[Federal Register Volume 86, Number 234 (Thursday, December 9, 2021)]
[Notices]
[Pages 70086-70110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26693]


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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

[Docket #: RBS-21-Business-0036]


Notice of Funding Opportunity for the Food Supply Chain 
Guaranteed Loan Program

AGENCY: Rural Business--Cooperative Service, USDA.

ACTION: Notice.

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SUMMARY: The Rural Business--Cooperative Service (Agency), an agency of 
the United States Department of Agriculture (USDA) Rural Development 
mission area (RD) announces the availability of approximately 
$1,000,000,000 in loan guarantees, applicant and application 
requirements, and servicing requirements under the Food Supply Chain 
(FSC) Guaranteed Loan Program for fiscal year (FY) 2022. Loan 
guarantees will be made to lenders to facilitate financing to qualified 
borrowers and projects for the start-up or expansion of activities in 
the middle of the food supply chain, particularly the aggregation, 
processing, manufacturing, storage, transportation, wholesaling, or 
distribution of food, to increase capacity and help create a more 
resilient, diverse, and secure U.S. food supply chain.

DATES: Completed applications may be submitted beginning December 9, 
2021. Awards will be made no earlier than February 7, 2022. 
Applications will be accepted until funds are exhausted.

ADDRESSES: You are encouraged to contact the Agency to discuss your 
project and ask any questions about the program or application process. 
Applications will only be accepted electronically by following the 
directions provided at https://www.rd.usda.gov/foodsupplychainloans.
    Entities wishing to apply for assistance may download the 
application documents and requirements delineated in this notice from: 
https://www.rd.usda.gov/foodsupplychainloans.

FOR FURTHER INFORMATION CONTACT: Jeff Hudson, Rural Business--
Cooperative Service, United States Department of Agriculture, 1400 
Independence Avenue SW, Mail Stop 3201, Room 5801--South, Washington, 
DC 20250-3201; [email protected], or phone 715-345-7636.

SUPPLEMENTARY INFORMATION: All applicants are responsible for any 
expenses incurred in developing their applications.
    The lender is responsible for assuring that all requirements for 
making, securing, servicing, and collecting the loan have been met.
    Whether specifically stated or not, whenever Agency approval is 
required, it must be in writing. Copies of all forms and regulations 
referenced in this notice may be obtained from any Agency office and 
from the USDA RD website at https://www.rd.usda.gov/foodsupplychainloans.

Overview

    Federal Agency Name: Rural Business--Cooperative Service.
    Funding Opportunity Title: Food Supply Chain Guarantee Loan 
Program.
    Announcement Type: Initial Notice.
    Assistance Listing Number: 10.380.
    Dates: Applications will be accepted beginning December 9, 2021. 
Application acceptance will continue until all funds are expended.
    Administrative: Applicants are encouraged to consider projects that 
will advance the following key priorities (additional information on 
the key priorities is available at https://www.rd.usda.gov/priority-points):
     Assisting rural communities recover economically from the 
impacts of the COVID-19 pandemic, particularly disadvantaged 
communities;
     Ensuring all rural residents have equitable access to 
Rural Development (RD) programs and benefits from RD funded projects; 
and
     Reducing climate pollution and increasing resilience to 
the impacts of climate change through economic support to rural 
communities.
    In addition, the Agency highlights the importance of strengthening 
resiliency of the broader food supply chain, including through 
addressing current supply chain related disruptions. The Agency will 
consider applications as they are submitted. If available funding is 
less than what is requested by applications under consideration, the 
Agency will score each eligible application based on the point system 
described herein. When applications on hand have the same priority 
score, the Agency will give preference to applications involving 
guaranteed loans from veterans.
    Hemp Related Projects: Please note that no assistance or funding 
from this program can be provided to a hemp producer unless they have a 
valid license issued from an approved State, Tribal or Federal plan as 
per section 10113 of the Agriculture Improvement Act of 2018, Public 
Law 115-334. Verification of valid hemp licenses will occur at the time 
of award.

A. Program Description and Overview

    (a) Purpose of the program. Food Supply Chain (FSC) guaranteed 
loans are available to qualified applicants and projects to facilitate 
financing for the start-up or expansion of activities in the middle of 
the food supply chain, particularly the aggregation, processing, 
manufacturing, storing, transporting, wholesaling, or distribution of 
food, to increase capacity and help create a more resilient, diverse, 
and secure U.S. food supply chain. As reflected in the public comments 
to AMS-TM-21-0034, Supply Chains for the Production of Agricultural 
Commodities and Food Products, 86 FR 20652 (April 21, 2021), financing 
for infrastructure as a strategy to strengthen the food supply chain 
was identified as a need not only for small and mid-sized meat and 
poultry processors, but across other stages of the food supply chain, 
including distribution and aggregation.
    This program will expand access to financing for food systems 
infrastructure in the near term and will serve as a pilot program to 
inform the other programs authorized under Section 1001 of the American 
Rescue Plan Act of 2021 (American Rescue Plan Act). This program will 
facilitate access to affordable capital to address the ongoing need for 
food systems enterprises in America's rural and urban communities, as 
there are no geographic restrictions.
    (b) Statutory authority. Section 1001(b)(4) of the American Rescue 
Plan Act authorizes the Secretary of Agriculture to ``. . . make loans 
and grants and provide other assistance to maintain and improve food 
and

[[Page 70087]]

agricultural supply chain resiliency.'' Given this authority, and 
appropriation provided for this purpose in Section 1001, Paragraph (a), 
$100 million in budget authority is being made available for the Food 
Supply Chain Guaranteed Loan Program.
    (c) Notice overview.
    (1) This notice contains general provisions for making and 
servicing FSC loans guaranteed by the Agency and applies to lenders, 
holders, borrowers, and other parties involved in making, guaranteeing, 
holding, servicing, or liquidating such loans.
    (2) The lender is responsible for assuring compliance with all 
requirements for making, securing, servicing, and collecting repayment 
on guaranteed loans.
    (3) Whether specifically stated or not, whenever Agency approval is 
required, the lender is obligated to obtain written approval from the 
Agency.
    (4) All forms and regulations referenced in this notice may be 
obtained from the USDA Rural Development website at https://www.rd.usda.gov/foodsupplychainloans.
    (d) Definitions. The following definitions are applicable to this 
notice:
    Administrator. The Administrator of Rural Business--Cooperative 
Service within the Rural Development mission area of the U.S. 
Department of Agriculture.
    Affiliate. A person where one of the following circumstances 
exists:
    (1) The person controls or has the power to control another person, 
or a third party or parties controls or has the power to control both. 
Factors such as ownership, management, current and previous 
relationships with or ties to another person, and contractual 
relationships, shall be considered in determining whether affiliation 
exists. It does not matter whether control is exercised, so long as the 
power to control exists. Entities owned and controlled by Indian 
Tribes, Alaska Native Corporations (ANCs), Community Development 
Corporations (CDCs), Native Hawaiian Organizations (NHOs) or wholly 
owned entities of Indian Tribes, ANCs, NHOs, or CDCs, are not 
considered to be affiliated with other entities owned by these entities 
solely because of their common ownership or common management.
    (2) There is a family relationship and identical or substantially 
identical business or economic interests amongst persons (such as where 
an immediate family member operates entities in the same or similar 
industry in the same geographic area); however, a person may rebut such 
determination with evidence showing that the business or economic 
interests are not identical or substantially identical.
    Agency. The Rural Business--Cooperative Service or successor Agency 
assigned by the Secretary of Agriculture to administer the Food Supply 
Chain Guaranteed Loan Program.
    Arm's-length transaction. A transaction in which the buyer and 
seller act independently and have no relationship to each other. The 
concept of an arm's length transaction allows the market to ensure that 
both parties in the deal are acting in their own self-interest and are 
not subject to any pressure or duress from the other party.
    Assignment Guarantee Agreement. A signed, Agency-approved agreement 
among the Agency, the lender, and the holder setting forth the terms 
and conditions of an assignment of a guaranteed portion of a loan or 
note from the lender to the holder.
    Bond. A form of debt security in which the authorized issuer 
(borrower) owes the bond holder (lender) a debt and is obligated to pay 
interest at specified intervals and repay the principal at a specified 
maturity date. An explanation of the type of bond and other bond 
stipulations must be attached to the bond.
    Borrower. The person that borrows, or seeks to borrow, money from 
the lender (including any party or parties liable for the guaranteed 
loan except guarantors) through a loan guaranteed under this program 
notice.
    Certificate of Incumbency and Signature. An Agency-approved form 
used to validate authenticity of Agency representatives' signatures and 
titles.
    Collateral. The asset(s) pledged by the borrower to the lender to 
secure the guaranteed loan.
    Commercially available. A system that meets the requirements of 
either paragraph (1) or (2) of this definition.
    (1) A domestic or foreign system that:
    (i) Has both a proven and reliable operating history and proven 
performance data for at least one year specific to the use and 
operation to the proposed application;
    (ii) Is based on established design and installation procedures and 
practices and is replicable;
    (iii) Has professional service providers, trades, large 
construction equipment providers, and labor who are familiar with 
installation procedures and practices;
    (iv) Has proprietary and balance of system equipment and spare 
parts that are readily available;
    (v) Has service that is readily available to properly maintain and 
operate the system; and
    (vi) Has an existing established warranty that is valid in the 
United States for major parts and labor; or
    (2) A domestic or foreign system that has been certified by a 
recognized industry organization whose certification standards are 
acceptable to the Agency.
    Complete application. An application that contains all parts 
necessary for the Agency to determine borrower and project eligibility, 
and the financial feasibility and technical merit of the project and 
contains sufficient information to determine a priority score for the 
application, if applicable, as determined by the Agency.
    Conditional Commitment. An Agency-approved form in which the Agency 
agrees that, in accordance with applicable provisions of this notice 
and related forms, it will execute the loan note guarantee, subject to 
the conditions and requirements specified in applicable provisions of 
this notice and in the conditional commitment.
    Conflict of interest. A situation in which a person has personal, 
professional, or financial interests that prevents, or appears to 
prevent the person from acting impartially. For purposes of this 
notice, conflict of interest also includes, but is not limited to:
    (1) A person acting as a compensated agent of the borrower and the 
lender on the same guaranteed loan;
    (2) Distribution or payment of guaranteed loan funds to an 
individual owner, partner, stockholder, or member of the borrower, or 
to a beneficiary or immediate family member of the borrower; or
    (3) Refinancing debt that is owned by a loan packager, broker, or 
referral agent or its affiliates.
    Cooperative. An entity that is legally chartered by the State or 
Tribe in which it operates as a cooperatively-operated business, or an 
entity that is not legally chartered as a cooperative but is owned and 
operated for the benefit of its members, with returns of residual 
earnings paid to such members on the basis of patronage.
    Credit evaluation. An analysis and evaluation by the lender of the 
credit factors associated with each application to ensure loan 
repayment using credit documentation procedures and an underwriting 
process that is consistent with industry standards and the lender's 
written policy and procedures.
    Debt Collection Improvement Act. The Debt Collection Improvement 
Act of 1996, 31 U.S.C. 3701 et seq.

[[Page 70088]]

    Debt service coverage ratio. The ratio obtained when taking 
earnings before interest, taxes, depreciation, and amortization less 
reasonably expected replacement capital expenditures divided by the 
annual debt service (principal and interest payments) of the borrower.
    Default. The condition that exists when a borrower is not in 
compliance with the promissory note, the loan agreement, or other 
documents relating to the loan. Default could be a monetary or non-
monetary default.
    Delinquency/Delinquent loan. A loan for which a scheduled loan 
payment is more than 30 days past due and cannot be cured within 30 
days.
    Existing business. A business that has been in operation for at 
least one full year and has achieved full operational capacity or 
stable operations in accordance with its executive summary, feasibility 
study, historical financial records, and financial projects, as 
determined by the Administrator. Mergers or changes in the business 
name or legal type of entity of a business that has been in operation 
for at least one full year are considered to be existing businesses as 
long as there is not a significant change in operations. Newly formed 
entities that are buying existing businesses will be considered an 
existing business as long as the business being bought remains in 
operation and there is no significant change in operations or expertise 
of management.
    Existing lender debt. A debt owed by a borrower to the same lender 
that is applying for or has received the Agency guarantee.
    Farmer or rancher cooperative. An entity that is owned and 
controlled by agricultural producers and that is incorporated, or 
otherwise recognized by the State or Tribe in which it operates as a 
cooperatively-operated business or an entity that is not legally 
chartered as a cooperative but is owned and operated for the benefit of 
its members, with returns of residual earnings paid to such members on 
the basis of patronage.
    Federal debt. Debt owed to the Federal Government that is subject 
to collection under the Debt Collection Improvement Act.
    Final loss claim. The Agency's payment of a final settlement amount 
with the lender after the collateral on a delinquent loan is liquidated 
or after settlement and compromise actions have been completed and as 
further set forth in 7 CFR 5001.521(e).
    Food. For the purpose of this notice, food or food product for 
human consumption except alcoholic beverages, tobacco, and dietary 
supplements.
    Future recovery. Funds collected by the lender after a final loss 
claim is processed.
    Guaranteed loan. A loan made and serviced by a lender for which the 
Agency and lender have entered into a lender's agreement and for which 
the Agency has issued a loan note guarantee. Unless otherwise 
specified, guaranteed loan refers to a loan that the Agency has 
guaranteed under this notice.
    Guarantor. A person who is legally obligated to make full payment 
to the Agency under an Agency-approved written agreement in the event 
that the borrower fails to meet its payment obligations on its 
guaranteed loan.
    Holder. A person, other than the lender, who owns all or part of 
the guaranteed portion of the loan with no servicing responsibilities.
    Immediate family. Individuals who live in the same household or who 
are closely related by blood, marriage, or adoption, including a 
spouse, domestic partner, parent, child, sibling, aunt, uncle, 
grandparent, grandchild, niece, nephew, or first cousin.
    Indian tribe. Means the term as defined in 25 U.S.C. 5131.
    In-house expenses. Expenses associated with activities that are 
routinely the responsibility of a lender's internal staff, including 
in-house lawyers, or its agents and that are normally incurred for 
administration of the loan. In-house expenses include, but are not 
limited to, employees' salaries, staff lawyers, travel, and overhead.
    Inspector. A qualified consultant who has at least three years of 
experience and has completed at least five inspections on similar type 
projects.
    Intangible asset. An asset that lacks physical substance. This 
includes, but is not limited to, copyrights, patents, capitalized 
franchise fees, goodwill, customer lists, software, organizational 
expenses, loan closing expenses, social media assets, and bond fees.
    Interest. A fee paid by a borrower to the lender as a form of 
compensation for the use of money. When money is borrowed, interest is 
paid as a fee over a certain period of time (typically months or years) 
to the lender as a percentage of the principal amount owed. The term 
interest does not include default or penalty interest or late payment 
fees or charges.
    Interest termination date. The date on which no further interest 
will be payable by the Agency under the loan note guarantee.
    Interim financing. A temporary or short-term loan made with the 
clear intent when the loan is made that it will be repaid through 
another loan that provides permanent financing. Interim financing is 
frequently used to pay construction and other costs associated with a 
planned project, with permanent financing to be obtained after 
completion of project construction.
    Lender. The eligible lender approved by the Agency to originate, 
service, and collect payments on loans guaranteed under this notice.
    Lender's agreement. The Agency-approved form of contract between 
the Agency and the lender setting forth the lender's guaranteed loan 
responsibilities.
    Liquidation expenses. Costs directly associated with the 
liquidation of collateral, including, without limitation, costs 
associated with preparing collateral for sale (e.g., repairs and 
transport), the sale (e.g., advertising, public notices, auctioneer 
expenses, and foreclosure fees), and conducting appraisals. Legal fees 
are considered liquidation expenses provided that the fees are 
reasonable as determined by the Agency and cover legal issues 
pertaining to the liquidation that could not be properly handled by the 
lender and its in-house legal staff. Liquidation expenses do not 
include in-house expenses.
    Loan agreement. The agreement between the borrower and lender 
containing the terms and conditions of the loan and the 
responsibilities of the borrower and lender, including the terms of the 
borrower's repayment of the loan.
    Loan classification. The process by which loans are examined and 
categorized by the probability of default and degree of potential loss 
in the event of default.
    Loan note guarantee. The Agency-approved form containing the terms 
and conditions of the guarantee of an identified guaranteed loan.
    Loan packager. A person, other than the applicant borrower or 
lender, that prepares a loan application package on behalf of the 
borrower or lender.
    Loan-to-discounted value. The ratio of the dollar amount of a loan 
to the discounted dollar value of the collateral pledged as security 
for the loan.
    Material adverse change. Any change in circumstance associated with 
a guaranteed loan, including without limitation, any change in the 
purpose of the loan, the borrower's financial condition or collateral, 
that, individually or in the aggregate, has jeopardized, or could be 
reasonably expected to jeopardize, the borrower's repayment of the 
guaranteed loan.

