[Federal Register Volume 83, Number 127 (Monday, July 2, 2018)]
[Rules and Regulations]
[Pages 30831-30833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14170]



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 Rules and Regulations
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
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  Federal Register / Vol. 83, No. 127 / Monday, July 2, 2018 / Rules 
and Regulations  

[[Page 30831]]



DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4280

RIN 0570-AA85


Guaranteed Loanmaking and Servicing Regulations; Corrections

AGENCY:  Rural Business-Cooperative Service and Rural Utilities 
Service; USDA.

ACTION: Correcting amendments.

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

SUMMARY: On June 3, 2016, the Rural Business-Cooperative Service 
promulgated changes to its Guaranteed Loanmaking and Servicing 
Regulations. Following final implementation of this final rule, RBS 
found that conforming amendments for adoption for the Rural Energy for 
America Program (REAP) had not been included. This technical correction 
makes amendments to allow REAP to continue to use procedures and forms 
from the revised Guaranteed program.

DATES: Effective July 2, 2018.

FOR FURTHER INFORMATION CONTACT: Mark Brodziski, Rural Development, 
Energy Programs, U.S. Department of Agriculture, 1400 Independence Ave. 
SW, Stop 3225, Washington, DC 20250-3201; email: 
[email protected]; telephone number: (202) 720-0410.

SUPPLEMENTARY INFORMATION: 

Need for Corrections

    The Agency published a final rule on June 3, 2016, (81 FR 35984) 
for the purpose of improving program delivery, clarifying the 
regulations to make them easier to understand, and reducing 
delinquencies. The Agency discovered that conforming amendments had not 
been included for 7 CFR part 4280 to continue to allow the Rural Energy 
for America Program to use procedures and forms already codified for 
the Guaranteed program and correctly reference revised 7 CFR part 4279. 
This notice makes technical corrections to include the actual language 
in 7 CFR part 4280 referencing language from 7 CFR part 4279 prior to 
amendment of such regulation in 2017, update references included in 7 
CFR part 4280 to updated sections of 7 CFR part 4279, and update the 
title of Form RD 4280-2 from Grant Agreement to Financial Assistance 
Agreement, all as intended at the time of revision of 7 CFR part 4279. 
In addition, information on lender eligibility and credit quality is 
updated to bring them into conformance with the Guaranteed program and 
current implementation.

List of Subjects in 7 CFR Part 4280

    Business and industry, Energy, Grant programs--Business, Loan 
programs--Business and industry, Rural areas.

    Accordingly, 7 CFR chapter XLII is amended by making the following 
correcting amendments:

PART 4280--LOANS AND GRANTS

0
1. The authority citation for part 4280 continues to read as follows:

    Authority:  5 U.S.C. 301; 7 U.S.C. 940c; and 7 U.S.C. 1932(c).

Subpart B--Rural Energy for America Program


Sec. Sec.  4280.103, 4280.110, 4280.112, 4280.113, 4280.122, 4280.123, 
and 4280.196   [Amended]

0
2. In Sec. Sec.  4280.103, 4280.110, 4280.112, 4280.113, 4280.122, 
4280.123, and 4280.196, remove the words ``Grant Agreement'' and add in 
their place the words ``Financial Assistance Agreement'' wherever they 
appear in the following places:
0
a. Sec.  4280.103;
0
b. Sec.  4280.110(i) introductory text, (i)(1), and (i)(2);
0
c. Sec.  4280.112(b)(2);
0
d. Sec.  4280.113(a)(4)(ii)(A) and (B);
0
e. Sec.  4280.122(d), (e), (f), (g) and (h);
0
f. Sec.  4280.123 introductory text and (d);
0
g. Sec.  4280.196 introductory text.


0
3. Amend Sec.  4280.103 by:
0
a. Placing the newly designated definition Financial Assistance 
Agreement (Form RD 4280-2, Rural Business Cooperative Service Financial 
Assistance Agreement, or successor form) in alphabetical order.
0
b. Revising the definition of State to read as follows:


Sec.  4280.103   Definitions.

* * * * *
    State. Any of the 50 States of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, 
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, 
the Republic of Palau, the Federated States of Micronesia, and the 
Republic of the Marshall Islands.
* * * * *

0
4. Revise Sec.  4280.125 to read as follows:


Sec.  4280.125   Compliance with Sec. Sec.  4279.29 through 4279.99 of 
this chapter.

