(1) Examples of potentially eligible production include but are not
limited to: An apple orchard in conjunction with a food processing
plant; poultry buildings linked to a meat processing operation; or
sugar beet production coupled with storage and processing. Any
agricultural production considered for B&I financing must be owned,
operated, and maintained by the business receiving the loan for which a
guarantee is provided. Independent agricultural production operations,
even if not eligible for FSA farmer programs assistance, are not
eligible for the B&I program.
(2) The agricultural-production portion of any loan will not exceed
50 percent of the total loan or $1 million, whichever is less.
(i) Purchase of membership, stocks, bonds, or debentures necessary
to obtain a loan from Farm Credit System institutions and other lenders
provided that the purchase is required for all of their borrowers.
Purchase of startup cooperative stock for family-sized farms where
commodities are produced to be processed by the cooperative.
(j) Aquaculture, including conservation, development, and
utilization of water for aquaculture.
(k) Commercial fishing.
(l) Commercial nurseries engaged in the production of ornamental
plants and trees and other nursery products such as bulbs, flowers,
shrubbery, flower and vegetable seeds, sod, and the growing of plants
from seed to the transplant stage.
(m) Forestry, which includes businesses primarily engaged in the
operation of timber tracts, tree farms, and forest nurseries and
related activities such as reforestation.
(n) The growing of mushrooms or hydroponics.
(o) Interest (including interest on interim financing) during the
period before the first principal payment becomes due or when the
facility becomes income producing, whichever is earlier.
(p) Feasibility studies.
(q) To refinance outstanding debt when it is determined that the
project is viable and refinancing is necessary to improve cash flow and
create new or save existing jobs. Existing lender debt may be included
provided that, at the time of application, the loan has been current
for at least the past 12 months (unless such status is achieved by the
lender forgiving the borrower's debt), the lender is providing better
rates or terms, and the refinancing is a
[[Page 67642]]
secondary part (less than 50 percent) of the overall loan.
(r) Takeout of interim financing. Guaranteeing a loan after project
completion to pay off a lender's interim loan will not be treated as
debt refinancing provided that the lender submits a complete
preapplication or application which proposes such interim financing
prior to completing the interim loan. A lender that is considering an
interim loan should be advised that the Agency assumes no
responsibility or obligation for interim loans advanced prior to the
Conditional Commitment being issued.
(s) Fees and charges for professional services and routine lender
fees.
(t) Agency guarantee fee.
(u) Tourist and recreation facilities, including hotels, motels,
and bed and breakfast establishments, except as prohibited under
ineligible purposes.
(v) Educational or training facilities.
(w) Community facility projects which are not listed as an
ineligible loan purpose such as convention centers.
(x) Constructing or equipping facilities for lease to private
businesses engaged in commercial or industrial operations.
(y) The financing of housing development sites provided that the
community demonstrates a need for additional housing to prevent a loss
of jobs in the area or to house families moving to the area as a result
of new employment opportunities.
(z) Community antenna television services or facilities.
(aa) Provide loan guarantees to assist industries adjusting to
terminated Federal agricultural programs or increased foreign
competition.
Sec. 4279.114 Ineligible purposes.
(a) Distribution or payment to an individual owner, partner,
stockholder, or beneficiary of the borrower or a close relative of such
an individual when such individual will retain any portion of the
ownership of the borrower.
(b) Projects in excess of $1 million that would likely result in
the transfer of jobs from one area to another and increase direct
employment by more than 50 employees.
(c) Projects in excess of $1 million that would increase direct
employment by more than 50 employees, if the project would result in an
increase in the production of goods for which there is not sufficient
demand, or if the availability of services or facilities is
insufficient to meet the needs of the business.
(d) Charitable institutions, churches, or church-controlled or
fraternal organizations.
(e) Lending and investment institutions and insurance companies.
(f) Assistance to Government employees and military personnel who
are directors or officers or have a major ownership of 20 percent or
more in the business.
(g) Racetracks for the conduct of races by professional drivers,
jockeys, etc., where individual prizes are awarded in the amount of
$500 or more.
(h) Any business that derives more than 10 percent of annual gross
revenue from gambling activity.
(i) Any illegal business activity.
(j) Prostitution.
(k) Any line of credit.
(l) The guarantee of lease payments.
(m) The guarantee of loans made by other Federal agencies.
(n) Owner-occupied housing. Bed and breakfasts, storage facilities,
et al, are allowed when the pro rata value of the owner's living
quarters is deleted.
(o) Projects that are eligible for the Rural Rental Housing and
Rural Cooperative Housing loans under sections 515, 521, and 538 of the
Housing Act of 1949, as amended.
(p) Loans made with the proceeds of any obligation the interest on
which is excludable from income under 26 U.S.C. 103 or a successor
statute. Funds generated through the issuance of tax-exempt obligations
may neither be used to purchase the guaranteed portion of any Agency
guaranteed loan nor may an Agency guaranteed loan serve as collateral
for a tax-exempt issue. The Agency may guarantee a loan for a project
which involves tax-exempt financing only when the guaranteed loan funds
are used to finance a part of the project that is separate and distinct
from the part which is financed by the tax-exempt obligation, and the
guaranteed loan has at least a parity security position with the tax-
exempt obligation.
(q) The guarantee of loans where there may be, directly or
indirectly, a conflict of interest or an appearance of a conflict of
interest involving any action by the Agency.
(r) Golf courses.
Sec. 4279.115 Prohibition under Agency programs.
No B&I loans guaranteed by the Agency will be conditioned on any
requirement that the recipients of such assistance accept or receive
electric service from any particular utility, supplier, or cooperative.
Secs. 4279.116-4279.118 [Reserved]
Sec. 4279.119 Loan guarantee limits.
(a) Loan amount. The total amount of Agency loans to one borrower,
including the guaranteed and unguaranteed portions, the outstanding
principal and interest balance of any existing Agency guaranteed loans,
and new loan request, must not exceed $10 million. The Administrator
may, at the Administrator's discretion, grant an exception to the $10
million limit under the following circumstances:
(1) The project to be financed is a high-priority project. Priority
will be determined in accordance with the criteria contained in
Sec. 4279.155 of this subpart;
(2) The lender must document to the satisfaction of the Agency that
the loan will not be made and the project will not be completed if the
guarantee is not approved; and
(3) Under no circumstances will the total amount of guaranteed
loans to one borrower, including the guaranteed and unguaranteed
portions, the outstanding principal and interest balance of any
existing Agency guaranteed loans, and new loan request, exceed $25
million;
(4) The percentage of guarantee will not exceed 60 percent. No
exception to this requirement will be approved under paragraph (b) of
this section for loans exceeding $10 million; and
(5) Any request for a guaranteed loan exceeding the $10 million
limit must be submitted to the Agency in the form of a preapplication.
The preapplication must be submitted to the National Office for review
and concurrence before encouraging a full application.
(b) Percent of guarantee. The percentage of guarantee, up to the
maximum allowed by this section, is a matter of negotiation between the
lender and the Agency. The maximum percentage of guarantee is 80
percent for loans of $5 million or less, 70 percent for loans between
$5 and $10 million, and 60 percent for loans exceeding $10 million.
Notwithstanding the preceding, the Administrator may, at the
Administrator's discretion, grant an exception allowing guarantees of
up to 90 percent on loans of $10 million or less under the following
circumstances:
(1) The project to be financed is a high-priority project. Priority
will be determined in accordance with the criteria contained in
4279.155 of this subpart;
(2) The lender must document to the satisfaction of the Agency that
the loan will not be made and the project will not be completed if the
higher guarantee percentage is not approved; and
(3) The State Director may grant an exception for loans of up to 90
percent on loans of $2 million or less subject to the State Director's
delegated loan authority and meeting all of the conditions as set forth
in this section. In
[[Page 67643]]
cases where the State Director does not have the loan approval
authority to approve a loan of $2 million or less or the proposed
percentage, the case must be submitted to the National Office for
review.
(4) Each fiscal year, the Agency will establish a limit on the
maximum portion of guarantee authority available for that fiscal year
that may be used to guarantee loans with a guarantee percentage
exceeding 80 percent. The limit will be announced by publishing a
notice in the Federal Register. Once the limit has been reached, the
guarantee percentage for all additional loans guaranteed during the
remainder of that fiscal year will not exceed 80 percent.
Sec. 4279.120 Fees and charges.
(a) Routine lender fees. The lender may establish charges and fees
for the loan provided they are similar to those normally charged other
applicants for the same type of loan in the ordinary course of
business.
(b) Professional services. Professional services are those rendered
by entities generally licensed or certified by States or accreditation
associations, such as architects, engineers, packagers, accountants,
attorneys, or appraisers. The borrower may pay fees for professional
services needed for planning and developing a project provided that the
amounts are reasonable and customary in the area. Professional fees may
be included as an eligible use of loan proceeds.
Secs. 4279.121-4279.124 [Reserved]
Sec. 4279.125 Interest rates.
