[Federal Register Volume 63, Number 25 (Friday, February 6, 1998)]
[Rules and Regulations]
[Pages 6045-6063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3044]



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 Rules and Regulations
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  Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 / Rules 
and Regulations  

[[Page 6045]]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency

7 CFR Parts 1948, 1951 and 4274

RIN 0570-AA15


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

EFFECTIVE DATE: February 6, 1998.

FOR FURTHER INFORMATION CONTACT: M. Wayne Stansbery, Loan Specialist, 
Rural Business-Cooperative Service, USDA, STOP 1521, 1400 Independence 
Ave, S.W., Washington, DC 20250. Telephone (202) 720-6819. The TTD 
number is (800) 877-8339 or (202) 708-9300.

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been determined to be significant and was reviewed by 
OMB under Executive Order 12866.

Programs Affected

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

Program Administration

    Due to reorganization actions within the Department of Agriculture, 
the Intermediary Relending Program is currently administered by RBS. 
RBS is a successor to the Rural Development Administration, which was a 
successor to the Farmers Home Administration.

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 reporting and 
recordkeeping requirements contained in this regulation have been 
approved by the Office of Management and Budget under the provisions of 
44 U.S.C. chapter 35 and have been assigned OMB control number 0570-
0021 in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507)

Intergovernmental Review

    As set forth in the final rule related notice to 7 CFR part 3015, 
subpart V, 48 FR 29115, June 24, 1983, Intermediary Relending Loans are 
subject to the provisions of Executive Order 12372 which requires 
intergovernmental consultation with State and Local officials. RBS has 
conducted intergovernmental consultation with such state and local 
officials in accordance with RD Instruction 1940-J, ``Intergovernmental 
Review of Farmers Home Administration Programs and Activities.''

Civil Justice Reform

    This final rule has been reviewed under Executive Order 12988, 
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 1900, subpart B, or those regulations published by 
the Department of Agriculture at 7 CFR part 11 to implement the 
statutory provisions relating to the National Appeals Division as 
mandated by the Department of Agriculture Reorganization Act of 1994 
must be exhausted before filing suit to challenge action taken under 
this rule.

Environmental Impact Statement

    This document 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, Pub. L. 91-190, an 
Environmental Impact Statement is not required.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act, RBS has 
determined that this action would not have a significant economic 
impact on a substantial number of small entities because the action 
will not affect a significant number of small entities as defined by 
the Regulatory Flexibility Act (5 U.S.C. 601). RBS made this 
determination based on the fact that this regulation only impacts those 
who choose to participate in the grant program. Small entity applicants 
will not be impacted to a greater extent than large entity applicants.

The Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 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 
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 one 
year. When such a statement is needed for a rule, section 205 of 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 of 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

[[Page 6046]]

the private sector. Thus this rule is not subject to the requirements 
of sections 202 and 205 of UMRA.

National Performance Review

    This regulatory action is being taken as part of the National 
Performance Review program to eliminate unnecessary regulations and 
improve those that remain in force.

Implementation

    It is the policy of this Department that rules relating to public 
property, loans, grants, benefits or contracts shall comply with 5 
U.S.C. 553 notwithstanding the exemption of that section with respect 
to such rules. Accordingly, this rule has previously been published as 
a proposed rule, on January 18, 1995 (60 FR 3566), for public comment. 
However, we are making this action effective upon publication of this 
final rule rather than 30 days after publication. The net impact of 
this rule is to interpret and clarify previous requirements, remove 
restrictions, streamline requirements, and make the program a more 
flexible and effective tool for rural economic development. Therefore 
the Agency has determined that further delay in implementation of this 
rule would not be in the public interest.

Background

    This regulatory package is an initiative to enhance the program 
through revisions based on experience with operation of the program. 
The primary changes include the following:
    1. The regulation is completely reorganized for improved clarity.
    2. Definitions are provided for ``Agency IRP loan funds,'' ``IRP 
revolving fund,'' ``revolved funds,'' and ``technical assistance.'' 
Throughout the document, clarifications are provided as to which 
requirements apply only to Agency IRP loan funds, which apply to 
revolving funds, and which apply to all assets in the IRP revolving 
fund.
    3. Agency State Offices are authorized to accept and process all 
applications except those from applicants located within Washington, 
D.C.. Those applications will be processed by the National Office.
    4. Eligibility requirements for intermediaries are revised to 
clarify that a proposed intermediary that does not have lending 
experience may still qualify for a loan, if it will arrange for 
services of people with lending experience.
    5. Eligibility requirements are revised to provide that proposed 
intermediaries with a delinquent outstanding Federal debt are not 
eligible for program assistance.
    6. Eligibility requirements are provided for ultimate recipients.
    7. Eligible purposes for loans to ultimate recipients are revised 
to authorize loans for refinancing, management consulting fees, 
educational institutions, commercial fishing, revolving lines of 
credit, and hotels, motels and other recreation and tourism facilities 
(except golf courses, gambling and race tracks).
    8. Security requirements are revised.
    9. General guidelines are provided for interest rates and terms of 
loans to ultimate recipients, along with clarification that such rates 
must be within limits established in the intermediary's work plan.
    10. Loan ceilings are revised to provide that, subject to certain 
conditions, intermediaries may receive a series of subsequent loans of 
up to $1 million each to a combined total of up to $15 million. The 
ceiling on loans to an ultimate recipient is raised to $250,000.
    11. The intermediary's responsibilities for maintaining and 
managing the intermediary revolving fund are clarified and a provision 
is added for establishment of a reserve for bad debts.
    12. Loan disbursement procedures are revised to allow 
intermediaries to draw up to 25 percent of their loan at loan closing. 
The funds may be placed in an interest bearing account if they are not 
immediately needed for loans to ultimate recipients.
    13. The requirement for intermediaries to operate in accordance 
with an approved work plan is clarified and guidelines are provided for 
RBS approval of work plan revisions.
    14. The contents of a complete application and work plan are 
revised to eliminate some unnecessary items, provide more detail on 
what should be covered regarding relending plans, add certifications 
regarding debarment, Federal debt collection policies, and lobbying, 
and provide for streamlined applications for subsequent loans.
    15. The priority point scoring system is revised.
    16. The requirement for a certification by the intermediary 
regarding equity is removed.
    17. Guidelines are provided for information to be submitted to RBS 
regarding proposed loans to ultimate recipients and for RBS review and 
response to the information.

Discussion of Comments

    This rule was published in the Federal Register as a proposed rule 
on January 18, 1995 (60 FR 3566). The proposed rule was published as a 
revision to 7 CFR part 1948, subpart C. This final rule also renumbers 
and redesignates the regulation as 7 CFR part 4274, subpart D. In 
addition to publishing the proposed new regulation text for public 
comment, the Agency specifically invited comments on several 
alternatives. Eighty comments were received, most of which contained 
comments on several issues. In general, the letters were very 
supportive of the IRP and of the proposed rule. A summary of the 
comments follows.
    Section 1948.101(b) of the proposed rule included a broad purpose 
statement in compliance with the authority contained in the authorizing 
legislation. In response to a question asked by the Agency, 20 writers 
said it would be helpful to have a more detailed and descriptive 
mission statement in the regulation to set out the Agency intent to 
emphasize alleviation of poverty, aid disadvantaged and remote 
communities, assist smaller and emerging businesses, improve the 
partnership with other public and private resources, and further 
develop State and regional strategy based on identified community 
needs. Nine writers thought the language in the proposed rule text was 
adequate and that it would be better to have less, rather than more, 
restrictive language in the purpose statement. The final rule contains 
a purpose statement that clarifies what the Agency wants to emphasize 
while maintaining sufficient flexibility to approve the loan purposes 
set out in the eligible purposes section.
    The proposed rule text would prohibit intermediaries from loaning 
for revolving lines of credit. The Agency also asked for comments on 
whether this is a service intermediaries should be providing. Ten 
writers thought that loans for revolving lines of credit should not be 
eligible. Some thought there is not much need. Others said this type of 
credit entails too much risk and intermediaries would not have the 
special expertise needed.
    Twenty-eight writers felt that there is a crucial need for 
revolving credit lines for small businesses and that intermediaries 
should have the option of offering this service if they do have 
expertise. The Agency is convinced that a significant need exists for 
this type of credit, so the final rule allows intermediaries to provide 
revolving lines of credit, if they meet guidelines that are included.
    The proposed rule would allow intermediaries to make loans up to 
$250,000. The Agency asked, however, if it might be appropriate to 
retain the previous loan limit of $150,000. This

[[Page 6047]]

issue received more comments than any other single issue in the 
proposed rule. Eleven writers were in favor of a $150,000 limit, 
indicating that smaller loans are more difficult to obtain elsewhere 
and that the program should be targeted toward small loans and small 
businesses. However, 50 writers supported an increased loan limit of 
$250,000. Many said they would not need that authority often, but 
occasionally there is a very real need. Some thought the limit should 
be even higher or the proposed restriction on the portion of the 
portfolio that may be invested in loans of over $150,000 should be 
removed.
    The strong support by the comments, for the proposed higher limit, 
reinforces the Agency belief that more flexibility is needed to allow 
intermediaries to decide what size projects are best in their areas. 
Therefore, the language of the proposed rule on this issue is retained 
in the final rule.
    The Agency requested comments on appropriate outcome and 
performance measures and reporting requirements for the intermediary 
loan funds financed by the program, and for the funded activities of 
the ultimate recipients of the loans. Twenty-five writers commented on 
this issue, but there was little consensus. Most writers recognized the 
need for information for program evaluation, but most were also 
concerned about the amount of burden on intermediaries to provide 
information. Five writers thought the program should be evaluated on 
little more than the amount of funds loaned out and the repayment to 
the Agency. Six said reports should be made to the Agency on an annual 
or semi-annual basis rather than quarterly. Fourteen writers thought 
the number of jobs created or saved should be an evaluation criterion. 
Three considered leveraging of other funds an item that should be 
monitored. Three indicated that the fund balance, net profit, and 
solvency of the intermediary should be considered. Five writers 
suggested monitoring trends in the tax base of the service area as an 
indicator of the success of an intermediary's program. One writer 
suggested the Agency check on standard revolving loan fund reporting 
requirements developed by the Economic Development Administration. 
Other possible measures or report items suggested by 1 or more writers 
included sales volume, taxes paid and gross payroll of ultimate 
recipients, Standard Industrial Classification of ultimate recipients, 
summary of delinquent loans and actions taken, accomplishments 
regarding public policy, networking, outreach, and technical 
assistance, housing units and square feet of facilities constructed, 
and unemployment rate and per capita income trends in service area. 
Comments were requested on this issue as a tool to obtain ideas. There 
was no consensus among the writers, and the Agency believes more study 
is needed before making regulatory changes. No change from the proposed 
rule has been made in the final rule regarding this issue. The Agency 
will continue, however, to work on the development of an improved 
reporting form.
    The proposed rule text would require intermediaries to have a 
successful lending record or to bring individuals with loan making and 
servicing experience and expertise into the operation. In the interest 
of enabling more socially oriented community-based organizations to use 
the program, the Agency asked for comments on allowing loans to 
intermediaries that have experience in assisting rural business or 
community development, but not lending experience.
    Several writers expressed the desire to be sure of flexibility as 
to how such expertise may be achieved when the applicant intermediary 
does not have the experience in-house prior to filing the application. 
Hiring new staff with the needed experience, contracting for services, 
and creating a review or advisory board with experienced lenders as 
members are all options that one or more writers wanted to be sure were 
available. Only six writers advocated not requiring lending experience 
in some form for intermediary eligibility. Twenty six writers felt 
lending experience is important. Several writers were quite adamant 
that intermediaries cannot be expected to be successful and should not 
be approved unless they have lending experience or will acquire the 
services of someone with lending experience before receiving Federal 
funds.
    It was the intent of the proposed rule language to require lending 
experience in some form, but to allow considerable flexibility as to 
how the experience is brought into the intermediaries' decision 
processes. A preponderance of the writers seemed to agree with that 
concept. Therefore, no change from the proposed rule language is made 
in the final rule on this issue.
    The proposed rule text requires that at least 51 percent of the 
ownership interest or membership of both intermediaries and ultimate 
recipients be citizens of the United States or legally admitted to the 
United States for permanent residence. The Agency asked for comments on 
the concept of allowing loans to ultimate recipients owned by persons 
who are not United States citizens or admitted for permanent residence, 
provided the project funded creates or retains jobs for U.S. residents. 
Such loans would be restricted to fixed assets located in the U.S. and 
the business would have to have managers that are U.S. citizens or 
legally admitted to the U.S. for permanent residence. Seventeen writers 
expressed approval of the concept. They generally indicated that this 
provision would help to create jobs and that foreign investment may be 
particularly helpful to the U.S. economy. Three writers opposed this 
concept, generally on the grounds that profits from businesses with 
Federal assistance should not leave the country. Since the publication 
of the proposed rule, questions have been raised as to how this 
provision may relate to provisions of the Welfare Reform Act. Because 
of uncertainty regarding that issue, the change allowing the ultimate 
recipients to not be citizens or lawfully admitted residents has not 
been adopted in the final rule.
    The Agency asked for comments on revising the eligible loan 
purposes for loans to ultimate recipients to include management 
consultant fees. Five writers were opposed to making management 
consultant fees an eligible loan purpose. They pointed out that if 
management is a problem it should be solved before a loan is approved 
and that Small Business Development Centers and the Service Core of 
Retired Executives can assist with management questions. They did not 
think the services the ultimate recipients would receive would be worth 
the cost or would improve repayment ability.
    Nineteen writers thought intermediaries should be able to offer 
loans for management consultant fees. This group of writers tended to 
believe that management consultants would be likely to help some 
businesses enough for the business to become successful and to return 
additional profits sufficient to pay for the cost of the consultant 
fees. This group also tended to believe that intermediaries should be 
able to make the decision, without federal restriction. The Agency 
agrees that this use of funds could be effective in some cases and that 
intermediaries should be able to decide if this assistance should be an 
eligible loan purpose. The final rule includes management consultant 
fees as an eligible loan purpose for loans to ultimate recipients.
    The Agency requested comments on a suggestion to revise the 
eligible loan