    (a) General. Except for Sec.  4279.29 of this chapter, all loans 
guaranteed under this subpart must comply with the provisions found in 
Sec. Sec.  4279.30 through 4279.99 of this chapter.
    (b) Instead of Sec.  4279.29 of this chapter, the Eligible lenders 
provisions of this subpart are:
    (1) Traditional lenders. An eligible lender is any Federal or State 
chartered bank, Farm Credit Bank, other Farm Credit System institution 
with direct lending authority, Bank for Cooperatives, Savings and Loan 
Association, or mortgage company that is part of a bank-holding 
company. These entities must be subject to credit examination and 
supervision by either an agency of the United States or a State. 
Eligible lenders may also include credit unions provided, they are 
subject to credit examination and supervision by either the National 
Credit Union Administration or a State agency, and insurance companies 
provided they are regulated by a State or National insurance regulatory 
agency. Eligible lenders include the National Rural Utilities 
Cooperative Finance Corporation.
    (2) Other lenders. Rural Utilities Service borrowers and other 
lenders not meeting the criteria of paragraph (a) of this section may 
be considered by the Agency for eligibility to become a guaranteed 
lender provided, the Agency determines that they have the legal 
authority to operate a lending program and sufficient lending expertise 
and financial strength to operate a successful lending program.
    (i) Such a lender must:

[[Page 30832]]

    (A) Have a record of successfully making at least three commercial 
loans annually for at least the most recent 3 years, with delinquent 
loans not exceeding 10 percent of loans outstanding and historic losses 
not exceeding 10 percent of dollars loaned, or when the proposed lender 
can demonstrate that it has personnel with equivalent previous 
experience and where the commercial loan portfolio was of a similar 
quantity and quality; and
    (B) Have tangible balance sheet equity of at least seven percent of 
tangible assets and sufficient funds available to disburse the 
guaranteed loans it proposes to approve within the first 6 months of 
being approved as a guaranteed lender.
    (ii) A lender not eligible under paragraph (a) of this section that 
wishes consideration to become a guaranteed lender must submit a 
request in writing to the State Office for the State where the lender's 
lending and servicing activity takes place. The lender's written 
request must include:
    (A) Evidence showing that the lender has the necessary capital and 
resources to successfully meet its responsibilities.
    (B) Copy of any license, charter, or other evidence of authority to 
engage in the proposed loanmaking and servicing activities. If 
licensing by the State is not required, an attorney's opinion to this 
effect must be submitted.
    (C) Information on lending experience, including length of time in 
the lending business; range and volume of lending and servicing 
activity; status of loan portfolio including delinquency rate, loss 
rate as a percentage of loan amounts, and other measures of success; 
experience of management and loan officers; audited financial 
statements not more than 1 year old; sources of funds for the proposed 
loans; office location and proposed lending area; and proposed rates 
and fees, including loan origination, loan preparation, and servicing 
fees. Such fees must not be greater than those charged by similarly 
located commercial lenders in the ordinary course of business.
    (D) An estimate of the number and size of guaranteed loan 
applications the lender will develop.
    (3) Expertise. Loan guarantees will only be approved for lenders 
with adequate experience and expertise to make, secure, service, and 
collect REAP loans.


0
5. Revise Sec.  4280.126 to read as follows:


Sec.  4280.126   Guarantee/annual renewal fee.

    Except for the conditions for receiving reduced guarantee fee and 
unless otherwise specified in a Federal Register notice, the provisions 
specified in Sec.  4279.120 of this chapter apply to loans guaranteed 
under this subpart.

0
6. Amend Sec.  4280.129 by revising paragraph (e)(3) to read as 
follows:


Sec.  4280.129  Guaranteed loan funding.

* * * * *
    (e) * * *
    (3) Routine lender fees, as described in Sec.  4279.120 (c) of this 
chapter.
* * * * *


0
7. Amend Sec.  4280.130 by revising paragraph (b) to read as follows:


Sec.  4280.130   Loan processing.

* * * * *
    (b) The provisions found in Sec. Sec.  4279.125(d), 4279.150, 
4279.166, 4279.161, and 4279.167(b) of this chapter do not apply to 
loans guaranteed under this subpart.


0
8. Revise Sec.  4280.131 to read as follows:


Sec.  4280.131   Credit quality.