The interest rate for the guaranteed loan will be negotiated
between the lender and the applicant and may be either fixed or
variable as long as it is a legal rate. Interest rates will not be more
than those rates customarily charged borrowers in similar circumstances
in the ordinary course of business and are subject to Agency review and
approval. Lenders are encouraged to utilize the secondary market and
pass interest-rate savings on to the borrower.
(a) A variable interest rate agreed to by the lender and borrower
must be a rate that is tied to a base rate agreed to by the lender and
the Agency. The variable interest rate may be adjusted at different
intervals during the term of the loan, but the adjustments may not be
more often than quarterly and must be specified in the Loan Agreement.
The lender must incorporate, within the variable rate Promissory Note
at loan closing, the provision for adjustment of payment installments
coincident with an interest-rate adjustment. The lender will ensure
that the outstanding principal balance is properly amortized within the
prescribed loan maturity to eliminate the possibility of a balloon
payment at the end of the loan.
(b) Any change in the interest rate between the date of issuance of
the Conditional Commitment and before the issuance of the Loan Note
Guarantee must be approved in writing by the Agency approval official.
Approval of such a change will be shown as an amendment to the
Conditional Commitment.
(c) It is permissible to have one interest rate on the guaranteed
portion of the loan and another rate on the unguaranteed portion of the
loan provided that the rate on the guaranteed portion does not exceed
the rate on the unguaranteed portion.
(d) A combination of fixed and variable rates will be allowed.
Sec. 4279.126 Loan terms.
(a) The maximum repayment for loans on real estate will not exceed
30 years; machinery and equipment repayment will not exceed the useful
life of the machinery and equipment purchased with loan funds or 15
years, whichever is less; and working capital repayment will not exceed
7 years. The term for a loan that is being refinanced may be based on
the collateral the lender will take to secure the loan.
(b) The first installment of principal and interest will, if
possible, be scheduled for payment after the project is operational and
has begun to generate income. However, the first full installment must
be due and payable within 3 years from the date of the Promissory Note
and be paid at least annually thereafter. Interest-only payments will
be paid at least annually from the date of the note.
(c) Only loans which require a periodic payment schedule which will
retire the debt over the term of the loan without a balloon payment
will be guaranteed.
(d) A loan's maturity will take into consideration the use of
proceeds, the useful life of assets being financed, and the borrower's
ability to repay the loan. The lender may apply the maximum guidelines
specified above only when the loan cannot be repaid over a shorter
term.
(e) All loans guaranteed through the B&I program must be sound,
with reasonably assured repayment.
Secs. 4279.127-4279.130 [Reserved]
Sec. 4279.131 Credit quality.
The lender is primarily responsible for determining credit quality
and must address all of the elements of credit quality in a written
credit analysis including adequacy of equity, cash flow, collateral,
history, management, and the current status of the industry for which
credit is to be extended.
(a) Cash flow. All efforts will be made to structure or restructure
debt so that the business has adequate debt coverage and the ability to
accommodate expansion.
(b) Collateral. (1) Collateral must have documented value
sufficient to protect the interest of the lender and the Agency and,
except as set forth in paragraph (b)(2) of this section, the discounted
collateral value will be at least equal to the loan amount. Lenders
will discount collateral consistent with sound loan-to-value policy.
(2) Some businesses are predominantly cash-flow oriented, and where
cash flow and profitability are strong, loan-to-value coverage may be
discounted accordingly. A loan primarily based on cash flow must be
supported by a successful and documented financial history.
(c) Industry. Current status of the industry will be considered and
businesses in areas of decline will be required to provide strong
business plans which outline how they differ from the current trends.
The regulatory environment surrounding the particular business or
industry will be considered.
(d) Equity. A minimum of 10 percent tangible balance sheet equity
will be required for existing businesses at the time the Loan Note
Guarantee is issued. A minimum of 20 percent tangible balance sheet
equity will be required for new businesses at the time the Loan Note
Guarantee is issued. Tangible balance sheet equity will be determined
in accordance with Generally Accepted Accounting Principles.
Modifications to the equity requirements may be granted by the
Administrator or designee. For the Administrator to consider a
reduction in the equity requirement, the borrower must furnish the
following:
(1) Collateralized personal and corporate guarantees, including any
parent, subsidiary, or affiliated company, when feasible and legally
permissible (in accordance with 4279.149 of this subpart), and
(2) Pro forma and historical financial statements which indicate
the business to be financed meets or exceeds the median quartile (as
identified in Robert Morris Associates Annual Statement Studies or
similar publication) for the
[[Page 67644]]
current ratio, quick ratio, debt-to-worth ratio, debt coverage ratio,
and working capital.
(e) Lien priorities. The entire loan will be secured by the same
security with equal lien priority for the guaranteed and unguaranteed
portions of the loan. The unguaranteed portion of the loan will neither
be paid first nor given any preference or priority over the guaranteed
portion. A parity or junior position may be considered provided that
discounted collateral values are adequate to secure the loan in
accordance with paragraph (b) of this section after considering prior
liens.
(f) Management. A thorough review of key management personnel will
be completed to ensure that the business has adequately trained and
experienced managers.
Secs. 4279.132-4279.136 [Reserved]
Sec. 4279.137 Financial statements.
(a) The lender will determine the type and frequency of submission
of financial statements by the borrower. At a minimum, annual financial
statements prepared by an accountant in accordance with Generally
Accepted Accounting Principles will be required.
(b) If specific circumstances warrant and the proposed guaranteed
loan will exceed $3 million, the Agency may require annual audited
financial statements. For example, the need for audited financial
statements will be carefully considered in connection with loans that
depend heavily on inventory and accounts receivable for collateral.
Sec. Sec. 4279.138-4279.142 [Reserved]
Sec. 4279.143 Insurance.
(a) Hazard. Hazard insurance with a standard mortgage clause naming
the lender as beneficiary will be required on every loan in an amount
that is at least the lesser of the depreciated replacement value of the
collateral or the amount of the loan. Hazard insurance includes fire,
windstorm, lightning, hail, explosion, riot, civil commotion, aircraft,
vehicle, marine, smoke, builder's risk during construction by the
business, and property damage.
(b) Life. The lender may require life insurance to insure against
the risk of death of persons critical to the success of the business.
When required, coverage will be in amounts necessary to provide for
management succession or to protect the business. The cost of insurance
and its effect on the applicant's working capital must be considered as
well as the amount of existing insurance which could be assigned
without requiring additional expense.
(c) Worker compensation. Worker compensation insurance is required
in accordance with State law.
(d) Flood. National flood insurance is required in accordance with
7 CFR, part 1806, subpart B (FmHA Instruction 426.2, available in any
field office or the National Office).
(e) Other. Public liability, business interruption, malpractice,
and other insurance appropriate to the borrower's particular business
and circumstances will be considered and required when needed to
protect the interests of the borrower.
Sec. 4279.144 Appraisals.
Lenders will be responsible for ensuring that appraisal values
adequately reflect the actual value of the collateral. All real
property appraisals associated with Agency guaranteed loanmaking and
servicing transactions will meet the requirements contained in the
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of
1989 and the appropriate guidelines contained in Standards 1 and 2 of
the Uniform Standards of Professional Appraisal Practices (USPAP). All
appraisals will include consideration of the potential effects from a
release of hazardous substances or petroleum products or other
environmental hazards on the market value of the collateral. For
additional guidance and information concerning the completion of real
property appraisals, refer to subpart A of part 1922 of this title and
to ``Standard Practices for Environmental Site Assessments: Transaction
Screen Questionnaire'' and ``Phase I Environmental Site Assessment,''
both published by the American Society of Testing and Materials.
Chattels will be evaluated in accordance with normal banking practices
and generally accepted methods of determining value.
Secs. 4279.145-4279.148 [Reserved]
Sec. 4279.149 Personal and corporate guarantees.
(a) Personal and corporate guarantees, when obtained, are part of
the collateral for the loan. However, the value of such guarantee is
not considered in determining whether a loan is adequately secured for
loanmaking purposes.
(b) Personal and corporate guarantees for those owning greater than
20 percent of the borrower will be required where legally permissible,
except as provided for in this section. Guarantees of parent,
subsidiaries, or affiliated companies and secured guarantees may also
be required.
(c) Exceptions to the requirements for personal guarantees must be
requested by the lender and concurred in by the Agency approval
official on a case-by- case basis. The lender must document that
collateral, equity, cash flow, and profitability indicate an above
average ability to repay the loan.
Sec. 4279.150 Feasibility studies.
A feasibility study by a qualified independent consultant may be
required by the Agency for start-up businesses or existing businesses
when the project will significantly affect the borrower's operations.
An acceptable feasibility study should include, but not be limited to,
economic, market, technical, financial, and management feasibility.
Secs. 4279.151-4279.154 [Reserved]
Sec. 4279.155 Loan priorities.
Applications and preapplications received by the Agency will be
considered in the order received; however, for the purpose of assigning
priorities as described in paragraph (b) of this section, the Agency
will compare an application to other pending applications.
(a) When applications on hand otherwise have equal priority,
applications for loans from qualified veterans will have preference.