[[Page 6048]]

purposes to allow intermediaries to use IRP funds to provide direct 
technical assistance to ultimate recipients or prospective recipients. 
Ten of the respondents did not believe it is financially feasible to 
fund technical assistance from IRP loan funds. If the intermediary is 
allowed to use part of the funds loaned by the Agency to pay for the 
intermediary's costs for providing assistance to ultimate recipients, 
then that amount of funds is no longer available to be loaned to 
ultimate recipients. Therefore, that amount of funds is owed by the 
intermediary to the Agency, but is not producing revenue for the 
intermediary. This group of respondents indicated that all funds 
received by the intermediary from the agency should be reloaned by the 
intermediary to generate repayment ability.
    Twenty respondents favored allowing IRP funds to be used by the 
intermediary to pay costs of providing technical assistance, primarily 
based on the grounds that such assistance is needed for many potential 
ultimate recipients to become successful. The Agency agrees that 
technical assistance is a valuable tool for assisting new or struggling 
businesses and the ability to provide more or better technical 
assistance would enable intermediaries to assist more businesses in 
communities where the assistance is most needed. However, the Agency 
agrees with the commenters questioning the financial feasibility of the 
concept. No one has solved the problem of how an intermediary would 
repay the funds it used to pay for technical assistance. No change from 
the proposed rule is made on this issue.
    When the IRP was initiated in 1988, the security required for most 
loans to intermediaries was a blanket pledge of the IRP revolving fund. 
In 1991, the regulation was revised to require assignments on all 
promissory notes and security documents. The proposed rule attempted to 
clarify, but not change, the requirement that promissory notes be 
transferred to the Agency and assignment documents be provided but not 
recorded. Intermediaries have complained from time to time about being 
required to provide the assignments and the Agency asked for comments 
on whether the providing of assignments is an inordinate burden on the 
intermediary.
    Forty-two respondents to the proposed rule said the assignments 
should not be required and seven said they did not object to continuing 
the assignments. The objectors generally cited such things as the legal 
costs for having assignments prepared, the administrative burden on 
both the intermediary and the Agency of transferring documents back and 
forth and monitoring them, and the additional complications of 
releasing paid-in-full loans, foreclosure, and other servicing actions. 
Those that did not object generally indicated that the burden of 
assignments is not great and the requirement is consistent with sound 
lending practice. In the interest of reducing administrative burden on 
both intermediaries and Agency staff and providing more flexibility for 
intermediaries to operate their programs, the requirement for 
assignments has been removed from the final rule.
    Three writers objected to the requirement that intermediaries 
agree, in the loan agreement, to provide additional security as the 
Agency may require at any time during the life of the loan if an 
assessment indicates the need for such security to protect the 
Government's interest. When the original IRP regulation was published 
in 1988, four writers objected to this provision. It was retained then 
because the Agency believed that it was needed to protect the 
Government's interest. The basic concept is retained now for the same 
reason, although the language has been amended as part of the amended 
security requirements. The assets of a revolving fund, which make up 
the security for most IRP loans, continually change. The value can 
easily deteriorate, either because of economic conditions outside the 
control of the intermediary or because of poor decisions by the 
intermediary. In such cases, if the intermediary has other assets that 
could be used to repay the IRP loan, the Agency has a responsibility to 
the taxpayers to use whatever tools are available to ensure loan 
repayment.
    Current regulations require intermediaries to obtain the 
Government's review and concurrence in the IRP loans the intermediaries 
propose to make to ultimate recipients. The proposed rule clarifies the 
limited scope of review required for concurrence and also clarifies 
that the requirement for review and concurrence applies only when 
Federal loan funds are involved. The requirement does not apply to 
loans made from the revolving fund from collections on previous loans. 
In addition, the Agency requested comments on a suggestion to exempt 
intermediaries that have demonstrated a successful track record of 
lending IRP funds and servicing loans from the requirement or to simply 
not require Government review and concurrence on loans to ultimate 
recipients made from subsequent loans to intermediaries.
    Thirty-nine respondents to the proposed rule said that Agency 
review and concurrence should not be required for intermediaries that 
have established a successful record. Several of those respondents 
would like all prior Agency review eliminated, even on initial loans. 
One said Agency review and concurrence is not a burden and should be 
continued. One indicated Agency review and concurrence helps protect 
the intermediary against the possibility of future findings that a loan 
was not eligible and the process would not be a burden if it did not 
include an environmental impact assessment and intergovernmental 
consultation. The objectors generally seemed to feel that Agency review 
is an unnecessary additional step that slows service to the ultimate 
recipients. An intermediary is reviewed before its loan is approved for 
ability to carry out the program and then monitored through periodic 
visits, reports, and audits. The intermediaries would like the ability 
to make their day-to-day lending decisions independently.
    The Agency has determined that loans to ultimate recipients made 
from Agency IRP loan funds, regardless of whether the funds are from an 
initial or subsequent loan to an intermediary, constitute Federal 
financial assistance. Therefore, the Agency has a responsibility to 
ensure that the funds are used for authorized purposes. More 
specifically, the National Environmental Policy Act imposes certain 
responsibilities on the Agency to consider environmental impacts and 
Executive Order 12372 imposes responsibilities on the Agency to provide 
opportunity for intergovernmental consultation and consider comments 
from designated representatives of State government before approving 
the financial assistance. These are specific requirements imposed on 
the Agency that the Agency does not have legal authority to delegate or 
to fail to perform. The Agency cannot meet these responsibilities 
unless it retains prior approval authority for all loans to ultimate 
recipients that are made from agency funds. No change from the proposed 
rule in made on this issue.
    Intermediaries are required to establish separate bookkeeping 
accounts and bank accounts for the IRP revolving fund. Intermediaries 
that receive more than one IRP loan are required to establish a 
separate revolving fund with separate accounts for each loan. The 
proposed rule would allow the funds to be combined with Government 
consent and under certain conditions. The

[[Page 6049]]

Agency invited comments on the alternative of allowing the funds to be 
combined without Government consent unless the purposes of the loans 
were significantly different.
    Thirty-eight writers commented on this issue and all of them were 
opposed to keeping separate accounts if it can be avoided. The Agency 
is generally in agreement, but there are situations where there is no 
logical alternative to separate funds. For example, there are several 
intermediaries now that have one loan made without a requirement for 
assignments of promissory notes and collateral documents to the Agency 
and another loan that does have that requirement. To know which 
ultimate recipient loans must have assignments, such an intermediary 
must either keep separate funds or provide assignments for all loans. 
The decision to remove the requirement for assignments will solve this 
issue, but there may be other similar issues in the future.
    The real issue, therefore, appears to be whether the burden should 
be on the intermediary to request consent to combine funds when it may 
be appropriate or on the Agency to impose the requirement for separate 
funds when necessary. To accommodate the comments to the extent 
feasible, the final rule has been amended from the proposed rule to 
place the burden on the Agency to impose the requirement when 
necessary.
    The Agency invited comments on the intergovernmental and 
environmental review requirements referenced in the proposed rule and 
how they could be further streamlined. Four respondents indicated that 
environmental assessments are important and not much can be done to 
make the process more streamlined than it already is. Twenty-six 
respondents thought the environmental review and the intergovernmental 
consultation process is excessive. Most of the comments were in 
reference to environmental concerns. Several comments appeared to 
indicate that the writers were considering environmental review in 
terms of protection against reduced collateral value due to site 
contamination with hazardous material. That is a credit quality issue 
and most of the Agency environmental review procedure does not address 
that issue. The Agency review is addressed toward assessing the 
possibility that financing the proposed project will result in some 
future environmental impact. Some of the suggestions were for 
procedures that are already authorized under Agency regulations and 
some were for items that would put the Agency in violation of its 
environmental responsibilities.
    The National Environmental Policy Act (NEPA) and the regulations of 
the Council on Environmental Quality require environmental assessments 
of proposed Agency actions and sets out general procedures and 
requirements for meeting the requirements. Executive Order 12372 
requires an opportunity for State comments on proposed Federal actions 
and sets out general procedures. The Agency is always looking for ways 
to meet these requirements more rapidly and in a manner more convenient 
for the people the Agency serves. The comments have not identified 
further changes that could be made at this time that would streamline 
the process and keep the Agency in compliance with NEPA and Executive 
Order 12372. Therefore, no changes from the proposed rule have been 
made regarding these issues.
    In connection with implementation of the proposed rule the Agency 
plans to begin using a printed form as a loan agreement rather than 
preparing a loan agreement for each loan based on an exhibit to the 
regulation. Comments were invited on a possible additional step of 
having one loan agreement serve for multiple loans to the same 
intermediary by having a supplemental loan agreement extending the 
coverage of the original loan agreement to include the additional loan 
executed at loan closing for each subsequent loan.
    One writer thought that it was a good idea to have a new loan 
agreement for each loan as new members of the board or management team 
would be more likely to read it if a new agreement must be signed. 
Twenty-eight writers were in favor of simply having an amendment or 
supplement to the original loan agreement for subsequent loans. 
Accordingly, the final rule provides for a supplemental loan agreement 
to be executed in connection with subsequent loans to make the original 
loan agreement applicable to the subsequent loan.
    The Agency asked for comments on several alternative application 
requirements recommended by a task force but not incorporated into the 
proposed rule text. Nine writers were generally in favor of the 
suggested further revisions to the application. One of these writers 
said intermediaries would have the information and could share it. 
Another was willing to trade more due diligence at the application 
stage for more independence later. Eight writers were opposed to the 
additional application information. They generally seemed to feel that 
the language in the proposed rule text is adequate and the changes 
suggested would complicate the process, make it more time consuming, 
require more paperwork, and cause more inconsistencies.
    The task force recommended application requirements be further 
revised, in section 1948.122(a)(2)(iii) of the proposed rule, to 
provide that the demonstration of need could be met through targeting 
criteria and supporting evidence that such prospective ultimate 
recipients exist in sufficient numbers to justify funding the 
intermediary's request. One of the writers was adamant that the show of 
need should not be based on targeting information, but rather, better 
documentation should be required to show that an adequate number of 
potential ultimate recipients exist. The Agency believes that it is 
important to realize that need for jobs does not necessarily equal 
demand for business loans. To create loan demand, there must also be 
existing or potential businesses willing and able to borrow and repay 
funds for startups or expansion. The Agency does, however, want to 
encourage the identification of areas of greatest need and target 
program assistance to those areas when feasible. Therefore, the final 
rule includes the option to include targeting information in the 
demonstration of need, provided it is accompanied by evidence that such 
prospective ultimate recipients exist in sufficient numbers to justify 
the loan.
    The task force recommended further revising the application 
requirements by requiring the proposed intermediary to provide a set of 
goals, strategies, and anticipated outcomes for its program and a 
mechanism for evaluating the outcome of its IRP loan program. The 
Agency believes it is important for intermediaries to develop goals, 
strategies, and anticipated outcomes in order to obtain the maximum 
result from program funds. Therefore, the final rule includes a 
requirement for goals, strategies and anticipated outcomes for the 
intermediary's IRP loan program. To avoid further increasing the 
paperwork burden, there is no requirement included for a method of 
measuring outcome. The Agency will continue to study ways to measure 
outcomes in a consistent manner throughout the country.
    The task force also recommended requiring each proposed 
intermediary to provide specific information on how it will ensure that 
technical assistance will be made available to ultimate recipients. The 
Agency believes that having technical assistance available to ultimate 
recipients may be an important factor in the success of many revolving 
loan funds. However, some intermediaries may not be able to