[[Page 70089]]

    Monetary default. A failure to make a scheduled or required payment 
on a guaranteed loan.
    Multi-note system. An option for the lender to provide one 
promissory note for the unguaranteed portion and a separate promissory 
note(s) for the guaranteed portion of the loan. All promissory notes 
must reflect the same payment terms.
    National Appeals Division (NAD). A division of the United States 
Department of Agriculture as described in 7 CFR part 11.
    Negligent loan origination. The failure of a lender to perform 
those services that a reasonably prudent lender would perform in 
originating its own portfolio of loans that are not guaranteed. The 
term includes the concepts of failure to act, not acting in a timely 
manner, or acting in a manner contrary to the manner in which a 
reasonably prudent lender would act.
    Negligent loan servicing. The failure of a lender to perform those 
services or actions that a reasonably prudent lender would perform in 
servicing (including liquidation of) its own portfolio of loans that 
are not guaranteed. The term includes the concepts of failure to act, 
not acting in a timely manner, or acting in a manner contrary to the 
manner in which a reasonably prudent lender would act.
    New business. A startup or otherwise new business that has been in 
operation for less than one full year and a business that has been in 
operation for at least one full year and has not achieved full 
operational capacity or stable operations in accordance with its 
executive summary, feasibility study, historical financial records, and 
financial projects, as determined by the Administrator, including a new 
enterprise or new affiliate of an existing business moving or expanding 
into a new location involving new market or labor areas.
    Non-monetary default. A situation where a borrower is not in 
compliance with the covenants or requirements of the loan documents or 
program requirements.
    Parity. A lien position whereby two or more lenders or loans share 
a security interest of equal priority in collateral.
    Participation. Sale of an interest in a loan by the lead lender to 
one or more participating lenders wherein the lead lender retains the 
note, collateral securing the note, and all responsibility for managing 
and servicing the loan. Participants are dependent upon the lead lender 
for protection of their interests in the loan. The relationship is 
typically formalized by a participation agreement. The participants and 
the borrower have no rights or obligations to one another.
    Passive investor. An equity investor who does not actively 
participate in management and operation decisions of the borrower or 
any affiliate of the borrower as evidenced by a contractual agreement.
    Person. An individual or entity organized under the laws of a State 
or an Indian Tribe.
    Program. Program means the Food Supply Chain Guaranteed Loan 
Program authorized by the American Rescue Plan Act of 2021 and 
administered by the Agency.
    Promissory note. The legal instrument evidencing debt executed by 
the borrower to a lender with stipulated repayment terms. The term 
promissory note includes bonds and other related debt instruments 
issued by the lender to a borrower.
    Protective advances. Advances made by the lender for the purpose of 
preserving and protecting the collateral where the borrower has failed 
to, and will not or cannot, meet its obligations to protect or preserve 
collateral. Protective advances include, but are not limited to, 
advances for property taxes, rent, hazard and flood insurance premiums, 
emergency repairs and annual assessments that protect the collateral. 
Legal and accounting fees are not protective advances.
    Public body. A state, municipality, county, or other political 
subdivision of a State; a special purpose district; an Indian tribe on 
a Federal or State reservation or other federally-recognized Indian 
tribe; or an organization controlled by any of the above.
    Qualified consultant. An independent third-party person possessing 
the knowledge, expertise, and experience to perform the specific task 
required.
    Socially disadvantaged group. A group whose members have been 
subjected to racial, ethnic, or gender prejudice because of their 
identity as members of a group without regard to their individual 
qualities.
    Spreadsheet. A table containing data from a series of financial 
statements of a business over a specified period. A financial statement 
analysis normally contains spreadsheets for balance sheet and income 
statement items and includes a cash flow analysis and commonly used 
ratios. The spreadsheets enable a reviewer to easily scan the data, 
spot trends, and make comparisons.
    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the District of Columbia, 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.
    Subordination. An agreement among the lender, borrower, and Agency 
whereby lien priorities on certain assets pledged to secure payment of 
the guaranteed loan will be reduced to a position junior to, or on 
parity with, the lien position of another loan.
    Transfer and assumption. The Agency-approved conveyance by a 
borrower to an assuming borrower of the assets, collateral, and 
liabilities of the loan in return for the assuming borrower's binding 
promise to pay the outstanding debt.
    Veteran. For the purposes of applicant selection, a veteran is a 
person who served in the active military, naval, or air service and was 
discharged or released therefrom under conditions other than 
dishonorable as defined in 38 U.S.C. 101(2).
    5. Accounting terms. Accounting terms not otherwise defined in this 
part shall have the definition ascribed to them under Generally 
Accepted Accounting Principles (GAAP).

B. Federal Award Information

    Type of Awards: Guarantee.
    Award Amounts: The maximum, aggregate, loan amount that a borrower 
may receive is $40 million. For fiscal year 2022, the Agency reserves 
not less than 19 percent of the funds made available to the Food Supply 
Chain Guaranteed Loan Program until June 7, 2022 for entities that 
establish and facilitate the slaughter and initial processing of meat 
and poultry to increase capacity and help create a more resilient, 
diverse, and secure U.S. food supply chain.
    Due Date for Applications: Applications will be accepted until 
funds are expended.
    Anticipated Award Date: Beginning not earlier than February 7, 
2022.
    Performance Period: None.
    Type of Assistance Instrument: Loan note guarantee.
    Loan guarantee limits:
    (a) Loan amount. The total amount of guaranteed loans under this 
notice to one borrower, including the aggregate amount of guaranteed 
loans to affiliate entities dependent upon another's operations and 
generation of revenue for loan repayment, (including the guaranteed and 
unguaranteed portions, and for subsequent loans the outstanding 
principal and interest balance of any existing FSC guaranteed loans, 
and the new loan request) must not exceed $40 million.

[[Page 70090]]

    (b) Percentage of guarantee. The percentage of guarantee will be 90 
percent for loans with fixed interest rates on the guaranteed portion 
of the loan and for which the interest rate does not exceed the current 
Wall Street Journal prime rate plus 200 basis points. All other loans 
shall be guaranteed at 80 percent.

C. Eligibility Information

    (a) Eligible borrowers. Borrowers must meet all the following 
eligibility requirements. Applications which fail to meet any of these 
requirements will be deemed ineligible and will not be evaluated 
further.
    (1) A borrower must be a cooperative organization, corporation, 
partnership, or other legal entity organized and operated on a profit 
or nonprofit basis; an Indian tribe on a Federal or State reservation 
or other federally recognized tribal group; a public body; or an 
individual. In addition a borrower must be:
    (i) A business engaged in or proposing to engage in aggregating, 
processing, manufacturing, storing, transporting, wholesaling, or 
distributing food; or
    (ii) A business with existing or proposed contractual, lease, or 
service agreements with another entity or entities, including 
affiliated entities, which are engaged or proposing to engage in 
aggregating, processing, manufacturing, storing, transporting, 
wholesaling, or distributing food.
    (2) A borrower must be a business engaged or proposing to engage in 
commercial food product project(s) either directly or through 
contractual, lease or service agreements with another entity or 
entities including affiliated entities. A commercial food product is a 
product in regular production that is routinely sold in significant 
quantities to the general public or industry.
    (3) Borrowers engaged or proposing to engage in processing of meat, 
poultry, processed egg products, and Siluriformes either directly or 
through contractual, lease or service agreements with another entity or 
entities including affiliated entities, must comply with the 
requirements of the U.S. Department of Agriculture (USDA) Food Safety 
and Inspection Service. Borrowers engaged or proposing to engage in 
processing of other foods and food ingredients either directly or 
through contractual, lease or service agreements with another entity or 
entities including affiliated entities, must comply with the 
requirements of the Food and Drug Administration. All borrowers must 
comply with requirements of state, tribal and local governments.
    (4) Borrowers, including affiliates of the borrower engaged or 
proposing to engage in, either directly or through contractual, lease 
or service agreements with another entity or entities including 
affiliated entities, beef, pork, chicken, or turkey processing must not 
hold a market share greater than or equal to the entity that holds the 
fourth largest share of that market for the species addressed in the 
application.
    (5) Individual borrowers must be citizens of the United States or 
reside in the United States after being legally admitted for permanent 
residence. For purposes of this subpart, citizens and residents of the 
Republic of Palau, the Federated States of Micronesia, American Samoa, 
Guam, the Commonwealth of the Northern Mariana Islands, and the 
Republic of the Marshall Islands are considered U.S. citizens. 
Individuals that reside in the United States after being legally 
admitted for permanent residence must provide a permanent green card as 
evidence of eligibility.
    (6) All applications for assistance will be accepted and processed 
without regard to the availability of credit from any other source.
    (b) Eligible uses of funds. Borrowers must demonstrate, to the 
Agency's satisfaction, that loan funds will remain in the United States 
and the facility being financed and the uses of the loan funds will 
support the start-up or expansion of activities in the middle of the 
food supply chain, particularly the aggregation, processing, 
manufacturing, storage, transportation, wholesaling, or distribution of 
food, to increase capacity and help create a more resilient, diverse, 
and secure U.S. food supply chain. Eligible uses of funds include, but 
are not limited to, the following:
    (1) Purchase and development of land, buildings, or infrastructure 
for public or private commercial enterprises or industrial properties, 
including expansion or modernization.
    (2) Leasehold improvements when the lease contains no reverter 
clauses or restrictive clauses that would impair the use or value of 
the property as security for the loan. The term of the lease must be 
equal to or greater than the term of the loan.
    (3) Constructing or equipping facilities for lease to public or 
private enterprises engaged in commercial or industrial operations. 
Financing for mixed-use properties, involving both commercial business 
and residential space, is authorized provided that at least 50 percent 
of the building's projected revenue will be generated from food supply 
chain related business uses.
    (4) Purchase of machinery and equipment including but not limited 
to manufacturing systems, information technology systems, and 
commercially available new technologies that promote worker safety or 
food safety.
    (5) Debt refinancing when it is determined that the project is 
viable and refinancing is necessary to improve cash flow or obtain 
appropriate lien positions. Debt being refinanced must be debt of the 
borrower reflected on its balance sheet. The lender's analysis must 
document that, except for the refinancing of lines of credit, the debt 
being refinanced was for an eligible loan purpose under this subpart. 
Existing lender debt may be included provided that, at the time of 
application, the loan being refinanced has been active and current for 
at least the past 12 months (current status cannot be achieved by the 
lender forgiving the borrower's debt or servicing actions that impact 
the borrower's repayment schedule), and the lender is providing better 
rates or terms. Unless the amount to be refinanced is owed directly to 
the Federal government or is federally guaranteed, no more than 50 
percent of loan funds may be used to refinance existing debt.
    (6) Takeout of interim financing. Guaranteeing a loan that provides 
for permanent, long-term financing after project completion to pay off 
a lender's interim loan will not be treated as debt refinancing 
provided that the lender submits a request for preliminary eligibility 
review or application that proposes such interim financing prior to 
closing the interim loan. The borrower must take no action that would 
have an adverse impact on the environment or limit the range of 
alternatives to be considered by the Agency during the environmental 
review process. The Agency will not guarantee takeout of interim 
financing loans that prevent a meaningful environmental assessment 
prior to Agency loan approval. Even for projects with interim 
financing, the Agency cannot approve the loan and issue a Conditional 
Commitment until the environmental process is complete. The Agency 
assumes no responsibility or obligation for interim loans.
    (7) Purchase of membership, stocks, bonds, or debentures necessary 
to obtain a loan from Farm Credit System institutions and other lenders 
provided such purchase is required for all their borrowers and is the 
minimum amount required.
    (8) The purchase of cooperative stock by individual farmers or 
ranchers in a farmer or rancher cooperative, the purchase of 
transferable cooperative stock, the purchase of stock in a

[[Page 70091]]

business by employees forming an Employee Stock Ownership Plan or 
worker cooperative, and loans to a fund that invests primarily in 
cooperatives in accordance with the provisions of this notice.
    (9) Taxable corporate bonds when the bonds will be fully amortized 
over the life of the bond and comply with all provisions of (i) through 
(v) below:
    (i) The bond holder (lender) retains 7.5 percent of the bond.
    (ii) The bonds must be fully secured with collateral.
    (iii) The bonds must only provide for a trustee when the trustee is 
totally under the control of the lender. The bonds must provide no 
rights to bond holders other than the right to receive the payments due 
under the bond. For instance, the bonds must not provide for bond 
holders replacing the trustee or directing the trustee to take 
servicing actions, such as accelerating the bonds. Convertible bonds 
are not eligible under this paragraph due to the potential conflict of 
interest of a lender having an ownership interest in the borrower.
    (iv) The bond issuer (borrower) must obtain the services and 
opinion of an experienced bond counsel who must present a legal opinion 
stating that the bonds are legal, valid, and binding obligations of the 
issuer and that the issuer has adhered to all applicable laws.
    (v) The bond holder (lender) must purchase all the bonds and comply 
with all Agency regulations. There must be a bond purchase agreement 
between the issuer and the bond holder. The bond purchase agreement 
must contain similar language to what is required to be in a loan 
agreement in accordance with this notice and must be in form and 
substance satisfactory to the Agency. The bond holder is responsible 
for all servicing of the loan (bond), although the bond holder may 
contract for servicing assistance, including contracting with a trustee 
who remains under the lender's total control.
    (10) Interest (including interest on interim financing) during the 
period before the first principal payment becomes due or when the 
facility becomes income producing, whichever is earlier.
    (11) Fees and charges outlined in the Loan Guarantee Limits 
section, above.
    (12) Feasibility studies.
    (13) Educational, innovation, and training facilities and equipment 
and kitchen, business, and other multi-tenant incubator facilities and 
equipment when not eligible for Rural Housing Service, Community 
Facilities assistance.
    (14) Pollution control and abatement as related to transportation, 
waste management and other activities related to otherwise eligible 
projects.
    (15) Startup costs, working capital, inventory, and supplies in the 
form of a permanent working capital term loan.
    (c) Ineligible entities.
    (1) An entity is ineligible if any of the conditions identified in 
paragraphs (i) through (iv) below apply to the borrower, any owner with 
more than 20 percent ownership interest in the borrower (does not 
include passive investors), or any owner with control of the borrower.
    (i) There is an outstanding judgment obtained by the U.S. in a 
Federal Court (other than U.S. Tax Court).
    (ii) There is any delinquency on payment of Federal income taxes.
    (iii) There is any delinquency on a Federal Debt.
    (iv) There is a debarment or suspension from receiving Federal 
assistance.
    (2) An entity is ineligible if it derives more than 15 percent of 
its annual gross revenue (including any lease income from space or 
machines) from gambling activity, excluding State-authorized lottery 
proceeds or Tribal-authorized gaming proceeds, as approved by the 
Agency, conducted for the purpose of raising funds for the approved 
project.
    (3) An entity is ineligible if it derives income from activities of 
a prurient sexual nature.
    (4) An entity is ineligible if it derives income from illegal 
drugs, drug paraphernalia, or any other illegal product or activity as 
defined under Federal statute. A borrower that intends to lease space 
or enter into a power purchase agreement with a marijuana dispensary is 
not eligible since the borrower would be receiving income from the 
marijuana operation which is a violation of federal laws since 
marijuana is a controlled substance under federal law and subject to 
federal prosecution under the Controlled Substances Act (21 U.S.C. 
801).
    (5) An entity is ineligible if it is a charitable or fraternal 
organization. For purposes of this section, an organization that 
derives more than 10 percent of its annual gross revenue from tax 
deductible charitable donations, based on historical financial 
statements, is considered a charitable organization. Fees for services 
rendered or that are otherwise ineligible for deduction under the 
Internal Revenue Code are not considered tax deductible charitable 
donations.
    (6) An entity is ineligible if its lender or any of the lender's 
officers have an ownership interest in the borrower or is an officer or 
director of the borrower with management control or where the borrower 
or any of its officers, directors, stockholders, or other owners have 
more than a five percent ownership interest in the lender. Any of the 
lender's directors, stockholders, or other owners that are officers, 
directors, stockholders, or other owners of the borrower without 
management control or ownership less than five percent must be recused 
from any decision-making process associated with the guaranteed loan.
    (7) An entity is ineligible if it is a lending institution, 
investment institution, or insurance company with exception of a fund 
that invests primarily in cooperatives and funds utilized in New 
Markets Tax Credit (NMTC) structures.
    (d) Ineligible use of loan funds and ineligible loan purposes 
include:
    (1) Distribution or payment to an individual or entity that will 
retain an ownership interest in the borrower or distribution or payment 
to a beneficiary of the borrower. Distribution or payment to a member 
of the immediate family of an owner, partner, or stockholder will not 
be permitted, except for a change in ownership of the business where 
the selling immediate family member does not retain an ownership 
interest and the Agency determines the price paid to be reasonable. As 
this type of transaction is not an arm's length transaction, 
reasonableness of the price paid will be based upon an appraisal. In 
situations where there is common ownership or an otherwise closely 
related company is being paid to do construction or installation work 
for a borrower, only documented costs associated with construction or 
installation can be paid with loan proceeds. Documented construction or 
installation costs may not include any profit or wages to a related 
person, and all work must be done at cost with no profit built into the 
cost. This paragraph does not apply to transfers of ownership for 
Employee Stock Ownership Plans (ESOPs) or worker cooperatives; 
cooperatives where the cooperative pays the member for product or 
services; or where member stock is transferred among members of the 
cooperative.
    (2) Guaranteeing lease payments or any lines of credit.
    (3) Guaranteeing loans made by other Federal agencies.
    (4) Loans on which the interest is excludable from income under 
current or a successor statute of the Internal Revenue Code. Funds 
generated through the issuance of tax-exempt obligations shall neither 
be used to purchase the guaranteed portion of any Agency guaranteed 
loan nor shall an Agency