(b) Priorities will be assigned by the Agency to eligible
applications on the basis of a point system as contained in this
section. The application and supporting information will be used to
determine an eligible proposed project's priority for available
guarantee authority. All lenders, including CLP lenders, will consider
Agency priorities when choosing projects for guarantee. The lender will
provide necessary information related to determining the score, as
requested.
(1) Population priority. Projects located in an unincorporated area
or in a city with under 25,000 population (10 points).
(2) Community priority. The priority score for community will be
the total score for the following categories:
(i) Located in an eligible area of long term population decline and
job deterioration based on reliable statistical data (5 points).
(ii) Located in a rural community that has remained persistently
poor over the last 60 years (5 points).
(iii) Located in a rural community that is experiencing trauma as a
result of natural disaster or experiencing fundamental structural
changes in its economic base (5 points).
[[Page 67645]]
(iv) Located in a city or county with an unemployment rate 125
percent of the statewide rate or greater (5 points).
(3) Empowerment Zone/Enterprise Community (EZ/EC).
(i) Located in an EZ/EC designated area (10 points).
(ii) Located in a designated Champion Community (5 points). A
Champion Community is a community which developed a strategic plan to
apply for an EZ/EC designation, but not selected as a designated EZ/EC
Community.
(4) Loan features. The priority score for loan features will be the
total score for the following categories:
(i) Lender will price the loan at the Wall Street Journal published
Prime Rate plus 1.5 percent or less (5 points).
(ii) Lender will price the loan at the Wall Street Journal
published Prime Rate plus 1 percent or less (5 points).
(iii) The Agency guaranteed loan is less than 50 percent of project
cost (5 points).
(iv) Percentage of guarantee is 10 or more percentage points less
than the maximum allowable for a loan of its size (5 points).
(5) High impact business investment priorities. The priority score
for high impact business investment will be the total score for the
following three categories:
(i) Industry. The priority score for industry will be the total
score for the following, except that the total score for industry
cannot exceed 10 points.
(A) Industry that has 20 percent or more of its sales in
international markets (5 points).
(B) Industry that is not already present in the community (5
points).
(ii) Business. The priority score for business will be the total
score for the following:
(A) Business that offers high value, specialized products and
services that command high prices (2 points).
(B) Business that provides an additional market for existing local
business (3 points).
(C) Business that is locally owned and managed (3 points).
(D) Business that will produce a natural resource value-added
product (2 points).
(iii) Occupations. The priority score for occupations will be the
total score for the following, except that the total score for job
quality cannot exceed 10 points:
(A) Business that creates jobs with an average wage exceeding 125
percent of the Federal minimum wage (5 points).
(B) Business that creates jobs with an average wage exceeding 150
percent of the Federal minimum wage (10 points).
(6) Administrative points. The State Director may assign up to 10
additional points to an application to account for such factors as
statewide distribution of funds, natural or economic emergency
conditions, or area economic development strategies. An explanation of
the assigning of these points by the State Director will be appended to
the calculation of the project score maintained in the case file. If an
application is considered in the National Office, the Administrator may
also assign up to an additional 10 points. The Administrator may assign
the additional points to an application to account for items such as
geographic distribution of funds and emergency conditions caused by
economic problems or natural disasters.
Sec. 4279.156 Planning and performing development.
(a) Design policy. The lender must ensure that all project
facilities must be designed utilizing accepted architectural and
engineering practices and must conform to applicable Federal, state,
and local codes and requirements. The lender will also ensure that the
project will be completed using the available funds and, once
completed, will be used for its intended purpose and produce products
in the quality and quantity proposed in the completed application
approved by the Agency.
(b) Project control. The lender will monitor the progress of
construction and undertake the reviews and inspections necessary to
ensure that construction conforms with applicable Federal, state, and
local code requirements; proceeds are used in accordance with the
approved plans, specifications, and contract documents; and that funds
are used for eligible project costs.
(c) Equal opportunity. For all construction contracts in excess of
$10,000, the contractor must comply with Executive Order 11246,
entitled ``Equal Employment Opportunity,'' as amended by Executive
Order 11375, and as supplemented by applicable Department of Labor
regulations (41 CFR, part 60). The borrower and lender are responsible
for ensuring that the contractor complies with these requirements.
(d) Americans with Disabilities Act (ADA). B&I Guaranteed Loans
which involve the construction of or addition to facilities that
accommodate the public and commercial facilities, as defined by the
ADA, must comply with the ADA. The lender and borrower are responsible
for compliance.
Secs. 4279.157-4279.160 [Reserved]
Sec. 4279.161 Filing preapplications and applications.
Borrowers and lenders are encouraged to file preapplications and
obtain Agency comments before completing an application. However, if
they prefer, they may file a complete application as the first contact
with the Agency. Neither preapplications nor applications will be
accepted or processed unless a lender has agreed to finance the
proposal.
(a) Preapplications. Lenders may file preapplications by submitting
the following to the Agency:
(1) A letter signed by the borrower and lender containing the
following:
(i) Borrower's name, organization type, address, contact person,
and federal tax identification and telephone numbers.
(ii) Amount of the loan request, percent of guarantee requested,
and the proposed rates and terms.
(iii) Name of the proposed lender, address, telephone number,
contact person, and lender's Internal Revenue Service (IRS)
identification number.
(iv) Brief description of the project, products, services provided,
and availability of raw materials and supplies.
(v) Type and number of jobs created or saved.
(vi) Amount of borrower's equity and a description of collateral,
with estimated values, to be offered as security for the loan.
(vii) If a corporate borrower, the names and addresses of the
borrower's parent, affiliates, and subsidiary firms, if any, and a
description of the relationship.
(2) A completed Form 4279-2, ``Certification of Non-Relocation and
Market Capacity Information Report,'' if the proposed loan is in excess
of $1 million and will increase direct employment by more than 50
employees.
(3) For existing businesses, a current balance sheet and a profit
and loss statement not more than 90 days old and financial statements
for the borrower and any parent, affiliates, and subsidiaries for at
least the 3 most recent years.
(4) For start-up businesses, a preliminary business plan must be
provided.
(b) Applications. Except for CLP lenders, applications will be
filed with the Agency by submitting the following information: (CLP
applications will be completed in accordance with 4279.43(g)(1) but CLP
lenders must have the material listed in this paragraph in their
files.)
[[Page 67646]]
(1) A completed Form 4279-1, ``Application for Loan Guarantee
(Business and Industry)''.
(2) The information required for filing a preapplication, as listed
above, if not previously filed or if the information has changed.
(3) Form FmHA 1940-20, ``Request for Environmental Information,''
and attachments, unless the project is categorically excluded under
Agency environmental regulations.
(4) A personal credit report from an acceptable credit reporting
company for a proprietor (owner), each partner, officer, director, key
employee, and stockholder owning 20 percent or more interest in the
applicant, except for those corporations listed on a major stock
exchange. Credit reports are not required for elected and appointed
officials when the applicant is a public body.
(5) Intergovernmental consultation comments in accordance with 7
CFR, part 3015, subpart V.
(6) Appraisals, accompanied by a copy of the appropriate
environmental site assessment, if available. (Agency approval in the
form of a Conditional Commitment may be issued subject to receipt of
adequate appraisals.)
(7) For all businesses, a current (not more than 90 days old)
balance sheet, a pro forma balance sheet at startup, and projected
balance sheets, income and expense statements, and cash flow statements
for the next 2 years. Projections should be supported by a list of
assumptions showing the basis for the projections.
(8) Lender's complete written analysis, including spreadsheets of
the balance sheets and income statements for the 3 previous years (for
existing businesses), pro forma balance sheet at startup, and 2 years
projected yearend balance sheets and income statements, with
appropriate ratios and comparisons with industrial standards (such as
Dun & Bradstreet or Robert Morris Associates). All data must be shown
in total dollars and also in common size form, obtained by expressing
all balance sheet items as a percentage of assets and all income and
expense items as a percentage of sales. The lender's credit analysis
must address the borrower's management, repayment ability including a
cash-flow analysis, history of debt repayment, necessity of any debt
refinancing, and the credit reports of the borrower, its principals,
and any parent, affiliate, or subsidiary.
(9) Commercial credit reports obtained by the lender on the
borrower and any parent, affiliate, and subsidiary firms.
(10) Current personal and corporate financial statements of any
guarantors.
(11) A proposed Loan Agreement or a sample Loan Agreement with an
attached list of the proposed Loan Agreement provisions. The Loan
Agreement must be executed by the lender and borrower before the Agency
issues a Loan Note Guarantee. The following requirements must be
addressed in the Loan Agreement:
(i) Prohibition against assuming liabilities or obligations of
others.
(ii) Restriction on dividend payments.
(iii) Limitation on the purchase or sale of equipment and fixed
assets.
(iv) Limitation on compensation of officers and owners.
(v) Minimum working capital or current ratio requirement.
(vi) Maximum debt-to-net worth ratio.
(vii) Restrictions concerning consolidations, mergers, or other
circumstances.
(viii) Limitations on selling the business without the concurrence
of the lender.
(ix) Repayment and amortization of the loan.