[[Page 6050]]

arrange for such services but can operate a successful relending 
program without it. Such intermediaries should not be denied 
assistance. Therefore, the final rule requires applicants to describe 
what technical assistance will be available to its ultimate recipients, 
without requiring that such assistance be universally available.
    As proposed, priority points for community representation are 
limited to intermediaries with service areas not exceeding 10 counties. 
The Agency believes it should retain the category to encourage local 
participation in intermediary management, but remove some of the 
objections raised. The change to 14 counties is adopted in the final 
rule.
    The Agency invited comments on further modifications to proposed 
scoring criteria to place greater emphasis on such factors as community 
and beneficiary targeting, conformance with regional or community 
development plans, and encouragement of smaller-size loans, with 
proportionately less emphasis on the intermediary's own resources and 
its ability to leverage funds.
    Regarding the reduction of priority points for leveraging and 
intermediary contribution, six writers commented in favor and eleven 
commented in opposition, primarily based on differences of opinion on 
what is most important for the public good.
    Regarding the creation of a new category of points for smaller 
loans, three writers were in favor and sixteen were opposed. The 
opposition seemed to be based on belief that the size of loans has 
little or no impact on the effectiveness of the program, intermediaries 
need flexibility to meet the needs in their particular areas, and 
intermediaries could too easily say they were going to make small 
loans, to get the points, and then not do it.
    Regarding the awarding of points to intermediaries that propose to 
operate in accordance with a strategic plan, particularly one developed 
for an empowerment zone or enterprise community, writers were nearly 
equally divided, on philosophical grounds, with eight commenting in 
favor and nine commenting in opposition.
    In the final rule, the reductions in points for leveraging are 
adopted, to shift more relative weight toward social factors. The 
previous points for intermediary contribution are maintained because 
that is a very important contributor to improved collectability of the 
Agency's loan. The suggested new points for small loans are not adopted 
because we believed that such a change would detract from program 
effectiveness. The suggested language regarding strategic plans and 
Empowerment Zones and Enterprise Communities is adopted as guidance for 
items that could justify Administrator points because the Agency 
generally wants to encourage strategic planning and assistance to 
Empowerment Zones and Enterprise Communities.
    Also, an additional category of priority points has been added 
based on reduction in population of the service area. This was done 
because it came to the Agency's attention after the comment period was 
over that some areas have a low unemployment rate because of out 
migration. The percentage of the population seeking employment is low 
because many of the people needing employment have already left. 
Therefore, unemployment rate alone does not adequately reflect the need 
for economic development and jobs to enable the existing population to 
stay and former residents to return.
    The proposed rule would require intermediaries to establish a bad 
debt reserve in the amount of 15 percent of the IRP portfolio unless a 
different amount is justified by the intermediary and approved by the 
Agency. The Agency asked for comments on whether 15 percent of the IRP 
portfolio is an appropriate amount of bad debt reserve for most 
intermediaries.
    Most writers that commented on this issue agreed that a bad debt 
reserve is needed and sixteen writers thought 15 percent was an 
acceptable amount.
    However, twenty-six writers disagreed with the 15 percent, with 
most of them saying it is too high. Many of the writers wanted the 
amount of the reserve required for each intermediary to be established 
based on that intermediary's history and situation. The Agency agrees 
that there should be flexibility, and the proposed rule language would 
allow for flexibility, but the Agency also wants to provide a general 
guideline from which adjustments can be made as appropriate. From the 
writers who mentioned any particular amount, most suggestions ranged 
between 3 and 10 percent of the portfolio. The final rule adopts a 
guideline amount of six percent because the program history seems to 
justify that amount as sufficient for the losses that have occurred.
    The proposed rule would remove a general prohibition on loans for 
recreation and tourism facilities, but retain a prohibition on loans 
for hotels, motels, bed and breakfast establishments, and convention 
centers. Thirty-nine writers favored making hotels, motels, bed and 
breakfasts and convention centers eligible, compared to three who 
agreed with keeping them ineligible. It was pointed out that such 
facilities are very important to the potential economic development of 
many rural areas and that it is unfair to treat them as a group rather 
than consider each on its own merits.
    The final rule adopts hotels, motels, bed and breakfasts, and 
convention centers as eligible. The Agency agrees that such facilities 
can be an important economic development tool in some areas and that 
each should be evaluated on its own merits.
    One writer wanted virtually unrestricted use of IRP for financing 
agricultural production. The Agency believes that agricultural 
production is a specialized type of financing, the Department of 
Agriculture has special lending programs for agricultural production, 
and IRP should, for the most part, be restricted to other general 
business development. The recommendation is not adopted.
    One writer wanted cranberry production to be made an eligible loan 
purpose, and pointed out that Senate Report 103-290, ``Agriculture, 
Rural Development, Food and Drug Administration, and Related Agencies 
Appropriation Bill, 1995,'' suggested the Department to make regulatory 
changes to allow Maine cranberry growers to qualify for IRP assistance. 
The Agency has determined that singling out one product, such as 
cranberry production, as an exception to the prohibition on loans for 
agriculture production is not justified. Therefore, the suggestion 
regarding cranberries is not adopted and other exceptions to the 
prohibition are also eliminated.
    One writer said that commercial fishing should be an eligible loan 
purpose. Commercial fishing was inadvertently made ineligible through 
the definition of agriculture production. The recommendation is adopted 
by revising the definition.
    Six writers were opposed to the provision that would limit 
subsequent loans to intermediaries to $1 million per year. These 
writers prefer that the loan amounts be limited only by factors such as 
the intermediary applicant's lending record or the demand for funds in 
the service area. The demand for funds is very difficult to determine 
accurately and may change drastically with little or no notice. Slow 
use by intermediaries of approved loan funds is still a major Agency 
concern in IRP in spite of Agency efforts to limit loan amounts 
according to demand. Limiting all subsequent loans to $1 million per 
year reduces the likelihood that intermediaries will borrow more than 
they can use in 1 year. The demand by

[[Page 6051]]

intermediaries for IRP funds from the Agency far exceeds the available 
funds. Limiting subsequent loans to $1 million per year will help to 
ensure distribution of each year's available funds to more applicants, 
while still allowing intermediaries with large needs to eventually 
obtain large amounts of funds. This provision of the proposed rule is 
unchanged.
    Three writers requested that the term underrepresented be defined. 
The final rule includes a definition of underrepresented group as a 
group of U. S. citizens with identifiable common characteristics that 
have not received IRP assistance or have received a lower percentage of 
total IRP dollars than the percentage the group represents of the 
general population.
    Three writers wanted intermediaries to be allowed to use IRP funds 
to guarantee loans, as a alternative to making direct loans to ultimate 
recipients. They were apparently interested in the intermediaries 
having greater flexibility to determine how to best use the IRP funds 
to meet the needs of their service areas.
    The Agency feels that an important benefit of the IRP is that, due 
to the low cost of money provided by the Agency and the nonprofit 
nature of most intermediaries, intermediaries can often offer below 
market interest rates to businesses that cannot afford market rates. By 
offering guarantees rather than direct loans, the interest rate would 
be established by commercial lenders, based on their cost of money and 
profit goals, and the interest rate advantage would be lost. Offering 
loan guarantees instead of direct loans also brings in a new set of 
management concerns and risks. Guaranteeing a loan does not require any 
cash, so the IRP loan funds would not be ``used'' to make the 
guarantee. Guaranteeing a loan creates a contingent liability, 
requiring the guarantor to pay an unknown amount at an unknown future 
date in the event a loss occurs. Presumably, IRP funds would be placed 
by the intermediary in secure investments and held to be available to 
pay losses if necessary. Some intermediaries might use this type of 
program as an excuse to place an excessive amount of funds in safe 
investments to accumulate interest earnings rather than help ultimate 
recipients. Other intermediaries might place too small an amount in 
safe investments and then be unable to meet their commitments in the 
event of losses that exceed expectations. This recommendation is not 
adopted.
    Two writers wanted intermediaries to be allowed to purchase 
participation agreements in bank loans. Many intermediaries cooperate 
with banks, making referrals to each other and sharing risks through 
joint financing of ultimate recipient needs. The Agency strongly 
encourages this cooperation and joint financing. However, we have 
required that in a joint financing arrangement, the intermediary and 
bank each make a separate loan with separate debt instruments. When an 
organization buys a participation agreement it normally is not making a 
loan; it is purchasing an investment. The loan is made by the bank. The 
bank holds the promissory note and the collateral. The bank does the 
loan servicing, collects the payments, and forwards the appropriate 
portion of the payment to the holder of the participation agreement. 
The holder of the participation agreement has no responsibility for and 
no control over the servicing and no direct relationship with the 
borrower. It is an investor, not a lender. It would be too easy for the 
intermediary to use the purchase of participation agreements as a 
mechanism to simply invest in loans the bank would make anyway.
    The Agency believes that, to properly carry out the intent of the 
program, intermediaries should have a direct lender-borrower 
relationship with the ultimate recipients. The intermediary should be 
in position to deal directly with the ultimate recipient to service the 
loan. If necessary, the Agency should be able to influence the 
servicing of the loan by the intermediary or to foreclose on a 
defaulted loan to an intermediary and take over the servicing and 
collection of the loan to the ultimate recipient.
    The IRP regulation has always required intermediaries to make loans 
and the Agency has held that buying participations is not making loans. 
The word direct was inserted in the proposed rule to further clarify 
the intent. The language of the proposed rule is maintained in the 
final rule.
    Three writers recommended elimination of the provision that 
ultimate recipients cannot obtain loans from more than one 
intermediary. This recommendation has been adopted. However, the 
language has been revised to clarify that the limits on loan amount to 
one ultimate recipient apply to the total dollar amount of IRP debt, 
regardless of whether it is one loan from one intermediary or several 
loans from several intermediaries.
    Two writers also objected to the provision that IRP funds cannot 
finance more than 75 percent of total project costs. This provision 
helps to ensure wider distribution of limited program funds and reduced 
risk through ultimate beneficiary contribution or leveraging of other 
funding sources, and so the recommendation is not adopted.
    Two writers requested a preferred lender status be established for 
experienced and successful intermediaries that target assistance to 
certain populations. Only one writer indicated what special benefits a 
preferred status should carry. Rather than create a special class of 
intermediaries, the agency is moving toward providing all the 
discretion and benefits it considers reasonable to all intermediaries. 
Therefore, the recommendation is not adopted.
    The one writer who suggested specific benefits for preferred 
lenders proposed a moratorium on loan principal and interest payments 
to the Agency so long as the lender met certain performance standards. 
If the lender did not maintain the standards, it would lose its 
preferred lender status and be expected to resume normal loan 
repayment. Presumably, the interest that accrued and the principal that 
came due while the moratorium was in effect would be forgiven.
    The Agency does not have the legal authority to forgive debt except 
in debt settlement situations when it is documented that the borrower 
does not have repayment ability. Also, as a matter of good credit 
program management, the Agency does not believe loan programs should be 
mixed with the characteristics of grant programs. If a grant is 
appropriate, the assistance should be authorized as a grant and 
recognized as a grant by all parties from the beginning. If a loan is 
made, it should be clearly set out in writing exactly what repayment is 
required. Then collection should be pursued in accordance with the 
lenders rights, so long as the borrower has repayment ability. To set 
up a loan with the understanding that a certain payment is required 
under normal circumstances but will be reduced under certain conditions 
would invite misunderstanding and dispute over the borrower's 
liability, create servicing problems, and foster law suits to enforce 
or prevent collection. The recommendation is not adopted.
    One writer requested that intermediaries be able to provide equity 
investment for ultimate recipients. Another requested the conflict of 
interest paragraph from the existing regulation be kept in place so 
that it applies to all loans from the IRP revolving fund. In the 
proposed rule the requirement was moved and would only apply to loans 
from Agency IRP loan funds. The conflict of interest paragraph provides 
that an intermediary and its principal officers (including immediate