[[Page 70092]]

guaranteed loan serve as collateral for a tax-exempt issue. The Agency 
may guarantee a loan for a project that involves tax-exempt financing 
only when the guaranteed loan funds are used to finance a part of the 
project that is separate and distinct from the part that is financed by 
the tax-exempt obligation, and the guaranteed loan has at least a 
parity security position with the tax-exempt obligation.
    (5) Guarantees supporting inherently religious activities, such as 
worship, religious instruction, proselytization, or to pay costs 
associated with acquisition, construction, or rehabilitation of 
structures for inherently religious activities, including the financing 
of multi-purpose facilities where religious activities will be among 
the activities conducted.
    (6) Research and development projects and projects that involve 
technology that is not commercially available.
    (7) Other than cooperative stock purchase loans and cooperative 
equity security guarantees, guarantees supporting speculation, 
arbitrage, or speculative real estate investment.
    (8) Any business located within the Coastal Barriers Resource 
System that does not qualify for an exception as defined in section 6 
of the Coastal Barriers Resource Act, 16 U.S.C. 3501 et seq.
    (9) Any business located in a special flood or mudslide hazard area 
as designated by the Federal Emergency Management Agency in a community 
that is not participating in the National Flood Insurance Program 
unless the project is an integral part of a community's flood control 
plan.
    (10) Any project that drains, dredges, fills, levels, or otherwise 
manipulates a wetland or engages in any activity that results in 
impairing or reducing the flow, circulation, or reach of water, except 
in the case of activity related to the maintenance of previously 
converted wetlands. This does not apply to loans for utility lines.
    (11) Facilities exempt from Federal inspection in accordance with 9 
CFR 303.1(a), specifically Federal Meat Inspection Act custom-exempt 
facilities. However, these facilities could apply as a new or expanded 
business seeking to expand their operations to obtain a Federal or 
equivalent seal of inspection.
    (12) Any project involving alcoholic beverages, tobacco, or dietary 
supplements.
    (13) Projects or uses of loan funds that the Agency determines 
create, directly or indirectly, a conflict of interest.
    (e) Fees and Charges.
    (1) Routine lender fees. The lender may establish charges and fees 
for the loan provided they are similar to those normally charged other 
applicants for the same type of loan in the ordinary course of 
business, and these fees are an eligible use of loan proceeds. The 
lender must document such routine fees on an Agency approved 
application form. The lender may charge prepayment penalties and late 
payment fees that are stipulated in the loan documents, as long as they 
are reasonable and customary; however, the loan note guarantee will not 
cover either prepayment penalties or late payment fees.
    (2) Professional services. Professional services are those rendered 
by persons generally licensed or certified by States or accreditation 
associations, such as architects, engineers, accountants, attorneys, or 
appraisers, and those rendered by loan packagers. The borrower may pay 
fees for professional services needed for planning and developing a 
project. Such fees are an eligible use of loan proceeds provided that 
the Agency agrees that the amounts are reasonable and customary. The 
lender must document these fees on the Agency approved application 
form.
    (f) Interest rates.
    (1) The interest rate for the guaranteed loan will be negotiated 
between the lender and the borrower and may be either fixed or 
variable, or a combination thereof, as long as it is a legal rate. 
Interest rates will not be more than those rates customarily charged 
borrowers for loans without guarantees and are subject to Agency review 
and approval.
    (2) A variable interest rate must be a rate that is tied to a 
published base rate, published in a national or regional financial 
publication, agreed to by the lender and the Agency. The variable 
interest rate must be specified in the promissory note and may be 
adjusted at different intervals during the term of the loan, but the 
adjustments may not be more often than quarterly. The lender must 
incorporate, within the variable rate promissory note at loan closing, 
the provision for adjustment of payment installments. The lender must 
fully amortize the outstanding principal balance within the prescribed 
loan maturity to eliminate the possibility of a balloon payment at the 
end of the loan.
    (3) It is permissible to have different interest rates on the 
guaranteed and unguaranteed portions of the loan.
    (4) Any change in the base rate or fixed interest rate between 
issuance of the conditional commitment and loan closing must be 
approved in writing by the Agency. Approval of such change must be 
shown as an amendment to the conditional commitment in accordance with 
this notice and must be reflected on the Guaranteed Loan Closing 
Report.
    (5) The lender's promissory note must not contain provisions for 
default or penalty interest nor will default or penalty interest, 
interest on interest, or late payment fees or charges be paid under the 
Loan Note Guarantee.
    (g) Loan terms.
    (1) Term length. The lender, with Agency concurrence, will 
establish and justify the guaranteed loan term based on the use of 
guaranteed loan funds, the useful economic life of the assets being 
financed and those used as collateral, and the borrower's repayment 
ability. The maximum term allowable for final guaranteed loan maturity 
is limited to the justified useful life of the project or assets used 
as collateral but may not exceed 40 years or limitations in the 
applicable State statute, whichever is less. State statutory limits on 
maximum terms do not apply for projects on land under the jurisdiction 
of federally recognized Tribes.
    (2) Guaranteed loan schedule and repayment. The lender must 
structure repayment in consideration of the borrower's cash flow and in 
accordance with the provisions of this section and the loan agreement. 
Scheduled guaranteed loan payments shall be made no less frequently 
than annually. In addition:
    (i) Both the guaranteed and unguaranteed portions of the loan must 
be amortized over the same term.
    (ii) Guaranteed loans must require a periodic payment schedule that 
will retire the debt over the term of the loan without a balloon 
payment.
    (3) Interest only. If the promissory note provides for an interest-
only period, interest must be paid at least annually starting on a date 
that is no more than one year from the date of the promissory note. The 
first payment of principal and interest will be scheduled based on the 
borrower's cash flow and whether the facility is operational and 
generating adequate income. However, the first principal and interest 
payment must be scheduled not more than three years after the date of 
the promissory note and principal and interest payments must be 
scheduled for repayment at least annually thereafter.
    (4) Due on demand. There must be no ``due-on-demand'' clauses 
without cause. Regardless of any ``due-on-demand'' with cause provision 
in a lender's promissory note, the Agency must concur in any 
acceleration of the guaranteed loan unless the basis for acceleration 
is monetary default.

[[Page 70093]]

    (h) Capital and equity. Borrowers are required to have sufficient 
capital or equity to mitigate the ongoing financial and operational 
risks of the business. Balance sheet equity will be determined based 
upon current and projected borrower financial statements. Current and 
projected financial statements filed with the application are reviewed 
to determine if it is likely that the balance sheet equity requirement 
can be met. The following capital and equity requirements must be met 
at the time of lender's closing of the guaranteed loan. A balance sheet 
as of loan closing is required and should reflect the new debt and use 
of proceeds. If there are multiple borrowers, consolidated financial 
statements should be submitted.
    (1) Existing businesses must meet one of the following 
requirements:
    (i) A minimum of 10 percent balance sheet equity (including 
subordinated debt when subject to a standstill agreement for the life 
of the loan), or a maximum debt-to-balance sheet equity ratio of 9 to 
1, at loan closing;
    (ii) Provide 10 percent or more of total eligible project costs in 
the form of borrower investment of equity or other funds into the 
project including grants or subordinated debt when subject to a 
standstill agreement for the life of the loan; or
    (iii) Balance sheet equity includes owner-contributed capital of 10 
percent or more of total fixed assets (net total fixed assets plus 
depreciation).
    (2) New businesses with sales contract(s) with proceeds in an 
amount adequate to meet debt service and the term of the sales 
contract(s) are at least equal to the term of the guaranteed loan, and 
subject to Agency acceptance of the credit worthiness of the 
counterparty (entity the borrower is contracting with), the borrower 
must meet one of the following requirements:
    (i) A minimum of 10 percent balance sheet equity (including 
subordinated debt when subject to a standstill agreement for the life 
of the loan), or a maximum debt-to-balance sheet equity ratio of 9 to 1 
at loan closing; or
    (ii) Borrower investment of equity or other funds (including grants 
or subordinated debt when subject to a standstill agreement for the 
life of the loan) into the project in an amount of 10 percent or more 
of total eligible project cost.
    (3) New businesses with a project involving construction and when 
the lender will request the loan note guarantee prior to completion of 
construction must meet one of the following requirements:
    (i) A minimum of 25 percent balance sheet equity (including 
subordinated debt when subject to a standstill agreement for the life 
of the loan), or a maximum debt-to-equity ratio of 3 to 1, at 
guaranteed loan closing; or
    (ii) Borrower investment of equity or other funds (including grants 
or subordinated debt when subject to a standstill agreement for the 
life of the loan) into the project in an amount of 25 percent or more 
of total eligible project cost.
    (4) All other borrowers that are new businesses must meet one of 
the following requirements:
    (i) A minimum of 20 percent balance sheet equity (including 
subordinated debt when subject to a standstill agreement for the life 
of the loan), or a maximum debt-to-equity ratio of 4 to 1, at 
guaranteed loan closing; or
    (ii) Borrower investment of equity or other funds (including grants 
or subordinated debt when subject to a standstill agreement for the 
life of the loan) into the project in an amount of 25 percent or more 
of total eligible project cost.
    (5) Capital and equity requirements may be increased or reduced by 
the Agency as follows:
    (i) Increases.
    (A) The Agency may increase the capital or equity requirement 
specified under paragraphs (h)(1) through (4) of this section for 
guaranteed loans the Agency determines carry a higher risk. In 
determining whether a project or guaranteed loan carries a higher risk, 
the Agency will consider the current status of the industry, 
concentration of the industry in the Agency's portfolio, collateral 
coverage, value of personal or corporate guarantees, cash flow, and 
contractual relationships with suppliers and buyers; credit rating of 
the borrower; and the strength of the feasibility study and experience 
of management. The Agency may also increase the capital or equity 
requirement for new businesses producing new products to sell into new 
and emerging markets.
    (B) The Agency will increase the capital or equity requirement 
specified under paragraphs (h)(1) through (4) of this section for all 
guaranteed loans in excess of $25 million.
    (ii) Reductions. The Agency may reduce the minimum equity 
requirement for an existing business when personal or corporate 
guarantees are obtained in form and substance satisfactory to the 
Agency, and all pro forma statements indicate the business to be 
financed meets or exceeds the median quartile (as identified in the 
Risk Management Association's Annual Statement Studies or similar 
publication) for the current ratio, quick ratio, debt-to-worth ratio, 
and debt service coverage ratio.
    (6) The lender must certify that, as of the date the guaranteed 
loan was closed, its credit analysis indicated that the borrower had 
sufficient capital or equity to mitigate the financial and operational 
risks of the business, and that the borrower met the minimum equity 
required by the Agency in its conditional commitment, or that the 
minimum borrower capital contribution toward project costs, as 
applicable and required by the Agency, was met. A copy of the 
borrower's loan closing balance sheet must be included with the 
lender's certification.

                                       Capital Equity Requirements Summary
----------------------------------------------------------------------------------------------------------------
                                                          Borrower must meet one of the following at the time of
                                                                   the closing of the guaranteed loan:
                                                        --------------------------------------------------------
                                                                                                 Balance sheet
                                                                                 Borrower       equity includes
                        Borrower                                              investment as    owner contributed
                                                          Percent balance    percent of total      capital as
                                                           sheet equity:     eligible project    percentage of
                                                                                  cost:           total fixed
                                                                                                    assets:
----------------------------------------------------------------------------------------------------------------
Existing Business......................................               >=10               >=10               >=10
Borrowers that are new businesses with sales                          >=10               >=10                N/A
 contract(s) adequate to meet debt service and the term
 of the sales contract(s) are at least equal to the
 term of the guaranteed loan...........................
Borrowers that are new businesses for a project                       >=25               >=25                N/A
 involving construction and the lender will request the
 loan note guarantee prior to completion of
 construction..........................................
All other borrowers that are new businesses............               >=20               >=25                N/A
----------------------------------------------------------------------------------------------------------------


[[Page 70094]]

    (i) Personal, partnership, and corporate guarantees. The provisions 
of this section do not apply to passive investors.
    (1) Except as provided in paragraph (3) of this section, Agency-
approved, unsecured personal, partnership, and corporate guarantees for 
the full term of the guaranteed loan and at least equal to the 
guarantor's percent interest or membership in the borrower times the 
guaranteed loan amount are required from any person or entity owning a 
20-percent or greater interest or membership in the borrower. In the 
event a portion of the borrower's ownership interest stock is sold or 
transferred, the Agency reserves the right to require personal or 
corporate guarantees from the new owners of a 20-percent or more 
interest in the borrower.
    (2) When warranted by an Agency assessment of potential financial 
risk, the Agency may require the following:
    (i) Guarantees to be secured;
    (ii) Guarantees from any person or entity owning less than a 20 
percent interest or membership in the borrower; and
    (iii) Guarantees from persons whose ownership interest in the 
borrower is held indirectly through intermediate or affiliated 
entities.
    (3) Exceptions to the requirement for personal, partnership or 
corporate guarantees may be requested by the lender. The lender must 
document, to the Agency's satisfaction, that collateral, equity, cash 
flow, and profitability indicate an above-average ability of the 
borrower to repay the loan. The Agency will evaluate these requests on 
a case-by-case basis.
    (4) Each guarantor must execute an Agency-approved guarantee form 
in addition to any guarantee form required by the lender.
    (5) Any amounts paid by the Agency pursuant to a claim by a 
guaranteed program lender will constitute a Federal debt owed to the 
Agency by a guarantor of the loan, to the extent of the amount of the 
guarantor's guarantee.
    (j) Insurance. The lender is responsible for ensuring that the 
following required insurance is maintained by the borrower.
    (1) Hazard. Hazard insurance with a standard clause naming the 
lender as mortgagee or loss payee, as applicable, is required for the 
life of the guaranteed loan. The amount must be at least equal to the 
replacement value of the collateral or the outstanding balance of the 
loan, whichever is the greater amount.
    (2) Life. The lender may require a collateral assignment of life 
insurance to insure against the risk of death of persons critical to 
the success of the business. When required, coverage must be in amounts 
necessary to provide for management succession or to protect the 
business. The Agency may require life insurance on key individuals for 
loans where the lender has not otherwise proposed such coverage. The 
cost of insurance and its effect on the applicant's working capital 
must be considered, as well as the amount of existing insurance that 
could be assigned without requiring additional expense.
    (3) Worker compensation. Worker compensation insurance is required 
in accordance with State or Tribal law.
    (4) Flood. National flood insurance is required in accordance with 
applicable law.
    (5) Other. The lender must consider whether public liability, 
business interruption, malpractice, and other insurance is appropriate 
to the borrower's particular business and circumstances and must 
require the borrower to obtain such insurance as is necessary to 
protect the interests of the borrower, the lender, and the Agency.
    (k) Financial statements.
    Except for audited financial statements, the lender will determine 
the type and frequency of submission of financial statements by the 
borrower and any guarantors. All financial information (e.g., financial 
statements, balance sheets, financial projections, and income 
statements) must be prepared and submitted in accordance with 
accounting practices acceptable to the Agency. Such practices can 
include, but are not limited to, GAAP and the industry's standard 
accounting practice. The Agency may require annual audited financial 
statements. Audits will be required of any public body, nonprofit 
corporation, or Indian Tribe that receives a guaranteed loan that meets 
the thresholds established by 2 CFR part 200, subpart F. Any audit 
provided by a public body, nonprofit corporation, or Indian Tribe 
required by this paragraph will be considered adequate to meet the 
audit requirements of the FSC program for that year.
    (l) Cooperative stock/cooperative equity. The cooperative or 
business entity assisted must be an eligible borrower under this notice 
and the funds must be used for eligible uses of loan funds under this 
notice.
    (1) Cooperative stock purchase program.
    (i) The Agency may guarantee loans for the purchase of cooperative 
stock by individual farmers or ranchers in a farmer or rancher 
cooperative established for the purpose of processing an agricultural 
commodity. The cooperative must use the proceeds from the stock sale 
for eligible uses of loan funds described in Eligible Uses of Funds 
section, above. The cooperative may contract for services to process 
agricultural commodities or otherwise process value-added agricultural 
products during the 5-year period beginning on the operation startup 
date of the cooperative in order to provide adequate time for the 
planning and construction of the processing facility of the 
cooperative. The full amount of the loan proceeds must be used for the 
purchase of cooperative stock and cooperative must not reinvest those 
funds into another entity. The Agency may also guarantee loans for the 
purchase of transferable stock shares of any type of cooperative. Such 
stock may provide delivery or some form of participation rights and may 
only be traded among cooperative members.
    (ii) The maximum term allowable for a guaranteed loan's maturity is 
limited to the justified useful life of the funded project assets the 
cooperative purchases with the proceeds of the stock sale not to exceed 
40 years or applicable State statutory limitations, whichever is less. 
The maximum term is seven years if the proceeds from the stock sale are 
used by the cooperative for working capital.
    (iii) The lender will, at a minimum, obtain a valid lien on the 
stock, an assignment of any patronage refund, and the ability to 
transfer the stock to another party, or otherwise liquidate and dispose 
of the collateral in the event of a borrower default.
    (iv) The lender must complete a written credit analysis of the 
borrower of each stock purchase loan and a complete credit analysis of 
the cooperative prior to making its first stock purchase loan.
    (v) If the borrower is an agricultural producer, the borrower may 
provide financial information in the manner that is generally required 
by commercial agricultural lenders.
    (vi) The required feasibility study should address the cooperative.
    (vii) The Agency will conduct an appropriate environmental 
assessment on the processing facility and will not process individual 
applications for the purchase of stock until the environmental 
assessment on the cooperative processing facility is completed. 
Typically, an individual loan for the purchase of cooperative stock is 
considered a categorical exclusion.
    (2) Cooperative equity security guarantees.
    (i) The Agency may guarantee loans for the purchase of preferred 
stock or similar equity issued by a cooperative