(x) List of collateral and lien priority for the loan including a
list of persons and corporations guaranteeing the loan with a schedule
for providing the lender with personal and corporate financial
statements. Financial statements on the corporate and personal
guarantors must be updated at least annually.
(xi) Type and frequency of financial statements to be required for
the duration of the loan.
(xii) The final Loan Agreement between the lender and borrower will
contain any additional requirements imposed by the Agency in its
Conditional Commitment.
(xiii) A section for the later insertion of any necessary measures
by the borrower to avoid or reduce adverse environmental impacts from
this proposal's construction or operation. Such measures, if necessary,
will be determined by the Agency through the completion of the
environmental review process.
(12) A business plan, which includes, at a minimum, a description
of the business and project, management experience, products and
services, proposed use of funds, availability of labor, raw materials
and supplies, and the names of any corporate parent, affiliates, and
subsidiaries with a description of the relationship. Any or all of
these requirements may be omitted if the information is included in a
feasibility study.
(13) Independent feasibility study, if required.
(14) For companies listed on a major stock exchange or subject to
the Securities and Exchange Commission (SEC) regulations, a copy of SEC
Form 10-K, ``Annual Report Pursuant to Section 13 or 15D of the Act of
1934.''
(15) For health care facilities, a certificate of need, if required
by statute.
(16) A certification by the lender that it has completed a
comprehensive analysis of the proposal, the applicant is eligible, the
loan is for authorized purposes, and there is reasonable assurance of
repayment ability based on the borrower's history, projections and
equity, and the collateral to be obtained.
(17) Any additional information required by the Agency.
Secs. 4279.162-4279.164 [Reserved]
Sec. 4279.165 Evaluation of application.
(a) General review. The Agency will evaluate the application and
make a determination whether the borrower is eligible, the proposed
loan is for an eligible purpose, there is reasonable assurance of
repayment ability, there is sufficient collateral and equity, and the
proposed loan complies with all applicable statutes and regulations. If
the Agency determines it is unable to guarantee the loan, the lender
will be informed in writing. Such notification will include the reasons
for denial of the guarantee.
(b) Environmental requirements. The environmental review process
must be completed, in accordance with subpart G of part 1940 of this
title, prior to the issuance of the Conditional Commitment, loan
approval, or obligation of funds, whichever occurs first.
Secs. 4279.166-4279.172 [Reserved]
Sec. 4279.173 Loan approval and obligating funds.
(a) Upon approval of a loan guarantee, the Agency will issue a
Conditional Commitment to the lender containing conditions under which
a Loan Note Guarantee will be issued.
(b) If certain conditions of the Conditional Commitment cannot be
met, the lender and applicant may propose alternate conditions. Within
the requirements of the applicable regulations and instructions and
prudent lending practices, the Agency may negotiate with the lender and
the applicant regarding any proposed changes to the Conditional
Commitment.
Sec. 4279.174 Transfer of lenders.
(a) The loan approval official may approve the substitution of a
new eligible lender in place of a former lender who holds an
outstanding Conditional Commitment when the
[[Page 67647]]
Loan Note Guarantee has not yet been issued provided, that there are no
changes in the borrower's ownership or control, loan purposes, or scope
of project and loan conditions in the Conditional Commitment and the
Loan Agreement remain the same.
(b) The new lender's servicing capability, eligibility, and
experience will be analyzed by the Agency prior to approval of the
substitution. The original lender will provide the Agency with a letter
stating the reasons it no longer desires to be a lender for the
project. The substituted lender must execute a new part B of Form 4279-
1.
Secs. 4279.175-4279.179 [Reserved]
Sec. 4279.180 Changes in borrower.
Any changes in borrower ownership or organization prior to the
issuance of the Loan Note Guarantee must meet the eligibility
requirements of the program and be approved by the Agency loan approval
official.
Sec. 4279.181 Conditions precedent to issuance of Loan Note Guarantee.
The Loan Note Guarantee will not be issued until the lender,
including a CLP lender, certifies to the following:
(a) No major changes have been made in the lender's loan conditions
and requirements since the issuance of the Conditional Commitment,
unless such changes have been approved by the Agency.
(b) All planned property acquisition has been or will be completed,
all development has been or will be substantially completed in
accordance with plans and specifications, conforms with applicable
Federal, state, and local codes, and costs have not exceeded the amount
approved by the lender and the Agency.
(c) Required hazard, flood, liability, worker compensation, and
personal life insurance, when required, are in effect.
(d) Truth-in-lending requirements have been met.
(e) All equal credit opportunity requirements have been met.
(f) The loan has been properly closed, and the required security
instruments have been obtained or will be obtained on any acquired
property that cannot be covered initially under State law.
(g) The borrower has marketable title to the collateral then owned
by the borrower, subject to the instrument securing the loan to be
guaranteed and to any other exceptions approved in writing by the
Agency.
(h) When required, the entire amount of the loan for working
capital has been disbursed except in cases where the Agency has
approved disbursement over an extended period of time.
(i) When required, personal, partnership, or corporate guarantees
have been obtained.
(j) All other requirements of the Conditional Commitment have been
met.
(k) Lien priorities are consistent with the requirements of the
Conditional Commitment. No claims or liens of laborers, subcontractors,
suppliers of machinery and equipment, or other parties have been or
will be filed against the collateral and no suits are pending or
threatened that would adversely affect the collateral when the security
instruments are filed.
(l) The loan proceeds have been or will be disbursed for purposes
and in amounts consistent with the Conditional Commitment and Form
4279-1. A copy of the detailed loan settlement of the lender must be
attached to support this certification.
(m) There has been neither any material adverse change in the
borrower's financial condition nor any other material adverse change in
the borrower, for any reason, during the period of time from the
Agency's issuance of the Conditional Commitment to issuance of the Loan
Note Guarantee regardless of the cause or causes of the change and
whether or not the change or causes of the change were within the
lender's or borrower's control. The lender must address any assumptions
or reservations in the requirement and must address all adverse changes
of the borrower, any parent, affiliate, or subsidiary of the borrower,
and guarantors.
(n) None of the lender's officers, directors, stockholders, or
other owners (except stockholders in an institution that has normal
stockshare requirements for participation) has a substantial financial
interest in the borrower and neither the borrower nor its officers,
directors, stockholders, or other owners has a substantial financial
interest in the lender. If the borrower is a member of the board of
directors or an officer of a Farm Credit System (FCS) institution that
is the lender, the lender will certify that an FCS institution on the
next highest level will independently process the loan request and act
as the lender's agent in servicing the account.
(o) The Loan Agreement includes all measures identified in the
Agency's environmental impact analysis for this proposal (measures with
which the borrower must comply) for the purpose of avoiding or reducing
adverse environmental impacts of the proposal's construction or
operation.
Sec. 4279.182-4279.185 [Reserved]
Sec. 4279.186 Issuance of the guarantee.
(a) When loan closing plans are established, the lender will notify
the Agency. Coincident with, or immediately after loan closing, the
lender will provide the following to the Agency:
(1) Lender's certifications as required by Sec. 4279.181.
(2) Executed Lender's Agreement.
(3) Form FmHA 1980-19, ``Guaranteed Loan Closing Report,'' and
appropriate guarantee fee.
(b) When the Agency is satisfied that all conditions for the
guarantee have been met, the Loan Note Guarantee and the following
documents, as appropriate, will be issued:
(1) Assignment Guarantee Agreement. In the event the lender uses
the single note option and assigns the guaranteed portion of the loan
to a holder, the lender, holder, and the Agency will execute the
Assignment Guarantee Agreement; and
(2) Certificate of Incumbency. If requested by the lender, the
Agency will provide the lender with a certification on Form 4279-7,
``Certificate of Incumbency and Signature (Business and Industry),'' of
the signature and title of the Agency official who signs the Loan Note
Guarantee, Lender's Agreement, and Assignment Guarantee Agreement.
(c) The Agency may, at its discretion, request copies of loan
documents for its file.
(d) There may be instances when not all of the working capital has
been disbursed, and it appears practical to disburse the balance over a
period of time. The State Director, after review of a disbursement
plan, may amend the Conditional Commitment in accordance with the
disbursement plan and issue the guarantee.
Sec. 4279.187 Refusal to execute Loan Note Guarantee.
If the Agency determines that it cannot execute the Loan Note
Guarantee, the Agency will promptly inform the lender of the reasons
and give the lender a reasonable period within which to satisfy the
objections. If the lender requests additional time in writing and
within the period allowed, the Agency may grant the request. If the
lender satisfies the objections within the time allowed, the guarantee
will be issued.
Secs. 4279.188-4279.199 [Reserved]
Sec. 4279.200 OMB control number.
The information collection requirements contained in this
[[Page 67648]]
regulation have been approved by OMB and have been assigned OMB control
number 0575-0170. Public reporting burden for this collection of
information is estimated to vary from 30 minutes to 54 hours per
response, with an average of 27 hours per response, including time for
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 the Department of
Agriculture, Clearance Officer, OIRM, Stop 7630, Washington, DC 20250.