[[Page 6052]]

family) must hold no legal or financial interest or influence in the 
ultimate recipient, and the ultimate recipient and its principal 
officers (including immediate family) must hold no legal or financial 
interest or influence in the intermediary. This not only prevents an 
intermediary from using Agency IRP loan funds for equity investment, it 
prevents the intermediary from making a loan from Agency IRP loan funds 
to an ultimate recipient to which it has provided equity investment 
from another source of funding.
    The Agency recognizes that there is a need for equity investment or 
venture capital for new businesses in rural areas. However, providing 
equity investment means purchasing an ownership interest in the 
business. The Agency is concerned that if an intermediary is 
considering a loan to a business in which it owns an interest, the 
intermediary's credit quality analysis and loan approval decision may 
be influenced by its desire to assist or protect the value of its 
ownership interest. The final rule does not authorize the use of IRP 
loan funds for equity investment and the conflict of interest 
restriction has been rewritten so that it applies to all loans made 
from the IRP revolving loan fund.
    One writer wanted the definition of rural to be amended so that 
loans could be made to ultimate recipients in cities of up to 50,000 
people. The Agency believes that retaining the 25,000 population limit 
will help direct the limited funding to the areas of greatest need. The 
recommendation is not adopted.
    One writer indicated that the definitions of Agency IRP loan funds, 
IRP revolving fund, and revolved funds are not sufficiently clear. The 
writer wanted a statement included, consistent with an existing 
Administrative Notice, to provide that revolved funds are not subject 
to the requirements of Agency regulations. The writer also wanted a 
paragraph to set out what regulatory procedures are required of 
intermediaries administering non-Federal funds. The Agency believes 
that the definitions of Agency IRP loan funds, IRP revolving funds, and 
revolved funds are as clear as can be achieved. The Agency believes 
that the broad statement in the previous regulation regarding non-
federal funds not being subject to the regulations has been the cause 
of past confusion about what requirements apply in different 
situations. The Agency has intentionally avoided such broad statements 
in the new regulation. Also, the Agency intentionally wrote the 
proposed rule to apply the requirements differently than under the 
Administrative Notice that provided interpretation of the previous 
regulation. The Agency has attempted to end the confusion over these 
issues by clearly stating in each section of the regulation whether 
that section applies to Agency IRP loan funds only or to the IRP 
revolving fund. Section 4274.332(a) explains that if the reference is 
to the IRP revolving fund, the requirement applies to both revolved (or 
non-Federal) funds and Agency IRP loan funds. If the reference is to 
Agency IRP loan funds, without reference to the IRP revolving fund, 
then the requirement applies only to Agency IRP loan funds. The 
language of the proposed rule on this issue is not changed.
    One writer recommended the restrictive language regarding interest 
rates to ultimate recipients be removed to allow intermediaries 
flexibility. The proposed rule only provides a general guideline 
regarding how interest rates should be established and requires that 
limits be established in the work plan. There is also a provision for 
amending the work plan that could be used should the limits established 
at the application stage become a problem in the future.
    Some guidelines and limits are needed to deal with two extremes 
that continue to occur from time to time. Some intermediaries propose 
to charge interest rates so low that sufficient revenues would not be 
produced to maintain the revolving fund and meet the repayment schedule 
to the Agency. These intermediaries must be counseled and encouraged to 
plan for higher rates in order for the loan from the Agency to be 
feasible. There are other intermediaries that propose interest rates so 
high that it raises questions as to whether the intermediary is trying 
to help ultimate recipients and the community or just trying to bring 
in revenues.
    The Agency believes that the language in the proposed rule gives 
the intermediary considerable flexibility while also providing 
sufficient guidelines to allow the Agency to prevent unreasonable 
extremes. The recommendation is not adopted.
    One writer requested that the ban on loans to charitable and 
educational institutions be removed because they can be valid 
businesses. Another writer wanted certain organizations that the writer 
considered charitable to be eligible. The prohibition of loans to 
educational institutions has been removed in the interest of allowing 
more flexibility and the reference to charitable has been clarified. 
The Agency's concern is that loans not be made if the recipient will 
depend on donations, rather than sales or fees, to repay the loan or 
administer the revolving loan fund.
    One writer objected to the requirement that the intermediary's 
interest in insurance required of the ultimate recipient be assigned to 
the Agency. The Agency agrees that valid assignment of all such 
insurance is an unnecessary administrative burden. The final rule has 
been modified to require assignments of insurance only if the 
intermediary is in default.
    In addition to responding to the public comments, the final rule 
differs from the proposed rule by providing that any applicant that is 
delinquent on any Federal debt is not eligible to receive assistance 
from Agency IRP funds. This provision was added to comply with Public 
Law 104-132 dated April 26, 1996 (31 U.S.C. 3720B).

Lists of Subjects

7 CFR Part 1948

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

7 CFR Part 1951

    Loan programs--Agriculture, Rural areas.

7 CFR Part 4274

    Community development, Economic development, Loan programs--
Business, Rural areas.

    Accordingly, Title 7, Chapters XVIII and XLII, 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 1948--RURAL DEVELOPMENT

    1. The authority citation for part 1948 is revised to read as 
follows:

    Authority: 5 U.S.C. 301, 7 U.S.C. 1932 note.

Subpart C--[Removed and Reserved]

    2. Subpart C, part 1948 is removed and reserved.

PART 1951--SERVICING AND COLLECTIONS

    3. The authority citation for part 1951 has been revised to read as 
follows:

    Authority: 5 U.S.C. 301, 7 U.S.C. 1932 Note, 7 U.S.C. 1989, 42 
U.S.C. 1480.

Subpart R--Rural Development Loan Servicing

    4. Section 1951.852(b)is amended by removing the numeric paragraph 
designations and by removing the

[[Page 6053]]

abbreviation for ``FmHA or its successor agency under Pub. L. 103-
354''.
    5. Section 1951.853 is amended by revising in paragraph (a) the 
words ``FmHA or its successor agency under Public Law 103-354'' to read 
``the Agency'' and by revising paragraph (b)(2)(ix) to read as follows:


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

* * * * *
    (b) * * *
    (2) * * *
    (ix) Reasonable fees and charges only as specifically listed in 
this subparagraph. Authorized fees include loan packaging fees, 
environmental data collection fees, and other professional fees 
rendered by professionals generally licensed by individual State or 
accreditation associations, such as engineers, architects, lawyers, 
accountants, and appraisers. The amount of fee will be what is 
reasonable and customary in the community or region where the project 
is located. Any such fees are to be fully documented and justified.
* * * * *
    6. Section 1951.883 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 1951.883  Reporting requirements.

    (a) * * *
    (2) Quarterly or semiannual reports (due 30 days after the end of 
the period).
    (i) Reports will be required quarterly during the first year after 
loan closing and, if all loan funds are not utilized during the first 
year, quarterly reports will be continued until at least 90 percent of 
the Agency IRP loan funds have been advanced to ultimate recipients. 
Thereafter, reports will be required semiannually. Also, the Agency may 
require quarterly reports if the intermediary becomes delinquent in 
repayment of its loan or otherwise fails to fully comply with the 
provisions of its work plan or Loan Agreement, or the Agency determines 
that the intermediary's IRP revolving fund is not adequately protected 
by the current sound worth and paying capacity of the ultimate 
recipients.
    (ii) These reports shall contain only information on the IRP 
revolving loan fund, or if other funds are included, the IRP loan 
program portion shall be segregated from the others; and in the case 
where the intermediary has more than one IRP revolving fund from the 
Agency a separate report shall be made for each of the IRP revolving 
funds.
    (iii) The reports will include, on a form provided by the Agency, 
information on the intermediary's lending activity, income and 
expenses, financial condition, and a summary of names and 
characteristics of the ultimate recipients the intermediary has 
financed.
* * * * *
CHAPTER XLII--RURAL BUSINESS-COOPERATIVE SERVICE AND RURAL UTILITIES 
SERVICE, DEPARTMENT OF AGRICULTURE
    7. Chapter XLII, title 7, Code of Federal Regulations is amended by 
adding a new part 4274 to to read as follows:

PART 4274--DIRECT AND INSURED LOANMAKING

Subparts A-C--[Reserved]

Subpart D--Intermediary Relending Program (IRP)

Sec.
4274.301  Introduction.
4274.302  Definitions and abbreviations.
4274.303-4274.306  [Reserved]
4274.307  Eligibility requirements--Intermediary.
4274.308  Eligibility requirements--Ultimate recipients.
4274.309-4274.313  [Reserved]
4274.314  Loan purposes.
4274.315-4274.318  [Reserved]
4274.319  Ineligible loan purposes.
4274.320  Loan terms.
4274.321-4274.324  [Reserved]
4274.325  Interest rates.
4274.326  Security.
4274.327-4274.330  [Reserved]
4274.331  Loan limits.
4274.332  Post award requirements.
4274.333-4274.336  [Reserved]
4274.337  Other regulatory requirements.
4274.338  Loan agreements between the Agency and the intermediary.
4274.339-4274.342  [Reserved]
4274.343  Application.
4274.344  Filing and processing applications for loans.
4274.345-4274.349  [Reserved]
4274.350  Letter of conditions.
4274.351-4274.354  [Reserved]
4274.355  Loan approval and obligating funds.
4274.356  Loan closing.
4274.357-4274.360  [Reserved]
4274.361  Requests to make loans to ultimate recipients.
4274.362-4274.372  [Reserved]
4274.373  Appeals.
4274.374-4274.380  [Reserved]
4274.381  Exception authority.
4274.382-4274.399  [Reserved]
4274.400  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1932 note; 7 U.S.C. 1989.

Subpart D--Intermediary Relending Program (IRP)


Sec. 4274.301  Introduction.

    (a) This subpart contains regulations for loans made by the Agency 
to eligible intermediaries and applies to borrowers and other parties 
involved in making such loans. The provisions of this subpart supersede 
conflicting provisions of any other subpart. The servicing and 
liquidation of such loans will be in accordance with part 1951, subpart 
R, of this title.
    (b) The purpose of the program is to alleviate poverty and increase 
economic activity and employment in rural communities, especially 
disadvantaged and remote communities, through financing targeted 
primarily towards smaller and emerging businesses, in partnership with 
other public and private resources, and in accordance with State and 
regional strategy based on identified community needs. This purpose is 
achieved through loans made to intermediaries that establish programs 
for the purpose of providing loans to ultimate recipients for business 
facilities and community developments in a rural area.
    (c) Proposed intermediaries are required to identify any known 
relationship or association with a USDA Rural Development employee. Any 
processing or servicing Agency activity conducted pursuant to this 
subpart involving authorized assistance to United States Department of 
Agriculture (USDA) Rural Development employees, members of their 
families, close relatives, or business or close personal associates, is 
subject to the provisions of subpart D of part 1900 of this chapter.
    (d) Copies of all forms, regulations, and Agency procedures 
referenced in this subpart are available in the National Office or any 
Rural Development State Office.


Sec. 4274.302  Definitions and abbreviations.

    (a) General definitions. The following definitions are applicable 
to the terms used in this subpart:
    Agency. The Federal agency within the USDA with responsibility 
assigned by the Secretary of Agriculture to administer IRP. At the time 
of publication of this rule, that Agency was the Rural Business-
Cooperative Service (RBS).
    Agency IRP loan funds. Cash proceeds of a loan obtained from the 
Agency through IRP, including the portion of an IRP revolving fund 
directly provided by the Agency IRP loan. Agency IRP loan funds are 
Federal funds.
    Agricultural production or agriculture production. The cultivation, 
production, growing, raising, feeding, housing, breeding, hatching, or 
managing of crops, plants, animals, or birds, either for fiber, food 
for human consumption, or livestock feed.

[[Page 6054]]

    Initial Agency IRP loan. The first IRP loan made by the Agency to 
an intermediary.
    Intermediary. The entity requesting or receiving Agency IRP loan 
funds for establishing a revolving fund and relending to ultimate 
recipients.
    IRP revolving fund. A group of assets, obtained through or related 
to an Agency IRP loan and recorded by the intermediary in a bookkeeping 
account or set of accounts and accounted for, along with related 
liabilities, revenues, and expenses, as an entity or enterprise 
separate from the intermediary's other assets and financial activities.
    Principals of intermediary. Members, officers, directors, and other 
individuals or entities directly involved in the operation and 
management (including setting policy) of an intermediary.
    Processing office or officer. The processing office for an IRP 
application is the office within the Agency administrative organization 
with assigned authority and responsibility to process the application. 
The processing office is the primary contact for the proposed 
intermediary and maintains the official application case file. The 
processing officer for an application is the person in charge of the 
processing office. The processing officer is responsible for ensuring 
that all regulations and Agency procedures are complied with in regard 
to applications under the office's jurisdiction.
    Revolved funds. The cash portion of an IRP revolving fund that is 
not composed of Agency loan funds, including funds that are repayments 
of Agency IRP loans and including fees and interest collected on such 
loans. Revolved funds shall not be considered Federal funds.
    Rural area. All territory of a State that is not within the outer 
boundary of any city having a population of 25,000 or more, according 
to the latest decennial census.
    Servicing office or officer. The servicing office for an IRP loan 
is the office within the Agency administrative organization with 
assigned authority and responsibility to service the loan. The 
servicing office is the primary contact for the borrower and maintains 
the official case file after the loan is closed. The servicing officer 
for a loan is the person in charge of the servicing office. The 
servicing officer is responsible for ensuring that all regulations and 
Agency procedures are complied with in regard to loans under the 
office's jurisdiction.
    State. Any of the 50 States, the District of Columbia, 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.
    Subsequent IRP loan. An IRP loan from the Agency to an intermediary 
that has received one or more IRP loans previously.
    Technical assistance. A function performed for the benefit of an 
ultimate recipient or proposed ultimate recipient, which is a problem 
solving activity. The Agency will determine whether a specific activity 
qualifies as technical assistance.
    Ultimate recipient. An entity or individual that receives a loan 
from an intermediary's IRP revolving fund.
    Underrepresented group. U.S. citizens with identifiable common 
characteristics, that have not received IRP assistance or have received 
a lower percentage of total IRP dollars than the percentage they 
represent of the general population.
    United States. The 50 States of the United States of America, the 
District of Columbia, 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.
    (b) Abbreviations. The following are applicable to this subpart:

B&I--Business and Industry
IRP--Intermediary Relending Program
OGC--Office of the General Counsel
OIG--Office of Inspector General
OMB--Office of Management and Budget
RBS--Rural Business-Cooperative Service, or any successor agency
RDLF--Rural Development Loan Fund
USDA--United States Department of Agriculture


Secs. 4274.303-4274.306  [Reserved]


Sec. 4274.307  Eligibility requirements--Intermediary.