[[Page 70095]]

and may guarantee loans to a fund that invests primarily in 
cooperatives. In either case, the guarantee must significantly benefit 
one or more entities eligible for assistance under this notice.
    (ii) ``Similar equity'' is any special class of equity stock that 
is available for purchase by non-members and/or members and lacks 
voting and other governance rights.
    (iii) A fund that invests ``primarily'' in cooperatives is 
determined by its percentage share of investments in and loans to 
cooperatives. A fund portfolio must have or commit at least 50 percent 
of its loans and investments in cooperatives to be considered eligible 
for loan guarantees for the purchase of preferred stock or similar 
equity.
    (iv) The maximum term of a guaranteed loan for preferred stock or 
similar equity is equal to the least of the following, but will not 
exceed 40 years:
    (A) The justified useful life of the funded project assets;
    (B) The maximum term under any applicable State statute;
    (C) The specified holding period for redemption as stated by the 
stock offering; or,
    (D) Seven years when the proceeds are used by the cooperative for 
working capital.
    (v) All borrowers purchasing preferred stock or similar equity must 
provide documentation of the terms of the offering that includes 
compliance with State and Federal securities laws and financial 
information about the issuer of the preferred stock to both the lender 
and the Agency.
    (vi) An issuer of preferred stock must be a cooperative 
organization or a fund and must be able to issue preferred stock to the 
public that, complies with applicable State and Federal securities 
laws.
    (vii) A fund must use a guaranteed loan under this subpart to, 
either or both, make loans to cooperatives or to purchase preferred 
stock that is issued by cooperatives. The cooperative must use the 
proceeds from the guaranteed loan or stock sale for eligible uses of 
loan funds described in the Eligible Uses of Funds section, above.
    (viii) The lender will, at a minimum, obtain a valid lien on the 
preferred stock, an assignment of any patronage refund, and the ability 
to transfer the stock to another party, or otherwise liquidate and 
dispose of the collateral in the event of a borrower default. When 
recovering losses from loan defaults, lenders may take ownership of all 
equities purchased with such loans, including additional shares derived 
from reinvestment of dividends.
    (ix) Shares of preferred stock that are purchased with guaranteed 
loan proceeds cannot be converted to common or voting stock.
    (x) In the absence of adequate provisions for investors' rights to 
early redemption of preferred stock or similar equity, a borrower must 
request from a cooperative or fund issuing such equities a contingent 
waiver of the holding or redemption period in advance of share 
purchases. This contingent waiver provides that in the event a borrower 
defaults on a loan financed under the guaranteed loan program, the 
borrower waives any ownership rights in the stock, and the lender and 
Agency will then have the right to redeem the stock.
    (xi) Guaranteed loans for the purchase of preferred stock must be 
prepaid in the event a cooperative or fund that issued the stock 
exercises an early redemption. If the cooperative enters into 
bankruptcy, to the extent the cooperative can redeem the preferred 
stock, the borrower is required to repay the loan from the redemption 
of the stock.
    (3) Employee ownership succession.
    (i) The Agency may guarantee loans for conversions of businesses to 
either cooperatives or ESOP within five years from the date of initial 
transfer of stock.
    (ii) The term of the loan shall not exceed 10 years.
    (iii) The lender will, at a minimum, obtain a valid lien on the 
stock, an assignment of any patronage refund, the ability to transfer 
the stock to another party, or the ability to otherwise liquidate and 
dispose of the collateral in the event of a borrower default. In the 
event of default, the stock may not be sufficient to satisfy the debt 
and the borrower is fully liable for the entire debt, regardless of the 
success or failure of the cooperative or ESOP. The lender must take all 
action to maximize recovery on the loan, including collection of 
personal and corporate guarantees. In addition, provisions of the Debt 
Collection Improvement Act of 1996 may impose significant restrictions 
on delinquent Federal debtors, including eligibility for other Federal 
programs.
    (iv) The lender must complete a written credit analysis of each 
stock purchase loan and a complete credit analysis of the cooperative 
or ESOP prior to making its first stock purchase loan.
    (v) If a cooperative is organized, a selling owner becomes a member 
with special control rights to protect their stake in the business 
while a succession plan is implemented. At the completion of the stock 
transfer, selling owners may retain their membership in the cooperative 
provided that their control rights are the same as all other members. 
Any special covenants that selling owners may have held must be 
extinguished upon completion of the transfer.
    (vi) If an ESOP is organized for transferring ownership to 
employees, selling owner(s) may not retain ownership in the business 
after five years from the date of the initial transfer of stock.
    (m) New Markets Tax Credit (NMTC) program. The NMTC program is 
administered by the U.S. Department of the Treasury's (Treasury) 
Community Development Financial Institutions (CDFI) Fund with NMTC 
credits allocated to Treasury-certified Community Development Entities 
(CDEs) across the United States to make Qualified Equity Investments 
(QEIs) in low-income communities. NMTC related definitions and terms in 
this section are governed by section 45(D) of the Internal Revenue Code 
(26 U.S.C. 45D), and applicable Treasury regulations (26 CFR 1.45D-1). 
A CDE will generally establish a new subsidiary of a CDE (sub-CDE) for 
individual NMTC projects. Lenders and their borrowers with guaranteed 
loan projects that include NMTC investments must comply with the 
provisions in this section. To be a lender for a guaranteed loan 
project that involves financing under the NMTC provisions, the lending 
entity must meet the applicable eligibility criteria in Sec.  5001.130. 
The Agency will not waive its servicing rights to a guaranteed loan or 
be a party to any forbearance agreement in conjunction with a NMTC 
project.
    (1) Guaranteed loans directly to Qualified Active Low-Income 
Community Businesses (QALICB).
    (i) A lender that is CDE or sub-CDE under the direct control of a 
regulated lender or an approved non-regulated lender does not need to 
separately meet the requirements of an eligible lender under this 
notice to make a guaranteed loan directly to a QALICB.
    (ii) Subject to the provisions in Section C.(m)(1)(iii) of this 
notice, a lender that is a CDE or sub-CDE may have an ownership 
interest in the borrower provided that each condition specified in 
paragraphs (A) through (C) below is met.
    (A) The lender does not have an ownership interest in the borrower 
prior to the application.
    (B) The lender does not take a controlling interest in the 
borrower.
    (C) The lender does not provide equity or take an ownership 
interest in a borrower at a level that would result

[[Page 70096]]

in the lender owning 20 percent or more interest in the borrower.
    (iii) Notwithstanding the provisions in Section C.(d)(13) of this 
notice a lender that is a CDE or sub-CDE taking an ownership interest 
in the borrower does not constitute a conflict of interest. The Agency 
will mitigate the potential for a conflict of interest by requiring 
appropriate loan covenants establishing, at a minimum, limitations on 
dividends and distributions of earnings in the loan agreement between 
the lender and borrower. The Agency will also ensure that the lender 
limits any waivers of loan covenants and future modifications of loan 
documents in compliance with this part.
    (iv) Guaranteed loans made by a lender directly to a QALICB must 
meet all other program and project eligibility requirements as 
specified in this notice.
    (v) For purposes of calculating borrower equity, the CDE's (or sub-
CDE's) amount of the principal balance of the loan from NMTC investor 
funds that is subordinated to the guaranteed loan may be considered as 
equity.
    (2) Guaranteed loans to a NMTC leveraged equity structure. Tax 
benefits to a NMTC investor are based on the total amount of funds 
utilized in the project. The tax benefit calculation includes the sum 
of the investor's cash investment plus loan proceeds from a leveraged 
lender into a NMTC investor fund entity. The investor fund entity is 
generally a new entity established to make a QEI into one or more CDEs 
or sub-CDEs to support a qualified low-income community investment 
(QLICI) to a QALICB. The investor fund entity, through its investment, 
has ownership rights in the sub-CDE that will be making secured QLICI 
loans to the QALICB. Notwithstanding the provisions above in section 
C.(a), Eligible Borrowers, either a leveraged lender entity lending to 
an investor fund entity, or an investor fund entity such as an investor 
partnership or investor limited liability corporation, may be an 
eligible borrower for a specific NMTC project as specified in paragraph 
(2)(i) of this section. For purposes of this section only, the stated 
term ``borrower'' in paragraphs (2)(i) through (xiii) of this section 
applies to both a leveraged lender entity and an investor fund entity 
as the guaranteed loan borrower in the NMTC project. Paragraphs (2)(ii) 
through (xiii) of this section identify modifications to this part that 
apply when the eligible borrower is a leveraged lender entity or 
investor fund entity in a NMTC project.
    (i) To be an eligible borrower using the leveraged equity structure 
of a NMTC project each condition identified in paragraphs (2)(i)(A) 
through (E) of this section must be met.
    (A) The investor fund entity must be established for a single 
specific NMTC investment.
    (B) The lender is not an affiliate of the borrower.
    (C) When the borrower is a leveraged lender entity it must relend 
one hundred percent of the guaranteed loan funds to an investor fund 
entity. In all cases, one hundred percent of the guaranteed loan funds 
are or will be invested by the investment fund entity in one or more 
sub-CDEs that will then be loaned directly to a QALICB through a direct 
tracing method, and such guaranteed loan funds are, or will be, used by 
the QALICB in accordance with the eligibility requirements in this 
Notice. The QALICB's project must be the ultimate use of one hundred 
percent of the guaranteed loan funds.
    (D) The QALICB must meet the requirements of an eligible borrower 
under this notice.
    (E) The sub-CDE operating agreement with the QALICB must include a 
provision that the guaranteed lender has approval rights with respect 
to any substantial loan servicing actions that may be taken by the sub-
CDE regarding the collateral or repayment terms of their QLICI loans to 
the QALICB.
    (ii) The guaranteed loan amount and percentage of guarantee 
provisions found in the Loan Guarantee Limits section of this notice, 
apply to the QALICB and to the investor fund entity or leveraged lender 
entity, who would actually be the borrower as defined under this part.
    (iii) For purposes of calculating borrower equity in compliance 
with this notice, the leveraged lender entity's note from the investor 
fund may be considered a tangible asset and when the lien associated 
with the sub-CDE's loan is subordinated, the principal balance of the 
sub-CDE's loan made to the QALICB from NMTC investor funds may be 
considered as equity.
    (iv) The loan terms of this notice apply to both the borrower and 
the QALICB. The maturity and related payment schedule of the lender's 
guaranteed loan to the borrower must be no longer than the maturity and 
related payment schedule of the sub-CDE's loan to the QALICB. An Agency 
approved unequal or escalating schedule of principal and interest 
payments can be used for a NMTC loan. The lender may require additional 
principal repayment by a co-borrower, such as an owner or principal 
participant of the QALICB. Notwithstanding the provisions in Section 
C.(g)(3), the Agency may consider interest-only payments by a borrower 
pursuant to an interest-only term not to exceed seven years on a loan 
made under an NMTC structure if the lender requires:
    (A) A debt repayment reserve fund or sinking fund in an amount at 
least equal to the guaranteed loan's principal amortization that would 
have otherwise applied to the loan if equally amortized payments were 
collected during the seven-year term; and
    (B) Such reserve funds or sinking funds are applied to the 
guaranteed loan as an additional payment of principal at the end of 
such interest-only term.
    (v) The credit factors of this notice apply to both the lender's 
guaranteed loan to the borrower and the sub-CDE's loan to the QALICB. 
The collateral provisions of this notice apply only to the sub-CDE's 
loan to the QALICB.
    (vi) The personal, partnership and corporate guarantee provisions 
of this notice apply when the guaranteed loan borrower is a leveraged 
lender entity in an NMTC project. Guaranteed loans made directly to an 
investor fund entity as the borrower do not require a personal, 
partnership, or corporate guarantee from the investor fund entity's 
owner, who is the NMTC tax credit investor and considered a passive 
investor. The Agency shall obtain the personal, partnership or 
corporate guarantee from the QALICB ownership for a guaranteed loan to 
an investor fund entity, subject to the eligibility requirements of the 
NMTC program. The Agency may require additional personal, partnership 
or corporate guarantees if warranted by an Agency evaluation of 
potential financial risk.
    (vii) The insurance provisions of this notice apply only to the 
QALICB and the sub-CDE's secured loan to the QALICB.
    (viii) The financial reporting provisions of this notice apply to 
both the borrower and the QALICB.
    (ix) The application requirements of this notice, as applicable, 
apply to both the borrower and the QALICB, including the application 
analysis and evaluation components. The Agency also requires submission 
of the loan terms and documents between the sub-CDE and QALICB. As part 
of the application completed by the lender, the documentation must 
include comparable industry information and a summary of the NMTC 
project's funding path and an explanation of the relationships between 
all parties in the NMTC transaction (an accompanying schematic is 
encouraged for complicated transactions).
    (x) The environmental responsibilities specified in this notice 
apply to the NMTC project.

[[Page 70097]]

    (xi) For any application that the Agency assigns a priority score, 
when assigning the priority score to a NMTC loan application, the 
Agency will score the project based on the entire NMTC structure and 
the QALICB's project as the ultimate use of guaranteed loan funds.
    (xii) The lender is responsible for ensuring that the NMTC project 
complies with the planning, performing, development and project 
monitoring provisions of this notice and the lender is also responsible 
for ensuring the NMTC project complies with all applicable Treasury 
NMTC requirements.
    (xiii) The interest rate and loan term provisions of this notice 
apply to both the borrower and the QALICB in a NMTC transaction.

D. Application and Submission Information

    (a) Address to Request Application Package.
    (1) Lenders should download the application documents and 
requirements delineated in this notice from: https://www.rd.usda.gov/foodsupplychainloans.
    (2) Applications will only be accepted electronically as provided 
at https://www.rd.usda.gov/foodsupplychainloans. Lenders may use an 
existing Unique Entity Identifier (UEI) (obtained at https://sam.gov/) 
and eAuthentication Customer Account to file an application. To apply 
electronically:
    (i) Obtain and register for a UEI at https://sam.gov/ as described 
in Section H.(e)(2) of this notice;
    (ii) Create a Level 2 USDA eAuthentication Customer Account at 
https://www.eauth.usda.gov/eauth/b/usda/home; and,
    (iii) Request access to apply electronically by emailing a written 
request with a complete Account and User Creation form (available at 
https://www.rd.usda.gov/foodsupplychainloans) to 
[email protected].
    (3) An autoreply email message will acknowledge receipt of your 
request. Please allow at least two business days for its processing. If 
you do not receive an email message within that timeframe, please check 
your Spam folder;
    (4) Upon approval, a lender's authorized/rightful users will each 
receive an email from [email protected], with instructions 
to access the system.
    (b) Content and Form of Application Submission.
    The lender may complete either a request for preliminary 
eligibility review or a full application to begin the process for 
obtaining a guaranteed loan. The Agency encourages, but does not 
require, lenders to file requests for preliminary eligibility reviews 
in order to obtain Agency comments before submitting a full 
application.
    (1) Preliminary eligibility review.
    (i) Contents. Except as otherwise indicated, each request for a 
preliminary eligibility review must contain the material identified in 
paragraphs (A) and (B) of this section. This information may be 
submitted in a narrative format or utilizing the lender's preliminary 
lender's analysis or preliminary credit memo. The borrower's executive 
summary and feasibility study should be included for a full application 
under this notice.
    The lender will initiate the environmental review process early in 
the planning stage and should be alert for projects that may have a 
significant impact on the environment.
    (A) Regardless of format, the lenders must provide the following 
information:
    (1) Name of the proposed borrower and co-borrower(s) as applicable, 
organization type, address, contact person, email address, and 
telephone number and whether the proposed borrower or co-borrower is a 
member of a socially disadvantaged group;
    (2) Name of the proposed lender, address, telephone number, contact 
person, email address;
    (3) Amount of the guaranteed loan request, the percentage of 
guarantee requested (if known), the proposed rates and terms of the 
guaranteed loan, and the source(s) of other funding;
    (4) If known, a description of collateral to be offered with 
estimated value(s), identity of guarantors, and the amount and source 
of equity, other capital, and matching funds to be contributed to the 
project; and
    (5) A brief description of the project, its location, products, or 
services provided, service area, and, as applicable, availability of 
raw materials and supplies, including an explanation of the impact the 
project will have on increasing capacity and helping create a more 
resilient, diverse, and secure U.S. food supply chain.
    (B) Sufficient information and documentation to enable the Agency 
to assess borrower, lender, and project eligibility, including 
summaries or spreadsheets of financial statements or audits, 
relationships and identity of any affiliates; copies of organizational 
documents and organizational charts; and existing debt instruments.
    (ii) Assessment. Based on the information submitted for the 
preliminary eligibility review, the Agency will make an informal 
assessment of the types of guarantee funding applicable to the request, 
and the eligibility of the borrower, project, and lender. The Agency 
will provide written informal comments. The assessment may change based 
on subsequently submitted information, is solely advisory in nature, 
does not obligate the Agency to approve a guarantee request, and is not 
considered a favorable or adverse decision by the Agency.
    (2) Full Applications.
    The Agency will accept applications on a continuous basis. For each 
loan guarantee request, the lender must submit to the Agency a complete 
application as specified in paragraphs (i) through (xv) of this 
section. Lenders must submit complete applications in order to be 
considered for loan guarantees. Lenders are encouraged to submit a 
complete application in a single package; however, the Agency may 
accept the environmental information required by the Agency and 
initiate and complete its environmental reviews in advance of receiving 
a complete application. Materials and information submitted for a 
preliminary eligibility review do not need to be resubmitted, however, 
any such materials and information that have been revised or updated 
must be resubmitted in full. If an application is incomplete, the 
Agency will notify the lender in writing of the items necessary to 
address the incomplete application. Upon receipt of a complete 
application, the Agency will complete its evaluation.
    (i) Agency-approved application form.
    (ii) Credit evaluation, conforming to Lender's Credit Evaluation at 
Section D.(c) of this notice.
    (iii) Environmental information required by the Agency in 
accordance with 7 CFR 1970, ``Environmental Policies and Procedures,'' 
to conduct its environmental reviews.
    (iv) Financial statements.
    (A) Current Agency-acceptable balance sheet and year-to-date income 
statements of the borrower, affiliated entities with business 
relationships, and any guarantor(s) dated within 90 days of submission 
of the complete application.
    (B) Agency-acceptable historical balance sheet, income statements, 
and cash flow statements of the borrower for the lesser of the last 
three fiscal years or all years of operation; and
    (C) Projected balance sheets, income statements, and cash flow 
statements or a financial model starting from the current financial 
statements through a minimum of two years of the project performing at 
full operational capacity or stable operations. Based on the type