You are not required to respond to this collection of information
unless it displays a currently valid OMB control number.
16. A new part 4287, consisting of Secs. 4287.101 through 4287.200,
is added to chapter XLII to read as follows:
PART 4287--SERVICING
Subpart A--[Reserved]
Subpart B--Servicing Business and Industry Guaranteed Loans
Sec.
4287.101 Introduction.
4287.102 Definitions.
4287.103 Exception Authority.
4287.104-4287.105 [Reserved]
4287.106 Appeals.
4287.107 Routine servicing.
4287.108-4287.111 [Reserved]
4287.112 Interest rate adjustments.
4287.113 Release of collateral.
4287.114-4287.122 [Reserved]
4287.123 Subordination of lien position.
4287.124 Alterations of loan instruments.
4287.125-4287.133 [Reserved]
4287.134 Transfer and assumption.
4287.135 Substitution of lender.
4287.136-4287.144 [Reserved]
4287.145 Default by borrower.
4287.146-4287.155 [Reserved]
4287.156 Protective advances.
4287.157 Liquidation.
4287.158 Determination of loss and payment.
4287.159-4287.168 [Reserved]
4287.169 Future recovery.
4287.170 Bankruptcy.
4287.171-4287.179 [Reserved]
4287.180 Termination of guarantee.
4287.181-4287.199 [Reserved]
4287.200 OMB control number.
Authority: 5 U.S.C. 301; 7 U.S.C. 1989
Subpart A--[Reserved]
Subpart B--Servicing Business and Industry Guaranteed Loans
Sec. 4287.101 Introduction.
(a) This subpart supplements part 4279, subparts A and B, by
providing additional requirements and instructions for servicing and
liquidating all Business and Industry (B&I) Guaranteed Loans. This
includes Drought and Disaster (D&D), Disaster Assistance for Rural
Business Enterprises (DARBE), and Business and Industry Disaster (BID)
loans.
(b) The lender will be responsible for servicing the entire loan
and will remain mortgagee and secured party of record notwithstanding
the fact that another party may hold a portion of the loan. The entire
loan will be secured by the same security with equal lien priority for
the guaranteed and unguaranteed portions of the loan. The unguaranteed
portion of a loan will neither be paid first nor given any preference
or priority over the guaranteed portion of the loan.
(c) Copies of all forms, regulations, and Instructions referenced
in this subpart are available in any Agency office. Whenever a form is
designated in this subpart, that designation includes predecessor and
successor forms, if applicable, as specified by the field or National
Office.
Sec. 4287.102 Definitions.
The definitions and abbreviations contained in Sec. 4279.2 of
subpart A of part 4279 of this chapter apply to this subpart.
Sec. 4287.103 Exception authority.
Section 4279.15 of subpart A of part 4279 of this chapter applies
to this subpart.
Secs. 4287.104-4287.105 [Reserved]
Sec. 4287.106 Appeals.
Section 4279.16 of subpart A of part 4279 of this chapter applies
to this subpart.
Sec. 4287.107 Routine servicing.
The lender is responsible for servicing the entire loan and for
taking all servicing actions that a prudent lender would perform in
servicing its own portfolio of loans that are not guaranteed. The Loan
Note Guarantee is unenforceable by the lender to the extent any loss is
occasioned by violation of usury laws, use of loan funds for
unauthorized purposes, negligent servicing, or failure to obtain the
required security interest regardless of the time at which the Agency
acquires knowledge of the foregoing. This responsibility includes but
is not limited to the collection of payments, obtaining compliance with
the covenants and provisions in the Loan Agreement, obtaining and
analyzing financial statements, checking on payment of taxes and
insurance premiums, and maintaining liens on collateral.
(a) Lender reports. The lender must report the outstanding
principal and interest balance on each guaranteed loan semiannually
using Form FmHA 1980-41, ``Guaranteed Loan Status Report.''
(b) Loan classification. Within 90 days of receipt of the Loan Note
Guarantee, the lender must notify the Agency of the loan's
classification or rating under its regulatory standards. Should the
classification be changed at a future time, the Agency must be notified
immediately.
(c) Agency and lender conference. At the Agency's request, the
lender will meet with the Agency to ascertain how the guaranteed loan
is being serviced and that the conditions and covenants of the Loan
Agreement are being enforced.
(d) Financial reports. The lender must obtain and forward to the
Agency the financial statements required by the Loan Agreement. The
lender must submit annual financial statements to the Agency within 120
days of the end of the borrower's fiscal year. The lender must analyze
the financial statements and provide the Agency with a written summary
of the lender's analysis and conclusions, including trends, strengths,
weaknesses, extraordinary transactions, and other indications of the
financial condition of the borrower. Spreadsheets of the new financial
statements must be included.
(e) Additional expenditures. The lender will not make additional
loans to the borrower without first obtaining the prior written
approval of the Agency, even though such loans will not be guaranteed.
Secs. 4287.108-4287.111 [Reserved]
Sec. 4287.112 Interest rate adjustments.
(a) Reductions. The borrower, lender, and holder (if any) may
collectively initiate a permanent or temporary reduction in the
interest rate of the guaranteed loan at any time during the life of the
loan upon written agreement among these parties. The Agency must be
notified by the lender, in writing, within 10 calendar days of the
change. If any of the guaranteed portion has been purchased by the
Agency, then the Agency will affirm or reject interest rate change
proposals in writing. The Agency will concur in such interest-rate
changes only when it is demonstrated to the Agency that the change is a
more viable alternative than initiating or proceeding with liquidation
of the loan or continuing with the loan in its present state.
(1) Fixed rates can be changed to variable rates to reduce the
borrower's interest rate only when the variable rate has a ceiling
which is less than or equal to the original fixed rate.
[[Page 67649]]
(2) Variable rates can be changed to a fixed rate which is at or
below the current variable rate.
(3) The interest rates, after adjustments, must comply with the
requirements for interest rates on new loans as established by
Sec. 4279.125 of subpart B of part 4279 of this chapter.
(4) The lender is responsible for the legal documentation of
interest-rate changes by an endorsement or any other legally effective
amendment to the promissory note; however, no new notes may be issued.
Copies of all legal documents must be provided to the Agency.
(b) Increases. No increases in interest rates will be permitted
except the normal fluctuations in approved variable interest rates
unless a temporary interest-rate reduction had occurred.
Sec. 4287.113 Release of collateral.
(a) All releases of collateral with a value exceeding $100,000 must
be supported by a current appraisal on the collateral released. The
appraisal will be at the expense of the borrower and must meet the
requirements of Sec. 4279.144 of subpart B of part 4279 of this
chapter. The remaining collateral must be sufficient to provide for
repayment of the Agency's guaranteed loan. The Agency may, at its
discretion, require an appraisal of the remaining collateral in cases
where it is determined that the Agency may be adversely affected by the
release of collateral. Sale or release of collateral must be based on
an arm's-length transaction.
(b) Within the parameters of paragraph (a) of this section, lenders
may, over the life of the loan, release collateral (other than personal
and corporate guarantees) with a cumulative value of up to 20 percent
of the original loan amount without Agency concurrence if the proceeds
generated are used to reduce the guaranteed loan or to buy replacement
collateral.
(c) Within the parameters of paragraph (a) of this section, release
of collateral with a cumulative value in excess of 20 percent of the
original loan or when the proceeds will not be used to reduce the
guaranteed loan or to buy replacement collateral must be requested in
writing by the lender and concurred in by the Agency in writing in
advance of the release. A written evaluation will be completed by the
lender to justify the release.
Secs. 4287.114-4287.122 [Reserved]
Sec. 4287.123 Subordination of lien position.
A subordination of the lender's lien position must be requested in
writing by the lender and concurred in by the Agency in writing in
advance of the subordination. The subordination must enhance the
borrower's business and the Agency's interest. After the subordination,
collateral must be adequate to secure the loan. The lien to which the
guaranteed loan is subordinated must be for a fixed dollar limit and
fixed or limited term, after which the guaranteed loan lien priority
will be restored. Subordination to a revolving line of credit will not
exceed 1 year. There must be adequate consideration for the
subordination.
Sec. 4287.124 Alterations of loan instruments.
The lender shall neither alter nor approve any alterations of any
loan instrument without the prior written approval of the Agency.
Secs. 4287.125-4287.133 [Reserved]
Sec. 4287.134 Transfer and assumption.
(a) Documentation of request. All transfers and assumptions must be
approved in writing by the Agency and must be to eligible applicants in
accordance with subpart B of part 4279 of this chapter. An individual
credit report must be provided for transferee proprietors, partners,
officers, directors, and stockholders with 20 percent or more interest
in the business, along with such other documentation as the Agency may
request to determine eligibility.
(b) Terms. Loan terms must not be changed unless the change is
approved in writing by the Agency with the concurrence of any holder
and the transferor (including guarantors) if they have not been or will
not be released from liability. Any new loan terms must be within the
terms authorized by 4279.126 of subpart B of part 4279 of this chapter.
The lender's request for approval of new loan terms will be supported
by an explanation of the reasons for the proposed change in loan terms.