    (a) The types of entities which may become intermediaries are:
    (1) Private nonprofit corporations.
    (2) Public agencies--Any State or local government, or any branch 
or agency of such government having authority to act on behalf of that 
government, borrow funds, and engage in activities eligible for funding 
under this subpart.
    (3) Indian groups--Indian tribes on a Federal or State reservation 
or other federally recognized tribal groups.
    (4) Cooperatives--Incorporated associations, at least 51 percent of 
whose members are rural residents, whose members have one vote each, 
and which conduct, for the mutual benefit of their members, such 
operations as producing, purchasing, marketing, processing, or other 
activities aimed at improving the income of their members as producers 
or their purchasing power as consumers.
    (b) The intermediary must:
    (1) Have the legal authority necessary for carrying out the 
proposed loan purposes and for obtaining, giving security for, and 
repaying the proposed loan.
    (2) Have a proven record of successfully assisting rural business 
and industry, or, for intermediaries that propose to finance community 
development, a proven record of successfully assisting rural community 
development projects of the type planned.
    (i) Except as provided in paragraph (b)(2)(ii) of this section, 
such record will include recent experience in loan making and servicing 
with loans that are similar in nature to those proposed for the IRP and 
a delinquency and loss rate acceptable to the Agency.
    (ii) The Agency may approve an exception to the requirement for 
loan making and servicing experience provided:
    (A) The proposed intermediary has a proven record of successfully 
assisting (other than through lending) rural business and industry or 
rural community development projects of the type planned; and
    (B) The proposed intermediary will, before the loan is closed, 
bring individuals with loan making and servicing experience and 
expertise into the operation of the IRP revolving fund.
    (3) Have the services of a staff with loan making and servicing 
expertise acceptable to the Agency.
    (4) Have capitalization acceptable to the Agency.
    (c) No loans will be extended to an intermediary unless:
    (1) There is adequate assurance of repayment of the loan based on 
the fiscal and managerial capabilities of the proposed intermediary.
    (2) The loan is not otherwise available on reasonable (i.e., usual 
and customary) rates and terms from private sources or other Federal, 
State, or local programs.
    (3) The amount of the loan, together with other funds available, is 
adequate to assure completion of the project or achieve the purposes 
for which the loan is made.
    (d) At least 51 percent of the outstanding interest or membership 
in any nonpublic body intermediary must be composed of citizens of the 
United

[[Page 6055]]

States or individuals who reside in the United States after being 
legally admitted for permanent residence.
    (e) Any delinquent debt to the Federal Government by the 
intermediary or any principal of the intermediary shall cause the 
intermediary to be ineligible to receive any IRP loan. Agency loan 
funds may not be used to satisfy the debt.


Sec. 4274.308  Eligibility requirements--Ultimate recipients.

    (a) Ultimate recipients may be individuals, public or private 
organizations, or other legal entities, with authority to incur the 
debt and carry out the purpose of the loan.
    (b) To be eligible to receive loans from the IRP revolving loan 
fund, ultimate recipients;
    (1) Must be citizens of the United States or reside in the United 
States after being legally admitted for permanent residence. In the 
case of an organization, at least 51 percent of the outstanding 
membership or ownership must be either citizens of the United States or 
residents of the United States after being legally admitted for 
permanent residence.
    (2) Must be located in a rural area of a State.
    (3) Must be unable to finance the proposed project from its own 
resources or through commercial credit or other Federal, State, or 
local programs at reasonable rates and terms.
    (4) Must, along with its principal officers (including their 
immediate family), hold no legal or financial interest or influence in 
the intermediary. Also, the intermediary and its principal officers 
(including immediate family) must hold no legal or financial interest 
or influence in the ultimate recipient. However, this paragraph shall 
not prevent an intermediary that is organized as a cooperative from 
making a loan to one of its members.
    (c) Any delinquent debt to the Federal Government by the ultimate 
recipient or any of its principals shall cause the proposed ultimate 
recipient to be ineligible to receive a loan from Agency IRP loan 
funds. Agency IRP loan funds may not be used to satisfy the 
delinquency.


Secs. 4274.309-4274.313  [Reserved]


Sec. 4274.314  Loan purposes.

    (a) Intermediaries. Agency IRP loan funds must be placed in the 
intermediary's IRP revolving fund and used by the intermediary to 
provide direct loans to eligible ultimate recipients.
    (b) Ultimate recipients. Loans from the intermediary to the 
ultimate recipient using the IRP revolving fund must be for community 
development projects, the establishment of new businesses, expansion of 
existing businesses, creation of employment opportunities, or saving 
existing jobs. Such loans may include, but are not limited to:
    (1) Business and industrial acquisitions when the loan will keep 
the business from closing, prevent the loss of employment 
opportunities, or provide expanded job opportunities.
    (2) Business construction, conversion, enlargement, repair, 
modernization, or development.
    (3) Purchase and development of land, easements, rights-of-way, 
buildings, facilities, leases, or materials.
    (4) Purchase of equipment, leasehold improvements, machinery, or 
supplies.
    (5) Pollution control and abatement.
    (6) Transportation services.
    (7) Start-up operating costs and working capital.
    (8) Interest (including interest on interim financing) during the 
period before the facility becomes income producing, but not to exceed 
3 years.
    (9) Feasibility studies.
    (10) Debt refinancing.
    (i) A complete review will be made by the intermediary to determine 
whether the loan will restructure debts on a schedule that will allow 
the ultimate recipient to operate successfully and pay off the loan 
rather than merely take over an unsound loan. The intermediary will 
obtain the proposed ultimate recipient's complete debt schedule which 
should agree with the proposed ultimate recipient's latest balance 
sheet; and
    (ii) Refinancing debts may be allowed only when it is determined by 
the intermediary that the project is viable and refinancing is 
necessary to create new or save existing jobs or create or continue a 
needed service; and
    (iii) On any request for refinancing of existing secured loans, the 
intermediary is required, at a minimum, to obtain the previously held 
collateral as security for the loans and must not pay off a creditor in 
excess of the value of the collateral. Additional collateral will be 
required when the refinancing of unsecured loans is unavoidable to 
accomplish the necessary strengthening of the ultimate recipient's 
position.
    (11) Reasonable fees and charges only as specifically listed in 
this paragraph. Authorized fees include loan packaging fees, 
environmental data collection fees, management consultant fees, and 
other fees for services rendered by professionals. Professionals are 
generally persons licensed by States or accreditation associations, 
such as engineers, architects, lawyers, accountants, and appraisers. 
The maximum amount of fee will be what is reasonable and customary in 
the community or region where the project is located. Any such fees are 
to be fully documented and justified.
    (12) Hotels, motels, tourist homes, bed and breakfast 
establishments, convention centers, and other tourist and recreational 
facilities except as prohibited by Sec. 4274.319.
    (13) Educational institutions.
    (14) Revolving lines of credit: Provided, 
    (i) The portion of the intermediary's total IRP revolving fund that 
is committed to or in use for revolving lines of credit will not exceed 
25 percent at any time;
    (ii) All ultimate recipients receiving revolving lines of credit 
will be required to reduce the outstanding balance of the revolving 
line of credit to zero at least one time each year;
    (iii) All revolving lines of credit will be approved by the 
intermediary for a specific maximum amount and for a specific maximum 
time period, not to exceed two years;
    (iv) The intermediary will provide a detailed description, which 
will be incorporated into the intermediary's work plan and be subject 
to Agency approval, of how the revolving lines of credit will be 
operated and managed. The description will include evidence that the 
intermediary has an adequate system for:
    (A) Interest calculations on varying balances, and
    (B) Monitoring and control of the ultimate recipients' cash, 
inventory, and accounts receivable; and
    (v) If, at any time, the Agency determines that an intermediary's 
operation of revolving lines of credit is causing excessive risk of 
loss for the intermediary or the Government, the Agency may terminate 
the intermediary's authority to use the IRP revolving fund for 
revolving lines of credit. Such termination will be by written notice 
and will prevent the intermediary from approving any new lines of 
credit or extending any existing revolving lines of credit beyond the 
effective date of termination contained in the notice.


Secs. 4274.315-4274.318  [Reserved]


Sec. 4274.319  Ineligible loan purposes.

    Agency IRP loan funds may not be used for payment of the 
intermediary's administrative costs or expenses. The IRP revolving fund 
may not be used for:
    (a) Assistance in excess of what is needed to accomplish the 
purpose of the ultimate recipient's project .

[[Page 6056]]

    (b) Distribution or payment to the owner, partners, shareholders, 
or beneficiaries of the ultimate recipient or members of their families 
when such persons will retain any portion of their equity in the 
ultimate recipient.
    (c) Charitable institutions that would not have revenue from sales 
or fees to support the operation and repay the loan, churches, 
organizations affiliated with or sponsored by churches, and fraternal 
organizations.
    (d) Assistance to government employees, military personnel, or 
principals or employees of the intermediary or organizations for which 
such persons are directors or officers or in which they have ownership 
of 20 percent or more.
    (e) A loan to an ultimate recipient which has an application 
pending with or a loan outstanding from another intermediary involving 
an IRP revolving fund if the total IRP loans would exceed the limits 
established in Sec. 4274.331(b).
    (f) Agricultural production.
    (g) The transfer of ownership unless the loan will keep the 
business from closing, or prevent the loss of employment opportunities 
in the area, or provide expanded job opportunities.
    (h) Community antenna television services or facilities.
    (i) Any illegal activity.
    (j) Any project that is in violation of either a Federal, State, or 
local environmental protection law or regulation or an enforceable land 
use restriction unless the assistance given will result in curing or 
removing the violation.
    (k) Lending and investment institutions and insurance companies.
    (l) Golf courses, race tracks, or gambling facilities.


Sec. 4274.320  Loan terms.

    (a) No loan to an intermediary shall be extended for a period 
exceeding 30 years. Interest and principal payments will be scheduled 
at least annually. The initial principal payment may be deferred 
(during the period before the facility becomes income producing) by the 
Agency, but not more than 3 years.
    (b) Loans made by an intermediary to an ultimate recipient from the 
IRP revolving fund will be scheduled for repayment over a term 
negotiated by the intermediary and ultimate recipient. The term must be 
reasonable and prudent considering the purpose of the loan, expected 
repayment ability of the ultimate recipient, and the useful life of 
collateral, and must be within any limits established by the 
intermediary's work plan.


Sec. Sec. 4274.321-4274.324  [Reserved]


Sec. 4274.325  Interest rates.

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


Sec. 4274.326  Security.

    (a) Intermediaries. Security for all loans to intermediaries must 
be such that the repayment of the loan is reasonably assured, when 
considered along with the intermediary's financial condition, work 
plan, and management ability. It is the responsibility of the 
intermediary to make loans to ultimate recipients in such a manner that 
will fully protect the interests of the intermediary and the 
Government.
    (1) Security for such loans may include, but is not limited to:
    (i) Any realty, personalty, or intangible capable of being 
mortgaged, pledged, or otherwise encumbered by the intermediary in 
favor of the Agency; and
    (ii) Any realty, personalty, or intangible capable of being 
mortgaged, pledged, or otherwise encumbered by an ultimate recipient in 
favor of the Agency.
    (2) Initial security will consist of a pledge by the intermediary 
of all assets now in or hereafter placed in the IRP revolving fund, 
including cash and investments, notes receivable from ultimate 
recipients, and the intermediary's security interest in collateral 
pledged by ultimate recipients. Except for good cause shown, the Agency 
will not obtain assignments of specific assets at the time a loan is 
made to an intermediary or ultimate recipient. The intermediary will 
covenant that, in the event the intermediary's financial condition 
deteriorates or the intermediary takes action detrimental to prudent 
fund operation or fails to take action required of a prudent lender, 
the intermediary will provide additional security, execute any 
additional documents, and undertake any reasonable acts the Agency may 
request to protect the Agency's interest or to perfect a security 
interest in any asset, including physical delivery of assets and 
specific assignments to the Agency. All debt instruments and collateral 
documents used by an intermediary in connection with loans to ultimate 
recipients must be assignable.
    (b) Ultimate recipients. Security for a loan from an intermediary's 
IRP revolving fund to an ultimate recipient will be negotiated between 
the intermediary and ultimate recipient, within the general security 
policies established by the intermediary and approved by the Agency.