[[Page 70098]]

of project or at the discretion of the Agency, financial projections or 
models may be required from current financial statements up to the end 
of the term of the guaranteed loan. Financial projections must be 
supported by a list of assumptions showing the basis for the 
projections. Projected financial statements must include a pro forma 
balance sheet projected for guaranteed loan closing.
    (D) Operational cash flow projections on a quarterly basis from the 
current financial statements through start-up or occupancy for projects 
involving construction when lenders are requesting the loan note 
guarantee prior to completion of construction.
    (E) The Agency may request additional financial statements, 
financial models, cash flow information, updated financial statements, 
and other related financial information to determine the financial 
feasibility of a project and evaluate the credit underwriting of the 
borrower, its affiliates, and any guarantors.
    (v) Identify whether the borrower has a known relationship or 
association with an Agency employee. If there is a known relationship, 
identify each Agency employee with whom the borrower has a known 
relationship.
    (vi) Current credit reports or the equivalent on the borrower, any 
payment guarantors and any person or entity owning greater than a 20 
percent or more interest in the borrower or controls the borrower, 
except for passive investors and those corporations listed on a major 
stock exchange. A credit report or its equivalent are not required for 
elected and appointed officials when the borrower is a public body, or 
Indian Tribe, or for members of a non-profit organization. Credit 
reports must be submitted to the Agency for all applications for 
guaranteed loans in the amount of $200,000 or more. For lenders that 
are submitting smaller requests, the lender must keep the credit report 
on file with the lender's application.
    (vii) Executive Summary. The executive summary must include a 
description of the business and project; the names of any corporate 
parent, affiliates, and subsidiaries with a description of the 
relationship; description of how the project will increase the capacity 
or make the food supply chain more resilient, diverse, or secure; and 
address how the borrower or project, as applicable, meet the criteria 
for priority scoring as described in section E.(c)(4) of this notice.
    (viii) Organizational documents.
    (ix) For companies listed on a major stock exchange or subject to 
the Securities and Exchange Commission regulations, a copy of SEC Form 
10-K, ``Annual Report Pursuant to sections 13 or 15(d) of the 
Securities Exchange Act of 1934.''
    (x) Intergovernmental consultation comments in accordance with RD 
Instruction 1970-I and 2 CFR part 415, subpart C, or successor 
regulation, unless exemptions have been granted by the State single 
point of contact. Applications from Federally recognized Indian tribes 
are not subject to this requirement.
    (xi) Borrowers must provide evidence of compliance with applicable 
authorities. Borrowers engaged in processing of meat, poultry, 
processed egg products, and Siluriformes must comply with the 
requirements of the U.S. Department of Agriculture (USDA) Food Safety 
and Inspection Service. Borrowers engaged in processing of other foods 
and food ingredients must comply with the requirements of the Food and 
Drug Administration. All borrowers must also be in compliance with 
requirements of state and local governments.
    (xii) At the time of the loan application, the lender must submit 
its loan classification and credit risk rating classification scale.
    (xiii) A feasibility study of the proposed project, by a qualified 
consultant, is required. At a minimum, a feasibility study must include 
an evaluation of the economic, market, technical, financial, and 
management feasibility and an executive summary that reaches an overall 
conclusion as to the business' chance of success. The feasibility study 
must consider the borrower's management experience; sources of capital; 
products, services, and pricing; marketing plan; proposed use of loan 
funds; availability and access to labor, raw materials including 
animals and product, and supplies; availability or access to necessary 
infrastructure including water and waste disposal; worker and food 
safety plans; contracts in place; and distribution channels. The 
feasibility study should address and quantify how the project will 
increase capacity or make the food supply chain more resilient, 
diverse, or secure. For proposed financing activities involving beef, 
pork, chicken, or turkey processing, corroborate that the borrower 
meets the borrower eligibility provisions and self-certify that the 
borrowers, their affiliated entities, and entities providing processing 
services through contractual, lease or service agreements with the 
borrower, do not at the time of application hold a market share greater 
than or equal to the entity that holds the fourth largest share of the 
market for the species subject to the proposed financing.
    (xiv) Appraisals of collateral are required as set forth in this 
section. The lender is responsible for ensuring that appraisal values 
adequately reflect the actual value of the collateral based on an arm's 
length transaction. Completed appraisals should be submitted when the 
application is filed. If the appraisal has not been completed when the 
application is filed, the lender must submit an estimated appraised 
value. Prior to the issuance of the loan note guarantee, the estimated 
value must be supported with an appraisal acceptable to the agency.
    (A) Newly-acquired chattel. A bill of sale may be submitted to 
support the value of newly-acquired chattel.
    (B) Existing chattel. The lender must obtain appraisal(s) for 
existing chattel collateral when its value exceeds $250,000.
    (C) Real estate. The lender must obtain appraisals for real estate 
collateral when the value of the collateral exceeds $500,000 or the 
current limitation established under the Financial Institutions Reform, 
Recovery, and Enforcement Act (FIRREA) Public Law 101-73, 103 Stat. 183 
(1989). Real estate and chattels with a value below these thresholds 
must be evaluated in accordance with the lender's primary regulator's 
policies relating to appraisals and evaluations or, if the lender is 
not regulated, in accordance with normal banking practices and 
generally accepted methods of determining value.
    (D) Construction Project. For construction projects, the lender 
must:
    (1) Obtain the ``As Is'' market value and the ``prospective'' 
market value as of the date of construction completion to determine the 
value of the real estate property, or
    (2) Obtain an income-based appraisal as of the date of completion 
to determine the value of revenues to be generated by the real estate.
    (E) Appraisal standards.
    (1) Each real estate appraisal must be conducted by an independent 
qualified appraiser in accordance with the Uniform Standards of 
Professional Appraisal Practice (USPAP) or successor standards. All 
real estate appraisals must meet the requirements contained in the 
FIRREA, and the appropriate guidelines contained in Standards 1 and 2 
of the USPAP and be performed by a State Certified General Appraiser 
licensed in the state in which the real estate is located.
    (2) Chattel appraisals must be conducted by an independent 
qualified appraiser and must be based on industry

[[Page 70099]]

recognized standards and reflect the age, condition, and remaining 
useful life of the equipment.
    (F) Interagency appraisal and evaluations guidelines. 
Notwithstanding any exemption that may exist for transactions 
guaranteed by a Federal Government agency, all appraisals obtained by 
the lender under this part must conform to the interagency appraisal 
and evaluations guidelines established by the lender's primary Federal 
or State regulator, if applicable.
    (G) Environmental considerations. When the Agency will take a lien 
on real property, the real estate appraisals must include consideration 
of the potential effects from a release of hazardous substances or 
petroleum products or other environmental hazards on the market value 
of the collateral, as determined in accordance with the appropriate 
American Society for Testing and Materials (ASTM) International Real 
Estate Assessment and Management environmental standards.
    (H) Appraisal review report. The lender must submit its complete 
technical review of the appraisal in an appraisal review report 
prepared in compliance with USPAP Standards 3 and 4 to the Agency 
before guaranteed loan closing.
    (1) Appraisals must not be more than one year old. However, the 
Agency may request a more recent appraisal in order to reflect more 
current market conditions.
    (2) The lender must provide documentation demonstrating that, in 
addition to the other requirements of this section pertaining to 
appraisers, the appraiser has the necessary experience and competency 
to appraise collateral.
    (I) Appraisal fees. Unless otherwise stated in this part, appraisal 
fees or any other associated costs will not be paid by the Agency.
    (xv) Any additional information required by the Agency to complete 
its evaluation.
    (c) Lender's Credit Evaluation
    The lender is responsible for originating a guaranteed loan in 
accordance with the requirements of this notice and in accordance with 
its internal origination policies and procedures to the extent they do 
not conflict with the requirements of this part. For each application, 
the lender must prepare a credit evaluation that is consistent with 
Agency standards found in this notice. The Agency reserves the right to 
review the lender's credit evaluation and request additional 
information. Lender approval does not constitute Agency approval.
    (1) Lender's evaluation guidelines. The lender must conduct a 
credit evaluation using credit documentation procedures and 
underwriting processes that are consistent with generally accepted 
prudent lending practices for commercial, public and project financing, 
and are also consistent with the lender's own policies, procedures, and 
lending practices. The underwriting process must include a review of 
each loan for which a loan guarantee is being sought under this notice. 
Applications involving affiliated entities must include a global credit 
evaluation and if applicable a global historical and projected debt 
service coverage analysis. The analysis should evaluate the 
relationships between all associated parties to determine potential 
risks which may affect the borrower and its ability to repay the loan. 
Entities which may have an impact on the borrower or significantly 
contribute to the repayment ability of the loan should provide 
financials for global analysis. Applications involving guarantor(s) 
must also include a global debt service coverage analysis of the 
guarantor(s) including the cash flow of the guarantor(s). In addition, 
the lender must review all applicable contracts, management agreements, 
and leases to determine they will not adversely affect either the 
borrower's repayment ability or the value of the collateral securing 
the guaranteed loan. The lender's evaluation must address any financial 
or other credit weaknesses of the borrower and project and discuss risk 
mitigation requirements imposed by the lender.
    (2) Content. The credit evaluation must be sufficiently detailed to 
describe the proposed loan, business and project structures and 
document that the proposed loan is feasible. The credit evaluation must 
include:
    (i) A written evaluation of each credit factor listed in paragraphs 
(3)(i) through (v) of this section and any additional factors as 
appropriate;
    (ii) A written evaluation of the feasibility study, executive 
summary, technical report, and engineering and architectural reports, 
as applicable;
    (iii) Spreadsheets and analysis of the financial statements 
provided in accordance with the Application and Submission Information, 
with appropriate ratios and comparisons with industry standards (such 
as Dun & Bradstreet or the Risk Management Association). The 
spreadsheets should enable a reviewer to easily scan the data, spot 
trends, and make comparisons. The analysis should include comments on 
the business' performance trends comparison to the industry averages 
and steps or proposals the borrower has taken to address any financial 
or industry weakness;
    (iv) Analysis of any financial projections deviating from 
historical financial performance and such projections must be 
substantiated and documented;
    (v) Analysis of projected operational cash flow on a quarterly 
basis for borrowers with seasonal cyclical cash flow; and
    (vi) Analysis of operational cash flow on a quarterly basis from 
the current financial statements through start-up or occupancy for 
projects involving construction when lenders are requesting the loan 
note guarantee be issued prior to completion of construction. The 
analysis should address the borrower's construction schedule and 
address their projected cash flow needs as the project is being 
completed. The cash flow analysis must indicate whether this cash flow 
is being provided by the guaranteed loan, borrower equity, or other 
sources.
    (3) Credit factors. In performing its credit evaluation, the lender 
must analyze all credit factors associated with each proposed 
guaranteed loan and apply its professional judgment to determine that 
the credit factors and guaranteed loan terms and conditions, considered 
in combination, ensure guaranteed loan repayment. Credit factors to be 
analyzed include, but are not necessarily limited to, those areas 
identified and defined in paragraphs (3)(i) through (v) of this 
section.
    (i) Character. Those qualities that generally impel the borrower to 
meet its obligations as demonstrated by its credit history, including 
project and borrower debt structure and debt repayment ability. When 
applicable, an evaluation may include the character of persons with 
management control or a 20 percent or more ownership interest in the 
borrower. When the borrower's credit history or character is negative, 
the lender will provide the basis for the resolution of any issue and 
why it is unlikely to impact future financial results. The ownership or 
membership structure of the project and borrower (including membership, 
sponsors, other equity investors), and the historical performance and 
experience of ownership and management specific to the project and 
industry. The historical performance and experience of any entities 
providing management or administrative services pursuant to contract 
should also be evaluated.
    (ii) Capacity. A borrower's ability to produce sufficient cash to 
repay the guaranteed loan as agreed, including the feasibility and 
likelihood of the project and borrower to produce sufficient

[[Page 70100]]

revenues to service the project's debt obligations over the life of the 
guaranteed loan and, when applicable, result in sufficient returns to 
investors to ensure successful repayment of the guaranteed loan. The 
lender shall address any economic safeguards of the project, including 
capital expenditure budgeting or reserve funds and other contingency 
reserve funds such as maintenance reserve funds or debt service reserve 
funds, intended to protect and safeguard the Agency and lender in the 
event of default. The lender must make all efforts to:
    (A) Ensure that the borrower has adequate working capital, 
operating capital and reserves for capital expenditures, debt service, 
and maintenance as applicable; and
    (B) Structure or restructure debt so the borrower has adequate debt 
coverage, documenting as applicable the necessity of any debt 
refinancing. The evaluation will be supported by a cash flow analysis.
    (iii) Capital. The borrower must have the resources to adequately 
capitalize the project and demonstrate the ability to generate and 
maintain sufficient cash flow for its operations. The extent to which 
project costs are funded by the borrower in relation to project costs 
funded by the guaranteed loan or other Federal and non-Federal 
governmental assistance such as grants, tax credits, or other loans 
must be analyzed.
    (iv) Collateral. This criterion refers to the security pledged for 
the guaranteed loan. The lender is responsible for obtaining and 
maintaining proper and adequate collateral for the guaranteed loan. All 
collateral must secure the entire guaranteed loan. The lender is 
prohibited from taking separate collateral for the guaranteed and 
unguaranteed portions of the guaranteed loan or requiring compensating 
balances or certificates of deposit as a means of eliminating the 
lender's exposure on the unguaranteed portion of the guaranteed loan. 
Collateral can include but is not limited to: General obligation bonds; 
revenue bonds; pledges of taxes or assessments; assignments of facility 
revenue and byproduct revenue, as well as other assets such as land, 
easements, rights-of-way, water rights, buildings, machinery, 
equipment, inventory; and accounts receivable, other accounts, 
contracts, cash, assignments of leases and leasehold interests. 
Intangible assets may serve as collateral, provided they do not serve 
as primary collateral and are no more than 25 percent of the overall 
collateral package being pledged as security for the guaranteed loan. 
For purposes of determining compliance with this requirement, leasehold 
improvements such as buildings and other structures on leased property 
are considered tangible assets and can serve as primary collateral. It 
is the lender's responsibility to obtain, document, file, record and 
take all actions necessary to properly perfect and maintain adequate 
collateral to protect the interests of the lender and the Agency.
    (A) The lender must determine the market value of collateral as 
established by an appraisal in accordance with Section D.(b)(2)(xiv) of 
this notice.
    (B) The lender should discount collateral consistent with sound 
loan-to-discounted value practices which must be adequate to secure the 
guaranteed loan in accordance with this section. To assess collateral 
adequacy and appropriate levels of discounting, the lender should 
consider the type, quality, location, marketability, and alternative 
uses of the collateral and the basis for the valuation of the 
collateral, e.g., collateral valued on a cost or replacement valuation, 
market or comparable sales valuation may require variance of discount 
factors. The lender must provide satisfactory justification of the 
discounts being used.
    (v) Conditions. This factor refers to the general business 
environment, including the regulatory environment affecting the 
business or industry, and status of the borrower's industry. 
Consideration will be given to items listed below and, when applicable, 
the lender should submit supporting documentation (e.g., feasibility 
study, market study, preliminary architectural or engineering reports, 
etc.):
    (A) Availability and depth of resource or feedstock market, 
strength and duration of purchase agreements and availability of 
substitutes;
    (B) Analysis of current and future market potential, off-take 
agreements, competition, and type of project (service, product, or 
commodity based);
    (C) Energy infrastructure, availability and dependability, 
transportation and other infrastructure, and environmental 
considerations;
    (D) Technical feasibility including demonstrated performance of the 
technology and integrated processing equipment and systems, system 
performance guarantees by the developer, and availability of technology 
performance insurance;
    (E) Complexity of construction and completion, terms of 
construction contracts and experience and financial strength of the 
construction contractor or engineering, procurement and construction 
(EPC) contractor;
    (F) Contracts and intellectual property rights, licenses, permits, 
and state and local regulations;
    (G) Creditworthiness of any counterparties, as applicable;
    (H) Industry-related public policy issues; and
    (I) Other criteria that the lender or Agency deems relevant to the 
project.
    (d) Intergovernmental Review.
    Executive Order (E.O.) 12372, ``Intergovernmental Review of Federal 
Programs,'' applies to this program. This E.O. requires that Federal 
agencies provide opportunities for consultation on proposed assistance 
with State and local governments, including, a county, municipality, 
town, township, village, or other unit of general government, including 
tribal governments, below the State level. Many states have established 
a Single Point of Contact (SPOC) to facilitate this consultation. For a 
list of States that maintain an SPOC, please see the White House 
website: https://www.whitehouse.gov/omb/management/office-federal-financial-management/. If your State has an SPOC, you may submit a copy 
of the application directly for review. Any comments obtained through 
the SPOC must be provided as part of your application. Applications 
from Federally recognized Indian tribes are not subject to this 
requirement.

E. Application Review Information

    (a) General. The Agency will evaluate all applications according to 
the provisions of this part and may require the lender to obtain 
additional assistance in those areas where the lender does not have the 
necessary expertise to originate or service the guaranteed loan.
    (b) Evaluation and eligibility determinations. The Agency will 
review each complete application to make a formal determination as to 
the eligibility of the borrower, lender, project, and guaranteed loan 
purpose and proposed use of funds; whether there is a reasonable 
assurance of repayment ability; whether sufficient collateral and 
equity exists; whether the proposed guaranteed loan complies with all 
applicable statutes and regulations; and whether the environmental 
review is complete.
    (1) If the Agency's evaluation and determination in accordance with 
this paragraph (b) is favorable, the Agency will proceed in accordance 
with paragraph (c) of this section.
    (2) If the Agency's evaluation and determination in accordance with 
this paragraph (b) is unfavorable, the Agency will notify the lender, 
in writing, identifying the reason(s) for determining ineligibility and 
any applicable appeal or review rights. No further processing of the 
application will occur. If the

[[Page 70101]]

Agency determines it is unable to guarantee the loan, it will inform 
the lender in writing.
    (c) FSC guaranteed loan priority scoring
    (1) The Agency will consider applications in the order they are 
received by the Agency; however, for the purpose of assigning priority 
points as described in this paragraph, the Agency will compare an 
application to other pending applications that are competing for 
funding.
    (2) When applications on hand otherwise have equal priority, the 
Agency will give preference to applications for guaranteed loans from 
qualified veterans.
    (3) The Agency will consider applications as they are submitted. If 
available funding is less than what is requested by applications under 
consideration, the Agency will score each eligible application based on 
the point system described below.
    (4) A maximum of 115 points can be awarded in the following 
categories:
    (i) Applicants receive 8 priority points if the project is located 
in or serving one of the top 10% of counties or county equivalents 
based upon county risk score as listed in the COVID-19 Economic Risk 
Assessment Dashboard and according to guidance at https://www.rd.usda.gov/priority-points.
    (ii) Applicants receive 8 priority points if the project is located 
in or serving a community with score 0.75 or above on the CDC Social 
Vulnerability Index and according to guidance at https://www.rd.usda.gov/priority-points.
    (iii) Applicants will receive 8 priority points for either (A) or 
(B), according to guidance at https://www.rd.usda.gov/priority-points.
    (A) Applicants will receive points if the project is located in or 
serving coal, oil and gas, and power plant communities whose economic 
well-being ranks more than 80 on the Distressed Communities Index.
    (B) Applicants will receive points by demonstrating through written 
narrative how proposed climate-impact projects improve the livelihoods 
of community residents and meet pollution mitigation or clean energy 
goals.
    (iv) Applicants will receive 5 priority points if the project is 
located in a city or county with a current unemployment rate, as 
determined by the Department of Labor, of 125 percent of the State-wide 
rate or greater. Or, for projects located in certain territories that 
may not have unemployment rates by localities, the applicant will 
receive priority points if the applicant's proposed service area has an 
unemployment rate exceeding 125 percent of the national unemployment 
rate as determined by the Bureau of Labor Statistics. The national 
unemployment rate may be found at https://www.bls.gov/cps.
    (v) Applicants will receive 5 priority points if the project is 
located within the boundaries of a federally recognized Indian Tribe's 
reservation, within Tribal trust lands, or within land owned by an 
Alaska Native Regional or Village Corporation as defined by the Alaska 
Native Claims Settlement Act.
    (vi) Applicants will receive 20 priority points if the industry is 
not already present in the local community.
    (vii) Applicants will receive 21 priority points if the business is 
locally owned and managed. (The primary residence of the applicant must 
be located within the normal commuting area of the guaranteed loan 
project.)
    (viii) Applicants will receive 15 priority points if the project 
creates or saves a minimum of five permanent jobs with an average wage 
exceeding 200 percent of the Federal minimum wage.
    (ix) Applicants will receive 10 priority points if the business 
offers a healthcare benefits package to all employees and pays at least 
50 percent of the healthcare premium.
    (x) Applicants receive 15 priority points if the borrower ensures 
and certifies to the lender that all laborers and mechanics employed by 
contractors or subcontractors in the performance of construction work 
financed in whole or in part with guaranteed loan funds under this 
Notice are paid wages at rates not less than those prevailing on 
similar construction in the locality as determined by the Secretary of 
Labor in accordance with sections 3141 through 3144, 3146, and 3147 of 
title 40, U.S.C. Loans guaranteed under this Notice for applicants that 
receive such priority points are further subject to the relevant 
regulations contained in 29 CFR part 5.