(c) Release of liability. The transferor, including any guarantor,
may be released from liability only with prior Agency written
concurrence and only when the value of the collateral being transferred
is at least equal to the amount of the loan being assumed and is
supported by a current appraisal and a current financial statement. The
Agency will not pay for the appraisal. If the transfer is for less than
the debt, the lender must demonstrate to the Agency that the transferor
and guarantors have no reasonable debt-paying ability considering their
assets and income in the foreseeable future.
(d) Proceeds. Any proceeds received from the sale of collateral
before a transfer and assumption will be credited to the transferor's
guaranteed loan debt in inverse order of maturity before the transfer
and assumption are closed.
(e) Additional loans. Loans to provide additional funds in
connection with a transfer and assumption must be considered as a new
loan application under subpart B of part 4279 of this chapter.
(f) Credit quality. The lender must make a complete credit analysis
which is subject to Agency review and approval.
(g) Documents. Prior to Agency approval, the lender must advise the
Agency, in writing, that the transaction can be properly and legally
transferred, and the conveyance instruments will be filed, registered,
or recorded as appropriate.
(1) The assumption will be done on the lender's form of assumption
agreement and will contain the Agency case number of the transferor and
transferee. The lender will provide the Agency with a copy of the
transfer and assumption agreement. The lender must ensure that all
transfers and assumptions are noted on all original Loan Note
Guarantees.
(2) A new Loan Agreement, consistent in principle with the original
Loan Agreement, should be executed to establish the terms and
conditions of the loan being assumed. An assumption agreement can be
used to establish the loan covenants.
(3) The lender will provide to the Agency a written certification
that the transfer and assumption is valid, enforceable, and complies
with all Agency regulations.
(h) Loss resulting from transfer. If a loss should occur upon
consummation of a complete transfer and assumption for less than the
full amount of the debt and the transferor (including personal
guarantors) is released from liability, the lender, if it holds the
guaranteed portion, may file an estimated report of loss to recover its
pro rata share of the actual loss. If a holder owns any of the
guaranteed portion, such portion must be repurchased by the lender or
the Agency in accordance with 4279.78(c) of subpart A of part 4279 of
this chapter. In completing the report of loss, the amount of the debt
assumed will be entered as net collateral (recovery). Approved
protective advances and accrued interest thereon made during the
arrangement of a transfer and assumption will be included in the
calculations.
(i) Related party. If the transferor and transferee are affiliated
or related parties, any transfer and assumption must be for the full
amount of the debt.
[[Page 67650]]
(j) Payment requests. Requests for a loan guarantee to provide
equity for a transfer and assumption must be considered as a new loan
under subpart B of part 4279 of this chapter.
(k) Cash downpayment. When the transferee will be making a cash
downpayment as part of the transfer and assumption:
(1) The lender must have an appropriate appraiser, acceptable to
both the transferee and transferor and currently authorized to perform
appraisals, determine the value of the collateral securing the loan.
The appraisal fee and any other costs will not be paid by the Agency.
(2) The market value of the collateral, plus any additional
property the transferee proposes to offer as collateral, must be
adequate to secure the balance of the guaranteed loans.
(3) Cash downpayments may be paid directly to the transferor
provided:
(i) The lender recommends that the cash be released, and the Agency
concurs prior to the transaction being completed. The lender may wish
to require that an amount be retained for a defined period of time as a
reserve against future defaults. Interest on such account may be paid
periodically to the transferor or transferee as agreed;
(ii) The lender determines that the transferee has the repayment
ability to meet the obligations of the assumed guaranteed loan as well
as any other indebtedness;
(iii) Any payments by the transferee to the transferor will not
suspend the transferee's obligations to continue to meet the guaranteed
loan payments as they come due under the terms of the assumption; and
(iv) The transferor agrees not to take any action against the
transferee in connection with the assumption without prior written
approval of the lender and the Agency.
Sec. 4287.135 Substitution of lender.
After the issuance of a Loan Note Guarantee, the lender shall not
sell or transfer the entire loan without the prior written approval of
the Agency. The Agency will not pay any loss or share in any costs
(i.e., appraisal fees, environmental studies, or other costs associated
with servicing or liquidating the loan) with a new lender unless a
relationship is established through a substitution of lender in
accordance with paragraph (a) of this section. This includes cases
where the lender has failed and been taken over by a regulatory agency
such as the Federal Deposit Insurance Corporation (FDIC) and the loan
is subsequently sold to another lender.
(a) The Agency may approve the substitution of a new lender if:
(1) the proposed substitute lender:
(i) is an eligible lender in accordance with 4279.29 of subpart A
of part 4279 of this chapter;
(ii) is able to service the loan in accordance with the original
loan documents; and
(iii) agrees in writing to acquire title to the unguaranteed
portion of the loan held by the original lender and assumes all
original loan requirements, including liabilities and servicing
responsibilities.
(2) the substitution of the lender is requested in writing by the
borrower, the proposed substitute lender, and the original lender if
still in existence.
(b) Where the lender has failed and been taken over by FDIC and the
guaranteed loan is liquidated by FDIC rather than being sold to another
lender, the Agency will pay losses and share in costs as if FDIC were
an approved substitute lender.
Secs. 4287.136-4287.144 [Reserved]
Sec. 4287.145 Default by borrower.
(a) The lender must notify the Agency when a borrower is 30 days
past due on a payment or is otherwise in default of the Loan Agreement.
Form FmHA 1980-44, ``Guaranteed Loan Borrower Default Status,'' will be
used and the lender will continue to submit this form bimonthly until
such time as the loan is no longer in default. If a monetary default
exceeds 60 days, the lender will arrange a meeting with the Agency and
the borrower to resolve the problem.
(b) In considering options, the prospects for providing a permanent
cure without adversely affecting the risk to the Agency and the lender
is the paramount objective.
(1) Curative actions include but are not limited to:
(i) deferment of principal (subject to rights of any holder);
(ii) an additional unguaranteed loan by the lender to bring the
account current;
(iii) reamortization of or rescheduling the payments on the loan
(subject to rights of any holder);
(iv) transfer and assumption of the loan in accordance with
Sec. 4287.134 of this subpart;
(v) reorganization;
(vi) liquidation;
(vii) subsequent loan guarantees; and
(viii) changes in interest rates with the Agency's, the lender's,
and holder's approval, provided that the interest rate is adjusted
proportionately between the guaranteed and unguaranteed portion of the
loan and the type of rate remains the same.
(2) In the event a deferment, rescheduling, reamortization, or
moratorium is accomplished, it will be limited to the remaining life of
the collateral or remaining limits as contained in Sec. 4279.126 of
subpart B of part 4279 of this chapter, whichever is less.
Secs. 4287.146-4287.155 [Reserved]
Sec. 4287.156 Protective advances.
Protective advances are advances made by the lender for the purpose
of preserving and protecting the collateral where the debtor has failed
to, will not, or cannot meet its obligations. Sound judgment must be
exercised in determining that the protective advance preserves
collateral and recovery is actually enhanced by making the advance.
Protective advances will not be made in lieu of additional loans.
(a) The maximum loss to be paid by the Agency will never exceed the
original principal plus accrued interest regardless of any protective
advances made.
(b) Protective advances and interest thereon at the note rate will
be guaranteed at the same percentage of loss as provided in the Loan
Note Guarantee.
(c) Protective advances must constitute an indebtedness of the
borrower to the lender and be secured by the security instruments.
Agency written authorization is required when cumulative protective
advances exceed $5,000.
Sec. 4287.157 Liquidation.
In the event of one or more incidents of default or third party
actions that the borrower cannot or will not cure or eliminate within a
reasonable period of time, liquidation may be considered. If the lender
concludes that liquidation is necessary, it must request the Agency's
concurrence. The lender will liquidate the loan unless the Agency, at
its option, carries out liquidation. When the decision to liquidate is
made, if the loan has not already been repurchased, provisions will be
made for repurchase in accordance with Sec. 4279.78 of subpart A of
part 4279 of this chapter.
(a) Decision to liquidate. A decision to liquidate shall be made
when it is determined that the default cannot be cured through actions
contained in Sec. 4287.145 of this subpart or it has been determined
that it is in the best interest of the Agency and the lender to
liquidate. The decision to liquidate or continue with the borrower must
be made as soon as possible when any of the following exist:
(1) A loan has been delinquent 90 days and the lender and borrower
have
[[Page 67651]]
not been able to cure the delinquency through one of the actions
contained in Sec. 4287.145 of this subpart.
(2) It has been determined that delaying liquidation will
jeopardize full recovery on the loan.
(3) The borrower or lender has been uncooperative in resolving the
problem and the Agency or the lender has reason to believe the borrower
is not acting in good faith, and it would enhance the position of the
guarantee to liquidate immediately.
(b) Liquidation by the Agency. The Agency may require the lender to
assign the security instruments to the Agency if the Agency, at its
option, decides to liquidate the loan. When the Agency liquidates,
reasonable liquidation expenses will be assessed against the proceeds
derived from the sale of the collateral. Form FmHA 1980-45, ``Notice of
Liquidation Responsibility,'' will be forwarded to the Finance Office
when the Agency liquidates the loan.