    The lender is primarily responsible for determining credit quality 
and must address all of the elements of credit quality in a written 
credit analysis including adequacy of equity, cash flow, collateral, 
history, management, and the current status of the industry for which 
credit is to be extended.
    (a) Cash flow. All efforts will be made to structure or restructure 
debt so that the business has adequate debt coverage and the ability to 
accommodate expansion.
    (b) Collateral. (1) Collateral must have documented value 
sufficient to protect the interest of the lender and the Agency and, 
except as set forth in paragraph (b)(2) of this section, the discounted 
collateral value will be at least equal to the loan amount. Lenders 
will discount collateral consistent with sound loan-to-value policy.
    (2) Some businesses are predominantly cash-flow oriented, and where 
cash flow and profitability are strong, loan-to-value coverage may be 
discounted accordingly. A loan primarily based on cash flow must be 
supported by a successful and documented financial history.
    (c) Industry. Current status of the industry will be considered and 
businesses in areas of decline will be required to provide strong 
business plans which outline how they differ from the current trends. 
The regulatory environment surrounding the particular business or 
industry will be considered.
    (d) Equity. Borrowers must demonstrate evidence of a financial 
contribution in the project of not less than 25 percent of total 
Eligible Project Costs. Federal grant funds may be used as the 
financial contribution.
    (e) Lien priorities. The entire loan will be secured by the same 
security with equal lien priority for the guaranteed and unguaranteed 
portions of the loan. The unguaranteed portion of the loan will neither 
be paid first nor given any preference or priority over the guaranteed 
portion. A parity or junior position may be considered provided that 
discounted collateral values are adequate to secure the loan in 
accordance with paragraph (b) of this section after considering prior 
liens.
    (f) Management. A thorough review of key management personnel will 
be completed to ensure that the business has adequately trained and 
experienced managers.


0
9. Revise Sec.  4280.134 to read as follows:


Sec.  4280.134   Personal and corporate guarantees.

    Except for Passive Investors, all personal and corporate guarantees 
must be in accordance with Sec.  4279.132 of this chapter.

0
10. Amend Sec.  4280.137 by revising paragraphs (b)(2)(viii)(C) and 
(c)(1), and the first sentence of paragraph (c)(2), to read as follows:


Sec.  4280.137   Application and documentation.

* * * * *
    (b) * * *
    (2) * * *
    (viii) * * *
    (C) Pro forma financial statements. Provide pro forma balance sheet 
at start-up of the borrower's business operation that reflects the use 
of the loan proceeds or grant award; 2 additional years of financial 
statements, indicating the necessary start-up capital, operating 
capital, and short-term credit; and projected cash flow and income 
statements for 3 years supported by a list of assumptions showing the 
basis for the projections.
* * * * *
    (c) * * *
    (1) Application contents. If the application is for a loan with 
total project costs in the amount of $80,000 or less, the application 
must contain the information specified in Sec.  4280.119(b), except as 
specified in paragraph (c)(2) of this section (e.g., the grant 
application SF-424 forms under Sec.  4280.119(b) are not required to be 
submitted), and must present the information in the same order as shown 
in Sec.  4280.119(b). If the application is for less than $200,000, but 
more than $80,000, the application must

[[Page 30833]]

contain the information specified in Sec.  4280.118(b), except as 
specified in paragraph (c)(2) of this section (e.g., the grant 
application SF-424 forms under Sec.  4280.117(a) are not required to be 
submitted), and must present the information in the same order as shown 
in Sec.  4280.118(b). If the application is for $200,000 and greater, 
the application must contain the information specified in Sec.  
4280.117, except as specified in paragraph (c)(2) of this section, 
(e.g., the grant application SF-424 forms under Sec.  4280.117(a) are 
not required to be submitted), and must present the information in the 
same order as shown in Sec.  4280.117.
    (2) Lender forms, certifications, and agreements. Each application 
submitted under paragraph (c) of this section must use Form RD 4279-1, 
``Application for Loan Guarantee,'' and the forms and certifications 
specified in paragraphs (b)(2)(ii), (iii) (if not previously 
submitted), (v), (viii), (ix), (x), and (xi) of this section. * * *


0
11. Amend Sec.  4280.142 by revising the first sentence of the 
introductory text to read as follows:


Sec.  4280.142  Conditions precedent to issuance of loan note 
guarantee.

    The provisions of Sec.  4279.181 of this chapter apply except for 
Sec.  4279.181(a)(9)(v). * * *
* * * * *

    Dated: June 8, 2018.
Bette B. Brand,
Administrator, Rural Business-Cooperative Service.

    Dated: June 14, 2018.
Kenneth L. Johnson,
Administrator, Rural Utilities Service.
[FR Doc. 2018-14170 Filed 6-29-18; 8:45 am]
 BILLING CODE 3410-XY-P