F. Federal Award Administration Information

    (a) Conditional commitment
    (1) Approval. Upon approval of a loan guarantee the Agency will 
issue a ``Conditional Commitment'' to the lender, containing conditions 
under which a loan note guarantee will be issued. No conditional 
commitment can be issued until the loan is obligated. If a loan note 
guarantee is not issued by the conditional commitment expiration date, 
the conditional commitment may be extended at the request of the lender 
pending approval of the Agency and only if there has been no material 
adverse change in the borrower or the borrower's financial condition 
since issuance of the conditional commitment. If the conditional 
commitment is not accepted, the conditional commitment may be 
withdrawn, and funds may be de-obligated in accordance with F.(a)(4) of 
this notice. Likewise, if the conditional commitment expires, funds may 
be de-obligated in accordance with section F.(a)(5) of this notice.
    (i) Upon acceptance of the conditional commitment, the lender 
agrees not to modify the scope of the project, overall facility 
concept, project purpose, use of guaranteed loan funds, or other terms 
and conditions without Agency written concurrence in accordance with 
section F.(a)(5) of this notice.
    (ii) If the lender decides at any time after receiving a 
conditional commitment that it no longer wants a loan guarantee, the 
lender must immediately advise the Agency of the cancellation in 
writing. Upon written notification from the lender, the Agency will de-
obligate the funds associated with the conditional commitment.
    (2) Content. The conditional commitment will contain the terms 
required for issuing a loan note guarantee, including but not limited 
to:
    (i) Approved use of guaranteed loan funds and all project funds 
(sources and uses of funds);
    (ii) Rates and terms of the loan;
    (iii) Loan agreement terms including, but not limited to:
    (A) Repayment terms and amortization provisions of the guaranteed 
loan;
    (B) Description of real property collateral, list of other 
collateral and identification of the lender's lien priority in the 
collateral;
    (C) Identification of persons and entities guaranteeing payment of 
the guaranteed loan and their percentage of guarantee;
    (D) Type and frequency of the financial statements to be provided 
by the borrower and guarantor during the term of the guaranteed loan 
(guarantor statements must be updated at least annually);
    (E) Prohibition against borrower assuming liabilities or 
obligations of others;
    (F) Limitations on borrower dividend payments and compensation of 
officers, owners, and members of borrower;
    (G) Limitations on the purchase and sale of equipment and other 
fixed assets;
    (H) Restrictions on mergers, consolidations, or sales of the 
business, project, or guaranteed loan collateral without the 
concurrence of the lender;
    (I) Limitations on significant management changes without the 
concurrence of the lender;

[[Page 70102]]

    (J) Maximum debt-to-net worth ratio or other test for leverage as 
required by lender;
    (K) Minimum debt service coverage ratio or other cash coverage test 
as required by the lender;
    (L) Requirements imposed by the Agency in its conditional 
commitment;
    (M) Agency environmental requirements;
    (N) Requirement for the lender and the Agency to have reasonable 
access to the project including access for periodic inspections of the 
project by a representative of the lender or the Agency; and
    (O) Requirement for the borrower to provide the lender and the 
Agency performance information during the term of the guaranteed loan.
    (iv) Loan closing requirements;
    (v) Lender and borrower certifications;
    (vi) Collateral and lien position requirements; and
    (vii) Other requirements necessary to protect the Agency.
    (3) Change requests. The lender can request, in writing, changes to 
the conditional commitment with justification. The Agency can deny, 
solely at its discretion, changes to the conditional commitment even if 
the changes are otherwise in compliance with this part. All changes to 
the conditional commitment must be documented by written amendment to 
the conditional commitment executed by all parties.
    (4) Acceptance or withdrawal of conditional commitment. The lender 
and borrower must complete and sign the conditional commitment and 
return a copy to the Agency within 60 days. If the conditional 
commitment is not accepted by both the lender and borrower within 60 
days, the conditional commitment becomes null and void and the Agency 
will withdraw the conditional commitment and de-obligate the associated 
funds.
    (5) Modification, and expiration of conditional commitment. The 
conditional commitment issued by the Agency will be effective for a 
period of one year or sufficient time to complete the guaranteed loan 
project prior to loan closing. The lender must submit a written request 
to the Agency to extend the conditional commitment at least 30 days 
prior to its expiration date and obtain Agency approval for the 
extension. The Agency will consider this request only if no material 
adverse changes in the borrower or the borrower's financial condition 
have occurred since issuance of the conditional commitment. If a 
conditional commitment expires, the Agency will notify the lender in 
writing and may de-obligate the funds. Any additions or modifications 
to conditions stated in the original conditional commitment must be 
agreed upon between the lender, the borrower, and the Agency.
    (b) Changes prior to loan closing.
    (1) Change in borrower prior to closing. Any change in borrower 
ownership or organization prior to the issuance of the loan note 
guarantee must meet the applicable guaranteed program's eligibility 
requirements and must be approved by the Agency.
    (2) Transfer to new lender prior to issuance of the loan note 
guarantee. Prior to issuance of the loan note guarantee, a lender can 
request a transfer of an outstanding conditional commitment to a new 
lender by providing the Agency with a letter from the lender, the 
borrower, and the proposed new lender. The request must include the 
reason(s) the current lender no longer desires to be the lender for the 
project.
    (i) The Agency may approve the transfer from the current lender to 
the proposed new lender provided the new proposed lender is an eligible 
lender (see H.(e)(1) and (2) of this notice) and no material adverse 
changes have occurred in the:
    (A) Ownership, control, or legal structure of the borrower; and
    (B) Borrower's written plan, scope of work, or the purpose or 
intent of the project.
    (ii) The Agency will determine if the proposed new lender is 
eligible in accordance with this notice prior to approving the transfer 
of lender. The new lender must execute a new application form and a 
lender's agreement (unless the new lender already has a valid lender's 
agreement with the Agency) and must complete a new credit evaluation in 
accordance with this notice. The Agency may require the new lender to 
provide other updated application items as specified by the Agency.
    (iii) If the Agency approves the transfer to the new lender, the 
Agency will issue a letter of amendment to the original conditional 
commitment reflecting the new lender who must acknowledge acceptance of 
the amended conditional commitment in writing.
    (c) Loan closing and conditions precedent to issuance of loan note 
guarantee.
    (1) The lender must not close the guaranteed loan until all 
conditions of the conditional commitment are met. The lender will 
provide the Agency a draft of the loan agreement for pre-closing review 
and may provide the Agency draft loan documents for the Agency's 
concurrence that all conditions of the conditional commitment are met 
or will be met.
    (2) Simultaneously with or immediately after the guaranteed loan 
closing, the lender must provide to the Agency the following forms and 
documents:
    (i) An executed lenders agreement, unless a lenders agreement 
executed under this notice was previously submitted to the Agency;
    (ii) An Agency-approved, ``Guaranteed Loan Closing Report'';
    (iii) A copy of each executed promissory note and collateral 
security documents;
    (iv) A copy of the executed final loan agreement, which must 
include any additional requirements imposed by the Agency in the 
conditional commitment;
    (v) The original, executed Agency-approved guarantee form(s) for 
any required personal, partnership or corporate guarantees;
    (vi) The borrower's loan closing balance sheet, if required;
    (vii) For loans to public bodies, an opinion from recognized bond 
counsel regarding the adequacy of the preparation, issuance, and 
enforceability of the debt instruments;
    (viii) Any other documents required to comply with applicable law 
or required by this part, the conditional commitment, or the Agency; 
and
    (ix) When requesting issuance of a loan note guarantee, the lender 
must certify to each condition identified in paragraphs 
(c)(2)(ix)(D)(1) through (23) of this section, as applicable.
    (A) In making its certification, the lender can rely on certain 
written materials (e.g., certifications, evaluations, appraisals, 
financial statements, and other reports) provided by the borrower or 
other qualified third parties (e.g., independent engineers, appraisers, 
accountants, attorneys, consultants, or other experts).
    (B) If the lender is unable to provide any of the certifications 
required under this section, the lender must provide an explanation 
satisfactory to the Agency.
    (C) The lender must certify, in accordance with this notice that 
the capital/equity requirement was determined, based on a balance sheet 
prepared in accordance with GAAP, and met, as of the date the 
guaranteed loan was closed, giving effect to the entirety of the loan 
in the calculation, whether or not the loan itself is fully advanced. A 
copy of the loan closing balance sheet must be included with the 
lender's certification;

[[Page 70103]]

    (D) The lender may request the loan note guarantee be issued prior 
to construction in accordance with this notice; however, the lender 
must still certify to all applicable conditions of this notice and the 
following:
    (1) All requirements of the conditional commitment have been met; 
and
    (2) The financial criteria specified in this notice and any 
financial criteria contained in the conditional commitment were:
    (i) Determined in accordance with any applicable requirements in 
this notice; and
    (ii) Have been maintained through the issuance of the loan note 
guarantee. Failure to maintain or attain the minimum financial criteria 
will result in the Agency not issuing a loan note guarantee;
    (3) The capital/equity requirement was determined, based on a 
balance sheet prepared in accordance with GAAP, and met, as of the date 
the guaranteed loan was closed, giving effect to the entirety of the 
loan in the calculation, whether or not the loan itself is fully 
advanced. A copy of the loan closing balance sheet must be included 
with the lender's certification;
    (4) No major changes have been made in the applicant, project or 
lender's loan conditions or requirements since the issuance of the 
conditional commitment, unless such changes have been approved by the 
Agency;
    (5) There has been neither any material adverse change in the 
borrower's financial condition nor any other material adverse change in 
the borrower during the period of time from the Agency's issuance of 
the conditional commitment to issuance of the loan note guarantee 
regardless of the cause or causes of the change and whether or not the 
change or causes of the change were within the lender's or borrower's 
control;
    (6) The borrower is a legal entity in good standing with its 
regulator (as applicable) and operating in accordance with the laws of 
the State(s) or Tribe where the borrower was organized or has a place 
of business;
    (7) The borrower meets the eligibility requirements as outlined in 
this notice.
    (8) There is a reasonable prospect that the guaranteed loan and 
other project debt will be repaid on time and in full (including 
interest) from project cash flow according to the terms proposed in the 
application;
    (9) The guaranteed loan has been properly closed, and the required 
security instruments have been properly executed and all security 
interests obtained by the lender have been or will be properly 
perfected in accordance with applicable law;
    (10) All planned property acquisition has been or will be 
completed; all development has been or will be substantially completed 
in accordance with plans and specifications and conforms to applicable 
Federal, Tribal, State, and local codes; all equipment required for the 
project is available, can be procured and delivered within the project 
development schedule, and will be installed in conformance with 
manufacturer's specifications and design requirements; and costs have 
not exceeded the amount approved by the lender and the Agency;
    (11) The proposed project complies with all current Federal, 
Tribal, State, and local laws and regulatory rules that affect the 
project, the borrower, or lender activities, including, but not limited 
to, equal opportunity and Fair Housing Act requirements and design and 
construction requirements;
    (12) All lender-required insurance policies are in effect at the 
required levels;
    (13) All truth-in-lending and equal credit opportunity requirements 
have been met;
    (14) The borrower has marketable title to the collateral then owned 
by the borrower, subject to the rights of the guaranteed loan and to 
any other exceptions approved in writing by the Agency;
    (15) Where required, necessary or prudent, the borrower has 
obtained:
    (i) A legal opinion relative to the title and accessibility to any 
rights-of-way and easements; and
    (ii) A title opinion or title insurance showing the borrower has 
good and marketable title to the real property and other collateral and 
fully addressing all existing mortgages or other lien defects, 
restrictions or encumbrances. In those cases where there is adequate 
gap coverage, a title commitment may be acceptable;
    (16) All project funds have been or will be disbursed for purposes 
and in amounts consistent with the conditional commitment (or Agency-
approved amendment thereof) and the application submitted to the 
Agency. Appropriate lender controls were used to ensure that all funds 
were properly disbursed, including funds for working capital. A copy of 
a settlement statement by the lender detailing the use of loan and 
matching/equity funds must be attached to support this certification;
    (17) When applicable, the entire amount of the loan for working 
capital or initial operating expenses have been disbursed to the 
borrower, except in cases where the Agency has approved disbursement 
over an extended period of time and funds are escrowed so that the 
settlement statement reflects the full amount to be disbursed;
    (18) When required, personal and/or corporate guarantees have been 
obtained in accordance with this notice;
    (19) Lien priorities are consistent with the requirements of the 
conditional commitment. No claims or liens of laborers, subcontractors, 
suppliers of machinery and equipment, materialmen, or other parties 
have been filed against the collateral and no suits are pending or 
threatened that would adversely affect the collateral;
    (20) Neither the lender nor any of the lender's officers has an 
ownership interest in the borrower or is an officer or director of the 
borrower, and neither the borrower nor its officers, directors, 
stockholders, or other owners have more than a 5 percent ownership 
interest in the lender;
    (21) The loan agreement includes all borrower compliance measures 
identified in the Agency's environmental review for avoiding or 
reducing adverse environmental impacts of the project's construction or 
operation;
    (22) The lender will comply with the requirements of the Debt 
Collection Improvement Act; and
    (23) The lender has executed and delivered the lender's agreement, 
completed registration in the Agency's electronic reporting system, and 
electronically submitted the closing report for the guaranteed loan.
    (d) Issuance of the loan note guarantee.
    (1) Issuance. The Agency, at its sole discretion, will determine if 
the conditions specified in the conditional commitment have been met 
and whether to issue the loan note guarantee. When the Agency is 
satisfied that all the conditions specified in the conditional 
commitment have been met and it receives all the required fees plus the 
executed lender's agreement from the lender, the Agency will issue the 
documents identified in paragraphs (d)(1)(i) through (iii) of this 
section, as appropriate.
    (i) Loan note guarantee. The Agency will provide the lender the 
original loan note guarantee document which the lender must attach to 
the promissory note. If the lender elected to use the multi-note 
system, the Agency will issue one loan note guarantee for the set of 
promissory notes.
    (ii) Assignment guarantee agreement. If the lender assigns any 
guaranteed portion of a guaranteed loan to a holder, the lender, 
holder, and the Agency will execute an assignment guarantee

[[Page 70104]]

agreement for each assignment. The lender must fully disburse loan 
funds of a promissory note for the approved purposes of the loan, prior 
to assigning the guaranteed portion of a note to a holder and issuance 
of the Assignment of Guarantee Agreement. Disbursement to an escrow 
account does not meet this requirement, except for loan funds for 
working capital.
    (iii) Certificate of incumbency and signature. The Agency will 
provide the holder an executed certificate of incumbency form to verify 
the signature and title of the Agency official who signed the Loan Note 
Guarantee and the assignment guarantee agreement.
    (2) Agency review of closing. The Agency will review the closing 
documents submitted by the lender for completeness and if all 
conditions have been met and all documents have been provided, the 
Agency will issue the loan note guarantee. If the Agency determines 
that it cannot issue the loan note guarantee, the Agency will notify 
the lender, in writing, of the reasons and give the lender a reasonable 
period within which to satisfy the objections. If the lender satisfies 
the objections within the time allowed, the Agency will issue the loan 
note guarantee.
    (3) Cancellation of obligation. A lender can submit a written 
request to the Agency for a partial cancellation. The lender must 
include in this request the reason for the partial cancellation, the 
effective date, and the portion to be canceled. If the Agency 
conditions for issuance of the loan note guarantee are rejected, cannot 
be met, or funds are, in whole or in part, no longer needed, the Agency 
will cancel the obligation.
    (e) Replacement of loan note guarantee and assignment guarantee 
agreement.
    If a loan note guarantee or assignment guarantee agreement has been 
lost, stolen, destroyed, mutilated, or defaced while in the custody of 
the lender or holder, the Agency may issue a replacement to the lender 
or holder, as applicable under the conditions described in (1) and (2) 
of this paragraph. The lender is prohibited from altering or modifying 
or approving any alterations to or modifications of any loan documents 
without the prior written approval of the Agency.
    (1) Replacement requirements. The lender must coordinate the 
activities of the party who seeks the replacement documents and must 
submit the required documents to the Agency for processing. A written 
statement of loss must be provided. The statement of loss must include:
    (i) Legal name and present address of either the lender or the 
holder who is requesting the replacement forms;
    (ii) Legal name and address of the lender of record;
    (iii) Capacity of person certifying;
    (iv) Full identification of the loan note guarantee or assignment 
guarantee agreement including the name of the borrower, the Agency's 
case number, date of the loan note guarantee or assignment guarantee 
agreement, face amount of the promissory note in which an interest was 
purchased, date of the promissory note, present balance of the 
guaranteed loan, percentage of guarantee, and, if an assignment 
guarantee agreement, the original named holder and the percentage of 
the guaranteed portion of the guaranteed loan assigned to that holder. 
Any existing parts of the document to be replaced must be attached to 
the certificate;
    (v) A full statement of circumstances of the loss, theft, 
destruction, defacement, or mutilation of the loan note guarantee or 
assignment guarantee agreement; and
    (vi) For the holder, evidence demonstrating current ownership of 
the assignment guarantee agreement. If the present holder is not the 
same as the original holder, the lender must include a copy of the 
endorsement of each successive holder in the chain of transfer from the 
initial holder to present holder. If copies of the endorsement cannot 
be obtained, the lender must submit the best available records of 
transfer (e.g., order confirmation, canceled checks, etc.).
    (2) Indemnity bond. An indemnity bond acceptable to the Agency must 
accompany the request for replacement except when the holder is the 
United States, a Federal Reserve Bank, a Federal Government 
corporation, a State or territory, the District of Columbia or an 
Indian Tribe. The indemnity bond must:
    (i) Be issued by a qualified surety company holding a certificate 
of authority from the Secretary of the Treasury and listed in Treasury 
Department Circular 570, except when the outstanding principal balance 
and accrued interest due the present holder is less than $1 million as 
verified by the lender via a written letter of certification of balance 
due;
    (ii) Be issued and payable to the United States of America acting 
through the Agency;
    (iii) Be in an amount not less than the unpaid principal and 
interest; and
    (iv) Hold the Agency harmless against any claim or demand that 
might arise or against any damage, loss, costs, or expenses that might 
be sustained or incurred by reason of the loss or replacement of the 
instruments.
    (f) Other Federal, Tribal, State, and local requirements.
    Beginning on the date of issuance of the loan note guarantee, 
lenders and borrowers must:
    (1) Coordinate with all appropriate Federal, Tribal, State and 
local agencies that may have jurisdiction or involvement in each 
project; and
    (2) Comply with all current Federal, Tribal, State and local laws 
and rules, as well as applicable regulatory commission rules, that 
affect the project, borrower, or lender. Compliance activities include, 
but are not limited to:
    (i) Organization and borrower's authority to design, construct, 
develop, operate, and maintain the proposed facilities;
    (ii) Borrowers engaged in processing of meat, poultry, processed 
egg products, and Siluriformes must comply with the requirements of the 
U.S. Department of Agriculture (USDA) Food Safety and Inspection 
Service. Borrowers engaged in processing of other foods and food 
ingredients must comply with the requirements of the Food and Drug 
Administration;
    (iii) Borrowing money, giving security, and raising revenues for 
repayment;
    (iv) Land use zoning;
    (v) Health, safety, and sanitation standards as well as design and 
installation standards; and
    (vi) Protection of the environment and consumer affairs.
    (g) Planning and performing development.
    In complying with the requirements of this section, the lender may 
rely on written materials and other reports provided by an independent 
engineer and other qualified consultants.
    (1) Design requirements. The lender must ensure that all facilities 
constructed with guaranteed loan funds are:
    (i) Designed using accepted architectural, engineering, and design 
practices, taking into consideration any Agency comments when the 
facility is being designed;
    (ii) Designed in conformance with applicable Federal, Tribal, 
State, and local codes and requirements; and
    (iii) Constructed to support operations at the level and quality 
contemplated by the borrower using accepted architectural and 
engineering practices.
    (2) Rights-of-ways, easements, and property rights. The lender is 
responsible for ensuring that the borrower has:
    (i) Obtained valid, continuous, and adequate rights-of-way and 
easements