(c) Submission of liquidation plan. The lender will, within 30 days
after a decision to liquidate, submit to the Agency in writing its
proposed detailed method of liquidation. Upon approval by the Agency of
the liquidation plan, the lender will commence liquidation.
(d) Lender's liquidation plan. The liquidation plan must include,
but is not limited to, the following:
(1) Such proof as the Agency requires to establish the lender's
ownership of the guaranteed loan promissory note and related security
instruments and a copy of the payment ledger if available which
reflects the current loan balance and accrued interest to date and the
method of computing the interest.
(2) A full and complete list of all collateral including any
personal and corporate guarantees.
(3) The recommended liquidation methods for making the maximum
collection possible on the indebtedness and the justification for such
methods, including recommended action:
(i) for acquiring and disposing of all collateral; and
(ii) to collect from guarantors.
(4) Necessary steps for preservation of the collateral.
(5) Copies of the borrower's latest available financial statements.
(6) Copies of the guarantor's latest available financial
statements.
(7) An itemized list of estimated liquidation expenses expected to
be incurred along with justification for each expense.
(8) A schedule to periodically report to the Agency on the progress
of liquidation.
(9) Estimated protective advance amounts with justification.
(10) Proposed protective bid amounts on collateral to be sold at
auction and a breakdown to show how the amounts were determined.
(11) If a voluntary conveyance is considered, the proposed amount
to be credited to the guaranteed debt.
(12) Legal opinions, if needed.
(13) If the outstanding balance of principal and accrued interest
is less than $200,000, the lender will obtain an estimate of fair
market and potential liquidation value of the collateral. If the
outstanding balance of principal and accrued interest is $200,000 or
more, the lender will obtain an independent appraisal report meeting
the requirements of Sec. 4279.144 of subpartB of part 4279 of this
chapter on all collateral securing the loan which will reflect the fair
market value and potential liquidation value. In order to formulate a
liquidation plan which maximizes recovery, collateral must be evaluated
for the release of hazardous substances, petroleum products, or other
environmental hazards which may adversely impact the market value of
the collateral. The appraisal shall consider this aspect. The
independent appraiser's fee, including the cost of the environmental
site assessment, will be shared equally by the Agency and the lender.
(e) Approval of liquidation plan. The Agency will inform the lender
in writing whether it concurs in the lender's liquidation plan. Should
the Agency and the lender not agree on the liquidation plan,
negotiations will take place between the Agency and the lender to
resolve the disagreement. When the liquidation plan is approved by the
Agency, the lender will proceed expeditiously with liquidation.
(1) A transfer and assumption of the borrower's operation can be
accomplished before or after the loan goes into liquidation. However,
if the collateral has been purchased through foreclosure or the
borrower has conveyed title to the lender, no transfer and assumption
is permitted.
(2) A protective bid may be made by the lender, with prior Agency
written approval, at a foreclosure sale to protect the lender's and the
Agency's interest. The protective bid will not exceed the amount of the
loan, including expenses of foreclosure, and should be based on the
liquidation value considering estimated expenses for holding and
reselling the property. These expenses include, but are not limited to,
expenses for resale, interest accrual, length of time necessary for
resale, maintenance, guard service, weatherization, and prior liens.
(f) Acceleration. The lender, or the Agency if it liquidates, will
proceed to accelerate the indebtedness as expeditiously as possible
when acceleration is necessary including giving any notices and taking
any other legal actions required. A copy of the acceleration notice or
other acceleration document will be sent to the Agency (or lender if
the Agency liquidates). The guaranteed loan will be considered in
liquidation once the loan has been accelerated and a demand for payment
has been made upon the borrower.
(g) Filing an estimated loss claim. When the lender is conducting
the liquidation and owns any or all of the guaranteed portion of the
loan, the lender will file an estimated loss claim once a decision has
been made to liquidate if the liquidation will exceed 90 days. The
estimated loss payment will be based on the liquidation value of the
collateral. For the purpose of reporting and loss claim computation,
the lender will discontinue interest accrual on the defaulted loan in
accordance with Agency procedures, and the loss claim will be promptly
processed in accordance with applicable Agency regulations.
(h) Accounting and reports. When the lender conducts liquidation,
it will account for funds during the period of liquidation and will
provide the Agency with reports at least quarterly on the progress of
liquidation including disposition of collateral, resulting costs, and
additional procedures necessary for successful completion of the
liquidation.
(i) Transmitting payments and proceeds to the Agency. When the
Agency is the holder of a portion of the guaranteed loan, the lender
will transmit to the Agency its pro rata share of any payments received
from the borrower; liquidation; or other proceeds using Form FmHA 1980-
43, ``Lender's Guaranteed Loan Payment to FmHA.''
(j) Abandonment of collateral. There may be instances when the cost
of liquidation would exceed the potential recovery value of the
collection. The lender, with proper documentation and concurrence of
the Agency, may abandon the collateral in lieu of liquidation. A
proposed abandonment will be considered a servicing action requiring
the appropriate environmental review by the Agency in accordance with
subpart G of part 1940 of this title. Examples where abandonment may be
considered include, but are not limited to:
(1) The cost of liquidation is increased or the value of the
collateral is decreased by environmental issues;
[[Page 67652]]
(2) The collateral is functionally or economically obsolete;
(3) There are superior liens held by other parties in excess of the
value of the collateral;
(4) The collateral has deteriorated; or
(5) The collateral is specialized and there is little or no demand
for it.
(k) Disposition of personal or corporate guarantees. The lender
should take action to maximize recovery from all collateral, including
personal and corporate guarantees. The lender will seek a deficiency
judgment when there is a reasonable chance of future collection of the
judgment. The lender must make a decision whether or not to seek a
deficiency judgment when:
(1) a borrower voluntarily liquidates the collateral, but the sale
fails to pay the guaranteed indebtedness;
(2) the collateral is voluntarily conveyed to the lender, but the
borrower and personal and corporate guarantors are not released from
liability; or
(3) a liquidation plan is being developed for forced liquidation.
(1) Compromise settlement. A compromise settlement may be
considered at any time.
(1) The lender and the Agency must receive complete financial
information on all parties obligated for the loan and must be satisfied
that the statements reflect the true and correct financial position of
the debtor including all assets. Adequate consideration must be
received before a release from liability is issued. Adequate
consideration includes money, additional security, or other benefit to
the goals and objectives of the Agency.
(2) Before a personal guarantor can be released from liability, the
following factors must be considered.
(i) Cash, either lump sum or over a period of time, or other
consideration offered by the guarantor;
(ii) Age and health of the guarantor;
(iii) Potential income of the guarantor;
(iv) Inheritance prospects of the guarantor;
(v) Availability of the guarantor's assets.
(vi) Possibility that the guarantor's assets have been concealed or
improperly transferred; and
(vii) Effect of other guarantors on the loan.
(3) Once the Agency and the lender agree on a reasonable amount
that is fair and adequate, the lender can proceed to effect the
settlement compromise.
(4) A compromise will only be accepted if it is in the best
interest of the Agency.
Sec. 4287.158 Determination of loss and payment.
In all liquidation cases, final settlement will be made with the
lender after the collateral is liquidated, unless otherwise designated
as a future recovery or after settlement and compromise of all parties
has been completed. The Agency will have the right to recover losses
paid under the guarantee from any party which may be liable.
(a) Report of loss form. Form FmHA 449-30, ``Loan Note Guarantee
Report of Loss,'' will be used for calculations of all estimated and
final loss determinations. Estimated loss payments may only be approved
by the Agency after the Agency has approved a liquidation plan.
(b) Estimated loss. In accordance with the requirements of
Sec. 4287.157(g) of this subpart, an estimated loss claim based on
liquidation appraisal value will be prepared and submitted by the
lender.
(1) The estimated loss payment shall be applied as of the date of
such payment. The total amount of the loss payment remitted by the
Agency will be applied by the lender on the guaranteed portion of the
loan debt. Such application does not release the borrower from
liability.
(2) An estimated loss will be applied first to reduce the principal
balance on the guaranteed loan and the balance, if any, to accrued
interest. Interest accrual on the defaulted loan will be discontinued.
(3) A protective advance claim will be paid only at the time of the
final report of loss payment, except in certain transfer and assumption
situations as specified in Sec. 4287.134 of this subpart.
(c) Final loss. Within 30 days after liquidation of all collateral,
except for certain unsecured personal or corporate guarantees as
provided for in this section, is completed, a final report of loss must
be prepared and submitted by the lender to the Agency. The Agency will
not guarantee interest beyond this 30-day period other than for the
period of time it takes the Agency to process the loss claim. Before
approval by the Agency of any final loss report, the lender must
account for all funds during the period of liquidation, disposition of
the collateral, all costs incurred, and any other information necessary
for the successful completion of liquidation. Upon receipt of the final
accounting and report of loss, the Agency may audit all applicable
documentation to determine the final loss. The lender will make its
records available and otherwise assist the Agency in making any
investigation. The documentation accompanying the report of loss must
support the amounts shown on Form FmHA 449-30.