Secs. 4274.327-4274.330  [Reserved]


Sec. 4274.331  Loan limits.

    (a) Intermediary.
    (1) No loan to an intermediary will exceed the maximum amount the 
intermediary can reasonably be expected to lend to eligible ultimate 
recipients, in an effective and sound manner, within 1 year after loan 
closing.
    (2) The initial Agency IRP loan as defined in Sec. 4274.302(a) will 
not exceed $2 million.
    (3) Intermediaries that have received one or more IRP loans may 
apply for and be considered for subsequent IRP loans provided:
    (i) At least 80 percent of the Agency IRP loan funds approved for 
the intermediary have been disbursed to eligible ultimate recipients;
    (ii) The intermediary is promptly relending all collections from 
loans made from its IRP revolving fund in excess of what is needed for 
required debt service, reasonable administrative costs approved by the 
Agency, and a reasonable reserve for debt service and uncollectable 
accounts;
    (iii) The outstanding loans of the intermediary's IRP revolving 
fund are generally sound; and
    (iv) The intermediary is in compliance with all applicable 
regulations and its loan agreements with the Agency.
    (4) Subsequent loans will not exceed $1 million each and not more 
than one loan will be approved for an intermediary in any one fiscal 
year.
    (5) Total outstanding IRP indebtedness of an intermediary to the 
Agency will not exceed $15 million at any time.
    (b) Ultimate recipients. Loans from intermediaries to ultimate 
recipients using the IRP revolving fund must not exceed the lesser of:
    (1) $250,000; or
    (2) Seventy five percent of the total cost of the ultimate 
recipient's project for which the loan is being made.
    (c) Portfolio. No more than 25 percent of an IRP loan approved may 
be used for

[[Page 6057]]

loans to ultimate recipients that exceed $150,000. This limit does not 
apply to revolved funds.


Sec. 4274.332  Post award requirements.

    (a) Applicability. Intermediaries receiving loans under this 
program shall be governed by these regulations, the loan agreement, the 
approved work plan, security interests, and any other conditions which 
the Agency may impose in making a loan. Whenever this subpart imposes a 
requirement on loans made from the ``IRP revolving fund,'' such 
requirement shall apply to all loans made by an intermediary to an 
ultimate recipient from the intermediary's IRP revolving fund for as 
long as any portion of the intermediary's IRP loan from the Agency 
remains unpaid. Whenever this subpart imposes a requirement on loans 
made by intermediaries from ``Agency IRP loan funds,'' without specific 
reference to the IRP revolving fund, such requirement shall apply only 
to loans made by an intermediary using Agency IRP loan funds, and will 
not apply to loans made from revolved funds.
    (b) Maintenance of IRP revolving fund. For as long as any part of 
an IRP loan to an intermediary remains unpaid, the intermediary must 
maintain the IRP revolving fund. All Agency IRP loan funds received by 
an intermediary must be deposited into an IRP revolving fund. The 
intermediary may transfer additional assets into the IRP revolving 
fund. All cash of the IRP revolving fund shall be deposited in a 
separate bank account or accounts. No other funds of the intermediary 
will be commingled with such money. All moneys deposited in such bank 
account or accounts shall be money of the IRP revolving fund. Loans to 
ultimate recipients are advanced from the IRP revolving fund. The 
receivables created by making loans to ultimate recipients, the 
intermediary's security interest in collateral pledged by ultimate 
recipients, collections on the receivables, interest, fees, and any 
other income or assets derived from the operation of the IRP revolving 
fund are a part of the IRP revolving fund.
    (1) The portion of the IRP revolving fund that consists of Agency 
IRP loan funds, on a last-in-first-out basis, may only be used for 
making loans in accordance with Sec. 4274.314 of this subpart. The 
portion of the IRP revolving fund which consists of revolved funds may 
be used for debt service, reasonable administrative costs, or reserves 
in accordance with this section, or for making additional loans.
    (2) The intermediary must submit an annual budget of proposed 
administrative costs for Agency approval. The amount removed from the 
IRP revolving fund for administrative costs in any year must be 
reasonable, must not exceed the actual cost of operating the IRP 
revolving fund, including loan servicing and providing technical 
assistance, and must not exceed the amount approved by the Agency in 
the intermediary's annual budget.
    (3) A reasonable amount of revolved funds must be used to create a 
reserve for bad debts. Reserves must be accumulated over a period of 
years. The total amount should not exceed maximum expected losses, 
considering the quality of the intermediary's portfolio of loans. 
Unless the intermediary provides loss and delinquency records that, in 
the opinion of the Agency, justifies different amounts, a reserve for 
bad debts of 6 percent of outstanding loans must be accumulated over 3 
years and then maintained.
    (4) Any cash in the IRP revolving fund from any source that is not 
needed for debt service, approved administrative costs, or reasonable 
reserves must be available for additional loans to ultimate recipients.
    (5) All reserves and other cash in the IRP revolving loan fund not 
immediately needed for loans to ultimate recipients or other authorized 
uses will be deposited in accounts in banks or other financial 
institutions. Such accounts will be fully covered by Federal deposit 
insurance or fully collateralized with U.S. Government obligations, and 
must be interest bearing. Any interest earned thereon remains a part of 
the IRP revolving fund.
    (6) If an intermediary receives more than one IRP loan, it need not 
establish and maintain a separate IRP revolving loan fund for each 
loan; it may combine them and maintain only one IRP revolving fund, 
unless the Agency requires separate IRP revolving funds because there 
are significant differences in the loan purposes, work plans, loan 
agreements, or requirements for the loans. The Agency may allow loans 
with different requirements to be combined into one IRP revolving fund 
if the intermediary agrees in writing to operate the combined revolving 
funds in accordance with the most stringent requirements as required by 
the Agency.


Secs. 4274.333--4274.336  [Reserved]


Sec. 4274.337  Other regulatory requirements.

    (a) Intergovernmental consultation. The IRP is subject to the 
provisions of Executive Order 12372 which requires intergovernmental 
consultation with State and local officials. The approval of a loan to 
an intermediary will be the subject of intergovernmental consultation. 
For each ultimate recipient to be assisted with a loan from Agency IRP 
loan funds and for which the State in which the ultimate recipient is 
to be located has elected to review the program under their 
intergovernmental review process, the State Single Point of Contact 
must be notified. Notification, in the form of a project description, 
must be initiated by the intermediary or the ultimate recipient. Any 
comments from the State must be included with the intermediary's 
request to use the Agency loan funds for the ultimate recipient. Prior 
to the Agency's decision on the request, compliance with the 
requirements of intergovernmental consultation must be demonstrated for 
each ultimate recipient. (See RD Instruction 1940-J (available in any 
Rural Development State Office)).
    (b) Environmental requirements.
    (1) Unless specifically modified by this section, the requirements 
of part 1940, subpart G, of this title apply to this subpart. 
Intermediaries and ultimate recipients must consider the potential 
environmental impacts of their projects at the earliest planning stages 
and develop plans to minimize the potential to adversely impact the 
environment. Both the intermediaries and the ultimate recipients must 
cooperate and furnish such information and assistance as the Agency 
needs to make any of its environmental determinations.
    (2) For each application for a loan to an intermediary, the Agency 
will review the application, supporting materials, and any 
environmental information required from the intermediary and complete a 
Class II environmental assessment. This assessment will focus on the 
potential cumulative impacts of the projects as well as any 
environmental concerns or problems that are associated with individual 
projects that can be identified at this time. Neither the completion of 
the environmental assessment nor the approval of the application is an 
Agency commitment to the use of loan funds for a specific project; 
therefore, no public notification requirements for a Class II 
assessment will apply to the application.
    (3) For each proposed loan from an intermediary to an ultimate 
recipient using Agency IRP loan funds, the Agency will complete the 
environmental review required by part 1940, subpart G, of this title 
including public notification requirements. The results of this review 
will be used by the Agency in making its decision on

[[Page 6058]]

concurrence in the proposed loan. The Agency will prepare an 
Environmental Impact Statement for any application for a loan from 
Agency IRP loan funds determined to have a significant effect on the 
quality of the human environment.
    (c) Equal opportunity and nondiscrimination requirements.
    (1) In accordance with title V of Pub. L. 93-495, the Equal Credit 
Opportunity Act, and section 504 of the Rehabilitation Act for 
Federally Conducted Programs and Activities, neither the intermediary 
nor the Agency will discriminate against any employee, intermediary, or 
proposed ultimate recipient on the basis of sex, marital status, race, 
color, religion, national origin, age, physical or mental disability 
(provided the proposed intermediary or proposed ultimate recipient has 
the capacity to contract), because all or part of the proposed 
intermediary's or proposed ultimate recipient's income is derived from 
public assistance of any kind, or because the proposed intermediary or 
proposed ultimate recipient has in good faith exercised any right under 
the Consumer Credit Protection Act, with respect to any aspect of a 
credit transaction anytime Agency loan funds are involved.
    (2) The regulations contained in subpart E of part 1901 of this 
title apply to this program.
    (3) The Administrator will assure that equal opportunity and 
nondiscrimination requirements are met in accordance with the Equal 
Credit Opportunity Act, title VI of the Civil Rights Act of 1964, 
``Nondiscrimination in Federally Assisted Programs,'' 42 U.S.C. 2000d-
4, Section 504 of the Rehabilitation Act for Federally Conducted 
Programs and Activities, the Age Discrimination Act of 1975, and the 
Americans With Disabilities Act.
    (d) Seismic safety of new building construction.
    (1) The Intermediary Relending Program is subject to the provisions 
of Executive Order 12699 that requires each Federal agency assisting in 
the financing, through Federal grants or loans, or guaranteeing the 
financing, through loan or mortgage insurance programs, of newly 
constructed buildings to assure appropriate consideration of seismic 
safety.
    (2) All new buildings financed with Agency IRP loan funds shall be 
designed and constructed in accordance with the seismic provisions of 
one of the following model building codes or the latest edition of that 
code providing an equivalent level of safety to that contained in the 
latest edition of the National Earthquake Hazard Reduction Programs 
(NEHRP) Recommended Provisions for the Development of Seismic 
Regulations for New Building (NEHRP Provisions):
    (i) 1991 International Conference of Building Officials (ICBO) 
Uniform Building Code;
    (ii) 1993 Building Officials and Code Administrators International, 
Inc. (BOCA) National Building Code; or
    (iii) 1992 Amendments to the Southern Building Code Congress 
International (SBCCI) Standard Building Code.
    (3) The date, signature, and seal of a registered architect or 
engineer and the identification and date of the model building code on 
the plans and specifications shall be evidence of compliance with the 
seismic requirements of the appropriate code.


Sec. 4274.338  Loan agreements between the Agency and the intermediary.

    A loan agreement or a supplement to a previous loan agreement must 
be executed by the intermediary and the Agency at loan closing for each 
loan. The loan agreement will be prepared by the Agency and reviewed by 
the intermediary prior to loan closing.
    (a) The loan agreement will, as a minimum, set out:
    (1) The amount of the loan;
    (2) The interest rate;
    (3) The term and repayment schedule;
    (4) The provisions for late charges. The intermediary shall pay a 
late charge of 4 percent of the payment due if payment is not received 
within 15 calendar days following the due date. The late charge shall 
be considered unpaid if not received within 30 calendar days of the 
missed due date for which it was imposed. Any unpaid late charge shall 
be added to principal and be due as an extra payment at the end of the 
term. Acceptance of a late charge by the Agency does not constitute a 
waiver of default;
    (5) The disbursement procedure. Disbursement of loan funds by the 
Agency to the intermediary shall take place after the loan agreement 
and promissory note are executed, and any other conditions precedent to 
disbursement of funds are fully satisfied. For purposes of computing 
interest, the date of each draw down shall constitute the date the 
funds are advanced under the loan agreement;
    (i) The intermediary may initially draw up to 25 percent of the 
loan funds. If the intermediary does not have loans to ultimate 
recipients ready to close sufficient to use the initial draw, the funds 
must be deposited in an interest bearing account in accordance with 
Sec. 4274.332(b)(5) until needed for such loans. The initial draw must 
be used for loans to ultimate recipients before any additional Agency 
IRP loan funds may be drawn by the intermediary. Any funds from the 
initial draw that have not been used for loans to ultimate recipients 
within 1 year from the date of the draw must be returned to the Agency 
as an extra payment on the loan. Agency IRP loan funds must not be used 
for administrative expenses;
    (ii) After the initial draw of funds, an intermediary may draw down 
only such funds as are necessary to cover a 30-day period in 
implementing its approved work plan. Advances must be requested by the 
intermediary in writing;
    (6) The provisions regarding default. On the occurrence of any 
event of default, the Agency may declare all or any portion of the debt 
and interest to be immediately due and payable and may proceed to 
enforce its rights under the loan agreement or any other instruments 
securing or relating to the loan and in accordance with the applicable 
law and regulations. Any of the following may be regarded as an ``event 
of default'' in the sole discretion of the Agency:
    (i) Failure of the intermediary to carry out the specific 
activities in its loan application as approved by the Agency or comply 
with the loan terms and conditions of the loan agreement, any 
applicable Federal or State laws, or with such USDA or Agency 
regulations as may become applicable;
    (ii) Failure of the intermediary to pay within 15 calendar days of 
its due date any installment of principal or interest on its promissory 
note to the Agency;
    (iii) The occurrence of;
    (A) The intermediary becoming insolvent, or ceasing, being unable, 
or admitting in writing its inability to pay its debts as they mature, 
or making a general assignment for the benefit of, or entering into any 
composition or arrangement with creditors, or;
    (B) Proceedings for the appointment of a receiver, trustee, or 
liquidator of the intermediary, or of a substantial part of its assets, 
being authorized or instituted by or against it;
    (iv) Submission or making of any report, statement, warranty, or 
representation by the intermediary or agent on its behalf to USDA or 
the Agency in connection with the financial assistance awarded 
hereunder which is false, incomplete, or incorrect in any material 
respect; or
    (v) Failure of the intermediary to remedy any material adverse 
change in its financial or other condition (such as the 
representational character of its board of directors or policymaking 
body) arising since the date of the