[[Page 70105]]

needed for the construction, operation, and maintenance of a project; 
and
    (ii) Obtained and recorded such releases, consents, or 
subordinations to such property rights from lienholders of outstanding 
liens or other instruments as may be necessary for the construction, 
operation, and maintenance of the project and to provide the required 
security.
    (3) Permits, agreements, and licenses. It is the lender's 
responsibility to ensure the borrower obtains all permits, agreements, 
and licenses that are applicable to the project.
    (4) Insurance. It is the lender's responsibility to ensure the 
borrower obtains and maintains borrower and project insurance in 
substance and amount similar to that ordinarily required by lenders in 
the industry.
    (5) Construction monitoring requirements. The lender, or its 
designated agent, will monitor the progress of construction of the 
project and undertake the reviews and inspections necessary to ensure 
that construction conforms to applicable Federal, Tribal, State, and 
local code requirements and that construction proceeds in accordance 
with the plans, specifications, and contract documents.
    (i) Construction inspections. The lender must notify the Agency of 
any scheduled field inspections during construction. The Agency may 
attend any field inspections the lender may conduct. Any Agency 
inspection, including those with the lender, are for the benefit of the 
Agency only (and not for the benefit of other parties in interest) and 
do not relieve any parties of interest of their responsibilities to 
conduct necessary inspections.
    (ii) Inspectors. On a case-by-case basis in the event that the 
Agency determines that there is additional risk to the government, the 
Agency may require the use of a qualified, independent inspector to 
inspect construction to ensure the project is being adequately built to 
meet the borrower's requirements of the borrower's approved project and 
comply with all applicable codes and legal requirements.
    (6) Issuance of loan note guarantee prior to completion of the 
project's construction. The lender may request that the loan note 
guarantee be issued prior to completion of a project's construction. 
The lender's request will be considered by the Agency, who may require 
credit risk mitigation. The lender must verify and include evidence of 
the following in its request:
    (i) The promissory note specifying the full term of the note and 
containing the terms and conditions of each draw period;
    (ii) The borrower and lender have entered into a contract with an 
independent disbursement and monitoring firm with a construction 
monitoring plan, acceptable to and approved by the Agency, or the 
lender demonstrates and documents that it has the capacity and 
experience to disburse funds and provide a monitoring plan acceptable 
to the Agency;
    (iii) The borrower and lender have agreed to a detailed timetable 
for the project with a corresponding budget of costs setting forth the 
parties responsible for payment. The timetable and budget will be 
confirmed as adequate for the planned development by a qualified 
independent consultant (e.g., the project architect or engineer) with 
demonstrated experience relating to the project's industry.
    (iv) The borrower has entered into a firm, fixed-price construction 
contract with an independent general contractor with costs outlined in 
detail and terms specifying change order approvals, the agreed 
retainage percentage, and the disbursement schedule;
    (v) Evidence the lender has properly vetted the financial 
feasibility and past performance of the contractor to show they are 
able to complete the project or that the lender has mitigated risk in 
the event the project is never completed, such as requiring a 100-
percent performance/payment bond on the borrower's contractor to be 
maintained until the contractor is released from its obligation. The 
bonding agent must be listed on Treasury Circular 570;
    (vi) Evidence, which the Agency at its sole discretion determines 
is satisfactory, that the lender has completed the due diligence 
necessary to confirm that the contractor is able to complete the 
project based on information including, but not limited to, the 
financial statements and past performance of the contractor;
    (vii) When applicable, the borrower has entered into a contract 
with an independent technology development firm guaranteeing the 
following: Completion of the project with the necessary technology to 
successfully run the project and system performance for projects that 
utilize integrated processing equipment and systems. The intent of this 
provision is to ensure that all technology proposed for the project can 
be successfully integrated together to ensure successful installation 
and performance of the system;
    (viii) Evidence, in form and substance satisfactory to the Agency, 
that sufficient contingency funding is in place to handle unforeseen 
cost overruns without seeking additional guaranteed assistance.
    (7) Reporting during construction. Regardless of when the loan note 
guarantee is issued, all lenders must report any problems in project 
development to the Agency within 15 calendar days of identifying the 
problem. If the loan note guarantee has been issued prior to 
construction or completion of the project, the lender must provide 
monthly construction reports that contain:
    (i) Certifications for each draw request as follows:
    (A) Certification by the independent engineer or qualified 
consultant to the lender that the work referred to in the draw has been 
successfully completed; and
    (B) Certification by the borrower and independent engineer or 
qualified consultant that the guaranteed loan funds of the prior draw 
have been applied to eligible project costs in accordance with the draw 
request and that the contractors have delivered mechanics lien waivers 
in connection with such draw;
    (ii) List of invoices;
    (iii) Details regarding the borrower's equity, other funds, and 
guaranteed loan funds disbursed to date;
    (iv) Status of construction and inspection reports;
    (v) Inspection reports; and
    (vi) Explanation of concerns, potential problems, cost overruns, 
etc.
    (8) Use of guaranteed loan funds. The lender must ensure that:
    (i) All borrower funds are utilized prior to guaranteed loan funds;
    (ii) Guaranteed loan funds are only used for eligible project costs 
in accordance with the purposes approved by the Agency in the 
conditional commitment and in accordance with the plans, 
specifications, and contract documents; and
    (iii) The project will be completed within the approved budget.
    (9) Project completion. Once construction of the project is 
completed, the lender must obtain and have on file all mechanics lien 
waivers or releases from all contractors and materialmen. The lender 
will provide to the Agency:
    (i) A copy of the notice of completion or similar document issued 
by the relevant jurisdiction;
    (ii) Certification that all funds were used for authorized 
purposes; and
    (iii) A written certification that the project will be used for its 
intended purpose and will meet the borrower's needs and guaranteed loan 
purposes in accordance with the application approved by the Agency.
    (h) Compliance with other Federal laws. Lenders and Borrowers must

[[Page 70106]]

comply with other applicable Federal laws, including Equal Employment 
Opportunity Act, the Equal Credit Opportunity Act, the Fair Housing 
Act, and the Civil Rights Act of 1964. Guaranteed loans that involve 
the construction of or addition to facilities that accommodate the 
public must comply with the Architectural Barriers Act Accessibility 
Standard. The borrower and lender are responsible for ensuring 
compliance with these requirements.
    (i) Environmental responsibilities. The lender must ensure that the 
borrower has:
    (1) Provided the necessary environmental information to enable the 
Agency to undertake its environmental review process in accordance with 
7 CFR part 1970, ``Environmental Policies and Procedures,'' or 
successor regulation, including the provision of all required Federal, 
State, and local permits;
    (2) Complied with any mitigation measures required by the Agency; 
and
    (3) Not taken any actions or incurred any obligations with respect 
to the proposed project that would either limit the range of 
alternatives to be considered during the Agency's environmental review 
process or that would have an adverse effect on the environment.
    (j) Servicing.
    (1) The provisions of 7 CFR 5001 Subpart F, including applicable 
definitions, will apply for servicing the loans guaranteed under this 
notice, including oversight, monitoring and reporting requirements and 
project completion requirements that are applicable to each guaranteed 
loan made under this part, except as may be otherwise indicated. 
Servicing topics covered include audits and financial reports; 
collateral; loan transfers and assumptions; lender transfers; mergers; 
servicing fees; subordinations of lien position; repurchases; 
additional expenditures and loans; interest rate changes; lender 
failures; borrower defaults; protective advances; liquidation; 
bankruptcy; litigation; loss calculations and payments; future 
recovery; property acquired by the lender; and termination of the loan 
note guarantee.
    (2) In addition to the financial reports required under 7 CFR 
5001.504, commencing the first full calendar year following the year in 
which project construction was completed and continuing for three full 
years, the lender shall obtain from the borrower and submit to the 
agency an outcome project performance report noting the project's 
success in increasing capacity or contributing to the resilience, 
diversity, or security of food supply chains. The project performance 
metrics shall align with the information provided in the feasibility 
study about how the project would increase capacity or make the food 
supply chain more resilient, diverse, or secure. If the project has not 
performed as intended, a report detailing the circumstances affecting 
performance must be provided to the Agency. The lender must submit 
project performance reports to the Agency within 120 days of the end of 
the borrower's fiscal year.

G. Federal Awarding Agency Contact(s)

    For general questions about this notice, please contact 
[email protected] as outlined in the ADDRESSES section of 
this notice or the program website at: https://www.rd.usda.gov/foodsupplychainloans.

H. Other Information

    (a) Exception authority. The Administrator may, on a case-by-case 
basis grant an exception to any requirement or provision of this notice 
provided that such an exception is in the best financial interests of 
the Federal government. Exercise of this authority cannot be in 
conflict with applicable law.
    (b) Appeals. Borrowers, lenders, and holders may have appeal or 
review rights for Agency decisions made under this part. Agency 
decisions that are adverse to the individual participant are 
appealable, while matters of general applicability are not subject to 
appeal; however, such decisions are reviewable for appealability by 
NAD. All appeals will be conducted by NAD and will be handled in 
accordance with 7 CFR part 11.
    (1) The borrower, lender, and holder can appeal any Agency decision 
that directly and adversely affects them.
    (i) For an adverse decision that affects the borrower, the lender 
and borrower must jointly execute a written request for appeal of an 
adverse decision made by the Agency.
    (ii) An adverse decision that affects only the lender can be 
appealed by the lender only.
    (iii) An adverse decision that affects only the holder can be 
appealed by the holder only.
    (2) In cases where the Agency has denied or reduced the amount of 
final loss payment to the lender, the adverse decision can be appealed 
only by the lender.
    (3) A decision by a lender adverse to the interest of the borrower 
is not a decision by the Agency, even if it was concurred in by the 
Agency, and therefore cannot be reviewed for appealability or appealed 
to NAD.
    (c) General lender responsibilities.
    (1) Lenders are responsible for originating and servicing loans 
guaranteed by the Agency under this notice in accordance with the 
provisions of this notice. Any action or inaction on the part of the 
Agency does not relieve the lender of its responsibilities.
    (2) Lenders can contract for services, but such contracting does 
not relieve a lender from its responsibilities as identified in this 
notice.
    (3) If a lender fails to comply with the requirements of this 
notice, the Agency may reduce any loss payment in accordance with the 
lender's agreement and loan note guarantee.
    (4) Lenders are responsible for becoming familiar with Federal 
environmental requirements; considering, in consultation with the 
prospective borrower, the potential environmental impacts of their 
proposals at the earliest planning stages; and developing proposals 
that minimize the potential to adversely impact the environment.
    (i) Lenders must assist the borrower in providing details of the 
project's impact on the environment and historic properties in 
accordance with 7 CFR part 1970, ``Environmental Policies and 
Procedures,'' (or successor regulation), when applicable; assist in the 
collection of additional data when the Agency needs such data to 
complete its environmental review of the proposal; and assist in the 
resolution of environmental problems.
    (ii) Lenders must ensure the borrower has:
    (A) Provided the necessary environmental information to enable the 
Agency to undertake its environmental review process in accordance with 
7 CFR part 1970, ``Environmental Policies and Procedures,'' or 
successor regulation, including the provision of all required Federal, 
Tribal, State, and local permits;
    (B) Complied with any mitigation measures required by the Agency; 
and
    (C) Not taken any actions or incurred any obligations with respect 
to the proposed project that will either limit the range of 
alternatives to be considered during the Agency's environmental review 
process or that will have an adverse effect on the environment.
    (iii) Lenders must alert the Agency to any environmental issues 
related to a proposed project or items that may require extensive 
environmental review.
    (d) Approvals, regulations, and forms.

[[Page 70107]]

    (1) When Agency approval or concurrence is required, it must be in 
writing and must be obtained prior to the action for which approval or 
concurrence is required is taken.
    (2) All references to statutes and regulations include any and all 
successor statutes and regulations.
    (3) All references to forms include any and all successor forms as 
specified by the Agency.
    (4) Copies of all regulations and forms referenced in this notice 
can be obtained through the Agency and from the Agency's website at 
https://www.rd.usda.gov/foodsupplychainloans.
    (e) Eligible lenders.
    (1) To become a lender under this notice, the lending entity must 
meet the requirements specified in 7 CFR 5001.130 Lender eligibility 
requirements. Lenders approved by the Agency as an eligible lender 
under 7 CFR 5001.130 and that are in compliance with 7 CFR 5001.132 
``Maintenance of approved lender status'' and the requirements of this 
notice, are eligible lenders under this notice. Lenders must continue 
to comply with the requirements of 7 CFR 5001.132 ``Maintenance of 
approved lender status.''
    (2) All lenders must have a UEI which can be obtained at https://www.SAM.gov/content/home.
    (i) Each lender applying for loan guarantee must (A) be registered 
in the System for Award Management (SAM) before submitting its 
application and (B) provide a valid UEI in its application, unless 
determined exempt under 2 CFR 25.110.
    (ii) Lender must maintain an active SAM registration, with current, 
accurate and complete information, at all times during which it has an 
active FSC guaranteed loan or an application under consideration by the 
Agency.
    (iii) Lender must complete the Financial Assistance General 
Certifications and Representations in SAM.
    (iv) The Agency will not determine lender eligibility until the 
lender has complied with all applicable UEI and SAM requirements. If a 
lender has not fully complied with the requirements by the time the 
Agency is ready to approve the guaranteed loan application, the Agency 
may determine that the lender is not eligible under this notice.
    (f) Lender's agreement.
    Agency approval of the lender will be evidenced by an outstanding 
lender's agreement, between the Agency and the lender. When approved to 
participate as a lender under this notice, the lender must execute a 
lender's agreement before the Agency will issue a loan note guarantee.
    (g) Access to records.
    The lender must permit representatives of the Agency (or other 
agencies of the United States) to inspect and make copies of any 
records of the lender pertaining to Agency guaranteed loans during 
regular office hours of the lender or at any other time upon agreement 
between the lender and the Agency. In addition, the lender must 
cooperate fully with Agency oversight and monitoring of all lenders 
involved in any manner with any guarantee to ensure compliance with 
this Notice. Such oversight and monitoring will include, but is not 
limited to, reviewing lender records and meeting with lenders.
    (h) Guarantee provisions.
    (1) A loan note guarantee issued under this notice constitutes an 
obligation supported by the full faith and credit of the United States 
and is incontestable except for fraud or misrepresentation of which a 
lender or holder has actual knowledge at the time it becomes such 
lender or holder, or which a lender or holder participates in or 
condones.
    (2) A guaranteed loan under this notice will be evidenced by a loan 
note guarantee issued by the Agency.
    (3) The entire loan must be secured by the same collateral with 
equal lien priority for the guaranteed and unguaranteed portions of the 
loan. The unguaranteed portion of the guaranteed loan will neither be 
paid first nor given any preference or priority over the guaranteed 
portion. A parity or junior lien position in the guaranteed loan 
collateral may be considered on a case-by-case basis and must be 
approved by the Agency.
    (4) The lender must remain mortgagee and secured party of record 
notwithstanding the fact that another party may hold a portion of the 
guaranteed loan.
    (5) The lender will receive all payments of principal and interest 
on account of the entire guaranteed loan and must promptly remit to 
each holder and participant, if any, its pro rata share of any payment 
within 30 days of the lender's receipt thereof from the borrower. 
Holder or participant payments are determined according to their 
respective interest in the guaranteed loan, less only the lender's 
servicing fee.
    (6) Any claim against a loan note guarantee or assignment guarantee 
agreement that is attached to, or relating to, a promissory note that 
provides for payment of interest-on-interest, default charges, penalty 
interest, or late payment fees will be reduced to remove such interest, 
fees, and charges.
    (7) The loan note guarantee is unenforceable by the lender to the 
extent that any loss is occasioned by:
    (i) The violation of usury laws;
    (ii) Use of guaranteed loan funds for unauthorized loan purposes in 
accordance with Section C.(d) of this notice or to the extent that 
those funds are used for purposes other than those specifically 
approved by the Agency in its conditional commitment or amendment 
thereof;
    (iii) Failure to obtain, perfect, document, and or maintain the 
required collateral or security position regardless of the time at 
which the Agency acquires knowledge thereof; and
    (iv) Negligent loan origination or negligent loan servicing as 
determined and documented by the Agency.
    (8) The Agency will guarantee payment as follows:
    (i) To any holder, 100 percent of any loss sustained by the holder 
on the guaranteed portion of the guaranteed loan it owns and on 
interest due (as determined under paragraph (h)(9) of this section) on 
such portion less any outstanding servicing fee.
    (ii) To the lender, any loss sustained by the lender on the 
guaranteed portion of the guaranteed loan, including principal and 
interest (as determined under paragraph (h)(9) of this section) 
evidenced by the promissory note(s) or assumption agreements entered 
into in connection with an Agency approved transfer and assumption, and 
secured advances for protection and preservation of collateral made 
with the Agency's authorization if applicable.
    (9) Accrued interest payments. The Agency will guarantee accrued 
interest in accordance with paragraph (h)(9)(i) or (ii), as applicable, 
of this section.
    (i) If the lender owns all or a portion of the guaranteed portion 
of the guaranteed loan or makes a protective advance, the Agency, in 
its sole discretion, may cover interest on the guaranteed portion for 
the 90 days from the most recent delinquency effective date, and up to 
a total of 180 days, only if:
    (A) The lender, and not the Agency, has repurchased all holder 
interests in the guaranteed loan;
    (B) The lender is actively engaged in a credit resolution with the 
borrower to bring the account current or fully liquidate the collateral 
under the terms of a liquidation plan approved by the Agency; and
    (C) Concurrence for inclusion of the extended period of interest to 
the lender is received from the Agency.