(1) A determination must be made regarding the collectibility of
unsecured personal and corporate guarantees. If reasonably possible,
such guarantees should be promptly collected or otherwise disposed of
in accordance with Sec. 4287.157(k) of this subpart prior to completion
of the final loss report. However, in the event that collection from
the guarantors appears unlikely or will require a prolonged period of
time, the report of loss will be filed when all other collateral has
been liquidated, and unsecured personal or corporate guarantees will be
treated as a future recovery with the net proceeds to be shared on a
pro rata basis by the lender and the Agency.
(2) The lender must document that all of the collateral has been
accounted for and properly liquidated and that liquidation proceeds
have been properly accounted for and applied correctly to the loan.
(3) The lender will show a breakdown of any protective advance
amount as to the payee, purpose of the expenditure, date paid, and
evidence that the amount expended was proper and that payment was
actually made.
(4) The lender will show a breakdown of liquidation expenses as to
the payee, purpose of the expenditure, date paid, and evidence that the
amount expended was proper and that payment was actually made.
Liquidation expenses are recoverable only from collateral proceeds.
Attorney fees may be approved as liquidation expenses provided the fees
are reasonable and cover legal issues pertaining to the liquidation
that could not be properly handled by the lender and its in-house
counsel.
(5) Accrued interest will be supported by documentation as to how
the amount was accrued. If the interest rate was a variable rate, the
lender will include documentation of changes in both the selected base
rate and the loan rate.
(6) Loss payments will be paid by the Agency within 60 days after
the review of the final loss report and accounting of the collateral.
(d) Loss limit. The amount payable by the Agency to the lender
cannot exceed the limits set forth in the Loan Note Guarantee.
(e) Rent. Any net rental or other income that has been received by
the lender from the collateral will be applied on the guaranteed loan
debt.
(f) Liquidation costs. Liquidation costs will be deducted from the
proceeds of the disposition of primary collateral. If changed
circumstances after submission of the liquidation plan require a
[[Page 67653]]
substantial revision of liquidation costs, the lender will procure the
Agency's written concurrence prior to proceeding with the proposed
changes. No in-house expenses of the lender will be allowed. In-house
expenses include, but are not limited to, employee's salaries, staff
lawyers, travel, and overhead.
(g) Payment. When the Agency finds the final report of loss to be
proper in all respects, it will approve Form FmHA 449-30 and proceed as
follows:
(1) If the loss is greater than any estimated loss payment, the
Agency will pay the additional amount owed by the Agency to the lender.
(2) If the loss is less than the estimated loss payment, the lender
will reimburse the Agency for the overpayment plus interest at the note
rate from the date of payment.
(3) If the Agency has conducted the liquidation, it will pay the
lender in accordance with the Loan Note Guarantee.
Secs. 4287.159-4287.168 [Reserved]
Sec. 4287.169 Future recovery.
After a loan has been liquidated and a final loss has been paid by
the Agency, any future funds which may be recovered by the lender will
be pro rated between the Agency and the lender based on the original
percentage of guarantee.
Sec. 4287.170 Bankruptcy.
The lender is responsible for protecting the guaranteed loan and
all collateral securing the loan in bankruptcy proceedings.
(a) Lender's responsibilities. It is the lender's responsibility to
protect the guaranteed loan debt and all of the collateral securing it
in bankruptcy proceedings. These responsibilities include but are not
limited to the following:
(1) The lender will file a proof of claim where necessary and all
the necessary papers and pleadings concerning the case.
(2) The lender will attend and, where necessary, participate in
meetings of the creditors and all court proceedings.
(3) When permitted by the Bankruptcy Code, the lender will request
modification of any plan of reorganization whenever it appears that
additional recoveries are likely.
(4) The Agency will be kept adequately and regularly informed in
writing of all aspects of the proceedings.
(5) In a Chapter 11 reorganization, if an independent appraisal of
collateral is necessary in the Agency's opinion, the Agency and the
lender will share such appraisal fee equally.
(b) Reports of loss during bankruptcy. When the loan is involved in
reorganization proceedings, payment of loss claims may be made as
provided in this section. For a liquidation proceeding, only paragraphs
(b)(3) and (5) of this section are applicable.
(1) Estimated loss payments. (i) If a borrower has filed for
protection under Chapter 11 of the United States Code for a
reorganization (but not Chapter 13) and all or a portion of the debt
has been discharged, the lender will request an estimated loss payment
of the guaranteed portion of the accrued interest and principal
discharged by the court. Only one estimated loss payment is allowed
during the reorganization. All subsequent claims of the lender during
reorganization will be considered revisions to the initial estimated
loss. A revised estimated loss payment may be processed by the Agency,
at its option, in accordance with any court-approved changes in the
reorganization plan. Once the reorganization plan has been completed,
the lender is responsible for submitting the documentation necessary
for the Agency to review and adjust the estimated loss claim to reflect
any actual discharge of principal and interest and to reimburse the
lender for any court-ordered interest-rate reduction under the terms of
the reorganization plan.
(ii) The lender will use Form FmHA 449-30 to request an estimated
loss payment and to revise any estimated loss payments during the
course of the reorganization plan. The estimated loss claim, as well as
any revisions to this claim, will be accompanied by documentation to
support the claim.
(iii) Upon completion of a reorganization plan, the lender will
complete a Form FmHA 1980-44 and forward this form to the Finance
Office.
(2) Interest loss payments. (i) Interest losses sustained during
the period of the reorganization plan will be processed in accordance
with paragraph (b)(1) of this section.
(ii) Interest losses sustained after the reorganization plan is
completed will be processed annually when the lender sustains a loss as
a result of a permanent interest rate reduction which extends beyond
the period of the reorganization plan.
(iii) If an estimated loss claim is paid during the operation of
the Chapter 11 reorganization plan and the borrower repays in full the
remaining balance without an additional loss sustained by the lender, a
final report of loss is not necessary.
(3) Final loss payments. Final loss payments will be processed when
the loan is liquidated.
(4) Payment application. The lender must apply estimated loss
payments first to the unsecured principal of the guaranteed portion of
the debt and then to the unsecured interest of the guaranteed portion
of the debt. In the event a bankruptcy court attempts to direct the
payments to be applied in a different manner, the lender will
immediately notify the Agency servicing office.
(5) Overpayments. Upon completion of the reorganization plan, the
lender will provide the Agency with the documentation necessary to
determine whether the estimated loss paid equals the actual loss
sustained. If the actual loss sustained as a result of the
reorganization is less than the estimated loss, the lender will
reimburse the Agency for the overpayment plus interest at the note rate
from the date of payment of the estimated loss. If the actual loss is
greater than the estimated loss payment, the lender will submit a
revised estimated loss in order to obtain payment of the additional
amount owed by the Agency to the lender.
(6) Protective advances. If approved protective advances were made
prior to the borrower having filed bankruptcy, these protective
advances and accrued interest will be considered in the loss
calculations.
(c) Legal expenses during bankruptcy proceedings. (1) When a
bankruptcy proceeding results in a liquidation of the borrower by a
trustee, legal expenses will be handled as directed by the court.
(2) Chapter 11 pertains to a reorganization of a business
contemplating an ongoing business rather than a termination and
dissolution of the business where legal protection is afforded to the
business as defined under Chapter 11 of the Bankruptcy Code.
Consequently, expenses incurred by the lender in a Chapter 11
reorganization can never be liquidation expenses unless the proceeding
becomes a Chapter 11 liquidation. If the proceeding should become a
Liquidating 11, reasonable and customary liquidation expenses may be
deducted from proceeds of collateral as provided in the Lender's
Agreement. Chapter 7 pertains to a liquidation of the borrower's
assets. If, and when, liquidation of the borrower's assets under
Chapter 7 is conducted by the bankruptcy trustee, then the lender
cannot claim expenses.
Secs. 4287.171-4287.179 [Reserved]
Sec. 4287.180 Termination of guarantee.
A guarantee under this part will terminate automatically:
[[Page 67654]]
(a) upon full payment of the guaranteed loan;
(b) upon full payment of any loss obligation; or
(c) upon written notice from the lender to the Agency that the
guarantee will terminate 30 days after the date of notice, provided
that the lender holds all of the guaranteed portion and the Loan Note
Guarantee is returned to the Agency to be canceled.
Secs. 4287.181-4287.199 [Reserved]
Sec. 4287.200 OMB control number.
The information collection requirements contained in this
regulation have been approved by OMB and have been assigned OMB control
number 0575-0168. Public reporting burden for this collection of
information is estimated to vary from 15 minutes to 8 hours per
response, with an average of 4 hours per response, including time for
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 the Department of
Agriculture, Clearance Officer, OIRM, Stop 7630, Washington, DC 20250.
You are not required to respond to this collection of information
unless it displays a currently valid OMB control number.
Dated: December 12, 1996.
Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 96-32170 Filed 12-20-96; 8:45 am]
BILLING CODE 3410-XY-U