[[Page 6059]]

Agency's award of assistance hereunder, which condition was an 
inducement to Agency's original award.
    (7) The insurance requirements. (i) Hazard insurance with a 
standard mortgage clause naming the intermediary as beneficiary will be 
required by the intermediary on every ultimate recipient's project 
funded from the IRP revolving fund in an amount that is at least the 
lesser of the depreciated replacement value of the property being 
insured or the amount of the loan. Hazard insurance includes fire, 
windstorm, lightning, hail, business interruption, explosion, riot, 
civil commotion, aircraft, vehicle, marine, smoke, builder's risk, 
public liability, property damage, flood or mudslide, or any other 
hazard insurance that may be required to protect the security. The 
intermediary's interest in the insurance will be assigned to the 
Agency, upon the Agency's request, in the event of default by the 
intermediary.
    (ii) Ordinarily, life insurance, which may be decreasing term 
insurance, is required for the principals and key employees of the 
ultimate recipient funded from the IRP revolving fund and will be 
assigned or pledged to the intermediary and subsequently, in the event 
of request by the Agency following default by the intermediary, to the 
Agency. A schedule of life insurance available for the benefit of the 
loan will be included as part of the application.
    (iii) Workmen's compensation insurance on ultimate recipients is 
required in accordance with the State law.
    (iv) Flood Insurance. The intermediary is responsible for 
determining if an ultimate recipient funded from the IRP revolving fund 
is located in a special flood or mudslide hazard area. If the ultimate 
recipient is in a flood or mudslide area, then flood or mudslide 
insurance must be provided in accordance with subpart B of part 1806 of 
this chapter.
    (v) Intermediaries will provide fidelity bond coverage for all 
persons who have access to intermediary funds. Coverage may be provided 
either for all individual positions or persons, or through ``blanket'' 
coverage providing protection for all appropriate employees and 
officials. The Agency may also require the intermediary to carry other 
appropriate insurance, such as public liability, workers compensation, 
and property damage.
    (A) The amount of fidelity bond coverage required by the Agency 
will normally approximate the total annual debt service requirements 
for the Agency loans;
    (B) Other types of coverage may be considered acceptable if it is 
determined by the Agency that they fulfill essentially the same purpose 
as a fidelity bond;
    (C) Intermediaries must provide evidence of adequate fidelity bond 
and other appropriate insurance coverage by loan closing. Adequate 
coverage in accordance with this section must then be maintained for 
the life of the loan. It is the responsibility of the intermediary to 
assure and provide evidence that adequate coverage is maintained. This 
may consist of a listing of policies and coverage amounts in reports 
required by paragraph (b)(4) of this section or other documentation.
    (b) The intermediary will agree in the loan agreement:
    (1) Not to make any changes in the intermediary's articles of 
incorporation, charter, or by-laws without the concurrence of the 
Agency;
    (2) Not to make a loan commitment to an ultimate recipient to be 
funded from Agency IRP loan funds without first receiving the Agency's 
written concurrence;
    (3) To maintain a separate ledger and segregated account for the 
IRP revolving fund;
    (4) To Agency reporting requirements by providing:
    (i) An annual audit;
    (A) Dates of audit report period need not necessarily coincide with 
other reports on the IRP. Audit reports shall be due 90 days following 
the audit period. Audits must cover all of the intermediary's 
activities. Audits will be performed by an independent certified public 
accountant. An acceptable audit will be performed in accordance with 
Generally Accepted Government Auditing Standards and include such tests 
of the accounting records as the auditor considers necessary in order 
to express an opinion on the financial condition of the intermediary. 
The Agency does not require an unqualified audit opinion as a result of 
the audit. Compilations or reviews do not satisfy the audit 
requirement;
    (B) It is not intended that audits required by this subpart be 
separate and apart from audits performed in accordance with State and 
local laws or for other purposes. To the extent feasible, the audit 
work should be done in connection with these audits. Intermediaries 
covered by OMB Circular A-128 or A-133 should submit audits made in 
accordance with those circulars;
    (ii) Quarterly or semiannual reports (due 30 days after the end of 
the period);
    (A) Reports will be required quarterly during the first year after 
loan closing and, if all loan funds are not utilized during the first 
year, quarterly reports will be continued until at least 90 percent of 
the Agency IRP loan funds have been advanced to ultimate recipients. 
Thereafter, reports will be required semiannually. Also, the Agency may 
require quarterly reports if the intermediary becomes delinquent in 
repayment of its loan or otherwise fails to fully comply with the 
provisions of its work plan or Loan Agreement, or the Agency determines 
that the intermediary's IRP revolving fund is not adequately protected 
by the current sound worth and paying capacity of the ultimate 
recipients.
    (B) These reports shall contain information only on the IRP 
revolving loan fund, or if other funds are included, the IRP loan 
program portion shall be segregated from the others; and in the case 
where the intermediary has more than one IRP revolving fund from the 
Agency a separate report shall be made for each of the IRP revolving 
funds.
    (C) The reports will include, on a form provided by the Agency, 
information on the intermediary's lending activity, income and 
expenses, financial condition, and a summary of names and 
characteristics of the ultimate recipients the intermediary has 
financed.
    (iii) Annual proposed budget for the following year; and
    (iv) Other reports as the Agency may require from time to time.
    (5) Before the first relending of Agency funds to an ultimate 
recipient, to obtain written Agency approval of;
    (i) All forms to be used for relending purposes, including 
application forms, loan agreements, promissory notes, and security 
instruments;
    (ii) Intermediary's policy with regard to the amount and form of 
security to be required;
    (6) To obtain written approval of the Agency before making any 
significant changes in forms, security policy, or the work plan. The 
servicing officer may approve changes in forms, security policy, or 
work plans at any time upon a written request from the intermediary and 
determination by the Agency that the change will not jeopardize 
repayment of the loan or violate any requirement of this subpart or 
other Agency regulations. The intermediary must comply with the work 
plan approved by the Agency so long as any portion of the 
intermediary's IRP loan is outstanding;
    (7) To secure the indebtedness by pledging the IRP revolving fund, 
including its portfolio of investments derived from the proceeds of the 
loan

[[Page 6060]]

award, and pledging its real and personal property and other rights and 
interests as the Agency may require;
    (8) In the event the intermediary's financial condition 
deteriorates or the intermediary takes action detrimental to prudent 
fund operation or fails to take action required of a prudent lender, to 
provide additional security, execute any additional documents, and 
undertake any reasonable acts the Agency may request, to protect the 
agency's interest or to perfect a security interest in any assets, 
including physical delivery of assets and specific assignments; and
    (9) That if any part of the loan has not been used in accordance 
with the intermediary's work plan by a date three years from the date 
of the loan agreement, the Agency may cancel the approval of any funds 
not yet delivered to the intermediary and the intermediary will return, 
as an extra payment on the loan, any funds delivered to the 
intermediary that have not been used by the intermediary in accordance 
with the work plan. The Agency, at its sole discretion, may allow the 
intermediary additional time to use the loan funds by delaying 
cancellation of the funds by not more than 3 additional years. If any 
loan funds have not been used by 6 years from the date of the loan 
agreement, the approval will be canceled of any funds that have not 
been delivered to the intermediary and the intermediary will return, as 
an extra payment on the loan, any funds it has received and not used in 
accordance with the work plan. In accordance with the Intermediary 
Relending Program promissory note, regular loan payments will be based 
on the amount of funds actually drawn by the intermediary.


Secs. 424.339--4274.342  [Reserved]


Sec. 4274.343  Application.

    (a) The application will consist of:
    (1) An application form provided by the Agency.
    (2) A written work plan and other evidence the Agency requires to 
demonstrate the feasibility of the intermediary's program to meet the 
objectives of this program. The plan must, at a minimum:
    (i) Document the intermediary's ability to administer IRP in 
accordance with the provisions of this subpart. In order to adequately 
demonstrate the ability to administer the program, the intermediary 
must provide a complete listing of all personnel responsible for 
administering this program along with a statement of their 
qualifications and experience. The personnel may be either members or 
employees of the intermediary's organization or contract personnel 
hired for this purpose. If the personnel are to be contracted for, the 
contract between the intermediary and the entity providing such service 
will be submitted for Agency review, and the terms of the contract and 
its duration must be sufficient to adequately service the Agency loan 
through to its ultimate conclusion. If the Agency determines the 
personnel lack the necessary expertise to administer the program, the 
loan request will not be approved;
    (ii) Document the intermediary's ability to commit financial 
resources under the control of the intermediary to the establishment of 
IRP. This should include a statement of the sources of non-Agency funds 
for administration of the intermediary's operations and financial 
assistance for projects;
    (iii) Demonstrate a need for loan funds. As a minimum, the 
intermediary should identify a sufficient number of proposed and known 
ultimate recipients it has on hand to justify Agency funding of its 
loan request, or include well developed targeting criteria for ultimate 
recipients consistent with the intermediary's mission and strategy for 
IRP, along with supporting statistical or narrative evidence that such 
prospective recipients exist in sufficient numbers to justify Agency 
funding of the loan request;
    (iv) Include a list of proposed fees and other charges it will 
assess the ultimate recipients;
    (v) Demonstrate to Agency satisfaction that the intermediary has 
secured commitments of significant financial support from public 
agencies and private organizations;
    (vi) Provide evidence to Agency satisfaction that the intermediary 
has a proven record of obtaining private or philanthropic funds for the 
operation of similar programs to IRP;
    (vii) Include the intermediary's plan (specific loan purposes) for 
relending the loan funds. The plan must be of sufficient detail to 
provide the Agency with a complete understanding of what the 
intermediary will accomplish by lending the funds to the ultimate 
recipient and the complete mechanics of how the funds will get from the 
intermediary to the ultimate recipient. The service area, eligibility 
criteria, loan purposes, fees, rates, terms, collateral requirements, 
limits, priorities, application process, method of disposition of the 
funds to the ultimate recipient, monitoring of the ultimate recipient's 
accomplishments, and reporting requirements by the ultimate recipient's 
management are some of the items that must be addressed by the 
intermediary's relending plan;
    (viii) Provide a set of goals, strategies, and anticipated outcomes 
for the intermediary's program. Outcomes should be expressed in 
quantitative or observable terms such as jobs created for low income 
area residents or self empowerment opportunities funded, and should 
relate to the purpose of IRP (see Sec. 4274.301(b)); and
    (ix) Provide specific information as to whether and how the 
intermediary will ensure that technical assistance is made available to 
ultimate recipients and potential ultimate recipients. Describe the 
qualifications of the technical assistance providers, the nature of 
technical assistance that will be available, and expected and committed 
sources of funding for technical assistance. If other than the 
intermediary itself, describe the organizations providing such 
assistance and the arrangements between such organizations and the 
intermediary.
    (3) Environmental information on a form provided by the Agency for 
all projects positively identified as proposed ultimate recipient loans 
that are Class I or Class II actions under subpart G of part 1940 of 
this title;
    (4) Comments from the State Single Point of Contact, if the State 
has elected to review the program under Executive Order 12372;
    (5) A pro forma balance sheet at start-up and projected balance 
sheets for at least 3 additional years; financial statements for the 
last 3 years, or from inception of the operations of the intermediary 
if less than 3 years; and projected cash flow and earnings statements 
for at least 3 years supported by a list of assumptions showing the 
basis for the projections. The projected earnings statement and balance 
sheet must include one set of projections that shows the IRP revolving 
fund only and a separate set of projections that shows the proposed 
intermediary organization's total operations. Also, if principal 
repayment on the IRP loan will not be scheduled during the first 3 
years, the projections for the IRP revolving fund must extend to 
include a year with a full annual installment on the IRP loan;
    (6) A written agreement of the intermediary to the Agency audit 
requirements;
    (7) An agreement on a form provided by the Agency assuring 
compliance with
    Title VI of the Civil Rights Act of 1964;
    (8) Complete organizational documents, including evidence of 
authority to conduct the proposed activities;
    (9) Evidence that the loan is not available at reasonable rates and 
terms

[[Page 6061]]

from private sources or other Federal, State, or local programs;
    (10) Latest audit report, if available;
    (11) A form provided by the Agency in which the applicant certifies 
its understanding of the Federal collection policies for consumer or 
commercial debts;
    (12) A Department of Agriculture form containing a certification 
regarding debarment, suspension, and other responsibility matters for 
primary covered transactions; and
    (13) A statement on a form provided by the Agency regarding 
lobbying, as required by 7 CFR part 3018.
    (b) Applications from intermediaries that already have an active 
IRP loan may be streamlined as follows:
    (1) The requirements of paragraphs (a)(6), (a)(8), and (a)(10) of 
this section may be omitted;
    (2) A statement that the new loan would be operated in accordance 
with the work plan on file for the previous loan may be submitted in 
lieu of a new work plan; and
    (3) The financial information required by paragraph (a)(5) of this 
section may be limited to projections for the proposed new IRP 
revolving loan fund.