[[Page 70108]]

    (ii) If the guaranteed loan has one or more holders, the lender 
will issue an interest termination letter to each holder establishing 
the termination date for interest accrual. The loan note guarantee will 
not cover interest to any holder accruing after the greater of 90 days 
from the date of the most recent delinquency effective date as reported 
by the lender or 30 days from the date of the interest termination 
letter. The Agency at its sole discretion may notify each holder of the 
interest termination provisions if it is determined that lender 
correspondence to holders is in-adequate.
    (i) Participation or assignment of guaranteed loan.
    (1) General. The lender may obtain participation in the loan or 
assign all or part of the guaranteed portion of the guaranteed loan on 
the secondary market subject to the conditions specified in paragraphs 
(1) through (8) of this section or retain the entire guaranteed loan.
    (2) Participation. The lender may obtain participation in the loan 
under its normal operating procedures; however, the lender must retain 
title to and possession of the promissory note(s) and retain the 
lender's interest in the collateral.
    (3) Assignment. Any assignment by the lender of the guaranteed 
portion of the loan must be accomplished in accordance with the 
conditions in the lender's agreement and the provisions of this 
section. The holders and the borrower have no rights or obligations to 
one another.
    (4) Minimum retention by the lender. Minimum retention at all times 
must be from the unguaranteed portion of the loan and cannot be 
participated to another person.
    (i) The lender must hold a minimum of 7.5 percent of the total loan 
amount.
    (ii) The lender must retain its security interest in the collateral 
and retain the servicing responsibilities for the guaranteed loan.
    (iii) The Agency can approve a reduction of the minimum retention 
requirement below the applicable percentage on a case-by-case basis 
when the lender establishes to the Agency's satisfaction that reduction 
of the minimum retention percentage is necessary to meet compliance 
with the lender's regulatory authority.
    (5) Prohibition. The lender must not assign or participate any 
amount of the guaranteed or non-guaranteed portion of the loan to the 
borrower, borrower's officers, directors, stockholders, other owners, 
or to members of their immediate families, or to a parent company, an 
affiliate, or a subsidiary of the borrower.
    (6) Secondary market. The lender must properly close its loan and 
fully disburse loan funds of a promissory note for the approved 
purposes of the loan prior to assignment of the guaranteed portion of 
the promissory note(s) on the secondary market. The lender can assign 
all or part of the guaranteed portion of the loan only if the loan is 
not in default.
    (7) Lender's servicing fee to holder. The assignment guarantee 
agreement must clearly state the guarantee portion of loan as a 
percentage and corresponding dollar amount of the guaranteed portion of 
the guaranteed loan it represents and the lender's servicing fee. The 
lender cannot charge the Agency a servicing fee and servicing fees are 
not eligible expenses for loss claim.
    (8) Distribution of proceeds. The lender must apply all loan 
payments and collateral proceeds received, after payment of liquidation 
expenses, to the guaranteed and unguaranteed portions of the loan on a 
pro rata basis.
    (9) Promissory note(s). A loan note guarantee is issued to the 
lender for a specific promissory note(s) executed between the lender 
and the borrower. The lender must retain title to and possession of the 
guaranteed promissory note(s), retain the lender's interest in the 
collateral, and retain the servicing responsibilities for the 
guaranteed loan. The lender is prohibited from issuing any additional 
promissory notes at a later date for the same guaranteed loan.
    (i) The lender may assign all or part of the guaranteed portion of 
the loan, including interest strips, to one or more holders by using an 
assignment guarantee agreement for each holder. The lender must 
complete and execute the assignment guarantee agreement and return it 
to the Agency for execution prior to holder execution.
    (ii) The lender or holder may request a certificate of incumbency 
and signature from the Agency.
    (iii) A holder, upon written notice to the lender and the Agency, 
may reassign the unpaid guaranteed portion of the loan, in full, 
assigned under the assignment guarantee agreement. Holders can only 
reassign the complete block they have received and cannot subdivide or 
further split their interest in the guaranteed portion of a loan or 
retain an interest strip.
    (iv) Upon notification and completion of the assignment through the 
use of the assignment guarantee agreement, the assignee succeeds to all 
rights and obligations of the holder thereunder. Subsequent assignments 
require notice to the lender and Agency using any format, including 
that used by the Securities Industry and Financial Markets Association 
(formerly known as the Bond Market Association), together with the 
transfer of the original assignment guarantee agreement.
    (v) The Agency will not execute a new assignment guarantee 
agreement to affect a subsequent reassignment.
    (10) Rights and liabilities. When a guaranteed portion of a loan is 
assigned to a holder using an assignment guarantee agreement, the 
holder succeeds to all rights of the lender under the loan note 
guarantee to the extent of the portion purchased. The full, legal 
interest in the promissory note must remain with the lender, and the 
lender remains bound to all obligations under the loan note guarantee, 
lender's agreement, and Agency regulations applicable to the guarantee.
    (i) A guarantee and right to require purchase in accordance with 
the provisions of this Notice will be directly enforceable by a Holder 
notwithstanding any fraud or misrepresentation by the lender or any 
unenforceability of the loan guarantee by the lender, except for fraud 
or misrepresentation of which the holder had actual knowledge at the 
time it became the holder or in which the holder participates or 
condones.
    (ii) The lender must not represent a conditional commitment of 
guarantee as a loan guarantee.
    (iii) The lender must reimburse the Agency for any payments the 
Agency makes to a holder on the lender's behalf under the loan note 
guarantee, given the lender would not be entitled to the payments had 
they retained the entire interest in the loan.
    (j) Repurchase from holder.
    (1) General. A holder can make written demand on either the lender 
or the Agency to repurchase the unpaid guarantee portion of the loan 
when the borrower is in monetary default or when the lender has failed 
to pay the holder its pro-rata share of any payment made by the 
borrower within 30 days of the lender's receipt thereof from the 
borrower. When making written demand on the lender, the holder must 
concurrently send a copy of the demand letter to the Agency.
    (i) The lender is encouraged to repurchase the guarantee, upon 
written demand of a holder, to facilitate the accounting of funds, 
resolve any loan problem, and resolve the monetary default, where and 
when reasonable. The benefit to the lender is that it may re-assign the 
guaranteed portion of the loan and then continue collection of its

[[Page 70109]]

servicing fee, if any, when the monetary default is cured.
    (ii) When a lender receives a written demand for repurchase from a 
holder, the lender must notify any other holder and the Agency within 
30 calendar days of receipt of the written demand. The lender must 
inform all parties if the lender will repurchase the unpaid guaranteed 
portion of the loan from the requesting holder.
    (iii) Upon repurchase the holder will re-assign the assignment 
guarantee agreement to the lender without recourse.
    (2) Repurchase by lender for loan servicing purposes. If the 
lender, borrower, and holder are unable to agree to restructuring of 
loan repayment, interest rate, or loan terms to resolve any loan 
problem or resolve any default and repurchase of the guaranteed portion 
of the loan is necessary to adequately service the loan, the holder 
must reassign the guaranteed portion of the loan to the lender. The 
reassignment must be for an amount not less than the holder's portion 
of unpaid principal and accrued interest on such portion less the 
lender's servicing fee.
    (i) Upon repurchase the holder will re-assign the assignment 
guarantee agreement to the lender without recourse.
    (ii) The lender must not repurchase from the holder for arbitrage 
or other purposes to further its own financial gain.
    (iii) Any repurchase from a holder may only be made after the 
lender obtains the Agency's written approval.
    (3) Agency repurchase. If the lender does not repurchase the 
guaranteed portion from the holder, the Agency may, at its option, 
purchase such guaranteed portion of the loan for loan servicing 
purposes. A holder can submit a written demand to the Agency for 
repurchase only if the lender declines to repurchase. If a prior 
written demand was not made upon the lender, the Agency will notify the 
lender and allow up to seven calendar days for the lender to exercise 
its option to repurchase as provided in this section.
    (4) Lender does not repurchase. If the lender does not repurchase 
the unpaid guaranteed portion of a loan as provided in paragraph (j)(1) 
of this section, the Agency will, within 30 calendar days after written 
demand to the Agency from the holder, purchase from the holder the 
unpaid principal balance of the guaranteed portion together with 
accrued interest to date of repurchase or the interest termination 
date, whichever is sooner, less the lender's servicing fee. The 
guarantee will pay accrued interest to the holder on the loan as 
determined under this notice.
    (5) Written demand content. The holder must include in its written 
demand to the Agency:
    (i) A copy of the written demand made upon the lender;
    (ii) A copy of the lender's denial to repurchase the unpaid 
guaranteed portion of the guaranteed loan;
    (iii) Evidence of the right to require payment from the Agency as 
provided by the holder or duly authorized agent. Such evidence must 
consist of the original assignment guarantee agreement properly 
assigned to the Agency without recourse including all rights, title, 
and interest in the loan;
    (iv) The amount due including unpaid principal, unpaid interest to 
date of demand, and interest subsequently accruing from date of demand 
to proposed payment date; and
    (v) When the initial holder has assigned its interest, the original 
assignment guarantee agreement and an original of each Agency-approved 
reassignment document in the chain of ownership, with the latest 
reassignment being assigned to the Agency without recourse, including 
all rights, title, and interest in the guarantee.
    (6) Payment. Unless otherwise agreed upon, payment will not be 
later than 30 calendar days from the date of demand.
    (i) Upon request by the Agency, the lender must promptly furnish 
(within 30 calendar days of such request) a current statement, 
certified by an appropriate authorized officer of the lender, of the 
unpaid principal and interest then owed by the borrower on the loan and 
the amount then owed to any holder, along with the information 
necessary for the Agency to determine the appropriate amount due the 
holder.
    (ii) Any discrepancy between the amount claimed by the holder and 
the information submitted by the lender must be resolved between the 
lender and the holder before payment will be approved. The Agency will 
notify both parties and such conflict will suspend the running of the 
30-calendar-day payment requirement.
    (iii) If a repurchase of a guaranteed loan includes the 
capitalization of interest, interest accrued on the capitalized 
interest will not be paid to the holder.
    (7) Subrogation. When the Agency purchases a loan from a holder it 
assumes all rights that were previously held by the holder.
    (8) Servicing fee. When the Agency purchases the guaranteed portion 
of the loan from a holder, the lender's servicing fee will stop on the 
date that interest was last paid by the borrower. The lender can 
neither charge a servicing fee to the Agency nor collect such fee from 
the Agency.
    (9) Accrued interest. If the Agency repurchases 100 percent of the 
guaranteed portion of a loan and becomes the holder, interest accrual 
on the loan will cease until the lender resumes remittance of the pro 
rata payments to the Agency.
    (10) Establishing interest termination date. When a guaranteed loan 
has been delinquent more than 60 calendar days and no holder comes 
forward or when the lender has accelerated the account, and subject to 
the expiration of any forbearance or workout agreement, the lender, or 
the Agency at its sole discretion, must issue a letter to the holder(s) 
establishing the interest termination date.
    (11) Obligations and rights. Purchase by the Agency neither 
changes, alters, or modifies any of the lender's obligations to the 
Agency arising from the lender's agreement, guaranteed loan, or loan 
note guarantee, nor does it waive any of the Agency's rights against 
the lender. The Agency will have the right to set-off against the 
lender all rights inuring to the Agency as the holder of the instrument 
against the Agency's obligation to the lender under the loan note 
guarantee.
    (12) Accelerated loan. When the lender has accelerated the loan and 
the lender holds all or a portion of the guaranteed loan, an estimated 
loss claim must be filed by the lender with the Agency within 60 
calendar days from the date the loan was accelerated.
    (13) Interest termination during bankruptcy. When a borrower files 
a Chapter 7 liquidation plan, the lender shall immediately notify the 
Agency and submit a liquidation plan. The Agency will establish an 
interest termination date based on the date Interest was last paid to 
the lender. When a borrower files either a Chapter 9 or Chapter 11 
bankruptcy restructuring plan, the Agency and lender shall meet to 
discuss the bankruptcy procedure, the ability of the borrower to meet 
their restructuring plan, the lender's treatment of accruing interest, 
and potentially establish an interest termination date for the 
guaranteed loan. If the restructuring bankruptcy Chapter 9 or Chapter 
11 is converted to a liquidation bankruptcy Chapter 7 by court order, 
the interest termination date will be the date of such conversion.

I. Statutory and Executive Order Reviews

    (a) Paperwork Reduction Act.

[[Page 70110]]

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
chapter 35), USDA requested that the Office of Management and Budget 
(OMB) conduct an emergency review of a new information collection that 
contains the Information Collection and Recordkeeping requirements 
contained in this notice.
    In addition to the emergency clearance, the regular clearance 
process is hereby being initiated to provide the public with the 
opportunity to comment under a full comment period, as the Agency 
intends to request regular approval from OMB for this information 
collection. Comments from the public on new, proposed, revised, and 
continuing collections of information help the Agency assess the impact 
of its information collection requirements and minimize the public's 
reporting burden. Comments may be submitted regarding this information 
collection through the Federal eRulemaking Portal at https://www.regulations.gov. In the ``Search for Rules, Proposed Rules, Notices 
or Supporting Documents'' box, type ``RBS-21-BUSINESS-0036'' to submit 
or view public comments and to view supporting and related materials 
available electronically. Information on using Regulations.gov, 
including instructions for accessing documents, submitting comments, 
and viewing the docket after the close of the comment period, is 
available through the site's ``FAQ'' link. Comments on this information 
collection must be received by February 7, 2022.
    Title: Food Supply Chain Guaranteed Loan Program.
    OMB Control Number: 0570-NEW.
    The following estimates are based on the average over the first 3 
years the program is in place.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 2.542 hours per response.
    Respondents: Institutions of higher education, private entities, 
governmental entities, nonprofits, Indian Tribes, district 
organizations.
    Estimated Number of Respondents: 300.
    Estimated Number of Responses per Respondent: 22.6.
    Estimated Number of Responses: 6,782.
    Estimated Total Annual Burden (hours) on Respondents: 17,241.
    Copies of this information collection may be obtained from Susan 
Woolard, Regulatory Division, Rural Development Innovation Center, U.S. 
Department of Agriculture, 1400 Independence Ave. SW, Stop 1522, 
Washington, DC 20250; telephone: 202-720-9631; email: 
[email protected]. All responses to this information collection 
and recordkeeping notice will be summarized and included in the request 
for OMB approval. All comments will also become a matter of public 
record.
    (b) Congressional Review Act
    Pursuant to Subtitle E of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (also known as the Congressional Review Act or 
CRA), 5 U.S.C. 801 et seq., the Office of Information and Regulatory 
Affairs in the Office of Management and Budget designated this action 
as a major rule, as defined by 5 U.S.C. 804(2), because it is likely to 
result in an annual effect on the economy of $100,000,000 or more. 
Accordingly, there is a 60-day delay in the effective date of this 
action. Application selection will not begin until after February 7, 
2022. Therefore, the 60-day delay required by the CRA is not expected 
to have a material impact upon the administration and/or implementation 
of the FSC program.
    (c) National Environmental Policy Act.
    All recipients under this notice are subject to the requirements of 
7 CFR part 1970. The Agency will review each guaranteed loan 
application to determine its compliance with 7 CFR part 1970. The 
applicant may be asked to provide additional information or 
documentation to assist the Agency with this determination.
    (d) Non-Discrimination Statement.
    In accordance with Federal civil rights laws and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, USDA, its 
Mission Areas, agencies, staff offices, employees, and institutions 
participating in or administering USDA programs are prohibited from 
discriminating based on race, color, national origin, religion, sex, 
gender identity (including gender expression), sexual orientation, 
disability, age, marital status, family/parental status, income derived 
from a public assistance program, political beliefs, or reprisal or 
retaliation for prior civil rights activity, in any program or activity 
conducted or funded by USDA (not all bases apply to all programs). 
Remedies and complaint filing deadlines vary by program or incident.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission Area, agency, or staff office; the USDA TARGET 
Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service 
at (800) 877-8339.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at https://www.ocio.usda.gov/document/ad-3027, from any USDA office, by calling (866) 632-9992, or by writing a 
letter addressed to USDA. The letter must contain the complainant's 
name, address, telephone number, and a written description of the 
alleged discriminatory action in sufficient detail to inform the 
Assistant Secretary for Civil Rights (ASCR) about the nature and date 
of an alleged civil rights violation. The completed AD-3027 form or 
letter must be submitted to USDA by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410; or
    (2) Fax: (833) 256-1665 or (202) 690-7442; or
    (3) Email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

Karama Neal,
Administrator, Rural Business--Cooperative Service, Rural Development.
[FR Doc. 2021-26693 Filed 12-8-21; 8:45 am]
BILLING CODE 3410-XY-P