Sec. 4274.344  Filing and processing applications for loans.

    (a) Intermediaries' contact. Intermediaries desiring assistance 
under this subpart may file applications with the state office for the 
state in which the intermediary's headquarters is located. 
Intermediaries headquartered in the District of Columbia may file the 
application with the National Office, Rural Business-Cooperative 
Service, USDA, Specialty Lenders Division, STOP 1521, 1400 Independence 
Avenue SW, Washington, DC 20250-1521.
    (b) Filing applications. Intermediaries must file the complete 
application, in one package. Applications received by the Agency will 
be reviewed and ranked quarterly and funded in the order of priority 
ranking. The Agency will retain unsuccessful applications for 
consideration in subsequent reviews, through a total of four quarterly 
reviews.
    (c) Loan priorities. Priority consideration will be given to 
proposed intermediaries. Points will be allowed only for factors 
indicated by well documented, reasonable plans which, in the opinion of 
the Agency, provide assurance that the items have a high probability of 
being accomplished. The points awarded will be as specified in 
paragraphs (c)(1) through (c)(6) of this section. If an application 
does not fit one of the categories listed, it receives no points for 
that paragraph or subparagraph.
    (1) Other funds. Points allowed under this paragraph are to be 
based on documented successful history or written evidence that the 
funds are available.
    (i) The intermediary will obtain non-Federal loan or grant funds to 
pay part of the cost of the ultimate recipients' projects. The amount 
of funds from other sources will average:
    (A) At least 10% but less than 25% of the total project cost--5 
points;
    (B) At least 25% but less than 50% of the total project cost--10 
points; or
    (C) 50% or more of the total project cost--15 points.
    (ii) The intermediary will provide loans to the ultimate recipient 
from its own funds (not loan or grant) to pay part of the costs of the 
ultimate recipients' projects. The amount of non-Agency derived 
intermediary funds will average:
    (A) At least 10% but less than 25% of the total project costs--5 
points;
    (B) At least 25% but less than 50% of total project costs--10 
points; or
    (C) 50% or more of total project costs--15 points.
    (2) Employment. For computations under this paragraph, income data 
should be from the latest decennial census of the United States, 
updated according to changes in the consumer price index. The poverty 
line used will be as defined in section 673 (2) of the Community 
Services Block Grant Act (42 U.S.C. 9902(2)). Unemployment data used 
will be that published by the Bureau of Labor Statistics, U.S. 
Department of Labor.
    (i) The median household income in the service area of the proposed 
intermediary equals the following percentage of the poverty line for a 
family of four:
    (A) At least 150% but not more than 175%--5 points;
    (B) At least 125% but less than 150%--10 points; or
    (C) Below 125%--15 points.
    (ii) The following percentage of the loans the intermediary makes 
from Agency IRP loan funds will be in counties with median household 
income below 80 percent of the statewide non-metropolitan median 
household income. (To receive priority points under this category, the 
intermediary must provide a list of counties in the service area that 
have qualifying income):
    (A) At least 50% but less than 75%--5 points;
    (B) At least 75% but less than 100%--10 points; or
    (C) 100%--15 points.
    (iii) The unemployment rate in the intermediary's service area 
equals the following percentage of the national unemployment rate:
    (A) At least 100% but less than 125%--5 points;
    (B) At least 125% but less 150%--10 points; or
    (C) 150% or more--15 points.
    (iv) The intermediary will require, as a condition of eligibility 
for a loan to an ultimate recipient from Agency IRP loan funds, that 
the ultimate recipient certify in writing that it will employ the 
following percentage of its workforce from members of families with 
income below the poverty line:
    (A) At least 10% but less than 20% of the workforce--5 points;
    (B) At least 20% but less than 30% of the workforce--10 points; or
    (C) 30% of the workforce or more--15 points.
    (v) The intermediary has a demonstrated record of providing 
assistance to members of underrepresented groups, has a realistic plan 
for targeting loans to members of underrepresented groups, and, based 
on the intermediary's record and plans, it is expected that the 
following percentages of its loans made from Agency IRP loan funds will 
be made to entities owned by members of underrepresented groups:
    (A) At least 10% but less than 20%--5 points;
    (B) At least 20% but less than 30%--10 points; or
    (C) 30% or more--15 points.
    (vi) The population of the service area according to the most 
recent decenial census was lower than that recorded by the previous 
decenial census by the following percentage:
    (A) At least 10 percent but less than 20 percent--5 points;
    (B) At least 20 percent but less than 30 percent--10 points; or
    (C) 30 percent or more--15 points.
    (3) Intermediary contribution. All assets of the IRP revolving fund 
will serve as security for the IRP loan, and the intermediary will 
contribute funds not derived from the Agency into the IRP revolving 
fund along with the proceeds of the IRP loan. The amount of non-Agency 
derived funds contributed to the IRP revolving fund will equal the 
following percentage of the Agency IRP loan:
    (i) At least 5% but less than 15%--15 points;
    (ii) At least 15% but less than 25%--30 points; or
    (iii) 25% or more--50 points.
    (4) Experience. The intermediary has actual experience in making 
and servicing commercial loans, with a successful record, for the 
following number of full years:

[[Page 6062]]

    (i) At least 1 but less than 3 years--5 points;
    (ii) At least 3 but less than 5 years--10 points;
    (iii) At least 5 but less than 10 years--20 points; or
    (iv) 10 or more years--30 points.
    (5) Community representation. The service area is not more than 14 
counties and the intermediary utilizes local opinions and experience by 
including community representatives on its board of directors or 
equivalent oversight board. For purposes of this section, community 
representatives are people, such as civic leaders, business 
representatives, or bankers, who reside in the service area and are not 
employees of the intermediary. Points will be assigned as follows:
    (i) At least 10% but less than 40% of the board members are 
community representatives--5 points;
    (ii) At least 40% but less than 75% of the board members are 
community representatives--10 points; or
    (iii) At least 75% of the board members are community 
representatives--15 points.
    (6) Administrative. The Administrator may assign up to 35 
additional points to an application to account for the following items 
not adequately covered by the other priority criteria set out in this 
section. The items that may be considered are the amount of funds 
requested in relation to the amount of need; a particularly successful 
business development record; a service area with no other IRP coverage; 
a service area with severe economic problems, such as communities that 
have remained persistently poor over the last 60 years or have 
experienced long-term population decline or job deterioration; a 
service area with emergency conditions caused by a natural disaster or 
loss of a major industry; a work plan that is in accord with a 
strategic plan, particularly a plan prepared as part of a request for 
an Empowerment Zone/Enterprise Community designation; or excellent 
utilization of a previous IRP loan.


Secs. 4274.345--4274.349  [Reserved]


Sec. 4274.350  Letter of conditions.

    If the Agency is able to make the loan, it will provide the 
intermediary a letter of conditions listing all requirements for the 
loan. Immediately after reviewing the conditions and requirements in 
the letter of conditions, the intermediary should complete, sign and 
return the form provided by the Agency indicating the intermediary's 
intent to meet the conditions. If certain conditions cannot be met, the 
intermediary may propose alternate conditions to the Agency. The Agency 
loan approval official must concur with any changes made to the 
initially issued or proposed letter of conditions prior to acceptance.


Secs. 4274.351--4274.354  [Reserved]


Sec. 4274.355  Loan approval and obligating funds.

    The loan will be considered approved on the date the signed copy of 
the obligation of funds document is mailed to the intermediary. The 
approving official may request an obligation of funds when available 
and according to the following:
    (a) The obligation of funds document may be executed by the loan 
approving official providing the intermediary has the legal authority 
to contract for a loan and to enter into required agreements, and has 
signed the obligation of funds document.
    (b) An obligation of funds established for an intermediary may be 
transferred to a different (substituted) intermediary provided:
    (1) The substituted intermediary is eligible to receive the 
assistance approved for the original intermediary;
    (2) The substituted intermediary bears a close and genuine 
relationship to the original intermediary; and
    (3) The need for and scope of the project and the purposes for 
which Agency IRP loan funds will be used remain substantially 
unchanged.


Sec. 4274.356  Loan closing.

    (a) At loan closing, the intermediary must certify to the 
following:
    (1) No major changes have been made in the work plan except those 
approved in the interim by the Agency.
    (2) All requirements of the letter of conditions have been met.
    (3) There has been no material change in the intermediary nor its 
financial condition since the issuance of the letter of conditions. If 
there have been changes, they must be explained. The changes may be 
waived, at the sole discretion of the Agency.
    (4) That no claim or liens of laborers, materialmen, contractors, 
subcontractors, suppliers of machinery and equipment, or other parties 
are pending against the security of the intermediary, and that no suits 
are pending or threatened that would adversely affect the security of 
the intermediary when the security instruments are filed.
    (b) The processing officer will approve only minor changes which do 
not materially affect the project, its capacity, employment, original 
projections, or credit factors. Changes in legal entities or where tax 
consideration are the reason for change will not be approved.


Secs. 4274.357--4274.360  [Reserved]


Sec. 4274.361  Requests to make loans to ultimate recipients.

    (a) An intermediary may use revolved funds to make loans to 
ultimate recipients without obtaining prior Agency concurrence. When an 
intermediary proposes to use Agency IRP loan funds to make a loan to an 
ultimate recipient, and prior to final approval of such loan, Agency 
concurrence is required.
    (b) A request for Agency concurrence in approval of a proposed loan 
to an ultimate recipient must include:
    (1) Certification by the intermediary that;
    (i) The proposed ultimate recipient is eligible for the loan;
    (ii) The proposed loan is for eligible purposes;
    (iii) The proposed loan complies with all applicable statutes and 
regulations;
    (iv) The ultimate recipient is unable to finance the proposed 
project through commercial credit or other Federal, State, or local 
programs at reasonable rates and terms; and
    (v) The intermediary and its principal officers (including 
immediate family) hold no legal or financial interest or influence in 
the ultimate recipient, and the ultimate recipient and its principal 
officers (including immediate family) hold no legal or financial 
interest or influence in the intermediary except the interest and 
influence of a cooperative member when the intermediary is a 
cooperative;
    (2) For projects that meet the criteria for a Class I or Class II 
environmental assessment or environmental impact statement as provided 
in subpart G of part 1940 of this title, a completed and executed 
request for environmental information on a form provided by the Agency;
    (3) All comments obtained in accordance with Sec. 4274.337(a), 
regarding intergovernmental consultation;
    (4) Copies of sufficient material from the ultimate recipient's 
application and the intermediary's related files, to allow the Agency 
to determine the:
    (i) Name and address of the ultimate recipient;
    (ii) Loan purposes;
    (iii) Interest rate and term;
    (iv) Location, nature, and scope of the project being financed;
    (v) Other funding included in the project; and
    (vi) Nature and lien priority of the collateral.

[[Page 6063]]

    (5) Such other information as the Agency may request on specific 
cases.


Secs. 4274.362--4274.372  [Reserved]


Sec. 4274.373  Appeals.

    Any appealable adverse decision made by the Agency which affects 
the intermediary may be appealed in accordance with USDA appeal 
regulations found at 7 CFR part 11.


Secs. 4274.374--4274.380  [Reserved]


Sec. 4274.381  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.


Secs. 4274.382--4274.399  [Reserved]


Sec. 4274.400  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
under the provisions of 44 U.S.C. chapter 35 and have been assigned OMB 
control number 0570-0021 in accordance with the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3507).

    Dated: January 9, 1998.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 98-3044 Filed 2-5-98; 8:45 am]
BILLING CODE 3410-XY-U